Radio Shack 2003 Annual Report Download - page 50

RADIOSHACK 2003 Annual Report
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tax liabilities may ultimately differ from those estimates
if we were to prevail in matters for which accruals have been
established,or if taxing authorities successfully challenge
the tax treatment upon which our management has based its
estimates.Accordingly, our effective tax rate for a particular
period may materially change.
Note 15 Minority Interest in Subsidiary
In November 1999, we formed a limited liability company,
RadioShack.com LLC, and in January 2000 Microsoft
Corporation contributed $100.0 million for 100% of the pre-
ferred units in this company. On July 6, 2001, we purchased
all of Microsoft’s preferred units in RadioShack.com LLC for
$88.0 million, thereby eliminating the minority interest in
RadioShack.com LLC. The difference in the initial price of
the preferred units and repurchase price was treated as a
redemption of mandatorily redeemable preferred units,
which resulted in an increase to additional paid-in capital.
Note 16 Litigation
On July 28, 2003, we received payment of $15.7 million
resulting from the favorable settlement of a lawsuit we had
previously filed.We recorded this settlement in the accom-
panying Consolidated Statement of Income in the third
quarter of 2003 as other income of $10.7 million, net of legal
expenses of $5.0 million paid as a result of the lawsuit.
In October 2002, a court approved the final settlement of
$29.9 million in a class action lawsuit, which was originally
filed in March 2000 in Orange County, California. Actual
payments under this lawsuit totaled $29.0 million.The law-
suit related to the alleged miscalculation of overtime
wages for certain of our former and current employees in
that state.
Additionally, in the second quarter of 2002, we received
payments of $27.7 million in partial settlement of amounts
owed to us under a tax sharing agreement that was the
subject of an arbitration styled Tandy Corporation and T.E.
Electronics, Inc. vs. O’Sullivan Industries Holdings, Inc.This
partial settlement followed a ruling in RadioShack’s favor
by the arbitration panel.This arbitration was commenced in
July 1999 and the settlement also requires O’Sullivan to
make ongoing payments under this tax sharing agreement
that was entered into by the parties at the time of
O’Sullivan’s initial public offering.
We are currently a party to a class action lawsuit, styled
Alphonse L. Perez, et al. v. RadioShack Corporation, filed in
the United States District Court for the Northern District of
Illinois, alleging that we misclassified certain RadioShack
store managers as exempt from overtime in violation of the
Fair Labor Standards Act. While the alleged damages in this
lawsuit are undetermined, they could be substantial.We
believe that we have meritorious defenses and we are vigor-
ously defending this case. Furthermore, we fully expect
this case to be favorably determined as a matter of federal
law. If, however, an adverse resolution of the litigation
occurs, we believe it could have a material adverse effect
on our results of operations for the year in which resolution
occurs. However, we do not believe that such an adverse
resolution would have a material impact on our financial
condition or liquidity.The liability, if any, associated with
this matter was not determinable at December 31, 2003.
We have various pending claims, lawsuits, disputes with
third parties, investigations and actions incidental to the
operation of our business. Although occasional adverse
settlements or resolutions may occur and negatively impact
earnings in the year of settlement, it is our opinion that
their ultimate resolution will not have a materially adverse
effect on our financial condition or liquidity.
Note 17 Commitments and Contingent Liabilities
Lease Commitments: We lease rather than own most of our
facilities. Our retail stores comprise the largest portion of
our leased facilities.These stores are located primarily in
major shopping malls and shopping centers owned by
other companies. Some leases are based on a minimum
rental plus a percentage of the store’s sales in excess of a
stipulated base figure.We also lease distribution centers
and office space.
Future minimum rent commitments at December 31, 2003,
under long-term noncancelable operating leases (net of
immaterial amounts of sublease rent income) are included
in the following table.
(In millions)
2004 $183.7
2005 161.5
2006 118.2
2007 82.5
2008 54.5
2009 and thereafter 95.0
Total minimum lease payments $695.4