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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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
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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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No __
The number of shares outstanding of the issuer's Common Stock, $1 par value, on
July 31, 2003 was 165,584,133.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(In millions, except per share amounts) 2003 2002 2003 2002
- --------------------------------------- -------- -------- -------- --------
Net sales and operating revenues $1,025.0 $ 998.1 $2,095.3 $2,032.5
Cost of products sold 503.8 488.0 1,046.7 1,002.7
-------- -------- -------- --------
Gross profit 521.2 510.1 1,048.6 1,029.8
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative 406.6 421.3 814.4 814.5
Depreciation and amortization 22.9 24.3 45.5 48.9
-------- -------- -------- --------
Total operating expenses 429.5 445.6 859.9 863.4
-------- -------- -------- --------
Operating income 91.7 64.5 188.7 166.4
Interest income 8.0 2.1 9.5 3.9
Interest expense (9.8) (10.7) (19.4) (21.5)
Other income 0.7 27.7 3.1 27.7
-------- -------- -------- --------
Income before income taxes 90.6 83.6 181.9 176.5
Provision for income taxes 33.1 31.8 67.8 67.1
-------- -------- -------- --------
Net income 57.5 51.8 114.1 109.4
Preferred dividends -- 1.1 -- 2.3
-------- -------- -------- --------
Net income available to common stockholders $ 57.5 $ 50.7 $ 114.1 $ 107.1
======== ======== ======== ========
Net income available per common share:
Basic $ 0.34 $ 0.29 $ 0.67 $ 0.61
======== ======== ======== ========
Diluted $ 0.34 $ 0.28 $ 0.67 $ 0.59
======== ======== ======== ========
Shares used in computing earnings per common share:
Basic 168.9 174.4 170.1 175.6
======== ======== ======== ========
Diluted 169.8 181.5 170.8 182.5
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31, June 30,
2003 2002 2002
(In millions, except for share amounts) (Unaudited) (Unaudited)
- -------------------------------------- ----------- ----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 524.3 $ 446.5 $ 529.1
Accounts and notes receivable, net 137.5 206.1 151.8
Inventories, net 811.1 971.2 830.6
Other current assets 88.0 83.1 86.6
----------- ----------- -----------
Total current assets 1,560.9 1,706.9 1,598.1
Property, plant and equipment, net 422.0 421.6 398.0
Other assets, net 98.4 99.4 115.4
----------- ----------- -----------
Total assets $ 2,081.3 $ 2,227.9 $ 2,111.5
=========== =========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt, including current maturities of
long-term debt $ -- $ 36.0 $ 71.3
Accounts payable 284.1 312.6 225.7
Accrued expenses 253.6 318.7 279.6
Income taxes payable 140.8 160.9 126.8
----------- ----------- -----------
Total current liabilities 678.5 828.2 703.4
Long-term debt, excluding current maturities 590.5 591.3 582.3
Other non-current liabilities 80.3 80.3 71.4
----------- ----------- -----------
Total liabilities 1,349.3 1,499.8 1,357.1
----------- ----------- -----------
Commitments and contingent liabilities
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;
61,500 shares issued at June 30, 2002 -- -- 61.5
Common stock, $1 par value, 650,000,000 shares authorized;
236,033,000 shares issued 236.0 236.0 236.0
Additional paid-in capital 67.8 70.0 140.4
Retained earnings 2,116.6 2,002.5 1,889.8
Treasury stock, at cost; 69,249,000, 64,306,000 and
63,337,000 shares, respectively (1,687.8) (1,579.9) (1,570.9)
Unearned deferred compensation -- -- (1.9)
Accumulated other comprehensive loss (0.6) (0.5) (0.5)
----------- ----------- -----------
Total stockholders' equity 732.0 728.1 754.4
----------- ----------- -----------
Total liabilities and stockholders' equity $ 2,081.3 $ 2,227.9 $ 2,111.5
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
(In millions) 2003 2002
------------ -------- --------
Cash flows from operating activities:
Net income $ 114.1 $ 109.4
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 45.5 48.9
Provision for uncollectible accounts -- 2.3
Other items 9.4 4.2
Changes in operating assets and liabilities:
Receivables 68.7 123.9
Inventories 160.1 119.2
Other current assets (7.9) 0.8
Accounts payable, accrued expenses and income taxes payable (121.3) (93.3)
-------- --------
Net cash provided by operating activities 268.6 315.4
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (47.7) (34.0)
Proceeds from sale of property, plant and equipment 0.1 4.1
Other investing activities (0.2) (0.8)
-------- --------
Net cash used in investing activities (47.8) (30.7)
-------- --------
Cash flows from financing activities:
Purchases of treasury stock (127.1) (163.4)
Sale of treasury stock to employee benefit plans 18.8 22.7
Proceeds from exercise of stock options 1.3 7.5
Dividends paid -- (1.5)
Proceeds from financing obligation -- 32.1
Changes in short-term borrowings, net (16.0) --
Repayments of long-term borrowings (20.0) (54.4)
-------- --------
Net cash used in financing activities (143.0) (157.0)
-------- --------
Net increase in cash and cash equivalents 77.8 127.7
Cash and cash equivalents, beginning of period 446.5 401.4
-------- --------
Cash and cash equivalents, end of period $ 524.3 $ 529.1
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
We prepared the accompanying unaudited consolidated financial statements, which
include the accounts of RadioShack Corporation and all domestic and foreign
subsidiaries, in accordance with the rules of the Securities and Exchange
Commission. Accordingly, we did not include all of the disclosures required by
generally accepted accounting principles for complete financial statements. In
management's opinion, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation are included. However,
our operating results for the six months ended June 30, 2003, do not necessarily
indicate the results you might expect for the year ending December 31, 2003. If
you desire further information, you should refer to our consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations included in our Annual Report on Form 10-K for the year
ended December 31, 2002, in addition to our other SEC filings such as those on
Form 10-Q.
NOTE 2 - ACCOUNTING POLICIES UPDATE
The following accounting policy provides additional information with respect to
our accounting for cash consideration received from third party service
providers and product vendors as a result of purchasing and promoting their
products consistent with the provisions of Emerging Issues Task Force 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, released in
September 2002 with final consensus reached in March 2003, provides guidance on
how cash consideration received by a customer from a vendor should be classified
in the customer's statement of income.
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 accordance
with EITF Issue No. 02-16, for all contracts entered into or modified after
January 1, 2003, we consider vendor allowances as 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. The effect of adopting the consensus reached in EITF
02-16 effective January 1, 2003 was not material to our consolidated financial
statements.
NOTE 3 - BASIC AND DILUTED EARNINGS PER SHARE
The following schedule is a reconciliation of the numerators and denominators
used in computing our basic and diluted earnings per share calculations for the
three and six months ended June 30, 2003 and 2002, respectively. Basic EPS
excludes the effects of potentially dilutive securities, while diluted EPS
reflects the potential dilutive effects of stock options, awards and other
securities.
Three Months Ended Three Months Ended
June 30, 2003 June 30, 2002
------------------------------------- -------------------------------------
Income Shares Per Share Income Shares Per Share
(In millions, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net income $ 57.5 $51.8
Less: Preferred stock dividends -- (1.1)
----------- -----------
Basic EPS
Net income available to common
stockholders 57.5 168.9 $0.34 50.7 174.4 $0.29
=========== ===========
Effect of dilutive securities:
Dividends on Series B preferred stock -- 1.1
Additional contribution required for TESOP
if preferred stock had been converted -- -- (1.1) 5.4
Stock options 0.9 1.7
----------- ----------- ----------- -----------
Diluted EPS
Net income available to common
stockholders plus assumed conversions $ 57.5 169.8 $0.34 $50.7 181.5 $0.28
=========== =========== =========== =========== =========== ===========
Six Months Ended Six Months Ended
June 30, 2003 June 30, 2002
------------------------------------- -------------------------------------
Income Shares Per Share Income Shares Per Share
(In millions, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net income $114.1 $109.4
Less: Preferred stock dividends -- (2.3)
----------- -----------
Basic EPS
Net income available to common
stockholders 114.1 170.1 $0.67 107.1 175.6 $0.61
=========== ===========
Effect of dilutive securities:
Dividends on Series B preferred stock -- 2.3
Additional contribution required for TESOP
if preferred stock had been converted -- -- (2.3) 5.4
Stock options 0.7 1.5
----------- ----------- ----------- -----------
Diluted EPS
Net income available to common
stockholders plus assumed conversions $114.1 170.8 $0.67 $107.1 182.5 $0.59
=========== =========== =========== =========== =========== ===========
Options to purchase 19.6 million and 19.8 million shares of common stock for the
quarter and six month periods ended June 30, 2003, respectively, as compared to
options to purchase 11.9 million shares of common stock for both comparable
periods in the prior year, were not included in the computation of diluted
earnings per common share because the exercise prices of the options were
greater than the average market price of the common stock during the periods and
the effect of their inclusion in the computation would have been antidilutive.
