Radio Shack 2010 Annual Report Download - page 75

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mileage expenses associated with their use of personal
vehicles to make transfers of merchandise between our
stores. On February 9, 2009, the court granted the plaintiffs’
Motion for Class Certification. Following mediation, the
parties reached agreement to settle the lawsuit for a total of
$4.5 million, subject to court approval. On April 19, 2010,
the court granted preliminary approval of the settlement,
and on August 9, 2010, granted final approval. The
settlement proceeds were delivered to the claim
administrator for distribution to the class members and
others on October 1, 2010.
Separate from our wireless service provider settlement
agreement discussed in Note 14, we notified T-Mobile that
they had breached their agreement with us. Under the
agreement, T-Mobile has until March 21, 2011, to cure the
breaches. In the event that T-Mobile is unable to cure the
breaches, we have the right to terminate the agreement.
The outcome of this action is uncertain and the ultimate
resolution of this matter could have a material adverse
effect on our results of operations, financial condition and
business operations.
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 “Continuing Lease
Obligations.” Although occasional adverse settlements or
resolutions may occur and negatively affect 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 position or liquidity.
Continuing Lease Obligations: We have obligations
under retail leases for locations that we assigned to other
businesses. The majority of these lease obligations arose
from leases for which CompUSA Inc. (“CompUSA”)
assumed responsibility as part of its purchase of our
Computer City, Inc. subsidiary in August 1998. Because the
company that assumed responsibility for these leases has
ceased operations, we may be responsible for rent due
under the leases.
Following an announcement by CompUSA in February
2007 of its intention to close as many as 126 stores and an
announcement in December 2007 that it had been acquired
by Gordon Brothers Group, CompUSA’s stores ceased
operations in January 2008. We may be responsible for
rent due on a portion of the leases that relate to the closed
stores. As of February 3, 2011, we had been named as a
defendant in a total of 13 lawsuits from lessors seeking
payment from us, 12 of which have been resolved.
Based on all available information pertaining to the status of
these lawsuits, and after applying the FASB’s accounting
guidance on accounting for contingencies, the balance of
our accrual for these obligations was $2.4 million and $6.2
million at December 31, 2010 and 2009, respectively. We
will continue to monitor this situation for new information on
outstanding litigation and settlements, but we do not
consider the amounts of these obligations, both individually
and in the aggregate, to be material to our results of
operations or financial position.
Purchase Obligations: We had purchase obligations of
$291.8 million at December 31, 2010, which include product
commitments, marketing agreements and freight
commitments. Of this amount, $268.4 million related to 2011.
NOTE 14 – WIRELESS SERVICE PROVIDER
SETTLEMENT AGREEMENT
The business terms of our relationships with our wireless
service providers are governed by our wireless reseller
agreements. These contracts are complex and include
provisions determining our upfront commission revenue,
net of chargebacks for wireless service deactivations; our
acquisition and return of wireless handsets; and, in some
cases, future residual revenue, performance targets and
marketing development funds. Disputes occasionally arise
between the parties regarding the interpretation of these
contract provisions.
Certain disputes arose with one of the Company’s wireless
service providers pertaining to upfront commission revenue
for activations prior to July 1, 2010, and related
chargebacks for wireless service deactivations.
Negotiations regarding resolution of these disputes
culminated in the signing of a settlement agreement in July
2010. In connection with the decision to settle these
disputes, the Company considered the following: the timing
of cash outflows and inflows in connection with the disputed
upfront commission revenue and related chargebacks, and
the estimated future residual revenue; the benefits of
settling the disputes and agreeing to enter into good faith
negotiations with the wireless service provider in the third
quarter of 2010 to modify the commission and chargeback
provisions of our wireless reseller agreement; and the risks
associated with the ultimate realization of the estimated
future residual revenue. Key elements of the settlement
agreement include the following:
• All disputes relating to upfront commission revenue
for activations prior to July 1, 2010, and related
chargebacks were settled.
• The wireless service provider agreed to pay $141
million to the Company on or before July 30, 2010.
• The Company and the wireless service provider
agreed to enter into good faith negotiations in the
third quarter of 2010 to modify the commission and
chargeback provisions of our wireless reseller
agreement.