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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, 1996
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
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.)
1800 One Tandy Center, Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 390-3700
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 18, 1997, the aggregate market value of the voting stock held
by non-affiliates of the registrant was $2,741,632,397 based on the New York
Stock Exchange closing price.
As of March 18, 1997, there were 56,166,586 shares of the registrant's
Common Stock outstanding.
Documents Incorporated by Reference
Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders are
incorporated by reference into Part III.
The Index to Exhibits is on Sequential Page No. 55.
Total Pages 106.
PART I
ITEM 1. BUSINESS.
GENERAL
Tandy Corporation, a Delaware corporation, was incorporated in 1967 ("Tandy"
or the "Company"). The Company engages in the retail sale of consumer
electronics including personal computers primarily in the United States. The
Company's continuing principal retail operations include the RadioShack(R) and
Computer City(R) store chains. The Company adopted a plan to exit the Incredible
Universe and McDuff retail business in December 1996. See Recent Developments
below for a discussion of this plan. See Item 7 "Management's Discussion and
Analysis of Results of Operations and Financial Condition" for a discussion of
divisional sales data.
Recent Developments. On May 21, 1996, Tandy announced a restructuring
program for its Incredible Universe division which included an overhead
reduction plan, the closing of two stores and costs associated with the
cancellation of certain real estate sites held for new store development.
On December 10, 1996, Tandy announced that the remaining 53 McDuff
stores, previously included in the Specialty Retail Group of RadioShack,
would be discontinued.
On December 30, 1996, the Company announced its plan to exit the
Incredible Universe business. The Company has reached an agreement for the
sale of six Incredible Universe stores to Fry's Electronics and contracts
with certain affiliates for the sale of the real estate of those stores.
The Company plans for the remainder of the stores (11) to be sold or to be
used for other real estate purposes. In addition, the Company announced on
December 30, 1996 the adoption of a plan to close 21 Computer City stores.
RadioShack. RadioShack is the Company's largest operating division. At
December 31, 1996, the RadioShack division operated 4,942 (inclusive of 53
McDuff stores included in the closure plan) company-owned stores, located
throughout the United States. These stores average approximately 2,450
square feet in area and are located in major malls, strip centers and
individual store fronts. To provide RadioShack products to smaller
communities, RadioShack had on the same date a network of 1,927
dealer/franchise stores. The dealers are generally engaged in other retail
operations and augment their sales with RadioShack products. This network
included 77 international dealers at December 31, 1996.
The company-owned RadioShack stores carry a broad assortment of
primarily private label electronic parts and accessories, audio/video
equipment, digital satellite systems, personal computers and cellular and
conventional telephones, as well as specialized products such as scanners,
electronic toys and hard to find batteries. Personal computers, which
account for approximately 11.0% of the RadioShack division's sales,
primarily target progressive family users seeking computers for home, and
small business use. RadioShack also provides access to third party
services such as cellular phone, PCS, direct satellite programming, and
pager service. RadioShack plans to expand its company-owned store base to
5,000 locations by the year 2000. RadioShack is also focusing on becoming
"America's Telephone Store". See "Net Sales and Operating Revenues" in
Item 7 for a discussion of a recent RadioShack telecommunications
alliance.
On December 30, 1994, the Company adopted a business restructuring plan
to close or convert 233 stores which included VideoConcepts(R) stores,
McDuff Electronics(R) mall stores and a small number of McDuff Electronics
and Appliance Supercenters.The stores were closed during the first quarter
of 1995. On January 3, 1995, the Company announced that the Tandy Name
Brand Retail Group would be dissolved and the 73 continuing stores would
become part of the Tandy Specialty Retail Group. Effective with the
December 1996 announcement of the closure of the remaining McDuff stores,
the Specialty Retail Group was discontinued. See Item 7 "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
and Note 3 of the "Notes to Consolidated Financial Statements" for more
information on the plan.
Computer City. As of December 31, 1996, the Company had 113 (inclusive
of 21 stores included in the closure plan) Computer City stores open,
including five in Europe and seven in Canada. The Computer City chain
operates primarily as a supercenter format featuring many name brand
computers, software and related products, including IBM, Apple, Sony,
Lotus, Microsoft, Compaq, AST and Hewlett-Packard. The remaining 81
Computer City SuperCenters average about 21,150 square feet and carry
approximately 4,400 products. Additionally, 11 Computer City Express
stores serve the smaller markets and average 12,300 square feet. The
Company plans to open approximately 5 additional stores in 1997.
Incredible Universe. At December 31, 1996, Tandy and its subsidiaries
operated 17 Incredible Universe stores. As noted in Recent Developments
above, operations in this chain, in all material aspects, will cease in
1997. See Item 7 "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and Note 3 of the "Notes to
Consolidated Financial Statements" for more information.
Supporting the retail operations is an extensive infrastructure that
includes:
A&A International, Inc. - This wholly-owned subsidiary of the Company
serves the wide-ranging international import/export, sourcing, evaluation,
logistics and quality control needs of the Company. 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 the Far East. For more discussion on InterTAN see Note 24
of the "Notes to Consolidated Financial Statements".
