CompUSA 2014 Annual Report Download - page 56

Goodwill and intangible assets —
Goodwill represents the excess of the cost of acquired assets over the fair value of assets acquired. The
Company tests goodwill and identifiable intangible assets (trademarks) for impairment annually or more frequently if indicators of
impairment exist. The Company assesses the carrying value of its definite-
lived intangible assets if circumstances indicate that those values
may not be recoverable. As a result of negative cash flows in its operations in Technology Products segment operations in North America
in 2014, the Company conducted an evaluation of the intangible assets in those operations and concluded that those assets were impaired
and an impairment charge of approximately $0.5 million, pre-tax, was recorded in the fourth quarter of 2014.
In December 2013, the Company sold certain CompUSA intellectual property assets and the Company discontinued using the CompUSA
brand in Puerto Rico. As a result, for the year ended December 31, 2013, the Company incurred write offs of approximately $2.9 million,
pre-tax, related to the intangible assets of the CompUSA brand in Puerto Rico.
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 inventory reserves, sales returns and allowances, cooperative advertising, vendor drop shipments, 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. Revenues exclude sales tax collected. 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.
Shipping and handling costs — The Company recognizes shipping and handling costs in cost of sales.
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 $66.1 million, $60.1 million and $57.7 million during 2014, 2013 and 2012, 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 $38.8 million, $45.9 million and $47.8 million
during 2014, 2013 and 2012, respectively.
Prepaid expenses as of December 2014 and 2013 include deferred advertising costs of $0.1 million and $0.7 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.
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