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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 September 30, 2004
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
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
------------------------
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
October 29, 2004 was 158,470,136.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions, except per share amounts) 2004 2003 2004 2003
- --------------------------------------- ------------- ------------- ------------- -------------
Net sales and operating revenues $ 1,101.5 $ 1,063.6 $ 3,247.9 $ 3,158.9
Cost of products sold 544.7 530.9 1,598.5 1,577.6
------------- ------------- ------------- -------------
Gross profit 556.8 532.7 1,649.4 1,581.3
------------- ------------- ------------- -------------
Operating expenses:
Selling, general and administrative 415.2 421.4 1,230.3 1,235.8
Depreciation and amortization 24.4 23.3 73.3 68.8
------------- ------------- ------------- -------------
Total operating expenses 439.6 444.7 1,303.6 1,304.6
------------- ------------- ------------- -------------
Operating income 117.2 88.0 345.8 276.7
Interest income 1.7 1.9 5.9 11.4
Interest expense (6.5) (8.7) (21.0) (28.1)
Other income, net -- 8.9 2.0 12.0
------------- ------------- ------------- -------------
Income before income taxes 112.4 90.1 332.7 272.0
Provision for income taxes 42.7 33.0 126.4 100.8
------------- ------------- ------------- -------------
Net income $ 69.7 $ 57.1 $ 206.3 $ 171.2
============= ============= ============= =============
Net income available per common share:
Basic $ 0.44 $ 0.34 $ 1.28 $ 1.01
============= ============= ============= =============
Diluted $ 0.43 $ 0.34 $ 1.26 $ 1.01
============= ============= ============= =============
Weighted average shares used in computing
earnings per share:
Basic 160.0 166.1 161.6 168.8
============= ============= ============= =============
Diluted 161.0 167.6 163.1 169.4
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
September 30, December 31, September 30,
(In millions, except for share amounts) 2004 2003 2003
------------- ------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 384.8 $ 634.7 $ 558.2
Accounts and notes receivable, net 158.0 182.4 121.4
Inventories, net 1,032.0 766.5 914.6
Other current assets 92.0 83.0 91.3
------------- ------------- -------------
Total current assets 1,666.8 1,666.6 1,685.5
Property, plant and equipment, net 599.0 513.1 438.3
Other assets, net 75.0 64.2 95.5
------------- ------------- -------------
Total assets $ 2,340.8 $ 2,243.9 $ 2,219.3
============= ============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt, including current maturities of long-term debt $ 85.3 $ 77.4 $ 39.5
Accounts payable 466.2 300.2 409.8
Accrued expenses 270.1 343.0 265.3
Income taxes payable 115.9 137.5 150.2
------------- ------------- -------------
Total current liabilities 937.5 858.1 864.8
Long-term debt, excluding current maturities 508.9 541.3 546.5
Other non-current liabilities 80.9 75.2 81.3
------------- ------------- -------------
Total liabilities 1,527.3 1,474.6 1,492.6
------------- ------------- -------------
Commitments and contingent liabilities (Notes 8 and 9)
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized:
Series A junior participating, 300,000 shares designated
and none issued -- -- --
Common stock, $1 par value, 650,000,000 shares authorized;
191,033,000, 191,033,000, 236,033,000 shares issued,
respectively 191.0 191.0 236.0
Additional paid-in capital 80.2 75.2 68.5
Retained earnings 1,377.6 1,210.6 2,173.7
Treasury stock, at cost; 32,162,000, 28,481,000 and
71,513,000 shares, respectively (834.8) (707.2) (1,751.1)
Accumulated other comprehensive loss (0.5) (0.3) (0.4)
------------- ------------- -------------
Total stockholders' equity 813.5 769.3 726.7
------------- ------------- -------------
Total liabilities and stockholders' equity $ 2,340.8 $ 2,243.9 $ 2,219.3
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
(In millions) 2004 2003
------------ ------------- -------------
Cash flows from operating activities:
Net income $ 206.3 $ 171.2
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 73.3 68.8
Provision for credit losses and bad debts (0.2) 0.5
Other items 11.5 15.4
Changes in operating assets and liabilities:
Accounts and notes receivable 24.7 77.6
Inventories (265.5) 54.2
Other current assets (9.7) (11.7)
Accounts payable, accrued expenses and income taxes payable 43.6 33.7
------------- -------------
Net cash provided by operating activities 84.0 409.7
------------- -------------
Cash flows from investing activities:
Additions to property, plant and equipment (164.1) (88.6)
Proceeds from sale of property, plant and equipment 2.4 0.3
Proceeds from sale of installation subsidiary -- 4.7
Other investing activities (11.4) (2.5)
------------- -------------
Net cash used in investing activities (173.1) (86.1)
------------- -------------
Cash flows from financing activities:
Purchases of treasury stock (206.3) (209.4)
Sale of treasury stock to employee benefit plans 27.3 27.1
Proceeds from exercise of stock options 41.7 6.4
Changes in short-term borrowings, net 16.1 (16.0)
Repayments of long-term borrowings (39.6) (20.0)
------------- -------------
Net cash used in financing activities (160.8) (211.9)
------------- -------------
Net (decrease) increase in cash and cash equivalents (249.9) 111.7
Cash and cash equivalents, beginning of period 634.7 446.5
------------- -------------
Cash and cash equivalents, end of period $ 384.8 $ 558.2
============= =============
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 interim consolidated financial
statements, which include the accounts of RadioShack Corporation, all
majority-owned domestic and foreign subsidiaries and, as applicable, variable
interest entities, in accordance with the rules of the Securities and Exchange
Commission ("SEC"). Accordingly, we did not include all of the information and
footnotes 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 statement are
included. However, our operating results for the nine months ended September 30,
2004 and 2003, do not necessarily indicate the results you might expect for the
full year. 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, 2003.
NOTE 2 - STOCK-BASED COMPENSATION
We account for our stock-based employee compensation plans under the intrinsic
value method. Accordingly, no compensation expense has been recognized for our
fixed price stock option plans, as the exercise price of options must be equal
to or greater than the average of the high and low stock prices on the date of
grant under our incentive stock plans. The table below illustrates the effect on
net income and net income per share as if we had accounted for our stock-based
employee compensation under the fair value recognition provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions, except per share amounts) 2004 2003 2004 2003
- --------------------------------------- -------------- -------------- -------------- --------------
Net income, as reported $ 69.7 $ 57.1 $ 206.3 $ 171.2
Stock-based employee compensation expense
included in reported net income, net of
related tax effects 3.2 3.5 9.3 9.3
Total stock-based employee compensation
expense determined under fair value method
for all awards, net of related tax effects (8.6) (12.0) (27.3) (37.6)
-------------- -------------- -------------- --------------
Pro forma net income $ 64.3 $ 48.6 $ 188.3 $ 142.9
============== ============== ============== ==============
Net income available per share:
Basic - as reported $ 0.44 $ 0.34 $ 1.28 $ 1.01
Basic - pro forma $ 0.40 $ 0.29 $ 1.17 $ 0.85
Diluted - as reported $ 0.43 $ 0.34 $ 1.26 $ 1.01
Diluted - pro forma $ 0.40 $ 0.29 $ 1.15 $ 0.84
NOTE 3 - BASIC AND DILUTED EARNINGS PER SHARE
Basic earnings per share is computed based only on the weighted average number
of common shares outstanding for each period presented. Diluted earnings per
share reflects the potential dilution that would have occurred if securities or
other contracts to issue common stock were exercised, converted, or resulted in
the issuance of common stock that would have then shared in our earnings. The
following tables reconcile the numerator and denominator used in the basic and
diluted earnings per share calculations for the periods presented.
