BUSINESS SUPPLIES DISTRIBUTORS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
REVENUE AND COST RECOGNITION
The Company recognizes revenue upon shipment of product to customers and
collectibility is reasonably assured. Collectibility is evaluated on an
individual customer basis taking into consideration historical payment trends,
current financial position, results of independent credit evaluations and
payment terms. The Company permits its customers to return defective products
(which are then returned by the Company to the manufacturer) and incorrect
shipments for credit against other purchases and provides for estimated returns
and allowances. The Company offers terms to its customers that it believes are
standard for its industry.
Freight costs billed to customers are reflected as components of net
revenues. Freight costs incurred by the Company are recorded as a component of
cost of good sold. The Company records its costs as they are incurred by the
Company or its service providers.
CONCENTRATION OF BUSINESS AND CREDIT RISK
In conjunction with Supplies Distributors' financing, PFS provided certain
collaterized guarantees on behalf of Supplies Distributors. Supplies
Distributors' ability to obtain financing on similar terms would be
significantly impacted without these guarantees. Additionally, since Holdings
has limited personnel and physical resources, its ability to conduct business
could be materially impacted by contract terminations by either PFS or GMS.
All of the Company's revenue was generated by sales of product purchased
under master distributor agreements with one supplier. Sales to two customers
accounted for approximately 25% of the Company's total revenues. No other client
accounted for 10% or more of the Company's revenue. As of December 31, 2001, two
customers accounted for over 37% of trade accounts receivable on an aggregate
CASH AND CASH EQUIVALENTS
Cash equivalents are defined as short-term highly liquid investments with
original maturities of three months or less.
Inventories (merchandise, held for resale, all of which are finished goods)
are stated at the lower of weighted average cost or market. As of December 31,
2001, the Company's allowance for obsolete inventory is approximately $13,000.
Inventories in-transit represents merchandise that has not been received by
the Company but that has been shipped and invoiced by the Company's vendors. The
corresponding payable for inventories in-transit is included in long-term debt
in the accompanying consolidated financial statement.