UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
Commission file number 1-5571
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RADIOSHACK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-1047710
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Throckmorton Street, Suite 1800, Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 415-3700
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
Common Stock, par value $1 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No __
As of June 30, 2003, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $4,378,512,568 based on the New York Stock
Exchange closing price.
As of February 18, 2004, there were 161,927,676 shares of the registrant's
Common Stock outstanding.
Documents Incorporated by Reference
Portions of the Proxy Statement for the 2004 Annual Meeting of Stockholders are
incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS.
GENERAL
RadioShack Corporation was incorporated in Delaware in 1967. We primarily engage
in the retail sale of consumer electronic goods and services through our
RadioShack(R) store chain. Our strategy is to dominate cost-effective solutions
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 averaged approximately 2,450 square feet and are located in major malls
and strip centers, as well as individual storefronts. 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 computers; 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 outlets 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.
Retail Support Operations. Our retail stores, along with our dealer/franchise
outlets, are supported by an established infrastructure. Below are the major
components of this support structure.
RadioShack Global Sourcing ("RSGS") - RSGS, which is owned by us, serves
our wide-ranging international import/export, sourcing, evaluation,
logistics and quality control needs. While the majority of RSGS's
activities support our business, RSGS also provides services for outside
customers.
Consumer Electronics Manufacturing - We operate four manufacturing
facilities in the United States and one overseas manufacturing operation
in the Asia Pacific region. These five manufacturing facilities employed
approximately 2,200 employees as of December 31, 2003. We manufacture a
variety of products, primarily sold through our retail outlets,
including telephony, antennas, wire and cable products, and a wide
variety of "hard to find" parts and accessories for consumer electronics
products.
RadioShack.com - Products, services and information are available
through our Web site www.radioshack.com. Online customers can purchase,
return or exchange products available through our Web site or at their
neighborhood RadioShack location.
RadioShack Customer Support - Using state-of-the-art telephone and data
networks, RadioShack Customer Support responds to more than 4.8 million
phone calls and emails annually. The responses include answers to
customers' unique requests for hard to find parts, batteries and
accessories, customer service inquiries and direct sales requests
related to our Web site and retail stores.
RadioShack Service Centers - We maintain a service and support network
to service the consumer electronics and personal computer retail
industry in the U.S. At December 31, 2003, we had 43 RadioShack service
centers in the U.S. and one in Puerto Rico that repair name brand and
private label products sold through our various sales channels. We are
also a vendor-authorized service provider for leading manufacturers such
as Compaq, Sony, Hewlett-Packard, RCA/Thomson, Kyocera, Nokia, Samsung,
ATC Logistics & Electronics and LG Electronics, among others. In
addition, we perform repairs for third-party service centers and
extended service plan providers.
RadioShack Technology Services ("RSTS") - Our management information
system architecture is composed of a distributed, online network of
computers that links all stores, customer channels, delivery locations,
service centers, credit providers, distribution facilities and our
corporate offices into a fully integrated system. Each store has its own
server to support the point of sale system. The majority of our company
stores communicate through a broadband network, which provides efficient
access to customer support data. This design also allows store
management to track sales and/or inventory at the product, customer or
sales associate level. RSTS provides the majority of our programming and
systems analysis needs.
Regional Distribution Centers - We have seven distribution centers that
ship over one million cartons each month to our retail stores and
dealer/franchise outlets. Two of these distribution centers also serve
as fulfillment centers for our online customers.
SEASONALITY
As with other retailers, our net sales and operating revenues, operating profits
and cash flows are proportionally greater during the winter holiday season than
during other periods of the year. There is a corresponding pre-seasonal
inventory build-up, which requires working capital related to the anticipated
increased sales volume. This is described in more detail below under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" ("MD&A") in the section titled "Cash Flow and Liquidity." Also, see
Note 29 of the "Notes to Consolidated Financial Statements" for our quarterly
data, which shows seasonality trends. We expect such seasonality to continue.
PATENTS AND TRADEMARKS
We own or are licensed to use many trademarks and service marks related to our
business in the United States and in foreign countries. Radio Shack, RadioShack,
RadioShack.com, and "You've got questions. We've got answers." are some of the
marks most widely used by us. We believe that the RadioShack name and marks are
well recognized by consumers and that the name and marks are associated with
high-quality products and services. We also believe that the loss of the
RadioShack name and RadioShack marks would have a material impact on our
business. Our private label manufactured products are sold primarily under the
RadioShack trademark. We also own various patents relating to electronic
products designed and manufactured by us.
SUPPLIERS AND BRANDED RELATIONSHIPS
Our business strategy depends, in part, upon our ability to offer private label
and third-party branded products, as well as third-party services, to our
customers. We utilize a large number of suppliers located in various parts of
the world to obtain raw materials and private label merchandise. We do not
expect a lack of availability of raw materials or any single private label
product to have a material impact on our operations. We have formed vendor and
third-party service provider relationships with well-recognized companies and,
in the aggregate, certain of these relationships are important to our business;
the loss of or disruption in supply from these relationships could have a
material adverse effect on our net sales and operating revenues. Additionally,
we have been limited from time to time by various vendors and suppliers strictly
on an economic basis, where demand has exceeded supply. In the aggregate, these
relationships have or are expected to have a significant impact on both our
operations and financial strategy. Our vendor and third-party relationships
include the following companies:
Hewlett-Packard Company ("HP") - HP is the sole supplier of both desktop
and laptop personal computers sold under the HP and Compaq names through
our retail stores, participating dealer/franchise outlets and on our Web
site.
EchoStar Satellite Corporation ("DISH Network") - We have a sales
incentive agreement with DISH Network to acquire subscribers for the
multi-channel audio/video programming direct broadcast satellite
services of DISH Network in the U.S.
Sprint Communications Company and Sprint PCS ("Sprint") - Through our
telecommunications relationship with Sprint, our customers have access
to wireless PCS telephones and service, prepaid calling cards and long
distance telephone service, as well as residential telephones and
related telephony products.
Verizon Wireless ("Verizon") - Our relationship with the nation's
largest wireless communications service provider permits approximately
4,300 company stores to sell products and services with a single
cellular service provider. The relationship fosters training, marketing,
inventory, repair and other supply chain synergies.
ORDER BACKLOG
We have no material backlog of orders for the products or services that we sell.
COMPETITION
Due to rising consumer demand for wireless communications products and services,
as well as rapid consumer acceptance of new digital technology products, the
consumer electronics retail business continues to be highly competitive,
primarily driven by technology and product cycles.
In the consumer electronics retailing business, competitive factors include
price, product availability, quality and features, consumer services,
manufacturing and distribution capability, brand reputation and the number of
competitors. We compete in the sale of our products and services with several
retail formats. Consumer electronics retailers include both Circuit City and
Best Buy. Department and specialty stores, such as Sears and The Home Depot,
compete on a more select product category scale. Sprint and Verizon compete
directly with us in the wireless department through their own retail and online
presence. Mass merchants such as Wal-Mart, Target and other alternative channels
of distribution, such as mail order and e-commerce retailers, compete with us on
a more widespread basis. Numerous domestic and foreign companies also
manufacture products similar to ours for other retailers, which are sold under
nationally-recognized brand names or private labels.
Management believes we have three primary factors differentiating us from our
competition. First is our extensive physical retail presence with approximately
7,000 convenient retail locations in virtually every neighborhood nationwide.
Second, our specially trained sales staff is capable of providing cost-effective
solutions for our customers' routine electronics needs and distinct electronics
wants, assisting customers with service activation, where applicable, and
assisting with the selection of appropriate products and accessories. Third is
our proven ability to accelerate the adoption of new technologies.
While we believe we have an effective business strategy, we cannot give
assurance that we will continue to compete successfully in the future, given the
highly competitive nature of the consumer electronics retail business. Also, in
light of the ever-changing nature of the consumer electronics retail industry,
we would be adversely affected if our competitors were able to offer their
products at significantly lower prices. Additionally, we would be adversely
affected if our competitors were able to introduce innovative or technologically
superior products not yet available to us, or if we were unable to obtain
certain products in a timely manner or for an extended period of time.
Furthermore, our business would be adversely affected if we fail to offer
value-added solutions or if our competition enhances their ability to provide
these value-added solutions.
EMPLOYEES
As of December 31, 2003, we had approximately 39,500 employees. Of the temporary
retail employees hired for the holiday selling season, approximately 7,700 of
these temporary employees remained at year-end. Our employees are not covered by
collective bargaining agreements, nor are they members of labor unions. We
consider our relationship with our employees to be good.
AVAILABLE INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act of
1934, as amended, and its rules and regulations. The Exchange Act requires us to
file reports, proxy statements and other information with the SEC. Copies of
these reports, proxy statements and other information can be inspected and
copied at:
SEC Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. You may also obtain copies of any material we
have filed with the SEC by mail at prescribed rates from:
Public Reference Section
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549-0004
You may obtain these materials electronically by accessing the SEC's home page
on the Internet at:
http://www.sec.gov
In addition, we make available, free of charge, on our Internet Web site, our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, amendments to these reports and proxy statements filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably
practicable after we electronically file this material with, or furnish it to,
the SEC. You may review these documents, under the heading "Investor Relations,"
by accessing our Web site:
http://www.radioshackcorporation.com
Also, reports and other information concerning us are available for inspection
and copying at:
New York Stock Exchange
20 Broad Street
New York, New York 10005
RADIOSHACK CORPORATE GOVERNANCE FRAMEWORK AND CODE OF ETHICS
Our Board of Directors has adopted a Corporate Governance Framework that sets
forth the board's policies regarding corporate governance with respect to
RadioShack. You may review the Corporate Governance Framework under the heading
"Investor Relations," sub-heading "Corporate Governance," by accessing our Web
site:
http://www.radioshackcorporation.com
You may also obtain a copy of the Corporate Governance Framework by mailing a
request to:
RadioShack Corporation
Assistant Corporate Secretary
100 Throckmorton Street, Suite 1700
Fort Worth, Texas 76102
In connection with the Board of Directors' responsibility to oversee our legal
compliance and ethical conduct, the Board of Directors has approved RadioShack's
Code of Ethics and Financial Code of Ethics. The Code of Ethics consists of both
our values and our Code of Conduct, and represents a framework for
decision-making and is an expression of our core values and expectations
regarding business conduct. The Code of Ethics (including the Code of Conduct)
is applicable to directors, officers and employees. The Financial Code of Ethics
addresses the responsibilities of our Chief Executive Officer, President, Chief
Financial Officer and Controller regarding the roles of these individuals with
respect to the oversight of our financial practices. You may review the Code of
Conduct and the Financial Code of Ethics under the heading "Investor Relations,"
sub-heading "Corporate Governance," by accessing our Web site:
http://www.radioshackcorporation.com
You can also obtain a copy of the Code of Conduct and the Financial Code of
Ethics by mailing a request to:
RadioShack Corporation
Assistant Corporate Secretary
100 Throckmorton Street, Suite 1700
Fort Worth, Texas 76102
CHARTERS OF COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established charters for each of the following
committees of the Board of Directors: Audit and Compliance Committee, Corporate
Governance Committee, Executive Committee and Management Development and
Compensation Committee. You may review a copy of the charters of each of these
committees "Investor Relations," sub-heading "Corporate Governance,"by accessing
our Web site:
http://www.radioshackcorporation.com
You can also obtain a copy of the charters by mailing a request to:
RadioShack Corporation
Assistance Corporate Secretary
100 Throckmorton Street, Suite 1700
Fort Worth, Texas 76102
ITEM 2. PROPERTIES.
Information on our properties is located in MD&A and the financial statements
included in this Form 10-K and is incorporated into this Item 2 by reference.
The following items are discussed further on the referenced pages:
Page
Retail Outlets............................ 12
Property, Plant and Equipment............. 40
Commitments and Contingent Liabilities.... 47
We lease, rather than own, most of our retail and service center facilities. Our
stores are located primarily in major shopping malls, stand-alone buildings or
shopping centers owned by other entities. We lease all of the property on which
our executive offices are located in downtown Fort Worth, Texas, one
distribution center in the United States, and six administrative offices and one
manufacturing plant in the Asia Pacific region. We own the property on which the
other six distribution centers are located and all of our manufacturing
facilities located throughout the United States. We also beneficially own land
purchased in 2001 in Fort Worth, Texas, on which our new corporate headquarters
is being constructed. This land is currently held on our behalf by a local
development agency operated by the City of Fort Worth to facilitate various
incentive programs provided by the City. Based on our periodic reviews, we
believe our existing distribution centers and office facilities are adequate to
meet our current and foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
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 vigorously
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 incident 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 2003.
EXECUTIVE OFFICERS OF THE REGISTRANT (SEE ITEM 10 OF PART III).
The following is a list of our executive officers and their ages, positions and
length of service with us as of February 18, 2004.
Position Years with
Name (Date Elected to Current Position) Age Company
---- -------------------------------- --- -------
Leonard H. Roberts (1) Chairman of the Board (May 1999) and 54 10
Chief Executive Officer (January 1999)
David J. Edmondson (2) President and Chief Operating Officer 44 9
(December 2000)
Evelyn V. Follit (3) Senior Vice President - Chief Organizational Enabling 57 6
Services Officer (October 2003) and Chief Information
Officer (July 1998)
Mark C. Hill (4) Senior Vice President - Chief Administrative Officer 52 7
(October 2003) and Secretary and General Counsel
(July 1997)
Laura K. Moore (5) Senior Vice President - Chief Communications Officer 41 5
(March 2003)
Michael D. Newman (6) Senior Vice President and Chief Financial 47 3
Officer (May 2001)
There are no family relationships among the executive officers listed, and there
are no arrangements or understandings under which any of them were appointed as
executive officers. All executive officers of RadioShack Corporation are
appointed by the Board of Directors annually to serve for the year, or until
their successors are appointed. All of the executive officers listed above have
served RadioShack in various capacities over the past five years, except for Mr.
Newman.
(1) Mr. Roberts has been Chairman of the Board of Directors, RadioShack
Corporation since May 1999 and Chief Executive Officer of RadioShack
Corporation since January 1999. Previously, Mr. Roberts was President,
RadioShack Corporation from December 1995 to December 2000.
(2) Mr. Edmondson served as Senior Vice President, RadioShack Corporation, and
Executive Vice President and Chief Operating Officer of the RadioShack
division from October 1998 to December 2000, prior to his appointment as
President and Chief Operating Officer, RadioShack Corporation. Mr.
Edmondson served as Senior Vice President of Marketing and Advertising of
the RadioShack division from November 1995 to October 1998.
(3) Ms. Follit served as Vice President and Chief Information Officer,
RadioShack Corporation, from July 1998 to May 1999, when she was appointed
Senior Vice President and Chief Information Officer, RadioShack
Corporation. In March 2003, she was appointed Senior Vice President -
Organizational Enabling Services and Chief Information Officer, and, in
October 2003, she was appointed Senior Vice President - Chief
Organizational Enabling Services Officer and Chief Information Officer.
(4) Mr. Hill served as Vice President, Corporate Secretary and General
Counsel, RadioShack Corporation, from July 1997 to October 1998, when he
was appointed Senior Vice President, RadioShack Corporation. In October
2003, he was appointed Senior Vice President - Chief Administrative
Officer; however, he continues to serve as our Secretary and General
Counsel.
(5) Ms. Moore served as Vice President - Corporate Communications and Public
Relations for RadioShack Corporation from November 1998 to October 2000,
when she was appointed Senior Vice President - Public Relations and
Corporate Communications, RadioShack Corporation. In March 2003, she was
appointed Senior Vice President - Chief Communications Officer.
(6) Mr. Newman has served as Senior Vice President and Chief Financial
Officer, RadioShack Corporation, since May 2001. Prior to joining
RadioShack Corporation, he was Vice President and Chief Financial Officer
of Intimate Brands, Inc. (a retailer of women's apparel and care products)
from June 2000 to December 2000, and Vice President and Chief Financial
Officer of Hussmann International, Inc. (a manufacturer of merchandising
equipment and commercial refrigeration systems) from 1996 to 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
PRICE RANGE OF COMMON STOCK
Our common stock is listed on the New York Stock Exchange and trades under the
symbol "RSH." The following table presents the high and low trading prices for
our common stock, as reported in the composite transactions quotations of
consolidated trading for issues on the New York Stock Exchange, for each quarter
in the two years ended December 31, 2003.
Dividends Dividends
Quarter Ended High Low Declared Paid
------------- ---- --- -------- ----
December 31, 2003 $ 32.48 $ 27.90 $ 0.25 $ 0.25
September 30, 2003 31.62 25.37 -- --
June 30, 2003 27.00 21.45 -- --
March 31, 2003 22.65 18.74 -- --
December 31, 2002 $ 24.72 $ 16.99 $ 0.22 $ 0.22
September 30, 2002 30.25 19.11 -- --
June 30, 2002 36.21 27.50 -- --
March 31, 2002 31.85 26.13 -- --
HOLDERS OF RECORD
At February 18, 2004, there were 29,083 holders of record of our common stock.
DIVIDENDS
The Board of Directors annually reviews our dividend policy. On October 17,
2003, our Board of Directors declared an annual dividend of $0.25 per common
share. The dividend was paid on December 26, 2003, to stockholders of record on
December 8, 2003.
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA (UNAUDITED)
RADIOSHACK CORPORATION AND SUBSIDIARIES
Year Ended December 31,
(Dollars and shares in millions, except per share 2003 2002 2001 2000 1999
amounts, ratios, outlets and square footage) --------- --------- --------- --------- ---------
Statements of Income Data
Net sales and operating revenues $4,649.3 $4,577.2 $4,775.7 $4,794.7 $4,126.2
Operating income $ 483.7 $ 425.4 $ 359.3 $ 629.7 $ 497.3
Net income $ 298.5 $ 263.4 $ 166.7 $ 368.0 $ 297.9
Net income available per common share:
Basic $ 1.78 $ 1.50 $ 0.88 $ 1.94 $ 1.51
Diluted $ 1.77 $ 1.45 $ 0.85 $ 1.84 $ 1.43
Shares used in computing earnings per common share:
Basic 167.7 173.0 183.8 187.3 194.2
Diluted 168.9 179.3 191.2 197.7 205.0
Gross profit as a percent of sales 49.8% 48.9% 48.1% 49.4% 50.5%
SG&A expense as a percent of sales 37.4% 37.8% 35.9% 34.1% 36.2%
Balance Sheet Data
Inventories $ 766.5 $ 971.2 $ 949.8 $1,164.3 $ 861.4
Total assets $2,243.9 $2,227.9 $2,245.1 $2,576.5 $2,142.0
Working capital $ 808.5 $ 878.7 $ 887.9 $ 585.8 $ 478.1
Capital structure:
Current debt $ 77.4 $ 36.0 $ 105.5 $ 478.6 $ 188.9
Long-term debt $ 541.3 $ 591.3 $ 565.4 $ 302.9 $ 319.4
Total debt $ 618.7 $ 627.3 $ 670.9 $ 781.5 $ 508.3
Total debt, net of cash and cash equivalents $ (16.0) $ 180.8 $ 269.5 $ 650.8 $ 343.7
Stockholders' equity $ 769.3 $ 728.1 $ 778.1 $ 880.3 $ 830.7
Total capitalization $1,388.0 $1,355.4 $1,449.0 $1,661.8 $1,339.0
Long-term debt as a % of total capitalization (1) 39.0% 43.6% 39.0% 18.2% 23.9%
Total debt as a % of total capitalization (1) 44.6% 46.3% 46.3% 47.0% 38.0%
Book value per common share at year end $ 4.73 $ 4.24 $ 4.40 $ 4.74 $ 4.36
Financial Ratios
Return on average stockholders' equity 39.9% 35.0% 20.1% 43.0% 35.5%
Return on average assets 13.4% 11.8% 6.9% 15.6% 14.4%
Annual inventory turnover 2.7 2.4 2.3 2.4 2.3
Ratio of earnings to fixed charges (2) 4.87 4.40 3.28 5.73 5.55
Other Data
Dividends declared per common share $ 0.250 $ 0.220 $ 0.165 $ 0.220 $ 0.205
Dividends paid per common share $ 0.250 $ 0.220 $ 0.220 $ 0.220 $ 0.200
Capital expenditures $ 189.6 $ 106.8 $ 139.2 $ 119.6 $ 102.4
Number of RadioShack retail locations at year end 7,042 7,213 7,373 7,199 7,186
Average square footage per company store 2,450 2,400 2,350 2,300 2,300
Comparable company store sales increase (decrease) 2% (1%) 1% 11% 12%
This table should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations ("MD&A") and the
Consolidated Financial Statements and related Notes.
(1) Capitalization is defined as total debt plus total stockholders' equity.
(2) Earnings used in computing the ratio of earnings to fixed charges consist of
pre-tax earnings and fixed charges. Fixed charges are defined as interest
expense related to debt, amortization expense related to deferred financing
costs, and a portion of rental charges.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ("MD&A").
RadioShack is primarily a retailer of consumer electronics and services. We seek
to differentiate ourselves from our various competitors by focusing on
dominating cost-effective solutions to meet everyone's routine electronics needs
and families' distinct electronics wants. This strategy allows us to take
advantage of the unique opportunities provided by our extensive retail presence,
specially-trained sales staff and relationships with reputable vendors. We
believe this strategy provides us with the opportunity to increase our market
share in the highly competitive consumer electronics area. In addition, we
continue to focus on methods to reduce the costs of goods sold and selling,
general and administrative expense. Furthermore, we believe that, by focusing on
opportunities such as innovative products, new markets, licensing opportunities
and creative distribution channels, we can ultimately generate increased
financial returns for our shareholders over the long term.
This section of our Annual Report on Form 10-K discusses certain factors that
may affect our future results (including economic and industry-wide factors),
our critical accounting policies and estimates, the results of our operations,
our liquidity and financial condition, and our risk management practices.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Matters discussed in MD&A and in other parts of this document include
forward-looking statements within the meaning of the federal securities laws.
These matters include statements concerning management's plans and objectives
relating to our operations or economic performance and related assumptions. We
specifically disclaim any duty to update any of the information set forth in
this document, including any forward-looking statements. Forward-looking
statements are made based on management's current expectations and beliefs
concerning future events and, therefore, involve a number of risks and
uncertainties. Management cautions that forward-looking statements are not
guarantees, and our actual results could differ materially from those expressed
or implied in the forward-looking statements. Important factors that could cause
our actual results of operations or financial condition to differ include, but
are not necessarily limited to, the following factors.