NOTE 4 - STOCK-BASED COMPENSATION
We account for our employee stock-based compensation plans under the intrinsic
value method. Accordingly, no compensation expense has been recognized for our
incentive stock plans, as the exercise price of options must be equal to or
greater than 100% of the fair market value of a share of our common stock on the
date of grant under these 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 Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
(In millions, except per share amounts) 2003 2002 2003 2002
- --------------------------------------- ------------ ------------ ------------ ------------
Net income, as reported $ 57.5 $ 51.8 $114.1 $109.4
Stock-based employee compensation expense
included in reported net income, net of related tax
effects 3.2 2.9 5.8 6.1
Total stock-based compensation expense determined
under fair value method for all awards, net of
related tax effects (9.8) (13.4) (30.4) (30.7)
------------ ----------- ------------ ------------
Pro forma net income $ 50.9 $ 41.3 $ 89.5 $ 84.8
============ ============ ============ ============
Net income available per common share:
Basic - as reported $ 0.34 $ 0.29 $ 0.67 $ 0.61
Basic - pro forma $ 0.30 $ 0.23 $ 0.53 $ 0.47
Diluted - as reported $ 0.34 $ 0.28 $ 0.67 $ 0.59
Diluted - pro forma $ 0.30 $ 0.21 $ 0.52 $ 0.45
NOTE 5 - REVOLVING CREDIT FACILITY
In the second quarter of 2003, we replaced our existing $300.0 million 364-day
revolving credit facility with an amended and restated 364-day revolving credit
facility maturing in June 2004. A syndicate of 14 banks granted the new
facility. The terms of this revolving credit facility are substantially similar
to the previous facility. This credit facility, in addition to our existing
$300.0 million multi-year credit facility which expires in June 2007, will
support commercial paper borrowings and is otherwise available for general
corporate purposes.
NOTE 6 - COMPREHENSIVE INCOME
Comprehensive income for the three months ended June 30, 2003 and 2002, was
$57.4 million and $52.0 million, respectively, and comprehensive income for the
six months ended June 30, 2003 and 2002, was $114.0 million and $109.6 million,
respectively.
NOTE 7 - 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 June 30, 2003, the balance in the restructuring reserve was $17.2
million, consisting of the remaining estimated real estate obligations to be
paid. Additional provisions of $4.3 million and $5.2 million were added during
the quarter and six months ended June 30, 2003, respectively, while costs of
$3.4 million and $4.3 million were charged against this reserve during the
corresponding periods, respectively. The balance in the restructuring reserve at
June 30, 2003, includes $9.7 million in accrued expenses and $7.5 million in
other non-current liabilities in the accompanying 2003 Consolidated Balance
Sheet. These reserves represent the revised expected loss on the eventual
disposition of these real estate obligations and are based on current comparable
rates for leases in their respective markets. If these facilities' sublease
income was to decline 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 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, these restructuring
activities were substantially complete, and we transferred $3.8 million of the
remaining restructuring reserve to accrued expenses and the remaining balance of
$2.8 million to other non-current liabilities in the accompanying Consolidated
Balance Sheet at December 31, 2002, to be used principally for the remaining
cash commitments associated with the long-term compensation and lease commitment
obligations.
NOTE 8 - RECENTLY ADOPTED 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 have 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 have 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 May 31, 2003, and have 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 disclosure provisions which we adopted as of December 31, 2002, have
made no material adjustments to our consolidated financial statements as a
result of this adoption.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities - An Interpretation of ARB No. 51." FIN 46 addresses consolidation by
business enterprises of variable interest entities that have certain
characteristics. The consolidation requirement of FIN 46 is applicable
immediately to variable interest entities created or obtained after January 31,
2003. We have not obtained or created any variable interest entities since
January 31, 2003, and, therefore, have made no adjustments to our consolidated
financial statements. For variable interest entities acquired before February 1,
2003, the consolidation requirement of FIN 46 is applicable to us as of July 1,
2003. We adopted FIN 46 as of July 1, 2003, for entities acquired before
February 1, 2003. We do not have any variable interest entities and, therefore,
made no adjustments to our consolidated financial statements as a result of this
adoption.
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 modification of existing arrangements, entered into after December 31,
2002. We adopted EITF No. 02-16 effective January 1, 2003, and the effect was
not material to our consolidated financial statements as a result of this
adoption.
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES
We have contingent liabilities related to retail leases of locations which were
assigned to other businesses several years ago. 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 in August 1998. In the event CompUSA or the other
assignees, as applicable, are unable to fulfill these 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 $200 million. However, we have no reason to believe that CompUSA
or the other assignees will not fulfill their obligations under these leases or
that we would be unable to sublet the properties; consequently, we do not
believe there will be a material impact on our consolidated financial statements
as a result of the contingent liabilities relating to these lease obligations.
NOTE 10 - LITIGATION
In October 2002, the 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 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 11 - PROPERTY, PLANT AND EQUIPMENT
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 assets remain on our balance sheet. This obligation has a
three-year term expiring in 2005 with renewal options. The lessor is an
unrelated third-party. We entered into this transaction in contemplation of and
to facilitate the relocation of our corporate headquarters to a new custom-built
corporate campus, currently being constructed and scheduled for occupation
between the end of 2004 and the beginning of 2005.
NOTE 12 - SUBSEQUENT EVENTS
On July 28, 2003, we received payment of $15.7 million resulting from the
favorable settlement of a lawsuit we previously filed. This settlement will be
recorded in the third quarter of 2003 as other income of $10.5 million, net of
legal expenses of $5.2 million paid as a result of the lawsuit.
In August 2003, we began exiting certain domestic manufacturing operations.
Charges to be recognized during the third quarter of 2003 will be related to
employee termination, as well as write downs and disposal of various assets. As
of this filing date, charges have yet to be determined; however, it is currently
anticipated that these costs will not exceed $15.0 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
This includes statements concerning management's plans and objectives relating
to our operations or economic performance and related assumptions.
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 trends, level of the equity markets,
consumer credit availability, interest rates, inflation, 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 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 inability to attract, retain and grow an effective management team in a
dynamic environment or changes in the cost or availability of a suitable
work force to manage and support our service-driven operating strategies;
o the imposition of new restrictions or regulations regarding the sale of
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
destroy outlets or prohibit consumers from traveling to our retail
locations, especially during the peak winter holiday season; and
o the inability to timely manufacture or receive Asian shipments due to the
potential reemergence of a SARS outbreak.
RadioShack Specific Factors
o The failure to differentiate ourselves as an electronics specialty retailer
in the U.S. marketplace;
o the inability to successfully execute our solutions strategy to dominate
cost-effective solutions to meet everyone's routine electronics needs and
families' distinct electronics wants;
o the inability to successfully execute our defined revenue growth drivers,
our productivity growth drivers, and our process improvement drivers;
o the inability to maintain profitable contracts or execute business plans
with providers of third-party branded products and with service providers
relating to cellular and PCS telephones and direct-to-home ("DTH")
satellite programming;
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 inability to successfully maintain our business arrangements, including
those with our third party product and service providers;
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; and
o the inability to successfully execute alternative sales channel strategies.
RADIOSHACK RETAIL OUTLETS
The table below shows RadioShack's retail locations categorized by company
stores and dealer/franchise outlets. While the dealer outlets represent
approximately 28% of RadioShack's locations, sales to dealer/franchisees are
less than 10% of our net sales and operating revenues, as indicated below.
June 30, March 31, December 31, September 30, June 30,
2003 2003 2002 2002 2002
--------- --------- --------- --------- ---------
Company-owned 5,142 5,146 5,161 5,146 5,144
Dealer/franchise 1,956 1,988 2,052 2,089 2,094
--------- --------- --------- --------- ---------
Total number of retail outlets 7,098 7,134 7,213 7,235 7,238
========= ========= ========= ========= =========
In addition to our 5,142 company stores and 1,956 dealer/franchise outlets, our
sales channels include the www.radioshack.com Web site, foreign dealers and
catalog operations, as well as outbound and inbound telephone call centers.
RESULTS OF OPERATIONS
Net sales and operating revenues by channel of distribution are as follows:
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- ---------------------------
(In millions) 2003 2002 2003 2002
- ------------- -------- -------- -------- --------
Company retail sales $ 966.7 $ 934.7 $1,979.1 $1,892.6
Dealer/franchise sales 41.3 42.0 81.9 96.2
-------- -------- -------- --------
Total retail sales 1,008.0 976.7 2,061.0 1,988.8
Retail support operations sales 17.0 21.4 34.3 43.7
-------- -------- -------- --------
Net sales and operating revenues $1,025.0 $ 998.1 $2,095.3 $2,032.5
======== ======== ======== ========
Net Sales and Operating Revenues
Net sales and operating revenues increased 2.7% to $1,025.0 million for the
quarter ended June 30, 2003, compared to $998.1 million in the corresponding
prior year period. For the six months ended June 30, 2003, our overall sales
increased 3.1% to $2,095.3 million, compared to $2,032.5 million for the same
period in 2002. Comparable store sales increased 3% and 4% for the quarter and
six months ended June 30, 2003, respectively, when compared to the corresponding
prior year periods. Our sales increases for both the quarter and six-month
periods were driven primarily by increased sales of wireless handsets.