Three Months Ended Three Months Ended
September 30, 2004 September 30, 2003
-------------------------------------- --------------------------------------
Income Shares Per Share Income Shares Per Share
(In millions, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Basic EPS
Net income $ 69.7 160.0 $ 0.44 $ 57.1 166.1 $ 0.34
============ ============
Effect of dilutive securities:
Plus: Assumed exercise of stock options 1.0 1.5
------------ ------------ ------------ ------------
Diluted EPS
Net income plus assumed conversions $ 69.7 161.0 $ 0.43 $ 57.1 167.6 $ 0.34
============ ============ ============ ============ ============ ============
Nine Months Ended Nine Months Ended
September 30, 2004 September 30, 2003
-------------------------------------- --------------------------------------
Income Shares Per Share Income Shares Per Share
(In millions, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Basic EPS
Net income $ 206.3 161.6 $ 1.28 $ 171.2 168.8 $ 1.01
============ ============
Effect of dilutive securities:
Plus: Assumed exercise of stock options 1.5 0.6
------------ ------------ ------------ ------------
Diluted EPS
Net income plus assumed conversions $ 206.3 163.1 $ 1.26 $ 171.2 169.4 $ 1.01
============ ============ ============ ============ ============ ============
Options to purchase 15.9 million and 11.1 million shares of common stock for the
quarter and nine month periods ended September 30, 2004, respectively, as
compared to options to purchase 16.8 million and 19.2 million shares of common
stock for the corresponding prior year periods, were not included in the
computation of diluted earnings per share because the option exercise price was
greater than the average market price of the common stock during the periods
reported.
NOTE 4 - REVOLVING CREDIT FACILITY
In the second quarter of 2004, we replaced our existing $300.0 million 364-day
revolving credit facility with a new five-year credit facility maturing in June
2009. 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 five-year credit facility which expires in June 2007, will support
commercial paper borrowings and is otherwise available for general corporate
purposes.
NOTE 5 - COMPREHENSIVE INCOME
Comprehensive income for the three months ended September 30, 2004 and 2003, was
$69.6 million and $57.3 million, respectively, and comprehensive income for the
nine months ended September 30, 2004 and 2003, was $206.1 million and $171.3
million, respectively. The only other components of comprehensive income in 2004
and 2003, aside from net income for the periods reported, were foreign currency
translation adjustments and the accretion of the gain on the 2001 interest rate
swap transactions.
NOTE 6 - BUSINESS RESTRUCTURINGS
At September 30, 2004, the balance in the restructuring reserve related to the
closure of various McDuff, Computer City and Incredible Universe retail stores
in 1996 and 1997 was $6.9 million. This reserve represents the expected costs to
be paid in connection with the remaining real estate lease obligations. If these
facilities' sublease income declines in their respective markets or if it takes
longer than expected to sublease or dispose of these facilities, the actual
losses could exceed this reserve estimate. Costs will continue to be incurred
over the remaining terms of the related leases. During the nine months ended
September 30, 2004, costs of $10.1 million were charged against this reserve,
principally relating to the settlement of one location in Miami, Florida.
NOTE 7 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation 46, "Consolidation of Variable Interest Entities - An
Interpretation of ARB No. 51" ("FIN 46"). FIN 46 is intended to clarify the
application of ARB No. 51, "Consolidated Financial Statements," to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support. For those entities, a controlling financial interest cannot be
identified based on an evaluation of voting interests and may be achieved
through arrangements that do not involve voting interests. The consolidation
requirement of FIN 46 is effective immediately to variable interests in variable
interest entities ("VIEs") created or obtained after January 31, 2003. FIN 46
also sets forth certain disclosures regarding interests in VIEs that are deemed
significant, even if consolidation is not required. In December 2003, the FASB
issued FIN 46 (revised December 2003), "Consolidation of Variable Interest
Entities" ("FIN 46R"), which delayed the effective date of the application to us
of FIN 46 to non-special purpose VIEs acquired or created before February 1,
2003, to the interim period ending on March 31, 2004, and provided additional
technical clarifications to implementation issues. We have determined that FIN
46R does not apply to any part of our business, including our dealer/franchise
outlets, and we did not make any adjustments to our consolidated financial
statements as a result.
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES
We have contingent liabilities related to retail leases of locations which were
assigned to other businesses. The majority of these contingent liabilities
relate to various lease obligations arising from leases that were assigned to
CompUSA, Inc. as part of the sale of our Computer City, Inc. subsidiary to
CompUSA, Inc. in August 1998. In the event CompUSA or the other assignees, as
applicable, are unable to fulfill 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 $162
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
eventual resolution of these lease obligations.
NOTE 9 - LITIGATION
On July 28, 2003, we received a payment of $15.7 million as a result of the
favorable settlement of a previously filed lawsuit. We recorded this settlement
in the third quarter of 2003 as other income of $10.7 million, net of legal
expenses of $5.0 million paid as a result of the lawsuit.
We are currently a party to a class action lawsuit, styled Alphonse L. Perez, et
al. v. RadioShack Corporation, filed in the United States District Court for the
Northern District of Illinois on October 31, 2002, alleging that we
misclassified certain RadioShack store managers as exempt from overtime in
violation of the Fair Labor Standards Act. While the alleged damages in this
lawsuit are undetermined, they could be substantial. We believe that we have
meritorious defenses, and we are vigorously defending this case. Furthermore, we
fully expect this case to be favorably determined as a matter of federal law.
If, however, an adverse resolution of the litigation occurs, we believe it could
have a material adverse effect on our results of operations for the year in
which resolution occurs. However, we do not believe that such an adverse
resolution would have a material impact on our financial condition or liquidity.
The liability, if any, associated with this matter was not determinable at
September 30, 2004.
We have various other 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 period or year of settlement, it is our belief that their
ultimate resolution will not have a material adverse effect on our financial
condition or liquidity.
NOTE 10 - RADIOSHACK INVESTMENT PLAN
On April 30, 2004, we amended our employee stock purchase plan and renamed it
the RadioShack Investment Plan (the "Plan"). Only employees participating in the
former plan as of April 29, 2004, may participate in the Plan. New employees
will not be eligible to participate in the Plan. Participants contribute from 1%
to 7% of their annual compensation, based on the amount of their election in the
employee stock purchase plan as of April 29, 2004. Participants may decrease,
but not increase, the amount of their election. Participants may annually elect
to receive their contributions either in the form of cash or our common stock.
We match 40%, 60% or 80% of each participant's contribution, depending on the
participant's length of continuous participation in the employee stock purchase
plan as of April 29, 2004. This matching contribution is in the form of either
cash or our common stock, based on the participant's election to receive his or
her contribution in cash or common stock, as described above.
NOTE 11 - DERIVATIVE FINANCIAL INSTRUMENTS
In June and August 2003, we entered into interest rate swap agreements with
underlying notional amounts of debt of $100.0 million and $50.0 million,
respectively, both with a maturity in May 2011, to effectively convert a portion
of our long-term fixed rate debt to a variable rate. We entered into these
agreements to balance our fixed versus floating rate debt portfolio to continue
to take advantage of lower short-term interest rates. Under these agreements, 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 these agreements as fair value hedging
instruments.
NOTE 12 - SALE OF INSTALLATION BUSINESS AND CLOSURE OF VARIOUS MANUFACTURING
UNITS
On September 10, 2003, we sold our installation business, AmeriLink Corp. (also
referred to as RSIS), a wholly-owned subsidiary, to INSTALLS inc, LLC in a cash
for stock sale, resulting in a loss of $1.8 million, which was recorded in other
income. Additionally, during the third quarter of 2003 we recorded $2.9 million
of inventory adjustments in cost of products sold and $3.6 million in SG&A
expense relating primarily to employee severance cost. These pre-tax charges of
$8.3 million relate to the sale of AmeriLink Corp., as well as the closure of
several manufacturing facilities.
NOTE 13 - DIVIDENDS DECLARED
On September 24, 2004, our Board of Directors declared an annual dividend of
$0.25 per common share. The dividend will be paid on December 20, 2004, to
stockholders of record on December 1, 2004.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ("MD&A").
RadioShack is primarily a retailer of consumer electronics goods and services.
We seek to differentiate ourselves from our various competitors by focusing on
dominating cost-effective solutions to meet everyone's routine electronics needs
and families' distinct electronics wants. This strategy allows us to take
advantage of the unique opportunities provided by our extensive retail presence,
specially-trained sales staff and relationships with reputable vendors. We
believe this strategy will provide us with the opportunity to increase our
market share in the highly competitive consumer electronics area. In addition,
we continue to focus on methods to reduce our costs of products sold and
selling, general and administrative expense. Furthermore, we believe that, by
focusing on opportunities such as innovative products, new markets, licensing
opportunities and creative distribution channels, we can ultimately generate
increased long-term financial returns for our shareholders.
This section of our report discusses certain factors that may affect our future
results (including economic and industry-wide factors), the results of our
operations, and our liquidity and financial condition.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Matters discussed in MD&A and in other parts of this report include
forward-looking statements within the meaning of the federal securities laws.
These matters include statements concerning management's plans and objectives
relating to our operations or economic performance and related assumptions. We
specifically disclaim any duty to update any of the information set forth in
this report, including any forward-looking statements. Forward-looking
statements are made based on management's current expectations and beliefs
concerning future events and, therefore, involve a number of risks and
uncertainties. Management cautions that forward-looking statements are not
guarantees, and our actual results could differ materially from those expressed
or implied in the forward-looking statements. Important factors that could cause
our actual results of operations or financial condition to differ materially
include, but are not necessarily limited to, the following factors.
General Business Factors
o Changes in national or regional U.S. economic conditions, including, but
not limited to, recessionary or inflationary trends, equity market levels,
consumer credit availability, interest rates, consumers' disposable income
and spending levels, continued rise of oil prices, 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 any potential tariffs imposed on products that we import from China, as
well as the potential strengthening of China's currency against the U.S.
dollar;
o continuing terrorist activities in the U.S., as well as the international
war on terrorism;
o the disruption of international, national or regional transportation
systems;
o the lack of availability or access to sources of inventory;
o changes in the financial markets that would reduce or eliminate our access
to longer term capital or short-term credit availability;
o the imposition of new restrictions or regulations regarding the products
and/or services we sell or changes in tax rules and regulations applicable
to us; and
o the occurrence of severe weather events or natural disasters which could
significantly damage or destroy outlets or prohibit consumers from
traveling to our retail locations, especially during the peak holiday
shopping season.
RadioShack Specific Factors
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 failure to differentiate ourselves as an electronics specialty retailer
in the U.S. marketplace;
o the failure to maintain or increase the level of sales in our non-wireless
business categories;
o any reductions or changes in the growth rate of the wireless industry and
changes in the wireless communications industry dynamics, including the
effects of industry consolidation;
o the inability to create, maintain or renew profitable contracts or execute
business plans with providers of third-party branded products and with
service providers relating to cellular and PCS telephones;
o the presence or absence of new services or products and product features in
the merchandise categories we sell and unexpected changes in our actual
merchandise sales mix;
o the inability to attract, retain and grow an effective management team in a
dynamic environment or changes in the cost or availability of a suitable
workforce to manage and support our operating strategies;
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 optimize and execute our strategic plans, including our
retail services operations and other sales channels;
o the existence of contingent lease obligations related to our discontinued
retail operations arising from an assignee's or a sub-lessee's failure to
fulfill its lease commitments, or from our inability to identify suitable
sub-lessees for vacant facilities;
o the inability to successfully identify and analyze emerging growth
opportunities in the areas of strategic business alliances, acquisitions,
licensing opportunities, new markets, non-store sales channels, and
innovative products; and
o the inability to successfully identify and enter into relationships with
developers of new technologies or the failure of these new technologies to
be adopted by the market.
OVERVIEW OF QUARTERLY FINANCIAL PERFORMANCE
Management reviews a number of key indicators to evaluate our financial
performance, including:
o net sales and operating revenues,
o gross margin,
o selling, general and administrative ("SG&A") expense, and
o operating margin.
RadioShack's net sales and operating revenues increased 3.6%, and our gross
margin improved to 50.5%, for the quarter ended September 30, 2004. Our SG&A
expense decreased to 37.7% of net sales, which contributed to the increase in
our operating margin to 10.6%.
In managing our business, management uses various metrics for company-operated
stores, including average tickets per store and average sales per ticket. See
the table below for a summary of these statistics for the periods indicated.
Three Months Ended September 30,
--------------------------------------
2004 2003 2002
------------ ------------ ------------
Average tickets per store per day 63 67 67
Average sales per ticket $33.38 $29.44 $28.47
For a more detailed discussion of our financial performance, please continue
reading our MD&A, as well as our Consolidated Financial Statements and Notes to
Consolidated Financial Statements.
RADIOSHACK RETAIL OUTLETS
The table below shows RadioShack's retail locations categorized by
company-operated stores and dealer/franchise outlets. While the dealer outlets
represent approximately 26% of RadioShack's locations, sales to
dealer/franchisees are less than 10% of our net sales and operating revenues, as
indicated below.
September 30, June 30, March 31, December 31, September 30,
2004 2004 2004 2003 2003
------------ ------------ ------------ ------------ ------------
Company-operated 5,074 5,091 5,105 5,130 5,132
Dealer/franchise outlets 1,811 1,849 1,884 1,921 1,935
------------ ------------ ------------ ------------ ------------
Total number of retail locations 6,885 6,940 6,989 7,051 7,067
============ ============ ============ ============ ============
In addition to our company-operated stores and dealer/franchise outlets, our
existing sales channels include our www.radioshack.com Web site, 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 September 30, Nine Months Ended September 30,
(In millions) 2004 2003 2004 2003
- ------------- -------------- -------------- -------------- --------------
Company-operated store sales $ 1,029.1 $ 983.1 $ 3,048.6 $ 2,948.8
Dealer/franchise and other sales 72.4 80.5 199.3 210.1
-------------- -------------- -------------- --------------
Net sales and operating revenues $ 1,101.5 $ 1,063.6 $ 3,247.9 $ 3,158.9
============== ============== ============== ==============
Net Sales and Operating Revenues
Sales increased 3.6% to $1,101.5 million for the quarter ended September 30,
2004, compared to $1,063.6 million in the corresponding prior year period. For
the nine months ended September 30, 2004, our overall sales increased 2.8% to
$3,247.9 million, compared to $3,158.9 million for the same period in 2003.