General Business Factors
o Changes in the national or regional U.S. economic conditions, including,
but not limited to, recessionary or inflationary trends, level of the
equity markets, consumer credit availability, interest rates, consumers'
disposable income and spending levels, job security and unemployment, and
overall consumer confidence;
o changes in the amount and degree of promotional intensity exerted by
current competitors and potential new competition from both retail stores
and alternative methods or channels of distribution, such as e-commerce,
telephone shopping services and mail order;
o the inability to attract, retain and grow an effective management team in a
dynamic environment or changes in the cost or availability of a suitable
workforce to manage and support our service-driven operating strategies;
o any potential tariffs imposed on products that we import from China, as
well as the potential strengthening of China's currency against the U.S.
dollar;
o continuing terrorist activities in the U.S., as well as the international
war on terrorism;
o the disruption of international, national or regional transportation
systems;
o the lack of availability or access to sources of inventory;
o changes in the financial markets that would reduce or eliminate access to
longer term capital or short-term credit availability;
o the imposition of new restrictions or regulations regarding the products
and/or services we sell or changes in tax rules and regulations applicable
to us;
o the occurrence of severe weather events or natural disasters, which could
significantly damage or destroy outlets or prohibit consumers from
traveling to our retail locations, especially during the peak winter
holiday season;
o increases in ocean freight rates; and
o the inability to timely manufacture or receive Asian shipments due to the
potential emergence of a disease, including SARS.
RadioShack Specific Factors
o The inability to successfully execute our strategy to dominate
cost-effective solutions to meet everyone's routine electronics needs and
families' distinct electronics wants;
o the failure to differentiate ourselves as an electronics specialty retailer
in the U.S. marketplace;
o the inability to create, maintain or renew profitable contracts or execute
business plans with providers of third-party branded products and with
service providers relating to cellular and PCS telephones;
o the presence or absence of new services or products and product features in
the merchandise categories we sell and unexpected changes in our actual
merchandise sales mix;
o the inability to collect the level of anticipated residual income,
subscriber acquisition fees and rebates for products and third-party
services offered by us;
o the existence of contingent lease obligations related to our discontinued
retail operations arising from an assignee's or a sub-lessee's failure to
fulfill its lease commitments, or from our inability to identify suitable
sub-lessees for vacant facilities;
o the inability to successfully identify and analyze emerging growth
opportunities in the areas of strategic business alliances, licensing
opportunities, new markets, alternative sales channels, and innovative
products;
o the inability to successfully identify and enter into relationships with
developers of new technologies or the failure of these new technologies to
be adopted by the market; and
o any reductions or changes in the growth rate of the wireless industry and
changes in the wireless communications industry dynamics, including both
consolidation and the effects of number portability.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires us to make
estimates that affect the reported values of assets, liabilities, revenues and
expenses. Our estimates are based on historical experience and various other
factors that we believe to be reasonable under the circumstances, the results of
which form the basis for our conclusions. We continually evaluate the
information used to make these estimates as our business and the economic
environment changes. The use of estimates is pervasive throughout our financial
statements. Note 2 to the consolidated financial statements includes a summary
of our most significant accounting policies, but the accounting policies and
estimates we consider most critical are as follows:
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 handsets 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 commission 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 disconnects, is generally recognized at the
time the customer 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. Material differences could result in the
amount and timing of our revenue for any period if actual returns, sales, fee or
commission revenue adjustments exceed or are different from our estimates or
assumptions.
Additionally, we offer repair service (i.e., non-warranty) contracts 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 recognized 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 recognized ratably over the term 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 services pursuant to the contracts exceeds the related
unearned revenue.
Receivables: We record receivables based on the amount of revenue recognized as
described above. Our receivables primarily consist of amounts due from certain
vendors, third-party service providers, dealer/franchisees and commercial
customers. The carrying amount of the receivables is continually evaluated based
on the likelihood of collection. An allowance for doubtful accounts is
established for estimated losses resulting from the inability of our vendors,
third-party service providers, and both dealer/franchise and commercial
customers to make their required payments. Factors such as these parties'
creditworthiness, payment terms, historical results and economic conditions are
considered when making these decisions. If any of these parties'
creditworthiness deteriorates beyond our expectations, or if any of their actual
defaults exceed our historical experience, such that actual collections are
different from their recorded amounts, material charges to our selling, general
and administrative expenses could be required.
Inventory: Inventory is our largest asset class. Our inventory consists
primarily of finished goods and is recorded at the lower of cost (based on the
average cost method) or market. We make estimates regarding the carrying value
of our inventory on an item-by-item basis. If the amount we expect to receive
from the sale of the inventory is less than its cost, we write down the cost of
the inventory to its estimated realizable value based on assumptions about
future demand and market conditions. If actual market conditions are less
favorable than those projected by management, or if unexpected changes in
technology affect demand for certain products, we could be exposed to losses on
the recorded amounts in inventory in excess of our established reserves.
Accrued Expenses: The amount of liability we record for claims related to self
insurance, warranty and pending litigation requires us to make judgments about
the amount of expenses that will ultimately be incurred. We use our past history
and experience, as well as other specific circumstances surrounding these
claims, in evaluating the amount of liability that we should record. As
additional information becomes available, we assess the potential liability
related to our various claims and revise our estimates as appropriate. These
revisions could materially impact our results of operations and financial
position.
Income Taxes: We are subject to income taxes in many jurisdictions, including
the U.S., states and localities, and abroad. We must first determine which
revenues and expenses should be included in each taxing jurisdiction. This
process involves the estimation of our actual current tax exposure, together
with the assessment of temporary differences resulting from differing treatment
of income or expense items for tax and accounting purposes. We establish tax
reserves in our consolidated financial statements based on our estimation of
current tax exposures. If we prevail in tax matters for which reserves have been
established or we are required to settle matters in excess of established
reserves, our effective tax rate for a particular period could be materially
affected. Temporary differences arising from differing treatment of income and
expense items for tax and financial reporting purposes result in deferred tax
assets and liabilities that are recorded on our balance sheet. If our actual
results differ from estimated results or if we adjust our estimates in the
future such that we would not expect to realize all or part of our net deferred
tax assets, we may need to establish a valuation allowance against our deferred
tax assets, which could also materially affect our effective tax rate.
OVERVIEW OF 2003 FINANCIAL PERFORMANCE
Management reviews a number of key indicators to evaluate our financial
performance, including:
o net sales and operating revenues,
o gross margin,
o selling, general and administrative ("SG&A") expense, and
o operating margin.
For 2003, RadioShack's net sales and operating revenues increased 1.6%, and our
gross margin improved to 49.8% of our 2003 net sales. Our SG&A expense decreased
to 37.4% of our 2003 net sales, helping to increase our operating margin to
10.4%.
In managing our business, management uses various metrics for company operated
stores, including average tickets per store and average sales per ticket. See
the table below for a summary of these statistics for the years indicated.
2003 2002 2001
--------- --------- ---------
Average tickets per store per day 72 73 71
Average sales per ticket $30.77 $29.40 $30.41
For a more detailed discussion of our financial performance, please continue
reading our MD&A, Consolidated Financial Statements and Notes to Consolidated
Financial Statements.
RETAIL OUTLETS
The table below shows our retail locations broken down between company stores
and dealer/franchise outlets. While the dealer/franchise outlets represent
approximately 27% of RadioShack's total retail locations, our sales of product
to dealer/franchisees are less than 10% of our total net sales and operating
revenues (see "Results of Operations" below).
Average At December 31,
Store Size ----------------------------------
(Sq. Ft.) 2003 2002 2001
--------------------------------------------------------------------------------
Company operated stores 2,439 5,121 5,161 5,127
Cool Things @ Blockbuster (1) N/A --- --- 127
Dealer/franchise outlets N/A 1,921 2,052 2,119
----- ----- -----
Total number of retail locations 7,042 7,213 7,373
======= ======= =======
(1) Test stores closed in early 2002.
In addition to our company operated stores and dealer/franchise outlets, our
existing and emerging sales channels include our www.radioshack.com Web site and
catalog operations, as well as sophisticated outbound and inbound telephone call
centers.
Real Estate Owned and Leased
Approximate Square Footage
at December 31,
------------------------------------------------------------------------------------
2003 2002
---------------------------------------- ----------------------------------------
(In thousands) Owned Leased Total Owned Leased Total
-----------------------------------------------------------------------------------------------------------------
Retail
RadioShack 18 12,417 12,435 18 12,486 12,504
Support Operations
Manufacturing 157 208 365 502 201 703
Distribution centers
and office space 2,610 2,557 5,167 3,022 2,481 5,503
---------- ---------- ---------- ---------- ---------- ----------
2,785 15,182 17,967 3,542 15,168 18,710
========== ========== ========== ========== ========== ==========
RESULTS OF OPERATIONS
Net sales and operating revenues by channel of distribution are as follows:
Year Ended December 31,
(In millions) 2003 2002 2001
------------- -------- -------- --------
Company operated store sales $4,350.2 $4,247.0 $4,266.2
Dealer/franchise and other sales 299.1 330.2 509.5
-------- -------- --------
Net sales and operating revenues $4,649.3 $4,577.2 $4,775.7
======== ======== ========
The following table provides a summary of our net sales and operating revenues
by department and as a percent of net sales and operating revenues.
Net Sales And Operating Revenues
Year Ended December 31,
------------------------------------------------------
2003 2002 2001
---------------- ---------------- ----------------
Wireless communication $1,623.2 34.9% $1,419.9 31.0% $1,297.5 27.2%
Wired communication 343.7 7.4 379.7 8.3 383.5 8.0
Radio communication 114.8 2.5 120.6 2.6 132.0 2.8
Home entertainment 737.9 15.9 855.2 18.7 1,121.4 23.5
Computer 455.9 9.8 456.8 10.0 461.1 9.6
Power and technical 634.1 13.6 623.9 13.6 618.9 13.0
Personal electronics,
toys and personal audio 588.1 12.6 576.2 12.6 562.0 11.8
Retail support operations,
service plans, and other 151.6 3.3 144.9 3.2 199.3 4.1
---------------- ---------------- ----------------
Net sales and operating
revenues $4,649.3 100.0% $4,577.2 100.0% $4,775.7 100.0%
================ ================ ================
2003 COMPARED WITH 2002
NET SALES AND OPERATING REVENUES
Sales increased approximately 1.6% to $4,649.3 million in 2003 from $4,577.2
million in 2002. We had a 2% increase in comparable company store sales. These
increases were primarily the result of a 14.3% increase in wireless department
sales, partially offset by a decline in sales within the home entertainment
department. These sales increases were possible because of an increase in
average store volume, despite a decrease in 2003 of 40 company stores, net of
store openings. We expect a sales gain for 2004 as discussed in further detail
below.
Sales to our dealer/franchise outlets, in addition to retail support operations
and other sales, were down $31.1 million for 2003, or a decrease of 9.4%, when
compared to 2002. Sales to our dealer/franchise outlets remain substantially
less than 10% of our total sales. Retail support operation sales are generated
primarily from outside sales of our repair centers, RadioShack Installation
Services ("RSIS"), and domestic and overseas manufacturing. The decrease in
retail support operations sales from 2002 to 2003 primarily resulted from an
overall decline in our RSIS commercial business, the closure of several of our
manufacturing facilities in the third quarter of 2003, and the sale of RSIS in
September 2003. We expect 2004 sales from dealer/franchise and retail support
operations to underperform, compared to the 2004 sales performance of the
Company as a whole.
Sales in the wireless communication department, which is made up of wireless
handsets (including related services), accessories, and wireless services such
as prepaid airtime and bill payments, increased 14.3% in dollars and increased
as a percentage of total sales to 34.9% in 2003 compared to 31.0% in 2002. This
sales increase was due primarily to an increase in the average selling price of
our wireless handsets, resulting from our continued emphasis on national carrier
service and product offerings with desirable product features and content, such
as color screens and cameras. In addition, sales increases in both wireless
services and accessories contributed to this increase. We believe our plans
featuring new technologies, sales promotions, and carrier compensation models
will result in wireless sales increases for 2004.
Sales in the wired communication department, which includes residential
telephones, answering machines and other related telephony products, decreased
9.5% in dollars and decreased as a percentage of total sales to 7.4% in 2003,
compared to 8.3% in 2002. These decreases were primarily the result of a decline
in 2003 sales of the "Telezapper," a call screening product, although they were
partially offset by sales increases of cordless phones. We anticipate that sales
in this department will be down for 2004, compared to 2003, as customers
continue to migrate to more advanced technologies.
Sales in the radio communication department decreased 4.8% in dollars and
decreased slightly as a percentage of total sales to 2.5% in 2003, compared to
2.6% in 2002. The decrease in this department was primarily the result of a
decrease in Family Radio Service ("FRS"), two-way radio sales, scanner sales and
communication accessories, partially offset by a sales increase in GPS devices.
We believe sales in this department will be approximately the same for 2004,
compared to 2003.
Sales in the home entertainment department, which consists of all home audio and
video end-products and accessories, including DTH hardware and installation,
decreased 13.7% in dollars and decreased as a percentage of total sales to 15.9%
in 2003 compared to 18.7% in 2002. These decreases were primarily attributable
to a decline in sales of satellite dishes and their related installation
services, as well as a decrease in home entertainment accessory sales. The sales
decrease was partially offset by increased sales of DVD players and televisions.
We anticipate that sales in the home entertainment department will be down for
2004, compared to 2003.
Sales in the computer department, which includes desktop, laptop, handheld
computers and related accessories, in addition to digital cameras and home
networking products, decreased slightly in dollars and decreased as a percentage
of total sales to 9.8% in 2003 compared to 10.0% in 2002. These decreases were
primarily the result of a planned decrease in sales of desktop CPUs and
monitors, substantially offset by increased sales of digital cameras, camcorders
and related accessories, as well as home networking products and computer
accessories. We expect that sales in the computer department will increase in
2004, compared to 2003.
Sales in the power and technical department increased slightly in dollars and
remained at 13.6% of total sales for both 2003 and 2002. This sales increase was
primarily due to increased sales of general and special purpose batteries and
power inverters, but was partially offset by decreased sales of bulk and
packaged wire, as well as decreases for technical parts and tools. We anticipate
that sales will increase in this department in 2004, compared to 2003.
Sales in the personal electronics, toys and personal audio department increased
slightly in dollars and remained at 12.6% of total sales for both 2003 and 2002.
The increase in this department was due primarily to micro radio-controlled cars
and related accessories not available in the first nine months of 2002 and, to a
lesser extent, sales of wellness products sold under our LifeWise(TM) brand.
Also, increased sales of personal audio products had a positive impact for 2003,
resulting from increases in national security threats and the conflict in Iraq.
These increases were substantially offset by decreased sales of personal
electronics, excluding wellness products, and educational toys. We believe sales
in this department will be approximately the same for 2004, compared to 2003.
GROSS PROFIT
Gross profit for 2003 was $2,315.7 million or 49.8% of net sales and operating
revenues, compared with $2,238.3 million or 48.9% of net sales and operating
revenues in 2002, resulting in a 3.5% increase in gross profit and a 90 basis
point increase in our gross profit percentage. These increases over the prior
year were primarily due to the following:
We experienced over $40.0 million in benefit from our supply chain vendor and
strategic pricing initiatives. In connection with these initiatives, we utilized
on line reverse auctions, realized more favorable terms from vendors, improved
the impact of markdowns, priced our products more appropriately, and utilized
other techniques and incentives to optimize gross profit.
We also improved our merchandise mix within departments by increasing the sales
mix for many of our higher margin products, while managing the mix down for many
lower margin products.
We anticipate that gross profit as a percentage of net sales and operating
revenues will continue to improve for 2004, when compared to 2003, due primarily
to the planned enhancement of our current sales mix towards higher margin
products such as computer accessories, batteries, wellness and digital products.
Also, the impact of additional supply chain management initiatives, particularly
in vendor relations and end-of-life inventory management, should provide a
positive impact.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
The table below summarizes the breakdown of various components of our
consolidated SG&A expense and its related percentage of total net sales and
operating revenues.
Year Ended December 31,
---------------------------------------------------------
2003 2002 2001
------------------ ------------------ ------------------
% of % of % of
Sales & Sales & Sales &
(In millions) Dollars Revenues Dollars Revenues Dollars Revenues
------------------------------------------- ------------------ ------------------
Payroll and commissions $ 751.9 16.2% $ 728.0 15.9% $ 740.3 15.5%
Advertising 254.4 5.5 241.0 5.3 253.9 5.3
Rent 250.1 5.4 244.9 5.4 230.3 4.8
Other taxes 106.9 2.3 105.9 2.3 111.8 2.4
Insurance 81.5 1.8 71.0 1.6 60.6 1.3
Utilities and telephone 75.8 1.6 74.9 1.6 73.2 1.5
Credit card fees 36.1 0.8 35.8 0.8 34.9 0.7
Lawsuit settlement -- -- 29.0 0.6 -- --
Stock purchase
and savings plans 21.5 0.4 20.8 0.5 20.3 0.4
Repairs and maintenance 11.6 0.2 12.0 0.3 11.4 0.2
Printing, postage and
office supplies 10.0 0.2 10.5 0.2 12.2 0.3
Travel 8.6 0.2 9.6 0.2 10.4 0.2
Loss on real estate
sub-lease 5.6 0.1 6.0 0.1 -- --
Bad debt 0.4 -- 4.7 0.1 14.5 0.3
Store closing costs -- -- -- -- 7.6 0.2
Other 125.6 2.7 134.5 2.9 132.5 2.8
----------------- ----------------- ------------------
$1,740.0 37.4% $1,728.6 37.8% $1,713.9 35.9%
================== ================== ==================
Our SG&A expense increased 0.7% in dollars, but decreased as a percent of net
sales and operating revenues to 37.4% for the year ended December 31, 2003, from
37.8% for the year ended December 31, 2002. The dollar increase for 2003 was
primarily due to a $23.9 million increase in payroll and commissions and a $13.4
million increase in advertising, partially offset by the $29.0 million
litigation charge in 2002 related to the settlement of a class action lawsuit in
California.
Payroll expense increased by $23.9 million to $751.9 million in 2003 and
increased 0.3 percentage points to 16.2% percent of net sales and operating
revenues in 2003, compared to 15.9% in 2002. The increase in both dollars and as
a percentage of total sales was due primarily to an increase in incentive pay
based on increased earnings, as well as the 2.4% increase in company retail
sales. We expect payroll expense to increase in 2004.
Advertising expense increased $13.4 million in 2003 to $254.4 million from
$241.0 million in 2002 and increased 0.2 percentage points to 5.5% of net sales
and operating revenues in 2003, compared to 5.3% in 2002.
Rent expense increased by $5.2 million to $250.1 million in 2003, but remained
the same as a percent of net sales and operating revenues of 5.4% in both 2003
and 2002. The dollar increase was due primarily to lease renewals and
relocations at higher rates, as well as a slight increase in the average store
size. The percent of net sales remained the same due to fewer company stores and
our continued rent reduction efforts. We expect a similar increase in 2004 rent
for the same reasons described for 2003.
Insurance expense increased $10.5 million to $81.5 million in 2003 from $71.0
million in 2002 and increased as a percent of net sales and operating revenues
to 1.8% in 2003, compared to 1.6% in 2002. Substantially all of our insurance
expense relates to our self-insurance programs. We maintain reserves for
self-insurance liabilities related to our group medical and casualty losses,
which include general and product liability and workers' compensation. In some
cases, risks are insured through outside carriers for losses in excess of
self-insured amounts. These reserves are adjusted to reflect estimates based on
historical experience, estimated claims incurred but not yet reported, the
impact of risk management programs, and the estimated effect of external
factors. As of December 31, 2003, actual losses had not exceeded our
expectations.
In 2004, we expect SG&A expense to increase slightly in dollars, but decrease
slightly as a percentage of net sales and operating revenues, due to increased
sales volume and a continued focus on leveraging our fixed expense base.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense decreased $2.7 million dollars to $92.0
million and remained at 2.0% of net sales and operating revenues for both 2003
and 2002. We expect depreciation and amortization expense to increase slightly
in 2004, due to depreciation increases associated with new store fixtures,
capitalized software related to inventory management, and information systems
projects.
GAIN ON CONTRACT TERMINATION
There was no gain on contract termination in 2003. For information on the prior
year gain on contract termination, see the discussion below under the section
titled "2002 Compared with 2001."
IMPAIRMENT OF LONG-LIVED ASSETS
There was no impairment of long-lived assets in 2003. For information on the
prior year impairment of long-lived assets, see the discussion below under the
section titled "2002 Compared with 2001."
NET INTEREST EXPENSE
Interest expense, net of interest income, was $22.9 million for 2003 versus
$34.4 million for 2002, a decrease of $11.5 million or 33.4%.
Interest expense decreased to $35.7 million in 2003 from $43.4 million in 2002.
This decrease was primarily the result of a reduction in the average debt
outstanding throughout 2003. In addition, our interest rate swap instruments and
the capitalization of $2.6 million of interest expense related to the
construction of our new corporate campus also lowered overall interest expense
for the year ended December 31, 2003, when compared to the same prior year
period.
Interest income increased over 42% to $12.8 million in 2003 from $9.0 million in
2002, primarily as a result of a $5.6 million increase in interest received from
tax settlements in 2003, as compared to 2002. Interest income, including
accretion of discount as applicable, earned on the amounts outstanding during
the three years ended December 31, 2003, 2002 and 2001, was as follows:
Year Ended December 31,
-----------------------------
(In millions) 2003 2002 2001
------------- -------- -------- --------
CompUSA note receivable $ -- $ -- $ 6.1
Other (includes short-term
investment interest) 12.8 9.0 6.9
-------- -------- --------
Total interest income $ 12.8 $ 9.0 $ 13.0
======== ======== ========
Interest expense, net of interest income, is expected to decrease in 2004, when
compared to 2003.
OTHER INCOME, NET
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 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.
On September 10, 2003, we sold our wholly-owned subsidiary, AmeriLink Corp.
("AmeriLink"), also referred to as RSIS, to INSTALLS inc, LLC in a
cash-for-stock sale, resulting in a loss of $1.8 million, based on AmeriLink's
book value, which was recorded in other income.
For the year ended December 31, 2003, we received and recorded income of $3.1
million owed to us under a tax sharing agreement with O'Sullivan Industries
Holdings, Inc. ("O'Sullivan"), compared to $33.9 million received and recorded
in the corresponding prior year period. In the second quarter of 2002, we
received and recorded income of $27.7 million in partial settlement of amounts
owed to us under this tax sharing agreement that was the subject of an
arbitration dispute with O'Sullivan. This partial settlement followed a ruling
in our favor by the arbitration panel. Future payments under the tax sharing
agreement will vary based on the level of O'Sullivan's future earnings and are
also dependent on O'Sullivan's overall financial condition and ability to pay.
