Radio Shack 2008 Annual Report Download - page 84

NOTE 14 - RESTRUCTURING PROGRAM
On February 17, 2006, as a result of unfavorable profitability experienced within our U.S. RadioShack
company-operated stores during 2005, we announced the commencement of a restructuring program.
The restructuring program was developed to identify opportunities to rationalize our cost structure and
increase average unit volume and profitable square footage in our U.S. RadioShack company-operated
stores. The original terms of the restructuring program consisted of the closing of 400-700 U.S.
RadioShack company-operated stores, consolidating certain of our distribution centers, streamlining our
overhead infrastructure, and updating our merchandise inventory.
The actual charges for initiatives under the restructuring program were recorded in the period in which we
committed to formalized restructuring plans or executed the specific actions contemplated by the program
and all criteria for restructuring charge recognition under the applicable accounting guidance had been
met. Charges incurred as part of the restructuring program are recorded in cost of products sold; selling,
general and administrative expense; and depreciation and amortization with the exception of the asset
impairment charges, which are disclosed in a separate caption within our Consolidated Statements of
Income.
Store Closures: As of December 31, 2006, we had closed 481 stores as a result of our restructuring
program. Our decision to close these stores was made on a store-by-store basis, and there was no
geographic concentration of closings for these stores. For these closed stores, we recognized a charge in
2006 of $9.1 million to SG&A for future lease obligations and negotiated buy-outs with landlords. A lease
obligation reserve was not recognized until a store had been closed or when a buy-out agreement had
been reached with the landlord. Regarding the 481 stores we closed as a result of the restructuring
program during the year ended December 31, 2006, we recorded an impairment charge of $9.2 million
related to the long-lived assets associated with certain of these stores. It was determined that the net book
value of several of the stores' long-lived assets was not recoverable based on the remaining estimated
future cash flows related to these specific stores. We also recognized $2.1 million in accelerated
depreciation associated with closed store assets for which the useful lives had been changed due to the
store closures.
In connection with these store closures, we identified 601 retail employees whose positions were
terminated by December 31, 2006. These employees were paid severance, and some earned retention
bonuses if they remained employed until certain agreed-upon dates. The development of a reserve for
these costs began on the date that the terms of severance benefits were established and communicated
to the employees, and the reserve was recognized over the minimum retention period. As of December
31, 2006, $3.8 million had been recognized in SG&A as retention and severance benefits for store
employees, with $3.6 million in benefits paid to that date. Additionally, as part of our store closure
activities, we incurred and recognized in SG&A $6.1 million in expenses in 2006 primarily in connection
with fees paid to outside liquidators and for close-out promotional activities for the 481 stores.
All stores identified for closure under the restructuring program were closed as of July 31, 2006.
Additionally, we continue to negotiate buy-out agreements with our landlords; however, remaining lease
obligations of $0.8 million still existed at December 31, 2008. There is uncertainty as to when, and at what
cost, we will fully settle all remaining lease obligations.
Distribution Center Consolidations: We closed a distribution center located in Southaven, Mississippi,
and sold a distribution center in Charleston, South Carolina, in 2006. During the year ended December 31,
2006, we recognized a lease obligation charge in SG&A in the amount of $2.0 million on the lease of the
Southaven distribution center and a gain of $2.7 million on the sale of the Charleston distribution center.
We also incurred a $0.5 million charge related to severance for approximately 100 employees.
Additionally, there were $0.4 million in other expenses.
Service Center Operations: We closed or sold five service center locations during the year ended
December 31, 2006, resulting in the elimination of approximately 350 positions. We recognized charges to
SG&A of $1.2 million and $0.9 million related to lease obligations and severance, respectively. This
severance obligation was paid as of December 31, 2006. Additionally, there were $0.1 million in other
expenses.
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