Comparable store sales increased 5% for the quarter and 4% for the nine months
ended September 30, 2004, respectively, when compared to the corresponding prior
year periods. These increases were primarily the result of increases in wireless
department sales and, to a lesser extent, increased sales in our computer
department, as described below. These sales increases were partially offset by
decreased sales in our remaining departments. We expect an overall sales gain
for 2004 as discussed in further detail below.
Sales in the wireless communication department, which consists of wireless
handsets, accessories, and wireless services such as prepaid airtime and bill
payments, increased approximately 19% and 21% for the quarter and nine months
ended September 30, 2004, respectively, when compared to the corresponding prior
year periods. These sales increases were due primarily to higher revenue per
handset, as well as an increase in the number of handsets sold over the prior
year. We believe our 2004 wireless sales will increase by more than 16% over
2003 due to, among other things, new technologies, sales promotions, and carrier
compensation models. Also included in this anticipated sales increase is the
impact of our recently announced acquisition in October 2004 of certain assets
previously owned by privately-held Wireless Retail, Inc., enabling us to operate
wireless kiosks in approximately 540 locations within SAM'S CLUB locations.
SAM'S CLUB is a division of Wal-Mart Stores, Inc.
Sales in the wired communication department, which includes residential
telephones, answering machines and other related telephony products, decreased
approximately 15% and 12% for the quarter and nine months ended September 30,
2004, respectively, when compared to the corresponding prior year periods. These
decreases were the result of a decline in sales of wire-line telephones and
accessories. We anticipate that sales in this department will be lower for 2004,
compared to 2003, as customers continue to migrate to more advanced wireless and
internet technologies.
Sales in the radio communication department decreased approximately 16% and 13%
for the quarter and nine months ended September 30, 2004, respectively, when
compared to the corresponding prior year periods. These decreases were primarily
the result of a decrease in sales of Family Radio Service ("FRS") and other
two-way radios. We believe sales in this department will be lower for 2004,
compared to 2003.
Sales in the home entertainment department, which consists of all home audio and
video end-products and accessories, including direct-to-home satellite hardware
and installation, decreased approximately 18% and 19% for the quarter and nine
months ended September 30, 2004, respectively, when compared to the
corresponding prior year periods. These decreases were primarily attributable to
the elimination of sales of DirecTV satellite dishes and their related
installation services during 2003. Additionally, lower sales from home audio and
home entertainment accessories contributed to the sales decreases. We anticipate
that sales in the home entertainment department will be lower for 2004, compared
to 2003.
Sales in the computer department, which includes desktop, laptop, handheld
computers and related accessories, in addition to digital cameras and home
networking products, increased 13% and 9% for the quarter and nine months ended
September 30, 2004, respectively, when compared to the corresponding prior year
periods. These increases were due primarily to increased sales of digital
imaging, home networking and computer accessory products. We expect that sales
in the computer department will increase in 2004, compared to 2003.
Sales for the power and technical department decreased approximately 1% and 2%
for the quarter and nine months ended September 30, 2004, respectively, when
compared to the corresponding prior year periods. These decreases were primarily
due to decreased sales in the technical product category. In addition, sales of
radio-controlled toy specialty batteries were lower as a result of lower sales
of the associated end-products requiring them. The sales decreases were
substantially offset by strong sales of general purpose batteries and iGo power
products. We anticipate that sales will increase in this department in 2004,
compared to 2003.
Sales in the personal electronics, toys and music department decreased
approximately 5% and 12% for the quarter and nine months ended September 30,
2004, respectively, when compared to the corresponding prior year periods. These
decreases were broadly due to a lack of consumer response to our assortment plan
and product transitions. The sales decreases in 2004 were partially offset by
sales of satellite radio products, our XMODS(R) branded cars and MP3 players. We
anticipate that sales in this department will be lower for 2004, compared to
2003.
Gross Profit
For the quarter ended September 30, 2004, gross profit dollars increased $24.1
million and gross margin improved 0.4 percentage points to 50.5% from 50.1% in
the corresponding 2003 period. For the nine months ended September 30, 2004,
gross profit dollars increased $68.1 million and gross margin improved 0.7
percentage points to 50.8% from 50.1% in the corresponding 2003 period. Gross
margin improvement for the quarter was driven primarily by more effective
product procurement and improved mark-down performance. We continue to reap
benefits from the centralization and improved coordination of our global
sourcing team. The benefits gained from this team's knowledge and experience in
procuring consumer electronics has more than offset any rising costs of these
products.
In addition, we have experienced an approximate 33% reduction in sales
contribution from marked-down products for the 2004 periods, compared to 2003.
We managed mark-downs better in the quarter and nine months ended September 30,
2004, versus the corresponding prior year periods by selling more products at
full price and minimizing the impact of mark-downs. These favorable factors were
partially offset by a less favorable merchandise mix and declines in the average
selling price for certain product categories.
We anticipate that our gross margin rate for 2004 will be above our 2003 gross
margin rate, due primarily to the impact of our supply chain management
initiatives, particularly in vendor relations and end-of-life inventory
management.
Selling, General and Administrative Expense
Our selling, general and administrative ("SG&A") expense decreased 1.5% or $6.2
million for the quarter and decreased 0.4% or $5.5 million for the nine months
ended September 30, 2004, when compared to the corresponding prior year periods.
This represents 1.9 and 1.2 percentage point decreases to 37.7% and 37.9% of net
sales and operating revenues for the quarter and nine months ended September 30,
2004, respectively, when compared to the corresponding prior year periods. These
percentage decreases were primarily the result of higher overall sales in the
current periods. Both the third quarter and nine month dollar decreases were
largely due to better expense management.
Payroll and commissions expense decreased in both dollars and as a percent of
net sales and operating revenues for the quarter and nine months ended September
30, 2004. Advertising expense increased in dollars for the quarter ended
September 30, 2004, but decreased as a percent of net sales and operating
revenues. For the nine months ended September 30, 2004, advertising expense
increased in dollars, but remained the same as a percent of net sales and
operating revenues, as spending levels remained constant. Insurance expense
increased in both dollars and as a percent of net sales and operating revenues
for the quarter ended September 30, 2004, as a result of increased
health-related insurance claims. However, insurance expense decreased in both
dollars and as a percent of net sales and operating revenues for the nine months
ended September 30, 2004. We have managed SG&A expense growth, in part, by
improving productivity, reducing employee headcount, lowering our absorption of
increased health insurance costs, and consolidating and outsourcing certain
functions and operations.
Management will continue to review additional opportunities to reduce SG&A
expense in the future. As a result of increased sales volume, we expect our 2004
SG&A expense to increase approximately 2.5% to 3.5% in dollars and to decrease
slightly as a percent of net sales and operating revenues, when compared to
2003. SG&A expense in the fourth quarter of 2004 will include operating
expenses, along with initial integration costs, associated with our operation of
the SAM'S CLUB wireless kiosk business.
Net Interest Expense
Interest expense, net of interest income, for the quarter and nine months ended
September 30, 2004, was $4.8 million and $15.1 million, respectively, versus
$6.8 million and $16.7 million for the comparable prior year periods.
Interest expense decreased $2.2 million and $7.1 million for the quarter and
nine months ended September 30, 2004, respectively. The decrease in interest
expense was primarily due to the capitalization of interest expense related to
the construction of our new corporate campus and the favorable impact of our
interest rate swaps.
Interest income decreased $0.2 million and $5.5 million for the quarter and nine
months ended September 30, 2004, respectively. The nine month decrease was
primarily the result of $6.2 million received relating to a tax settlement in
the second quarter of 2003, compared to $1.4 million received relating to a tax
settlement in the second quarter of 2004.
Interest expense, net of interest income, is expected to be flat in 2004, when
compared to 2003. We anticipate that net interest expense will increase in 2005,
when compared to 2004, primarily due to the elimination of capitalized interest
as a result of the scheduled completion of our new corporate headquarters.
Other Income, Net
During the quarters ended September 30, 2004 and 2003, we received no payments
under our tax sharing agreement with O'Sullivan Industries Holdings, Inc.
("O'Sullivan"). However, during the nine months ended September 30, 2004, we
received payments and recorded income of $2.0 million under this agreement,
compared to $3.1 million received and recorded in the corresponding prior year
period. 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. We cannot give any assurances as
to the amount or frequency of payment, if any, that may be received each
quarter.
On July 28, 2003, we received a payment of $15.7 million as a result of the
favorable settlement of a previously filed lawsuit. We recorded this settlement
in the third quarter of 2003 as other income of $10.7 million, net of legal
expenses of $5.0 million paid as a result of the lawsuit.
On September 10, 2003, we sold our wholly-owned subsidiary, AmeriLink Corp.
(also referred to as RSIS), to INSTALLS inc, LLC in a cash for stock sale,
resulting in a loss of $1.8 million, which was recorded in other income.
Provision for Income Taxes
The provision for income taxes for each quarterly period is based on our current
estimate of the annual effective tax rate for the full year. Our effective tax
rate for the quarter and nine months ended September 30, 2004, was approximately
38.0%. The effective tax rate for the quarter and nine months ended September
30, 2003 was 36.6% and 37.1%, respectively. The lower effective tax rate for
both the quarter and nine months ended September 30, 2003, was the result of an
IRS settlement in 2003 related to prior years' tax matters.
Recently Issued Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation 46, "Consolidation of Variable Interest Entities - An
Interpretation of ARB No. 51" ("FIN 46"). FIN 46 is intended to clarify the
application of ARB No. 51, "Consolidated Financial Statements," to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support. For those entities, a controlling financial interest cannot be
identified based on an evaluation of voting interests and may be achieved
through arrangements that do not involve voting interests. The consolidation
requirement of FIN 46 is effective immediately to variable interests in variable
interest entities ("VIEs") created or obtained after January 31, 2003. FIN 46
also sets forth certain disclosures regarding interests in VIEs that are deemed
significant, even if consolidation is not required. In December 2003, the FASB
issued FIN 46 (revised December 2003), "Consolidation of Variable Interest
Entities" ("FIN 46R"), which delayed the effective date of the application to us
of FIN 46 to non-special purpose VIEs acquired or created before February 1,
2003, to the interim period ending on March 31, 2004, and provided additional
technical clarifications to implementation issues. We have determined that FIN
46R does not apply to any part of our business, including our dealer/franchise
outlets, and we did not make any adjustments to our consolidated financial
statements as a result.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow - Operating Activities
Cash provided by operating activities was $84.0 million for the nine month
period ended September 30, 2004, compared to $409.7 million provided by
operating activities in the prior year comparable period.
At September 30, 2004, changes in accounts receivable provided $24.7 million in
cash since December 31, 2003, compared to $77.6 million in cash provided for the
nine months ended September 30, 2003. The lower amount of cash provided by
accounts receivable in 2004 was the result of a higher service provider balance
at December 31, 2002, which was collected during 2003 as improved collection
efficiencies were realized. These collection efficiencies resulted in a lower
accounts receivable balance at December 31, 2003, when compared to the prior
year, and they were maintained throughout 2004.
An increase in inventory since December 31, 2003 used $265.5 million in cash for
the nine months ended September 30, 2004, compared to $54.2 million in cash
provided by an inventory reduction for the nine months ended September 30, 2003.
A lower inventory position at December 31, 2003, when compared to target levels,
coupled with an anticipated increase in sales during the upcoming holiday
selling season, prompted the inventory increase for the first nine months of
2004.
In addition, during the nine months ended September 30, 2004, $32.9 million in
cash was provided by accounts payable, while $17.2 million and $5.8 million more
were used by accrued expenses and taxes payable, respectively.
Cash Flow - Investing Activities
Cash used in investing activities for the nine months ended September 30, 2004,
was $173.1 million, compared to $86.1 million in the corresponding prior year
period. Investing activities for the nine months ended September 30, 2004,
included capital expenditures totaling $164.1 million, compared to $88.6 million
in 2003, primarily for the construction of our new corporate campus and, to a
lesser extent, store and information systems upgrades. In 2003, we also received
net proceeds of $4.7 million from INSTALLS inc, LLC for the sale of RSIS, which
is discussed above under "Other Income, Net." We anticipate that our capital
expenditure requirements for 2004 will be approximately $260.0 million, compared
to $190.0 million for 2003. This $70.0 million increase over 2003 primarily
relates to the construction of our new corporate headquarters. Store remodels
and relocations and updated information systems account for almost half of our
anticipated 2004 capital expenditures, which we plan to finance through cash
from operations and, if needed, existing cash and cash equivalents.
Cash Flow - Financing Activities
Cash used in financing activities for the nine months ended September 30, 2004,
was $160.8 million, compared to $211.9 million in the corresponding prior year
period. We repurchased $206.3 million of common stock during the nine months
ended September 30, 2004, compared to $209.4 million during the same period of
2003, for our employee benefit plans and our board approved repurchase programs.
These repurchases were partially funded by $69.0 million and $33.5 million
received, respectively, from the sale of treasury stock to employee benefit
plans and from stock option exercises during the corresponding current and prior
year periods.
We intend to execute share repurchases from time to time, as determined by
management. The timing and terms of the transactions depend on market
conditions, our liquidity and other considerations. We anticipate that we will
repurchase, under our authorized repurchase program, between $225.0 million and
$250.0 million of our common stock during 2004. The funding required for this
share repurchase program will come from cash generated from net sales and
operating revenues and cash and cash equivalents. In addition to the program
described above, we also repurchase shares in the open market to offset the
sales of shares to our employee benefit plans.
Other Financial Condition Information
We had $384.8 million in cash and cash equivalents at September 30, 2004, as a
resource for our funding needs. Additionally, borrowings are available under our
$600.0 million commercial paper program, which is supported by bank credit
facilities and can be utilized in the event the commercial paper market becomes
unavailable to us. However, we currently do not expect that the commercial paper
market will be unavailable to us, thus causing us to utilize the credit
facilities. As of September 30, 2004, we had no commercial paper outstanding and
had not utilized our credit facilities.
In the second quarter of 2004, we replaced our existing $300.0 million 364-day
revolving credit facility with a new five-year credit facility maturing in June
2009. 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 five-year credit facility which expires in June 2007, will support
commercial paper borrowings and is otherwise available for general corporate
purposes.
