Radio Shack 2003 Annual Report Download - page 40

RADIOSHACK 2003 Annual Report
38
ments and during the periods presented. The most signif-
icant estimates and assumptions include the determination
of estimates for third-party service deactivations in
connection with revenue recognition and receivables,
inventory valuation, depreciable lives of property, plant and
equipment, self-insurance reserves, warranty accruals,
and contingency and litigation reserves. Actual results
could differ materially from those estimates.
Foreign Currency Translation: The functional currency of sub-
stantially all operations outside the U.S. is the applicable
local currency. Translation gains or losses related to net
assets located outside the United States are included as a
component of accumulated other comprehensive loss and
are classified in the stockholders’ equity section of the
accompanying Consolidated Balance Sheets.
Revenue Recognition: Our revenue is derived principally from
the sale of private label and third-party branded products
and services to consumers. Revenue is recognized, net of an
estimate for customer refunds and product returns, when
delivery has occurred or services have been rendered, the
sales price is fixed or determinable, and collectibility is
reasonably assured. Certain products, such as wireless tele-
phones and satellite systems, require the customer to use
the services of a third-party service provider. In most cases,
the third-party service provider will pay us a fee or commis-
sion for obtaining a new customer, as well as a monthly
recurring residual amount based upon the ongoing
arrangement between the service provider and the customer.
Fee or commission revenue, net of estimated service
deactivations, is generally recognized at the time the cus-
tomer is accepted as a subscriber of a third-party service
provider. Residual income is recognized as earned under
the terms of each contract with the service provider, which
is typically as the service provider bills its customer,
generally on a monthly basis.
Additionally, we offer repair service (i.e., non-warranty) con-
tracts on products sold.These contracts generally provide
extended service coverage for periods ranging from 12 to
60 months.We offer these contracts in all but three states
on behalf of an unrelated third-party obligor.We are not
considered the primary obligor on these contracts. In these
circumstances, our share of commission revenue is recog-
nized as income at the time the contract is sold. For the
contracts offered in the three states where we are the primary
obligor, revenues from the sale of these contracts are rec-
ognized ratably over the terms of the contracts. Costs
directly related to the sale of such contracts are deferred
and charged to cost of products sold proportionately as the
revenues are recognized.A loss is recognized on extended
service contracts if the sum of the expected costs of providing
RADIOSHACK CORPORATION AND SUBSIDIARIES
Note 1 Description of Business
RadioShack Corporation was incorporated in Delaware in
1967. We primarily engage in the retail sale of consumer
electronic goods and services through our RadioShack®
store chain. Our strategy is to dominate cost-effective solu-
tions to meet everyone’s routine electronics needs and
families’distinct electronics wants.Throughout this report,
the terms “our,” “we,” “us“ and “RadioShack” refer to
RadioShack Corporation, including its subsidiaries.
At December 31, 2003, we operated 5,121 company stores
located throughout the United States, as well as in Puerto
Rico and the U.S. Virgin Islands.These stores are located in
major malls and strip centers, as well as individual store-
fronts.Each location carries a broad assortment of both private
label and third-party branded products. Our product lines
include electronic parts, batteries and accessories; wireless
and conventional telephones; audio and video equipment;
direct-to-home (“DTH”) satellite systems; personal com-
puters; personal electronics such as home air cleaners; and
unique toys.We also provide consumers access to third-
party services such as cellular and PCS phone and DTH
satellite activation, long distance telephone service, prepaid
wireless airtime and extended service plans. At December
31, 2003, we also had a network of 1, 921 dealer/franchise
outlets, including 55 located outside of the U.S.These out-
lets provide private label and third-party branded products
and services to smaller communities. The dealers are
generally engaged in other retail operations and augment
their businesses with our products and service offerings.
Our sales derived outside of the United States are not material.
Note 2 Summary of Significant Accounting Policies
Principles of Consolidation: The Consolidated Financial
Statements include our accounts and our majority owned
subsidiaries. Investments in 20% to 50% owned companies
are accounted for using the equity method. Significant
intercompany transactions and accounts are eliminated in
consolidation.
Pervasiveness of Estimates: The preparation of financial state-
ments in conformity with generally accepted accounting
principles requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
related revenues and expenses and the disclosure of gain
and loss contingencies at the date of the financial state-
Notes to Consolidated Financial Statements