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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934( NO FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD
Commission file number 1-5571
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TANDY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-1047710
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Throckmorton Street, Suite 1800, Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 415-3700
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
Common Stock, par value $1 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____
Indicate by check mark whether the registrant (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
As of March 21, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $8,576,164,809 based on the New York Stock
Exchange closing price.
As of March 21, 2000, there were 186,872,515 shares of the registrant's Common
Stock outstanding.
Documents Incorporated by Reference
Portions of the Proxy Statement for the 2000 Annual Meeting of Stockholders are
incorporated by reference into Part III.
The Index to Exhibits is on Sequential Page No. 56.
Total Pages 79.
PART I
ITEM 1. BUSINESS.
GENERAL
Tandy Corporation, a Delaware corporation, was incorporated in 1967 ("Tandy" or
the "Company"). Tandy primarily engages in the retail sale of consumer
electronics through the RadioShack(R) store chain. Sales derived outside of the
United States are not material.
RadioShack. At December 31, 1999, RadioShack operated 5,087 company-owned stores
located throughout the United States. These stores average approximately 2,300
square feet in gross area and are located in major malls and strip centers, as
well as individual store fronts. RadioShack had, on the same date, a network of
2,099 dealer/franchise stores. These stores provide RadioShack products to
smaller communities. The dealers are generally engaged in other retail
operations and augment their sales with RadioShack products. This network
included 58 international dealers at December 31, 1999.
The company-owned RadioShack stores carry a broad assortment of both private
label and third party products, including electronic parts and accessories,
cellular, PCS and conventional telephones, audio and video equipment, digital
satellite systems, personal computers and related products, as well as
specialized products such as scanners and weather radios. RadioShack also
provides consumers access to third party services such as cellular phone, PCS
and pager activation, direct satellite programming, Internet access and prepaid
wireless airtime.
RadioShack.com, LLC. In October 1999, Tandy launched its RadioShack.com website
to increase its online and store level retail sales. As of March 1, 2000, there
were over 20,000 products on the website. Online customers can purchase, return
or exchange products available on the RadioShack website at their local
RadioShack stores and participating dealer/franchise outlets.
Strategic Alliances. Tandy has formed strategic alliances with well-recognized
partners. Through its telecommunications alliances with Sprint Communications
Company and Sprint PCS ("Sprint"), RadioShack customers have access to wireless
and residential telephones and related telephony products and services at the
"Sprint Store at RadioShack." Compaq Computer Corporation ("Compaq") is the sole
supplier of personal computers sold through RadioShack retail outlets and
DIRECTV provides direct-to-home satellite programming. On May 13, 1999, Tandy
entered into a multi-year retail sales and service agreement with Thomson
Multimedia ("Thomson"), which owns the RCA brand. Under this agreement, Thomson
will supply RadioShack with various RCA-branded audio and video components such
as televisions, VCRs, camcorders, digital video disc (DVD) players, digital
cameras, CD shelf systems and other digital entertainment products beginning in
2000. Some of these items are currently available in stores. RCA products will
be sold through the RCA Digital Entertainment Center at RadioShack via a
"store-within-a-store" concept similar to the Sprint Store at RadioShack.
Tandy entered into two additional agreements during 1999 which it believes are
significant steps towards achieving Tandy's strategic plan for RadioShack to
become "America's Connectivity Store," similar to its existing concept of
"America's Telephone Store." Connectivity will provide solutions for connecting
to and utilizing high-speed bandwidth. Bandwidth refers to volume at which data
can be transmitted and, depending on the volume delivered, may enable consumers
to have such capabilities as instant and/or high speed Internet, movies on
demand and multiple phone/fax connections through a single phone or cable line.
On November 11, 1999, Tandy Corporation announced a five-year strategic alliance
with Microsoft Corporation ("Microsoft") that encompasses broadband and
narrowband technology, as well as in-store and online efforts. In the third
quarter of 2000, RadioShack and Microsoft are expected to launch The Microsoft
Internet Center @ RadioShack via a "store-within-a-store" concept in as many as
5,000 company-owned RadioShack stores and participating dealer/franchise outlets
nationwide. The Microsoft Internet Center @ RadioShack will allow customers to
view demonstrations of narrowband and broadband technology and subscribe to
MSN(TM) dial-up or broadband Internet access, as well as view a broad range of
existing and future products, solutions and services based on Microsoft
technologies.
Also, on April 21, 1999, Tandy announced it had entered into a strategic
agreement with NorthPoint Communications, Inc. ("NorthPoint"), a provider of
Digital Subscriber Line ("DSL") technology. DSL technology transports data at
speeds up to 25 times faster than common dial-up modems, allowing for high-speed
Internet access and other data-intensive applications. Management anticipates
this alliance will accelerate the adoption rate of these services at an
affordable price to the mass market. Additionally, NorthPoint will provide
RadioShack with DSL services for consumer display purposes in many of its retail
stores, as well as for internal use. NorthPoint currently operates in 33 markets
in the U.S. and expects to expand its service territory to 60 markets by the end
of 2000.
Retail Support Operations.
AmeriLink Corporation ("AmeriLink") - On July 30, 1999, Tandy acquired
AmeriLink. Through its 76 field offices located in 26 states, AmeriLink
designs, installs and maintains cabling systems for the transmission
of video, voice and data, primarily for home use. AmeriLink will continue
to provide these services to outside parties and, also, to RadioShack
through AmeriLink's RadioShack Installation Services Division. Services
for RadioShack in 2000 will consist primarily of customer DIRECTV
installations; however, new services such as home theater and broadband
Internet access, among others, will be added as RadioShack's needs dictate.
A&A International Limited Partnership ("A&A") - This limited partnership,
which is 100% owned by Tandy and its subsidiaries, serves the wide-ranging
international import/export, sourcing, evaluation, logistics and quality
control needs of Tandy. A&A also provides services for outside customers,
primarily InterTAN, Inc. ("InterTAN"). Most of A&A's activity for InterTAN
involves sourcing of goods from manufacturers in Asia.
Consumer Electronics Manufacturing - Tandy operates seven manufacturing
facilities in the United States and one overseas manufacturing operation in
China, which is a joint venture. These eight manufacturing facilities
employed approximately 3,200 employees as of December 31, 1999. Tandy
manufactures a variety of products, primarily sold through RadioShack,
including audio, video, telephony, antennas, wire and cable products and a
wide variety of "hard to find" parts for consumer electronic products.
Tandy Service Centers - Tandy maintains a service and support network to
service the consumer electronics and personal computer retail industry in
the U.S. At December 31, 1999, there were 55 Tandy Service Centers in the
U.S. which repair name-brand and private label products sold at RadioShack.
Tandy is also a vendor-authorized service provider for such leading
manufacturers as Compaq, Sony, Panasonic, Hitachi, Hewlett-Packard, RCA/
Thomson and Nokia, among others, and also performs repairs for third-party
service centers and extended service plan providers under national service
agreements.
Regional Distribution Centers - The 11 distribution centers operated by
Tandy ship over one million cartons each month to RadioShack stores.
A few distribution centers also serve as fulfillment centers for
RadioShack.com.
Tandy Customer Support - Using state-of-the-art telephone and data networks,
Tandy Customer Support responds to more than five million calls annually for
answers to technical questions, customer service inquiries, and direct sales
requests related to RadioShack's catalog operations, its website and "hard
to find" products offered through the RadioShack Unlimited program.
Computer City. On August 31, 1998, Tandy completed the sale of 100% of the
outstanding common stock of its Computer City, Inc. subsidiary ("CCI" or
"Computer City") to CompUSA Inc. ("CompUSA"). (See "Sale of Computer City, Inc."
in Item 7 "Management's Discussion and Analysis of Results of Operations and
Financial Condition" ("MD&A")). Prior to the sale, there were 101 Computer City
stores open, including seven in Canada. Operating primarily as a supercenter
format, the average store size approximated 21,050 square feet in gross area and
offered approximately 4,000 products in its merchandising assortment, including
personal computer hardware and software and related products and accessories.
SEASONALITY
As is the case with other retail businesses, Tandy's net sales and other
revenues are greater during the Christmas season than during other periods of
the year. There is a corresponding pre-seasonal inventory build-up requiring
working capital associated with the anticipated increased sales volume. See Note
26 of the "Notes to Consolidated Financial Statements" for quarterly data.
PATENTS AND TRADEMARKS
Tandy owns or is licensed to use many trademarks and service marks related to
its business in the United States and in foreign countries. Radio Shack,
RadioShack, RadioShack.com, You've got questions. We've got answers., America's
Home Connectivity Store, and Around The Corner and Around The Clock are some of
the marks most widely used by the Company. Tandy believes that the RadioShack
name and marks are well-recognized by consumers, and that the name and marks are
associated with high-quality service. Tandy's manufactured products are sold
primarily under the RadioShack trademark. Tandy also owns various patents
relating to electronic products designed and manufactured by Tandy. Tandy
believes that the loss of the RadioShack name and RadioShack marks would be
material to its business.
SUPPLIERS
Tandy's marketing strategy for RadioShack depends, in part, upon its ability to
offer both private label and name brand products, as well as third party
services, to its customers. Tandy utilizes a large number of suppliers located
in various parts of the world to obtain its raw materials and private label
merchandise. Management does not expect a lack of availability of raw material
or any single private label product to have a material impact on its operations.
In terms of name brand products sold by RadioShack, no single vendor provided in
excess of 10% of Tandy's aggregate product purchases in 1999. However, certain
vendors, strategic partners and service providers are considered important to
RadioShack's business and the loss of or disruption in supply from one of these
could have a material adverse effect on RadioShack's sales. Additionally,
certain suppliers have, at times, limited their supply of products to Tandy.
BACKLOG ORDERS
Tandy has no material backlog of orders for the products it sells.
COMPETITION
Consumer electronics retailers realized increased sales in 1999, driven by
strong consumer spending and a continued demand for wireless communications
products, personal computers and satellite systems, as well as a rapid consumer
acceptance of new digital technology products. Despite these factors, the
consumer electronics retail business still remains highly competitive, driven by
technology and product cycles, as well as the overall state of the economy.
In the consumer electronics retailing business, competitive factors include
price, availability, product quality and features, consumer services,
manufacturing and distribution capability and brand reputation. RadioShack
competes in the sale of its products and services with large format consumer
electronics retailers such as Circuit City and Best Buy, department and
specialty stores such as Sears and The Home Depot, mass merchants such as
Wal-Mart and Target, and alternative channels of distribution such as mail-order
and e-commerce. With respect to the products sold by RadioShack, numerous
domestic and foreign companies manufacture some of the same products which are
sold under nationally recognized brand names or private labels in markets common
to RadioShack.
Management believes that RadioShack's primary differentiating factors in
relation to its competitive position are its extensive physical retail presence
with over 7,100 conveniently located company-owned and dealer/franchise outlets
nationwide, as well as its specially trained sales staff, who are able to
provide enhanced product explanation, assist customers with service activation,
where applicable, and assist with the selection of appropriate products and
accessories.
Another differentiating factor is RadioShack's strategic alliances with
well-recognized partners including Sprint for telecommunications and wireless
communications, Compaq for personal computers, Thomson for RCA-branded audio and
video products, Microsoft for broadband and narrowband technology, and DIRECTV
for "direct-to-home" satellite systems and services, among others. These
alliances augment the strong position that RadioShack has historically
maintained in its core product categories such as batteries, communications
equipment, telephony, antennas and parts and accessories. Additionally,
RadioShack is able to leverage name brand recognition, marketing efforts and
advertising campaigns with its partners and also create cross-revenue
opportunities for repair service income, customer residuals and cellular
commissions.
Given the highly competitive nature of the consumer electronics retail business,
no assurance can be given that RadioShack will continue to compete successfully
with respect to each of the factors referenced above. Also, in light of the
ever-changing nature of the electronics retail industry, RadioShack would be
adversely affected if its competitors were able to offer their products at
significantly lower prices, introduce innovative or technologically superior
products not yet available to RadioShack or if RadioShack was unable to obtain
certain products in a timely manner for an extended period of time.
With respect to the expansion of the Internet, management does not believe
e-commerce retailers currently provide significant competition to RadioShack.
This, however, could change and become significant over time. Management further
believes that Tandy to well positioned to meet the increased competition from
Internet retailers with its recently launched RadioShack.com initiative, coupled
with RadioShack's extensive physical retail presence, services capabilities and
wide assortment of consumer electronics products.
EMPLOYEES
As of December 31, 1999, Tandy had approximately 40,800 employees. That number
included approximately 8,800 temporary retail employees who were hired for the
Christmas selling season. None of Tandy's employees are covered by collective
bargaining agreements nor are they members of labor unions. Tandy's management
considers its relationship with its employees to be good.
ITEM 2. PROPERTIES.
Information on Tandy's properties is in Management's Discussion and Analysis and
the financial statements included in this Form 10-K and is incorporated into
this Item 2 by reference. The following items are discussed further on the
referenced pages:
Page
Retail Outlets............................... 13
Property, Plant and Equipment................ 42
Leases....................................... 45
Tandy leases, rather than owns, most of its retail and service center
facilities. RadioShack stores are located primarily in major shopping malls,
stand-alone buildings or shopping centers owned by other entities. Tandy owns
most of the property on which its executive offices are located in downtown Fort
Worth, Texas, all distribution centers, except for two which are leased, and
most of its manufacturing facilities located throughout the United States. A&A
leases six administrative offices in the Asia Pacific region. AmeriLink's
headquarters and field offices are also leased. Existing warehouse and office
facilities are deemed adequate to meet Tandy's needs in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
Tandy has various claims, lawsuits, disputes with third parties, investigations
and pending actions involving allegations of negligence, product defects,
discrimination, infringement of intellectual property rights, tax deficiencies,
violations of permits or licenses, and breach of contract and other matters
against Tandy and its subsidiaries incident to the operation of its business.
The liability, if any, associated with these matters was not determinable at
December 31, 1999. Although occasional adverse settlements or resolutions may
occur and negatively impact earnings in the year of settlement, it is the
opinion of management that their ultimate resolution will not have a materially
adverse effect on Tandy's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT (SEE ITEM 10 OF PART III).
The following is a list of Tandy Corporation's executive officers and their
ages, positions and length of service with the Company as of February 29, 2000.
Position Years with
Name (Date Elected to Current Position) Age Company
---- --------------------------------- --- -------
Leonard H. Roberts Chairman of the Board, Tandy Corporation (May 1999) 51 6 (1)
Chief Executive Officer (January 1999) and
President (December 1995), Tandy Corporation
President, RadioShack (July 1993)
David Christopher Executive Vice President, Tandy Corporation 57 33 (2)
(October 1998)
President, A&A International
(July 1990)
David J. Edmondson Senior Vice President, Tandy Corporation 40 5 (3)
Executive Vice President and
Chief Operating Officer, RadioShack
(October 1998)
Dwain H. Hughes Senior Vice President and 52 20 (4)
Chief Financial Officer, Tandy Corporation
(January 1995)
Mark C. Hill Senior Vice President (October 1998), 48 3 (5)
Corporate Secretary and General Counsel
(July 1997), Tandy Corporation
Evelyn V. Follit Senior Vice President and Chief Information Officer, 53 3 (6)
Tandy Corporation (May 1999)
Francesca M. Spinelli Senior Vice President of People, Tandy Corporation 46 2 (7)
(December 1999)
Robert M. McClure Senior Vice President, Tandy Corporation 64 27 (8)
(January 1994)
Mark W. Barfield Vice President-Tax, Tandy Corporation 42 12 (9)
(May 1994)
Richard J. Borinstein Senior Vice President-Merchandising, 56 10 (10)
RadioShack (December 1996)
Henry G. Chiarelli President, RadioShack.com, LLC 45 29 (11)
(November 1999)
Loren K. Jensen Vice President-Finance, Tandy Corporation 39 4 (12)
(February 2000)
David P. Johnson Senior Vice President and Controller, RadioShack 47 27 (13)
(February 1998)
Martin O. Moad Vice President and Treasurer, Tandy Corporation 43 14 (14)
(February 2000)
Laura K. Moore Vice President-Public Relations and Corporate 38 1 (15)
Communications, Tandy Corporation
(October 1998)
Louis W. Provost Senior Vice President-Retail Operations, RadioShack 43 25 (16)
(August 1998)
Richard L. Ramsey Vice President and Controller, Tandy Corporation 54 33
(January 1986)
There are no family relationships among the executive officers listed and there
are no arrangements or understandings pursuant to which any of them were
appointed as executive officers. All executive officers of Tandy Corporation are
elected by the Board of Directors annually to serve for the ensuing year, or
until their successors are elected. All of the executive officers listed above
have served Tandy in various capacities over the past five years, except for
Messrs. Hill, Jensen and Mmes. Follit, Moore and Spinelli.
(1) Mr. Roberts was elected Chairman of the Board of Tandy Corporation
effective May 1999 and was elected Chief Executive Officer effective
January 1999. Mr. Roberts has been President of Tandy Corporation since
December 1995 and has been President of the RadioShack division since July
1993.
(2) Mr. Christopher served as Executive Vice President, RadioShack from January
1992 until October 1998, when he was named Executive Vice President, Tandy
Corporation. Mr. Christopher has also served as President of A&A
International since July 1990.
(3) Mr. Edmondson was elected Senior Vice President, Tandy Corporation and
Executive Vice President and Chief Operating Officer, RadioShack effective
October 1998. Mr. Edmondson served as Senior Vice President of Marketing
and Advertising, RadioShack from November 1995 to October 1998. He served
as Vice President-Marketing, RadioShack from December 1994 until November
1995.
(4) Mr. Hughes was elected Senior Vice President and Chief Financial Officer,
Tandy Corporation effective January 1995. Mr. Hughes served as Vice
President and Treasurer, Tandy Corporation from June 1991 until December
1994.
(5) Mr. Hill served as Vice President, Corporate Secretary and General Counsel,
Tandy Corporation from July 1997 to October 1998, when he was named Senior
Vice President, Tandy Corporation. He continues to serve as Corporate
Secretary and General Counsel of the Company. Prior to joining Tandy, Mr.
Hill practiced law for 21 years and was a partner with the law firm of
Haynes and Boone LLP for the last 13 years.
(6) Ms. Follit served as Vice President and Chief Information Officer, Tandy
Corporation from October 1997 to May 1999, when she was elected Senior Vice
President and Chief Information Officer, Tandy Corporation. Prior to
joining Tandy Corporation, she was Vice President-Operations and
Engineering for A.C. Nielsen Corporation from October 1996 to March 1997.
Ms. Follit held various management positions at Dun & Bradstreet
Corporation, ITT and IBM from 1970 to October 1996.
(7) Ms. Spinelli served as Vice President of People, Tandy Corporation from
July 1998 to December 1999, when she was elected Senior Vice President of
People, Tandy Corporation. Prior to joining Tandy Corporation, she was
employed by Wal-Mart Stores, Inc. from March 1993 to July 1998. She served
as Corporate Vice President of Organizational Development of Wal-Mart
Stores, Inc. from February 1997 to July 1998.
(8) Mr. McClure served as President of the Tandy Electronics division from
August 1987 until January 1993, when he was elected as Chief Operating
Officer and President of TE Electronics, Inc. Mr. McClure was named Senior
Vice President, Tandy Corporation in January 1994.
(9) Mr. Barfield served as Director of Federal and International Taxes, Tandy
Corporation from April 1991 to May 1994, when he was named Vice
President-Tax, Tandy Corporation.
(10) Mr. Borinstein served as Vice President-Merchandise Marketing, RadioShack
from December 1993 to December 1998, when he was elected Senior Vice
President-Merchandising, RadioShack. Mr. Borinstein served as Director-
Merchandising, RadioShack from September 1991 through December 1993.
(11) Mr. Chiarelli served as Senior Vice President-New Ventures, RadioShack
until November 1999 when he was elected President of RadioShack.com, LLC.
He served as Senior Vice President-Merchandising and Marketing, Computer
City from January to December 1997. Mr. Chiarelli served as Vice President
and General Manager, Incredible Universe from October 1995 to January 1997.
He served as Vice President-New Venture Group, RadioShack from September
1994 until October 1995.
(12) Mr. Jensen served as Vice President and Treasurer, Tandy Corporation from
May 1995 to February 2000. Prior to joining Tandy Corporation, he served as
Senior Vice President of Texas Commerce Bank where he was employed for
almost 10 years.
(13) Mr. Johnson served as Vice President and Controller, RadioShack from June
1994 to February 1998, when he was named Senior Vice President and
Controller, RadioShack. Mr. Johnson served as Vice President/Controller-
Retail, RadioShack from August 1993 until June 1994.
(14) Mr. Moad served as Vice President-Investor Relations, Tandy Corporation
from December 1996 to February 2000 and as Director of Investor Relations
from February 1993 until December 1996.
(15) Ms. Moore has served as Vice President-Corporate Communications and Public
Relations since joining Tandy in October 1998. Prior to joining Tandy, she
was employed by Zale Corporation where she served as Vice President,
Corporate Communications from 1995 to 1998 and as Corporate Communications
Manager from 1993 to 1995.
(16) Mr. Provost was elected Senior Vice President-Retail Operations, RadioShack
effective August 1998. Mr. Provost served as Vice President and General
Manager, Tandy TechAmerica from April 1996 to August 1998. He served as
Vice President-Southeast Division, RadioShack from April 1993 to March
1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
PRICE RANGE OF COMMON STOCK (Restated for two-for-one stock split payable in
June 1999) Tandy's common stock is listed on the New York Stock Exchange and
trades under the symbol "TAN". The following table presents the high and low
trading prices for Tandy's common stock, as reported in the composite
transactions quotations of consolidated trading for issues on the New York Stock
Exchange, for each quarter of the two years ended December 31, 1999.