Additionally, increased sales of toys and special purpose batteries contributed
to these increases. These sales increases were partially offset by decreased
sales in our home entertainment department. Sales to our dealer/franchise
outlets decreased 2% to $41.3 million and 15% to $81.9 million, respectively,
for the quarter and six months ended June 30, 2003. The decrease in
dealer/franchise sales for the six months ended June 30, 2003, was primarily due
to a first quarter decline in DTH unit sales from the loss of DirecTV as a
service provider to rural markets and a low adoption rate of the DISH Network in
areas served by our dealer/franchise outlets. We expect a sales gain for our
overall operations for 2003, as discussed in further detail below.
Retail support operations sales are generated from the outside sales of our
retail support operations, consisting primarily of repair centers, domestic and
overseas manufacturing, and RadioShack Installation Services. These sales
decreased 20.6% for the quarter and 21.5% for the six months ended June 30,
2003, when compared to the corresponding 2002 periods. The decreases were the
result of an overall decline in our commercial business.
Sales in the wireless communication department, which consists of wireless
handsets (including related services), accessories, and wireless services such
as prepaid airtime and bill payments, increased approximately 13% and 14% for
the quarter and six months ended June 30, 2003, respectively, when compared to
the corresponding prior year periods. These sales increases were due to both an
increase in our average selling price and an increase in sales of wireless
handsets, as a result of our 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 these sales increases. While there is no assurance that we can
maintain past sales gain levels, we believe our plans, combined with upcoming
new technologies such as "press to talk" and number portability, will result in
continued wireless sales increases for 2003.
Sales in the wired communication department, which includes residential
land-line telephones, answering machines and other related telephony products,
decreased approximately 9% and 7%, for the quarter and six months ended June 30,
2003, respectively, when compared to the corresponding prior year periods. These
sales decreases were primarily the result of a decline in sales of our call
screening product, the "Telezapper." These decreases were partially offset by
sales increases of cordless phones. We anticipate sales in this department will
be down in 2003.
Sales in the radio communication department decreased 9% and 13% for the quarter
and six months ended June 30, 2003, when compared to the corresponding prior
year periods. These sales decreases were primarily the result of a decline in
sales of Family Radio Service and CB radios and scanners and were partially
offset by a sales increase of GPS devices. We believe sales in this department
will be down for 2003, as compared to 2002.
Sales in the home entertainment department, which consists of all home audio and
video end-products and accessories, including DTH hardware and installation,
decreased approximately 13% and 15%, for the quarter and six months ended June
30, 2003, respectively, when compared to the corresponding prior year periods.
These sales decreases were primarily attributable to a decline in sales of
satellite dishes and their related installation services, plus a decrease in
home entertainment accessories sales, but were partially offset by increased
sales of DVD players and televisions. We anticipate that the home entertainment
department will have overall lower sales in 2003 compared to 2002.
Sales in the computer department, which includes desktop, laptop, and handheld
computers and related accessories, as well as digital cameras and home
networking products, increased approximately 2% and 7%, for the quarter and six
months ended June 30, 2003, respectively, when compared to the corresponding
prior year periods. These sales increases were due primarily to a sales increase
in digital cameras, camcorders and related accessories, as well as computer
accessories. Sales of laptop computers also contributed to the sales increase
for the first half of 2003. These sales increases were partially offset by a
decline in sales of desktop CPUs and monitors. We expect that sales in the
computer department will increase in 2003, driven by sales of the products
discussed above, particularly digital cameras and the related accessories, with
this increase partially offset by a planned decrease in sales of desktop
computers.
Sales for the power and technical department increased 2%, for both the quarter
and six months ended June 30, 2003, respectively, when compared to the
corresponding prior year periods. These sales increases were primarily due to
increased sales of general and special purpose batteries, which were
substantially offset by decreased sales of bulk and packaged wire, as well as
decreases for technical parts and tools. We anticipate a slight sales increase
in this department in 2003 compared to 2002.
Sales for the personal electronics, toys and personal audio department increased
9% and 15%, for the quarter and six months ended June 30, 2003, respectively,
when compared to the corresponding prior year periods. These sales increases
were due primarily to the 2003 sales of micro radio-controlled cars and related
accessories not available in the first half of 2002. Additionally, sales in this
department increased as a result of increased sales of wellness products. We
expect that sales in this department will continue to grow in 2003 as a result
of new innovative product offerings and planned product line extensions in the
remainder of the year.
Gross Profit
Gross profit dollars increased $11.1 million and $18.8 million for the quarter
and six months ended June 30, 2003, respectively, but gross profit as a percent
of net sales and operating revenues decreased 0.3 and 0.7 percentage points to
50.8% and 50.0%, respectively, when compared to the corresponding prior year
periods. The percentage point decrease for the quarter was due in part to an
increase in the wireless department's percentage of the total retail sales mix,
as this department has a lower gross profit percentage than our company average.
A gross profit percentage decrease in the personal electronics, toys and
personal audio department also had a negative impact on the company's gross
profit percentage for the quarter ended June 30, 2003. An increased gross profit
percentage for our computer and home entertainment departments, however,
positively impacted the overall gross profit percentage in the second quarter.
For the six months ended June 30, 2003, the decrease in gross profit percentage
resulted in part from a decrease in the wireless department's gross profit
percentage, as well as from an increase in this department's sales volume. In
addition, a decline in the gross profit percentage in the first quarter in the
personal electronics, toys and personal audio department as a result of heavy
promotional activity contributed to the company's six months' percentage point
decrease. Increased sales volume and a gross profit percentage increase in the
power and technical department also had a favorable effect on the overall gross
profit percentages for the second quarter and first half of 2003. We anticipate
that gross profit as a percentage of net sales and operating revenues will
improve by up to 20 basis points by the end of 2003, compared to 2002, due
primarily to the impact of supply chain management initiatives.
Selling, General and Administrative Expense
Our selling, general and administrative expense decreased 3.5% or $14.7 million
for the quarter, but was flat for the six months ended June 30, 2003, when
compared to the corresponding prior year periods. This represents a 2.5 and 1.2
percentage point decrease to 39.7% and 38.9% of net sales and operating revenues
for the quarter and six months ended June 30, 2003, respectively, when compared
to the corresponding prior year periods. However, excluding a $29.9 million
litigation charge incurred in the second quarter of 2002 related to the
tentative settlement of a class action lawsuit in the state of California, SG&A
expense increased 3.9% or $15.2 million and 3.8% or $29.8 million for the three
and six months ended June 20, 2003, respectively, compared to the corresponding
prior year periods. The following table is a reconciliation of the adjusted SG&A
expense to SG&A calculated in accordance with generally accepted accounting
principles:
Three Months Ended Increase/ Six Months Ended Increase/
June 30, (Decrease) June 30, (Decrease)
-------------------------- ----------------- -------------------------- -----------------
(In millions) 2003 2002 2003 vs 2002 2003 2002 2003 vs 2002
- ------------- ---------- ---------- ----------------- ---------- ---------- -----------------
SG&A expense $ 406.6 $ 421.3 $(14.7) $ 814.4 $ 814.5 $ (0.1)
Litigation charge -- (29.9) 29.9 -- (29.9) 29.9
---------- ---------- ----------------- ---------- ---------- -----------------
Adjusted SG&A expense $ 406.6 $ 391.4 $ 15.2 $ 814.4 $ 784.6 $ 29.8
========== ========== ================= ========== ========== =================
We believe that this presentation of adjusted SG&A is useful to investors
because it provides a means of evaluating our operating performance and results
on a comparable basis through the adjustment of amounts that, while they may
possibly recur from time to time, do not typically recur on a quarterly basis.
Furthermore, in preparing operating plans and forecasts, we rely, in part, on
trends provided by our historical results exclusive of these items, as adjusted
SG&A expense is an indicator to our investors of our goals and objectives.
An increase in insurance expense and, to a lesser extent, increases in both rent
and payroll expense contributed to the increased adjusted SG&A expense in the
second quarter of 2003. Insurance expense increased in both dollars and as a
percentage of net sales and operating revenues for both the quarter and six
months ended June 30, 2003, as a result of significant increases in health
related claims and costs for workers' compensation. Rent expense for both
periods increased in dollars as a result of slightly larger and better located
stores, as well as rent inflation at mall locations. However, rent expense
remained flat as a percentage of net sales and operating revenues due to
increased sales. Payroll expense increased in dollars, but decreased slightly as
a percentage of net sales and operating revenues for the quarter and six months
ended June 30, 2003. These payroll increases were due primarily to variable cost
increases for commission, bonuses and other incentives which resulted from
higher store sales during the quarter and six months ended June 30, 2003.
Management is currently reviewing opportunities to reduce SG&A expense,
including, among other items, analyzing employee headcount, lowering our
absorption of health insurance costs, and consolidating and outsourcing certain
functions and operations. For the year ending December 31, 2003, we expect SG&A
expense to increase in dollars, but remain at a similar percentage of net sales
and operating revenues for 2003, as compared to 2002.
Net Interest Expense
Interest expense, net of interest income, for the quarter and six months ended
June 30, 2003, was $1.8 million and $9.9 million, respectively, versus $8.6
million and $17.6 million for the comparable quarter and six months in 2002.
