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 March 31, 2005
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.)
Mail Stop CF3-203, 300 RadioShack Circle, Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 415-3011
------------------------
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
April 19, 2005 was 155,666,284.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months Ended
March 31,
------------------
(In millions, except per share amounts) 2005 2004
--------------------------------------- -------- --------
Net sales and operating revenues $1,122.9 $1,092.6
Cost of products sold 556.7 539.6
-------- --------
Gross profit 566.2 553.0
-------- --------
Operating expenses:
Selling, general and administrative 450.5 412.9
Depreciation and amortization 29.5 24.1
-------- --------
Total operating expenses 480.0 437.0
-------- --------
Operating income 86.2 116.0
Interest income 1.8 1.5
Interest expense (9.3) (7.4)
Other income 10.2 --
-------- --------
Income before income taxes 88.9 110.1
Provision for income taxes 33.9 41.8
-------- --------
Net income $ 55.0 $ 68.3
======== ========
Net income per share:
Basic $ 0.35 $ 0.42
======== ========
Diluted $ 0.34 $ 0.41
======== ========
Weighted average shares used in computing earnings per share:
Basic 158.3 163.0
======== ========
Diluted 159.5 165.1
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
March 31, December 31, March 31,
(In millions, except for share amounts) 2005 2004 2004
-------------------------------------- ------------ ------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 293.0 $ 437.9 $ 577.0
Accounts and notes receivable, net 192.0 241.0 142.1
Inventories, net 956.6 1,003.7 769.9
Other current assets 99.6 92.5 87.7
------------ ------------ ------------
Total current assets 1,541.2 1,775.1 1,576.7
Property, plant and equipment, net 649.4 652.0 528.5
Other assets, net 93.6 89.6 71.4
------------ ------------ ------------
Total assets $2,284.2 $2,516.7 $2,176.6
============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt, including current maturities of long-term debt $ 73.7 $ 55.6 $ 119.1
Accounts payable 271.2 442.2 271.4
Accrued expenses and other current liabilities 264.4 342.1 259.2
Income taxes payable 125.2 117.5 128.8
------------ ------------ ------------
Total current liabilities 734.5 957.4 778.5
Long-term debt, excluding current maturities 501.2 506.9 515.3
Other non-current liabilities 132.3 130.3 75.0
------------ ------------ ------------
Total liabilities 1,368.0 1,594.6 1,368.8
------------ ------------ ------------
Commitments and contingent liabilities (see Notes 7 and 8)
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 shares issued 191.0 191.0 191.0
Additional paid-in capital 85.6 82.7 80.5
Retained earnings 1,563.1 1,508.1 1,278.9
Treasury stock, at cost; 34,968,000, 32,835,000
and 29,116,000 shares, respectively (922.6) (859.4) (742.3)
Unearned deferred compensation (0.3) -- --
Accumulated other comprehensive loss (0.6) (0.3) (0.3)
------------ ------------ ------------
Total stockholders' equity 916.2 922.1 807.8
------------ ------------ ------------
Total liabilities and stockholders' equity $2,284.2 $2,516.7 $2,176.6
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
------------------
(In millions) 2005 2004
------------ -------- --------
Cash flows from operating activities:
Net income $ 55.0 $ 68.3
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 29.5 24.1
Provision for credit losses and bad debts 0.2 0.3
Other items 1.5 5.8
Changes in operating assets and liabilities:
Accounts and notes receivable 48.8 40.5
Inventories 47.2 (3.4)
Other current assets (5.9) (5.1)
Accounts payable, accrued expenses and income taxes payable (242.9) (114.2)
-------- --------
Net cash (used in) provided by operating activities (66.6) 16.3
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (38.6) (41.3)
Proceeds from sale of property, plant and equipment 2.1 0.2
Other investing activities (4.4) (3.5)
-------- --------
Net cash used in investing activities (40.9) (44.6)
-------- --------
Cash flows from financing activities:
Purchases of treasury stock (73.7) (81.1)
Sale of treasury stock to employee benefit plans 10.0 11.1
Proceeds from exercise of stock options 8.0 30.9
Changes in short-term borrowings, net 18.3 9.8
Repayments of long-term borrowings -- (0.1)
-------- --------
Net cash used in financing activities (37.4) (29.4)
-------- --------
Net decrease in cash and cash equivalents (144.9) (57.7)
Cash and cash equivalents, beginning of period 437.9 634.7
-------- --------
Cash and cash equivalents, end of period $293.0 $577.0
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
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 of a normal
recurring nature considered necessary for a fair statement are included.
However, our operating results for the three months ended March 31, 2005 and
2004, 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, 2004.
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 ("SFAS") No. 123, "Accounting for Stock-Based
Compensation."
Three Months Ended March 31,
----------------------------
(In millions, except per share amounts) 2005 2004
--------------------------------------- ------------ ------------
Net income, as reported $ 55.0 $ 68.3
Stock-based employee compensation expense included in reported
net income, net of related tax effects 2.0 3.1
Total stock-based employee compensation expense determined
under fair value method for all awards, net of related tax effects (6.0) (10.3)
------------ ------------
Pro forma net income $ 51.0 $ 61.1
============ ============
Net income per share:
Basic - as reported $ 0.35 $ 0.42
Basic - pro forma $ 0.32 $ 0.37
Diluted - as reported $ 0.34 $ 0.41
Diluted - pro forma $ 0.32 $ 0.37
The pro forma amounts in the preceding table were estimated using the
Black-Scholes option-pricing model with the following weighted average
assumptions for options granted during the three months ended March 31, 2005 and
2004:
Three Months Ended March 31,
----------------------------
2005 2004
------------ ------------
Expected life in years 4 6
Expected volatility 39.0% 48.0%
Annual dividend paid per share $ 0.25 $ 0.25
Risk free interest rate 3.8% 3.3%
Fair value of options granted during year $ 9.77 $16.33
We will adopt the provisions of SFAS No. 123R, "Share-Based Payment," which was
issued in December 2004, effective January 1, 2006 and will modify our
accounting for stock options and other equity awards accordingly. See "Recently
Issued Accounting Pronouncements" in Note 6.