Dividends
Quarter Ended High Low Declared
- ------------- ---- --- --------
December 31, 1999 $ 79 1/2 $ 41 3/8 $ 0.055
September 30, 1999 56 3/4 37 3/8 0.050
June 30, 1999 51 30 3/32 0.050
March 31, 1999 32 1/16 20 19/32 0.050
December 31, 1998 $ 26 5/8 $ 18 1/2 $ 0.050
September 30, 1998 31 15/16 25 13/32 0.050
June 30, 1998 27 5/16 20 17/32 0.050
March 31, 1998 24 7/16 15 3/16 0.050
HOLDERS OF RECORD
At March 21, 2000 there were 30,214 holders of record of Tandy's common stock.
DIVIDENDS
The Board of Directors reviews Tandy's dividend policy annually. On October 25,
1999, Tandy announced a 10% increase in the quarterly cash dividend from $0.050
per share to $0.055 per share for shareholders of record on January 3, 2000.
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA (UNAUDITED)
TANDY CORPORATION AND SUBSIDIARIES
Year Ended December 31,
(In millions, except per share --------------------------------------------------------
amounts and ratios) 1999 1998(1) 1997 1996 1995
================================================================================================
Operations
Net sales and operating revenues $4,126.2 $4,787.9 $5,372.2 $6,285.5 $5,839.1
======== ======== ======== ======== ========
Income (loss) before income taxes $ 480.5 $ 99.7 $ 303.9 $ (145.6) $ 343.2
Provision (benefit) for income taxes 182.6 38.4 117.0 ( 54.0) 131.3
-------- -------- -------- -------- --------
Net income (loss) $ 297.9 $ 61.3 $ 186.9 $ (91.6) $ 211.9
======== ======== ======== ======== ========
Net income (loss) available per common
share:
Basic $ 1.51 $ 0.28 $ 0.84 $ (0.41)(3)$ 0.81
======== ======== ======== ======== ========
Diluted $ 1.43 $ 0.27 $ 0.82 $ (0.41)(3)$ 0.79
======== ======== ======== ======== ========
Shares used in computing earnings
(loss) per common share:
Basic 194.2 201.2 214.4 239.3 252.9
======== ======== ======== ======== ========
Diluted 205.0 211.4 224.5 239.3 262.8
======== ======== ======== ======== ========
Dividends declared per common share $ 0.205 $ 0.200 $ 0.200 $ 0.200 $ 0.185
======== ======== ======== ======== ========
Ratio of earnings to fixed charges (2) 5.51 1.84 3.52 N/A 4.22
SELECTED FINANCIAL DATA (UNAUDITED) Continued
TANDY CORPORATION AND SUBSIDIARIES
Year Ended December 31,
(In millions, except per ---------------------------------------------------------
share amounts and ratios) 1999 1998(1) 1997 1996 1995
- -------------------------------------------------------------------------------------------------
Financial Position
Inventories $ 861.4 $ 912.1 $1,205.2 $1,420.5 $1,512.0
Total assets $2,142.0 $1,993.6 $2,317.5 $2,583.4 $2,722.1
Working capital $ 478.1 $ 419.1 $ 739.1 $ 746.3 $1,088.3
Current ratio 1.52 to 1 1.48 to 1 1.76 to 1 1.63 to 1 2.13 to 1
Capital structure:
Current debt (3) $ 188.9 $ 233.2 $ 299.5 $ 258.0 $ 189.9
Long-term debt (3) $ 319.4 $ 235.1 $ 236.1 $ 104.3 $ 140.8
Total debt $ 508.3 $ 468.3 $ 535.6 $ 362.3 $ 330.7
Total debt, net of cash and
cash equivalents $ 343.7 $ 403.8 $ 429.7 $ 240.8 $ 187.2
Stockholders' equity $ 830.7 $ 848.2 $1,058.6 $1,264.8 $1,601.3
Total capitalization $1,339.0 $1,316.5 $1,594.2 $1,627.1 $1,932.0
Long-term debt as a % of
total capitalization 23.9% 17.9% 14.8% 6.4% 7.3%
Total debt as a % of total
capitalization (4) 38.0% 35.6% 33.6% 22.3% 17.1%
Stockholders' equity per
common share $ 4.07 $ 4.13 $ 4.98 $ 5.37 $ 6.36
Financial Ratios
Return on average
stockholders' equity 35.5%(5) 6.4%(6) 16.1% N/A(7) 12.3%
Percent of sales:
Income (loss) before income 11.7% 2.1% 5.7% (2.3)% 5.9%
taxes
Net income (loss) 7.2% 1.3% 3.5% (1.5)% 3.6%
This table should be read in conjunction with MD&A and the Consolidated
Financial Statements and Notes thereto.
(1) Includes operations of Computer City, Inc. for only eight months, due to
sale to CompUSA Inc. on August 31, 1998.
(2) Earnings used in computing the ratio of earnings to fixed charges consist
of pre-tax earnings and fixed charges. Fixed charges are defined as
interest expense related to debt, amortization expense related to deferred
financing costs and a portion of rental charges. Pre-tax earnings were not
sufficient to cover fixed charges during 1996 by approximately $145.6
million. Excluding $230.3 million (net of taxes) in restructuring and other
charges, the 1996 ratio of earnings to fixed charges would have been 2.57.
(3) Includes capital leases and TESOP indebtedness.
(4) Total debt includes capital leases and TESOP indebtedness. Capitalization
is defined as total debt plus total stockholders' equity.
(5) Excluding $5.9 million (net of taxes) provision related to restricted stock
awards in 1999, return on average stockholders' equity would have been
33.1%.
(6) Excluding $183.9 million (net of taxes) for provisions related to
restricted stock awards and loss on sale of Computer City, as well as
Computer City operating losses and other business writedowns in 1998,
return on average stockholders' equity would have been 23.6%.
(7) Excluding $230.3 million (net of taxes) in restructuring and other charges
in 1996, return on average stockholders' equity would have been 8.9%.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION ("MD&A").
FACTORS THAT MAY AFFECT FUTURE RESULTS
With the exception of historical information, the matters discussed in MD&A
contain forward-looking statements that involve various risks and uncertainties
and are indicated by words such as "anticipates," "expects," "believes," "will,"
"should," "could," and similar words and phrases. Factors that could cause Tandy
Corporation's ("Tandy" or the "Company") actual results to differ materially
from management's projections, forecasts, estimates and expectations include,
but are not limited to, the following:
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 and
telephone shopping services and mail order;
o changes in general U.S. or regional U.S. economic conditions including,
but not limited to, consumer credit availability, interest rates, inflation,
personal discretionary spending levels and consumer sentiment about the
economy in general;
o the inability to successfully implement, market and execute the
RadioShack.comSM website and its coordination with RadioShack retail
outlets;
o the presence or absence of new services or products and product features in
the merchandise categories RadioShack sells and changes in RadioShack's
actual merchandise sales mix;
o the inability to negotiate profitable contracts or execute business plans
with providers of such services as cellular and PCS telephones,
direct-to-home satellite, Internet access and high-speed bandwidth;
o the inability to collect the level of anticipated residual revenues,
commissions and bounties for products and services sold by RadioShack;
o the inability to successfully implement and execute Tandy's strategic
alliances with Thomson Multimedia and/or Microsoft Corporation;
o lack of availability or access to sources of supply inventory (as a large
importer of consumer electronic products from Asia, unfavorable trade
imbalances could negatively affect Tandy);
o the inability to retain and grow an effective management team in a dynamic
environment or changes in the cost or availability of a suitable work force
to manage and support Tandy's service-driven operating strategies;
o the imposition of new restrictions or regulations regarding the sale of
products and/or services Tandy sells or changes in tax rules and regulations
applicable to Tandy;
o the inability to successfully coordinate AmeriLink Corporation and its
operations with RadioShack; or
o the adoption rate and market demand for high speed Internet and other
Internet-related services.
The United States retail industry and the specialty retail industry in
particular are dynamic by nature and have undergone significant changes over the
past several years. Tandy's ability to anticipate and successfully respond to
continuing challenges is key to achieving its expectations.
STOCK SPLIT
On May 20, 1999, Tandy's Board of Directors declared a two-for-one split of
Tandy common stock, payable on June 21, 1999. All references to the number of
shares (other than common stock issued or outstanding on the 1998 Consolidated
Balance Sheet and the 1997 and 1998 Consolidated Statements of Stockholders'
Equity), per share amounts, cash dividends and any other reference to shares,
unless otherwise noted, have been adjusted to reflect the split on a retroactive
basis. Previously awarded stock options, restricted stock awards and all other
agreements payable in Tandy's common stock have also been adjusted or amended to
reflect the split.
RETAIL OUTLETS
Average December 31,
Store Size -------------------------------------
(Sq. Ft.) 1999 1998 1997
- --------------------------------------------------------------------------------
RadioShack
Company-Owned 2,300 5,087 5,039 4,972
Dealer/Franchise N/A 2,099 1,991 1,934
-------- -------- --------
7,186 7,030 6,906
Computer City, Inc. (1) 21,050 -- -- 96
-------- -------- --------
7,186 7,030 7,002
======== ======== ========
(1)Computer City, Inc. was sold to CompUSA Inc. on August 31, 1998.
Space Owned and Leased
Approximate Square Footage
at December 31,
-------------------------------------------------------------------------
1999 1998
------------------------------------ ---------------------------------
(In thousands) Owned Leased Total Owned Leased Total
- -----------------------------------------------------------------------------------------------
Retail
RadioShack -- 11,990 11,990 -- 11,839 11,839
Other 162 -- 162 162 -- 162
-------- -------- -------- -------- -------- --------
162 11,990 12,152 162 11,839 12,001
Support Operations
Manufacturing 505 201 707 472 201 673
Warehouse and office 3,496 1,512 5,007 3,573 1,298 4,871
-------- -------- -------- -------- -------- --------
4,163 13,703 17,866 4,207 13,338 17,545
======== ======== ======== ======== ======== ========
SEGMENT REPORTING DISCLOSURES
All references to RadioShack and Computer City in MD&A refer to Tandy's
reportable segments, unless otherwise noted. The RadioShack segment consists of
the RadioShack retail division, including RadioShack.com, and the retail
division's support operations, including its manufacturing facilities, repair
centers and AmeriLink Corporation ("AmeriLink"). The Computer City segment
consists of Computer City, Inc. ("CCI" or "Computer City"), which was sold to
CompUSA Inc. ("CompUSA") on August 31, 1998. The closed units segment includes
all Tandy stores and non-retail units which were part of the store closure plan
announced in December 1996 (see "1996 Business Restructuring" below). Corporate
administration and other includes corporate units which serve all areas of Tandy
and also income or expenses which were not allocated to RadioShack or Computer
City.
