Radio Shack 2011 Annual Report Download - page 41

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Although we believe that our insurance, 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 insufficient 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 existing carrying value of the asset and the new
remaining useful life. Our policy is to evaluate long-lived
assets for impairment at a store level for retail operations.
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, 2011, was $37.0 million. Of this amount,
$33.5 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” in the Notes to Consolidated Financial Statements
included elsewhere in this Annual Report on Form 10-K 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