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 table reconciles the numerator and denominator used in the basic and
diluted earnings per share calculations for the periods presented:
Three Months Ended Three Months Ended
March 31, 2005 March 31, 2004
------------ ------------ ------------ ------------ ------------ ------------
Income Shares Per Share Income Shares Per Share
(In millions, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Basic EPS
Net income $ 55.0 158.3 $ 0.35 $ 68.3 163.0 $ 0.42
============ ============
Effect of dilutive securities:
Plus assumed exercise of stock options 1.2 2.1
------------ ------------ ------------ ------------
Diluted EPS
Net income plus assumed conversions $ 55.0 159.5 $ 0.34 $ 68.3 165.1 $ 0.41
============ ============ ============ ============ ============ ============
Options to purchase 10.8 million and 11.7 million shares of common stock for the
three months ended March 31, 2005 and 2004, respectively, 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, and the effect of their inclusion would be anti-dilutive.
NOTE 4 - COMPREHENSIVE INCOME
Comprehensive income for the three months ended March 31, 2005 and 2004, was
$54.7 million and $68.3 million, respectively. The only other components of
comprehensive income in 2005, aside from net income for the period reported,
were unrealized loss on securities and foreign currency translation adjustments.
There were no other components of comprehensive income for 2004, other than net
income.
NOTE 5 - BUSINESS RESTRUCTURINGS
At March 31, 2005, the balance in the restructuring reserve relating to the
closure of various McDuff and Computer City retail stores in 1996 and 1997 was
$4.9 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. We will continue to incur costs over
the remaining terms of the related leases. During the three months ended March
31, 2005, costs of $0.2 million were charged against this reserve.
NOTE 6 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." SFAS No.
123R establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. This statement
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS No. 123R requires
that the fair value of such equity instruments be recognized as an expense in
the historical financial statements as services are performed. Prior to SFAS No.
123R, only certain pro forma disclosures of fair value were required. We will
adopt the provisions of SFAS No. 123R effective January 1, 2006. We plan to
utilize the modified prospective transition method which requires that we
recognize compensation expense for all new and unvested share-based payment
awards from this effective date.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs." The new
statement amends Accounting Research Bulletin No. 43, Chapter 4, "Inventory
Pricing," to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material. SFAS No. 151 requires
that these items be recognized as current period charges and requires that
allocation of fixed production overhead to the cost of conversion be based on
the normal capacity of the production facilities. This statement is effective
for fiscal years beginning after June 15, 2005. We do not expect adoption of
this statement to have a material impact on our financial condition or results
of operations.
In March 2005, the SEC issued Staff Accounting Bulletin ("SAB") No. 107,
"Share-Based Payment." This SAB provides views of the SEC staff regarding the
interaction between SFAS No. 123R and certain SEC rules and regulations, and is
intended to assist in the initial implementation of SFAS No. 123R. We are
currently evaluating the guidance provided within SAB No. 107 and SFAS No. 123R
and may refine our estimates of expected volatility and expected term upon our
adoption of SFAS No. 123R.
In March 2005, the FASB issued FASB Interpretation ("FIN") No. 47, "Accounting
for Conditional Asset Retirement Obligations," which is an interpretation of
SFAS No. 143, "Accounting for Asset Retirement Obligations." This interpretation
clarifies terminology within SFAS No. 143 and requires an entity to recognize a
liability for the fair value of a conditional asset retirement obligation when
incurred if the liability's fair value can be reasonably estimated. This
interpretation is effective for fiscal years ending after December 15, 2005. We
do not expect the adoption of this interpretation to have a material impact on
our financial condition or results of operations.
NOTE 7 - LITIGATION
We are currently a party to various class action lawsuits alleging that we
misclassified certain RadioShack store managers as exempt from overtime in
violation of the Fair Labor Standards Act, including a lawsuit styled Alphonse
L. Perez, et al. v. RadioShack Corporation, filed in the United States District
Court for the Northern District of Illinois. While the alleged damages in these
lawsuits are undetermined, they could be substantial. We believe that we have
meritorious defenses, and we are vigorously defending these cases. Furthermore,
we fully expect these cases to be favorably determined as a matter of federal
law. If, however, an adverse resolution of any of these lawsuits occurs, we
believe they 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 these lawsuits was not
determinable at March 31, 2005.
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 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 as of March 31, 2005, is
approximately $146 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION ("MD&A")
This MD&A section of our Quarterly Report on Form 10-Q discusses our results of
operation, liquidity and financial condition, and certain factors that may
affect our future results, including economic and industry-wide factors, as well
as our critical accounting policies and estimates. You should read this MD&A in
conjunction with our consolidated financial statements and accompanying notes
included in this Quarterly Report.
OVERVIEW
RadioShack is primarily a retailer of consumer electronics and services. We seek
to differentiate ourselves from our various competitors by focusing on
dominating cost-effective solutions to meet everyone's routine electronics needs
and families' distinct electronics wants. This strategy allows us to take
advantage of the unique opportunities provided by our extensive retail presence,
knowledgeable sales staff, and relationships with reputable vendors. We believe
this strategy provides us with the opportunity to increase our market share in
the highly competitive consumer electronics area. In addition, we continue to
focus on methods to reduce the costs of products sold and our selling, general
and administrative expense as a percentage of net sales and operating revenues.
Furthermore, we believe that by focusing on opportunities such as innovative
products, new markets, licensing opportunities and creative distribution
channels, we can ultimately generate increased financial returns for our
shareholders over the long term.
We have identified two key opportunities to drive company growth, which are in
alignment with our overall strategy described above. We are focusing on growth
of our core business, which includes our company-operated stores, dealers and
our Web site www.radioshack.com, as well as businesses that we consider to be
close to our core strengths, which include retail services, international
operations and consumer electronics repairs.
In March 2005, we received a favorable court ruling in connection with our
efforts to reclaim the RadioShack trade name in Canada. We are actively
analyzing issues relative to our desire to maintain our RadioShack brand in the
Canadian retail market.
In connection with these key opportunities, we are focusing on four major
priorities:
o Improving the customer experience in our core channels;
o rationalizing and improving our infrastructure;
o leveraging our assets to create new streams of revenue and profit; and
o attracting, retaining, developing and rewarding great people.
KEY INDICATORS OF FINANCIAL PERFORMANCE FOR MANAGEMENT
To identify our progress in achieving our solutions strategy, we use several key
financial performance metrics, including net sales and operating revenues
metrics, gross margin metrics, and selling, general and administrative ("SG&A")
expense and operating margin metrics.
