CompUSA 2008 Annual Report Download - page 57

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Revenue Recognition. We recognize product sales when persuasive evidence of an order arrangement
exists, delivery has occurred, the sales price is fixed or determinable and collectibility is reasonably
assured. Generally, these criteria are met at the time of receipt by customers when title and risk of loss
both are transferred. Sales are shown net of returns and allowances, rebates and sales incentives.
Reserves for estimated returns and allowances are provided when sales are recorded, based on historical
experience and current trends.
Accounts Receivable and Allowance for Doubtful Accounts. We record an allowance for doubtful
accounts to reflect our estimate of the collectibility of our trade accounts receivable. We evaluate the
collectibility of accounts receivable based on a combination of factors, including an analysis of the age of
customer accounts and our historical experience with accounts receivable write-offs. The analysis also
includes the financial condition of a specific customer or industry, and general economic conditions. In
circumstances where we are aware of customer charge-backs or a specific customer's inability to meet its
financial obligations, a specific reserve for bad debts applicable to amounts due to reduce the net
recognized receivable to the amount management reasonably believes will be collected is recorded. In
those situations with ongoing discussions, the amount of bad debt recognized is based on the status of the
discussions. While bad debt allowances have been within expectations and the provisions established,
there can be no guarantee that we will continue to experience the same allowance rate we have in the past.
Inventories. We value our inventories at the lower of cost or market, cost being determined on the first-
in, first-out method except in Europe and retail locations where an average cost is used. Excess and
obsolete or unmarketable merchandise are written down based on historical experience, assumptions
about future product demand and market conditions. If market conditions are less favorable than projected
or if technological developments result in accelerated obsolescence, additional write-downs may be
required. While obsolescence and resultant markdowns have been within expectations, there can be no
guarantee that we will continue to experience the same level of markdowns we have in the past.
Goodwill and, Intangible Assets — We apply the provisions of Statement of Financial Accounting
Standards No. 142 (“FAS 142”), “Goodwill and Other Intangible Assets,” in our valuation of goodwill
and other intangible assets. FAS 142 requires that goodwill be reviewed at least annually for potential
impairment. The amount of an impairment loss would be recognized as the excess of the asset’ s carrying
value over its fair value.
Long-lived Assets. Management exercises judgment in evaluating our long-lived assets for impairment.
We believe we will generate sufficient undiscounted cash flow to more than recover the investments
made in property, plant and equipment. Our estimates of future cash flows involve assumptions
concerning future operating performance and economic conditions. While we believe that our estimates
of future cash flows are reasonable, different assumptions regarding such cash flows could materially
affect our evaluations.
Accruals. Management exercises judgment in estimating various period end liabilities such as costs
related to vendor drop shipments, sales returns and allowances, cooperative advertising and customer
rebate reserves, and other vendor and employee related costs. While we believe that these estimates are
reasonable, any significant deviation of actual costs as compared to these estimates could have a material
impact on the Company’ s consolidated financial statements.
Income Taxes. We are subject to taxation from federal, state and foreign jurisdictions and the
determination of our tax provision is complex and requires significant management judgment.
Management judgment is also applied in the determination of deferred tax assets and liabilities and any
valuation allowances that might be required in connection with our ability to realize deferred tax assets.
Since we conduct operations in numerous US states and internationally, our effective tax rate has and will
continue to depend upon the geographic distribution of our pre-tax income or losses among locations with
varying tax rates and rules. As the geographic mix of our pre-tax results among various tax jurisdictions
changes, the effective tax rate may vary from period to period. We are also subject to periodic