The following table summarizes net sales and operating revenues, operating
profit (loss) and assets for Tandy's reportable segments. Consolidated operating
profit is reconciled to Tandy's income before income taxes.
Year Ended December 31,
--------------------------------
(In millions) 1999 1998 1997
- ------------- -------- -------- --------
Net sales and operating revenues:
RadioShack (1) $4,126.2 $3,591.2 $3,303.9
Computer City (2) -- 1,196.7 1,903.7
Closed units -- -- 164.6
-------- -------- --------
$4,126.2 $4,787.9 $5,372.2
======== ======== ========
Operating profit (loss):
RadioShack (3) $ 539.8 $ 377.7 $ 398.4
Computer City (2) -- (95.6) (14.9)
Closed units -- (120.8)(4) (30.1)
-------- -------- --------
539.8 161.3 353.4
Corporate administration and other (42.5) (27.0) (16.6)
Interest income (5) 20.4 10.8 13.2
Interest expense (5) (37.2) (45.4) (46.1)
-------- -------- --------
Income before income taxes $ 480.5 $ 99.7 $ 303.9
======== ======== ========
At December 31,
--------------------
1999 1998
-------- --------
Assets:
RadioShack $1,476.2 $1,437.1
Computer City (2) -- --
Corporate administration and other 665.8 556.5
-------- --------
$2,142.0 $1,993.6
======== ========
(1) Includes outside sales related to retail support operations of $104.3
million, $77.4 million and $88.2 million for the years ended December 31,
1999, 1998 and 1997, respectively.
(2) Computer City was sold to CompUSA on August 31, 1998.
(3) Includes $9.6 million and $82.6 million of compensation expense for store
manager restricted stock awards for the years ended December 31, 1999 and
1998, respectively.
(4) Includes provision for loss on sale of Computer City of $108.2 million and
charges associated with the 1996 restructuring program.
(5) Tandy does not allocate interest income or expense to its operating
segments.
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
- -----------------------
NET SALES AND OPERATING REVENUES
Consolidated net sales and operating revenues decreased 13.8% from $4,787.9
million in 1998 to $4,126.2 million in 1999; this decrease was attributable
primarily to the sale of Computer City to CompUSA on August 31, 1998.
Consolidated comparable store sales for 1999 are not meaningful, due to this
sale.
RadioShack Segment
RadioShack had an outstanding year with RadioShack's overall sales increasing
14.9% to $4,126.2 million in 1999 from $3,591.2 million in 1998, due primarily
to a 12.2% comparable company-owned store sales gain and the opening of 48 new
stores, net of store closures. Additionally, sales to RadioShack's dealers
experienced strong growth throughout the year. RadioShack's comparable store
sales increase was driven primarily by increased sales of communications
products, prepaid wireless airtime and sales of audio and video equipment, which
includes "direct-to-home" satellite systems and services ("DTH"). A continued
healthy economy and a strong retail consumer electronics industry are expected
to result in a positive comparable store sales gain for 2000. The following
table summarizes RadioShack's retail sales breakdown by class of products and
each class as a percent of total RadioShack retail sales (excluding outside
sales from retail support operations):
Percent of RadioShack Retail Sales
Year Ended December 31,
---------------------------------------------
Class of Products 1999 1998 1997 1996
- ----------------- -------- -------- -------- --------
Communications 29.3% 28.5% 27.5% 24.4%
Electronic parts, accessories 27.2 30.0 31.5 32.3
and specialty equipment
Audio and video 17.1 15.5 16.8 18.0
Personal electronics and seasonal 9.4 10.4 11.6 12.4
Personal computers and peripherals 8.7 9.1 9.4 10.4
Services and other 8.3 6.5 3.2 2.5
-------- -------- -------- --------
100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========
For the first time, the communications category, which includes wireless
communications such as cellular and PCS telephones, as well as residential
telephones, answering machines, pagers and other related telephony and
communication products, surpassed the electronic parts, accessories and
specialty equipment category as RadioShack's largest product category. The
communications category increased, as a percentage of total retail sales in
1999, primarily due to a 50% increase in unit sales of PCS and cellular
telephones. Both unit and dollar sales of PCS and cellular telephones are
expected to continue to increase in 2000. Through The Sprint Store at
RadioShack, customers are provided with access to a full service communications
center that offers, where available, Sprint local and long-distance telephone
service, Spree(SM) prepaid phone cards and Sprint branded residential
telephones. On October 5, 1999, Sprint announced it would be merging with MCI
WorldCom, Inc., subject to stockholder and regulatory approvals. The merger is
expected to close in the second half of 2000. Tandy's management anticipates no
significant changes to its existing agreements as a result of the pending
merger.
Sales of electronic parts, accessories and specialty equipment decreased as a
percentage of total retail sales in 1999 when compared to 1998, despite a 4%
sales gain. The category was 27.2% of RadioShack's retail sales mix in 1999,
down from 30.0% in 1998, primarily due to the communications category and the
services and other category becoming a higher percent of the product mix in
1999. This category is expected to increase in sales, but decrease as a
percentage of RadioShack's retail sales mix in 2000 as the communications, audio
and video, and services and other categories increase.
The audio and video category experienced a sales increase of approximately 27%
during 1999 when compared to 1998, due primarily to a strong increase in sales
of DTH. Sales of DTH are expected to continue to increase in 2000. On May 13,
1999, Tandy entered into a multi-year retail sales and service agreement with
Thomson Multimedia ("Thomson"), which owns the RCA brand. Under this agreement,
Thomson will supply RadioShack with various RCA-branded audio and video
components such as televisions, VCRs, camcorders, digital video disc (DVD)
players, digital cameras, CD shelf systems and other digital entertainment
products beginning in 2000. Some of these items are currently available in
stores. The expanded assortment will be sold through The RCA Digital
Entertainment Center at RadioShack via a "store-within-a-store" concept with an
expected rollout date in mid-2000. Store fixture costs for this
"store-within-a-store" will be borne by Thomson. Management believes that this
alliance will allow RadioShack to be more competitive in the evolution of
digital technology, which should enhance sales in the audio and video category
in 2000 and beyond.
Personal electronics and seasonal products decreased to 9.4% of RadioShack's
retail sales mix in 1999 from 10.4% in 1998, due primarily to an overall shift
in the product mix as mentioned above. This category experienced a 4% sales
increase over the prior year as a result of increased sales of toys, portable CD
players and radios.
Sales of personal computers and peripherals were 8.7% of RadioShack's retail
sales in 1999, compared to 9.1% in 1998, despite a large unit gain and a 10%
sales gain for the year. The average selling price of CPU's decreased 16%, in
line with the general market decline. The average selling price of CPU's is
expected to decrease slightly in 2000. Despite this downward trend, management
believes that the higher unit sales volumes of personal computers and
peripherals will contribute to increased sales of this category, as well as to
sales of higher gross margin products and services, such as accessories and
extended service plans.
Sales in the services and other category, which includes residuals and income
from prepaid wireless airtime, repair services and extended service contracts,
increased in 1999 in dollars and as a percent of RadioShack retail sales, due to
an increase in sales of prepaid wireless airtime as well as to an increase in
residual income received from RadioShack's third party providers of
communications and DTH. Residual income is also earned on sales of Sprint long
distance and PCS services as well as sales of other wireless products and
services. Residuals vary by service provider, but are typically a portion of the
continuing service revenue paid by the consumer throughout the ensuing months
and/or years of that customer's subscription. In 1999, RadioShack earned
approximately $63.0 million of residual income, compared to $34.2 million in
1998. Residual income is expected to continue to increase in 2000; however,
increases are dependent upon such factors as customers' continued usage of
certain services and stability of average revenue per subscriber, among other
factors. Prepaid wireless airtime sales are expected to decrease in 2000.
RadioShack installation service revenue is expected to increase in 2000 due to
the AmeriLink acquisition.
Connectivity Strategy Update: Tandy entered into two agreements during 1999
which management believes are significant steps towards achieving Tandy's
strategic plan for RadioShack to become "America's Home Connectivity Store,"
similar to its existing concept of "America's Telephone Store." Connectivity
will provide solutions for connecting to and utilizing high-speed bandwidth.
Bandwidth refers to volume at which data can be transmitted and, depending on
the volume delivered, may enable consumers to have such capabilities as instant
and/or high speed Internet access, movies on demand and multiple phone/fax
connections through a single phone or cable line.
On November 11, 1999, Tandy Corporation announced a five-year strategic alliance
with Microsoft Corporation ("Microsoft") that encompasses broadband and
narrowband technology, as well as in-store and online efforts. In the third
quarter of 2000, RadioShack and Microsoft are expected to launch The Microsoft
Internet Center @ RadioShack via a "store-within-a-store" concept in as many as
5,000 company-owned RadioShack stores and participating dealer/franchise outlets
nationwide. Store fixture costs for this "store-within-a-store" will be borne by
Microsoft. The Microsoft Internet Center @ RadioShack will allow customers to
view demonstrations of narrowband and broadband technology and subscribe to
MSN(TM) dial-up or broadband Internet access service, as well as view a broad
range of existing and future products, solutions and services based on Microsoft
technologies. RadioShack will receive a "bounty" on certain sales of Microsoft's
MSN broadband and narrowband Internet access service sold through its retail
outlets or through its RadioShack.com website. Additionally, RadioShack will
earn a residual based on a portion of the continuing service revenue paid by the
consumer throughout the ensuing months and/or years of the customer's
subscription to MSN. The timing of the commencement of the residuals is
dependent upon the marketing program under which new customers' subscriptions
are acquired. See also "RadioShack.com, LLC" below for information on
Microsoft's investment in RadioShack.com.
On April 21, 1999, Tandy announced it had entered into a strategic agreement
with NorthPoint Communications, Inc. ("NorthPoint"), a provider of Digital
Subscriber Line ("DSL") technology. DSL technology transports data at speeds up
to 25 times faster than common dial-up modems, allowing for high-speed Internet
access and other data-intensive applications. Management anticipates this
alliance will accelerate the adoption rate of these services at an affordable
price to the mass market. Additionally, NorthPoint will provide RadioShack with
DSL services for consumer display purposes in many of its retail stores, as well
as for internal use. NorthPoint currently operates in 33 markets in the U.S. and
expects to expand its service territory to 60 markets by the end of 2000.
Also, on July 30, 1999, Tandy acquired AmeriLink, one of America's leading
installers of cable, telephony and high-bandwidth products. See "AmeriLink
Acquisition" below for further information.
GROSS PROFIT
Gross profit for Tandy was $2,083.5 million or 50.5% of net sales and operating
revenues, compared with $2,004.4 million or 41.9% of net sales and operating
revenues in 1998. This increase in gross profit as a percentage of net sales and
operating revenues was primarily the result of RadioShack sales accounting for
all of the Company's consolidated net sales and operating revenues in 1999, when
compared to 1998 due to the sale of Computer City to CompUSA on August 31, 1998.
Computer City had an inherently lower gross margin percentage than consolidated
Tandy Corporation. Without Computer City and other closed units, Tandy's
consolidated gross profit as a percent of net sales and operating revenues would
have been 52.1% for 1998.
RadioShack's gross profit increased 11.4% in dollars for the year ended December
31, 1999 versus 1998, but decreased as a percentage of RadioShack's total sales
from 52.1% of sales in 1998 to 50.5% in 1999. This 1.6 percentage point decrease
was due primarily to mix shifts within RadioShack's product offerings as sales
of lower margin categories increased as a portion of the overall sales volume.
To a lesser extent, the decrease in the gross margin percentage was also due to
promotional markdowns of private label audio and video products as RadioShack
began transitioning to RCA-branded products in the fourth quarter of 1999, as
well as to markdowns taken throughout the year on residential telephones. The
decrease in gross margin was partially offset by an increase in residual income
which has 100% gross margin. Gross profit as a percentage of RadioShack's sales
is expected to decrease in 2000, although not to the extent it decreased in
1999, due to continuing mix shifts within RadioShack's product offerings. An
expected increase in residual income should partially offset this decrease. In
addition, management expects to increase gross margin dollars and gain operating
leverage in selling, general and administrative ("SG&A") expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
The table below summarizes the breakdown of various components of Tandy's
consolidated SG&A expense and its related percentage of total sales and
operating revenues.
Year Ended December 31,
----------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- --------------------
% of % of % of
Sales & Sales & Sales &
(In millions) Dollars Revenues Dollars (2) Revenues Dollars Revenues
- ------------------------------------------------- ----------------------- -------------------
Payroll and commissions $ 741.8(1) 18.0% $ 734.1(1) 15.3% $ 734.1 13.7%
Rent 205.5 5.0 217.4 4.5 222.6 4.1
Advertising 199.9 4.8 208.7 4.4 195.4 3.6
Other taxes 91.2 2.2 96.1 2.0 102.0 1.9
Utilities and telephone 62.2 1.5 71.5 1.5 72.2 1.3
Insurance 47.6 1.2 50.6 1.1 50.5 0.9
Credit card fees 27.5 0.7 38.6 0.8 43.1 0.8
Stock purchase
and savings plans 21.0 0.5 20.4 0.4 17.8 0.3
Other 89.7 2.1 142.9 3.0 142.6 2.8
---------------------- ------------------------ -------------------
$1,486.4 36.0% $1,580.3 33.0% $1,580.3 29.4%
====================== ======================== ===================
(1) Does not include $9.6 million and $82.6 million of compensation expense for
store manager restricted stock awards for 1999 and 1998, respectively.
(2) Includes expenses related to Computer City before its sale to CompUSA on
August 31, 1998.
Tandy's SG&A expense decreased slightly in dollars, but increased as a percent
of net sales and operating revenues to 36.0% for the year ended December 31,
1999 versus 33.0% for the year ended December 31, 1998. The higher SG&A
percentage in 1999 was due primarily to the 1998 sale of Computer City which
operated at lower relative SG&A expense levels than consolidated Tandy
Corporation. Excluding Computer City and other closed units, Tandy's SG&A
expense as a percentage of sales would have approximated 37.7% in 1998. This
decrease of 1.7 percentage points from 1998 was due primarily to the favorable
effect of increased sales at RadioShack during 1999.
Despite the sale of Computer City in 1998, payroll expense for consolidated
Tandy Corporation increased in dollars and as a percent of Tandy's net sales and
operating revenues to 18.0% in 1999, compared to 15.3% in 1998. Payroll expense
for RadioShack increased to $99.1 million in 1999 compared to 1998. This
increase was due primarily to RadioShack retail store expansions, changes in
compensation plans and increases in personnel, commissions, bonuses and other
incentives resulting from RadioShack's strong comparable store sales and
profits. The increase as a percentage of RadioShack's net sales and operating
revenues to 16.2% in 1999, compared to 15.8% in 1998, was also due to changes in
compensation plans, increases in personnel and other incentives.
Rent expense for consolidated Tandy Corporation decreased in dollars in 1999,
but increased as a percent of Tandy's net sales and operating revenues to 5.0%
in 1999 from 4.5% in 1998. The decrease in dollars was due to the sale of
Computer City in 1998. The percentage increase also related to the sale of
Computer City, which had lower rent expense as a percentage of sales than
consolidated Tandy Corporation. Rent expense for RadioShack increased in
dollars, but decreased as a percentage of RadioShack's net sales and operating
revenues in 1999 compared to 1998. Rent expense increased $20.5 million in 1999,
compared to 1998, due primarily to 48 new RadioShack store openings, net of
store closures, throughout the year, as well as lease renewals at slightly
higher rates. The decrease as a percentage of RadioShack's net sales and
operating revenues to 5.2% in 1999, compared to 5.4% in 1998 was due primarily
to the favorable effect of increased comparable RadioShack stores sales on the
expense rate structure.
Advertising expense for consolidated Tandy Corporation decreased in dollars, but
increased as a percent of Tandy's net sales and operating revenues to 4.8% in
1999, compared to 4.4% in 1998, due to the sale of Computer City in August 1998.
Advertising expense for RadioShack decreased in both dollars and as a percentage
of RadioShack's net sales and operating revenues to $198.1 million and 4.8% of
sales in 1999, compared to $200.2 million and 5.6% of sales in 1998. The dollar
decrease was due primarily to increased marketing development funds received
from service providers. In addition, the decrease as a percentage of sales and
operating revenues reflects the sales leverage gained from RadioShack's sales
increase.
Credit card fees expense, which includes fees associated with third party bank
credit cards and fees paid for promotional accounts such as "zero interest for
six months," and the "other" expense category both decreased primarily as a
result of the sale of Computer City.
In 2000, Tandy's SG&A expense is expected to increase in dollars due to
additional sales volume, but decrease as a percentage of net sales and operating
revenues as a result of the sales leverage gained from a comparable store sales
increase and, to a lesser extent, an increase in new stores.
RESTRICTED STOCK AWARDS
On February 1, 1998, Tandy granted, under the 1997 Incentive Stock Plan,
approximately 649,500 restricted stock awards consisting of 500 shares each to
1,299 RadioShack store managers not included in the February 1, 1997 restricted
stock grant. The February 1998 restricted stock awards had a weighted average
fair market value of $19.61 per share when granted. This restricted stock grant
was to vest on February 2, 2003, if managers receiving the grants were employed
by Tandy at a store manager or higher position, at that time. However, the
grants provided that the restricted shares would vest early if Tandy common
stock closed at $29.0625 or more for any 20 consecutive trading days beginning
February 1, 2000. At December 31, 1999, it was probable that the 348,000 shares
that remained outstanding under this grant would vest under the early vesting
provisions. The resulting charge to compensation expense of $14.7 million,
including related payroll taxes, was recorded in the fourth quarter of 1999.
Vesting of these restricted stock awards occurred when Tandy's common stock
closed above the targeted amount for the twentieth consecutive trading day on
February 29, 2000. Vesting resulted in the issuance of 336,000 shares of Tandy's
common stock at a fair market value of $37.53 per share.
In the fourth quarter of 1998, Tandy recorded estimated compensation expense of
$82.6 million related to the early vesting of restricted stock awards that had
been granted to 4,907 store managers on February 1, 1997. These awards vested on
March 1, 1999 and the actual price of the stock and the number of shares vested
differed from the estimated accrual at December 31, 1998. The amount of this
difference, $5.1 million, was recorded as a credit to expense in the first
quarter of 1999.
The restricted stock program for store managers was replaced in 1999 and 2000 by
a stock option program for store managers. See Note 19 - "Stock Options and
Performance Awards" of the Notes to Consolidated Financial Statements ("Notes").
Management does not anticipate any future use of restricted stock for store
managers.
NET INTEREST EXPENSE
Interest expense, net of interest income, was $16.8 million for 1999 versus
$34.6 million for 1998.
Interest expense decreased 18.1% to $37.2 million in 1999, from $45.4 million in
1998. This decrease was a result of Tandy no longer having to incur interest
expense on Computer City capital lease obligations, as well as to a
corresponding decrease in Tandy's average debt outstanding during 1999. Interest
income increased almost 90% in 1999 to $20.4 million in 1999 from $10.8 million
in 1998, due primarily to interest from the $136.0 million CompUSA note
receivable which was outstanding a full year (see "Sale of Computer City, Inc."
below for further information).
Interest expense, net of interest income, is expected to increase during 2000,
primarily due to anticipated higher short-term interest rates and increased debt
from additional share repurchases.
PROVISION FOR INCOME TAXES
The provision for income taxes reflects an effective tax rate of 38.0% for 1999
compared with 38.5% for 1998. This decrease resulted primarily from improved
utilization of foreign tax credits and implementation of certain state income
tax initiatives.
1998 COMPARED WITH 1997
- -----------------------
NET SALES AND OPERATING REVENUES
Consolidated net sales and operating revenues decreased 10.9% from $5,372.2
million in 1997 to $4,787.9 million in 1998; this decrease was attributable
primarily to the sale of Computer City to CompUSA on August 31, 1998.
Consolidated comparable store sales for 1998 were not meaningful, due to this
sale.
RadioShack Segment
- ------------------
Sales for the RadioShack segment in 1998 increased 8.7% to $3,591.2 million from
$3,303.9 million in 1997, due primarily to a 7.4% comparable store sales gain
and the opening of 48 new stores, net of store closures. RadioShack's comparable
store sales increase was driven primarily by increased sales of wireless
communication and telephony products and services.
Electronic parts, accessories and specialty equipment, the largest product
category of RadioShack's retail sales mix in 1998, decreased 1.5 percentage
points in 1998 when compared to 1997, despite a 4.1% increase in dollar sales.
This decrease as a percent of retail sales was primarily due to the
communications and the services and other categories becoming a higher percent
of the product mix in 1998. The communications category increased to 28.5% of
retail sales in 1998 from 27.5% in 1997. Dollar sales in this category increased
13.2% over 1997 as the category continued to benefit from The Sprint Store at
RadioShack launched in September 1997. Sales of audio and video products
declined to 15.5% of retail sales in 1998 from 16.8% of retail sales in 1997,
primarily due to the overall shift in the product mix to communications and
services. Sales dollars in the audio and video category were flat from the prior
year, due in part to RadioShack's limited selection of name brand products. The
audio and video category also included DTH sales, which included digital
satellite systems (DSS) and Primestar satellite television services in 1998.
Sales of these systems and services increased significantly over 1997. Personal
electronics and seasonal products decreased to 10.4% of RadioShack retail sales
in 1998 from 11.6% in 1997, due primarily to an overall shift in the product mix
to communications and services. The sales decrease in this category was also
attributable to sales declines in such items as boomboxes, cassette products and
toys, other than remote control cars, due to lower general consumer demand for
these products.
