Radio Shack 2009 Annual Report Download - page 45

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result in liability in excess of the deductible. We also have a self-insured health program administered by
a third-party covering the majority of our employees that participate in our health insurance programs. We
estimate the amount of our reserves for all insurance programs discussed above at the end of each
reporting period. This estimate is based on historical claims experience, demographic factors, severity
factors, and other factors we deem relevant.
We are subject to periodic audits from multiple domestic and foreign tax authorities related to income tax,
sales and use tax, personal property tax, and other forms of taxation. These audits examine our tax
positions, timing of income and deductions, and allocation procedures across multiple jurisdictions. Our
accounting for tax estimates and contingencies requires us to evaluate tax issues and establish reserves
in our consolidated financial statements based on our estimate of current probable tax exposures.
Depending on the nature of the tax issue, we could be subject to audit over several years; therefore, our
estimated reserve balances might exist for multiple years before an issue is resolved by the taxing
authority.
We are involved in legal proceedings and governmental inquiries associated with employment and other
matters. Our accounting for legal contingencies requires us to estimate the probable losses in these
matters. This estimate has been developed in consultation with in-house and outside legal counsel and is
based upon a combination of litigation and settlement strategies.
Judgments and uncertainties involved in the estimate
Our liabilities for insurance, tax and legal contingencies contain uncertainties because we are required to
make assumptions and to apply judgment to estimate the exposures associated with these items. We use
our history and experience, as well as other specific circumstances surrounding these claims, in
evaluating the amount of liability we should record. As additional information becomes available, we
assess the potential liability related to our various claims and revise our estimates as appropriate. These
revisions could materially affect our results of operations and financial position or liquidity.
Effect if actual results differ from assumptions
We have not made any material changes in the methodology used to estimate our insurance reserves
during the past three fiscal years, and we do not believe there is a reasonable likelihood that there will be
a material change in the future estimates or assumptions for these items. However, a 10% change in our
insurance reserves at December 31, 2009, would have affected net income by approximately $5.0 million.
As of December 31, 2009, actual losses had not exceeded our expectations. Additionally, for claims that
exceed our deductible amount, we record a gross liability and corresponding receivable representing
expected recoveries, since we are not legally relieved of our obligation to the claimant.
Although we believe that our tax and legal reserves are based on reasonable judgments and estimates,
actual results could differ, which may expose us to material gains or losses in future periods. These
actual results could materially affect our effective tax rate, earnings, deferred tax balances and cash flows
in the period of resolution.
Valuation of Long-Lived Assets and Intangibles, including Goodwill
Description
Long-lived assets, such as property and equipment, are reviewed for impairment when events or changes
in circumstances indicate that the carrying amount may not be recoverable, such as negative cash flows
or plans to dispose of or sell long-lived assets before the end of their previously estimated useful lives.
The carrying amount is considered not recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset. If the carrying amount 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. Impairment losses, if
any, are recorded in the period in which the impairment occurs. The carrying value of the asset is
adjusted to the new carrying value, and any subsequent increases in fair value are not recorded.
Additionally, if it is determined that the estimated remaining useful life of the asset should be decreased,
the periodic depreciation expense is adjusted based on the new carrying value of the asset. Our policy is
to evaluate long-lived assets for impairment at a store level for retail operations.