In June and August 2003, we entered into interest rate swap agreements with
underlying notional amounts of debt of $100.0 million and $50.0 million,
respectively, both with a maturity in May 2011, to effectively convert a portion
of our long-term fixed rate debt to a variable rate. We entered into these
agreements to balance our fixed versus floating rate debt portfolio to continue
to take advantage of lower short-term interest rates. Under these agreements, 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 these agreements as fair value hedging
instruments.
On September 24, 2004, our Board of Directors declared an annual dividend of
$0.25 per common share. The dividend will be paid on December 20, 2004, to
shareholders of record on December 1, 2004. The dividend payment of
approximately $40.0 million in the fourth quarter will be funded from existing
cash and cash equivalents.
At September 30, 2004, total capitalization was $1,407.7 million, which
consisted of $594.2 million of debt and $813.5 million of stockholders' equity,
resulting in a total debt to capitalization ratio of 42.2%. The debt to
capitalization ratio was 44.6% at December 31, 2003, and 44.6% at September 30,
2003. These ratio decreases were primarily the result of increases in
stockholders' equity of $44.2 million and $86.8 million since December 31, 2003,
and September 30, 2003, respectively. Long-term debt as a percentage of
capitalization was 36.2% at September 30, 2004, 39.0% at December 31, 2003, and
41.6% at September 30, 2003. The ratio decreases since September 30, 2003, and
December 31, 2003, were both due to the repayment of long-term debt and an
increase in stockholders' equity.
Our free cash flow, defined as cash flow from operating activities less
dividends paid and capital expenditures for property, plant and equipment, was a
cash usage of $80.1 million for the nine months ended September 30, 2004,
compared to a $321.1 million source of cash in the corresponding period in 2003.
This $401.2 million change in free cash flow primarily resulted from a net cash
usage within our working capital components in 2004, compared to net cash
provided by working capital in the corresponding prior year period, as discussed
in the "Cash Flow - Operating Activities" section above. Additionally, free cash
flow was impacted by an increase in capital expenditures, when compared to the
corresponding prior year period. We expect to generate free cash flow during the
fourth quarter holiday selling season, despite the buildup of inventory and
accounts receivable associated with our operation of the SAM'S CLUB wireless
kiosk business. We expect our 2004 annual free cash flow to be between $30.0
million and $40.0 million. For 2005, we anticipate an annual free cash flow
level of approximately $155.0 million to $165.0 million.
We believe free cash flow provides useful information to investors regarding our
financial condition and operating results because it is an appropriate
indication of our ability to fund share repurchases, repay maturing debt, make
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 provided $84.0 million for the nine months ended September 30,
2004, compared to $409.7 million provided during the corresponding prior year
period. We do not intend the presentation of free cash flow, a non-GAAP
financial measure, to be considered in isolation or as a substitute for measures
prepared in accordance with GAAP.
The following table is a reconciliation of cash provided by operating activities
to free cash flow.
Nine Months Ended September 30, Year Ended December 31,
(In millions) 2004 2003 2003
- ------------- ------------ ------------ ------------
Net cash provided by operating activities $ 84.0 $ 409.7 $ 651.9
Less:
Additions to property, plant and equipment 164.1 88.6 189.6
Dividends paid -- -- 40.8
------------ ------------ ------------
Free cash flow $ (80.1) $ 321.1 $ 421.5
============ ============ ============
ITEM 3. QUANTITATIVE AND QUALITATIVE 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 September 30, 2004, 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 Management's Discussion
and Analysis of Financial Condition and Results of Operations in our Annual
Report on Form 10-K for the year ended December 31, 2003. We do not use
derivatives for speculative purposes. We may continue to utilize interest rate
swaps in the future as market conditions permit.
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 current cash flows or
consolidated financial statements.
ITEM 4. CONTROLS AND PROCEDURES.
a) We have established a system of disclosure controls and procedures that are
designed to ensure that material information relating to the Company, which
is required to be timely disclosed, is accumulated and communicated to
management in a timely fashion. An evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934 ("Exchange
Act")) was performed as of the end of the period covered by this report.
This evaluation was performed under the supervision and with the
participation of management, including our Chief Executive Officer and
Acting Chief Financial Officer. Based upon that evaluation, our CEO and
Acting CFO have concluded that these disclosure controls and procedures are
effective in ensuring that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by the
SEC's rules and forms.
b) There were no changes in our internal control over financial reporting that
occurred during our last fiscal quarter that have materially affected, or
are reasonably likely to materially affect, our internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On July 28, 2003, we received a payment of $15.7 million as a result of the
favorable settlement of a previously filed lawsuit. We recorded this settlement
in the third quarter of 2003 as other income of $10.7 million, net of legal
expenses of $5.0 million paid as a result of the lawsuit.
We are currently a party to a class action lawsuit, styled Alphonse L. Perez, et
al. v. RadioShack Corporation, filed in the United States District Court for the
Northern District of Illinois on October 31, 2002, alleging that we
misclassified certain RadioShack store managers as exempt from overtime in
violation of the Fair Labor Standards Act. While the alleged damages in this
lawsuit are undetermined, they could be substantial. We believe that we have
meritorious defenses, and we are vigorously defending this case. Furthermore, we
fully expect this case to be favorably determined as a matter of federal law.
If, however, an adverse resolution of the litigation occurs, we believe it could
have a material adverse effect on our results of operations for the year in
which resolution occurs. However, we do not believe that such an adverse
resolution would have a material impact on our financial condition or liquidity.
The liability, if any, associated with this matter was not determinable at
September 30, 2004.
We have various other 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 period or year of settlement, it is our belief that their
ultimate resolution will not have a material adverse effect on our financial
condition or liquidity.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The following table sets forth information concerning purchases made by or on
behalf of RadioShack or any affiliated purchaser (as defined in the SEC's rules)
of RadioShack common stock for the periods indicated.
PURCHASES OF EQUITY SECURITIES BY RADIOSHACK
Total Number
of Shares Maximum Number
Purchased as of Shares
Part of that May Yet
Publicly Be Purchased
Total Number of Announced Under the
Shares Average Price Plans or Plans or
Purchased (1) Paid per Share Programs (2) Programs (2)
-------------- -------------- -------------- --------------
July 1 - 31, 2004 1,000,000 $ 28.04 950,000 5,136,400
August 1 - 31, 2004 850,000 $ 26.96 850,000 4,286,400
September 1 - 30, 2004 225,000 $ 28.22 225,000 4,061,400
-------------- -------------- --------------
Total 2,075,000 $ 27.62 2,025,000
============== ============== ==============
(1) The total number of shares purchased includes all repurchases made during
the periods indicated. In July 2004, 50,000 shares were repurchased through
other than a publicly announced plan or program in open-market
transactions. These repurchases were used to satisfy our obligations under
our employee benefit plans.
(2) These publicly announced plans or programs consist of RadioShack's 15
million share repurchase program. This program was announced on February
20, 2003, and has no expiration date. During the period covered by the
table, no publicly announced plan or program expired or was terminated, and
no determination was made by RadioShack to suspend or cancel purchases
under our program.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
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 21, which
immediately precedes such exhibits.
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: November 5, 2004 By /s/ David P. Johnson
--------------------------------------
David P. Johnson
Senior Vice President, Acting Chief Financial
Officer and Controller
(Principal Financial and Accounting Officer)
Date: November 5, 2004 /s/ Martin O. Moad
--------------------------------------
Martin O. Moad
Vice President and Treasurer
(Authorized 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
October 17, 2003 (filed as Exhibit 3b to RadioShack's Form
10-Q filed on November 12, 2003, for the fiscal quarter ended
September 30, 2003).