The personal computer category decreased to 9.1% of RadioShack retail sales in
1998 from 9.4% in 1997, despite a large unit gain and a 5.8% sales gain for this
category for 1998. RadioShack computers experienced a 32% decline in the average
1998 selling price of desktop computers from the 1997 annual average selling
price. Aggressive pricing strategies put into place as RadioShack transitioned
from IBM to Compaq branded computers and products during the first six months of
1998 and general selling price declines in the personal computer industry
contributed to this decline. Sales in the services and other category increased
in 1998 in dollars and as a percent of RadioShack retail sales, due to an
increase in residual income received from RadioShack's third party providers of
communication and DTH, as well as to a large increase in sales of prepaid
wireless airtime. In 1998, RadioShack earned approximately $34.2 million of
residual income, compared to $7.9 million in 1997.
Computer City Segment
- ---------------------
Computer City's overall sales decreased 37.1% to $1,196.7 million in 1998 from
1997, due to the sale of this subsidiary to CompUSA on August 31, 1998. For the
eight months ended August 31, 1998, sales of personal computers decreased in
dollars due to a reduction of approximately 25% in the average selling price of
desktop and notebook computers from the same period in 1997. Additionally, both
overall and comparable stores sales were negatively impacted by the announced
sale of Computer City to CompUSA on June 22, 1998, at which time Computer City
took promotional mark-downs to sell both its third-party and private-label
inventory in preparation for the sale to CompUSA. (See "Sale of Computer City,
Inc." below.)
GROSS PROFIT
Gross profit for Tandy was $2,004.4 million or 41.9% of net sales and operating
revenues in 1998, compared with $2,014.3 million or 37.5%, in 1997. This
increase in gross profit as a percentage of net sales and operating revenues was
primarily the result of RadioShack sales accounting for a larger portion of
Tandy's consolidated net sales and operating revenues in 1998, when compared to
1997, due to the sale of Computer City to CompUSA in August 1998. Computer City
had an inherently lower gross margin than consolidated Tandy Corporation.
RadioShack's gross profit increased in dollars in 1998 versus 1997, but
decreased as a percentage of RadioShack's total sales by 0.6 percentage points
over the same period. This percentage decrease was primarily due to a shift
within RadioShack's product offerings to increased sales of prepaid wireless
airtime, which has a significantly lower gross margin than the overall
RadioShack average gross margin. This decrease was partially offset by an
increase in residual income, which has close to 100% gross margin.
Computer City's gross profit as a percent of Computer City net sales and
operating revenues decreased 2.3 percentage points in 1998 when compared to
1997. This decrease was primarily due to aggressive marketing of inventory,
especially private-label branded inventory, in preparation for the sale of the
subsidiary.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Tandy's SG&A expense was flat in dollars, but increased as a percent of net
sales and operating revenues to 33.0% in 1998 versus 29.4% in 1997. The higher
SG&A percentage was due primarily to RadioShack becoming a larger percentage of
Tandy's consolidated operations during 1998 (see "Gross Profit" above).
RadioShack operates at higher relative SG&A expense levels than consolidated
Tandy Corporation. Excluding Computer City and closed units associated with the
1996 restructuring plan, SG&A expense as a percentage of sales would have been
37.7% in 1998 versus 38.9% in 1997. Although payroll and commissions expense for
1998 remained flat in dollars in comparison with 1997, this cost increased as a
percentage of net sales and operating revenues from 13.7% in 1997 to 15.3% in
1998, due in part to the increase in RadioShack sales as a percentage of total
Company sales and operating revenues, as described above. RadioShack has
inherently higher salary expense as a percentage of sales, when compared to
consolidated Tandy Corporation. To a lesser extent, payroll expense was
negatively impacted by higher payroll costs associated with
infrastructure-building at CCI, prior to its announced sale in June 1998.
Advertising expense increased both in dollars and as a percentage of net sales
and operating revenues in 1998, as compared to 1997. This increase over the
prior year is primarily attributable to increased advertising expense at
Computer City in 1998, compared to 1997. Somewhat offsetting this increase was a
dollar decrease in advertising expense at RadioShack in 1998 from 1997. In 1997,
however, the marketing launch of the Sprint Store at RadioShack resulted in
increased advertising expense for that year. Rent expense decreased in dollars
in comparison with 1997 and increased slightly as a percentage of net sales and
operating revenues to 4.5% in 1998 from 4.1% in 1997. This increase was related
to the sale of Computer City, which had lower rent expense as a percentage of
sales than consolidated Tandy Corporation. Rent expense in dollars for
RadioShack increased in 1998 compared to the prior year, but decreased slightly
as a percent of sales.
RESTRICTED STOCK AWARDS
On February 1, 1997, in an effort to reduce the turnover rate among its store
managers and to align the store managers' interests and goals with those of the
shareholders, Tandy granted, under the 1993 ISP, approximately 4,082,400
restricted stock awards consisting of 800 shares each to 4,907 RadioShack store
managers and 1,600 shares each to 98 Computer City store managers. The
restricted stock awards had a weighted average fair market value of $11.30 per
share when granted. This restricted stock was to vest at the end of five years
on February 2, 2002, if managers receiving the grants were employed by Tandy at
a store manager or higher position, at that time. However, the grants provided
that the restricted shares would vest early if Tandy's common stock closed at
$16.90625 or more for any 20 consecutive trading days beginning February 1,
1999. At December 31, 1998, it was probable that the 2,579,200 shares that
remained outstanding under this grant would vest under the early vesting
provisions. The resulting charge to compensation expense of $82.6 million,
including related payroll taxes, was recorded in the December 31, 1998 financial
statements. The awards vested on March 1, 1999 and the actual price of the stock
and the number of shares vested differed slightly from estimated accrual at
December 31, 1998.
NET INTEREST EXPENSE
Interest expense, net of interest income, was $34.6 million for 1998 versus
$32.9 million for 1997. Interest expense decreased slightly during 1998, due to
a corresponding decrease in Tandy's average debt outstanding during 1998 as well
as to a small decrease in short-term interest rates for the year.
Interest income decreased in 1998 due to the repayment of the InterTAN, Inc.
("InterTAN") note receivable on December 31, 1997, offset by interest received
on the note receivable from CompUSA for $136.0 million. Interest income relating
to Fry's Electronics, Inc. and its affiliates ("Fry's) notes receivables
resulted from the 1997 sale of assets and real estate of six Incredible Universe
stores.
PROVISION FOR INCOME TAXES
The provision for income taxes reflected an effective tax rate of 38.5% for both
1998 and 1997.
AMERILINK ACQUISITION
On July 30, 1999, Tandy acquired AmeriLink in an all stock transaction valued at
approximately $75.8 million. Tandy exchanged approximately 1.8 million shares of
Tandy common stock for all of the outstanding common stock of AmeriLink. The
transaction was accounted for under the purchase method of accounting. The
purchase price was allocated to the assets acquired and liabilities assumed
based on their estimated fair values at the date of the acquisition, which
resulted in approximately $50.7 million of goodwill being recorded in other
assets in the accompanying 1999 Consolidated Balance Sheet. The associated
goodwill will be amortized over 20 years. AmeriLink designs, installs and
maintains cabling systems for the transmission of video, voice and data,
primarily for home use. AmeriLink will continue to provide these services to
outside parties and also to RadioShack, through AmeriLink's RadioShack
Installation Services Division. Services for RadioShack in 2000 will consist
primarily of customer DIRECTV installations; however, new services such as home
theater and broadband Internet access, among others, will be added as
RadioShack's needs dictate. At February 25, 2000, AmeriLink had 76 field offices
located in 26 states.
RADIOSHACK.COM, LLC
In October 1999, Tandy launched its e-commerce enabled website,
www.RadioShack.com. On November 10, 1999, Tandy and Microsoft formed a limited
liability company, RadioShack.com, LLC ("RS.com"), for the purpose of marketing
and selling electronics products on the Internet. Tandy contributed assets and
also extended a royalty-free license for certain trademarks and service marks to
RS.com, and Microsoft contributed cash of $100.0 million on January 4, 2000.
Tandy owns 100% of the common units of RS.com, while Microsoft owns 100% of the
preferred units and Tandy will include RS.com in its consolidated financial
statements. Tandy is entitled to receive 75% of the profits and losses of
RS.com, while Microsoft will receive 25%; however, the preferred units have
liquidation rights which could impact the allocation of profits and losses
between the unit holders. The preferred units are convertible into common units
at any time and must be converted in the event of certain capital transactions.
In certain circumstances, Microsoft has the option to require Tandy to purchase
its units and Tandy has the right to purchase Microsoft's units. Also, in the
event of liquidation, the preferred units have preferential rights to recover
their initial investment.
During 2000, RadioShack and Microsoft will jointly redesign and reengineer the
www.RadioShack.com website, incorporating current Microsoft technology. The
planned result will be a full-featured online e-commerce site where customers
can go for a wide range of electronics products, parts and services. Among other
features, customers will have the ability to obtain answers to frequently asked
questions on electronics through www.RadioShack.com's "Ask the Shack" feature,
as well as the ability to download instruction manuals and service documents
relating to electronics products. Management anticipates that the newly designed
website will be relaunched during the third quarter of 2000, and it believes
that www.RadioShack.com will become a premier destination site for electronics
products, services, information, answers and solutions for consumer and
commercial customers. As of March 1, 2000, there were over 20,000 different
products on the website.
Additionally, Microsoft will provide www.RadioShack.com premier placement across
the MSN(TM) network, Microsoft's Internet access service, and its online
properties, including the newly-launched MSN eShop(TM) online shopping service
site (http://eshop.msn.com/). Through its presence on eShop, www.RadioShack.com
will be able to take advantage of the portal leadership of MSN to reach a broad
audience of customers on the Internet.
SALE OF COMPUTER CITY, INC.
On August 31, 1998, Tandy completed the sale of 100% of the outstanding common
stock of its Computer City, Inc. subsidiary to CompUSA Inc. In the third quarter
of 1998, Tandy received approximately $75.0 million in cash and an unsecured
subordinated note for $136.0 million as consideration for the sale. The amount
of cash to be retained was subject to adjustment and in the fourth quarter of
1998 the amount of cash consideration was reduced to $36.5 million. The note
bears interest at 9.48% per annum and is payable over a ten year period.
Interest is payable on June 30 and December 31 of each year; the first payment
was made on December 31, 1998. Beginning on December 31, 2001, principal
payments will be due semiannually until the note matures on June 30, 2008. Tandy
recognized a loss of $108.2 million from the sale of Computer City, which
included certain liabilities and contractual obligations incurred by Tandy.
Computer City's results from operations through August 31, 1998 are included in
the accompanying Consolidated Financial Statements. Below is a summary of net
sales and operating revenues and net losses (unaudited) for Computer City for
each year ended December 31:
(In millions) 1999 1998(1) 1997
- ------------- ------ ------ ------
Net sales and operating revenues $ -- $1,196.7 $1,903.7
Operating loss -- (95.6) (14.9)
(1) Includes operations for only eight months, due to sale to CompUSA on
August 31, 1998.
