Radio Shack 2008 Annual Report Download - page 63

The changes in the carrying amount of goodwill by segment were as follows for the years ended December
31, 2008 and 2007:
(In millions)
U.S.
RadioShack
Stores Kiosks Other Total
Balances at December 31, 2006 $ 2.0 $ -- $ 0.5 $ 2.5
Dealer conversions 0.4 -- -- 0.4
Balances at December 31, 2007 2.4 -- 0.5 2.9
Dealer conversions 0.4 -- -- 0.4
Acquisition of RadioShack de Mexico -- -- 35.2 35.2
Foreign currency translation adjustment -- -- (1.8) (1.8)
Balances at December 31, 2008 $ 2.8 $ -- $ 33.9 $ 36.7
Self-Insurance: We are self-insured for certain claims relating to workers’ compensation, automobile,
property, employee health-care, and general and product liability claims, although we obtain third-party
insurance coverage to limit our exposure to these claims. We estimate our self-insured liabilities using
historical claims experience and actuarial assumptions followed in the insurance industry. Although we
believe we have the ability to reasonably estimate losses related to claims, it is possible that actual results
could differ from recorded self-insurance liabilities.
Income Taxes: Income taxes are accounted for using the asset and liability method. Deferred taxes are
recognized for the tax consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date. In addition, we recognize future tax benefits to the extent that
such benefits are more likely than not to be realized. Income tax expense includes U.S. and international
income taxes, plus the provision for U.S. taxes on undistributed earnings of international subsidiaries not
deemed to be permanently invested.
Revenue Recognition: Our revenue is derived principally from the sale of name brand and private brand
products and services to consumers. Revenue is recognized, net of an estimate for customer refunds and
product returns, when persuasive evidence of an arrangement exists, delivery has occurred or services
have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured.
Certain products, such as wireless telephone handsets, require the customer to use the services of a
third-party service provider. In most cases, the third-party service provider pays us an upfront commission
for obtaining a new customer, as well as a monthly recurring residual amount based upon the ongoing
arrangement between the service provider and the customer. Our sale of an activated wireless telephone
handset is the single event required to meet the delivery criterion for both the upfront commission and the
residual revenue. Upfront commission revenue, net of estimated service deactivations, is recognized at
the time an activated wireless telephone handset is sold to the customer at the point-of-sale. Based on our
extensive history in selling activated wireless telephone handsets, we have been able to establish reliable
deactivation estimates. Recurring residual income is recognized as earned under the terms of each
contract with the service provider, which is typically as the service provider bills its customer, generally on
a monthly basis. Sales of wireless handsets and the related commissions and residual income constitute
approximately one-third of our total revenue. Our two largest third-party wireless service providers are
Sprint Nextel and AT&T.
Cost of Products Sold: Cost of products sold primarily includes the total cost of merchandise inventory
sold, direct costs relating to merchandise acquisition and distribution (including depreciation and excise
taxes), costs of services provided, in-bound freight expenses to our distribution centers, out-bound freight
expenses to our retail outlets, physical inventory valuation adjustments and losses, customer shipping and
handling charges, and certain vendor allowances (see “Vendor Allowances” below).
Vendor Allowances: We receive allowances from third-party service providers and product vendors
through a variety of promotional programs and arrangements as a result of purchasing and promoting
their products and services in the normal course of business. We consider vendor allowances received to
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