Product Revenue Recognition
Sales are recognized when the title and risk of loss are passed to the customer, there is persuasive evidence of an arrangement for the
sale, delivery has occurred and/or services have been rendered, the sales price is fixed or determinable and collectability is reasonably assured.
Sales are reported net of estimated returns and allowances which are estimated based upon historical return information. Management also considers any other current information and trends in making
estimates. If actual sales returns, allowances and discounts are greater than estimated by management, additional expense may be incurred.
Cost of Service Fee Revenue
Our service fee revenue primarily
relates to our distribution services and order management/customer care services. Distribution services relate primarily to inventory management, product receiving, warehousing and fulfillment (i.e., picking, packing and shipping product on our
clients’ behalf). Order management/customer care services relate primarily to taking customer orders for our clients’ products via various channels such as telephone call-center, electronic or facsimile. These services also entail
addressing customer questions related to orders, as well as cross-selling/up-selling activities.
Our cost of service fee
revenue represents the cost to provide the services described above, primarily compensation and related expenses and other fixed and variable expenses directly related to providing the services. These include certain occupancy and information
technology costs and depreciation and amortization expenses. Certain of these costs are allocated from general and administrative expenses. For these allocations, we estimate the amount of direct expenses based on client-specific information, such
as the number of transactions processed. We believe our allocation methodology is reasonable, however a change in assumptions would result in a different gross profit in our statement of operations, yet no change to the resulting net income or loss.
Allowance for Doubtful Accounts
The determination of the collectability of amounts due from our customers requires us to use estimates and make judgments regarding future events and trends, including monitoring our customers’
payment history and current credit worthiness to determine that collectability is reasonably assured, as well as consideration of the overall business climate in which our clients and customers operate. Inherently, these uncertainties require us to
make frequent judgments and estimates regarding our clients and customers’ ability to pay amounts due us to determine the appropriate amount of valuation allowances required for doubtful accounts. Provisions for doubtful accounts are recorded
when it becomes evident the client or customer will not make the required payments at either contractual due dates or in the future.
In our Retail model, we also maintain an allowance for uncollectible vendor receivables, which arise from inventory returns to vendors, vendor rebates, price protections and other promotions. We determine
the sufficiency of the vendor receivable allowance based upon various factors, including payment history. Amounts received from vendors may vary from amounts recorded because of potential non-compliance with certain elements of vendor programs. If
our estimated allowances for uncollectible accounts or vendor receivables subsequently prove insufficient, additional allowance maybe required.
Allowances for doubtful accounts totaled $0.7 million and $0.8 million at December 31, 2011 and 2010, respectively. We believe our allowances for doubtful accounts are adequate to cover
anticipated losses under current conditions; however, uncertainties regarding changes in the financial condition of our clients and customers, either adverse or positive, could impact the amount and timing of any additional provisions for doubtful
accounts that may be required.
Inventory Reserves
Inventories (merchandise, held for resale, all of which are finished goods) are stated at the lower of weighted average cost or market.
Supplies Distributors and its subsidiaries assume responsibility for slow-moving inventory under certain master distributor agreements, subject to certain termination rights, but have the right to return product rendered obsolete by engineering
changes, as defined. We review inventories for impairment on a periodic basis, but
36