There can be no assurances that future payments will be received under the tax
sharing agreement each quarter, nor can we give any assurances as to the amount
of payment that may be received each quarter.
PROVISION FOR INCOME TAXES
Our provision for income taxes reflects an effective income tax rate of 36.9%
for 2003 and 38.0% for 2002. The decrease in the effective tax rate for 2003,
when compared to 2002, was the result of a favorable tax settlement related to
prior year tax matters. We anticipate that the effective tax rate for 2004 will
be approximately 38.0%.
2002 COMPARED WITH 2001
NET SALES AND OPERATING REVENUES
Sales decreased approximately 4.2% to $4,577.2 million in 2002 from $4,775.7
million in 2001. This decrease was primarily the result of a 38.7% decline in
sales to our dealer/franchise outlets in 2002, mainly due to the decline in DTH
unit sales. In addition, we also had a 1% decrease in comparable company store
sales due primarily to the decline of DTH unit sales and desktop computers, but
offset by sales increases in wireless handsets and related accessories. Retail
support operations, service plans and other sales decreased 26.2% from 2001 to
2002 primarily as a result of a $19.1 million decrease in 2002 domestic
manufacturing sales due to large Verizon fixture sales in 2001 and a $15.2
million decrease in RSIS sales as a result of our exit from the national
commercial installation business at the end of 2001. Sales in the wireless
communication department increased 9.4% in dollars and increased to 31.1% of our
total sales in 2002 from 27.2% in 2001. This sales increase was due to an
increase in sales of wireless handsets and accessories which resulted from our
emphasis on national carrier offerings with desirable product features and
content, such as color screens, photo capability and Internet access. Sales in
the wired communication department decreased 1.0% in dollars and increased
slightly as a percentage of our total sales to 8.3% in 2002 from 8.0% in 2001.
Increased sales of cordless telephones were more than offset by decreased sales
of corded telephones. Sales in the radio communication department decreased 8.7%
in dollars and decreased slightly as a percentage of our total sales to 2.6% in
2002 from 2.8% in 2001. The decrease in this department was primarily the result
of a decrease in Family Radio Service ("FRS") and CB radio sales, scanner sales
and communication accessories, partially offset by a sales increase in GPS
devices. Sales in the home entertainment department decreased 23.7% in dollars
and decreased as a percentage of our total sales to 18.7% in 2002 from 23.5% in
2001. Substantially all of the dollar decrease was attributable to a decrease in
sales of satellite dishes and related installations. This decrease was partially
offset by increased sales of DVD players. Sales in the computer department
decreased 0.9% in dollars and increased as a percentage of our total sales to
10.0% in 2002 from 9.6% in 2001. These sales dollars were maintained primarily
due to an increase in laptop computers, computer accessories and digital camera
sales, offset by a decline in unit sales of desktop CPUs and monitors. Sales in
the power and technical department increased 0.8% in dollars and also as a
percentage of our total sales to 13.6% in 2002 from 13.0% in 2001. These
increases were primarily due to increased sales of general and special purpose
batteries, partially offset by decreased sales of bulk and packaged wire and
technical parts. Sales in the personal electronics, toys and personal audio
department increased 2.6% in dollars, as well as increasing as a percentage of
our total sales to 12.6% in 2002 from 11.8% in 2001, due primarily to increased
sales of micro radio controlled cars and related accessories, in addition to
unique giftables.
GROSS PROFIT
Gross profit in 2002 was $2,238.3 million or 48.9% of net sales and operating
revenues, compared with $2,296.8 million or 48.1% of net sales and operating
revenues in 2001. Gross profit decreased $58.5 million or 2.5% in 2002,
primarily as a result of a 4.2% decrease in net sales and operating revenues.
Despite this decrease in gross profit dollars, the gross profit percentage
increased from 48.1% to 48.9% in 2002, due primarily to an increase in the gross
profit percentage in the home entertainment department and, to a lesser extent,
increases in both the power and technical and computer departments' gross profit
percentages. Our gross profit percentage increase was partially offset by
reductions in both the wireless and wired departments' gross profit percentages,
compounded by the increase in the wireless communication department's percent of
total retail sales. The reduction in gross profit dollars was partially offset
by a decrease in the total sales mix attributable to the home entertainment
department, which has a lower gross profit percentage than our overall average
gross profit percentage, as well as an increase in gross profit dollars for the
power and technical department. Additionally, the gross profit percentage
improved for our retail support operations in 2002.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Our SG&A expense increased 0.9% in dollars and increased as a percent of net
sales and operating revenues to 37.8% for the year ended December 31, 2002, from
35.9% for the year ended December 31, 2001. The dollar increase for 2002 was
primarily due to a $29.0 million litigation charge related to the settlement of
a class action lawsuit in California and a $6.0 million charge to our 1996
restructuring reserve as a result of the bankruptcy of a sub-lessee in a former
Incredible Universe store site. A $14.6 million increase in our rent expense and
lower overall sales in 2002 also contributed to a higher SG&A expense ratio.
This was partially offset by a $7.6 million charge for store closing costs from
2001, which did not reoccur in 2002. Payroll expense decreased by $12.3 million
to $728.0 million in 2002, but increased slightly as a percent of net sales and
operating revenues to 15.9% in 2002, compared to 15.5% in 2001. The decrease in
dollars was due primarily to our reduction in headcount during the third quarter
of 2001. Rent expense increased by $14.6 million to $244.9 million in 2002 and
increased as a percent of net sales and operating revenues to 5.4% in 2002 from
4.8% in 2001. These increases were due primarily to lease renewals and
relocations at higher rates, as well as a slight increase in the average store
size. Advertising expense decreased $12.9 million in 2002 to $241.0 million from
$253.9 million in 2001, while remaining at 5.3% of net sales and operating
revenues during both 2002 and 2001. The dollar decrease was due primarily to an
increase in advertising contributions from our various vendors and third-party
service providers. Insurance expense increased $10.4 million to $71.0 million in
2002 from $60.6 million in 2001 and increased as a percent of net sales and
operating revenues to 1.6% in 2002, compared to 1.3% in 2001. As of December 31,
2002, actual losses regarding insurance claims had not exceeded our
expectations.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense decreased $13.6 million dollars to $94.7
million and decreased as a percent of net sales and operating revenues to 2.0%
in 2002 from 2.3% in 2001. These decreases were primarily attributable to the
elimination of goodwill amortization related to RSIS, as well as the sale of our
corporate headquarters, during the fourth quarter of 2001.
GAIN ON CONTRACT TERMINATION
RadioShack and Microsoft mutually agreed during 2002 to terminate their
agreement and settle the remaining commitments each had to one another. The
termination of this agreement took effect at the start of the fourth quarter of
2002, upon satisfaction of several contractual obligations. The net financial
result was an $18.5 million gain (principally cash received), driven primarily
by the settlement of a multi-year obligation Microsoft had to connect our stores
with broadband capabilities.
IMPAIRMENT OF LONG-LIVED ASSETS
AmeriLink was acquired in 1999 to provide us with residential installation
capabilities for the technologies and services offered in our retail stores. As
a result of continued difficulties in the DTH business and a refocus during the
fourth quarter on our satellite installation strategy, together with a revised
cash flow projection for our overall installation business, we determined that
the remaining long-lived assets associated with RSIS were impaired. We compared
the carrying value of these long-lived assets with their fair value and
determined that the remaining goodwill balance of $8.1 million was impaired and
we, therefore, recorded an impairment charge of this amount in the accompanying
2002 Consolidated Statement of Income. As of December 31, 2002, there was no
remaining goodwill balance on our balance sheet relating to RSIS.
LOSS ON SALE OF ASSETS
In the fourth quarter of 2001, we sold and leased back most of our corporate
headquarters at a loss of $44.8 million. In June 2001, we received $123.6
million for the settlement of the Computer City, Inc. purchase price and
settlement of the $136.0 million note which was received in connection with the
sale of Computer City, Inc. in 1998. Thus, we incurred an additional loss from
the sale of Computer City, Inc. of $12.4 million.
EMPLOYEE SEPARATION AND OTHER COSTS
During the third quarter of 2001, as part of our effort to control operating
costs, we incurred approximately $13.5 million in charges related to a reduction
of our labor force, primarily for early retirements and involuntary and
voluntary employee severance. In addition, during the fourth quarter of 2001,
$4.8 million in charges were incurred relating to the closure of RSIS's national
commercial installation business. These costs were primarily comprised of
severance costs, write-offs of certain fixed assets and future lease
commitments.
NET INTEREST EXPENSE
Interest expense, net of interest income, was $34.4 million for 2002 versus
$37.8 million for 2001.
Interest expense decreased to $43.4 million in 2002 from $50.8 million in 2001,
primarily as a result of a reduction in the average debt outstanding throughout
2002. In addition, our interest rate swap instruments also lowered overall
interest expense for the year ended December 31, 2002, when compared to the same
prior year period. Interest income decreased almost 31% to $9.0 million in 2002
from $13.0 million in 2001, due primarily to CompUSA's early payment of its note
to us in June 2001, which eliminated the associated interest income.
OTHER INCOME, NET
In the second quarter of 2002, we received payments and recorded income of $27.7
million in partial settlement of amounts owed to us under a tax sharing
agreement that was the subject of an arbitration which commenced in July 1999
and was styled Tandy Corporation and T.E. Electronics, L.P. vs. O'Sullivan. The
arbitration ruling requires O'Sullivan to comply with the tax sharing agreement
that was entered into by the parties at the time of O'Sullivan's initial public
offering.
During the second half of 2002, we received two payments totaling $6.2 million
relating to quarterly payments under the tax sharing agreement with O'Sullivan.
PROVISION FOR LOSS ON INTERNET-RELATED INVESTMENT
During the second quarter of 2000, we made a $30.0 million investment in
Digital:Convergence Corporation ("DC"), a privately-held Internet technology
company. In the first quarter of 2001, we concluded that our investment had
experienced a decline in value that, in our opinion, was other than temporary.
This conclusion was based on DC's inability to secure sufficient additional
funding or to complete an initial public offering. As such, we recorded a loss
provision equal to our initial investment. DC subsequently filed for bankruptcy
on March 22, 2002.
PROVISION FOR INCOME TAXES
Our provision for income taxes reflects an effective income tax rate of 38.0%
for 2002 and 42.8% for 2001. The decrease in the effective tax rate in 2002 when
compared to 2001 was the result of the 2001 impairment of RSIS goodwill, which
was not deductible for tax purposes and caused the increased effective tax rate
in 2001.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations," which is effective for fiscal
years beginning after June 15, 2002. SFAS No. 143 establishes financial
accounting and reporting standards for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. We adopted SFAS No. 143 effective January 1, 2003, and made no material
adjustments to our consolidated financial statements as a result of this
adoption.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses significant issues
relating to the recognition, measurement, and reporting of costs associated with
exit and disposal activities, including restructuring activities, and nullifies
the guidance in Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)." The provisions
of SFAS No. 146 are effective for exit or disposal activities initiated after
December 31, 2002. Retroactive application of SFAS No. 146 is prohibited and,
accordingly, liabilities recognized prior to the initial application of SFAS No.
146 should continue to be accounted for in accordance with EITF 94-3 or other
applicable preexisting guidance. We adopted SFAS No. 146 effective January 1,
2003, and made no material adjustments to our consolidated financial statements
as a result of this adoption.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. SFAS No. 149 is effective for contracts entered into or modified after
June 30, 2003, for hedging relationships designated after June 30, 2003, and to
certain preexisting contracts. We adopted SFAS No. 149 effective July 1, 2003,
and made no material adjustments to our consolidated financial statements as a
result of this adoption.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity," which is
effective for financial instruments entered into or modified after May 31, 2003.
SFAS No. 150 establishes financial accounting and reporting standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equities. We adopted SFAS No. 150
effective June 1, 2003, and made no material adjustments to our consolidated
financial statements as a result of this adoption.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness
of Others." FIN 45 is effective for guarantees issued or modified after December
31, 2002. The disclosure requirements were effective for certain guarantees
existing at December 31, 2002, and expand the disclosures required by a
guarantor about its obligations under a guarantee. FIN 45 also requires that we
recognize guarantees entered into or modified after December 31, 2002, as a
liability for the fair value of the obligation undertaken in the issuance of the
guarantee. We adopted FIN 45 on January 1, 2003, its effective date, and, aside
from the required disclosure provisions, made no material adjustments to our
consolidated financial statements as a result of this adoption.
In January 2003, the FASB issued Interpretation 46, "Consolidation of Variable
Interest Entities - An Interpretation of ARB No. 51." FIN 46 is intended to
clarify the application of ARB No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support. For those entities, a controlling financial interest cannot be
identified based on an evaluation of voting interests and may be achieved
through arrangements that do not involve voting interests. The consolidation
requirement of FIN 46 is effective immediately to variable interests in variable
interest entities ("VIEs") created or obtained after January 31, 2003. FIN 46
also sets forth certain disclosures regarding interests in VIEs that are deemed
significant, even if consolidation is not required. In December 2003, the FASB
issued FIN 46 (revised December 2003), "Consolidation of Variable Interest
Entities" (FIN 46R), which delayed the effective date of the application to us
of FIN 46 to non-special purpose VIEs acquired or created before February 1,
2003, to the interim period ending on March 31, 2004, and provided additional
technical clarifications to implementation issues. We have determined that FIN
46 does not apply to our dealer/franchise outlets and we do not expect to make
material adjustments to our consolidated financial statements as a result of the
adoption of this Interpretation.
In November 2002, the EITF reached a consensus on Issue No. 02-16, "Accounting
for Consideration Received from a Vendor by a Customer (Including a Reseller of
the Vendor's Products)." EITF 02-16 provides guidance on how cash consideration
received by a customer from a vendor should be classified in the customer's
statement of income. EITF 02-16 is effective prospectively for new arrangements,
including modifications of existing arrangements, entered into after December
31, 2002. We adopted EITF 02-16 effective January 1, 2003, and made no material
adjustments to our consolidated financial statements as a result of this
adoption.
In November 2003, the EITF reached a consensus on Issue No. 03-10, "Application
of EITF Issue No. 02-16, `Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor,' by Resellers to Sales Incentives
Offered to Consumers by Manufacturers." EITF 03-10 provides guidance on how cash
consideration received by a customer from a vendor should be classified in the
customer's statement of income. EITF 03-10 is effective prospectively for new
arrangements, including modification of existing arrangements, entered into
after December 31, 2003. We adopted EITF 03-10 effective January 1, 2004, and
made no material adjustments to our consolidated financial statements as a
result of this adoption.
CASH FLOW AND LIQUIDITY
A summary of cash flows from operating, investing and financing activities is
outlined in the table below.
Year Ended December 31,
----------------------------
(In millions) 2003 2002 2001
------------- -------- -------- --------
Operating activities $ 651.9 $ 521.6 $ 775.8
Investing activities (188.9) (99.0) (2.3)
Financing activities (274.8) (377.5) (502.8)
In 2003, cash flows provided by operating activities was $651.9 million,
compared to $521.6 million and $775.8 million in 2002 and 2001, respectively.
During the year ended December 31, 2003, changes in accounts receivable,
consisting primarily of amounts due from our various vendors and third-party
service providers, provided $17.2 million in cash, compared to $68.2 million in
the prior year. Cash provided by accounts receivable in 2003 and 2002 was the
result of reductions of vendor and service provider receivables and
dealer/franchise receivables, due to increased collections and lower sales of
satellite television hardware.
During the year ended December 31, 2003, changes in inventory provided $202.3
million in cash, compared to a $21.4 million cash usage during 2002. The
decrease in inventory since December 31, 2002, was primarily the result of
supply chain initiatives, including a greater focus on reducing weeks-of-supply.
Typically, our annual cash requirements for pre-seasonal inventory build-up
range between $200.0 million and $400.0 million. The funding required for this
build-up comes primarily from cash on hand and cash generated from net sales and
operating revenues. We had $634.7 million in cash and cash equivalents as of
December 31, 2003, as a resource for our funding needs. Additional capital is
available under our $600.0 million dollar commercial paper program, which is
supported by a bank credit facility that could be utilized in the event the
commercial paper market is unavailable to us. We currently do not expect,
however, the commercial paper market to become unavailable to us or that we will
have to utilize the credit facility. As of December 31, 2003, we had no
commercial paper outstanding or other utilization of our credit facility.
During the year ended December 31, 2003, $118.7 million less in cash was
provided by accounts payable due to lower inventory levels than in the prior
year. Additionally, $29.6 million more in cash was provided by accrued expenses
and $12.7 million more in cash was provided by reduced income taxes payable,
compared to the prior year.
Cash used in investing activities in 2003 was $188.9 million, compared to $99.0
million and $2.3 million used in 2002 and 2001, respectively. Capital
expenditures were $189.6 million in 2003, compared to $106.8 million in 2002 and
$139.2 million in 2001. Capital expenditures for 2003 increased over the prior
two years, primarily due to the construction of our new corporate campus, while
capital expenditures for both 2002 and 2001 were primarily for our retail store
expansions and remodels and upgrades of information systems. We also had capital
expenditures relating to retail stores and information systems in 2003. In
addition, we purchased land costing $18.3 million in 2001 for our new corporate
headquarters building. We anticipate that our capital expenditure requirements
for 2004 will be approximately $300.0 million. The $110.0 million increase over
2003 primarily relates to our new corporate headquarters. Store remodels and
relocations and updated information systems account for the almost half of the
balance of our anticipated 2004 capital expenditures. See further discussion of
our new facilities below in the section titled "Capital Structure and Financial
Condition." As of December 31, 2003, we had $634.7 million in cash and cash
equivalents. These cash and cash equivalents, along with cash generated from our
net sales and operating revenues and, if necessary, both our short-term and
long-term financing facilities, are available to fund future capital expenditure
needs.
Cash used in financing activities was $274.8 million in 2003, compared to $377.5
million and $502.8 million in 2002 and 2001, respectively. We used $286.2
million for the repurchase of our common stock in 2003 and $329.9 million and
$308.3 million for the repurchase of our common and preferred stock in 2002 and
2001, respectively. Repurchases of common stock were made under our share
repurchase and employee stock programs. See the further discussion of our stock
repurchase programs below in the section titled "Capital Structure and Financial
Condition." The 2003, 2002 and 2001 stock repurchases were partially funded by
$51.5 million, $49.6 million and $53.7 million, respectively, received from the
sale of treasury stock to employee benefit plans and, to a lesser extent, from
stock option exercises. The balance of capital to repurchase shares was obtained
from cash generated from operations. We received $32.3 million from the sale and
lease-back of our corporate technology center building during the second quarter
of 2002. This transaction was recorded as a financing obligation due to
responsibilities which we retain during the lease period. Dividends paid, net of
tax, in 2003, 2002 and 2001 amounted to $40.8 million, $39.8 million and $43.7
million, respectively.
Our free cash flow, defined as cash flows from operating activities less
dividends paid and additions to property, plant and equipment, was $421.5
million in 2003, compared to $375.0 million in 2002. This increase in free cash
flow, when compared to the prior year, was the result of supply chain
initiatives, including a greater focus on reducing inventory weeks-of-supply.
The increase was partially offset by the increase in capital expenditures
related to our new corporate campus. We expect free cash flow to be
approximately $70.0 million in 2004. The decrease from 2003 is based primarily
on the timing of capital expenditures for our new corporate headquarters; the
majority of which we originally thought would have been included in our 2003
capital expenditures. The major portion of our new corporate campus expenditures
will now be part of our 2004 capital expenditures. After 2004, we anticipate a
return to a more historical free cash flow level of $200.0 million to $250.0
million, annually.
We believe free cash flow is an appropriate indication of our ability to fund
share repurchases, repay maturing debt, change dividend payments or fund other
uses of capital that management believes will enhance shareholder value. The
comparable financial measure to free cash flow under generally accepted
accounting principles is cash flows from operating activities, which were $651.9
million in 2003, compared to $521.6 million in 2002. We do not intend the
presentation of free cash flow, a non-GAAP financial measure, to be considered
in isolation or as a substitute for measures prepared in accordance with GAAP.
The following table is a reconciliation of cash flows from operating activities
to free cash flow.
Year Ended December 31,
---------------------------
(In millions) 2003 2002 2001
------------- -------- -------- --------
Net cash provided by operating activities $651.9 $521.6 $775.8
Less:
Additions to property, plant and equipment 189.6 106.8 139.2
Dividends paid 40.8 39.8 43.7
-------- -------- --------
Free cash flow $421.5 $375.0 $592.9
======== ======== ========
CAPITAL STRUCTURE AND FINANCIAL CONDITION
Management considers our financial structure and condition solid. At December
31, 2003, total capitalization was $1,388.0 million, consisting of $618.7
million of debt and $769.3 million of equity, which resulted in a debt-to-total
capitalization ratio of 44.6%, compared to 46.3% for the corresponding prior
year period. The ratio decreased from the prior year due to a smaller increase
in debt of $8.6 million, compared to a larger increase in equity of $41.2
million from 2002.
Long-term debt as a percentage of total capitalization was 39.0% at December 31,
2003, compared to 43.6% at December 31, 2002, and 39.0% at December 31, 2001.
The decrease in 2003 was due to the decrease in long-term debt, as some of the
notes moved to the short-term debt classification as current maturities.
Our debt is considered investment grade by the rating agencies. On May 20, 2003,
Fitch changed our senior unsecured debt from "A-" to "BBB+." Below are the
agencies' latest ratings by category.
Standard
Category Moody's and Poor's Fitch
-------- ------- ---------- -----
Senior unsecured debt Baa1 A- BBB+
Commercial paper P-2 A-2 F2
Our senior unsecured debt primarily consists of two issuances of 10-year
long-term notes and an issuance of medium-term notes.
We have a $300.0 million debt shelf registration statement which became
effective in August 1997. As of December 31, 2003, there was no availability for
further debt issuances under this shelf registration. In August 1997, we issued
$150.0 million of 10-year unsecured long-term notes under this shelf
registration. The interest rate on the notes is 6.95% per annum with interest
payable on September 1 and March 1 of each year, commencing March 1, 1998. These
notes are due September 1, 2007.
We also issued, in various amounts and on various dates from December 1997
through September 1999, medium-term notes totaling $150.0 million under the
shelf registration. At December 31, 2003, $44.5 million of these notes remained
outstanding. The interest rates at December 31, 2003, for the outstanding $44.5
million medium-term notes ranged from 6.42% to 7.35% and had a weighted average
coupon rate of 7.19%. These notes have maturities ranging from 2004 to 2008.
