CompUSA 2009 Annual Report Download - page 78

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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 depends 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
examination from domestic and foreign tax authorities regarding the amount of taxes due. These examinations include questions
regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. We have established, and
periodically reevaluate, an estimated income tax reserve on our consolidated balance sheet to provide for the possibility of adverse
outcomes in income tax proceedings. While management believes that we have identified all reasonably identifiable exposures and
that the reserve we have established for identifiable exposures is appropriate under the circumstances, it is possible that additional
exposures exist and that exposures may be settled at amounts different than the amounts reserved.
We recognize deferred tax assets and liabilities 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. In the event that actual
results differ from these estimates or we adjust these estimates in future periods, an adjustment to the valuation allowance may be
required, which could materially affect our consolidated financial position and results of operations.
Restructuring charges. We have taken restructuring actions in the past and could in the future commence further restructuring
activities which result in recognition of restructuring charges if events make it necessary. These actions require management to make
judgments and utilize significant estimates regarding the nature, timing and amounts of costs associated with the activity. When we
incur a liability related to a restructuring action, we estimate and record all appropriate expenses, including expenses for severance and
other employee separation costs, facility consolidation costs (including estimates of sublease income), lease cancellations, asset
impairments and any other exit costs. Should the actual amounts differ from our estimates; the amount of the restructuring charges
could be impacted, which could materially affect our consolidated financial position and results of operations.
Recently Adopted and Newly Issued Accounting Pronouncements
Public companies in the United States are subject to the accounting and reporting requirements of various authorities, including the
Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”). These authorities issue
numerous pronouncements, most of which are not applicable to the Company’ s current or reasonably foreseeable operating structure.
Below are the new authoritative pronouncements that management believes are relevant to the Company’ s current operations.
In October 2009, the FASB issued amended guidance related to revenue recognition in multiple-deliverable revenue arrangements and
certain arrangements that include software elements. This standard eliminates the residual method of revenue allocation by requiring
entities to allocate revenue in an arrangement to all of the deliverables based upon the relative selling prices of the delivered goods and
services The FASB also issued a new accounting standard in October 2009, which changes revenue recognition for tangible products
containing software and hardware elements. Under this standard, tangible products containing software and hardware that function
together to deliver the tangible products’ essential functionality are scoped out of the existing software revenue recognition guidance
and will be accounted for under the multiple-element arrangements revenue recognition guidance discussed above. Both standards are
effective for fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact, if any, of the adoption
of this standard on our consolidated financial position and results of operations.
Effective January 1, 2009, the Company adopted authoritative guidance that establishes principles and requirements for how an
acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, liabilities
assumed, and any non-controlling interest in the acquiree, (ii) recognizes and measures goodwill acquired in a business combination or
a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of financial statements to evaluate the
nature and financial effects of the business combination. This guidance is applied prospectively for all business combinations entered
into after the date of adoption. In the third quarter of 2009 the Company expensed approximately $0.8 million of costs that would have
been capitalized under previous guidance.
In June 2008, FASB issued authoritative guidance to clarify that instruments granted in share-based payment transactions can be
participating securities prior to the requisite service having been rendered. The guidance applies to the calculation of Earnings Per
Share (“EPS”) for share-based payment awards with rights to dividends or dividend equivalents. Unvested share-based payment
awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities
and shall be included in the computation of EPS pursuant to the two-class method. This guidance became effective for financial
statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS