CompUSA 2013 Annual Report Download - page 54

Prepaid expenses as of December 2013 and 2012 include deferred advertising costs of $0.7 million and $1.5 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 and restricted stock 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 (loss) per share was zero shares for the years ended December 31, 2013 and 2012 and 0.3 million shares for the year
ended December 31, 2011. The weighted average number of restricted stock awards included in the computation of diluted earnings (loss)
per share was zero shares for the year December 31, 2013 and 2012 and 0.1 million shares for the year ended December 31, 2011. The
weighted average number of stock options outstanding excluded from the computation of diluted earnings per share was 1.2 million shares,
1.1 million shares and 0.8 million shares for the years ended December 31, 2013, 2012 and 2011, respectively, due to their antidilutive
effect. The weighted average number of restricted awards outstanding excluded from the computation of diluted earnings (loss) per share
was 0.1 million shares, zero shares and a de minimis number of shares for the years ended December 31, 2013, 2012 and 2011, respectively,
due to their antidilutive effect.
Employee Benefit Plans - The Company’
s U.S. subsidiaries participate in a defined contribution 401(k) plan covering substantially all U.S.
employees. Employees may invest 1% or more of their eligible compensation, limited to maximum amounts as determined by the Internal
Revenue Service. The Company provides a matching contribution to the plan, determined as a percentage of the employees’
contributions.
Aggregate expense to the Company for contributions to such plans was approximately $0.9 million, $1.0 million and $1.0 million in 2013,
2012 and 2011, respectively.
Fair Value Measurements -
Financial instruments consist primarily of investments in cash, trade accounts receivable, debt and accounts
payable. The Company estimates the fair value of financial instruments based on interest rates available to the Company. At December 31,
2013 and 2012, the carrying amounts of cash, accounts receivable and accounts payable are considered to be representative of their
respective fair values due to their short-term nature. The Company’
s debt is considered to be representative of its fair value because of its
variable interest rate.
The fair value of goodwill and non-amortizing intangibles is measured on a non-recurring basis in connection with the Company’
s annual
impairment testing. The Company follows the guidance of Accounting Standards Update (ASU) 2011-08 and 2012-
02 and performs a
qualitative assessment of goodwill and non-
amortizing intangibles to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. If the qualitative assessment shows that the fair value of the reporting unit exceeds its
carrying amount the company is not required to complete the annual two step goodwill impairment test. If a quantitative analysis is required
to be performed for goodwill, the fair value of the reporting unit to which the goodwill has been assigned is determined using a discounted
cash flow model. A discounted cash flow model is also used to determine fair value of indefinite-
lived intangibles using projected cash
flows of the intangible. Unobservable inputs related to these discounted cash flow models include projected sales growth, same store sales
growth, gross margin percentages, new business opportunities, working capital requirements, capital expenditures and growth in selling,
general and administrative expense and are classified in accordance with ASC 820, “Fair Value Measurements and Disclosures”,
within
Level 3 of the valuation hierarchy.
Significant Concentrations -
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and
accounts receivable. The Company’
s excess cash balances are invested with money center banks. Concentrations of credit risk with respect
to accounts receivable are limited due to the large number of customers and their geographic dispersion comprising the Company’
s
customer base. The Company also performs on-going credit evaluations and maintains allowances for potential losses as warranted.
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