Radio Shack 2013 Annual Report Download - page 30

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executed through open market or private transactions.
During the fourth quarter of 2011, we paid $11.9 million to
purchase approximately 0.9 million shares of our common
stock in open market purchases. As of December 31, 2011,
there was $188.1 million available for share repurchases
under this program. We announced on January 30, 2012,
that we had suspended further share repurchases under
this program.
2008 Share Repurchase Program: During the second
quarter of 2011, we paid $101.4 million to purchase 6.3
million shares of our common stock in open market
purchases. This completed our purchases under our 2008
share repurchase program.
OFF-BALANCE SHEET ARRANGEMENTS
Other than the operating leases described above, we do
not have any off-balance sheet financing arrangements,
transactions, or special purpose entities.
INFLATION
Inflation has not significantly affected us over the past three
years. We do not expect inflation to have a significant effect
on our operations in the foreseeable future.
CRITICAL ACCOUNTING POLICIES AND
ESTIMATES
Our consolidated financial statements are prepared in
accordance with generally accepted accounting principles
(“GAAP”) in the United States. The application of GAAP
requires us to make estimates and assumptions that affect
the reported values of assets and liabilities at the date of
the financial statements, the reported amount of revenues
and expenses during the reporting period, and the related
disclosures of contingent assets and liabilities. The use of
estimates is pervasive throughout our financial statements
and is affected by management’s judgment and
uncertainties. Our estimates, assumptions and judgments
are based on historical experience, current market trends
and other factors that we believe to be relevant and
reasonable at the time the consolidated financial
statements are prepared. We continually evaluate the
information used to make these estimates as our business
and the economic environment change. Actual results may
differ materially from these estimates under different
assumptions or conditions.
In the Notes to Consolidated Financial Statements, we
describe the significant accounting policies used in the
preparation of our consolidated financial statements. The
accounting policies and estimates we consider most critical
are revenue recognition; inventory valuation; estimation of
reserves and valuation allowances specifically related to
insurance, tax and legal contingencies; valuation of long-
lived assets and goodwill; and stock-based compensation.
We consider an accounting policy or estimate to be critical
if it requires difficult, subjective or complex judgments, and
is material to the portrayal of our financial condition,
changes in financial condition or results of operations. The
selection, application and disclosure of our critical
accounting policies and estimates have been reviewed by
the Audit and Compliance Committee of our Board of
Directors.
Revenue Recognition
Description
Our revenue is derived principally from the sale of name
brand and private brand products and services to
consumers. Revenue is recognized, net of an estimate for
customer refunds and product returns, when persuasive
evidence of an arrangement exists, delivery has occurred
or services have been rendered, the sales price is fixed or
determinable, and collectability is reasonably assured.
Certain products, such as wireless telephone handsets,
require the customer to use the services of a third-party
wireless service provider. The wireless service provider
pays us an upfront commission for obtaining a new
customer or upgrading an existing customer and, in some
cases, a monthly recurring residual amount based upon the
ongoing arrangement between the service provider and the
customer. For certain new customers the upfront
commission revenue is repaid to the wireless service
provider if the wireless handset is subsequently deactivated
from the wireless network during a specified period. Our
sale of an activated wireless handset is the single event
required to meet the delivery criterion for both the upfront
commission and the recurring residual revenue. Upfront
commission revenue, net of estimated wireless service
deactivations, is recognized at the time an activated
wireless handset is sold to the customer at the point-of-
sale. Recurring residual revenue, which is not fixed and
determinable at the point of sale, is recognized as earned
under the terms of each contract with the wireless service
provider, which is typically as the wireless service provider
bills its customer, generally on a monthly basis.
Judgments and uncertainties involved in the estimate
Our revenue recognition accounting methodology requires
us to make certain judgments regarding the estimate of
future sales returns and wireless service deactivations. Our
estimates for product refunds and returns, wireless service
deactivations and commission revenue adjustments are
based on historical information pertaining to these items.
Based on our extensive history in selling activated wireless
handsets, we have been able to establish reliable estimates
for wireless service deactivations. However, our estimates
for wireless service deactivations can be affected by certain
characteristics of and decisions made by our service
providers. These factors include changes in the quality of
their customer service, the quality and performance of their
networks, their rate plan offerings, their policies regarding
extensions of customer credit, and their wireless handset
product offerings. These factors add uncertainty to our
estimates.
Effect if actual results differ from assumptions
We have not made any material changes in the
methodology used to estimate sales returns or wireless
service deactivations during the past three fiscal years. We
continue to update our estimate for wireless service
deactivations to reflect the most recently available
information regarding the characteristics of and decisions
made by our service providers discussed above. If actual
results differ from our estimates due to these or various
other factors, the amount of revenue recorded could be
materially affected. A 10% difference in our reserves for the