Net Sales and Operating Revenues Metrics
As a retailer, we consider growth in revenue to be a key indicator of our
overall financial performance. We examine our revenue by using several key
metrics, including overall change in net sales and operating revenue, comparable
company store sales growth, average tickets per store and average sales per
ticket.
The change in net sales and operating revenue provides us with an overall
indication of the demand for our products and services. Comparable company store
sales growth indicates the extent to which sales were impacted by growth in
existing sales channels. Comparable company store sales include the sales of any
domestic retail location where we have a physical presence, including
company-operated stores and kiosks, that has more than 12 full months of
recorded sales. Average tickets per store, in conjunction with average sales per
ticket, provides us with an indication of whether the changes in revenues were
generated by a higher or lower volume of purchases or by purchases of products
with higher or lower prices.
The table below summarizes these revenue metrics for the periods indicated:
Three Months Ended March 31,
----------------------------
2005 2004 2003
---- ---- ----
Net sales and operating revenue growth 2.8% 2.1% 3.5%
Comparable store sales (decrease) growth (1%) 3% 5%
Average tickets per store per day 61 68 74
Average sales per ticket $32.79 $31.39 $28.28
In addition to the metrics above, we review the revenue per square foot of our
various distribution channels to determine productivity of our product
assortment and of the overall distribution channel.
Gross Margin Metrics
We also view our gross margin as a key metric of our financial performance, as
it indicates the extent to which we are able to reduce our product costs and
optimize product mix.
The table below summarizes gross margin for the periods indicated:
Three Months Ended March 31,
----------------------------
2005 2004 2003
---- ---- ----
Gross margin 50.4% 50.6% 49.3%
SG&A Expense and Operating Margin Metrics
We believe that our ability to leverage our fixed expense base and, accordingly,
increase operating margin is an important indicator of our financial performance
and process efficiency.
The table below summarizes these metrics for the periods indicated:
Three Months Ended March 31,
----------------------------
2005 2004 2003
---- ---- ----
SG&A expense as a percentage of sales 40.1% 37.8% 38.1%
Operating margin 7.7% 10.6% 9.1%
RadioShack Retail Outlets
The table below shows our retail locations allocated among company-operated
stores, kiosks and dealer outlets. While the dealer outlets represented
approximately 24% of RadioShack's total retail locations at March 31, 2005, our
product sales to dealers are less than 10% of our total net sales and operating
revenues (see "Results of Operations" below).
March 31, December 31, September 30, June 30, March 31,
2005 2004 2004 2004 2004
------------ ------------ ------------ ------------ ------------
Company-operated stores (1) 5,030 5,046 5,063 5,081 5,095
Kiosks (2) 579 599 11 10 10
Dealer outlets (3) 1,757 1,788 1,811 1,849 1,884
------------ ------------ ------------ ------------ ------------
Total number of retail locations 7,366 7,433 6,885 6,940 6,989
============ ============ ============ ============ ============
(1) During the past four quarters, the number of company-operated stores
decreased by 65, net of new store openings and relocations. This trend is
due to our not renewing locations that fail to meet our financial return
hurdles. We anticipate that the number of company-operated stores will
decline in 2005 by about 50 stores, net of store openings.
(2) Kiosks consist of our SAM'S CLUB and Sprint locations at March 31, 2005.
SAM'S CLUB has the unconditional right to assume the operation of up to 75
locations (in total). They have assumed operation of 23 kiosk locations
during the first quarter of 2005 that were previously operated by us. We
expect the number of Sprint kiosks to increase by approximately 150 during
the remainder of 2005.
(3) During the past four quarters, the number of our dealer outlets decreased
by 127, net of new outlet openings or conversion to company-operated
stores. This trend is due to the closure of smaller outlets, primarily in
travel locations. We anticipate that the number of dealer outlets in 2005
will not change materially from the number at December 31, 2004.
RESULTS OF OPERATIONS
Net sales and operating revenues by channel of distribution are as follows:
Three Months Ended March 31,
----------------------------
(In millions) 2005 2004
------------- ------------ ------------
Company-operated store sales $ 1,013.4 $ 1,029.7
Kiosk sales 47.4 1.3
Dealer and other sales 62.1 61.6
------------ ------------
Net sales and operating revenues $ 1,122.9 $ 1,092.6
============ ============
Dealer and other sales not only include our sales to the independent dealers,
but also include sales and operating revenues generated from our
www.radioshack.com Web site, outbound and inbound call centers, and our retail
support operations. Revenue from our retail support operations includes sales of
service plans and revenue generated primarily from outside sales by our repair
centers and domestic and overseas manufacturing facilities.
Net Sales and Operating Revenues
In the paragraphs below we comment on the outlook for portions of our business
where the outlook is reasonably clear and the information is likely to be useful
to investors.
Sales increased 3% to $1,122.9 million for the three months ended March 31,
2005, from $1,092.6 million in the corresponding prior year period. We had a 1%
decrease in comparable company store sales. The comparable company store
decrease was offset overall by sales from our SAM'S CLUB kiosk locations, which
we began operating in the fourth quarter of 2004.
Kiosk sales, which include sales from our SAM'S CLUB and Sprint locations, were
up $46.1 million for the three months ended March 31, 2005, when compared to the
corresponding prior year period. This increase was primarily the result of the
addition of the SAM'S CLUB locations at the beginning of fourth quarter 2004.
Dealer and other sales were up $0.5 million for the three months ended March 31,
2005, when compared to the corresponding prior year period. We anticipate that
these sales will increase for 2005, primarily as a result of sales increases
associated with our restructuring of our e-commerce business, which we
anticipate will occur in the second half of 2005 and, to a lesser extent,
increased revenue from our repair centers.
Sales in our wireless platform (includes predominantly wireless handsets, as
well as communication devices such as scanners and two-way radios) increased
approximately 4% for the quarter, when compared to the first quarter last year.
This sales increase was due to both an increase in wireless handset unit sales
and an increase in the number of channels through which these handsets were
sold. Increased sales of prepaid wireless handsets also led to higher sales in
this platform. We anticipate sales in the wireless platform will increase for
2005, primarily as a result of a full year of SAM'S CLUB kiosk sales and the
planned expansion in the number of our Sprint kiosks.
Sales in our accessory platform (includes accessories for home entertainment
products, wireless handsets, digital imaging products, and computers, as well as
the iGo line of accessories) increased approximately 2% for the quarter, when
compared to the first quarter last year. The increase in this platform resulted
primarily from increases in sales of iGo power and MP3 accessories, which were
primarily offset by a decline in home entertainment and wireless accessories
sales.