On March 1, 2000, Grupo Sanborns, S.A. de C.V. ("Sanborns") and TPC Acquisition
Corporation, a wholly owned subsidiary of Sanborns, acquired CompUSA. Tandy's
management does not believe that this acquisition will have a negative impact on
CompUSA's ability to repay its obligation to Tandy.
1996 BUSINESS RESTRUCTURING
In the fourth quarter of 1996, Tandy initiated certain restructuring programs
resulting from the highly competitive environment in the electronics industry at
the time. In conjunction with these programs, in January 1997, Tandy closed 53
McDuff stores and 21 unprofitable Computer City stores. Additionally, Tandy
either closed or sold all of its Incredible Universe stores during 1997. The
components of the restructuring charge and an analysis of the reserves are
outlined in a table in Note 7 - "1996 Business Restructuring" of the Notes.
Below is a summary of net sales and operating revenues and operating losses
(unaudited) of the stores closed pursuant to the restructuring plans for each
year ended December 31:
(In millions) 1999 1998 1997
- ------------- ---- ---- ----
Net sales and operating revenues $ -- $ -- $ 164.6
Operating loss -- -- (30.1)(1)
(1) Excludes business restructuring charges.
TAX SHARING AND TAX BENEFIT REIMBURSEMENT AGREEMENT
Under Tandy's Tax Sharing and Tax Benefit Reimbursement Agreement (the
"Agreement") with O'Sullivan Industries ("O'Sullivan"), a former subsidiary of
Tandy, Tandy receives payments from O'Sullivan approximating the federal tax
benefit that O'Sullivan realizes from the increased tax basis of its assets
resulting from the initial public offering completed in February 1994. The
higher tax basis increases O'Sullivan's tax deductions and, accordingly, reduces
income taxes payable by O'Sullivan. For the years ended December 31, 1999, 1998
and 1997, Tandy recognized income of $5.1 million, $6.0 million and $5.8
million, net of tax, respectively, under this Agreement. The Agreement calls for
payments to continue to be made over a 15-year time period and are contingent
upon O'Sullivan's level of earnings from year to year. In November 1999, members
of O'Sullivan's senior management team, in conjunction with a financial buyer,
acquired all of O'Sullivan's outstanding common stock. The effect of this change
of control on the payments Tandy will receive is currently the subject of an
arbitration proceeding between Tandy and O'Sullivan. Depending on the outcome of
such arbitration, the amount of payments received under the Agreement could be
significantly less than in prior years and/or the timing of such payments could
be delayed.
NEW PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." In June
1999, the FASB issued SFAS No. 137 which delayed the effective date of SFAS No.
133 to quarters beginning after June 15, 2000. SFAS No. 133 requires a company
to record all derivative instruments at fair value on the balance sheet. Tandy
does not use derivatives for speculative purposes. As such, its market risk was
not material in 1999 and is not expected to be material in 2000.
CASH FLOW AND LIQUIDITY
Year Ended December 31,
--------------------------------
(In millions) 1999 1998 1997
- ------------- -------- -------- --------
Operating activities $ 561.6 $ 414.8 $ 320.3
Investing activities (121.0) (93.0) (63.9)
Financing activities (340.5) (363.2) (272.0)
In 1999, cash flow provided by operating activities was $561.6 million, compared
to $414.8 million and $320.3 million in 1998 and 1997, respectively. Cash flow
from net income, adjusted for non-cash items, increased $97.0 million from 1998
to 1999. This increase was primarily due to increased operating profit at
RadioShack. The increase in cash flow from operating activities was also
positively affected by a $49.8 million increase in cash flow generated from
working capital improvements primarily attributable to a $73.0 million increase
in accrued income taxes. During 1998, changes in working capital generated $55.2
million of cash flow compared to a use of cash of $72.4 million in 1997. The
increase in 1998 was caused primarily by the liquidation of CCI's inventories
prior to its sale in August 1998.
Investing activities used $121.0 million in cash in 1999, compared to $93.0
million in 1998 and $63.9 million in 1997. Capital expenditures approximated
$102.4 million in 1999, compared to $131.5 million in 1998 and $118.4 million in
1997. Capital expenditures for 1999 consisted primarily of RadioShack store
expansions and remodels, upgrades of machinery and expansion in selected
distribution centers and manufacturing facilities, updated information systems,
including Year 2000 ("Y2K") initiatives, and web development for RadioShack.com.
Capital expenditures for 1998 and 1997 were used primarily for retail expansion,
upgrading information systems and Computer City infrastructure enhancements
prior to the announced sale of CCI in June 1998. Management anticipates that
capital expenditure requirements for 2000 will approximate $120.0 million to
$125.0 million and will consist primarily of RadioShack future store expansions
and remodels, updated information systems and, to a lesser extent, expansions
and additions relating to Tandy's distribution and manufacturing facilities, web
development for RadioShack.com and the purchase of vehicles for AmeriLink's
RadioShack Installation Services Division. In April 1999, Tandy made a $20.0
million dollar investment in NorthPoint. Cash proceeds from the sale of CCI
generated $36.5 million in cash in 1998. Cash proceeds in 1997 totaled $57.4
million and related to the sale of various corporate assets and certain
Incredible Universe locations, final repayment of the note receivable from
InterTAN and the sale of Tandy's remaining shares of AST Research, Inc. common
stock.
Cash used by financing activities was $340.5 million in 1999, compared to $363.2
million and $272.0 million in 1998 and 1997, respectively. Purchases of treasury
stock required cash of $422.2 million, $337.4 million and $425.6 million in
1999, 1998 and 1997, respectively. (See "Capital Structure and Financial
Condition" below for further information on Tandy's stock repurchase programs.)
The 1999, 1998 and 1997 stock repurchases were partially funded by $81.5
million, $57.8 million and $50.7 million, respectively, received from the sale
of treasury stock to Tandy's employee stock purchase plans and employee stock
option exercises. Dividends paid, net of tax, in 1999, 1998 and 1997 amounted to
$42.5 million, $44.8 million and $48.2 million, respectively. The decrease in
dividends paid in 1999 and 1998 resulted from fewer outstanding shares in those
years. On October 25, 1999, Tandy announced a 10% increase in the quarterly cash
dividend from $0.050 per share to $0.055 per share, for shareholders of record
on January 3, 2000. Medium-term notes issued by Tandy under its 1997 Debt Shelf
Registration Statement provided approximately $101.0 and $45.0 million in cash
in 1999 and 1998, respectively, the majority of which was used to repay current
maturities of long-term debt. In 1999, Tandy used excess cash flow to decrease
short-term debt from the prior year by $42.3 million and in 1998, Tandy used
excess cash flow to decrease its short-term debt from the prior year by $44.9
million. Tandy ended 1999 with approximately $100.0 million in additional cash
as part of its Y2K readiness planning. It is anticipated that cash balances in
the future will be less than $100.0 million.
The current credit ratings for Tandy, which are generally considered investment
grade, follow:
Standard Duff &
Category Moody's and Poor's Phelps
- -------- ------- ---------- ------
Medium-Term Notes Baa1 A- A-
ESOP Senior Notes Baa1 A- N/A
Commercial Paper P-2 A-2 D-1-
CAPITAL STRUCTURE AND FINANCIAL CONDITION
Tandy's balance sheet and financial condition continue to be strong. Tandy's
available borrowing facilities as of December 31, 1999 are detailed in Note 12 -
"Indebtedness and Borrowing Facilities" of the Notes.
On March 3, 1997, Tandy announced that its Board of Directors authorized
management to purchase up to 20.0 million additional shares of its common stock
through Tandy's existing share repurchase program. The share repurchase program
was initially authorized in December 1995 and increased in October 1996 and was
undertaken as a result of management's view of the economic value of Tandy's
stock. The share increase for 1997 brought the total authorization since
inception to 60.0 million shares, of which approximately 56.7 million shares
totaling $949.2 million were repurchased as of December 31, 1999. Approximately
4.8 million shares were repurchased in 1999 for $203.4 million under the
program. An additional 1.6 million shares have been repurchased from January 1,
2000 to February 29, 2000 for $70.5 million.
Additionally, on October 26, 1998, Tandy announced that its Board of Directors
authorized the repurchase of up to 10.0 million shares of Tandy's common stock
for an indefinite period of time to be used to offset the dilution of grants
under Tandy's incentive stock plans (see Note 19 - "Stock Options and
Performance Awards" of the Notes). Approximately 4.2 million shares were
repurchased in 1999 for $190.7 million, bringing the total share repurchase at
December 31, 1999 under this program to 7.0 million shares totaling $254.5
million. An additional 1.9 million shares were repurchased for $93.7 million
from January 1, 2000 to February 29, 2000.
These purchases under the two share repurchase programs described above are in
addition to the shares required for employee stock purchase plans, which are
purchased throughout the year. Purchases will continue to be made in 2000 in the
open market with funding of the programs coming from excess free cash flow and
short-term borrowings, if needed.
In connection with the share repurchase program, the Board of Directors, at
their October 23, 1998 meeting, authorized management to sell up to 2.0 million
put options on Tandy common stock. Such put options grant the purchaser the
right to sell shares of Tandy's common stock to Tandy at specified prices upon
exercise of the put options. These put options are exercisable only at maturity
and can be settled in cash at Tandy's option, in lieu of repurchasing the stock.
The issued put options have a maturity of up to six months. Tandy has sold
approximately 1.4 million put options since the inception of the program and 0.4
million put options remained outstanding at December 31, 1999. The put options
expire on various dates through April 2000. At December 31, 1999 and 1998, the
full redemption value of the put options was classified as common stock put
options in the accompanying Consolidated Balance Sheets. The related offset was
recorded in common stock in treasury, net of premiums received.
Additionally, at their February 23, 2000 meeting, the Board of Directors
authorized management to supplement the put option program with equity forwards
and increased the number of shares subject to put options and equity forwards to
4.6 million shares. The Board of Directors also extended the expiration date for
the program to no later than December 31, 2002. Put options and equity forwards
will continue to be executed from time to time in order to take advantage of
attractive share price levels, as determined by management. The timing and terms
of the transactions, including maturities, depend on market conditions, Tandy's
liquidity and other considerations.
Tandy's primary source of short-term debt consists of short-term seasonal bank
debt and commercial paper, which have maturities of less than 90 days. In the
second quarter of 1999, Tandy extended the maturity date of its $200.0 million
364-day revolving credit facility to June 2000. Tandy also has a $300.0 million
five-year revolving credit facility maturing June 2003. The revolving credit
facilities are used as backup for the commercial paper program and may also be
utilized for general corporate purposes. Annual commitment fees for the
facilities are 0.07% of the $200.0 million facility per annum and 0.085% of the
$300.0 million facility per annum, whether used or unused. During the second
quarter of 2000, Tandy plans to extend the $200.0 million facility to June 2001.