On May 11, 2001, we issued $350.0 million of 10-year 7 3/8% notes in a private
offering to initial purchasers who offered the notes to qualified institutional
buyers under SEC Rule 144A. The annual interest rate on the notes is 7.375% per
annum with interest payable on November 15 and May 15 of each year. Payment of
interest on the notes commenced on November 15, 2001, and the notes mature on
May 15, 2011. In August 2001, under the terms of an exchange offering filed with
the SEC, we exchanged substantially all of these notes for a similar amount of
publicly registered notes. Because no additional debt was issued in the exchange
offering, the net effect of this exchange was that no additional debt was issued
on August 3, 2001, and substantially all of the notes are now registered with
the SEC.
During the third quarter of 2001, we entered into several interest rate swap
agreements with notional amounts totaling $150.0 million and maturities ranging
from 2004 to 2007. In June and August 2003, we entered into additional interest
rate swap agreements with underlying notional amounts of debt of $100.0 million
and $50.0 million, respectively, with maturities in May 2011. We entered into
these agreements to effectively convert a portion of our long-term fixed rate
debt to a variable rate. Under these agreements, we have contracted to pay a
variable rate of LIBOR plus a markup and to receive fixed rates ranging from
6.950% to 7.375%. We have designated these agreements as fair value hedging
instruments. At December 31, 2003, we recorded an amount in other assets, net,
of $4.5 million (its fair value) for the swap agreements and adjusted the fair
value of the related debt by the same amount. The effect of these agreements was
a reduction in our interest expense of $7.8 million during 2003, when compared
to the fixed rates. At current interest rates, we expect this favorable
condition to reoccur in 2004.
We have short-term debt such as commercial paper issuances and uncommitted bank
loans available to supplement our short-term financing needs. The commercial
paper and short-term seasonal bank debt have a typical maturity of 90 days or
less. The amount of commercial paper that can be outstanding is limited to a
maximum of the unused portion of our $600 million bank syndicated revolving
credit facility described in more detail below.
In the second quarter of 2003, we replaced our existing $300.0 million 364-day
revolving credit facility and amended our $300.0 million five-year credit
facility. These facilities' maturity dates are June 2004 for the $300.0 million
364-day revolving credit facility and June 2007 for the $300.0 million five-year
revolving credit facility. The terms of these revolving credit facilities are
substantially similar to the previous facilities. These revolving credit
facilities will support any future commercial paper borrowings and are otherwise
available for our general corporate purposes. We anticipate replacing our
364-day revolving credit facility in June 2004 with a new 364-day credit
facility with similar terms. As of December 31, 2003, there were no outstanding
borrowings under these credit facilities. Our outstanding debt and bank
syndicated credit facilities have customary financial covenants.
We use operating leases, primarily for our retail locations, distribution
centers and corporate headquarters, to lower our capital requirements.
Management believes that our present ability to borrow is greater than our
established credit lines and long-term debt in place. However, if market
conditions change and sales were to dramatically decline or we could not control
operating costs, our cash flows and liquidity could be reduced. Additionally, if
a scenario as described above occurred, it could cause the rating agencies to
lower our credit ratings, thereby increasing our borrowing costs, or even
causing a reduction in or elimination of our access to debt and/or equity
markets.
We repurchased 9.9 million shares of our common stock for $251.0 million during
the year ended December 31, 2003, under our combined share repurchase programs.
We intend to execute share repurchases from time to time in order to take
advantage of attractive share price levels, as determined by management. The
timing and terms of the transactions depend on market conditions, our liquidity
and other considerations. On February 20, 2003, our Board of Directors
authorized a new repurchase program for 15.0 million shares, which was in
addition to our 25.0 million share repurchase program that was completed during
the second quarter of 2003. At February 18, 2004, there were 8.9 million shares
available to be repurchased under the 15.0 million share repurchase program. We
anticipate that we will repurchase, under our authorized repurchase programs,
between $200.0 million and $250.0 million of our common stock during 2004. The
15.0 million share repurchase program has no expiration date and allows shares
to be repurchased in the open market. The funding required for these share
repurchase programs will come from cash generated from net sales and operating
revenues and cash and cash equivalents. Under the programs described above, we
will also repurchase shares in the open market to offset the sales of shares to
our employee benefit plans.
On December 11, 2003, our Board of Directors approved the retirement of 45.0
million shares of our common stock held as treasury stock. These shares returned
to the status of authorized and unissued. See our 2003 Consolidated Statement of
Stockholders' Equity for additional details of this transaction.
On October 10, 2002, our Board of Directors approved the conversion of our
RadioShack Series B convertible preferred stock, held by the RadioShack 401(k)
Plan, to RadioShack common stock effective December 31, 2002. On December 31,
2002, 0.1 million shares of this preferred stock, representing all the
outstanding Series B convertible preferred stock, were converted to 5.1 million
shares of our common stock in accordance with their terms. The preferred stock
was held by the RadioShack 401(k) Plan to fund RadioShack contributions to plan
participants.
In the fourth quarter of 2001 and the second quarter of 2002, we sold our
corporate headquarters buildings. We are now constructing a new headquarters in
Fort Worth, Texas. We entered into sale-leaseback agreements in which our
existing corporate headquarters' land and buildings were sold and leased back to
us. These arrangements should provide us with the necessary time to construct
our new headquarters, which we expect to be completed by the end of 2004 or
early 2005. Currently, we plan to finance our new corporate headquarters, with
total construction costs estimated to be $200.0 million during 2003 and 2004,
with cash flows from operations and, if needed, existing cash and cash
equivalents.
The following tables, as well as the information contained in Note 7 -
"Indebtedness and Borrowing Facilities" to our "Notes to Consolidated Financial
Statements," provide a summary of our various contractual commitments, debt and
interest repayment requirements, and available credit lines.
The table below contains the contractual commitments associated with our
financing obligations, lease obligations, and marketing agreements. Purchase
obligations include our product commitments, marketing agreements, utility and
freight commitments.
(In millions)
--------------------------------------------------------------------------------------------------
Payments Due By Period
--------------------------------------------------
Total Amounts Less than 1
Contractual Obligations Committed year 1-3 years 3-5 years Over 5 years
--------------------------------------------------------------------------------------------------
Long-Term Debt Obligations $ 582.9 $ 39.5 $ 37.4 $ 155.0 $ 351.0
Capitalized Lease Obligations 0.3 0.2 0.1 -- --
Operating Lease Obligations 695.4 183.7 279.7 137.0 95.0
Purchase Obligations 467.7 436.8 24.2 6.7 --
Other Long-Term Liabilities
Reflected on the Balance Sheet 75.2 7.4 22.9 8.4 36.5
-----------------------------------------------------------------
$1,821.5 $ 667.6 $ 364.3 $ 307.1 $ 482.5
=================================================================
The table below contains our credit commitments from various financial
institutions.
(In millions)
--------------------------------------------------------------------------------------------------
Commitment Expiration Per Period
--------------------------------------------------
Total Amounts Less than 1
Credit Commitments Committed year 1-3 years 3-5 years Over 5 years
--------------------------------------------------------------------------------------------------
Lines of credit $ 600.0 $ 300.0 $ 300.0 -- --
Stand-by letters of credit 12.7 2.4 10.3 -- --
-----------------------------------------------------------------
Total commercial commitments $ 612.7 $ 302.4 $ 310.3 -- --
=================================================================
We have contingent liabilities related to retail leases of locations which were
assigned to other businesses. The majority of these contingent liabilities
relate to various lease obligations arising from leases that were assigned to
CompUSA, Inc. as part of the sale of our Computer City, Inc. subsidiary to
CompUSA, Inc. in August 1998. In the event CompUSA or the other assignees, as
applicable, are unable to fulfill their obligations, we would be responsible for
rent due under the leases. Our rent exposure from the remaining undiscounted
lease commitments with no projected sublease income is approximately $183
million. However, we have no reason to believe that CompUSA or the other
assignees will not fulfill their obligations under these leases; consequently,
we do not believe there will be a material impact on our financial statements
from any fulfillment of these commitments.
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 impacted us over the past three years. We do not
expect inflation to have a significant impact on our operations in the
foreseeable future, unless international events substantially affect the global
economy.
ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
At December 31, 2003, we did not have any derivative instruments that materially
increase our exposure to market risks for interest rates, foreign currency
rates, commodity prices or other market price risks, other than the interest
rate swaps noted in MD&A. We do not use derivatives for speculative purposes.
Our exposure to interest rate risk results from changes in short-term interest
rates. Interest rate risk exists with respect to our net investment of $266.4
million, comprised of fluctuating short-term investments of $566.4 million and
offset by $300.0 million of indebtedness which, because of the interest rate
swaps discussed in MD&A, effectively bears interest at short-term floating
rates. A hypothetical increase of 100 basis points in the interest rate
applicable to this floating-rate net exposure would result in a decrease in
annual net interest expense of $2.7 million. This assumption assumes no change
in the net principal balance.
We also manage our portfolio of fixed rate debt to reduce our exposure to
interest rate changes. The fair value of our fixed rate long-term debt is
sensitive to interest rate changes. Interest rate changes would result in
increases or decreases in the fair value of our debt due to differences between
market interest rates and rates at the inception of the debt obligation. Based
on a hypothetical immediate 100 basis point increase in interest rates at
December 31, 2003 and 2002, the fair value of our fixed rate long-term debt
would decrease $28.7 million and $32.9 million, respectively. Based on a
hypothetical immediate 100 basis point decrease in interest rates at December
31, 2003 and 2002, the fair value of our fixed rate long-term debt would
increase by $30.6 million and $35.4 million, respectively. Regarding the fair
value of our fixed rate debt, changes in interest rates have no impact on our
consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Index to our Consolidated Financial Statements is found on page 29. Our
Consolidated Financial Statements and Notes to Consolidated Financial Statements
follow the index.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
a) We have established a system of disclosure controls and procedures that
are designed to ensure that material information relating to the
Company, which is required to be timely disclosed, is accumulated and
communicated to management in a timely fashion. An evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange
Act of 1934 ("Exchange Act")) was performed as of the end of the period
covered by this annual report. This evaluation was performed under the
supervision and with the participation of management, including our
Chief Executive Officer and Chief Financial Officer. Based upon that
evaluation, our CEO and CFO have concluded that these disclosure
controls and procedures were in effect as of the end of the period
covered by this annual report to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time
periods specified by the SEC's rules and forms.
b) There were no changes in our internal control over financial reporting
that occurred during our last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
We will file a definitive proxy statement with the Securities and Exchange
Commission on or about April 7, 2004. The information called for by this Item
with respect to directors and the Audit and Compliance Committee of the Board of
Directors is incorporated by reference from the Proxy Statement for the 2004
Annual Meeting under the headings "Proposals You Are Asked to Vote on," "Item 1
- Election of Directors" and "Information Concerning the Board of Directors and
Committees." For information relating to our Executive Officers, see Part I of
this report. The Section 16(a) reporting information is incorporated by
reference from the Proxy Statement for the 2004 Annual Meeting under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance."
We have adopted the Financial Code of Ethics that applies to our Chief Executive
Officer, President, Chief Financial Officer, and Controller. The Financial Code
of Ethics is publicly available on our Web site at:
www.radioshackcorporation.com.
If we make any substantive amendments to the Financial Code of Ethics or grant
any waiver, including any implicit waiver, from a provision of the code to our
Chief Executive Officer, President, Chief Financial Officer or Controller, we
will disclose the nature of such amendment or waiver on that Web site.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this Item with respect to executive compensation
is incorporated by reference from the Proxy Statement for the 2004 Annual
Meeting under the headings "Executive Compensation," "Compensation of
Directors," "Other Matters Involving Executive Officers," "Item 2 - Approval of
the RadioShack 2004 Deferred Stock Unit Plan for Non-Employee Directors,"
"Report of the Management Development and Compensation Committee on Executive
Compensation," "Compensation Committee Interlocks and Insider Participation" and
"Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information called for by this Item with respect to security ownership of
certain beneficial owners and management is incorporated by reference from the
Proxy Statement for the 2004 Annual Meeting under the heading "Ownership of
Securities."
EQUITY COMPENSATION PLANS
The following table provides a summary of information as of December 31, 2003,
relating to our equity compensation plans in which our common stock is
authorized for issuance.
Equity Compensation Plan Information
(a) (b) (c)
Number of shares
Number of shares to remaining available for
be issued upon Weighted average future issuance under
exercise of exercise price of equity compensation
outstanding options, outstanding options, plans (excluding shares
warrants and rights warrants and rights reflected in column (a))
(Share amounts in thousands)
---------------------------- ------------------- -------------------- -----------------------
Equity compensation plans approved
by shareholders (1) 15,248 (2) $ 31.04 5,760 (3)
Equity compensation plans not approved
by shareholders (4) 8,641 (5) 36.05 1,723 (6)
------------------- -----------------------
Total 23,889 $ 34.96 7,483
=================== =======================
(1) Consists of the 1993 Incentive Stock Plan, the 1994 Stock Incentive Plan,
the 1997 Incentive Stock Plan and the 2001 Incentive Stock Plan. See Note 18
- "Stock Options and Performance Awards" ("Note 18") of our "Notes to
Consolidated Financial Statements" for further information.
(2) Includes 605 shares with a weighted average exercise price of $47.39 related
to a plan assumed and adopted by us when we acquired RSIS in 1999. No
further shares will be issued under this plan. See Note 18 for further
information.
(3) Includes 366,145 shares available for grants in the form of restricted
stock. See Note 18 for further information.
(4) Consists of the 1999 Incentive Stock Plan (the "1999 ISP"), the RadioShack
Stock Purchase Plan ("SPP") and the RadioShack Supplemental Stock Program
("SUP"). See Note 18 for more information concerning the 1999 ISP and see
Note 21 - "Company Stock Purchase Plan" of our "Notes to Consolidated
Financial Statements" for further information concerning the SPP. The SUP
enables employee-participants of our 401(k) Plan who are no longer eligible
to make pre-tax contributions to the 401(k) Plan to make after-tax
contributions to the SUP to purchase our common stock. We match 80% of each
participant's contribution. When these employee-participants are again
eligible to make pre-tax contributions to our 401(k) Plan, they are not
eligible to contribute under the SUP.
(5) Excludes shares to be issued under the SPP and the SUP.
(6) Includes shares available for future issuance under the SPP and the SUP. As
of December 31, 2003, an aggregate of 355,645 shares and 850,488 shares were
available for issuance under the SPP and the SUP, respectively.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by this Item with respect to certain relationships
and transactions with management and others is incorporated by reference from
the Proxy Statement for the 2004 Annual Meeting under the heading "Certain
Transactions with Management and Others."
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information called for by this Item with respect to principle accountant
fees and services is incorporated by reference from the Proxy Statement for the
2004 Annual Meeting under the headings "Fees and Services of the Independent
Auditors" and "Policy of Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors."
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report.
1. Financial Statements
The financial statements filed as a part of this report are listed in the "Index
to Consolidated Financial Statements" on page 29.
2. None
3. Exhibits required by Item 601 of Regulation S-K
A list of the exhibits required by Item 601 of Regulation S-K and filed as part
of this report is set forth in the Index to Exhibits beginning on page 54, which
immediately precedes such exhibits.
Certain instruments defining the rights of holders of our long-term debt are not
filed as exhibits to this report because the total amount of securities
authorized thereunder does not exceed ten percent of our total assets on a
consolidated basis. We will furnish the Securities and Exchange Commission
copies of such instruments upon request.
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, RadioShack Corporation has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RADIOSHACK CORPORATION
March 12, 2004 /s/ Leonard H. Roberts
-----------------------------------
Leonard H. Roberts
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of RadioShack
Corporation and in the capacities indicated on this 12th day of March, 2004.
Signature Title
/s/ Leonard H. Roberts Chairman of the Board and Chief Executive Officer
-------------------------
Leonard H. Roberts (Chief Executive Officer)
/s/ Michael D. Newman Senior Vice President and Chief Financial Officer
-------------------------
Michael D. Newman (Principal Financial Officer)
/s/ David P. Johnson Senior Vice President and Controller
-------------------------
David P. Johnson (Principal Accounting Officer)
/s/ Frank J. Belatti Director /s/ Robert J. Kamerschen Director
------------------------- ------------------------------------------
Frank J. Belatti Robert J. Kamerschen
/s/ Ronald E. Elmquist Director /s/ H. Eugene Lockhart Director
------------------------- ------------------------------------------
Ronald E. Elmquist H. Eugene Lockhart
/s/ Robert S. Falcone Director /s/ Jack L. Messman Director
------------------------- ------------------------------------------
Robert S. Falcone Jack L. Messman
/s/ Daniel R. Feehan Director /s/ William G. Morton, Jr. Director
------------------------- ------------------------------------------
Daniel R. Feehan William G. Morton, Jr.
/s/ Richard J. Hernandez Director /s/ Thomas G. Plaskett Director
------------------------- ------------------------------------------
Richard J. Hernandez Thomas G. Plaskett
/s/ Lawrence V. Jackson Director /s/ Edwina D. Woodbury Director
------------------------- ------------------------------------------
Lawrence V. Jackson Edwina D. Woodbury
RADIOSHACK CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Auditors.................................. 30
Consolidated Statements of Income for each of the three
years in the period ended December 31, 2003.................... 31
Consolidated Balance Sheets at December 31, 2003
and December 31, 2002.......................................... 32
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2003.................... 33
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 2003.......... 34
Notes to Consolidated Financial Statements..................... 35-53
All financial statement schedules have been omitted because they are not
applicable, not required or the information is included in the consolidated
financial statements or notes thereto.