Interest expense decreased $0.9 million and $2.1 million for the quarter and six
months ended June 30, 2003, respectively. The decrease in interest expense was a
result of lower average outstanding debt for 2003, favorable impact of our
interest rate swaps and the capitalization of interest expense related to the
construction of our new corporate campus for the quarter and six months ended
June 30, 2003. Interest income increased $5.9 million and $5.6 million for the
quarter and six months ended June 30, 2003, respectively, as a result of $6.2
million received from an IRS settlement. Interest expense, net of interest
income, is expected to be lower during 2003, when compared to 2002. Interest
expense will increase, beginning in 2005, when compared to 2004, due to the
elimination of capitalized interest when the construction of our new corporate
headquarters is scheduled to be completed.
Other Income
During the quarter and six months ended June 30, 2003, we received payments and
recorded income of $0.7 million and $3.1 million, respectively, under our tax
sharing agreement with O'Sullivan Industries Holdings, Inc. 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 this tax sharing agreement that
was the subject of an arbitration dispute with O'Sullivan. This partial
settlement followed a ruling in RadioShack's 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 we will
receive a payment under the tax sharing agreement each quarter, nor can we give
any assurances as to the amount of payment to be received each quarter.
Provision for Income Taxes
Provision for income taxes for each quarterly period is based on the estimate of
the annual effective tax rate for the year, which we evaluate quarterly. The
effective tax rate for the quarter and six months ended June 30, 2003, was 36.5%
and 37.3%, respectively, as compared to 38.0% for the corresponding prior year
periods. The decrease in the effective tax rate for both the quarter and six
months ended June 30, 2003, was the result of an IRS settlement related to prior
year tax matters. The effective tax rate for the remainder of 2003 will be
slightly lower as compared to 2002 as a result of this settlement.
Subsequent Events
On July 28, 2003, we received payment of $15.7 million resulting from the
favorable settlement of a lawsuit we previously filed. This settlement will be
recorded in the third quarter of 2003 as other income of $10.5 million, net of
legal expenses of $5.2 million paid as a result of the lawsuit.
In August 2003, we began exiting certain domestic manufacturing operations.
Charges to be recognized during the third quarter of 2003 will be related to
employee termination, as well as write downs and disposal of various assets. As
of this filing date, charges have yet to be determined; however, it is currently
anticipated that these costs will not exceed $15.0 million.
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 have 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 have 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 May 31, 2003, and have 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 disclosure provisions which we adopted as of December 31, 2002, have
made no material adjustments to our consolidated financial statements as a
result of this adoption.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities - An Interpretation of ARB No. 51." FIN 46 addresses consolidation by
business enterprises of variable interest entities that have certain
characteristics. The consolidation requirement of FIN 46 is applicable
immediately to variable interest entities created or obtained after January 31,
2003. We have not obtained or created any variable interest entities since
January 31, 2003, and, therefore, have made no adjustments to our consolidated
financial statements. For variable interest entities acquired before February 1,
2003, the consolidation requirement of FIN 46 is applicable to us as of July 1,
2003. We adopted FIN 46 as of July 1, 2003, for entities acquired before
February 1, 2003. We do not have any variable interest entities and, therefore,
made no adjustments to our consolidated financial statements as a result of this
adoption.
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 modification of existing arrangements, entered into after December 31,
2002. We adopted EITF No. 02-16 effective January 1, 2003, and the effect was
not material to our consolidated financial statements as a result of this
adoption.
FINANCIAL CONDITION
Cash flow provided by operating activities was $268.6 million for the six month
period ended June 30, 2003, compared to $315.4 million in the prior year
comparable period.
At June 30, 2003, changes in accounts receivable had provided $68.7 million in
cash since December 31, 2002, compared to $123.9 million in cash provided for
the six months ended June 30, 2002. Cash provided by accounts receivable for
these corresponding periods was due to reductions in vendor and service provider
receivables and dealer/franchise receivables, as a result of increased
collections and lower sales of satellite television hardware.
At June 30, 2003, changes in inventory had provided $160.1 million in cash since
December 31, 2002, compared to $119.2 million in cash provided for the six
months ended June 30, 2002. The decrease in inventory since December 31, 2002,
was primarily the result of supply chain initiatives, including a greater focus
on weeks-of-supply.
In addition, during the first half of 2003, $47.6 million more in cash was used
for accounts payable and $11.3 million more in cash used by accrued expenses,
partially offset by $30.9 million more in cash provided by income taxes payable,
compared to the first half of 2002.
Cash used in investing activities for the six months ended June 30, 2003, was
$47.8 million, compared to $30.7 million in the previous year. Investing
activities for the six months ended June 30, 2003, included capital expenditures
totaling $47.7 million, compared to $34.0 million in 2002, primarily for our new
retail stores and remodels, information systems upgrades and our new corporate
campus. We anticipate that our capital expenditure requirements for 2003 will be
approximately $190.0 million to $210.0 million, compared to total capital
expenditures of $106.8 million for the year ended December 31, 2002.
Approximately $70.0 million of the increase over 2002 relates to the
construction of our new corporate headquarters, which we plan to finance through
cash from operations and, if needed, existing cash and cash equivalents.
Cash used in financing activities for the six months ended June 30, 2003, was
$143.0 million, compared to a $157.0 million cash usage in the previous year. We
repurchased $127.1 million of common stock during the six months ended June 30,
2003, compared to $163.4 million during the same period of 2002, under our board
approved repurchase programs. These repurchases during the first six months of
2003 and 2002 were partially funded by $20.1 million and $30.2 million,
respectively, received from the sale of treasury stock to employee benefit plans
and from stock option exercises. Preferred dividends paid, net of tax, amounted
to $1.5 million for the six months ended June 30, 2002. There were no preferred
dividends paid for the six months ended June 30, 2003, due to the conversion of
our preferred stock to common stock at December 31, 2002. Additionally, we used
$34.4 million less in cash for the repayment of our long-term borrowings for the
six months ended June 30, 2003, when compared to the corresponding prior year
period.
At June 30, 2003, total capitalization was $1,322.5 million, which consisted of
$590.5 million of debt and $732.0 million of stockholders' equity, resulting in
a total debt to capitalization ratio of 44.7%. The total debt to capitalization
ratio was 46.3% at December 31, 2002, and 46.4% at June 30, 2002. These
decreases were primarily the result of a reduction in total debt of $36.8
million and $59.3 million for the periods ended December 31, 2002, and June 30,
2002, respectively. Long-term debt as a percentage of capitalization was 44.7%
and 43.6% at June 30, 2003, and December 31, 2002, respectively, compared to
41.4% at June 30, 2002. The increases since June 30, 2002, and December 31,
2002, were both due to the financing obligation resulting from the sale and
lease-back of our corporate technology center building and the reduction of
equity in 2002.
In the second quarter of 2003, we replaced our existing $300.0 million 364-day
revolving credit facility with an amended and restated 364-day revolving credit
facility maturing in June 2004. A syndicate of 14 banks granted the new
facility. The terms of this revolving credit facility are substantially similar
to the previous facility. This credit facility, in addition to our existing
$300.0 million multi-year credit facility which expires in June 2007, will
support commercial paper borrowings and is otherwise available for general
corporate purposes.
We had $524.3 million in cash and cash equivalents at June 30, 2003, as a
resource for our funding needs. Additionally, borrowings are available under our
$600.0 million dollar commercial paper program, which is supported by a bank
credit facility and could be utilized in the event the commercial paper market
is unavailable to us. However, we currently do not expect that the commercial
paper market would be unavailable to us, causing us to utilize the credit
facility. As of June 30, 2003, we had no commercial paper outstanding and had
not utilized our credit facility.
On June 26, 2003, we entered into an interest rate swap agreement with a
maturity of May 2011, which effectively converts a portion of our long-term
fixed rate debt to a variable rate. We entered into this agreement to balance
our fixed versus floating rate debt portfolio to take advantage of lower
short-term interest rates. The notional amount of debt underlying the interest
rate swap is $100.0 million. Under this agreement, we have contracted to pay a
variable rate of LIBOR plus a markup and to receive a fixed rate of 7.375%. We
have designated this agreement as a fair value hedging instrument.
We repurchased 2.5 million and 5.0 million shares of our common stock for $61.2
million and $111.6 million for the quarter and six months ended June 30, 2003,
respectively, under our share repurchase programs. On February 20, 2003, our
Board of Directors authorized a new repurchase program for 15.0 million shares,
which is in addition to our 25.0 million share repurchase program that was
completed during the second quarter. This leaves 13.7 million shares available
as of July 31, 2003, to be repurchased under this new program. We anticipate
that we will repurchase between $200.0 million and $250.0 million of our common
stock during 2003. The funding required for these share repurchases will come
from cash generated from net sales and operating revenues and cash and cash
equivalents. We will also repurchase additional shares in the open market to
offset the sale of shares to our employee benefit plans.