The total debt-to-capitalization ratio was 38.0% at December 31, 1999, 35.6% at
December 31, 1998 and 33.6% at December 31, 1997. These increases in the
debt-to-capitalization ratios result primarily from a reduction in Tandy's
stockholders' equity due to the share repurchase program and the impact of
divested businesses.
In May 1997, Tandy filed a $300.0 million Debt Shelf Registration Statement
("Shelf Registration") with the Securities and Exchange Commission, which was
declared effective in August 1997. In August 1997, Tandy issued $150.0 million
of 10 year unsecured notes under the Shelf Registration. The interest rate on
the notes is 6.95% per annum with interest payable on September 1 and March 1 of
each year, commencing March 1, 1998. The notes are due September 1, 2007. In
December 1997 and January 1998, Tandy issued $4.0 million and $45.0 million,
respectively, in medium-term notes under the remaining $150.0 million Shelf
Registration. An additional $32.0 million, $37.0 million and $32.0 million of
medium-term notes were issued in January 1999, August 1999 and September 1999,
respectively, completing the remaining 1997 Shelf Registration. Tandy's medium
and long-term notes outstanding at December 31, 1999 under the 1997 Shelf
Registration totaled $300.0 million, compared to $199.0 million outstanding at
December 31, 1998. The interest rates at December 31, 1999 for the outstanding
$150.0 million in medium-term notes ranged from 6.09% to 7.35% with a weighted
average coupon rate of 6.6%.
Tandy's management believes that its present borrowing capacity is greater than
the established credit lines and long-term debt in place. Management also
believes that Tandy's cash flow from operations, cash and cash equivalents and
its available borrowing facilities are more than adequate to fund planned store
and business expansion, to meet debt service and dividend requirements and to
fund its share repurchase programs.
INFLATION
Inflation has not significantly impacted Tandy over the past three years.
Management does not expect inflation to have a significant impact on operations
in the foreseeable future, unless global situations substantially affect the
world economy.
YEAR 2000 READINESS DISCLOSURE
Tandy's management recognized the importance of taking necessary action to
ensure that its operation and relationships with key vendors, service providers,
customers and other third parties would not be adversely impacted by software
processing errors arising from calculations using the year 2000 and beyond. Like
many companies, a significant number of Tandy's computer applications and
systems required modifications in order for these systems to be ready for the
year 2000.
With its transition plans and teams in place, Tandy successfully completed its
Y2K rollover without any major problems or disruptions. All of Tandy's stores,
manufacturing facilities, logistics operations, service centers and support
areas were fully functional subsequent to the Y2K rollover. Tandy is not aware
that any of its major business partners experienced material Y2K issues.
Additionally, to date, product returns and repairs at its retail stores have not
been significant and management does not anticipate any further activity or
disruptions to occur on its part with respect to the Y2K rollover.
Tandy's total Y2K readiness costs were approximately $11.5 million, including
$1.1 million paid to external parties for consulting and professional fees. Of
the total costs, approximately $4.4 million were incurred in 1999. Tandy funded
both the capital and expensed elements of resolving Y2K issues through funds
generated from operations. Tandy does not expect to incur any additional
significant costs in 2000.
All statements concerning Y2K issues other than historical statements constitute
"forward-looking statements," as defined in the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements should be read in
conjunction with Tandy's disclosures under the heading "Factors That May Affect
Future Results."
ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". In June 1999, the FASB issued SFAS No. 137
which delayed the effective date of SFAS No. 133 to quarters beginning after
June 15, 2000. SFAS No. 133 requires a company to record all derivative
instruments at fair value on the balance sheet. Tandy does not use derivatives
for speculative purposes. As such, its market risk was not material in 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Index to Consolidated Financial Statements is found on page 29. Tandy
Corporation's Financial Statements and Notes to Consolidated Financial
Statements follow the index.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Tandy will file a definitive proxy statement with the Securities and Exchange
Commission not later than 120 days after the end of the year covered by this
Form 10-K pursuant to Regulation 14A. The information called for by this Item
with respect to directors has been omitted pursuant to General Instruction G(3).
This information is incorporated by reference from the Proxy Statement for the
2000 Annual Meeting. For information relating to the Executive Officers of
Tandy, see Part I of this report. The Section 16(a) reporting information is
incorporated by reference from the Proxy Statement for the 2000 Annual Meeting.
ITEM 11. EXECUTIVE COMPENSATION.
Tandy will file a definitive proxy statement with the Securities and Exchange
Commission not later than 120 days after the end of the year covered by this
Form 10-K pursuant to Regulation 14A. The information called for by this Item
with respect to executive compensation has been omitted pursuant to General
Instruction G(3). This information is incorporated by reference from the Proxy
Statement for the 2000 Annual Meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Tandy will file a definitive proxy statement with the Securities and Exchange
Commission not later than 120 days after the end of the year covered by this
Form 10-K pursuant to Regulation 14A. The information called for by this Item
with respect to security ownership of certain beneficial owners and management
has been omitted pursuant to General Instruction G(3). This information is
incorporated by reference from the Proxy Statement for the 2000 Annual Meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Tandy will file a definitive proxy statement with the Securities and Exchange
Commission not later than 120 days after the end of the year covered by this
Form 10-K pursuant to Regulation 14A. The information called for by this Item
with respect to certain relationships and transactions with management and
others has been omitted pursuant to General Instruction G(3). This information
is incorporated by reference from the Proxy Statement for the 2000 Annual
Meeting.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report.
1. Financial Statements
The financial statements filed as a part of this report are listed in the "Index
to Consolidated Financial Statements" on page 29.
3. Exhibits required by Item 601 of Regulation S-K
A list of the exhibits required by Item 601 of Regulation S-K and filed as part
of this report is set forth in the Index to Exhibits on page 56, which
immediately precedes such exhibits.
Certain instruments defining the rights of holders of long-term debt of Tandy
Corporation and its consolidated subsidiaries are not filed as exhibits to this
report because the total amount of securities authorized thereunder does not
exceed ten percent of the total assets of the Company on a consolidated basis.
Tandy hereby agrees to furnish the Securities and Exchange Commission copies of
such instruments upon request.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Tandy Corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TANDY CORPORATION
March 21, 2000 /s/ Leonard H. Roberts
----------------------
Leonard H. Roberts
Chairman, President and Chief Executive Officer,
Tandy Corporation
President, RadioShack
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Tandy Corporation has duly caused this report to be signed on its
behalf by the following persons in the capacities indicated on this 21st day of
March, 2000.
Signature Title
/s/ Leonard H. Roberts Chairman, President and Chief Executive Officer,
- ------------------------ Tandy Corporation, President, RadioShack, Director
Leonard H. Roberts (Chief Executive Officer)
/s/ Dwain H. Hughes Senior Vice President and Chief Financial Officer
- ------------------------ (Principal Financial Officer)
Dwain H. Hughes
/s/ Richard L. Ramsey Vice President and Controller
- ------------------------ (Principal Accounting Officer)
Richard L. Ramsey
/s/ Frank J. Belatti Director /s/ William G. Morton Director
- ------------------------ ------------------------
Frank J. Belatti William G. Morton
/s/ Ronald E. Elmquist Director /s/ Thomas G. Plaskett Director
- ------------------------ ------------------------
Ronald E. Elmquist Thomas G. Plaskett
/s/ Robert J. Kamerschen Director /s/ Alfred J. Stein Director
- ------------------------ ------------------------
Robert J. Kamerschen Alfred J. Stein
/s/ Lewis F. Kornfeld, Jr. Director /s/ William E. Tucker Director
- ------------------------ ------------------------
Lewis F. Kornfeld, Jr. William E. Tucker
/s/ Jack L. Messman Director /s/ Edwina D. Woodbury Director
- ------------------------ ------------------------
Jack L. Messman Edwina D. Woodbury
TANDY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants............................... 30
Consolidated Statements of Income for each of the three
years in the period ended December 31, 1999................... 31
Consolidated Balance Sheets at December 31, 1999
and December 31, 1998......................................... 32
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1999................... 33
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 1999......... 34-35
Notes to Consolidated Financial Statements...................... 36-54
All schedules have been omitted because they are not applicable, not required or
the information is included in the consolidated financial statements or notes
thereto.
Separate financial statements of Tandy Corporation have been omitted because
Tandy is primarily an operating company and the amount of restricted net assets
of consolidated and unconsolidated subsidiaries and Tandy's equity in
undistributed earnings of 50% or less-owned companies accounted for by the
equity method are not significant. All subsidiaries of Tandy Corporation are
included in the consolidated financial statements. Financial statements of 50%
or less-owned companies have been omitted because they do not, considered
individually or in the aggregate, constitute a significant subsidiary.
Report of Independent Accountants
To the Board of Directors and Stockholders of
Tandy Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index on page 29 present fairly, in all material respects, the financial
position of Tandy Corporation and its subsidiaries (the "Company") at December
31, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- -------------------------------
PRICEWATERHOUSECOOPERS LLP
Fort Worth, Texas
February 23, 2000
CONSOLIDATED STATEMENTS OF INCOME
Tandy Corporation and Subsidiaries
Year Ended December 31,
-------------------------------------------------------------------
1999 1998 1997
% of % of % of
(In millions, except per share amounts) Dollars Revenues Dollars Revenues Dollars Revenues
- -------------------------------------------------------------------------------------------------------------
Net sales and operating revenues $4,126.2 100.0% $4,787.9 100.0% $5,372.2 100.0%
Cost of products sold 2,042.7 49.5 2,783.5 58.1 3,357.9 62.5
-------- -------- -------- -------- -------- --------
Gross profit 2,083.5 50.5 2,004.4 41.9 2,014.3 37.5
-------- -------- -------- -------- -------- --------
Expenses (income):
Selling, general and administrative 1,486.4 36.0 1,580.3 33.0 1,580.3 29.4
Depreciation and amortization 90.2 2.2 99.0 2.1 97.2 1.8
Interest income (20.4) (0.5) (10.8) (0.2) (13.2) (0.2)
Interest expense 37.2 0.9 45.4 0.9 46.1 0.9
Restricted stock awards 9.6 0.2 82.6 1.7 -- --
Provision for loss on sale of
Computer City -- -- 108.2 2.3 -- --
-------- -------- -------- -------- -------- --------
1,603.0 38.8 1,904.7 39.8 1,710.4 31.9
-------- -------- -------- -------- -------- --------
Income before income taxes 480.5 11.7 99.7 2.1 303.9 5.7
Provision for income taxes 182.6 4.5 38.4 0.8 117.0 2.2
-------- -------- -------- -------- -------- --------
Net income 297.9 7.2 61.3 1.3 186.9 3.5
Preferred dividends 5.5 0.1 5.8 0.1 6.1 0.1
-------- -------- -------- -------- -------- --------
Net income available to common
shareholders $ 292.4 7.1% $ 55.5 1.2% $ 180.8 3.4%
======== ======== ======== ======== ======== ========
Net income available per common
share:
Basic $ 1.51 $ 0.28 $ 0.84