CompUSA 2010 Annual Report Download - page 68

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In the discussion of our results of operations we refer to business to business sales, consumer channel sales and period to period
constant currency comparisons. Business to business sales are sales made direct to other businesses through managed business
relationships, outbound call centers and extranets. Sales in the Industrial Products segment and Corporate and other are considered to
be business to business sales. Consumer channel sales are sales from retail stores, consumer websites, inbound call centers and
television shopping channels. Constant currency refers to the adjustment of the results of our foreign operations to exclude the effects
of period to period fluctuations in currency exchange rates.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in Item 15 of this
Form 10-K. Certain accounting policies require the application of significant judgment by management in selecting the appropriate
assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty, and
as a result, actual results could differ from those estimates. These judgments are based on historical experience,observation of trends
in the industry, information provided by customers and information available from other outside sources, as appropriate. Management
believes that full consideration has been given to all relevant circumstances that we may be subject to, and the consolidated financial
statements of the Company accurately reflect management’ s best estimate of the consolidated results of operations, financial position
and cash flows of the Company for the years presented. We identify below a number of policies that entail significant judgments or
estimates. Actual results may differ from these estimates under different conditions or assumptions.
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 collectability 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.
Allowance for Doubtful Accounts Receivable. We record an allowance for doubtful accounts to reflect our estimate of the
collectability of our trade accounts receivable. We evaluate the collectability 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.
Inventory valuation. 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 relevant accounting guidance in our valuation of goodwill, trademarks,
domain names, client lists and other intangible assets. Relevant accounting guidance requires that goodwill and indefinite lived
intangibles be reviewed at least annually for impairment or more frequently if indicators of impairment exist. 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 and in their depreciation and
amortization methods and lives. 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.