CompUSA 2012 Annual Report Download - page 49

Accruals — Management makes estimates and assumptions that affect amounts reported in the consolidated financial statements and
accompanying notes. These estimates are based upon various factors such as the number of units sold, historical and anticipated results
and data received from third party vendors. Actual results could differ from these estimates. Our most significant estimates include those
related to the costs of vendor drop shipments, sales returns and allowances, cooperative advertising and customer rebate reserves, and
other vendor and employee related costs.
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 collectibility 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 except in our Industrial Products segment where title and risk pass at time of shipment. 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 collectibility 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 four months.
Net advertising expenses were $57.7 million, $40.2 million and $31.7 million during 2012, 2011 and 2010, 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 $47.8 million, $59.4 million and $65.6
million during 2012, 2011 and 2010, respectively.
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