Sales in our modern home platform (includes residential telephones, all home
entertainment end-products, direct-to-home ("DTH") satellite systems, and
computers) decreased approximately 5% for the quarter, when compared to the
first quarter last year. This decrease was primarily due to sales decreases in
cordless telephones, audio products, DTH satellite systems and desktop
computers.
Sales in our personal electronics platform (includes digital cameras,
camcorders, toys, wellness products, memory players and satellite radios)
increased approximately 10% for the quarter, when compared to the first quarter
last year. These sales increases were driven primarily by increased sales of
satellite radios, digital imaging products and memory players.
Sales in our power platform (includes general and special purpose batteries and
battery chargers) remained approximately the same for the quarter, when compared
to the first quarter last year. Increased sales of general purpose batteries
were substantially offset by a decline in sales of special purpose batteries and
battery chargers.
Sales in our service platform (includes prepaid wireless airtime, bill payment
revenue and warranty service plans) increased approximately 5% for the quarter,
when compared to the first quarter last year. This increase was primarily due to
an increase in sales of prepaid wireless airtime.
Sales in our technical platform (includes wire and cable, connectivity products,
components and tools) remained approximately the same for the quarter, when
compared to the first quarter last year. Increased sales of tools were
substantially offset by a decline in sales of wire and cable products and the
related connectivity products.
Gross Profit
For the three months ended March 31, 2005, gross profit dollars increased $13.2
million; however, gross margin declined 20 basis points to 50.4% from 50.6% in
the corresponding 2004 period. The decrease from the prior period was primarily
due to the following factors:
The change in merchandise mix among platforms was a result of higher sales of
lower margin products, most notably from our wireless platform. Additionally,
our gross margin decline was impacted by markdowns in specially packaged holiday
season batteries and the clearance pricing of underperforming personal
electronics. A decrease in gross margin for the dealer channel also contributed
to our gross margin decline.
These gross margin decreases were substantially offset by a gross margin
increase for the wireless platform attributable to both a more favorable sales
channel mix and an increase in vendor reimbursements for company-only
promotions.
We anticipate that our gross margin rate during 2005 will be lower compared to
2004. We expect that an unfavorable impact from merchandise mix changes toward
platforms, such as wireless, with gross margins that are lower than the company
average, will outweigh the favorable impact from our vendor consolidation
efforts, use of private brands, and other techniques we use to increase gross
margin.
Selling, General and Administrative Expense
Our selling, general and administrative ("SG&A") expense increased 9.1% or $37.6
million for the three months ended March 31, 2005, when compared to the first
quarter of 2004. This represents a 230 basis point increase to 40.1% from 37.8%
of net sales and operating revenues for the quarter ended March 31, 2005, when
compared to the corresponding prior year period. These increases primarily
resulted from the October 2004 acquisition of the SAM'S CLUB kiosk locations and
related personnel.
Payroll and commissions expense increased in both dollars and as a percent of
net sales and operating revenues for the quarter ended March 31, 2005. Rent
expense increased in dollars for the quarter ended March 31, 2005, but decreased
as a percent of net sales and operating revenues. The increases in both payroll
and rent expense were driven by the acquisition of the SAM'S CLUB kiosk
locations and related personnel. Additionally, increased payroll expense
included $1.7 million in severance packages for terminated employees in our
advertising and domestic manufacturing groups. Professional fees increased in
both dollars and as a percent of net sales and operating revenues for the
quarter ended March 31, 2005. This increase was the result of internal
technology initiatives.
In 2005, we expect SG&A expense to increase in dollars as we continue to expand
our kiosk operations.
Depreciation and Amortization
During the three months ended March 31, 2005, depreciation and amortization
expense increased $5.4 million from the corresponding prior year period. This
increase was primarily the result of depreciation for our new corporate campus,
information systems enhancements, and the amortization of our contract with
SAM'S CLUB.
Net Interest Expense
Interest expense, net of interest income, for the three months ended March 31,
2005, was $7.5 million versus $5.9 million for the first three months in 2004.
Interest expense increased $1.9 million for the quarter ended March 31, 2005.
The increase in interest expense was primarily due to the elimination of
capitalized interest expense as a result of the completion of the construction
of our corporate headquarters.
Interest income increased for the three months ended March 31, 2005, compared to
the prior year period, as market interest rates have continued to increase.
Interest expense, net of interest income, is expected to increase by more than
$6 million in 2005, when compared to 2004, primarily due to the elimination of
$6.6 million capitalized interest expense in calendar 2004 as noted above.
Other Income
During the first quarter of 2005, we sold all rights, title and interest to the
"Tandy" trade name within Australia and New Zealand, to an affiliate of Dick
Smith Electronics, an Australia-based consumer electronics retailer. This
transaction resulted in the recognition of $10.2 million 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 ended March 31, 2005, was approximately 38.2%, compared to
38.0% for the corresponding prior year period. This slight increase was
primarily related to favorable tax settlements received in 2004, for which there
will be no equivalent tax settlement in 2005.
Recently-Issued Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." SFAS No.
123R establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. This statement
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS No. 123R requires
that the fair value of such equity instruments be recognized as an expense in
the historical financial statements as services are performed. Prior to SFAS No.
123R, only certain pro forma disclosures of fair value were required. We will
adopt the provisions of SFAS No. 123R effective January 1, 2006. We plan to
utilize the modified prospective transition method which requires that we
recognize compensation expense for all new and unvested share-based payment
awards from this effective date.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs." The new
statement amends Accounting Research Bulletin No. 43, Chapter 4, "Inventory
Pricing," to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material. SFAS No. 151 requires
that these items be recognized as current period charges and requires that
allocation of fixed production overhead to the cost of conversion be based on
the normal capacity of the production facilities. This statement is effective
for fiscal years beginning after June 15, 2005. We do not expect adoption of
this statement to have a material impact on our financial condition or results
of operations.
In March 2005, the SEC issued Staff Accounting Bulletin ("SAB") No. 107,
"Share-Based Payment." This SAB provides views of the SEC staff regarding the
interaction between SFAS No. 123R and certain SEC rules and regulations, and is
intended to assist in the initial implementation of SFAS No. 123R. We are
currently evaluating the guidance provided within SAB No. 107 and SFAS No. 123R
and may refine our estimates of expected volatility and expected term upon our
adoption of SFAS No. 123R.
In March 2005, the FASB issued FASB Interpretation ("FIN") No. 47, "Accounting
for Conditional Asset Retirement Obligations," which is an interpretation of
SFAS No. 143, "Accounting for Asset Retirement Obligations." This interpretation
clarifies terminology within SFAS No. 143 and requires an entity to recognize a
liability for the fair value of a conditional asset retirement obligation when
incurred if the liability's fair value can be reasonably estimated. This
interpretation is effective for fiscal years ending after December 15, 2005. We
do not expect the adoption of this interpretation to have a material impact on
our financial condition or results of operations.
FINANCIAL CONDITION
Cash Flow - Operating Activities
Cash flow used in operating activities approximated $66.6 million for the
quarter ended March 31, 2005, compared to cash provided of $16.3 million in the
prior year first quarter.
At March 31, 2005, changes in accounts receivable provided $48.8 million in cash
since December 31, 2004, compared to $40.5 million in cash provided for the
quarter ended March 31, 2004. Cash provided by accounts receivable for the first
quarter of both 2005 and 2004 occurred primarily due to typical reductions in
trade and dealer receivables as a result of seasonal buildups in the fourth
quarter of each preceding year.
A decrease in inventory provided $47.2 million in cash for the quarter ended
March 31, 2005, compared to $3.4 million in cash used in inventory for the
quarter ended March 31, 2004. A higher inventory position at December 31, 2004,
compared to December 31, 2003, facilitated more inventory conversion into cash
in the first quarter of 2005 relative to the same period in the prior year.
In addition, during the first quarter of 2005, $156.1 million more in cash was
used by accounts payable, while $14.9 million and $12.5 million were provided by
accrued expenses and taxes payable, respectively. The increase in cash used by
accounts payable primarily was due to higher than anticipated inventory and
related accounts payable levels at December 31, 2004. The subsequent payment of
the accounts payable in the first quarter of 2005 resulted in the use of cash
noted above.
We had $293.0 million in cash and cash equivalents at March 31, 2005, 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 expect that the commercial paper market
would be available to us; therefore, we do not expect to utilize our credit
facilities.
Cash Flow - Investing Activities
Cash used in investing activities for the quarter ended March 31, 2005, was
$40.9 million, compared to $44.6 million in the previous year. Investing
activities for the quarter ended March 31, 2005, included capital expenditures
totaling $38.6 million compared to $41.3 million in the same period of 2004,
primarily for information systems enhancements. We anticipate that our capital
expenditure requirements for 2005 will be between $200 million and $240 million,
consisting primarily of store remodels and relocations and updated information
systems. We plan to finance these requirements through cash from operations and,
if needed, existing cash and cash equivalents.
Cash Flow - Financing Activities
Cash used in financing activities for the quarter ended March 31, 2005, was
$37.4 million, compared to a $29.4 million cash usage in the same period of
2004. We repurchased $73.7 million of our common stock during the quarter ended
March 31, 2005, compared to $81.1 million during the same period of 2004, under
our employee benefit plans and board approved repurchase programs. These
repurchases were partially funded by $18.0 million and $42.0 million received,
respectively, from the sale of treasury stock to our employee benefit plans and
from stock option exercises during the same corresponding periods. Additionally,
changes in short-term borrowings provided $18.3 million more in cash, compared
to $9.8 million provided in the corresponding prior year period.
Capitalization
The following table sets forth information about our capitalization at the dates
indicated.
March 31, December 31,
----------------------------------------------------------------------------------------------
2005 2004 2004
----------------------------------------------------------------------------------------------
% of Total % of Total % of Total
($ in millions) Dollars Capitalization Dollars Capitalization Dollars Capitalization
--------------------------------------------------------------------------------------------------------------------
Current debt $ 73.7 5.0% $ 119.1 8.3% $ 55.6 3.7%
Long-term debt 501.2 33.6% 515.3 35.7% 506.9 34.2%
-------------- -------------- --------------
Total debt $ 574.9 38.6% $ 634.4 44.0% $ 562.5 37.9%
Stockholders' equity 916.2 61.4% 807.8 56.0% 922.1 62.1%
-------------- -------------- --------------
Total capitalization $1,491.1 100.0% $1,442.2 100.0% $1,484.6 100.0%
============== ============== ==============
Our debt to capitalization ratio increase at March 31, 2005, compared to
December 31, 2004, was the result of an increase in short-term debt of $18.1
million; however, the ratio decrease from the corresponding prior year period
was primarily the result of an increase in stockholders' equity of $108.4
million.
Management is reviewing our capital structure. This review involves analyzing
certain metrics relating to, among other things, our cash and debt levels,
leasing activity, interest burdens, dividend policy, share repurchase levels and
free cash flow. We design our reviews and any actions we take as a result of
these reviews to seek maximum shareholder value while retaining investment grade
ratings and access to the commercial paper market.
Share Repurchases
We intend to execute share repurchases from time to time in order to take
advantage of attractive share price levels, as determined by management. The
timing and terms of these transactions depend on market conditions, our
liquidity and other considerations. In February 2003, our Board of Directors
authorized a repurchase program for 15.0 million shares. The 15.0 million share
repurchase program has no expiration date and allows shares to be repurchased in
the open market. At April 19, 2005, there were 0.2 million shares available to
be repurchased under this program. On February 25, 2005, our Board of Directors
approved a new share repurchase program. This new program allows management to
repurchase up to $250 million of our common stock in open market purchases and
has no expiration date. We currently plan to repurchase between $200 million and
$250 million of our common stock during 2005 under our existing authorized
repurchase programs. As indicated in the "Capitalization" section above, our
review of our capital structure may change these plans. The funding required for
these existing share repurchase programs will come from cash generated from net
sales and operating revenues and cash and cash equivalents. We will also
repurchase shares in the open market to offset the sales of shares to our
employee benefit plans.
Free Cash Flow
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 $105.2 million for the three months ended March 31, 2005, compared
to $25.0 million during the corresponding prior year period. This decrease in
free cash flow primarily resulted from greater cash usage within our working
capital components primarily related to accounts payable in 2005, compared to
the corresponding prior year period. We anticipate our free cash flow to be
approximately $200 million to $225 million for 2005.
