CompUSA 2010 Annual Report Download - page 89

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Income Taxes — Deferred tax assets and liabilities are recognized for the effect of temporary differences between the book and
tax bases of recorded assets and liabilities and for tax loss carry forwards. The realization of net deferred tax assets is dependent
upon our ability to generate sufficient future taxable income. Where it is more likely than not that some portion or the entire
deferred tax asset will not be realized, we have provided a valuation allowance. If the realization of those deferred tax assets in
the future is considered more likely than not, an adjustment to the deferred tax assets would increase net income in the period
such determination is made.
The Company provides for uncertain tax positions and related interest and penalties based upon management’ s assessment of
whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. To the extent the Company
prevails in matters for which a liability for an unrecognized tax benefit is established or is required to pay amounts in excess of
the liability, the Company’ s effective tax rate in a given financial statement period may be affected.
Revenue Recognition and Accounts Receivable — The Company recognizes sales of products, including shipping revenue, 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 the product is received by the customers when
title and risk of loss have transferred. Allowances for estimated subsequent customer returns, rebates and sales incentives are
provided when revenues are recorded. Costs incurred for the shipping and handling of its products are recorded as cost of sales.
Revenue from extended warranty and support contracts on the Company’ s assembled PCs is deferred and recognized over the
contract period. The Company evaluates collectability of accounts receivable based on numerous factors, including past
transaction history with customers and their credit rating and provides a reserve for accounts that are potentially uncollectible.
Trade receivables are generally written off once all collection efforts have been exhausted. Accounts receivable are shown in the
consolidated balance sheets net of allowances for doubtful collections and subsequent customer returns.
Advertising Costs — Expenditures for internet, television, local radio and newspaper advertising are expensed in the period the
advertising takes place. Catalog preparation, printing and postage expenditures are amortized over the period of catalog
distribution during which the benefits are expected, generally one to six months.
Net advertising expenses were $31.7 million, $38.9 million and $40.0 million during 2010, 2009 and 2008 respectively and are
included in the accompanying consolidated statements of operations. The Company utilizes advertising programs to support
vendors, including catalogs, internet and magazine advertising, and receives payments and credits from vendors, including
consideration pursuant to volume incentive programs and cooperative marketing programs. The Company accounts for
consideration from vendors as a reduction of cost of sales unless certain conditions are met showing that the funds are used for
specific, incremental, identifiable costs, in which case the consideration is accounted for as a reduction in the related expense
category, such as advertising expense. The amount of vendor consideration recorded as a reduction of selling, general and
administrative expenses totaled $65.6 million, $55.9 million and $60.4 million during 2010, 2009 and 2008 respectively.
Prepaid expenses as of December 2010 and 2009 include deferred advertising costs of $2.1 million and $2.8 million, respectively
which are reflected as an expense during the periods benefited, typically the subsequent fiscal quarter.
Stock based compensation — The Company recognizes the fair value of share based compensation in the consolidated statement
of operations over the requisite employee service period. Stock-based compensation expense includes an estimate for forfeitures
and is recognized over the expected term of the award.
Net Income Per Common Share – Net income per common share - basic was calculated based upon the weighted average number
of common shares outstanding during the respective periods presented using the two class method of computing earnings per
share. The two class method was used as the Company has outstanding restricted stock with rights to dividend participation for
unvested shares. Net income per common share - diluted was calculated based upon the weighted average number of common
shares outstanding and included the equivalent shares for dilutive options outstanding during the respective periods, including
unvested options. The dilutive effect of outstanding options issued by the Company is reflected in net income per share - diluted
using the treasury stock method. Under the treasury stock method, options will only have a dilutive effect when the average
market price of common stock during the period exceeds the exercise price of the options. The weighted average number of stock
options outstanding included in the computation of diluted earnings per share was 0.6 million, 0.6 million and 0.7 million for the
years ended December 31, 2010, 2009 and 2008, respectively. The weighted average number of restricted stock awards included
in the computation of diluted earnings per share was 0.2 million for the years December 31, 2010, 2009 and 2008. The weighted
average number of stock options outstanding excluded from the computation of diluted earnings per share was 0.7 million, 0.7
million and 0.6 million for the years ended December 31, 2010, 2009 and 2008, respectively, due to their antidilutive effect.
Comprehensive Income — Comprehensive income consists of net income and foreign currency translation adjustments and is
included in the consolidated statements of shareholders’ equity. Comprehensive income was $40.0 million, $54.5 million and
$34.2 million in 2010, 2009 and 2008, respectively.