Radio Shack 2012 Annual Report Download - page 27

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Impairment of Long-Lived Assets and Goodwill
Impairment of long-lived assets was $21.4 million in 2012
compared with $3.1 million in 2011.
Target Mobile Centers: In October 2012 we exercised our
contractual right to notify Target of our intention to stop
operating the Target Mobile centers by no later than April
2013 if we could not amend the current arrangement.
We concluded that the cash flows generated by our Target
Mobile centers under our current contractual arrangements
would not recover the net book value of our long-lived
assets held and used in these locations. Therefore, the
long-lived assets at these locations with a total carrying
value of $12.8 million were written down to their fair value
of $1.1 million, resulting in an impairment charge of $11.7
million that was included in our operating results for the
third quarter of 2012. We will exit this business by April 8,
2013.
The fair value of these “in-use” assets was based on the
projected cash flows at each location under our current
contractual arrangements.
U.S. RadioShack Company-Operated Stores:
Impairments for long-lived assets held and used in certain
stores were $6.7 million in 2012 compared with $3.1 million
in 2011. This increase was primarily driven by an increase
in the number of stores that were evaluated for impairment
throughout 2012 because of their decreased operating
results. If our operating results do not improve, we will
continue to incur a similar or higher amount of long-lived
asset impairments for U.S. RadioShack company-operated
stores in future periods.
Goodwill Impairment: For the first half of 2012, we
experienced a significant decline in the market
capitalization of our common stock, which was driven
primarily by lower than expected operating results. Our
market capitalization was lower than our consolidated net
book value for much of this period. We determined that
these facts were an indicator that we should conduct an
interim goodwill impairment test in the third quarter.
After reviewing our reporting units, we determined that the
fair value of our U.S. RadioShack company-operated stores
reporting unit could not support its $3.0 million of goodwill
due to our lower market capitalization. This resulted in a
$3.0 million impairment charge that was included in our
operating results for the third quarter of 2012. Our U.S.
RadioShack company-operated stores reporting unit is
comprised of our U.S. RadioShack company-operated
stores operating segment, our overhead and corporate
expenses that are not allocated to our operating segments,
and all of our interest expense.
Net Interest Expense
Consolidated net interest expense, which is interest
expense net of interest income, was $52.6 million in 2012,
compared with $43.7 million in 2011.
In 2012 and 2011, interest expense consisted primarily of
interest paid at the stated coupon rate on our outstanding
notes, the non-cash amortization of the discounts on our
long-term debt, and interest paid on our term loans. Interest
expense increased $7.7 million in 2012. This increase was
driven by the increased average amount of long-term debt
outstanding during 2012. Non-cash interest expense was
$16.3 million in 2012 compared with $17.0 million in 2011.
Income Tax Expense
Our effective tax rate for 2012 was a negative 22.2%,
compared with a positive 37.5% for 2011. The 2012
effective tax rate was affected by a valuation allowance in
the amount of $68.8 million that we established to reduce
our U.S. deferred tax assets. The valuation allowance was
partially offset by an income tax benefit related to our
current year operating loss. See Note 10 – “Income Taxes”
in the Notes to Consolidated Financial Statements included
in this Annual Report on Form 10-K for more information
regarding our 2012 income tax expense and valuation
allowance.
The 2011 effective tax rate was affected by the realization
of job retention credits generated pursuant to the Hiring
Incentives to Restore Employment Act. These credits
lowered the effective tax rate by 1.1 percentage points.
2011 COMPARED WITH 2010
Net Sales and Operating Revenues
Net sales and operating revenues for 2011 increased
$112.2 million, or 2.6%, to $4,378.0 million when compared
with 2010. Comparable store sales decreased 2.2%. The
increase in our net sales and operating revenues was
driven primarily by sales at the 646 Target Mobile centers
that were open on December 31, 2011, but not on
December 31, 2010. The increase in sales that was driven
by our additional Target Mobile centers was partially offset
by a decrease in comparable store sales. The decrease in
comparable store sales was primarily driven by sales
decreases in our consumer electronics and signature
platforms, which were partially offset by an increase in our
mobility platform sales.
U.S. RadioShack Company-Operated Stores Segment
Sales in our U.S. RadioShack company-operated stores
segment for 2011 decreased $144.9 million or 3.8% when
compared with 2010.
Sales in our mobility platform increased 5.6% in 2011. This
sales increase was driven by increased sales in our AT&T