Our free cash flow, defined as cash flow from operating activities less
dividends paid and capital expenditures for property, plant and equipment, was
$220.9 million for the six months ended June 30, 2003, compared to $279.9
million for the corresponding period in 2002. This decrease in free cash flow
was due primarily to lower working capital improvements in the first half of
2003, when compared to the corresponding prior year period. We expect free cash
flow to be approximately $225.0 to $265.0 million for 2003, compared to $375.0
million in 2002. The anticipated decrease in free cash flow from 2003 to 2002 is
primarily related to the increase in 2003 capital expenditures, as described
above. 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 flow from operating activities, which was $268.6
million and $315.4 million for the six months ended June 30, 2003 and 2002,
respectively.
The following table is a reconciliation of cash provided by operating activities
to free cash flow.
Six Months Ended June 30, Year Ended December 31,
------------------------ ------------------------
(In millions) 2003 2002 2002
- ------------- ---------- ---------- ----------
Net cash provided by operating activities $ 268.6 $ 315.4 $ 521.6
Less:
Additions to property, plant and equipment 47.7 34.0 106.8
Dividends paid -- 1.5 39.8
---------- ---------- ----------
Free cash flow $ 220.9 $ 279.9 $ 375.0
========== ========== ==========
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to market risk principally from fluctuations in interest rates
which could affect our cash flows and consolidated financial statements. We
manage our exposure to interest rate risk, which results from changes in
short-term interest rates, by managing our portfolio of fixed rate debt and,
when we consider it appropriate, through the use of interest rate swaps to
convert a portion of our long-term debt from fixed to variable rates to reduce
our overall borrowing costs. At June 30, 2003, we did not have any derivative
instruments that materially increased 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 in our Annual Report on Form
10-K for the year ended December 31, 2002, and the swap described previously
under Financial Condition in MD&A above. We do not use derivatives for
speculative purposes. We may continue to utilize interest rate swaps in the
future as market conditions allow.
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 in effect at the inception of our debt obligation. Changes in the fair
value of our fixed rate debt have no impact on our cash flows or consolidated
financial statements.
ITEM 4. CONTROLS AND PROCEDURES.
Our management, including our Chief Executive Officer and Chief Financial
Officer, has conducted an evaluation of the effectiveness of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15(b), as of the end
of the period covered by this Quarterly Report on Form 10-Q. Based on that
evaluation, our CEO and CFO concluded that these disclosure controls and
procedures are effective in ensuring that all material information required to
be disclosed in this Quarterly Report has been made known to them in a timely
fashion. 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 II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In October 2002, the court approved the final settlement of $29.9 million in a
class action lawsuit tentatively agreed to in June 2002, 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 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
a) We held our Annual Meeting of Stockholders on May 15, 2003.
b) At the meeting, stockholders elected directors to serve for the ensuing
year. Out of the 169,563,463 eligible votes, 137,213,648 votes were
cast at the meeting either by proxies solicited in accordance with
Regulation 14A under the Securities Act of 1934, or by security holders
voting in person. In the case of directors, abstentions are treated as
votes withheld and are included in the table. The tabulation of votes
of the matters submitted to a vote of security holders is set forth
below:
VOTES VOTES
NAME OF DIRECTOR FOR WITHHELD
--------------------------- --------------- ---------------
Frank J. Belatti 121,560,431 15,653,217
Ronald E. Elmquist 121,580,616 15,633,032
Robert S. Falcone 125,160,142 12,053,506
Daniel R. Feehan 125,115,554 12,098,094
Richard J. Hernandez 99,845,123 37,368,525
Lawrence V. Jackson 121,646,674 15,566,974
Robert J. Kamerschen 122,362,244 14,851,404
L. Eugene Lockhart 125,096,129 12,117,518
Jack L. Messman 122,334,539 14,879,109
William G. Morton, Jr. 125,592,108 11,621,540
Thomas G. Plaskett 121,593,361 15,620,287
Leonard H. Roberts 124,864,697 12,348,951
Edwina D. Woodbury 125,837,953 11,375,695
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) 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
on page 19, which immediately precede such exhibits.
b) Reports on Form 8-K.
We filed a Form 8-K with the SEC on April 22, 2003, in which we
furnished an earnings release reporting our results of operations
for the quarter ended March 31, 2003.
Additionally, we filed a Form 8-K with the SEC on April 25, 2003,
in which we furnished a transcript of a conference call held on
April 22, 2003, concerning our results of operations for the
quarter ended March 31, 2003.
We also filed a Form 8-K with the SEC on July 22, 2003, in which we
furnished an earnings release reporting our results of operations
for the quarter and six months ended June 30, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RadioShack Corporation
(Registrant)
Date: August 12, 2003 By /s/ David P. Johnson
------------------------------------
David P. Johnson
Senior Vice President and Controller
(Authorized Officer)
Date: August 12, 2003 /s/ Michael D. Newman
------------------------------------
Michael D. Newman
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
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).
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).
3b RadioShack Corporation Bylaws, amended and restated as of
December 12, 2002 (filed as Exhibit 3b to RadioShack's Form
10-K filed on March 28, 2003 for the fiscal year ended
December 31, 2002).
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.
10b* Amendment No. 1 to the Five Year Credit Agreement (Facility B)
dated as of June 18, 2003.
12* Statements of Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Fixed Charges and Preferred
Dividends.
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 Securities Exchange Act of 1934, 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 registration statement
specifically incorporates it by reference.
Exhibit 10a
AMENDED AND RESTATED 364-DAY CREDIT AGREEMENT
Dated as of June 18, 2003
RADIOSHACK CORPORATION, a Delaware corporation (the "Borrower"),
the banks, financial institutions and other institutional lenders
(collectively, the "Initial Lenders") party hereto, BANK OF AMERICA, N.A., as
administrative agent, FLEET NATIONAL BANK, as syndication agent, KEYBANK
NATIONAL ASSOCIATION and WACHOVIA BANK, NATIONAL ASSOCIATION, as
co-documentation agents, CITIBANK, N.A., as administrative agent and paying
agent (the "Agent") for the Lenders (as defined in the Existing Credit
Agreement referred to below) and CITIGROUP GLOBAL MARKETS INC. and BANC OF
AMERICA SECURITIES LLC, as joint lead arrangers and bookrunners, hereby
agree as follows:
PRELIMINARY STATEMENTS
(1) The Borrower is party to a 364-Day Credit Agreement
dated as of June 19, 2002 (as amended, supplemented or otherwise modified from
time to time to (but not including) the date of this Amendment and Restatement,
the "Existing Credit Agreement") with the banks, financial institutions and
other institutional lenders party thereto and Citibank, N.A., as Agent for the
Lenders and such other lenders. Capitalized terms not otherwise defined in
this Amendment and Restatement shall have the same meanings as specified in the
Existing Credit Agreement.
(2) The parties to this Amendment and Restatement desire to
amend the Existing Credit Agreement as set forth herein and to restate the
Existing Credit Agreement in its entirety to read as set forth in the Existing
Credit Agreement with the following amendments.
(3) The Borrower has requested that the Lenders agree
to extend credit to it from time to time in an aggregate principal amount of
up to $300,000,000 for general corporate purposes of the Borrower and its
Subsidiaries not otherwise prohibited under the terms of this Amendment and
Restatement. The Lenders have indicated their willingness to agree to extend
credit to the Borrower from time to time in such amount on the terms and
conditions of this Amendment and Restatement.
SECTION 1. Amendments to the Existing Credit Agreement.
Effective as of the date of this Amendment and Restatement and subject to
the satisfaction of the conditions precedent set forth in Section 2, the
Existing Credit Agreement is hereby amended as follows:
(a) Section 1.01 is amended by deleting the definitions of
"Commitment", "Lenders" and "Termination Date" set forth therein and replacing
them, respectively, with the following new definitions thereof:
"Commitment" means, with respect to any Lender at any time,
the amount set forth opposite such Lender's name on Schedule I hereto
under the caption "Commitment" or, if such Lender has entered into one
or more Assumption Agreements or Assignments and Acceptances, set
forth for such Lender in the Register maintained by the Agent
pursuant to Section 8.07(d) as such Lender's "Commitment", as such
amount may be reduced at or prior to such time pursuant to
Section 2.05.
"Lenders" means, collectively, the Initial Lenders, each
Assuming Lender that shall become a party hereto pursuant to Section
2.18 and each Person that shall become a party hereto pursuant to
Section 8.07.
"Termination Date" means the earlier of (a) June 16, 2004,
subject to the extension thereof pursuant to Section 2.18 and (b) the
date of termination in whole of the Commitments pursuant to
Section 2.05 or 6.01; provided, however, that the Termination Date
of any Lender that is a Non-Consenting Lender to any requested
extension pursuant to Section 2.18 shall be the Termination Date in
effect immediately prior to the applicable Extension Date for all
purposes of this Agreement.
(b) Section 4.01(e) is amended (i) by replacing the date
"December 31, 2001" with the date "December 31, 2002" and (ii) by replacing
the date "March 31, 2002" with the date "March 31, 2003" in each place such date
appears.
(c) Section 4.01(j) is amended by replacing the date
"December 31, 2001" with the date "December 31, 2002".
