Radio Shack 2012 Annual Report Download - page 67

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65
NOTE 13 – FAIR VALUE MEASUREMENTS
The FASB’s accounting guidance utilizes a fair value hierarchy that prioritizes the inputs to the valuation techniques used to
measure fair value into three broad levels:
• Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities
• Level 2: Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly; these
include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or
liabilities in markets that are not active
• Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Basis of Fair Value Measurements
Fair Value
of Assets
(Liabilities)
Quoted Prices
in Active
Markets for
Identical Items
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In millions)
Year Ended December 31, 2012
Long-lived assets held and used $3.2 -- -- $3.2
Year Ended December 31, 2011
Long-lived assets held and used $1.3 -- -- $1.3
Year Ended December 31, 2010
Long-lived assets held and used $0.9 -- -- $0.9
U.S. RadioShack Company-Operated Stores: In 2012
long-lived assets held and used in certain stores with a total
carrying value of $8.8 million were written down to their fair
value of $2.1 million, resulting in an impairment charge of
$6.7 million that was included in our operating results for
the period.
In 2011 long-lived assets held and used in certain stores
with a total carrying value of $4.4 million were written down
to their fair value of $1.3 million, resulting in an impairment
charge of $3.1 million that was included in our operating
results for the period.
In 2010 long-lived assets held and used in certain locations
of our U.S. RadioShack company-operated stores segment
and certain test store formats classified as other operations
with a total carrying value of $4.9 million were written down
to their fair value of $0.9 million, resulting in an impairment
charge of $4.0 million that was included in our operating
results for the period.
The inputs used to calculate the fair value of these long-
lived assets included the projected cash flows and a risk-
adjusted rate of return that we estimated would be used by
a market participant in valuing these assets. The projected
cash flows for a particular store are based on average
historical cash flows for that store and are projected
through the remainder of its lease. The risk-adjusted rate of
return used to discount these cash flows ranges from 15%
to 20%.
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.
Fair Value of Financial Instruments
Financial instruments not measured at fair value on a
recurring basis include cash and cash equivalents,
accounts receivable, accounts payable, accrued liabilities,
and long-term debt. With the exception of long-term debt,
the financial statement carrying amounts of these items
approximate their fair values due to their short-term nature.
Estimated fair values for our 2013 Convertible Notes and
our 2019 Notes were determined using recent trading
activity and/or bid-ask spreads and are classified as Level 2