CompUSA 2011 Annual Report Download - page 44

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. 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 $40.2 million, $31.7 million and $38.9 million during 2011, 2010 and 2009, 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 $59.4 million, $65.6 million and $55.9 million during 2011, 2010 and 2009,
respectively.
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 0.3 million for the year ended
December 31, 2011 and 0.6 million for the years ended December 31, 2010 and 2009. The weighted average number of restricted stock awards
included in the computation of diluted earnings per share was 0.1 million for the year ended December 31, 2011, and 0.2 million for the years
ended December 31, 2010 and 2009. The weighted average number of stock options outstanding excluded from the computation of diluted
earnings per share was 0.8 million for the year ended December 31, 2011 and 0.7 million for the years ended December 31, 2010 and 2009, 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 $51.6 million, $40.0 million and $54.5 million in 2011, 2010 and
2009, respectively.
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 $1.0 million, $0.9 million and $0.9 million in 2011, 2010
and 2009, respectively.
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Prepaid expenses as of December 2011 and 2010 include deferred advertising costs of $1.7 million and $2.1 million, respectively which are
reflected as an expense during the periods benefited, typically the subsequent fiscal quarter.
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