(d) Section 8.02 is amended in full to read as follows:
SECTION 8.02. Notices, Etc. (a) All notices and other
communications provided for hereunder shall be either (x) in writing
(including telecopier, telegraphic or telex communication) and mailed,
telecopied, telegraphed, telexed or delivered or (y) as and to the
extent set forth in Section 8.02(b) and in the proviso to this Section
8.02(a), if to the Borrower, at its address at 100 Throckmorton
Street, Suite 1800, Fort Worth, Texas 76102, Attention: Martin
Moad, Treasurer, if to any Initial Lender, at its Domestic Lending
Office specified opposite its name on Schedule I hereto; if to any
other Lender, at its Domestic Lending Office specified in the
Assumption Agreement or the Assignment and Acceptance pursuant to
which it became a Lender; and if to the Agent, at its address at Two
Penns Way, New Castle, Delaware 19720, Attention: Bank Loan
Syndications Department; or, as to the Borrower or the Agent, at such
other address as shall be designated by such party in a written notice
to the other parties and, as to each other party, at such other address
as shall be designated by such party in a written notice to the
Borrower and the Agent, provided that materials required to be
delivered pursuant to Section 5.01(i)(i), (ii) or (iv) shall be
delivered to the Agent as specified in Section 8.02(b) or as otherwise
specified to the Borrower by the Agent. All such notices and
communications shall, when mailed, telecopied, telegraphed or
e-mailed, be effective when deposited in the mails, telecopied,
delivered to the telegraph company or confirmed by e-mail,
respectively, except that notices and communications to the Agent
pursuant to Article II, III or VII shall not be effective until
received by the Agent. Delivery by telecopier of an executed
counterpart of any amendment or waiver of any provision of this
Agreement or the Notes or of any Exhibit hereto to be executed and
delivered hereunder shall be effective as delivery of a manually
executed counterpart thereof.
(b) So long as Citicorp or any of its Affiliates is the
Agent, materials required to be delivered pursuant to Section
5.01(i)(i), (ii) and (iv) (the "Communications") may be delivered to
the Agent in an electronic medium in a format acceptable to the Agent
and the Lenders by e-mail at oploanswebadmin@citigroup.com. The
Borrower agrees that the Agent may make such materials , as well as
any other written information, documents, instruments and other
material relating to the Borrower, any of its Subsidiaries or any other
materials or matters relating to this Agreement, the Notes or any of
the transactions contemplated hereby available to the Lenders by
posting such notices on Intralinks,"e-Disclosure", the Agent's
internet delivery system that is part of Fixed Income Direct, Global
Fixed Income's primary web portal, or a substantially similar
electronic system (the "Platform"). The Borrower acknowledges that
(i) the distribution of material through an electronic medium is not
necessarily secure and that there are confidentiality and other risks
associated with such distribution, (ii) the Platform is provided "as
is" and "as available" and (iii) neither the Agent nor any of its
Affiliates warrants the accuracy, adequacy or completeness of the
Communications or the Platform and each expressly disclaims liability
for errors or omissions in the Communications or the Platform. No
warranty of any kind, express, implied or statutory, including,
without limitation, any warranty of merchantability, fitness for a
particular purpose, non-infringement of third party rights or freedom
from viruses or other code defects, is made by the Agent or any of its
Affiliates in connection with the Platform.
(c) Each Lender agrees that notice to it (as provided in the
next sentence) (a "Notice") specifying that any Communications have
been posted to the Platform shall constitute effective delivery of
such information, documents or other materials to such Lender for
purposes of this Agreement; provided that if requested by any Lender
the Agent shall deliver a copy of the Communications to such Lender by
email or telecopier. Each Lender agrees (i) to notify the Agent in
writing of such Lender's e-mail address to which a Notice may be
sent by electronic transmission (including by electronic
communication) on or before the date such Lender becomes a party to
this Agreement (and from time to time thereafter to ensure that the
Agent has on record an effective e-mail address for such Lender) and
(ii) that any Notice may be sent to such e-mail address.
(e) Section 8.08 is amended by adding to the end thereof a
new sentence to read as follows:
Notwithstanding anything herein to the contrary, the Borrower and its
officers, directors, employees, agents and advisors and the Lenders
and their officers, directors, employees, agents and advisors may
disclose to any and all Persons, without limitation of any kind, the
U.S. tax treatment and tax structure of the transactions contemplated
hereby and all materials of any kind (including opinions or other tax
analyses) that are provided to the Borrower or the Lenders, as the case
may be, if any, solely relating to such U.S. tax treatment and tax
structure.
(f) Schedule I is deleted in its entirety and replaced with
Schedule I to this Amendment and Restatement.
SECTION 2. Conditions of Effectiveness of this Amendment and
Restatement. This Amendment and Restatement shall become effective as of the
date first above written (the "Restatement Effective Date") when and only if:
(a) The Agent shall have received counterparts of this
Amendment and Restatement executed by the Borrower and all of the
Initial Lenders or, as to any of the Initial Lenders, advice
satisfactory to the Agent that such Initial Lender has executed this
Amendment and Restatement.
(b) The Agent shall have received on or before the
Restatement Effective Date the following, each dated such date and
(unless otherwise specified below) in form and substance satisfactory
to the Agent and in sufficient copies for each Initial Lender:
(i) Certified copies of the resolutions of the
Board of Directors of the Borrower approving the Existing
Credit Agreement and authorizing this Amendment and
Restatement, and the Notes, and of all documents evidencing
other necessary corporate action and governmental approvals,
if any, with respect to the Existing Credit Agreement, as
amended hereby, and the Notes.
(ii) A certificate of the Secretary or an Assistant
Secretary of the Borrower certifying the names and true
signatures of the officers of the Borrower authorized to sign
this Amendment and Restatement and the Notes and the other
documents to be delivered hereunder.
(iii) A favorable opinion of Mark C. Hill, Vice
President, Secretary and General Counsel of the Borrower,
substantially in the form of Exhibit D to the Existing Credit
Agreement but with such modifications as are required to
address the Existing Credit Agreement, as amended by this
Amendment and Restatement, and as to such other matters as any
Lender through the Agent may reasonably request.
(iv) A favorable opinion of Shearman & Sterling,
counsel for the Agent, in form and substance satisfactory to
the Agent.
(c) On the Restatement Effective Date, the following
statements shall be true and the Agent shall have received for the
account of each Lender a certificate signed by a duly authorized officer
of the Borrower, dated the Restatement Effective Date, stating that:
(i) The representations and warranties contained in
Section 4.01 of the Existing Credit Agreement, as amended
hereby, are correct on and as of the Restatement Effective Date,
before and after giving effect to the Restatement Effective
Date, as though made on and as of such date, and
(ii) No event has occurred and is continuing, or
shall occur as a result of the occurrence of the Restatement
Effective Date, that constitutes a Default.
SECTION 3. Reference to and Effect on the Existing Credit
Agreement and the Notes. (a) On and after the effectiveness of this Amendment
and Restatement, each reference in the Existing Credit Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Existing Credit Agreement, and each reference in the Notes to "the Credit
Agreement", "thereunder", "thereof" or words of like import referring to
the Existing Credit Agreement, shall mean and be a reference to the Existing
Credit Agreement, as amended by this Amendment and Restatement.
(b) The Existing Credit Agreement and the Notes, as
specifically amended by this Amendment and Restatement, are and shall continue
to be in full force and effect and are hereby in all respects ratified and
confirmed.
(c) Without limiting any of the other provisions of the
Existing Credit Agreement, as amended by this Amendment and Restatement,
any references in the Existing Credit Agreement to the phrases "on the date
hereof", "on the date of this Agreement" or words of similar import shall
mean and be a reference to the date of the Existing Credit Agreement (which
is June 19, 2002).
SECTION 4. Costs and Expenses. The Borrower agrees to pay
on demand all reasonable out-of-pocket costs and expenses of the Agent in
connection with the preparation, execution, delivery and administration,
modification and amendment of this Amendment and Restatement, the Notes and the
other documents to be delivered hereunder (including, without limitation, the
reasonable and documented fees and expenses of counsel for the Agent with
respect hereto and thereto) in accordance with the terms of Section 8.04 of
the Existing Credit Agreement.
SECTION 5. Execution in Counterparts. This Amendment and
Restatement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of
a signature page to this Amendment and Restatement by telecopier shall be
effective as delivery of a manually executed counterpart of this Amendment and
Restatement.
SECTION 6. Governing Law. This Amendment and Restatement
shall be governed by, and construed in accordance with, the laws of the State
of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment and Restatement to be executed by their respective officers
thereunto duly authorized, as of the date first above written.
RADIOSHACK CORPORATION
By __________________________
Title:
CITIBANK, N.A.,
as Agent
By __________________________
Title:
Initial Lenders
CITIBANK, N.A.
By __________________________
Title:
BANK OF AMERICA, N.A.
