Radio Shack 2008 Annual Report Download - page 83

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such effect is recorded; however, management believes the outcome of this case will not have such an
impact.
On June 7, 2007, a purported class action lawsuit captioned, Richard Stuart v. RadioShack Corporation,
et al, was filed against us in the U.S. District Court for the Northern District of California. This action
alleges that we failed to properly reimburse employees in California for mileage expenses associated with
the use of their personal vehicles to make transfers of merchandise between our stores. The plaintiffs
filed a Motion for Class Certification, and on February 9, 2009, the court granted the plaintiffs’ motion. The
outcome of this action is uncertain and the ultimate resolution of this matter could have a material adverse
impact on RadioShack’s financial position, results of operations, and cash flows in the period in which any
such effect is recorded; however, management believes the outcome of this case will not have such an
impact.
We have various other pending claims, lawsuits, disputes with third parties, investigations and actions
incidental to the operation of our business, including certain cases discussed generally below under
Assigned Lease Obligations. Although occasional adverse settlements or resolutions may occur and
negatively impact earnings in the period or year of settlement, it is our belief that their ultimate resolution
will not have a material adverse effect on our financial condition or liquidity.
Assigned Lease Obligations: We have retail leases for locations that were assigned to other businesses.
The majority of these lease obligations arose from leases assigned to CompUSA, Inc. (“CompUSA”) as part
of its purchase of our Computer City, Inc. subsidiary in August 1998.
Following an announcement in February 2007 of its intentions to close as many as 126 stores and an
announcement in December 2007 that they had been acquired by Gordon Brothers Group, CompUSA
stores ceased operations in January 2008. A portion of the closed stores represents locations where we
may be liable for the rent payments on the underlying lease. To date, we have been named as defendants
in a total of eleven lawsuits from lessors seeking payment from us.
Based on all available information pertaining to the status of these leases, and after applying the
provisions set forth within SFAS No. 5, “Accounting for Contingencies,” and FIN 14, “Reasonable
Estimation of a Loss – an Interpretation of SFAS No. 5,” during the fourth quarter of 2007, we established
an accrual of $7.5 million, recorded in current liabilities. In the first quarter of 2008, we increased our
accrual to $9.0 million, reflecting our revised estimate based on further developments. We are continuing
to monitor this situation and will update our accrual as more information becomes available.
Purchase Obligations: We have purchase obligations of $283.8 million at December 31, 2008, which
include our product commitments, marketing agreements and freight commitments. Of this amount, $269.4
million relates to 2009.
NOTE 13 – FEDERAL EXCISE TAX
In May 2006, the IRS established refund procedures for federal telecommunications excise tax (“excise
tax”) paid by taxpayers in prior years. In December 2006, the IRS provided clarification regarding which
taxpayers were eligible to request refunds of excise taxes. For the year ended December 31, 2007, we
determined we were entitled to refunds of $14.0 million and $5.2 million for federal telecommunications
excise taxes recorded in the first and fourth quarters of 2007, respectively. We recorded $18.8 million of
the refunds as a reduction to cost of products sold and the remaining $0.4 million as a reduction in SG&A,
where they were originally recorded. In addition, we recorded $2.6 million in interest income. We claimed
$15.4 million of this refund and interest in the form of a tax credit on our 2006 federal income tax return
filed in September 2007. We filed a claim for the additional excise tax refund due us, which was approved by
the IRS. The additional amount claimed plus interest was received in the form of a refund rather than as a
credit against income taxes. We recorded an additional $0.5 million in interest income during the first quarter
of 2008.
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