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, 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 a cash usage of $66.6 million for the three months ended
March 31, 2005, compared to $16.3 million in cash provided for the three months
ended March 31, 2004. 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:
Three Months Ended March 31, Year Ended December 31,
---------------------------- -------------------------
(In millions) 2005 2004 2004
------------- ------------ ------------ ------------
Net cash (used in) provided by operating
activities $ (66.6) $ 16.3 $352.5
Less:
Additions to property, plant and equipment 38.6 41.3 229.4
Dividends paid -- -- 39.7
------------ ------------ ------------
Free cash flow $(105.2) $(25.0) $ 83.4
============ ============ ============
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 or merchandising
strategy 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 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;
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; and
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.
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 both our wireless
and 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 which could cause
the reduction or elimination of our commissions, and marketing funds, as
well as residual income;
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 effectively manage our inventory levels in a rapidly
changing marketplace;
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 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.
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 March 31, 2005, 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, 2004. 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.
Evaluation of Disclosure Controls and Procedures
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.
Based upon that evaluation, our CEO and 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.
Changes in Internal Controls
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.
We are currently a party to various class action lawsuits alleging that we
misclassified certain RadioShack store managers as exempt from overtime in
violation of the Fair Labor Standards Act, including a lawsuit styled Alphonse
L. Perez, et al. v. RadioShack Corporation, filed in the United States District
Court for the Northern District of Illinois. While the alleged damages in these
lawsuits are undetermined, they could be substantial. We believe that we have
meritorious defenses, and we are vigorously defending these cases. Furthermore,
we fully expect these cases to be favorably determined as a matter of federal
law. If, however, an adverse resolution of any of these lawsuits occurs, we
believe they 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 these lawsuits was not
determinable at March 31, 2005.
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
Maximum
Total Number Number (or
of Shares Approximate
Purchased as Dollar Value)of
Part of Shares That May
Publicly Yet Be
Total Number Average Announced Purchased Under
of Shares Price Paid Plans or the Plans or
Purchased (1) per Share Programs (2) Programs (2)
-------------- -------------- -------------- ----------------
January 1 - 31, 2005 525,000 $ 32.66 450,000 2,637,600 shares
2,037,600 shares
February 1 - 28, 2005 730,000 $ 30.63 600,000 plus
$250,000,000
637,600 shares
March 1 - 31, 2005 1,565,000 $ 26.64 1,400,000 plus
$250,000,000
-------------- --------------
Total 2,820,000 $ 28.79 2,450,000
============== ==============
(1) The total number of shares purchased includes all repurchases made during
the periods indicated. In January, February and March of 2005, 75,000,
130,000 and 165,000 shares, respectively, 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
programs.
(2) These publicly announced plans or programs consist of (i) RadioShack's 15
million share repurchase program, which was announced on February 20, 2003,
and has no expiration date; and (ii) RadioShack's $250 million share
repurchase program, which was disclosed on March 16, 2005, and has no
expiration date. All shares purchased during the period covered by the table
were purchased under RadioShack's 15 million share repurchase program.
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 19, 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: May 6, 2005 By /s/ David P. Johnson
---------------------------------------------
David P. Johnson
Senior Vice President - Chief Accounting
Officer and Corporate Controller
(Authorized Officer)
Date: May 6, 2005 /s/ David G. Barnes
---------------------------------------------
David G. Barnes
Senior Vice President -
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
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).
4a* First Amendment to Amended and Restated Rights Agreement,
dated as of February 20, 2004, between RadioShack Corporation
and Equiserve Trust Company, N.A.
10a* Form of Restricted Stock Agreement under RadioShack
Corporation 1997 Incentive Stock Plan.
31(a)* Rule 13a-14(a) Certification of the Chief Executive Officer of
RadioShack Corporation.
31(b)* Rule 13a-14(a) Certification of the Chief Financial Officer of
RadioShack Corporation.
32* Section 1350 Certifications.**
----------------------------
* Filed with this report
** These Certifications shall not be deemed "filed" for purposes of
Section 18 of the Exchange Act, as amended, or otherwise subject to the
liability of that section. These Certifications shall not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Exchange Act, except to the extent that the Company specifically
incorporates them by reference.
EXHIBIT 4(a)
FIRST AMENDMENT TO AMENDED AND RESTATED RIGHTS AGREEMENT
FIRST AMENDMENT TO AMENDED AND RESTATED RIGHTS AGREEMENT, dated as of
February 20, 2004 (this "Amendment") between RadioShack Corporation (the
"Company") and EquiServe Trust Company, N.A. (the "Rights Agent"). All
capitalized terms used herein and not otherwise defined shall have the
respective meanings assigned to such terms in the Rights Agreement.
WHEREAS, the Company and the Rights Agent are party to an Amended and
Restated Rights Agreement, dated as of July 26, 1999 (the "Rights Agreement");
WHEREAS, pursuant to Section 27 of the Rights Agreement, prior to the
Distribution Date, the Company and the Rights Agent may amend any provision of
the Rights Agreement without the approval of any holders of Rights;
WHEREAS, the Distribution Date has not yet occurred and the Company and the
Rights Agent desire to amend the Rights Agreement as set forth in this
Amendment; and
WHEREAS, the parties hereto agree as follows:
1. Section 1(a) of the Rights Agreement is hereby amended by deleting the
definition of "Acquiring Person" in its entirety and replacing it with the
following:
"Acquiring Person" shall mean any Person who or which, together with all
Affiliates and Associates of such Person, without the prior approval of at least
a majority of the members of the Board of Directors, shall be the Beneficial
Owner of 15% or more of the Common Shares then outstanding (other than as a
result of a Permitted Offer (as hereinafter defined)) or was such a Beneficial
Owner at any time after the date hereof, whether or not such Person continues to
be the Beneficial Owner of 15% or more of the then outstanding Common Shares.
Notwithstanding the foregoing, (A) the term "Acquiring Person" shall not include
(i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit
plan of the Company or of any Subsidiary of the Company, or (iv) any Person or
entity organized, appointed or established by the Company for or pursuant to the
terms of any such plan; and (B) no Person shall become an "Acquiring Person" as
a result of the acquisition of Common Shares by the Company which, by reducing
the number of Common Shares outstanding, increases the proportional number of
shares beneficially owned by such Person together with all Affiliates and
Associates of such Person, provided that if after such share acquisition by the
Company, such Person or an Affiliate or Associate of such Person becomes the
Beneficial Owner of any additional Common Shares, then such Person shall be
deemed an Acquiring Person; (C) no Person shall become an Acquiring Person if
(1) within fourteen Business Days (or such greater period of time as may be
determined by action of the Board of Directors) after such Person would
otherwise have become an Acquiring Person (but for the operation of this clause
(C)), such Person notifies the Board of Directors that such Person did so
inadvertently, and (2) within seven Business Days after such notification (or
such greater period of time as may be determined by action of the Board of
Directors) such Person divests itself of a sufficient number of Common Shares so
that such Person is the Beneficial Owner of less than 15% of the outstanding
Common Shares.