By __________________________
Title:
KEYBANK NATIONAL ASSOCIATION
By __________________________
Title:
FLEET NATIONAL BANK
By __________________________
Title:
WACHOVIA BANK, NATIONAL ASSOCIATION
By __________________________
Title:
THE BANK OF NEW YORK
By __________________________
Title:
ROYAL BANK OF CANADA
By __________________________
Title:
SUNTRUST BANK
By __________________________
Title:
U.S. BANK NATIONAL ASSOCIATION
By __________________________
Title:
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By __________________________
Title:
FIFTH THIRD BANK
By __________________________
Title:
NATIONAL CITY BANK
By __________________________
Title:
HIBERNIA NATIONAL BANK
By __________________________
Title:
THE HUNTINGTON NATIONAL BANK
By __________________________
Title:
SCHEDULE I
RADIOSHACK CORPORATION
364-DAY CREDIT AGREEMENT
APPLICABLE LENDING OFFICES
- ---------------------------- -------------------- ------------------------------ ---------------------------
Name of Initial Lender Commitment Domestic Lending Office Eurodollar Lending Office
- ---------------------------- -------------------- ------------------------------ ---------------------------
Bank of America, N.A. $38,000,000.00 1850 Gateway Blvd 5th Floor 1850 Gateway Blvd 5th
Concord, CA 94520-3282 Floor
Attn: Nina Lemmer Concord, CA 94520-3282
T: 925-675-7478 Attn: Nina Lemmer
F: 888-969-9281 T: 925-675-7478
F: 888-969-9281
- ---------------------------- -------------------- ------------------------------ ---------------------------
Bank of New York $20,000,000.00 One Wall Street - 8th floor One Wall Street - 8th
New York, NY 10286 floor
Attn: Diane Burgess New York, NY 10286
T: 212 635-1311 Attn: Diane Burgess
F: 212 635-1483 T: 212 635-1311
F: 212 635-1483
- ---------------------------- -------------------- ------------------------------ ---------------------------
Citibank, N.A. $38,000,000.00 Two Penns Way, Suite 200 Two Penns Way, Suite 200
New Castle, DE 19720 New Castle, DE 19720
Attn: Vincent Farrell Attn: Vincent Farrell
T: 302 894-6032 T: 302 894-6032
F: 302 894-6120 F: 302 894-6120
- ---------------------------- -------------------- ------------------------------ ---------------------------
Fifth Third Bank $12,500,000.00 38 Fountain Square Plaza 38 Fountain Square Plaza
MD 10904 MD 10904
Cincinnati, OH 45263 Cincinnati, OH 45263
Attn: Chris Motley Attn: Chris Motley
T: 513 579-4110 T: 513 579-4110
F: 513 744-5947 F: 513 744-5947
- ---------------------------- -------------------- ------------------------------ ---------------------------
Fleet National Bank $33,000,000.00 100 Federal Street 100 Federal Street
MADE 10809A MADE 10809A
Boston, MA 02110 Boston, MA 02110
Attn: Kalams Herald Attn: Kalams Herald
T: 617 434-3780 T: 617 434-3780
F: 617 434-9933 F: 617 434-9933
- ---------------------------- -------------------- ------------------------------ ---------------------------
Hibernia National Bank $7,500,000.00 313 Carondelet Street 313 Carondelet Street
New Orleans, LA 70130 New Orleans, LA 70130
Attn: Shelly Strada Attn: Shelly Strada
T: 504 533-2808 T: 504 533-2808
F: 504 533-5344 F: 504 533-5344
- ---------------------------- -------------------- ------------------------------ ---------------------------
The Huntington National Bank $7,500,000.00 The Huntington Center The Huntington Center
Columbus, OH 43287 Columbus, OH 43287
Attn: Aaron Maltry Attn: Aaron Maltry
T: 614 480-5778 T: 614 480-5778
F: 614 480-5791 F: 614 480-5791
- ---------------------------- -------------------- ------------------------------ ---------------------------
KeyBank National Association $33,000,000.00 127 Public Square 127 Public Square
Cleveland, OH 44114 Cleveland, OH 44114
Attn: Laura Binkley Attn: Laura Binkley
T: 216 689-4448 T: 216 689-4448
F: 216 689-4981 F: 216 689-4981
- ---------------------------- -------------------- ------------------------------ ---------------------------
- ---------------------------- -------------------- ------------------------------ ---------------------------
National City Bank $12,500,000.00 155 East Broad Street 155 East Broad Street
Columbus, OH Columbus, OH
Attn: Vicki Niemela Attn: Vicki Niemela
T: 614 463-7133 T: 614 463-7133
F: 614 463-8572 F: 614 463-8572
- ---------------------------- -------------------- ------------------------------ ---------------------------
Royal Bank of Canada $20,000,000.00 One Liberty Plaza, 3rd Floor One Liberty Plaza, 3rd
New York, NY 10006 Floor
Attn: Gordon MacArthur New York, NY 10006
T: 212 428-2324 Attn: Gordon MacArthur
F: 212 428-6459 T: 212 428-2324
F: 212 428-6459
- ---------------------------- -------------------- ------------------------------ ---------------------------
SunTrust Bank $15,000,000.00 303 Peachtree Street, 10th 303 Peachtree Street,
Floor 10th Floor
Atlanta, GA Atlanta, GA
Attn: Roshawn Orise Attn: Roshawn Orise
T: 404 230-1939 T: 404 230-1939
F: 4040 575-2730 F: 4040 575-2730
- ---------------------------- -------------------- ------------------------------ ---------------------------
U.S. Bank National $15,000,000.00 400 City Center 400 City Center
Association Mail Code: OS-WI-CCO Mail Code: OS-WI-CCO
Oshkosh, WI 54901 Oshkosh, WI 54901
Attn: Connie Sweeney Attn: Connie Sweeney
T: 920 237-7604 T: 920 237-7604
F: 920 237-7993 F: 920 237-7993
- ---------------------------- -------------------- ------------------------------ ---------------------------
Wachovia Bank, National $33,000,000.00 201 S. College Street, CP-17 201 S. College Street,
Association Charlotte, NC 28288 CP-17
Attn: Cynthia Rawson Charlotte, NC 28288
T: 704 374-4425 Attn: Cynthia Rawson
F: 704 383-7997 T: 704 374-4425
F: 704 383-7997
- ---------------------------- -------------------- ------------------------------ ---------------------------
Wells Fargo Bank, National $15,000,000.00 201 Third Street, 8th Floor 201 Third Street, 8th
Association MAC A0187-081 Floor
San Francisco, CA 94103 MAC A0187-081
Attn: Rosanna Roxas San Francisco, CA 94103
T: 415 477-5425 Attn: Rosanna Roxas
F: 415 979-0675 T: 415 477-5425
F: 415 979-0675
- ---------------------------- -------------------- ------------------------------ ---------------------------
Total of Commitments: $300,000,000
Exhibit 10b
AMENDMENT NO. 1 TO THE
FIVE YEAR CREDIT AGREEMENT
Dated as of June 18, 2003
AMENDMENT NO. 1 TO THE FIVE YEAR CREDIT AGREEMENT among
RADIOSHACK CORPORATION, a Delaware corporation (the "Borrower"), the banks,
financial institutions and other institutional lenders parties to the Credit
Agreement referred to below (collectively, the "Lenders") and CITIBANK, N.A., as
agent (the "Agent") for the Lenders.
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders and the Agent have entered
into a Five Year Credit Agreement dated as of June 19, 2002 (the "Credit
Agreement"). Capitalized terms not otherwise defined in this Amendment have the
same meanings as specified in the Credit Agreement.
(2) The Borrower and the Lenders have agreed to amend the
Credit Agreement as hereinafter set forth.
SECTION 1. Amendments to Credit Agreement. The Credit
Agreement is, effective as of the date hereof and subject to the satisfaction of
the conditions precedent set forth in Section 2, hereby amended as follows:
(a) Section 8.02 is amended in full to read as follows:
SECTION 8.02. Notices, Etc. (a) All notices and other
communications provided for hereunder shall be either (x) in writing
(including telecopier, telegraphic or telex communication) and mailed,
telecopied, telegraphed, telexed or delivered or (y) as and to the
extent set forth in Section 8.02(b) and in the proviso to this Section
8.02(a), if to the Borrower, at its address at 100 Throckmorton Street,
Suite 1800, Fort Worth, Texas 76102, Attention: Martin Moad,
Treasurer, if to any Initial Lender, at its Domestic Lending Office
specified opposite its name on Schedule I hereto; if to any other
Lender, at its Domestic Lending Office specified in the Assumption
Agreement or the Assignment and Acceptance pursuant to which it became a
Lender; and if to the Agent, at its address at Two Penns Way, New
Castle, Delaware 19720, Attention: Bank Loan Syndications Department;
or, as to the Borrower or the Agent, at such other address as
shall be designated by such party in a written notice to the other
parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrower and the
Agent, provided that materials required to be delivered pursuant to
Section 5.01(i)(i), (ii) or (iv) shall be delivered to the Agent as
specified in Section 8.02(b) or as otherwise specified to the Borrower
by the Agent. All such notices and communications shall, when mailed,
telecopied, telegraphed or e-mailed, be effective when deposited in the
mails, telecopied, delivered to the telegraph company or confirmed by
e-mail, respectively, except that notices and communications to the
Agent pursuant to Article II, III or VII shall not be effective until
received by the Agent. Delivery by telecopier of an executed
counterpart of any amendment or waiver of any provision of this
Agreement or the Notes or of any Exhibit hereto to be executed and
delivered hereunder shall be effective as delivery of a manually
executed counterpart thereof.
