Radio Shack 2004 Annual Report Download - page 45

During 2004, we substantially completed construction of our
new corporate campus. These expenditures, including capital-
ized interest of $6.6 million and $2.6 million for the years
2004 and 2003, respectively, are the principal reasons for the
increases in buildings and furniture, fixtures and equipment.
From time to time, we enter into store operating lease
agreements that provide for landlord-funded construction
allowances for the purchase and installation of leasehold
improvements. Prior to January 2004, we accounted for these
construction allowances as a reduction of leasehold improve-
ments; however, beginning January 1, 2004 all construction
allowances received were recorded as deferred rent and are
ratably amortized as a reduction of rent expense over the
lease term. We believe our prior accounting for construction
allowances had no material impact on our consolidated
financial statements for 2003 and 2002, and therefore no
accounting adjustments are necessary or have been made.
NOTE 5 Other Assets, Net
December 31,
(In millions) 2004 2003
Notes receivable $10.6 $ 9.8
Goodwill 26.8 2.9
Deferred income taxes –22.2
Intangibles 19.9 –
Other 32.3 29.3
Total other assets, net $89.6 $64.2
The increase in goodwill and intangibles was the result of
the acquisition of the SAM’S CLUB kiosk business.
The changes in the carrying amount of goodwill are as follows:
(In millions)
Balance at December 31, 2003 $ 2.9
WRI asset acquisition 23.1
Other, net 0.8
Balance at December 31, 2004 $26.8
During the third quarter of fiscal year 2004, we acquired
certain assets and assumed certain liabilities of Wireless
Retail, Inc. (“WRI”). These assets included wireless kiosks
and inventory located within SAM’S CLUB retail locations.
This acquisition enables us to leverage our retail support
infrastructure to expand into other retail channels more
rapidly. The acquisition was accounted for using the pur-
chase method of accounting as prescribed in SFAS No. 141,
“Business Combinations” (“SFAS No. 141”). In accordance
with SFAS No. 141, the purchase price was allocated to the
assets acquired and liabilities assumed based on estimates
of their respective fair values at the date of acquisition.
Fair values were determined principally by independent valu-
ations and supported by internal studies. The total purchase
price of $59.1 million was allocated primarily to fixed assets,
goodwill and a separately identifiable intangible asset, which
is our contract with SAM’S CLUB. The preliminary purchase
price allocation to goodwill was $23.1 million and to intangi-
bles was $25.2 million. Although the purchase price alloca-
tion is preliminary, we do not anticipate any significant
adjustments at the finalization of this process. If necessary,
however, we may record adjustments to these intangible bal-
ances in subsequent periods.
This SAM’S CLUB intangible is being amortized over five years
and the estimated amortization for years ended December 31,
2005, 2006, 2007, 2008, and 2009 is $5.3 million, $5.3 million,
$5.3 million, $5.3 million, and $4.0 million, respectively.
NOTE 6 Impairment of Long-Lived Assets
AmeriLink was acquired in 1999 to provide us with residential
installation capabilities for the technologies and services
offered in our retail stores. From the time of its acquisition,
AmeriLink incurred operating losses and negative cash flows.
In 2000 and in 2001, we attempted to restructure and reor-
ganize AmeriLink, but due to the overall slowdown in the
economy and the market decline for professionally installed
home Internet connectivity services, AmeriLink continued to
report losses. During the fourth quarter of 2001, we prepared
a revised analysis of estimated future cash flows for
AmeriLink, which indicated that its long-lived assets were
impaired. The carrying value of AmeriLink's long-lived assets
(principally goodwill and fixed assets) exceeded the discount-
ed present value of the estimated future cash flows by
approximately $37.0 million. An impairment of goodwill for
that amount was recorded for 2001. As a result of continued
difficulties in the DTH business and a refocus during the
fourth quarter of 2002 on our satellite installation strategy,
together with a revised cash flow projection for our overall
installation business, we determined that the remaining long-
lived assets associated with AmeriLink were impaired. We
compared the carrying value of these long-lived assets with
their fair value and determined that the remaining goodwill
balance of $8.1 million was impaired and we, therefore,
recorded an impairment charge for this amount in the accom-
panying 2002 Consolidated Statement of Income. As of
December 31, 2002, there was no remaining goodwill on our
balance sheet related to AmeriLink. In September 2003, we
sold AmeriLink, resulting in a loss of $1.8 million which was
recorded in other income in our Consolidated Statement of
Income for 2003.
Notes to Consolidated Financial Statements continued
RadioShack Corporation and Subsidiaries
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