10(a)* Form of Incentive Stock Plan(s) Stock Option Agreement for
Officers.
31(a)* Rule 13a-14(a) Certification of the Chief Executive Officer of
RadioShack Corporation.
31(b)* Rule 13a-14(a) Certification of the Acting Chief Financial
Officer of RadioShack Corporation.
32* Section 1350 Certifications.**
- ----------------------------
* Filed with this report
** These Certifications shall not be deemed "filed" for purposes of Section 18
of the Exchange Act, as amended, or otherwise subject to the liability of
that section. These Certifications shall not be deemed to be incorporated
by reference into any filing under the Securities Act of 1933, as amended,
or the Exchange Act, except to the extent that the Company specifically
incorporates them by reference.
Exhibit 10(a)
Date: __________________
Price:$_________________
INCENTIVE STOCK PLAN(S)
STOCK OPTION AGREEMENT
(OFFICER)
THIS AGREEMENT, made as of the ____ day of ___________, _______ (the "Grant
Date"), between RadioShack Corporation, a Delaware corporation (the "Company"),
and the person named (the "Optionee") on one or more of the Notice(s) of Grant
of Stock Options and Option Agreement (the "Notice(s)") attached hereto, the
provisions of which are incorporated herein by reference.
WHEREAS, the Company has adopted one or more Incentive Stock Plan(s), as
identified on the Notice(s) (the "Plan(s)") in order to provide an additional
incentive to certain officers of the Company and its Subsidiaries; and
WHEREAS, the Committee responsible for administration of the Plan(s) has
determined to grant an option to the Optionee as provided herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option.
1.1 The Company hereby grants to the Optionee the right and option (the
"Option") to purchase all or any part of the amount of whole shares of common
stock, par value $1.00, of the Company ("Shares") set forth on the Notice(s)
subject to, and in accordance with, the terms and conditions set forth in this
Agreement.
1.2 The portion of this Option, if any, as identified on the Notice(s) as
an Incentive Stock Option is intended to qualify as an Incentive Stock Option
within the meaning of Section 422 of the Code and shall be so construed;
provided, however, that nothing in this Agreement shall be interpreted as a
representation, guarantee or other undertaking on the part of the Company that
any portion of the Option is or will be determined to be an Incentive Stock
Option within the meaning of Section 422 of the Code.
1.3 This Agreement shall be construed in accordance and consistent with,
and subject to, the provisions of the Plan(s) (the provisions of which are
incorporated herein by reference) and, except as otherwise expressly set forth
herein, the capitalized terms used in this Agreement shall have the same
definitions as set forth in the Plan(s).
2. Purchase Price.
The price at which the Optionee shall be entitled to purchase Shares upon
the exercise of the Option shall be $___________ per Share (the "Purchase
Price").
3. Duration of Option.
The Option shall be exercisable to the extent and in the manner provided in
Section 4 hereof for a period of seven years from the Grant Date (the "Exercise
Term"); provided, however, that the Option may be earlier terminated as provided
in Section 6 hereof.
4. Exercisability of Option.
Unless otherwise provided in this Agreement or the Plan(s), the Option
shall entitle the Optionee to purchase, in whole at any time or in part from
time to time, one-third (in the manner as set forth in the Notice(s)) of the
total number of Shares covered by the Option after the expiration of 12 months
from the Grant Date and an additional one-third of the total number of Shares
covered by the Option after the expiration of each of the second and third
anniversaries of the Grant Date, and each such right of purchase shall be
cumulative and shall continue, unless sooner exercised or terminated as herein
provided, during the remaining period of the Exercise Term. Any fractional
number of Shares resulting from the application of the percentages set forth in
this Section 4 shall be rounded to the next higher whole number of Shares in the
first (and second if necessary) year, but no more than the total number of
Shares granted shall result from the rounding up.
5. Manner of Exercise and Payment.
5.1 Subject to the terms and conditions of this Agreement and the Plan(s),
the Option shall be exercised by timely delivery of written notice in person, by
facsimile, electronic means or by certified mail return receipt requested to
such person, entity and location as may be designated by the Corporate Secretary
of the Company. Such notice shall state that the Optionee is electing to
exercise the Option and the number of Shares in respect of which the Option is
being exercised and shall be signed or authorized by the person or persons
exercising the Option. If requested by the Committee, such person or persons
shall (i) deliver this Agreement to the Corporate Secretary of the Company who
shall endorse thereon a notation of such exercise and (ii) provide satisfactory
proof as to the right of such person or persons to exercise the Option. As used
in Section 5, "delivery" means the notice and payment for the Options must be
received by the Company, or its specified designee, prior to expiration of the
Option as provided in Section 6.1 hereof.
5.2 The notice of exercise described in Section 5.1 shall be accompanied by
the full Purchase Price for the Shares in respect of which the Option is being
exercised, in cash or by certified check, or, in the discretion of the
Committee, in whole or in part, by transferring Shares to the Company having a
Fair Market Value on the day preceding the date of exercise equal to the cash
amount for which such Shares are substituted.
5.3 Upon timely receipt of notice of exercise and full payment for the
Shares in respect of which the Option is being exercised, the Company shall,
subject to the terms of the Plan(s), take such action as may be necessary to
effect the transfer to the Optionee of the number of Shares as to which such
exercise was effective.
5.4 The Optionee shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to any Shares subject to the Option until
(i) the Option shall have been exercised pursuant to the terms of this Agreement
and the Optionee shall have paid the full Purchase Price for the number of
Shares in respect of which the Option was exercised, and (ii) the Company shall
have issued and delivered the Shares to the Optionee or to a broker approved by
the Company, whereupon the Optionee shall have full voting and other ownership
rights with respect to such Shares.
6. Expiration of Option.
6.1 This Option shall expire and become null and void upon the happening
of whichever of the following events shall first occur:
a) expiration of 3 months after the Optionee ceases to be employed by
the Company or any of its Subsidiaries for any reason other than termination for
one of the reasons set forth below in Section 6.1 b), c), d) or e) of this
Agreement;
b) expiration of 3 years since the Optionee's (i) termination of
employment by reason of death, (ii) termination of employment by reason of
Disability, or (iii) retirement at age 55 or older ("Retirement");
c) the first annual anniversary of the Optionee's termination of
employment following a Change in Control;
d) the Exercise Term expires; or
e) the Optionee's employment shall have been terminated for Cause.
Except as provided in Section 6.2 below, only those portions of this Option
exercisable as of the date of termination of the Optionee's employment may be
exercised.
In the event of the Optionee's death, the Option shall be exercisable, to
the extent provided in the Plan(s) and this Agreement, by the legatee or
legatees under the Optionee's will, or by the Optionee's legal representatives
or distributees and such person or persons shall be substituted for the Optionee
each time the Optionee is referred to herein.
6.2 Notwithstanding the provisions of Section 4 above relating to the
exercise of this Option in installments:
a) upon the Optionee's death or Disability this Option shall be
immediately exercisable, until the expiration of the period provided in section
6.1 above, for the entire number of Option Shares covered hereby;
b) upon the Optionee's Retirement this Option shall be immediately
exercisable, until the expiration of the period provided in Section 6.1 above,
for the number of Option Shares covered hereby that have been held bythe
Optionee for a period of 12 months or more from the Grant Date; and
c) upon any Change in Control of the Company this Option shall become
exercisable as provided below in Section 7.
