Radio Shack 2009 Annual Report Download - page 46

Download and view the complete annual report

Please find page 46 of the 2009 Radio Shack annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 97

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97

39
We have acquired goodwill and other separately identifiable intangible assets related to business
acquisitions. The original valuation of these intangible assets is based on estimates of future profitability,
cash flows and other judgmental factors. Goodwill represents the excess of the purchase price over the
fair value of net assets acquired. We review our goodwill and other intangible asset balances on an
annual basis, during the fourth quarter, and whenever events or changes in circumstances indicate the
carrying value of a reporting unit or an intangible asset might exceed their fair value. If the carrying
amount of an intangible asset or a reporting unit exceeds its fair value, we recognize an impairment loss
for this difference.
Judgments and uncertainties involved in the estimate
Our impairment loss calculations for long-lived assets contain uncertainties because they require us to
apply judgment and estimates concerning future cash flows, strategic plans, useful lives and assumptions
about market performance. We also apply judgment in the selection of a discount rate that reflects the
risk inherent in our current business model.
Our impairment loss calculations for intangible assets and goodwill contain uncertainties because they
require us to estimate fair values related to these assets. We estimate fair values based on various
valuation techniques such as discounted cash flows and other comparable market analyses. These types
of analyses contain uncertainties because they require us to make judgments and assumptions regarding
future profitability, industry factors, planned strategic initiatives, discount rates and other factors.
Effect if actual results differ from assumptions
We have not made any material changes in the accounting methodologies we use to assess impairment
loss for long-lived assets, intangible assets, or goodwill 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 estimates or
assumptions we use in calculating these impairment losses. However, if actual results or performance of
certain business units are not consistent with our estimates and assumptions, we may be exposed to
additional impairment charges, which could be material to our results of operations.
The total value of our goodwill and intangible assets at December 31, 2009, was $40.3 million. Of this
amount, $35.6 million related to goodwill from the purchase of RadioShack de Mexico. Based on our most
recent review of goodwill impairment, we noted that the fair values of our reporting units were
substantially greater than their carrying values.
Stock-Based Compensation
Description
We have historically granted certain stock-based awards to employees and directors in the form of non-
qualified stock options, incentive stock options, restricted stock and deferred stock units. See Note 2 -
“Summary of Significant Accounting Policies” and Note 7 - “Stock-Based Incentive Plans” for a more
complete discussion of our stock-based compensation programs.
At the date an award is granted, we determine the fair value of the award and recognize the
compensation expense over the requisite service period, which typically is the period over which the
award vests. The restricted stock and deferred stock units are valued at the fair market value of our stock
on the date of grant. The fair value of stock options with only service conditions is estimated using the
Black-Scholes-Merton option-pricing model. The fair value of stock options with service and market
conditions is valued utilizing a lattice model with Monte Carlo simulations.
Judgments and uncertainties involved in the estimate
The Black-Scholes-Merton and lattice models require management to apply judgment and use highly
subjective assumptions, including expected option life, volatility of stock prices, and employee forfeiture
rate. We use historical data and judgment to estimate the expected option life and employee forfeiture
rate, and use historical and implied volatility when estimating the stock price volatility. Changes in these
assumptions can materially affect the fair value estimate.