Report of Independent Auditors
To the Board of Directors and Stockholders of
RadioShack Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index on page 29 present fairly, in all material respects, the financial
position of RadioShack Corporation and its subsidiaries (the "Company") at
December 31, 2003 and 2002 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
-------------------------------
PRICEWATERHOUSECOOPERS LLP
Fort Worth, Texas
March 10, 2004
Consolidated Statements of INCOME
RadioShack Corporation and Subsidiaries
Year Ended December 31,
-------------------------------------------------------------------------------------
2003 2002 2001
% of % of % of
(In millions, except per share amounts) Dollars Revenues Dollars Revenues Dollars Revenues
-------------------------------------------------------------------------------------------------------------------------------
Net sales and operating revenues $ 4,649.3 100.0% $ 4,577.2 100.0% $ 4,775.7 100.0%
Cost of products sold 2,333.6 50.2 2,338.9 51.1 2,478.9 51.9
---------- ---------- ---------- ---------- ---------- ----------
Gross profit 2,315.7 49.8 2,238.3 48.9 2,296.8 48.1
---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Selling, general and administrative 1,740.0 37.4 1,728.6 37.8 1,713.9 35.9
Depreciation and amortization 92.0 2.0 94.7 2.0 108.3 2.3
Gain on contract termination -- -- (18.5) (0.4) -- --
Impairment of long-lived assets -- -- 8.1 0.2 39.8 0.8
Loss on sale of assets -- -- -- -- 57.2 1.2
Employee separation and other costs -- -- -- -- 18.3 0.4
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 1,832.0 39.4 1,812.9 39.6 1,937.5 40.6
---------- ---------- ---------- ---------- ---------- ----------
Operating income 483.7 10.4 425.4 9.3 359.3 7.5
Interest income 12.8 0.3 9.0 0.2 13.0 0.3
Interest expense (35.7) (0.8) (43.4) (0.9) (50.8) (1.1)
Other income, net 12.0 0.3 33.9 0.7 -- --
Provision for loss on Internet-related
investment -- -- -- -- (30.0) (0.6)
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 472.8 10.2 424.9 9.3 291.5 6.1
Provision for income taxes 174.3 3.8 161.5 3.5 124.8 2.6
---------- ---------- ---------- ---------- ---------- ----------
Net income 298.5 6.4 263.4 5.8 166.7 3.5
Preferred dividends -- -- 4.5 0.1 4.9 0.1
---------- ---------- ---------- ---------- ---------- ----------
Net income available to common
stockholders $ 298.5 6.4% $ 258.9 5.7% $ 161.8 3.4%
========== ========== ========== ========== ========== ==========
Net income available per common share:
Basic $ 1.78 $ 1.50 $ 0.88
========== ========== ==========
Diluted $ 1.77 $ 1.45 $ 0.85
========== ========== ==========
Shares used in computing earnings per
common share:
Basic 167.7 173.0 183.8
========== ========== ==========
Diluted 168.9 179.3 191.2
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Balance Sheets
RadioShack Corporation and Subsidiaries
December 31,
---------------------
(In millions, except for share amounts) 2003 2002
----------------------------------------------------------------------------- ----------
Assets
Current assets:
Cash and cash equivalents $ 634.7 $ 446.5
Accounts and notes receivable, net 182.4 206.1
Inventories, net 766.5 971.2
Other current assets 83.0 83.1
---------- ----------
Total current assets 1,666.6 1,706.9
Property, plant and equipment, net 513.1 421.6
Other assets, net 64.2 99.4
---------- ----------
Total assets $2,243.9 $2,227.9
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt, including current maturities of long-term debt $ 77.4 $ 36.0
Accounts payable 300.2 312.6
Accrued expenses 343.0 318.7
Income taxes payable 137.5 160.9
---------- ----------
Total current liabilities 858.1 828.2
Long-term debt, excluding current maturities 541.3 591.3
Other non-current liabilities 75.2 80.3
---------- ----------
Total liabilities 1,474.6 1,499.8
---------- ----------
Commitments and contingent liabilities (see Note 17)
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized:
Series A junior participating, 300,000 shares designated and
none issued -- --
Series B convertible, 100,000 shares authorized and
none issued -- --
Common stock, $1 par value, 650,000,000 shares authorized;
191,033,000 and 236,033,000 shares issued, respectively 191.0 236.0
Additional paid-in capital 75.2 70.0
Retained earnings 1,210.6 2,002.5
Treasury stock, at cost; 28,481,000 and 64,306,000
shares, respectively (707.2) (1,579.9)
Accumulated other comprehensive loss (0.3) (0.5)
---------- ----------
Total stockholders' equity 769.3 728.1
---------- ----------
Total liabilities and stockholders' equity $ 2,243.9 $ 2,227.9
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Cash Flows
RadioShack Corporation and Subsidiaries
Year Ended December 31,
------------------------------
(In millions) 2003 2002 2001
-----------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 298.5 $ 263.4 $ 166.7
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loss on Internet-related investment -- -- 30.0
Impairment of long-lived assets -- 8.1 39.8
Loss on sale of assets -- -- 57.2
Depreciation and amortization 92.0 94.7 108.3
Deferred income taxes and other items 51.7 30.6 (9.4)
Provision for credit losses and bad debts 0.4 4.7 14.5
Changes in operating assets and liabilities:
Accounts and notes receivable 17.2 68.2 165.8
Inventories 202.3 (21.4) 213.9
Other current assets (5.2) 1.9 1.7
Accounts payable, accrued expenses and income taxes
payable (5.0) 71.4 (12.7)
-------- -------- --------
Net cash provided by operating activities 651.9 521.6 775.8
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (189.6) (106.8) (139.2)
Proceeds from sale of property, plant and equipment 2.0 8.6 17.4
Proceeds from sale of installation subsidiary 4.7 -- --
Proceeds from early retirement of CompUSA note -- -- 123.6
Other investing activities (6.0) (0.8) (4.1)
-------- -------- --------
Net cash used in investing activities (188.9) (99.0) (2.3)
-------- -------- --------
Cash flows from financing activities:
Purchases of treasury stock (286.2) (329.9) (308.3)
Exercise of common stock put options -- -- (2.1)
Proceeds from sale of common stock put options -- -- 0.3
Sale of treasury stock to employee benefit plans 35.8 40.6 46.3
Proceeds from exercise of stock options 15.7 9.0 7.4
Purchase of minority interest in consolidated subsidiary -- -- (88.0)
Proceeds from financing obligation -- 32.3 --
Payments of dividends (40.8) (39.8) (43.7)
Changes in short-term borrowings, net 20.7 (2.0) (443.6)
Additions to long-term borrowings -- -- 346.1
Repayments of long-term borrowings (20.0) (87.7) (17.2)
-------- -------- --------
Net cash used in financing activities (274.8) (377.5) (502.8)
-------- -------- --------
Net increase in cash and cash equivalents 188.2 45.1 270.7
Cash and cash equivalents, beginning of period 446.5 401.4 130.7
-------- -------- --------
Cash and cash equivalents, end of period $ 634.7 $ 446.5 $ 401.4
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Stockholders' Equity
RadioShack Corporation and Subsidiaries
Shares at December 31, Dollars at December 31,
-------------------------------- --------------------------------
(In millions) 2003 2002 2001 2003 2002 2001
------------- ---------- ---------- ---------- ---------- ---------- ----------
Preferred stock
Beginning of year -- 0.1 0.1 $ -- $ 64.5 $ 68.8
Conversion of preferred stock to common stock -- (0.1) -- -- (58.4) --
Cancellation of preferred stock, net of repurchases -- -- -- -- (6.1) (4.3)
--------- ---------- ---------- ---------- ---------- ----------
End of year -- -- 0.1 $ -- $ -- $ 64.5
========== ========== ========== ========== ========== ==========
Common stock
Beginning of year 236.0 236.0 236.0 $ 236.0 $ 236.0 $ 236.0
Retirement of treasury stock (45.0) -- -- (45.0) -- --
---------- ---------- ---------- ---------- ---------- ----------
End of year 191.0 236.0 236.0 $ 191.0 $ 236.0 $ 236.0
========== ========== ========== ========== ========== ==========
Treasury stock
Beginning of year (64.3) (59.2) (50.2) $(1,579.9) $(1,443.5) $(1,189.6)
Purchase of treasury stock (11.5) (12.4) (10.7) (290.9) (317.8) (296.4)
Issuance of common stock 1.5 1.6 1.3 37.4 43.3 33.5
Exercise of stock options and grant of stock awards 0.8 0.6 0.4 18.5 12.9 9.0
Retirement of treasury stock 45.0 -- -- 1,107.7 -- --
Conversion of preferred stock to common stock -- 5.1 -- -- 125.2 --
---------- ---------- ---------- ---------- ---------- ----------
End of year (28.5) (64.3) (59.2) $ (707.2) $(1,579.9) $(1,443.5)
========== ========== ========== ========== ========== ==========
Additional paid-in capital
Beginning of year $ 70.0 $ 138.8 $ 116.1
Issuance of common stock 0.7 (0.3) 15.5
Restricted stock forfeitures -- -- (0.9)
Exercise of stock options and grant of stock awards (2.0) (2.5) (1.4)
Conversion of preferred stock to common stock -- (66.8) --
Stock option income tax benefits 19.6 0.8 1.4
Retirement of treasury stock (13.1) -- --
Purchase of minority interest, net of taxes -- -- 7.8
Other -- -- 0.3
---------- ---------- ----------
End of year $ 75.2 $ 70.0 $ 138.8
========== ========== ==========
Retained earnings
Beginning of year $ 2,002.5 $ 1,787.3 $ 1,661.5
Net income 298.5 263.4 166.7
Series B convertible stock dividends, net of taxes -- (2.9) (3.2)
Cancellation of preferred stock, net of repurchases -- (8.5) (7.4)
Retirement of treasury stock (1,049.6) -- --
Common stock cash dividends declared (40.8) (36.8) (30.3)
---------- ---------- ----------
End of year $ 1,210.6 $ 2,002.5 $ 1,787.3
========== ========== ==========
Unearned compensation
Beginning of year $ -- $ (4.3) $ (11.5)
Amortization of unearned compensation -- 4.3 7.2
---------- ---------- ----------
End of year $ -- $ -- $ (4.3)
========== ========== ==========
Accumulated other comprehensive loss
Beginning of year $ (0.5) $ (0.7) $ (1.0)
Other comprehensive income 0.2 0.2 0.3
---------- ---------- ----------
End of year $ (0.3) $ (0.5) $ (0.7)
========== ========== ==========
Total stockholders' equity $ 769.3 $ 728.1 $ 778.1
========== ========== ==========
Comprehensive income
Net income $ 298.5 $ 263.4 $ 166.7
Other comprehensive income, net of tax:
Foreign currency translation adjustments 0.3 0.3 (0.3)
Gain (loss) on interest rate swaps, net (0.1) (0.1) 0.6
---------- ---------- ----------
Other comprehensive income 0.2 0.2 0.3
---------- ---------- ----------
Comprehensive income $ 298.7 $ 263.6 $ 167.0
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(R) store chain. Our strategy is to dominate cost-effective solutions
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
storefronts. 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 computers;
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 outlets
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 statements 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 statements and during the periods
presented. The most significant 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 substantially 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 telephones 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 commission 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 customer 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) contracts 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 recognized 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 recognized 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 services pursuant to the contracts exceeds the related
unearned revenue.
Vendor Allowances: We receive allowances from third-party service providers and
product vendors through a variety of promotional programs and arrangements as a
result of purchasing and promoting their products and services in the normal
course of business. We consider vendor allowances received to be a reduction in
the price of a vendor's products or services and record them as a component of
cost of products sold when the related product or service is sold, unless the
allowances represent reimbursement of specific, incremental and identifiable
costs incurred to promote a vendor's products and services, in which case we
record them when earned as an offset to the associated expense incurred to
promote the applicable products and/or services.
Advertising Costs: Our advertising costs are expensed the first time the
advertising takes place. We receive allowances from certain third-party service
providers and product vendors which we record when earned as an offset to
advertising expense incurred to promote the applicable products and/or services
only if the allowances represent reimbursement of specific, incremental and
identifiable costs (see "Vendor Allowances" above). Advertising expense was
$254.4 million, $241.0 million and $253.9 million for the years ended December
31, 2003, 2002 and 2001 respectively, net of vendor allowances of $40.9 million,
$59.6 million and $53.1 million, respectively.
Stock-Based Compensation: At December 31, 2003, we had stock-based employee
compensation plans. We measure stock-based compensation costs under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" and its related interpretations. Accordingly, no compensation expense
has been recognized for our fixed price stock option plans, as the exercise
price of options must be equal to or greater than the stock price on the date of
grant under our incentive stock plans. The table below illustrates the effect on
net income and net income available per common share as if we had accounted for
our employee stock options under the fair value recognition provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." For purposes of the pro
forma disclosures below, the estimated fair value of the options is amortized to
expense over the vesting period.
Year Ended December 31,
----------------------------------
(In millions, except per share amounts) 2003 2002 2001
--------------------------------------- ---------- ---------- ----------
Net income, as reported $ 298.5 $ 263.4 $ 166.7
Stock-based employee compensation expense included in reported
net income, net of related tax effects 14.2 14.0 15.2
Total stock-based compensation expense determined under fair
value method for all awards, net of related tax effects (51.1) (60.5) (60.0)
---------- ---------- ----------
Pro forma net income $ 261.6 $ 216.9 $ 121.9
========== ========== ==========
Net income available per common share:
Basic - as reported $ 1.78 $ 1.50 $ 0.88
Basic - pro forma $ 1.56 $ 1.23 $ 0.64
Diluted - as reported $ 1.77 $ 1.45 $ 0.85
Diluted - pro forma $ 1.55 $ 1.19 $ 0.62
The pro forma amounts in the preceding table were estimated using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
Year Ended December 31,
----------------------------------
2003 2002 2001
---------- ---------- ----------
Expected life in years 6 6 6
Expected volatility 48.3% 46.1% 42.3%
Annual dividend paid per share $ 0.25 $ 0.22 $ 0.22
Risk free interest rate 3.1% 4.5% 4.9%
Fair value of options granted during year $ 9.63 $ 13.53 $ 15.64
Impairment of Long-Lived Assets: Long-lived assets (primarily property, plant
and equipment and goodwill) held and used by us or to be disposed of are
reviewed for impairment whenever events or changes in circumstances indicate
that the net book value of the asset may not be recoverable. An impairment loss
is recognized if the sum of the expected future cash flows (undiscounted and
before interest) from the use of the asset is less than the net book value of
the asset. The amount of the impairment loss is measured as the difference
between the net book value of the assets and the estimated fair value of the
related assets.
Income Taxes: Income taxes are accounted for using the asset and liability
method. Deferred taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date. In addition, we recognize future tax benefits to the extent that
such benefits are more likely than not to be realized.
Earnings Per Share: Basic earnings per share is computed based only on the
weighted average number of common shares outstanding for each period presented.
Diluted earnings per share reflects the potential dilution that would have
occurred if securities or other contracts to issue common stock were exercised,
converted, or resulted in the issuance of common stock that would have then
shared in the earnings of the entity. The following table reconciles the
numerator and denominator used in the basic and diluted earnings per share
calculations.
Year Ended December 31,
2003 2002 2001
---------------------------------- ---------------------------------- ----------------------------------
(In millions, except Income Shares Per Share Income Shares Per Share Income Shares Per Share
per share amounts) (Numerator)(Denominator) Amount (Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
----------------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------- ----------
Net income $ 298.5 $ 263.4 $ 166.7
Less: Preferred stock
dividends -- (4.5) (4.9)
----------- ----------- -----------
Basic EPS
Net income
available to common
stockholders 298.5 167.7 $ 1.78 258.9 173.0 $ 1.50 161.8 183.8 $ 0.88
========== ========== ==========
Effect of dilutive
securities:
Plus dividends on
Series B preferred stock -- 4.5 4.9
Additional contribution
required if preferred
stock had been
converted -- -- (3.3) 5.3 (3.5) 5.8
Stock options 1.2 1.0 1.6
----------- ----------- ----------- ----------- ----------- -----------
Diluted EPS
Net income
available to common
stockholders plus
assumed conversions $ 298.5 168.9 $ 1.77 $ 260.1 179.3 $ 1.45 $ 163.2 191.2 $ 0.85
=========== =========== ========== =========== =========== ========== =========== =========== ==========
Options to purchase 16.8 million, 18.1 million and 12.2 million shares of common
stock in 2003, 2002 and 2001, respectively, were not included in the computation
of diluted earnings per common share because the option exercise price was
greater than the average market price of the common stock during the year.
Cash and Cash Equivalents: Cash on hand in stores, deposits in banks and all
highly liquid investments with an original or remaining maturity of three months
or less at the time of purchase are considered cash and cash equivalents. Cash
equivalents are carried at cost, which approximates fair value because of the
short maturity of the instruments. The weighted average interest rates were 1.0%
and 1.3% at December 31, 2003 and 2002, respectively, for cash equivalents
totaling $566.4 million and $398.3 million, respectively.
Accounts Receivable and Allowance For Doubtful Accounts: Concentrations of
credit risk with respect to customer receivables are limited due to the large
number of customers comprising our customer base and their location in many
different geographic areas of the country. However, we do have some
concentration of credit risk from service providers in the wireless telephone
and DTH satellite services industries, due to sales of their products and
services. We maintain an allowance for doubtful accounts where accounts are
determined to be uncollectible and, historically, such losses, in the aggregate,
have not exceeded our expectations.
Inventories: Inventories are stated at the lower of cost (principally based on
average cost) or market value and are comprised primarily of finished goods.
Property, Plant and Equipment: Property, plant and equipment are stated at cost,
less accumulated depreciation and amortization. For financial reporting
purposes, depreciation and amortization are primarily calculated using the
straight-line method, which amortizes the cost of the assets over their
estimated useful lives. When depreciable assets are sold or retired, the related
cost and accumulated depreciation are removed from the accounts and gains and
losses are recognized. Major additions and betterments are capitalized.
Maintenance and repairs which do not materially improve or extend the lives of
the respective assets are charged to operating expenses as incurred.
Amortization of buildings under capital leases is included in depreciation and
amortization in the Consolidated Statements of Income.
Capitalized Software Costs: We capitalize qualifying costs related to developing
internal-use software. Capitalization of costs begins after the conceptual
formulation stage has been completed. Capitalized costs are amortized over the
estimated useful life of the software, which ranges between three and five
years. Capitalized software costs at December 31, 2003, 2002 and 2001, totaled
$37.9 million, $43.8 million and $46.6 million, net of accumulated amortization
of $53.3 million, $39.0 million and $26.3 million, respectively.
Goodwill: Goodwill represents the excess of the purchase price over the fair
value of net assets acquired. At December 31, 2003, the net goodwill balance
totaled $2.9 million, composed primarily of goodwill resulting from the
conversion of various dealer/franchise outlets to company retail stores. During
2002, we recorded an impairment of the AmeriLink Corporation, also known as
RadioShack Installation Services ("RSIS"), goodwill aggregating $8.1 million,
resulting in a net goodwill balance at December 31, 2002, of $2.9 million (see
Note 6 for further details).
Derivatives: We have entered into interest rate swap agreements to effectively
convert a portion of our long-term fixed rate debt to a variable rate. Under
these agreements, we have contracted to pay a variable rate of LIBOR plus a
markup and to receive fixed rates ranging from 6.950% to 7.375%. We have
designated these agreements as fair value hedging instruments. The accounting
for changes in the fair value of an interest rate swap depends on the use of the
swap. To the extent that a derivative is effective as a hedge of an exposure to
future changes in fair value, the change in the derivative's fair value is
recorded in earnings, as is the change in fair value of the item being hedged.
To the extent that a swap is effective as a cash flow hedge of an exposure to
future changes in cash flows, the change in fair value of the swap is deferred
in accumulated other comprehensive income. Any portion considered to be
ineffective will be immediately reported in earnings. The differentials to be
received or paid under interest rate swap contracts designated as hedges are
recognized in income over the life of the contracts as adjustments to interest
expense. Gains and losses on terminations of interest rate contracts designated
as hedges are deferred and amortized into interest expense over the remaining
life of the original contracts or until repayment of the hedged indebtedness.
We maintain strict internal controls over our hedging activities, which include
policies and procedures for risk assessment and the approval, reporting and
monitoring of all derivative financial instrument activities. We monitor our
hedging positions and credit worthiness of our counter-parties and do not
anticipate losses due to our counter-parties' nonperformance. We do not hold or
issue derivative financial instruments for trading or speculative purposes. To
qualify for hedge accounting, derivatives must meet defined correlation and
effectiveness criteria, be designated as a hedge and result in cash flows and
financial statement effects that substantially offset those of the position
being hedged.
Fair Value of Financial Instruments: The fair value of financial instruments is
determined by reference to various market data and other valuation techniques as
appropriate. Unless otherwise disclosed, the fair values of financial
instruments approximate their recorded values, due primarily to the short-term
nature of their maturities or their varying interest rates.
Comprehensive Income: Comprehensive income is defined as the change in equity
(net assets) of a business enterprise during a period, except for those changes
resulting from investments by owners and distributions to owners. Comprehensive
income is comprised of the gain (loss) on an interest rate swap used as a cash
flow hedge and foreign currency translation adjustments, which are shown net of
tax in the accompanying Consolidated Statements of Stockholders' Equity.
Reclassifications: Certain amounts in the December 31, 2002 and 2001, financial
statements have been reclassified to conform with the December 31, 2003,
presentation. These reclassifications had no effect on net income or
stockholders' equity as previously reported.
Recently Issued Accounting Pronouncements: In June 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which is effective for fiscal years beginning after
June 15, 2002. SFAS No. 143 establishes financial accounting and reporting
standards for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. We adopted SFAS No. 143
effective January 1, 2003, and made no material adjustments to our consolidated
financial statements as a result of this adoption.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses significant issues
relating to the recognition, measurement, and reporting of costs associated with
exit and disposal activities, including restructuring activities, and nullifies
the guidance in Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)." The provisions
of SFAS No. 146 are effective for exit or disposal activities initiated after
December 31, 2002. Retroactive application of SFAS No. 146 is prohibited and,
accordingly, liabilities recognized prior to the initial application of SFAS No.
146 should continue to be accounted for in accordance with EITF 94-3 or other
applicable preexisting guidance. We adopted SFAS No. 146 effective January 1,
2003, and made no material adjustments to our consolidated financial statements
as a result of this adoption.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. SFAS No. 149 is effective for contracts entered into or modified after
June 30, 2003, for hedging relationships designated after June 30, 2003, and to
certain preexisting contracts. We adopted SFAS No. 149 effective July 1, 2003,
and made no material adjustments to our consolidated financial statements as a
result of this adoption.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity," which is
effective for financial instruments entered into or modified after May 31, 2003.
SFAS No. 150 establishes financial accounting and reporting standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equities. We adopted SFAS No. 150
effective June 1, 2003, and made no material adjustments to our consolidated
financial statements as a result of this adoption.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness
of Others." FIN 45 is effective for guarantees issued or modified after December
31, 2002. The disclosure requirements were effective for certain guarantees
existing at December 31, 2002, and expand the disclosures required by a
guarantor about its obligations under a guarantee. FIN 45 also requires that we
recognize guarantees entered into or modified after December 31, 2002, as a
liability for the fair value of the obligation undertaken in the issuance of the
guarantee. We adopted FIN 45 on January 1, 2003, its effective date, and, aside
from the required disclosure provisions, made no material adjustments to our
consolidated financial statements as a result of this adoption.
In January 2003, the FASB issued Interpretation 46, "Consolidation of Variable
Interest Entities - An Interpretation of ARB No. 51." FIN 46 is intended to
clarify the application of ARB No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support. For those entities, a controlling financial interest cannot be
identified based on an evaluation of voting interests and may be achieved
through arrangements that do not involve voting interests. The consolidation
requirement of FIN 46 is effective immediately to variable interests in variable
interest entities ("VIEs") created or obtained after January 31, 2003. FIN 46
also sets forth certain disclosures regarding interests in VIEs that are deemed
significant, even if consolidation is not required. In December 2003, the FASB
issued FIN 46 (revised December 2003), "Consolidation of Variable Interest
Entities" (FIN 46R), which delayed the effective date of the application to us
of FIN 46 to non-special purpose VIEs acquired or created before February 1,
2003, to the interim period ending on March 31, 2004, and provided additional
technical clarifications to implementation issues. We have determined that FIN
46 does not apply to our dealer/franchise outlets and we do not expect to make
material adjustments to our consolidated financial statements as a result of the
adoption of this Interpretation.
In November 2002, the EITF reached a consensus on Issue No. 02-16, "Accounting
for Consideration Received from a Vendor by a Customer (Including a Reseller of
the Vendor's Products)." EITF 02-16 provides guidance on how cash consideration
received by a customer from a vendor should be classified in the customer's
statement of income. EITF 02-16 is effective prospectively for new arrangements,
including modifications of existing arrangements, entered into after December
31, 2002. We adopted EITF 02-16 effective January 1, 2003, and made no material
adjustments to our consolidated financial statements as a result of this
adoption.
In November 2003, the EITF reached a consensus on Issue No. 03-10, "Application
of EITF Issue No. 02-16, `Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor,' by Resellers to Sales Incentives
Offered to Consumers by Manufacturers." EITF 03-10 provides guidance on how cash
consideration received by a customer from a vendor should be classified in the
customer's statement of income. EITF 03-10 is effective prospectively for new
arrangements, including modification of existing arrangements, entered into
after December 31, 2003. We adopted EITF 03-10 effective January 1, 2004, and
made no material adjustments to our consolidated financial statements as a
result of this adoption.
NOTE 3 - ACCOUNTS AND NOTES RECEIVABLE, NET
As of December 31, 2003 and 2002, we had the following accounts and notes
receivable outstanding in the accompanying Consolidated Balance Sheets:
December 31,
-----------------------
(In millions) 2003 2002
------------- ---------- ----------
Receivables from vendors and service
providers $ 92.3 $ 120.0
Trade accounts receivable 75.6 70.6
Other receivables 18.6 22.9
Allowance for doubtful accounts (4.1) (7.4)
---------- ----------
Accounts and notes receivable, net $ 182.4 $ 206.1
========== ==========
Receivables from vendors and service providers relate to marketing development
funds, residual income, customer acquisition fees, and rebates and other
promotions from our third-party service providers and product vendors, after
taking into account estimates for service providers' customer deactivations and
non-activations, which are factors in determining the amount of customer
acquisition fees and residual income earned.
Allowance for Doubtful Accounts
December 31,
------------------------------------
(In millions) 2003 2002 2001
------------- ---------- ---------- ----------
Balance at the beginning of the year $ 7.4 $ 6.8 $ 6.3
Provision for bad debts included
in selling, general and
administrative expense 0.4 4.7 14.5
Uncollected receivables written off,
net of recoveries (3.7) (4.1) (14.0)
---------- ---------- ----------
Balance at the end of the year $ 4.1 $ 7.4 $ 6.8
========== ========== ==========
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT("PP&E"), NET
The following table outlines the ranges of estimated useful lives and balances
of each major fixed asset category:
December 31,
Range of -----------------------
(In millions) Estimated Useful Life 2003 2002
------------- --------------------- ---------- ----------
Land -- $ 35.0 $ 35.0
Buildings 10 - 40 years 169.1 98.1
Furniture, fixtures and equipment 2 -15 years 631.8 586.9
Leasehold improvements Primarily, the shorter of the life of the
improvements or the term of the related lease
and certain renewal periods 345.8 337.4
---------- ----------
Total PP&E 1,181.7 1,057.4
Less accumulated depreciation and
amortization of capital leases (668.6) (635.8)
---------- ----------
PP&E, net $ 513.1 $ 421.6
========== ==========
In the second quarter of 2002, we sold and leased back our corporate technology
center building, recording this transaction as a financing obligation, because
we retained certain responsibilities during the lease term. Under a financing
obligation, the associated assets remain on our balance sheet. This obligation
has a three-year term expiring in 2005 with renewal options. The lessors are
unrelated third-parties. We entered into this transaction in contemplation of
and to facilitate the relocation of our corporate headquarters to a new
custom-built corporate campus, which is currently being constructed and is
scheduled for occupation beginning in the fourth quarter of 2004 through early
2005.
