Radio Shack 2008 Annual Report Download - page 62

short maturity of the instruments. The weighted average interest rates were 1.0% and 3.3% at December 31,
2008 and 2007, respectively, for cash equivalents totaling $747.8 million and $483.9 million, respectively.
Accounts Receivable and Allowance for Doubtful Accounts: Concentrations of credit risk with respect to
customer and dealer receivables are limited due to the large number of customers, dealers and their location
in many different geographic areas of the country. However, we do have some concentration of credit risk
from service providers in the wireless telephone industry, direct-to-home satellite systems, and satellite radios
due to sales of their products and services. We establish an allowance for doubtful accounts based on
factors surrounding the credit risk of specific customers, historical trends and other information. Historically,
such losses, in the aggregate, have not exceeded our expectations. Account balances are charged against
the allowance when we believe it is probable that the receivable will not be recovered.
Inventories: Our inventories are stated at the lower of cost (principally based on average cost, which
approximates FIFO) or market value and are comprised primarily of finished goods. Included in the cost of
the inventories are in-bound freight expenses to our distribution centers, out-bound freight expenses to our
retail outlets, and other direct costs relating to merchandise acquisition and distribution. If the calculated
net realizable value of the inventory is determined to be less than the recorded cost, a provision is made to
reduce the carrying amount of the inventory.
Property, Plant and Equipment: We state our property, plant and equipment at cost, less accumulated
depreciation. Depreciation and amortization are calculated using the straight-line method over the following
useful lives: 10-40 years for buildings; 2-15 years for furniture, fixtures, equipment and software; leasehold
improvements are amortized over the shorter of the terms of the underlying leases, including certain renewal
periods, or the estimated useful lives of the improvements. Major additions and betterments that substantially
extend the useful life of an asset are capitalized and depreciated. Expenditures for normal maintenance and
repairs are charged directly to expense as incurred.
Capitalized Software Costs: We capitalize qualifying costs related to the acquisition or development of
internal-use software. Capitalization of costs begins after the conceptual formulation stage has been
completed. Capitalized costs are amortized over the estimated useful life of the software, which ranges
between three and five years. Capitalized software costs at December 31, 2008, 2007 and 2006, totaled
$50.3 million, $50.4 million and $46.0 million, net of accumulated amortization of $124.2 million, $100.1
million and $98.7 million, respectively.
Impairment of Long-Lived Assets: We review long-lived assets (primarily property, plant and equipment)
held and used or to be disposed of for impairment whenever events or changes in circumstances indicate
that the net book value of the asset may not be recoverable. Recoverability is assessed based on estimated
undiscounted cash flows from the useful asset, pursuant to the provisions of SFAS No. 144, “Accounting for
the Impairment of Long-Lived Assets.” If the carrying amount of an asset is not recoverable, we recognize an
impairment loss equal to the amount by which the carrying amount exceeds fair value. We estimate fair
value based on projected future discounted cash flows. Our policy is to evaluate long-lived assets for
impairment at a store level for retail operations.
Leases: For lease agreements that provide for escalating rent payments or free-rent occupancy periods,
we recognize rent expense on a straight-line basis over the non-cancelable lease term and certain option
renewal periods that appear to be reasonably assured at the inception of the lease. The lease term
commences on the date that that we take possession of or control the physical use of the property.
Deferred rent is included in other current liabilities in the consolidated balance sheets.
Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price over the fair
value of net assets acquired. Pursuant to the provisions of SFAS No. 142, “Goodwill and Other Intangible
Assets,” goodwill and intangibles with indefinite useful lives are not amortized but are reviewed at least
annually for impairment (and in interim periods if certain events occur indicating that the carrying value of
goodwill and intangible assets may be impaired). We estimate fair values utilizing valuation methods such as
discounted cash flows.
55