(b) So long as Citicorp or any of its Affiliates is the
Agent, materials required to be delivered pursuant to Section 5.01(i)
(i), (ii) and (iv) (the "Communications") may be delivered to the
Agent in an electronic medium in a format acceptable to the Agent and
the Lenders by e-mail at oploanswebadmin@citigroup.com. The Borrower
agrees that the Agent may make such materials, as well as any other
written information, documents, instruments and other material relating
to the Borrower, any of its Subsidiaries or any other materials or
matters relating to this Agreement, the Notes or any of the transactions
contemplated hereby available to the Lenders by posting such notices on
Intralinks, "e-Disclosure", the Agent's internet delivery system that is
part of Fixed Income Direct, Global Fixed Income's primary web portal,
or a substantially similar electronic system (the "Platform"). The
Borrower acknowledges that (i) the distribution of material through an
electronic medium is not necessarily secure and that there are
confidentiality and other risks associated with such distribution,
(ii) the Platform is provided "as is" and "as available" and (iii)
neither the Agent nor any of its Affiliates warrants the accuracy,
adequacy or completeness of the Communications or the Platform and
each expressly disclaims liability for errors or omissions in the
Communications or the Platform. No warranty of any kind, express,
implied or statutory, including, without limitation, any warranty of
merchantability, fitness for a particular purpose, non-infringement of
third party rights or freedom from viruses or other code defects, is
made by the Agent or any of its Affiliates in connection with the
Platform.
(c) Each Lender agrees that notice to it (as provided in
the next sentence) (a "Notice") specifying that any Communications
have been posted to the Platform shall constitute effective delivery
of such information, documents or other materials to such Lender
for purposes of this Agreement; provided that if requested by any
Lender the Agent shall deliver a copy of the Communications to such
Lender by email or telecopier. Each Lender agrees (i) to notify the
Agent in writing of such Lender's e-mail address to which a Notice
may be sent by electronic transmission (including by electronic
communication) on or before the date such Lender becomes a party to
this Agreement (and from time to time thereafter to ensure that the
Agent has on record an effective e-mail address for such Lender) and
(ii) that any Notice may be sent to such e-mail address.
(b) Section 8.08 is amended by adding to the end thereof a
new sentence to read as follows:
Notwithstanding anything herein to the contrary, the Borrower and its
officers, directors, employees, agents and advisors and the Lenders and
their officers, directors, employees, agents and advisors may disclose
to any and all Persons, without limitation of any kind, the U.S. tax
treatment and tax structure of the transactions contemplated hereby and
all materials of any kind (including opinions or other tax analyses)
that are provided to the Borrower or the Lenders, as the case may be, if
any, solely relating to such U.S. tax treatment and tax structure.
SECTION 2. Conditions of Effectiveness. This Amendment shall
become effective as of the date first above written when, and only when, on or
before June 18, 2003 the Agent shall have received counterparts of this
Amendment executed by the Borrower and the Required Lenders or, as to any of the
Lenders, advice satisfactory to the Agent that such Lender has executed this
Amendment. This Amendment is subject to the provisions of Section 8.01 of the
Credit Agreement.
SECTION 3. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction
indicated in the recital of parties to this Amendment.
(b) The execution, delivery and performance by the Borrower
of this Amendment and the Credit Agreement and the Notes, as amended
hereby, are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not contravene
(i) the Borrower's charter or by-laws or(ii) law or any contractual
restriction binding on or affecting the Borrower.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
or any other third party is required for the due execution, delivery or
performance by the Borrower of this Amendment or the Credit Agreement
and the Notes, as amended hereby.
(d) This Amendment has been duly executed and delivered by
the Borrower. This Amendment and the Credit Agreement and the Notes, as
amended hereby, are legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their
respective terms (subject, as the enforcement of remedies, to applicable
bankruptcy, reorganization, moratorium and similar laws affecting
creditors rights generally).
(e) There is no pending or threatened action, suit,
investigation, litigation or proceeding, including, without limitation,
any Environmental Action, affecting the Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator that
(i)could be reasonably likely to have a Material Adverse Effect or
(ii) purports to affect the legality, validity or enforceability of this
Amendment or any of the other Loan Documents, as amended hereby.
SECTION 4. Reference to and Effect on the Credit Agreement and
the Notes. (a) On and after the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of
like import referring to the Credit Agreement, and each reference in the Notes
to "the Credit Agreement", "thereunder", "thereof" or words of like import
referring to the Credit Agreement, shall mean and be a reference to the Credit
Agreement, as amended by this Amendment.
(b) The Credit Agreement and the Notes, as specifically
amended by this Amendment, are and shall continue to be in full force and
effect and are hereby in all respects ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any Lender or the Agent under the Credit
Agreement, nor constitute a waiver of any provision of the Credit Agreement.
SECTION 5. Costs and Expenses. The Borrower agrees to pay on
demand all costs and expenses of the Agent in connection with the preparation,
execution, delivery and administration, modification and amendment of this
Amendment and the other instruments and documents to be delivered hereunder
(including, without limitation, the reasonable fees and expenses of counsel for
the Agent) in accordance with the terms of Section 8.04 of the Credit
Agreement.
SECTION 6. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 7. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
RADIOSHACK CORPORATION
By __________________________
Title:
CITIBANK, N.A.,
as Agent and as a Lender
By __________________________
Title:
BANK OF AMERICA, N.A.
By __________________________
Title:
FLEET NATIONAL BANK
By __________________________
Title:
WACHOVIA BANK, NATIONAL ASSOCIATION
By __________________________
Title:
FIFTH THIRD BANK
By __________________________
Title:
SUNTRUST BANK
By __________________________
Title:
U.S. BANK NATIONAL ASSOCIATION
By __________________________
Title:
HIBERNIA NATIONAL BANK
By __________________________
Title:
ROYAL BANK OF CANADA
By __________________________
Title:
KEYBANK NATIONAL ASSOCIATION
By __________________________
Title:
NATIONAL CITY BANK
By __________________________
Title:
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By __________________________
Title:
THE HUNTINGTON NATIONAL BANK
By __________________________
Title:
BANCA NAZIONALE DEL LAVORO
By __________________________
Title:
THE BANK OF NEW YORK
By __________________________
Title:
BANK OF TOKYO MITSUBISHI TRUST
COMPANY
By __________________________
Title:
Exhibit 12
RADIOSHACK CORPORATION
STATEMENTS OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
(In millions, except ratios) 2003 2002 2003 2002
- ---------------------------- --------- --------- --------- ---------
Ratio of Earnings to Fixed Charges:
Net income $ 57.5 $ 51.8 $ 114.1 $ 109.4
Plus provision for income taxes 33.1 31.8 67.8 67.1
--------- --------- --------- ---------
Income before income taxes 90.6 83.6 181.9 176.5
--------- --------- --------- ---------
Fixed charges:
Interest expense and amortization, including debt
discount 9.5 10.5 18.9 21.0
Amortization of debt issuance costs 0.3 0.2 0.5 0.5
Capitalized interest 0.6 -- 1.1 --
Appropriate portion (33 1/3%) of rentals 20.7 20.3 41.5 40.2
--------- --------- --------- ---------
Total fixed charges 31.1 31.0 62.0 61.7
--------- --------- --------- ---------
Earnings before income taxes and fixed charges,
excluding capitalized interest $ 121.1 $ 114.6 $ 242.8 $ 238.2
========= ========= ========= =========
Ratio of earnings to fixed charges 3.89 3.70 3.92 3.86
========= ========= ========= =========
Ratio of Earnings to Fixed Charges and
Preferred Dividends:
Total fixed charges, as above $ 31.1 $ 31.0 $ 62.0 $ 61.7
Preferred dividends -- 1.1 -- 2.3
--------- --------- --------- ---------
Total fixed charges and preferred dividends $ 31.1 $ 32.1 $ 62.0 $ 64.0
========= ========= ========= =========
Earnings before income taxes and fixed charges,
excluding capitalized interest $ 121.1 $ 114.6 $ 242.8 $ 238.2
========= ========= ========= =========
Ratio of earnings to fixed charges and preferred
dividends 3.89 3.57 3.92 3.72
========= ========= ========= =========
Exhibit 31(a)
CERTIFICATIONS
I, Leonard H. Roberts, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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: August 12, 2003 By /s/ Leonard H. Roberts
------------------------------------------
Leonard H. Roberts
Chief Executive Officer
Exhibit 31(b)
CERTIFICATIONS
I, Michael D. Newman, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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: August 12, 2003 By /s/ Michael D. Newman
------------------------------------------
Michael D. Newman
Chief Financial Officer
Exhibit 32
SECTION 1350 CERTIFICATIONS
In connection with the Quarterly Report of RadioShack Corporation (the
"Company") on Form 10-Q for the period ending June 30, 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
August 12, 2003
/s/ Michael D. Newman
Michael D. Newman
Chief Financial Officer
August 12, 2003
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.