2. Section 21 of the Rights Agreement is hereby amended by inserting the
following sentence immediately following the first sentence of such section: "In
the event the transfer agency relationship in effect between the Company and the
Rights Agent terminates, the Rights Agent will be deemed to resign automatically
on the effective date of such termination, and any required notice will be sent
by the Company."
3. The Rights Agreement is hereby amended by adding a new Section 35 that
reads in its entirety as follows:
"Section 35. Force Majeure. Notwithstanding anything to the contrary
contained herein, neither party shall be liable for any delays or failures in
performance resulting from acts beyond its reasonable control including, without
limitation, acts of God, terrorist acts, shortage of supply, breakdowns or
malfunctions, interruptions or malfunction of computer facilities, or loss of
data due to power failures or mechanical difficulties with information storage
or retrieval systems, labor difficulties, war, or civil unrest."
4. Except as amended hereby, all of the terms and provisions of the Rights
Agreement shall remain in full force and effect.
5. This Amendment shall be deemed to be a contract made under the laws of
the State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
6. This Amendment may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
RADIOSHACK CORPORATION
By: /s/ Mark C. Hill
-----------------------------
Name: Mark C. Hill
Title: SVP - Chief Administrative
Officer, Secretary &
General Counsel
EQUISERVE TRUST COMPANY, N.A.
By: /s/ Joshua P. McGinn
-----------------------------
Name: Joshua P. McGinn
Title: Senior Account Manager
EXHIBIT 10(a)
RADIOSHACK CORPORATION
1997 INCENTIVE STOCK PLAN
FORM OF
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, made as of the ____ day of _____________, _______________
(the "Grant Date"), between RadioShack Corporation, a Delaware corporation (the
"Company"), and ________________________ (the "Grantee");
WHEREAS, the Company has adopted the RadioShack Corporation 1997 Incentive
Stock Plan, as amended and restated (the "Plan"), in order to provide an
additional incentive to officers and employees ("Eligible Individuals") of the
Company; and
WHEREAS, the Management Development and Compensation Committee of the Board
of Directors ("Committee") is responsible for administration of the Plan for
Eligible Individuals and has determined that it is in the best interests of the
Company and shareholders to grant an Award of Restricted Stock to the Grantee as
provided herein;
NOW, THEREFORE, the Company and the Grantee agree as follows:
1. Grant of Restricted Stock.
1.1 The Company hereby grants to the Grantee an Award of ________________
shares of Restricted Stock on the terms and conditions set forth in this
Agreement and as otherwise provided in the Plan, the provisions of which are
hereby incorporated by reference.
1.2 This Agreement shall be construed in accordance with the provisions of
the Plan 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.
1.3 The Grantee's rights with respect to the Award shall remain forfeitable
at all times prior to the date on which the restrictions shall have lapsed in
accordance with Sections 2 or 3 hereof.
2. Rights of Grantee.
Except as otherwise provided in this Agreement, the Grantee shall be
entitled, at all times on and after the date hereof, to exercise all rights of a
shareholder with respect to the Restricted Stock (whether or not vested), other
than the Restricted Stock which has been forfeited pursuant to Section 3.3
hereof, including the right to vote the Restricted Stock and the right to
receive dividends thereon as provided in Section 6. Notwithstanding the
foregoing, the Grantee shall not be entitled, with respect to the Restricted
Stock which has not yet become vested pursuant to Sections 3.2 or 4 hereof, to
exercise any rights the exercise of which would result in forfeiture of such
Restricted Stock pursuant to Section 3.3(b) hereof.
3. Resale Restrictions, Lapse of Restrictions and Forfeiture.
3.1 The Grantee may not transfer, sell, pledge, hypothecate or assign his
rights with respect to any Restricted Stock ("resale restrictions") until the
Shares have vested in accordance with Section 3.2 and the restrictions on such
Shares shall have lapsed.
3.2 All restrictions on the Restricted Stock shall lapse on the following
date and amount:
___________ shares _______________
and on such date, the applicable number of shares shall be fully vested.
Further, prior to _________________, all Restricted Stock shall have the
restrictions lapse in the event of a Change in Control of the Company, or the
death, Disability, retirement at age 55 or older of Grantee, or otherwise
pursuant to Section 4 hereof.
3.3 Upon the occurrence of either of the events listed below, any
Restricted Stock in respect of which resale restrictions have not previously
lapsed or been removed will be forfeited; ownership and all rights therein will
automatically revert and be transferred to and reacquired by the Company; and
neither the Grantee nor any heirs, beneficiary, personal representatives,
executor or administrator of the Grantee's estate shall thereafter have any
further rights or interests in such Restricted Stock: (a) termination of the
Grantee's employment with the Company for any reason (other than a termination
upon death, Disability, retirement at age 55 or older, or otherwise as described
in Section 4 hereof) prior to the third anniversary of the Grant Date; or (b)
any attempt by the Grantee to transfer, sell, pledge, hypothecate, or assign his
rights with respect to the Restricted Stock prior to the third anniversary of
the Grant date.
4. Removal of Restrictions.
4.1 In the event of a Change in Control of the Company, or the Grantee's
death or Disability, all resale restrictions upon the Restricted Stock shall
lapse immediately, and all such Restricted Stock shall become vested in the
Grantee, his or her heirs, beneficiary, or personal representatives or to the
executor or administrator of Grantee's estate as applicable.
4.2 The restrictions also may be removed on all or part of any Restricted
Stock when the Grantee retires at age 55 or older, or whenever the Committee
otherwise determines it is in the best interests of the Company to remove the
restrictions on all or part of any Restricted Stock, both such removals being at
the sole discretion of the Committee. The Committee may, in the exercise of such
discretion, determine that the restrictions upon any Restricted Stock shall be
removed immediately or at different times. Any such actions by the Committee
shall be effective only when set forth in a written instrument delivered to the
Grantee, his or her heirs, beneficiary, personal representatives, executor or
administrator of the Grantee's estate. In no event shall any action by the
Committee under this Section 4.2 extend the time for lapse of the restrictions
under other provisions of this Agreement.