7. Effect of Change in Control.
7.1 Notwithstanding anything contained in the Agreement to the contrary, in
the event of a Change in Control of the Company, (i) the Option to the extent it
qualifies as an Incentive Stock Option shall become immediately and fully
exercisable for the entire number of Incentive Stock Option Shares covered
hereby through the expiration of the applicable period specified in Section 6.1
above and (ii) the Optionee will be permitted to surrender for cancellation
within 60 days after such Change in Control, the Incentive Stock Option or any
portion of the Incentive Stock Option to the extent not yet exercised and the
Optionee will be entitled to receive immediately a cash payment in an amount
equal to the excess, if any, of (A) the Fair Market Value, on the date preceding
the date of the surrender, of the Shares constituting the Incentive Stock Option
or portion of the Incentive Stock Option surrendered, over (B) the aggregate
Purchase Price for such Shares constituting the Incentive Stock Option or
portion of the Incentive Stock Option surrendered.
7.2 Notwithstanding anything contained in the Agreement to the contrary, in
the event of a Change in Control of the Company, (i) the Option to the extent it
is a Nonqualified Stock Option shall become immediately and fully exercisable
for the entire number of Nonqualified Stock Option Shares covered hereby through
the expiration of the applicable period specified in Section 6.1 above and (ii)
the Optionee will be permitted to surrender for cancellation within 60 days
after such Change in Control, the Nonqualified Stock Option or any portion of
the Nonqualified Stock Option to the extent not yet exercised and the Optionee
will be entitled to receive a cash payment in an amount equal to the excess, if
any, of (A) the greater of (1) the Fair Market Value, on the date preceding the
date of the surrender, of the Shares constituting the Nonqualified Stock Option
or portion of the Nonqualified Stock Option surrendered, or (2) the Adjusted
Fair Market Value of the Shares constituting the Nonqualified Stock Option or
the portion of the Nonqualified Stock Option surrendered, over (B) the aggregate
Purchase Price for such Shares constituting the Nonqualified Stock Option or
portion of the Nonqualified Stock Option surrendered.
8. Non-transferability.
The Option shall not be transferable other than by will or by the laws of
descent and distribution. During the lifetime of the Optionee, the Option shall
be exercisable only by the Optionee or the Optionee's legal representative.
9. No Right to Continued Employment.
Nothing in this Agreement or the Plan(s) shall be interpreted or construed
to confer upon the Optionee any right with respect to continuance of employment
by the Company, nor shall this Agreement or the Plan(s) interfere in any way
with the right of the Company to terminate the Optionee's employment at any
time.
10. Adjustments.
In the event of a Change in Capitalization, the Committee may make
appropriate adjustments to the number and class of Shares or other stock or
securities subject to the Option and the Purchase Price for such Shares or other
stock or securities. The Committee's adjustment shall be made in accordance with
the provisions of the Plan(s) and shall be effective and final, binding and
conclusive for all purposes of the Plan(s) and this Agreement.
11. Effect of Certain Transactions.
Subject to Section 7 hereof, upon the effective date of (i) the liquidation
or dissolution of the Company or (ii) a merger or consolidation of the Company
(a "Transaction"), the Option shall continue in effect in accordance with its
terms and the Optionee shall be entitled to receive in respect of all Shares
subject to the Option, upon exercise of the Option, the same number and kind of
stock, securities, cash, property or other consideration that each holder of
Shares was entitled to receive in the Transaction.
12. Withholding of Taxes.
12.1 The Company shall have the right to deduct from any distribution of
cash to the Optionee, an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to be withheld (the
'Withholding Taxes") with respect to the Option. If the Optionee is to
experience a taxable event in connection with the receipt of Shares pursuant to
an Option exercise, the Optionee shall pay the Withholding Taxes to the Company
prior to the issuance, or release from escrow, of such Shares. In satisfaction
of the obligation to pay Withholding Taxes to the Company, the Optionee may make
a written election, which may be accepted or rejected in the discretion of the
Committee, to have withheld a portion of the Shares then issuable to the
Optionee having an aggregate Fair Market Value, on the date preceding the date
of such issuance, equal to the Withholding Taxes.
12.2 If the Optionee makes a disposition, within the meaning of Section
424(c) of the Code and regulations promulgated thereunder, of any Incentive
Stock Option Share or Incentive Stock Option Shares issued to the Optionee
pursuant to the exercise of an Incentive Stock Option within the two-year period
commencing on the day after the Grant Date or within the one-year period
commencing on the day after the date of transfer of such Incentive Stock Option
Share or Incentive Stock Option Shares to the Optionee pursuant to such
exercise, the Optionee shall, within 10 days of such disposition, notify the
Company thereof, by delivery of written notice to the Company at its principal
executive office, and immediately deliver to the Company the amount of
Withholding Taxes.
13. Optionee Bound by the Plan(s).
The Optionee hereby acknowledges receipt of a copy of the Plan(s) and
agrees to be bound by all the terms and provisions thereof. The Optionee hereby
acknowledges receipt of one or more Prospectuses for the Plan(s).
14. Modification of Agreement.
This Agreement may be modified, amended, suspended or terminated, and any
terms or conditions may be waived, but only by a written instrument executed by
the parties hereto.
15. Severability.
Should any provision of this Agreement be held by a court of competent
jurisdiction to be unenforceable or invalid for any reason, the remaining
provisions of this Agreement shall not be affected by such holding and shall
continue in full force in accordance with their terms.
16. Governing Law.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the state of Texas without giving
effect to the conflicts of law principles thereof.
17. Successors in Interest.
This Agreement shall inure to the benefit of and be binding upon any
Successor Corporation. This Agreement shall inure to the benefit of the
Optionee's legal representatives. All obligations imposed upon the Optionee and
all rights granted to the Company under this Agreement shall be final, binding
and conclusive upon the Optionee's heirs, executors, administrators, personal
representatives and successors.
18. Resolution of Disputes.
Any dispute or disagreement which may arise under, or as a result of, or in
any way relate to, the interpretation, construction or application of this
Agreement shall be determined by the Committee. Any determination made hereunder
by the Committee shall be final, binding and conclusive on the Optionee and
Company for all purposes.
19. Entire Agreement.
This Agreement, together with the documents incorporated herein by
reference, represents the entire agreement between the parties with respect to
the subject matter hereof and this Agreement may not be modified by any oral or
written agreement unless same is in writing, signed by both parties and has been
approved by the Committee.
20. Effective.
Unless Optionee notifies the Company in writing within thirty (30) days of
the date of mailing this Agreement to Optionee that Optionee does not accept the
terms of this Agreement, Optionee shall be deemed to have accepted, and be bound
by, the terms of this Agreement.
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
functions):
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: November 5, 2004 By /s/ Leonard H. Roberts
--------------------------------------
Leonard H. Roberts
Chief Executive Officer
Exhibit 31(b)
CERTIFICATIONS
I, David P. Johnson, 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
functions):
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: November 5, 2004 By /s/ David P. Johnson
--------------------------------------
David P. Johnson
Acting 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 ended September 30, 2004, 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 David P.
Johnson, Acting 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
November 5, 2004
/s/ David P. Johnson
David P. Johnson
Acting Chief Financial Officer
November 5, 2004
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.