In the fourth quarter of 2001, we sold and leased back most of our corporate
headquarters and recognized a loss of $44.8 million. The operating lease has a
three-year term expiring in 2004 with renewal options.
NOTE 5 - OTHER ASSETS, NET
December 31,
-----------------------
(In millions) 2003 2002
------------- ---------- ----------
Notes receivable $ 9.8 $ 4.0
Goodwill 2.9 2.9
Deferred income taxes 22.2 52.2
Other 29.3 40.3
---------- ----------
Total other assets, net $ 64.2 $ 99.4
========== ==========
NOTE 6 - IMPAIRMENT OF LONG-LIVED ASSETS
RSIS was acquired in 1999 to provide us with residential installation
capabilities for the technologies and services offered in our retail stores.
From the time of its acquisition, RSIS has incurred operating losses and
negative cash flows. In 2000 and in 2001, we attempted to restructure and
reorganize RSIS, but due to the overall slowdown in the economy and the market
decline for professionally installed home Internet connectivity services, RSIS
continued to report losses. During the fourth quarter of 2001, we prepared a
revised analysis of estimated future cash flows for RSIS, which indicated that
its long-lived assets were impaired. The carrying value of RSIS's long-lived
assets (principally goodwill and fixed assets) exceeded the discounted present
value of the estimated future cash flows by approximately $37.0 million. An
impairment of goodwill for that amount was recorded and included in the
accompanying Consolidated Statement of Income for 2001. As a result of continued
difficulties in the DTH business and a refocus during the fourth quarter of 2002
on our satellite installation strategy, together with a revised cash flow
projection for our overall installation business, we determined that the
remaining long-lived assets associated with RSIS were impaired. We compared the
carrying value of these long-lived assets with their fair value and determined
that the remaining goodwill balance of $8.1 million was impaired and we,
therefore, recorded an impairment charge of this amount in the accompanying 2002
Consolidated Statement of Income. As of December 31, 2002, there was no
remaining goodwill balance on our balance sheet relating to RSIS. On September
10, 2003, we sold RSIS, resulting in a loss of $1.8 million which was recorded
in other income.
Our test concept with Blockbuster to introduce a RadioShack
"store-within-a-store" at Blockbuster locations in 2001 did not provide
sufficient cash flows to recover our investment in fixtures and other fixed
assets. An impairment loss of $2.8 million was recorded for those assets in 2001
and is included as a component of impairment of long-lived assets in the
accompanying 2001 Consolidated Statement of Income.
NOTE 7 - INDEBTEDNESS AND BORROWING FACILITIES
Short-Term Debt
December 31,
-----------------------
(In millions) 2003 2002
------------- ---------- ----------
Short-term debt $ 36.8 $ 16.0
Current portion of long-term debt 39.5 20.0
Fair value of interest rate swaps 0.9 --
Current portion of capital lease obligations 0.2 --
---------- ----------
Total short-term debt $ 77.4 $ 36.0
========== ==========
Long-Term Debt
December 31,
-----------------------
(In millions) 2003 2002
------------- ---------- ----------
Ten-year 7 3/8% note payable due in 2011 $350.0 $350.0
Ten-year 6.95% note payable due in 2007 150.0 150.0
Medium-term notes payable with interest rates at December 31,
2003, ranging from 6.42% to 7.35% due from 2004 to 2007 44.5 64.5
Financing obligation (see Note 4) 32.3 32.3
Notes payable with interest rates at December 31, 2003,
ranging from 2.6% to 2.8% due from 2006 to 2014 6.1 6.1
Capital lease obligations 0.3 --
Unamortized debt issuance costs (5.8) (7.0)
Fair value of interest rate swaps 4.5 15.4
---------- ----------
581.9 611.3
---------- ----------
Less current portion of:
Notes payable 39.5 20.0
Fair value of interest rate swaps 0.9 --
Capital lease obligations 0.2 --
---------- ----------
40.6 20.0
---------- ----------
Total long-term debt $541.3 $591.3
========== ==========
Long-term borrowings and financing obligation outstanding at December 31, 2003,
mature as follows:
Long-Term Capital Financing
(In millions) Borrowings Lease Obligation(1) Total
------------- ------------- ------------- ------------- -------------
2004 $ 39.5 $ 0.2 $ -- $ 39.7
2005 -- 0.1 32.3 32.4
2006 5.1 -- -- 5.1
2007 150.0 -- -- 150.0
2008 5.0 -- -- 5.0
2009 and thereafter 351.0 -- -- 351.0
------------- ------------- ------------- -------------
Total $ 550.6 $ 0.3 $ 32.3 $ 583.2
============= ============= ============= =============
(1) See Note 4 for discussion of financing obligation.
The fair value of our long-term debt of $581.6 million and $611.3 million at
December 31, 2003 and 2002, respectively, (including current portion, but
excluding 2003 capital leases) was approximately $656.7 million and $675.0
million, respectively. The fair values were computed using interest rates which
were in effect at the balance sheet dates for similar debt instruments.
On May 11, 2001, we issued $350.0 million of 10-year 7 3/8% notes in a private
offering to initial purchasers who offered the notes to qualified institutional
buyers under SEC Rule 144A. The annual interest rate on the notes is 7.375% per
annum with interest payable on November 15 and May 15 of each year. Payment of
interest on the notes commenced on November 15, 2001, and the notes mature on
May 15, 2011. In August 2001, under the terms of an exchange offering filed with
the SEC, we exchanged substantially all of these notes for a similar amount of
publicly registered notes. Because no additional debt was issued in the exchange
offering, the net effect of this exchange was that no additional debt was issued
on August 3, 2001, and substantially all of the notes are now registered with
the SEC.
We have a $300.0 million debt shelf registration statement which became
effective in August 1997. In August 1997, we issued $150.0 million of 10-year
unsecured long-term notes under this shelf registration. The interest rate on
the notes is 6.95% per annum with interest payable on September 1 and March 1 of
each year, commencing March 1, 1998. These notes are due September 1, 2007.
We also issued, in various amounts and on various dates from December 1997
through September 1999, medium-term notes totaling $150.0 million under the
shelf registration. At December 31, 2003, $44.5 million of these notes remained
outstanding. The interest rates at December 31, 2003, for the outstanding $44.5
million medium-term notes ranged from 6.42% to 7.35% and had a weighted average
coupon rate of 7.19%. These notes have maturities ranging from 2004 to 2008. As
of December 31, 2003, there was no availability under this shelf registration.
In June and August 2003, we entered into interest rate swap agreements with
underlying notional amounts of debt of $100.0 million and $50.0 million,
respectively, with maturities in May 2011. Additionally, during the third
quarter of 2001, we entered into several interest rate swap agreements with
notional amounts totaling $150.0 million, with maturities ranging from 2004 to
2007. We entered into these agreements to effectively convert a portion of our
long-term fixed rate debt to a variable rate. Under these agreements, we have
contracted to pay a variable rate of LIBOR plus a markup and to receive fixed
rates ranging from 6.950% to 7.375%. We have designated these agreements as fair
value hedging instruments. We recorded an amount in other assets, net, of $4.5
million and $15.4 million (their fair value) at December 31, 2003 and 2002,
respectively, for the swap agreements and adjusted the fair value of the related
debt by the same amount. Fair value was computed using interest rates which were
in effect as of December 31, 2003 and 2002, respectively, for similar
instruments.
Short-Term Borrowing Facilities
Year Ended December 31,
----------------------------------
(In millions) 2003 2002 2001
------------- ---------- ---------- ----------
Domestic seasonal bank credit lines and
bank money market lines:
Lines available at year end $ 700.0 $ 705.0 $ 774.0
Loans outstanding at year end -- -- --
Weighted average interest rate at year end -- -- --
Weighted average loans outstanding $ -- $ -- $ 22.1
Weighted average interest rate during year -- -- 5.7%
Short-term foreign credit lines:
Lines available at year end $ 7.2 $ 15.8 $ 24.5
Loans outstanding at year end -- -- --
Weighted average interest rate at year end -- -- --
Weighted average loans outstanding $ -- $ -- $ 1.9
Weighted average interest rate during year -- 2.1% 4.9%
Letters of credit and banker's acceptance
lines of credit:
Lines available at year end $ 162.7 $ 167.4 $ 206.0
Acceptances outstanding at year end -- -- --
Letters of credit open against outstanding
purchase orders at year end $ 20.0 $ 26.4 $ 31.2
Commercial paper credit facilities:
Commercial paper outstanding at year end $ -- $ -- $ --
Weighted average interest rate at year end -- -- --
Weighted average commercial paper
outstanding $ -- $ 0.1 $ 83.2
Weighted average interest rate during year -- 2.0% 5.8%
Our short-term credit facilities, including revolving credit lines, are
summarized in the accompanying short-term borrowing facilities table above. The
method used to compute averages in the short-term borrowing facilities table is
based on a daily weighted average computation that takes into consideration the
time period such debt was outstanding, as well as the amount outstanding. Our
financing, primarily short-term debt, consists of short-term seasonal bank debt
and commercial paper. The commercial paper and the short-term seasonal bank debt
have a typical maturity of 90 days or less. The amount of commercial paper that
can be outstanding is limited to a maximum of the unused portion of our $600
million bank syndicated revolving credit facility described in more detail
below.
In the second quarter of 2003, we replaced our existing $300.0 million 364-day
revolving credit facility and amended our $300.0 million five-year credit
facility. These facilities' maturity dates are June 2004 for the $300.0 million
364-day revolving credit facility and June 2007 for the $300.0 million five-year
revolving credit facility. The terms of these revolving credit facilities are
substantially similar to the previous facilities. These revolving credit
facilities will support any future commercial paper borrowings and are otherwise
available for our general corporate purposes. As of December 31, 2003, there
were no outstanding borrowings under these credit facilities.
We established an employee stock ownership trust in June 1990. Further
information on the trust and its related indebtedness, which we guaranteed, is
detailed in the discussion of the RadioShack 401(k) Plan in Note 22.
NOTE 8 - TREASURY STOCK RETIREMENT
On December 11, 2003, our Board of Directors approved the retirement of 45.0
million shares of our common stock held as treasury stock. These shares returned
to the status of authorized and unissued. Additional details of the transaction
may be seen on our 2003 Consolidated Statement of Stockholders' Equity.
NOTE 9 - ACCRUED EXPENSES
December 31,
-----------------------
(In millions) 2003 2002
------------- ---------- ----------
Payroll and bonuses $ 76.7 $ 56.4
Insurance 70.0 65.6
Sales and payroll taxes 45.5 49.0
Other 150.8 147.7
---------- ----------
Total accrued expenses $ 343.0 $ 318.7
========== ==========
NOTE 10 - BUSINESS RESTRUCTURINGS
In 1996 and 1997, we initiated certain restructuring programs in which a number
of our former McDuff, Computer City and Incredible Universe retail stores were
closed. We still have certain real estate obligations related to some of these
stores and, at December 31, 2003, the balance in the restructuring reserve was
$17.0 million, consisting of the remaining estimated real estate obligations to
be paid. An additional provision of $6.5 million was added during 2003, while
costs of $5.8 million were charged against this reserve during the corresponding
period. In the accompanying 2003 Consolidated Balance Sheet, the balance in the
restructuring reserve is classified in other current liabilities. This reserve
represents the revised expected costs for these real estate lease obligations.
If these facilities' sublease income declines in their respective markets or if
it takes longer than expected to sublease or dispose of these facilities, the
actual losses could exceed this reserve estimate. Costs will continue to be
incurred over the remaining terms of the related leases, the longest of which is
16 years.
In 2001, we initiated an additional restructuring program related primarily to a
general reduction of our corporate management and administrative labor force,
mainly for early retirement and involuntary and voluntary employee severance,
closure of our national commercial installation business, and closure of 35
underperforming RadioShack stores. During the first quarter of 2002, we
completed a significant portion of the remaining restructuring program,
utilizing the reserves established in 2001. As of December 31, 2002, $3.8
million of the remaining restructuring reserve was classified in accrued
expenses and the remaining balance of $2.8 million was classified in other
non-current liabilities in the accompanying 2002 Consolidated Balance Sheet, to
be used principally for the remaining cash commitments associated with the
long-term compensation and lease commitment obligations.
NOTE 11 - LOSS ON SALE OF ASSETS
On August 31, 1998, we completed the sale of our wholly owned subsidiary,
Computer City, Inc., to CompUSA Inc. for cash and an unsecured note of $136.0
million. On June 22, 2001, we received $123.6 million for the final
determination of the purchase price and settlement of the $136.0 million note,
resulting in an additional loss of $12.4 million from the sale of Computer City,
Inc. Additionally, in the fourth quarter of 2001, we sold and leased back most
of our corporate headquarters at a loss of $44.8 million in anticipation of the
building of our new corporate headquarters. These losses were recorded in 2001
and are included in the accompanying Consolidated Statements of Income as a loss
on sale of assets.
NOTE 12 - GAIN ON CONTRACT TERMINATION
RadioShack and Microsoft Corporation mutually agreed during 2002 to terminate
their agreement and settle the remaining commitments each had to one another.
The termination of this agreement took effect at the start of the fourth quarter
of 2002, upon satisfaction of several contractual obligations. The net financial
result was an $18.5 million gain (principally cash received), driven primarily
by the settlement of a multi-year obligation Microsoft had to connect our stores
with broadband capabilities.
NOTE 13 - PROVISION FOR LOSS ON INTERNET-RELATED INVESTMENT
During the second quarter of 2000, we made a $30.0 million cash investment in
Digital:Convergence Corporation ("DC"), a privately-held Internet technology
company. In the first quarter of 2001, we believed that our investment had
experienced a decline in value that, in our opinion, was other than temporary.
This belief was due to DC's inability to secure financing at that time, as well
as its commencement of restructuring activities involving the termination of
much of its workforce and the curtailing of its business activities. As such, we
recorded a loss provision equal to our initial investment. DC subsequently filed
for bankruptcy on March 22, 2002.
NOTE 14 - INCOME TAXES
Deferred tax assets and liabilities as of December 31, 2003 and 2002, were
comprised of the following:
December 31,
-----------------------
(In millions) 2003 2002
------------- ---------- ----------
Deferred tax assets
Insurance reserves $ 22.4 $ 22.8
Depreciation and amortization -- 12.5
Deferred compensation 23.8 18.7
Inventory adjustments, net 6.5 0.3
Restructuring reserves 6.5 6.2
Bad debt reserve 1.6 2.8
Other 29.0 44.9
---------- ----------
Total deferred tax assets 89.8 108.2
---------- ----------
Deferred tax liabilities
Deferred taxes on foreign operations 14.5 11.0
Depreciation and amortization 10.3 --
Other 3.1 3.7
---------- ----------
Total deferred tax liabilities 27.9 14.7
---------- ----------
Net deferred tax assets $ 61.9 $ 93.5
========== ==========
The net deferred tax asset is classified
as follows:
Other current assets $ 39.7 $ 41.3
Non-current assets 22.2 52.2
---------- ----------
Net deferred tax assets $ 61.9 $ 93.5
========== ==========
The components of the provision for income taxes and a reconciliation of the
U.S. statutory tax rate to our effective income tax rate are given in the two
accompanying tables.
Income Tax Expense
Year Ended December 31,
------------------------------
(In millions) 2003 2002 2001
------------- -------- -------- --------
Current
Federal $117.5 $127.3 $137.3
State 21.9 13.3 18.2
Foreign 3.3 3.3 2.9
-------- -------- --------
142.7 143.9 158.4
-------- -------- --------
Deferred
Federal 33.5 17.5 (26.0)
State (1.9) 0.1 (7.6)
-------- -------- --------
31.6 17.6 (33.6)
-------- -------- --------
Provision for income taxes $174.3 $161.5 $124.8
======== ======== ========
Statutory vs. Effective Tax Rate
Year Ended December 31,
------------------------------
(In millions) 2003 2002 2001
------------- -------- -------- --------
Components of income from
continuing operations:
United States $456.5 $408.8 $272.1
Foreign 16.3 16.1 19.4
-------- -------- --------
Income before income taxes 472.8 424.9 291.5
Statutory tax rate x 35.0% x 35.0% x 35.0%
-------- -------- --------
Federal income tax expense at statutory rate 165.5 148.7 102.0
State income taxes, net of federal benefit 13.0 8.7 6.9
Non-deductible goodwill -- 2.8 13.8
Other, net (4.2) 1.3 2.1
-------- -------- --------
Total income tax expense $174.3 $161.5 $124.8
======== ======== ========
Effective tax rate 36.9% 38.0% 42.8%
======== ======== ========
We anticipate that we will generate sufficient pre-tax income in the future to
realize the full benefit of U.S. deferred tax assets related to future
deductible amounts. Accordingly, a valuation allowance was not required at
December 31, 2003 or 2002. Our tax returns are subject to examination by taxing
authorities in various jurisdictions. The Internal Revenue Service is currently
in the process of concluding its examination of our federal income tax returns
for the taxable years from 1993 through 2001. Several states are also currently
in the process of examining our state income tax returns. We record tax reserves
based on our best estimate of current tax exposures in the relevant
jurisdictions. While we believe that the reserves recorded in the consolidated
financial statements accurately reflect our tax exposures, our actual 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
preferred 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 accompanying 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
lawsuit 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 vigorously
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
==========
Future minimum rent commitments in the table above exclude future rent
obligations associated with stores closed under the 1996 restructuring plan.
Estimated payments to settle future rent obligations associated with these
stores have been accrued in the restructuring reserve (see Note 10).
Rent Expense
Year Ended December 31,
----------------------------
(In millions) 2003 2002 2001
------------- -------- -------- --------
Minimum rents $245.7 $240.9 $226.3
Contingent rents 4.4 4.0 4.0
-------- -------- --------
Total rent expense $250.1 $244.9 $230.3
======== ======== ========
Contingent Liabilities: We have contingent liabilities related to retail leases
of locations which were assigned to other businesses. The majority of these
contingent liabilities relate to various lease obligations arising from leases
that were assigned to CompUSA, Inc. as part of the sales of our Computer City,
Inc. subsidiary to CompUSA, Inc. in August 1998. In the event CompUSA or the
other assignees, as applicable, are unable to fulfill their obligations, we
would be responsible for rent due under the leases. Our rent exposure from the
remaining undiscounted lease commitments with no projected sublease income is
approximately $183 million. However, we have no reason to believe that CompUSA
or the other assignees will not fulfill their obligations under these leases;
consequently, we do not believe there will be a material impact on our financial
statements.
NOTE 18 - STOCK OPTIONS AND PERFORMANCE AWARDS
We have implemented several plans to award employees stock-based compensation.
Under the Incentive Stock Plans ("ISPs") described below, the exercise price of
options must be equal to or greater than the fair market value of a share of our
common stock on the date of grant. The 1997, 1999 and 2001 ISPs each terminate
after ten years; no option or award may be granted under the ISPs after the ISP
termination date. The Management Development and Compensation Committee (the
"Committee") specifies the terms for grants of options under these ISPs; terms
of these options may not exceed 10 years. Grants of options generally vest over
three years and grants typically have a term of seven or 10 years. Option
agreements issued under the ISPs generally provide that, in the event of a
change in control, all options become immediately and fully exercisable.
Repricing or exchanging options for lower priced options is not permitted under
the ISPs without shareholder approval.
The 1997, 1999 and 2001 ISPs specify that each of our non-employee directors
will receive a grant of non-qualified stock options (options which are not
incentive stock options) ("NQs") for 16,000 shares of our common stock on the
first business day of September each year ("Director Options"). However,
Director Option grants are not made under more than one ISP in the same year.
New directors, upon election or appointment, will receive a one-time grant of
20,000 shares at the time they attend their first Board meeting, and these new
directors will not receive the annual Director Option grant until they have
served at least one year. Director Options under the 1997 ISP have an exercise
price of 100% of the fair market value of our common stock on the trading day
prior to the date of grant. Director Options under the 1999 and 2001 ISPs have
an exercise price of 100% of the fair market value of a share of our common
stock on the date of grant. If a grant is made under the 1999 or 2001 ISPs on a
non-trading date, the closest previous trading date is used. Under these ISPs,
one-third of the Director Options vest annually on the first three anniversary
dates of the date of grant and options expire ten years after the date of grant.
A brief description of each our stock plans follows:
1993 Incentive Stock Plan ("1993 ISP"): The 1993 ISP permitted the grant of
up to 12.0 million shares in the form of incentive stock options ("ISOs"),
NQs and restricted stock. There were no shares available on December 31,
2003, for grants under the 1993 ISP. The 1993 ISP terminated on March 28,
2003, and no further grants may be made under this plan.
1994 Stock Incentive Plan ("1994 SIP"): As part of the purchase of
AmeriLink in 1999 (see Note 6), we assumed the existing AmeriLink
Corporation 1994 Stock Incentive Plan and certain related agreements and
agreed to convert AmeriLink's stock options to stock options to purchase
our stock, subject to an agreed upon exchange ratio and conversion price.
Thus, the AmeriLink 1994 SIP was assumed and adopted by us in 1999. All
options in the 1994 SIP were fully vested on the date of transition and
management has determined that no further grants will be made under this
plan, although 53,259 shares were still available at December 31, 2003,
under the 1994 SIP. There were certain restricted stock agreements that
were also assumed by us at the time of acquisition. On September 10, 2003,
we sold RSIS.
1997 Incentive Stock Plan ("1997 ISP"): The 1997 ISP permits the grant of
up to 11.0 million shares in the form of ISOs, NQs and restricted stock.
The 1997 ISP provides that the maximum number of shares of our common stock
that an eligible employee may receive in any calendar year with respect to
options may not exceed 1.0 million shares. There were 366,145 shares
available on December 31, 2003, for grants under the 1997 ISP.
1999 Incentive Stock Plan ("1999 ISP"): The 1999 ISP permits the grant of
up to 9.5 million shares in the form of NQs to broad-based employee groups,
primarily our 5,000 plus store managers and to other eligible employees and
non-employee directors. Grants of restricted stock, performance awards and
options intended to qualify as ISO's under the Internal Revenue Code are
not authorized under the 1999 ISP. The 1999 ISP provides that the maximum
number of shares of our common stock that an eligible employee may receive
in any calendar year with respect to options may not exceed 1.0 million
shares. There were 516,088 shares available on December 31, 2003, for
grants under the 1999 ISP.