5. Escrow Arrangement and Delivery of Shares.
5.1 One or more certificates representing Restricted Stock shall be
registered in Grantee's name but shall be held by the Company for the Grantee's
account in escrow. The Restricted Stock shall remain in escrow until a stock
certificate in respect of the number of the Shares is issued pursuant to Section
3.2 hereof to the Grantee, his or her heirs, beneficiary, or personal
representatives or to the executor or administrator of Grantee's estate after
the third anniversary of the Grant Date as set forth in Sections 3.2, 5.2 and
5.3 hereof or forfeiture of the Restricted Stock to the Company as set forth in
Section 3.3 hereof.
5.2 Subject to Section 10 hereof, as soon as practicable following the
lapsing of restrictions on the Restricted Stock under Sections 3 or 4 hereof, as
applicable, the Company shall deliver to the Grantee, his or her heirs,
beneficiary, personal representatives, or to the executor or administrator of
Grantee's estate, as applicable, a stock certificate in respect of such Shares,
free of all restrictions hereunder and without the legend described in Section
5.3 hereof.
5.3 Each certificate representing Restricted Stock held for the Grantee's
account in escrow shall bear a legend in substantially the following form:
"This certificate and the shares of stock represented hereby are
subject to the terms and conditions (including forfeiture and
restrictions against transfer) contained in the RadioShack Corporation
1997 Incentive Stock Plan (the "Plan") and a Restricted Stock Agreement
(the "Agreement") between the registered owner of the Shares
represented hereby and RadioShack Corporation. Release from such terms
and conditions shall be made only in accordance with the provisions of
the Plan and Agreement, copies of which are on file in the office of
the Corporate Secretary of RadioShack Corporation."
5.4 Grantee agrees to deliver to the Company's Assistant Secretary a stock
power for each certificate of Restricted Stock as and when requested by the
Assistant Secretary of the Company. The stock power(s) will be used to transfer
ownership to the Company of the certificates of Restricted Stock held in the
Grantee's account.
6. Dividends.
Delivery to the Grantee of any dividends payable on the Restricted Stock
shall be deferred until the restrictions on the Shares have lapsed pursuant to
Sections 3 or 4 hereof. Such dividends shall be held by the Company in cash for
the account of the Grantee until a certificate for Shares without restrictions
is delivered to the Grantee. The Grantee's account shall not be credited with
interest. All dividends shall be paid to the Grantee upon delivery of the
corresponding stock certificate without restrictions. If the Restricted Stock is
forfeited as provided in Section 3.3 hereof, then any dividends relating to the
forfeited Restricted Stock shall also be forfeited to the Company.
7. No Right to Continued Employment.
Nothing in this Agreement or the Plan shall be interpreted to confer upon
the Grantee any right or contract with respect to continued employment by the
Company, nor shall this Agreement or the Plan interfere in any way with the
rights of the Company or the Grantee to terminate the at-will employment
relationship at any time.
8. Adjustments.
In the event of a Change in Capitalization, the Committee shall make
appropriate adjustments to the number and class of Shares of stock subject to
the Award. The Committee's adjustment shall be made in accordance with the
provisions of Section 12 of the Plan and shall be effective, final, binding and
conclusive for all purposes of the Plan and this Agreement.
9. Withholding of Taxes and Notice of Disposition.
The Company shall have the right to deduct from any amount payable under
this Agreement, or to require the Grantee or his estate to otherwise pay, the
amount equal to the federal, state and local income taxes and other amounts as
may be required by law to be withheld with respect to, and prior to the delivery
of, the Shares of Restricted Stock deliverable under this Agreement, as well as
any dividends thereon.
10. Grantee Bound by the Plan.
The Grantee, his or her heirs, beneficiary, personal representatives, or
the executor or administrator of Grantee's estate, as applicable, hereby
acknowledge receipt of a copy of the Plan and agrees to be bound by all the
terms and provisions thereof. The Grantee hereby acknowledges receipt of the
prospectus for the Plan dated December 21, 2001.
11. Modification of Agreement.
This Agreement may be modified, amended, suspended or terminated, and any
terms or conditions may be waived, but only by a later written instrument
executed by the parties hereto.
12. 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.
13. Governing Law and Forum.
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 laws principles thereof. Any suit brought under this
Agreement shall only be brought in the appropriate state or federal court for
Tarrant County, Texas.
14. Successors in Interest.
This Agreement shall inure to the benefit of and be binding upon each
Successor Corporation. All obligations imposed upon the Grantee and all rights
granted to the Company under this Agreement shall be binding upon the Grantee's
heirs, executors, administrators and successors.
15. 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
shall be final, binding and conclusive on the Grantee and Company for all
purposes.
16. Entire Agreement.
This Agreement, together with the documents incorporated herein by
reference, represents the entire Agreement between the parties with regards 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.
17. Effective.
To be effective, this Agreement must be executed below by the Grantee and
the Agreement received by the Secretary of the Company at 300 RadioShack Circle,
MS CF3-203, Fort Worth, Texas 76102 within 30 days of the Grantee's receipt of
this Agreement. Please retain one copy of this Agreement for your records.
RADIOSHACK CORPORATION
By:
-------------------------------------------
Printed Name:
---------------------------------
Title:
----------------------------------------
The Grantee hereby agrees to the terms and conditions provided in this
Restricted Stock Agreement and acknowledges receipt of the prospectus for the
Plan dated December 21, 2001.
GRANTEE:
Signature:
---------------------------------
Printed Name:
---------------------------------
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)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) 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) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) 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
(d) 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: May 6, 2005 By /s/ Leonard H. Roberts
-------------------------------------------------
Leonard H. Roberts
Chief Executive Officer
Exhibit 31(b)
I, David G. Barnes, 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)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) 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) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) 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
(d) 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: May 6, 2005 /s/ David G. Barnes
---------------------------------------------------
David G. Barnes
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 March 31, 2005, 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 G. Barnes,
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 results of operation of the
Company.
/s/ Leonard H. Roberts
Leonard H. Roberts
Chief Executive Officer
May 6, 2005
/s/ David G. Barnes
David G. Barnes
Chief Financial Officer
May 6, 2005
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.