2001 Incentive Stock Plan ("2001 ISP"): The 2001 ISP permits the grant of
up to 9.2 million shares in the form of ISOs and NQs. The 2001 ISP provides
that the maximum number of shares of our common stock that an eligible
employee may receive in any calendar year with respect to options may not
exceed 0.5 million shares. There were 5,340,986 shares available on
December 31, 2003, for grants under the 2001 ISP.
Stock Option Activity: See tables below for a summary of stock option
transactions under our stock option plans and information about fixed price
stock options.
Summary of Stock Option Transactions
(Share amounts in thousands) 2003 2002 2001
-------------------------- ---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Share Price Shares Price
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at beginning of year 22,816 $ 34.32 22,869 $ 34.34 15,179 $ 34.33
Grants (1) 3,541 21.31 1,515 28.80 9,384 34.42
Exercised (755) 20.72 (525) 17.50 (378) 19.84
Forfeited (1,713) 33.85 (1,043) 35.23 (1,316) 38.93
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at end of year 23,889 $ 32.85 22,816 $ 34.32 22,869 $ 34.34
========== ========== ========== ========== ========== ==========
Exercisable at end of year 17,438 $ 34.99 14,227 $ 34.25 9,589 $ 31.20
========== ========== ========== ========== ========== ==========
(1) The number of options granted in 2001 was higher than 2002 and 2003 due
to the issuance of options to employees in both February and December of
2001. The December 2001 grant did not include named executive officers or
directors.
Fixed Price Stock Options
(Share amounts
in thousands) Options Outstanding Options Exercisable
------------ ------------------------------------------------------- --------------------------------
Weighted
Shares Average Weighted Shares Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at Dec. 31, 2003 Contractual Life Exercise Price at Dec. 31, 2003 Exercise Price
--------------- ---------------- ---------------- -------------- ---------------- --------------
$ 10.47 - 20.85 4,816 4.95 years $ 18.44 1,774 $ 14.32
21.08 - 28.03 4,185 5.09 26.02 3,952 26.16
28.55 - 37.19 4,145 5.16 29.22 2,348 29.06
38.35 - 39.03 5,710 6.92 38.49 4,331 38.54
42.41 - 69.34 5,033 5.18 48.91 5,033 48.91
---------------- ----------------
$ 10.47 - 69.34 23,889 5.53 years $ 32.85 17,438 $ 34.99
================ ================
Restricted Stock: We may also use restricted stock grants to compensate certain
of our employees. As of December 31, 2003, no shares of restricted stock were
outstanding. Compensation expense related to restricted shares is recognized
ratably over the related service period. This expense totaled $0.7 million for
the year ended December 31, 2001. There was no expense for the years ended
December 31, 2003 and 2002.
In 1998, the Committee granted a total of 172,000 shares of restricted stock
awards to three executive officers. Of these awards, 100,000 shares vested
ratably over three years and were fully vested in 2001. The remaining 72,000
shares vested in 1999. In 1999, the Committee granted 10,000 shares of
restricted stock awards to two executive officers. These awards were to vest
ratably over three years; 4,000 of these awards were canceled in 2000. At
December 31, 2001, all of the 1999 shares granted had either vested or been
canceled. In 2000, the Committee granted a total of 66,712 shares of restricted
stock awards to 38 executive officers and these awards vested ratably over three
years, subject to the achievement of certain performance targets each year. At
December 31, 2003, none of these shares granted in 2000 remained outstanding. No
restricted awards were granted in 2001, 2002 or 2003.
NOTE 19 - DEFERRED COMPENSATION PLANS
The Executive Deferred Compensation Plan and the Executive Deferred Stock Plan
("Compensation Plans") became effective on April 1, 1998. These plans permit
employees who are corporate or division officers to defer up to 80% of their
base salary and/or bonuses. Certain executive officers may defer up to 100% of
their base salary and/or bonuses. In addition, officers are permitted to defer
delivery of any restricted stock or stock acquired under an NQ exercise that
would otherwise vest. Cash deferrals may be made in our common stock or mutual
funds; however, restricted stock deferrals and deferrals of stock acquired under
an NQ exercise may only be made in our common stock. We match 12% of salary and
bonus deferrals in the form of our common stock. We will match an additional 25%
of salary and bonus deferrals if the deferral period exceeds five years and the
deferrals are invested in our common stock. Payment of deferrals will be made in
cash or our common stock in accordance with the employee's specifications at the
time of the deferral; payments to the employee will be in a lump sum or in
annual installments not to exceed 20 years.
We contributed $0.4 million, $0.5 million and $1.4 million to the Compensation
Plans for the years ended December 31, 2003, 2002 and 2001, respectively.
NOTE 20 - TERMINATION PROTECTION PLANS
In August 1990 and in May 1995, our Board of Directors approved termination
protection plans and amendments to the termination protection plans,
respectively. These plans provide for defined termination benefits to be paid to
our eligible employees who have been terminated, without cause, following a
change in control of our company. In addition, for a certain period of time
following an employee's termination, we, at our expense, must continue to
provide on behalf of the terminated employee certain employment benefits. In
general, during the twelve months following a change in control, we may not
terminate or change existing employee benefit plans in any way which would
affect accrued benefits or decrease the rate of our contribution to the plans.
There have been no payments under these protection plans for the years shown.
NOTE 21 - COMPANY STOCK PURCHASE PLAN
Eligible employees may contribute 1% to 7% of their annual compensation to
purchase our common stock at the monthly average daily closing price. We match
40%, 60% or 80% of the employee's contribution, depending on the employee's
length of continuous participation in the Stock Purchase Plan. This match is
also in the form of our common stock. Company contributions to the Stock Plan
amounted to $15.4 million, $15.1 million and $15.4 million for the years ended
December 31, 2003, 2002 and 2001, respectively.
NOTE 22 - RADIOSHACK 401(k) PLAN
The RadioShack 401(k) Plan ("Plan") is a defined contribution plan. Eligible
employees may direct their contributions into various investment options,
including investing in our common stock. Participants may defer, via payroll
deductions, 1% to 8% of their annual compensation. Contributions per participant
are limited to certain annual maximums permitted by the Internal Revenue Code.
Any contributions made by us are discretionary and, if made, go directly to the
Plan for investment in our common stock. Effective April 1, 2002, a participant
becomes fully vested in the Plan contributions we made on his on her behalf on
the third anniversary of the participant's employment date. At January 1, 2004,
the Plan year was changed to a calendar year basis.
TESOP Portion of the Plan: On July 31, 1990, the trustee of the Plan borrowed
$100.0 million at an interest rate of 9.34%; this amount was paid off on June
30, 2000 ("TESOP Notes"). The Plan trustee used the proceeds from the 1990
issuance of the TESOP Notes to purchase from us 100,000 shares of TESOP
Preferred Stock at a price of $1,000 per share. In December 1994, the Plan
entered into an agreement with an unrelated third-party to refinance up to $16.7
million of the TESOP Notes in a series of six annual notes (the "Refinanced
Notes"), beginning December 30, 1994. As of December 31, 1999, the Plan had
borrowed all of the $16.7 million for the refinancing of the TESOP Notes. As of
December 31, 2002, the Plan had repaid all of the Refinanced Notes. Dividend
payments and contributions received by the Plan from us were used to repay the
indebtedness.
Each share of TESOP Preferred Stock was convertible into 87.072 shares of our
common stock. The annual cumulative dividend on TESOP Preferred Stock was $75.00
per share, payable semiannually. Because we had guaranteed the repayment of the
Refinanced Notes, the indebtedness of the Plan was recognized as a liability in
the accompanying Consolidated Balance Sheets. An offsetting charge was made in
the stockholders' equity section of the 2001 Consolidated Balance Sheet to
reflect unearned compensation related to the Plan. On December 31, 2002, all
shares of TESOP Preferred Stock were converted into our common stock and all
unearned compensation related to the Plan was recognized as of that date.
Compensation and interest expense related to the Plan before the reduction for
the allocation of dividends are presented below for each year ended December 31:
(In millions) 2003 2002 2001
------------- ---- ---- ----
Compensation expense $ -- $ 4.3 $ 6.4
Accrued additional
contribution -- 4.1 --
Interest expense -- 0.2 0.8
The last allocation of TESOP Preferred Stock to participants was made as of the
Plan year ended March 31, 2003, and was based on the total debt service made on
the indebtedness. As shares of the TESOP Preferred Stock were allocated to Plan
participants, compensation expense was recorded and unearned compensation was
reduced. Interest expense on the Refinanced Notes was also recognized as a cost
of the Plan. The compensation component of the Plan expense was reduced by the
amount of dividends accrued on the TESOP Preferred Stock, with any dividends in
excess of the compensation expense reflected as a reduction of interest expense.
Contributions made by us to the Plan for the years ended December 31, 2002 and
2001, totaled $4.0 million and $8.6 million, respectively, including dividends
paid on the TESOP Preferred Stock of $4.5 million and $4.9 million,
respectively.
As of December 31, 2002, all of the original 100,000 shares of TESOP Preferred
Stock were converted into 5.1 million shares of our common stock and allocated
to participants' accounts in the Plan.
NOTE 23 - TREASURY STOCK REPURCHASE PROGRAM
On February 20, 2003, our Board of Directors authorized a new repurchase program
for 15.0 million shares, which was in addition to our 25.0 million share
repurchase program that was completed during the second quarter of 2003. The
15.0 million share repurchase program has no expiration date and allows shares
to be repurchased in the open market. We repurchased 9.9 million shares of our
common stock for $251.0 million for the year ended December 31, 2003, under our
combined 40.0 million share repurchase programs. The funding required for these
share repurchase programs will come from cash generated from net sales and
operating revenues and cash and cash equivalents. Under our programs described
above, we will also repurchase shares in the open market to offset the sales of
shares to our employee benefit plans. At February 20, 2004, there were 8.9
million shares available to be repurchased under the 15.0 million share
repurchase program.
The purchases under the share repurchase program described above are in addition
to the shares required for employee benefit plans, which are repurchased from
our treasury stock throughout the year.
NOTE 24 - PREFERRED SHARE PURCHASE RIGHTS
In July 1999, we amended and restated a stockholder rights plan which declared a
dividend of one right for each outstanding share of our common stock. The rights
plan, as amended and restated, will expire on July 26, 2009. The rights are
currently represented by our common stock certificates. When the rights become
exercisable, they will entitle each holder to purchase 1/10,000th of a share of
our Series A Junior Participating Preferred Stock for an exercise price of $250
(subject to adjustment). The rights will become exercisable and will trade
separately from the common stock only upon the date of public announcement that
a person, entity or group ("Person") has acquired 15% or more of our outstanding
common stock without the consent or approval of the disinterested directors
("Acquiring Person") or ten days after the commencement or public announcement
of a tender or exchange offer which would result in any Person becoming an
Acquiring Person. In the event that any Person becomes an Acquiring Person, the
rights will be exercisable for 60 days thereafter for our common stock with a
market value (as determined under the rights plan) equal to twice the exercise
price. In the event that, after any Person becomes an Acquiring Person, we
engage in certain mergers, consolidations, or sales of assets representing 50%
or more of our assets or earning power with an Acquiring Person (or Persons
acting on behalf of or in concert with an Acquiring Person) or in which all
holders of common stock are not treated alike, the rights will be exercisable
for common stock of the acquiring or surviving company with a market value (as
determined under the rights plan) equal to twice the exercise price. The rights
will not be exercisable by any Acquiring Person. The rights are redeemable at a
price of $0.01 per right prior to any Person becoming an Acquiring Person or,
under certain circumstances, after a Person becomes an Acquiring Person.
NOTE 25 - DIVIDENDS DECLARED
We declared dividends of $0.25, $0.22 and $0.165 for the years 2003, 2002 and
2001, respectively. On July 25, 2001, we announced that we would pay cash
dividends on an annual, instead of quarterly, basis beginning in 2002. Dividends
declared in 2002 and thereafter, have been paid annually in December.
NOTE 26 - PRODUCT SALES INFORMATION
Our net sales and operating revenues are summarized by groups of similar
products and services as follows:
Year Ended December 31,
----------------------------------
(In millions) 2003 2002 2001
------------- ---------- ---------- ----------
Wireless products and services $ 1,623.2 $ 1,419.9 $ 1,297.5
Home entertainment products and services 737.9 855.2 1,121.4
Computer products 455.9 456.8 461.1
Power and technical products 634.1 623.9 618.9
Personal electronics, toys and personal audio
products 588.1 576.2 562.0
Wired and radio products and other (1) 610.1 645.2 714.8
---------- ---------- ----------
$ 4,649.3 $ 4,577.2 $ 4,775.7
========== ========== ==========
(1) Other includes outside sales of our retail support operations, service plan
income and store repair income.
NOTE 27 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash flows from operating activities included cash payments as follows:
Year Ended December 31,
----------------------------------
(In millions) 2003 2002 2001
------------- ---------- ---------- ----------
Interest paid $ 35.0 $ 43.9 $ 48.4
Income taxes paid 153.5 160.2 171.2
NOTE 28 - RELATED PARTY TRANSACTIONS
In April 2002, we entered into a supply chain management consulting agreement
with a company affiliated with a corporation whose chairman and chief executive
officer is a member of our Board of Directors and who currently serves on the
Corporate Governance and Management Development and Compensation Committees of
our Board of Directors. Under this agreement, we incurred approximately $1.8
million and $8.2 million in consulting fees during the years ended December 31,
2003 and 2002, respectively.
NOTE 29 - QUARTERLY DATA (UNAUDITED)
As our operations are predominantly retail oriented, our business is subject to
seasonal fluctuations, with the fourth quarter being the most significant in
terms of sales and profits because of the winter holiday selling season.
Three Months Ended
----------------------------------------------
(In millions, except per share amounts) March 31 June 30 Sept. 30 Dec. 31
--------------------------------------------------------------------------------------------
Year ended December 31, 2003:
Net sales and operating revenues $1,070.3 $1,025.0 $1,063.6 $1,490.4
Gross profit $ 527.4 $ 521.2 $ 532.7 $ 734.4
SG&A expense $ 407.8 $ 406.6 $ 421.4 $ 504.2
Net income $ 56.6 $ 57.5 $ 57.1 $ 127.3
Net income available to common shareholders $ 56.6 $ 57.5 $ 57.1 $ 127.3
Net income available per common share:
Basic $ 0.33 $ 0.34 $ 0.34 $ 0.77
Diluted $ 0.33 $ 0.34 $ 0.34 $ 0.77
Shares used in computing earnings per
common share:
Basic 171.4 168.9 166.1 164.5
Diluted 171.8 169.8 167.6 166.3
Year ended December 31, 2002:
Net sales and operating revenues $1,034.4 $ 998.1 $1,047.0 $1,497.7
Gross profit $ 519.7 $ 510.1 $ 521.4 $ 687.1
SG&A expense $ 393.2 $ 421.3 $ 420.0 $ 483.7 (1)
Net income $ 57.6 $ 51.8 $ 44.9 $ 109.1 (1)
Preferred dividends $ 1.2 $ 1.1 $ 1.1 $ 1.1
Net income available to common shareholders $ 56.4 $ 50.7 $ 43.8 $ 108.0
Net income available per common share:
Basic $ 0.32 $ 0.29 $ 0.25 $ 0.64
Diluted $ 0.31 $ 0.28 $ 0.25 $ 0.63
Shares used in computing earnings per
common share:
Basic 176.8 174.4 172.1 168.7
Diluted 183.6 181.5 178.0 174.2
(1) In the fourth quarter of 2002, we recorded the following significant items:
o $18.5 million gain from the termination of a Microsoft contract and
o $8.1 million impairment of long-lived assets for RSIS.
The sum of the quarterly net income available per common share amounts may not
total to full year amounts, since these computations are made independently for
each quarter and full year and take into account the weighted average number of
common stock equivalent shares outstanding for each period, including the effect
of dilutive securities for that period.
RADIOSHACK CORPORATION
INDEX TO EXHIBITS
Exhibit
Number * Description
3a Certificate of Amendment of Restated Certificate of
Incorporation dated May 18, 2000 (Filed as Exhibit 3a to
RadioShack's Form 10-Q filed on August 11, 2000 for the fiscal
quarter ended June 30, 2000 and incorporated herein by
reference).
3a(i) Restated Certificate of Incorporation of RadioShack
Corporation dated July 26, 1999 (filed as Exhibit 3a(i) to
RadioShack's Form 10-Q filed on August 11, 1999 for the fiscal
quarter ended June 30, 1999 and incorporated herein by
reference).
3a(ii) Certificate of Elimination of Series C Conversion Preferred
Stock of RadioShack Corporation dated July 26, 1999 (filed as
Exhibit 3a(ii) to RadioShack's Form 10-Q filed on August 11,
1999 for the fiscal quarter ended June 30, 1999 and
incorporated herein by reference).
3a(iii) Amended Certificate of Designations, Preferences and Rights of
Series A Junior Participating Preferred Stock of RadioShack
Corporation dated July 26, 1999 (filed as Exhibit 3a(iii) to
RadioShack's Form 10-Q filed on August 11, 1999 for the fiscal
quarter ended June 30, 1999 and incorporated herein by
reference).
3a(iv) Certificate of Designations of Series B TESOP Convertible
Preferred Stock dated June 29, 1990 (filed as Exhibit 4A to
RadioShack's 1993 Form S-8 for the RadioShack Corporation
Incentive Stock Plan, Reg. No. 33-51603, filed on November 12,
1993 and incorporated herein by reference).
3b RadioShack Corporation Bylaws, amended and restated as of
October 17, 2003 (filed as Exhibit 3b to RadioShack's Form
10-Q filed on November 12, 2003 for the fiscal quarter ended
September 30, 2003 and incorporated herein by reference).
4a Amended and Restated Rights Agreement dated as of July 26,
1999 (filed as Exhibit 4a to RadioShack's Form 10-Q filed on
August 11, 1999 for the fiscal quarter ended June 30, 1999 and
incorporated herein by reference).
10a Amended and Restated 364-Day Credit Agreement (Facility A) dated
as of June 18, 2003 among RadioShack Corporation, Citibank,
N.A., as Administrative Agent, Paying Agent and Lender, Bank of
America, N.A. as Administrative Agent and Lender, Fleet National
Bank as Syndication Agent and Lender, Keybank National
Association and Wachovia Bank, National Association as
Documentation Agents and Lenders, Citigroup Global markets Inc.
as Joint Lead Arranger and Bookrunner, Bank of America
Securities, Inc. as Joint Lead Arranger and Bookrunner (filed as
Exhibit 10a to RadioShack's Form 10-Q filed on August 13, 2003
for the fiscal quarter ended June 30, 2003 and incorporated
herein by reference).
10b Revolving Credit Agreement (Facility B) dated as of June 19,
2002 among RadioShack Corporation, Citibank, N.A., as
Administrative Agent, Paying Agent and Lender, Bank of America,
N.A. as Administrative Agent, Initial Issuing Bank and Lender,
Fleet National Bank as Syndication Agent, Initial Issuing Bank
and Lender, Wachovia Bank, National Association as Documentation
Agent and Lender, Salomon Smith Barney, Inc. as Joint Lead
Arranger and Bookrunner, Bank of America Securities, Inc. as
Joint Lead Arranger and Bookrunner and twelve other banks as
Lenders (filed as Exhibit 10b to RadioShack's Form 10-Q filed on
August 13, 2002 for the fiscal quarter ended June 30, 2002 and
incorporated herein by reference).
10c Amendment No. 1 to the Five Year Credit Agreement (Facility B)
dated as of June 18, 2003 (filed as Exhibit 10b to
RadioShack's Form 10-Q filed on August 13, 2003 for the fiscal
quarter ended June 30, 2003 and incorporated herein by
reference).
10d Death Benefit Agreement effective December 27, 2001 among
Leonard H. Roberts, Laurie Roberts and RadioShack Corporation
(filed as Exhibit 10a to RadioShack's Form 10-Q filed on May
13, 2002 for the fiscal quarter ended March 31, 2002 and
incorporated herein by reference).
10e Salary Continuation Plan for Executive Employees of RadioShack
Corporation and Subsidiaries including amendment dated June
14, 1984 with respect to participation by certain executive
employees, as restated October 4, 1990 (filed as Exhibit 10a
to RadioShack's Form 10-K filed on March 30, 1994 for the
fiscal year ended December 31, 1993 and incorporated herein by
reference).
10f Post Retirement Death Benefit Plan for Selected Executive
Employees of RadioShack Corporation and Subsidiaries as
restated June 10, 1991 (filed as Exhibit 10c to RadioShack's
Form 10-K filed on March 30, 1994 for the fiscal year ended
December 31, 1993 and incorporated herein by reference).
10g RadioShack Corporation Officers Deferred Compensation Plan as
restated July 10, 1992 (filed as Exhibit 10d to RadioShack's
Form 10-K filed on March 30, 1994 for the fiscal year ended
December 31, 1993 and incorporated herein by reference).
10h RadioShack Corporation Officers Life Insurance Plan as amended
and restated effective August 22, 1990 (filed as Exhibit 10k
to RadioShack's Form 10-K filed on March 30, 1994 for the
fiscal year ended December 31, 1993 and incorporated herein by
reference).
10i Third Restated Trust Agreement RadioShack Employees
Supplemental Stock Program through Amendment No. VI dated
August 31, 1999 (filed as Exhibit 10h to RadioShack's Form
10-Q filed on November 12, 1999 for the fiscal quarter ended
September 30, 1999 and incorporated herein by reference).
10j Forms of Termination Protection Agreements for (i) Corporate
Executives, (ii) Division Executives and (iii) Subsidiary
Executives (filed as Exhibit 10m to RadioShack's Form 10-Q
filed on August 14, 1995 for the fiscal quarter ended June 30,
1995 and incorporated herein by reference).
10k RadioShack Corporation Termination Protection Plans for
Executive Employees of RadioShack Corporation and its
Subsidiaries (i) the Level I and (ii) Level II Plans (filed as
Exhibit 10n to RadioShack's Form 10-Q filed on August 14, 1995
for the fiscal quarter ended June 30, 1995 and incorporated
herein by reference).
10l Forms of Bonus Guarantee Letter Agreements with certain
Executive Employees of RadioShack Corporation and its
Subsidiaries (i) Formula, (ii) Discretionary and (iii) Pay
Plan (filed as Exhibit 10o to RadioShack's Form 10-K filed on
March 30, 1994 for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
10m Form of Indemnity Agreement with Directors, Corporate Officers
and two Division Officers of RadioShack Corporation (filed as
Exhibit 10p to RadioShack's Form 10-K filed on March 28, 1996
for the fiscal year ended December 31, 1995 and incorporated
herein by reference).
10n Form of December 1997 Deferred Salary and Bonus Agreement
(Stock Investment) with selected Executive Employees of
RadioShack Corporation (filed as Exhibit 10u to RadioShack's
Form 10-K filed on March 26, 1998 for the fiscal year ended
December 31, 1997 and incorporated herein by reference).
10o RadioShack Corporation Executive Deferred Compensation Plan,
effective April 1, 1998 (filed as Exhibit 10s to RadioShack's
Form 10-K filed on March 26, 1998 for the fiscal year ended
December 31, 1997 and incorporated herein by reference).
10p RadioShack Corporation Executive Deferred Stock Plan,
effective April 1, 1998 (filed as Exhibit 10x to RadioShack's
Form 10-K filed on March 26, 1998 for the fiscal year ended
December 31, 1997 and incorporated herein by reference).
10q RadioShack Corporation Unfunded Deferred Compensation Plan for
Directors as amended and restated July 22, 2000 (filed as
Exhibit 10x to RadioShack's Form 10-K filed on March 28, 2003
for the fiscal year ended December 31, 2002 and incorporated
herein by reference).
10r Form of September 30, 1997 Deferred Compensation Agreement
between RadioShack Corporation and Leonard H. Roberts (filed
as Exhibit 10aa to RadioShack's Form 10-Q filed on May 13,
1998 for the fiscal quarter ended March 31, 1998 and
incorporated herein by reference).
10s Severance Agreement dated October 23, 1998 between Leonard H.
Roberts and RadioShack Corporation (filed as Exhibit 10z to
RadioShack's Form 10-K filed on March 29, 1998 for the fiscal
year ended December 31, 1997 and incorporated herein by
reference).
10t* Form of First Amendment to Severance Agreement between Leonard
H. Roberts and RadioShack Corporation.
10u* Form of Severance Agreement between David J. Edmondson and
RadioShack Corporation.
10v* Form of First Amendment to Severance Agreement between David J.
Edmondson and RadioShack Corporation.
10w* Form of 2003 Executive Pay Plan Letter.
10x RadioShack Corporation 1993 Incentive Stock Plan as amended
(filed as Exhibit 10a to RadioShack's Form 10-Q filed on
November 14, 2001 for the fiscal quarter ended September 30,
2001 and incorporated herein by reference)
10y RadioShack Corporation 1997 Incentive Stock Plan as amended
(filed as Exhibit 10b to RadioShack's Form 10-Q filed on
November 14, 2001 for the fiscal quarter ended September 30,
2001 and incorporated herein by reference)
10z RadioShack Corporation 1999 Incentive Stock Plan dated February
24, 1999 (filed as Exhibit 10y to RadioShack's Form 10-Q filed
on August 11, 1999 for the fiscal quarter ended June 30, 1999
and incorporated herein by reference).
10aa RadioShack Corporation 2001 Incentive Stock Plan, (filed as
Exhibit 10c to RadioShack's Form 10-Q filed on November 14,
2001 for the fiscal quarter ended September 30, 2001 and
incorporated herein by reference).
12* Statements of Computation of Ratios of Earnings to Fixed
Charges and Ratios of Earnings to Fixed Charges and
Preferred Dividends.
23* Consent of Independent Accountants.
31(a)* Rule 13a-14(a) Certification of the Chief Executive Officer of
RadioShack Corporation.
31(b)* Rule 13a-14(a) Certification of the Chief Financial Officer of
RadioShack Corporation.
32* Section 1350 Certifications.**
-----------------------
* Filed with this report.
** These Certifications shall not be deemed "filed" for purposes of
Section 18 of the Exchange Act, as amended, or otherwise subject to the
liability of that section. These Certifications shall not be deemed to
be incorporated by reference into any filing under the Securities Act
of 1933, as amended, or the Exchange Act, except to the extent that the
Company specifically incorporates it by reference.
EXHIBIT 10t
FIRST AMENDMENT TO
SEVERANCE AGREEMENT
THIS FIRST AMENDMENT (the "Amendment"), is made and entered into as of
______________, 2004, by and between Leonard H. Roberts ("Executive") and
RadioShack Corporation (formerly Tandy Corporation), a Delaware corporation
("RadioShack"), and amends that certain Severance Agreement, dated October 23,
1998 (the "Agreement"), between the Executive and RadioShack. Capitalized words
not otherwise defined herein shall have the meanings ascribed in the Agreement.
WHEREAS, the Board recognizes Executive's valuable experience and has
determined it is in the best interests of RadioShack and its shareholders to
amend the Agreement with Executive to modify the compensation payable to
Executive upon termination of his employment to include payments pursuant to
RadioShack's long-term incentive plan.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. The Agreement is hereby amended to provide that all references in the
Agreement to "Tandy Corporation" shall now be to "RadioShack Corporation" and
that all references in the Agreement to "Tandy" shall now be to "RadioShack."
2. Section 2.D. of the Agreement ("Target Bonus") is hereby renumbered as
Section 2.E., and a new Section 2.D. is hereby added as follows:
"D. "LTIP" shall mean all compensation payable to the
Executive pursuant to RadioShack's long-term
incentive plan in effect at any time during the 12
month period ending on the termination date of his
employment with RadioShack, determined without regard
to any salary reduction or deferred compensation
elections made by the Executive."
3. In the first sentence of Section 3 of the Agreement, a new subclause (z)
is hereby added to the first sentence to follow subclause (y), as follows:
"and (z) the Executive's LTIP (such total being hereinafter
referred to as the "Cash Severance Payment")."
4. The first sentence of Section 5.A. of the Agreement is hereby amended
and restated in its entirety as follows:
"A. If the Cash Severance Payment is payable under the
terms hereof, the same shall be payable in two equal
installments."
5. Section 7(A) of the Agreement is hereby amended and restated in its
entirety as follows:
"(A) declare forfeited any sums representing the Base
Amount, Target Bonus, LTIP or other fringe benefits
(including any unexercised stock options or unvested
restricted stock) otherwise due and payable to
Executive hereunder, and, or alternatively,"
6. All other provisions of the Agreement are hereby ratified by the parties
and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment, in one or
more counterparts, as of the date first written above.
-----------------------------------------
Leonard H. Roberts
RADIOSHACK CORPORATION
By:
--------------------------------------
Chairman, Management Development and
Compensation Committee
Board of Directors
RadioShack Corporation
EXHIBIT 10u
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into as of
December 11, 2003 by and between David J. Edmondson ("Executive") and RadioShack
Corporation ("RadioShack").
WHEREAS, the Board of Directors of RadioShack (the "Board") recognizes
Executive's valuable experience;
WHEREAS, the Board has determined it is in the best interest of RadioShack
and its shareholders to enter into this Agreement with Executive; and
WHEREAS, for these reasons Executive and RadioShack desire to enter into
this Agreement.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. Term of Agreement and Renewal. This Agreement shall commence
as of December 11, 2003 and shall continue in effect until
December 11, 2008 (the "Term"). RadioShack, in its sole and
absolute discretion, shall have the sole right and option to
extend the Term of this Agreement for such time and under such
terms and conditions it may deem necessary or desirable.
2. Definitions. For purposes of this Agreement the following
terms shall have the following meaning:
A. "Base Amount" shall mean the Executive's annual
salary at the highest rate in effect at any time
during the 12 month period ending on the termination
date of his employment with RadioShack, determined
without regard to any salary reduction or deferred
compensation elections made by the Executive.
B. "Cause" shall mean if (i) the Executive intentionally
fails to substantially perform his reasonably
assigned duties with RadioShack, (ii) Executive
engages in conduct which is demonstrably and
materially injurious to RadioShack, (iii) Executive
commits or otherwise is charged with a felony or any
crime involving moral turpitude, or any other
criminal activity or unethical conduct which in the
good faith opinion of the Board impairs his ability
to perform the duties of his job with RadioShack, or
(iv) Executive fails or refuses to comply with the
policies, standards or regulations of RadioShack.
C. "Disability" shall mean the Executive is suffering
from a physical or mental condition which, in the
opinion of the Board, based upon appropriate medical
advice and examination, prevents the Executive from
performing the duties of his job with RadioShack.
D. "Target Bonus" shall mean 75% of the Base Amount or
the applicable percentage of the Base Amount then in
effect.
3. Compensation and Benefits Upon Termination of Employment. If,
during the Term, the Executive's employment with RadioShack
shall be involuntarily terminated without (i) Cause, or
other than by virtue of (ii) the Executive's Disability or
(iii) the Executive's death, RadioShack shall pay to the
Executive, in lieu of any further compensation for periods
subsequent to the termination date, an amount in cash equal to
one and one-half times the sum of (x) the Executive's Base
Amount and (y) the Executive's Target Bonus (such total being
hereinafter referred to as the "Cash Severance Payment"). The
Cash Severance Payment shall be paid in two installments with
the first such installment payable on or before ninety (90)
days from the date of termination and the second and final
installment payable within eighteen (18) months from the
date of the first installment. In addition, all outstanding
RadioShack stock options and restricted stock awards that would
have otherwise become exercisable or vested within two years
following the date of Executive's termination of employment
with RadioShack, shall become exercisable or vested, as the
case may be, as if Executive was still employed by RadioShack
during such two year period. Any options exercisable by
Executive at the time of his termination including any options
that may become exercisable as a result of this provision in
the two years following termination must be exercised by
Executive within ninety (90) days after the second anniversary
of such termination. Also, in the event of the termination
described above, Executive shall be credited with two years
of age under any age based benefit plan that may be maintained
by RadioShack, with any such age based benefits being payable
under the terms of any such plan or plans.
4. Termination of Employment for Cause, Death, Disability or
Voluntary Termination. In the event that Executive's
employment with RadioShack is terminated because of (i) Cause,
(ii) Executive's death, (iii) Executive's Disability or (iv)
or the voluntary termination of employment by the Executive,
then the Executive shall not receive any payments or benefits
under this Agreement.
5. Payment of Benefits.
A. If Base Amount and Target Bonus are payable under the
terms hereof, the same shall be payable in two equal
installments. The first installment shall be payable
90 days after the date of termination of Executive's
employment with RadioShack and the second installment
shall be payable nine months after the date of the
first installment payment.
B. In the event Executive's employment is terminated
with RadioShack, and Executive is due payments and
benefits from RadioShack under that certain
Termination Protection Agreement for Corporate
Executives dated May 18, 1995 between Executive and
RadioShack (the "Termination Protection Agreement"),
and such payments and benefits are greater than those
provided in this Agreement, then Executive shall
'only receive benefits and payments under the
Termination Protection Agreement and no benefits and
payments shall be provided or paid under this
Agreement. However, should the benefits and payments
due Executive under this Agreement be greater than
those under the Termination Protection Agreement,
then benefits and payments shall only be paid under
this Agreement and no benefits and payments shall be
paid or provided to Executive under the Termination
Protection Agreement.
6. Non-Competition Clause. Executive hereby agrees that for a
period of three years after the termination of his employment
with RadioShack, Executive will not, directly or indirectly,
own, have a proprietary interest (except for less than 5% of
any listed company or company traded in the over-the-counter
market) of any kind in, be employed by, be a partner in, or
serve as a consultant to or in any other capacity with any
firm, partnership, corporation, business enterprise or
individual, which is engaged in competition with any business
conducted, or to Executive's knowledge contemplated, by
RadioShack in any of the geographic areas in which RadioShack
is operating or proposes to operate.
7. Remedy for Breach. In the event of any claimed breach of this
Agreement, the party alleged to have committed such breach
shall be entitled to written notice of such alleged breach and
a period of fifteen (15) days to remedy such breach. Executive
understands that a breach of any one or more of the covenants
contained herein will result in Irreparable and continuing
damage to RadioShack for which there will be no adequate
remedy at law, and in the event of any breach or threatened
breach of Executive's obligations hereunder, RadioShack may,
in addition to the other remedies which may be available to
it:
A. declare forfeited any sums representing Base Amount,
Target Bonus or other fringe benefits (including any
unexercised stock options or unvested restricted
stock) otherwise due and payable to Executive
hereunder, and, or alternatively,
B. file suit to enjoin Executive from the breach or
threatened breach of such covenants.
8. Successors: Binding Agreement. The terms and provisions of
this Agreement shall be binding upon, shall inure to the
benefit of, and shall be enforceable by RadioShack and its
Successors and Assigns. RadioShack shall require any
successors or Assigns to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that
RadioShack would be required to perform it if no such
succession or assignment had taken place. This Agreement shall
be binding upon the Executive and his heirs, executors,
administrators and legal representatives provided, however,
that the Executive may not assign his obligations hereunder,
except by will or the laws of descent or distribution.
9. Notice. For the purposes hereof, notices and all other
communications provided for herein shall be in writing and
shall be deemed to have been duly given when delivered or
mailed by United States registered or certified mail, return
receipt requested, postage prepaid or prepaid overnight
express delivery service, addressed to RadioShack at its
principal place of business and to Executive at his address as
shown on the records of RadioShack, provided that all notices
to RadioShack shall be directed to the attention of the
General Counsel of RadioShack or to such other officer as may
be designated in writing in accordance herewith, except that
notices of change of address shall be effective only upon
receipt.
10. Miscellaneous. No provisions herein may be amended, modified,
waived or discharged unless such amendment, waiver,
modification or discharge is agreed to in writing signed by
Executive and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with,
any condition or provision hereof to be performed by such
other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject
matter hereof have been made by either party which are not set
forth expressly herein.
11. Validity. The invalidity or unenforceability of any provisions
hereof shall not affect the validity or enforceability of any
other provision hereof, which shall remain in full force and
effect.
12. Non-Exclusivity Of Rights. Except as otherwise expressly
provided, nothing herein shall prevent or limit the
Executive's continuing or future participation in any benefit,
bonus, incentive, deferred compensation plan, stock plan,
salary continuation plan, post retirement death benefit plan or
other plans, practices, policies or programs provided by
RadioShack and for which the Executive may have under any
stock option or other agreements, plans or arrangements with
RadioShack. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan,
practice, policy, arrangement or program of RadioShack at or
subsequent to the date of termination of employment shall be
payable in accordance with such plan, practice, policy,
arrangement or program. Notwithstanding the foregoing
provisions of this Section 11, this Agreement contains the
entire agreement of the parties regarding the severance
benefits provided for herein.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original
but all of which together will constitute one and the same
instrument.
14. Governing Law. This Agreement has been executed and delivered
in Tarrant County, Texas and its validity, interpretation,
performance and enforcement shall be governed by the laws of
the State of Texas.
15. Forum. Any suit brought by either the Executive or RadioShack
under this Agreement shall be brought in the appropriate state
or federal court for Tarrant County, Texas.
16. Captions and Gender. The use of captions and Section headings
herein is for purposes of convenience only and shall not
effect the interpretation or substance of any provisions
contained herein. Similarly, the use of the masculine gender
with respect to pronouns herein is for purposes of convenience
and includes either sex who may be a signatory.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement to be
effective as of the day and year first above written.
RADIOSHACK CORPORATION
___________________________ By: _______________________________
Executive Chairman, Management Development
and Compensation Committee
Board of Directors
RadioShack Corporation
EXHIBIT 10v
FIRST AMENDMENT TO
SEVERANCE AGREEMENT
THIS FIRST AMENDMENT (the "Amendment"), is made and entered into as of
______________, 2004, by and between David J. Edmondson ("Executive") and
RadioShack Corporation, a Delaware corporation ("RadioShack"), and amends that
certain Severance Agreement, dated December 11, 2003 (the "Agreement"), between
the Executive and RadioShack. Capitalized words not otherwise defined herein
shall have the meanings ascribed in the Agreement.
WHEREAS, the Board recognizes Executive's valuable experience and has
determined it is in the best interests of RadioShack and its shareholders to
amend the Agreement with Executive to modify the compensation payable to
Executive upon termination of his employment to include payments pursuant to
RadioShack's long-term incentive plan.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
7. Section 2.D. of the Agreement ("Target Bonus") is hereby renumbered as
Section 2.E., and a new Section 2.D. is hereby added as follows:
"D. "LTIP" shall mean all compensation payable to the
Executive pursuant to RadioShack's long-term
incentive plan in effect at any time during the 12
month period ending on the termination date of his
employment with RadioShack, determined without regard
to any salary reduction or deferred compensation
elections made by the Executive."
8. In the first sentence of Section 3 of the Agreement, a new subclause (z)
is hereby added to the first sentence to follow subclause (y), as follows:
"and (z) the Executive's LTIP (such total being hereinafter
referred to as the "Cash Severance Payment")."
9. The first sentence of Section 5.A. of the Agreement is hereby amended
and restated in its entirety as follows:
"A. If the Cash Severance Payment is payable under the
terms hereof, the same shall be payable in two equal
installments."
10. Section 7.A. of the Agreement is hereby amended and restated in its
entirety as follows:
"A. declare forfeited any sums representing the Base
Amount, Target Bonus, LTIP or other fringe benefits
(including any unexercised stock options or unvested
restricted stock) otherwise due and payable to
Executive hereunder, and, or alternatively,"
11. All other provisions of the Agreement are hereby ratified by the
parties and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment, in one or
more counterparts, as of the date first written above.
-------------------------------------------
David J. Edmondson
RADIOSHACK CORPORATION
By:
----------------------------------------
Chairman, Management Development and
Compensation Committee
Board of Directors
RadioShack Corporation
EXHIBIT 10w
Date
Name
Dear Name:
Just last week, the Board of Directors approved 2003 bonus plans for
officers of the company. This year's bonus structure is designed to align every
officer with the company's performance goals - __% to __% sales growth, gross
margin improvement of __ to __ basis points, and a __% EPS increase.
As a key player of the RadioShack team, I am pleased to inform you of your
2003 bonus criteria which will help us reach our company's overall financial
goals. Your specific bonus criteria can be found on the enclosed attachment;
however, I want you to be aware of the methodology we used in developing this
year's bonus criteria.
First, bonus plans for 2003 are aligned with our 2003 organizational
priorities. Revenue growth, productivity growth and process improvement
initiatives are the drivers of our financial goals and thus are driving this
year's bonus criteria.
Second, we have identified primary performance measures that are direct
outcomes of achieving our 2003 organizational priorities. Primary performance
measures will be different for each bonus plan depending on the factors you can
influence in your position. These measures may include, but are not limited to:
|X| Earnings Per Share (EPS)
|X| Operating Income Growth
|X| Gross Profit Dollars
|X| Selling, General & Administrative (SG&A) Expense
|X| Sales Growth
Third, in areas where we have measurable key performance indicators (KPIs)
in place, we will use them as bonus criteria. Again, these will be different for
each position.
Fourth, and last, some bonuses may also include Individual Business Plan
(IBP) goals.
As you review your 2003 bonus criteria, I hope you will begin charting your
personal plan for achieving your bonus goals. If we each achieve our individual
bonus criteria, we are more likely to achieve the company's overall performance
goals. The two are inextricably linked...as they should be...giving us a solid
2003 bonus plan.
Remember, strategy is execution, and our collective excellence in execution
is the key to a successful 2003 and beyond.
Sincerely,
EXHIBIT 12
RADIOSHACK CORPORATION
STATEMENTS OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
Year Ended December 31,
------------------------------------------------
(In millions, except ratios) 2003 2002 2001 2000 1999
---------------------------- ------------------------------------------------
Ratio of Earnings to Fixed Charges:
Income from continuing operations $ 298.5 $ 263.4 $ 166.7 $ 368.0 $ 297.9
Plus: Provision for income taxes 174.3 161.5 124.8 225.6 182.6
-------- -------- -------- -------- --------
Income before income taxes 472.8 424.9 291.5 593.6 480.5
-------- -------- -------- -------- --------
Fixed charges:
Interest expense and amortization
of debt discount 34.7 42.3 49.8 53.0 36.4
Amortization of debt issuance costs 1.0 1.1 1.0 0.9 0.8
Capitalized interest 2.4 -- -- -- --
Appropriate portion (33 1/3%) of
rentals 83.3 81.6 76.8 71.7 68.5
-------- -------- -------- -------- --------
Total fixed charges 121.4 125.0 127.6 125.6 105.7
-------- -------- -------- -------- --------
Earnings before income taxes and fixed
charges, excluding capitalized
interest $ 591.8 $ 549.9 $ 419.1 $ 719.2 $ 586.2
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 4.87 4.40 3.28 5.73 5.55
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges and
Preferred Dividends:
Total fixed charges, as above $ 121.4 $ 125.0 $ 127.6 $ 125.6 $ 105.7
Preferred dividends -- 4.5 4.9 5.3 5.5
-------- -------- -------- -------- --------
Total fixed charges and preferred
Dividends $ 121.4 $ 129.5 $ 132.5 $ 130.9 $ 111.2
======== ======== ======== ======== ========
Earnings before income taxes and fixed
charges, excluding capitalized
interest $ 591.8 $ 549.9 $ 419.1 $ 719.2 $ 586.2
======== ======== ======== ======== ========
Ratio of earnings to fixed charges and
preferred dividends 4.87 4.25 3.16 5.49 5.27
======== ======== ======== ======== ========
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 333-27297, 333-44125, 333-54276, 333-60803,
333-75766 and 333-96583) and to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 33-23178, 33-33189, 33-51019,
33-51599, 33-51603, 333-27437, 333-47893, 333-48331, 333-49369, 333-63659,
333-63661, 333-81405, 333-84057, 333-74894, 333-101792, 333-102141, 333-102142,
and 333-110961) of RadioShack Corporation of our report dated March 10, 2004
relating to the consolidated financial statements, which appears in this Form
10-K.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Fort Worth, Texas
March 12, 2004
Exhibit 31(a)
CERTIFICATIONS
I, Leonard H. Roberts, certify that:
1. I have reviewed this annual report on Form 10-K of RadioShack
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 12, 2004 By /s/ Leonard H. Roberts
-------------------------------------
Leonard H. Roberts
Chief Executive Officer
Exhibit 31(b)
I, Michael D. Newman, certify that:
1. I have reviewed this annual report on Form 10-K of RadioShack
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 12, 2004 /s/ Michael D. Newman
-----------------------------------------
Michael D. Newman
Chief Financial Officer
Exhibit 32
SECTION 1350 CERTIFICATIONS
In connection with the Annual Report of RadioShack Corporation (the "Company")
on Form 10-K for the period ending December 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), we,
Leonard H. Roberts, Chief Executive Officer of the Company, and Michael D.
Newman, Chief Financial Officer of the Company, certify to our knowledge,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Leonard H. Roberts
Leonard H. Roberts
Chief Executive Officer
March 12, 2004
/s/ Michael D. Newman
Michael D. Newman
Chief Financial Officer
March 12, 2004
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.