Tandy Service Centers - The Company maintains a large service and support
network to service the consumer electronics retail industry. These centers
repair name brand and private label products sold through all of the
Company's retail distribution channels. These centers are also the primary
support for The Repair Shop at RadioShack program. At December 31, 1996,
there were 121 service centers in the U.S. and Canada; however, the
Company plans to close fourteen of these centers as part of the December
1996 Incredible Universe and Computer City store closure plan. The Tandy
Service division stocks over one million parts.
Regional Distribution Centers - The 12 distribution centers operated by
the Company ship over one million cartons each month to the Company's
retail outlets. Eleven of the 12 distribution centers primarily support
RadioShack retail outlets and one cross docking distribution facility
supports primarily Computer City and will support Incredible Universe as
needed for the remainder of 1997.
Tandy Information Services ("TIS") - TIS collects information from the
retail stores nationwide and updates large databases with sales and other
information. These databases are sophisticated marketing tools benefiting
every phase of the Company's operations. TIS also processes inventory,
accounting, payroll, telecommunications and other operating information
for all of the Company's operations. In addition, specialized information
is tracked for the Company's distribution and corporate activities.
Tandy Credit Corporation - In December 1994, the Company sold the Computer
City and Incredible Universe credit card portfolios to SPS Transaction
Services, Inc. ("SPS"), a majority-owned subsidiary of Dean Witter,
Discover & Co. Effective March 30, 1995, the Company also completed the
sale of the RadioShack and Tandy Name Brand private label credit card
accounts and substantially all related accounts receivable to SPS. As part
of the completed sales transaction, Tandy Credit Corporation (which
supported Company sales through utilization of credit promotions) was
merged into Hurley Receivables Corporation, a wholly-owned subsidiary of
SPS, and no longer exists. See Item 7 "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and Note 6 of
the "Notes to Consolidated Financial Statements" for more information.
Tandy Transportation, Inc. - A large fleet of tractors and trailers
transports merchandise from manufacturers or ports of entry to the
Company's regional distribution centers and local distribution facilities
and also delivers to the Company's retail outlets.
Consumer Electronics Manufacturing - Although the Company sold most of
its manufacturing operations in 1993 and 1994, the Company still operates
nine manufacturing facilities in the United States and one overseas
manufacturing operation in China, which is a joint venture. These ten
manufacturing facilities cover a total of 1,324,000 square feet and
employed approximately 2,520 workers and professionals as of December 31,
1996. The Company manufactures a variety of products for use in its
consumer electronics retailing operations. These products include audio,
video, telephony, antennas, wire and cable products and a wide variety of
hard to find parts for consumer electronic products. Most of the
Company's manufacturing output is sold through the RadioShack store
chain.
SEASONALITY
As is the case with other retail businesses, the Company'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. For
additional information, see Note 25 of the "Notes to Consolidated Financial
Statements".
PATENTS AND TRADEMARKS
Tandy owns or is licensed to use many trademarks related to its business in
the United States and in foreign countries. Radio Shack, RadioShack, Computer
City, Incredible Universe, and Optimus are some of the registered marks most
widely used by the Company. Tandy believes that the RadioShack and Computer City
names and marks are well-recognized by consumers, and that these names and marks
are associated with high-quality service providers. The Company's products are
sold primarily under the RadioShack, and Optimus trademarks which are registered
in the U.S. and many foreign countries. The Company believes that the loss of
the RadioShack name or mark would be material to its business, but does not
believe that the loss of any other trademarks would be material.
Tandy also owns various patents relating to retail and support functions and
various products which Tandy has previously designed and continues to
manufacture.
SUPPLIERS
The Company obtains merchandise from a large number of suppliers from various
parts of the world. Alternative sources of supply exist for most merchandise and
raw materials purchased by the Company. As the Company's product line is
diverse, the Company would not expect a lack of availability of any single
product or raw material to have a material impact on its operations. During
1996, the Company sold IBM computer products which accounted for approximately
17.5% of total computer hardware product sales within the Company. Management
does not believe that the loss of this one supplier would have a material impact
on its operations.
BACKLOG ORDERS
The Company has no material backlog of orders for the products it sells.
COMPETITION
The consumer electronics retail business is highly competitive. The Company
competes in the sale of its products and services with department stores, mail
order houses, discount stores, general merchants, home appliance stores and gift
stores which sell comparable products manufactured by others. Competitors range
in size from local drug and hardware stores to large chains and department
stores. Computer store chains and franchise groups, as well as independent
computer stores and several major retailers, compete with the Company in the
retail personal computer marketplace. Consumer electronics and computer
mail-order companies also compete with the Company. The products which compete
with those sold by the Company are manufactured by numerous domestic and foreign
manufacturers. Many of these products carry nationally recognized brand names or
private labels and are sold in markets common to the Company. Some of the
Company's competitors have financial resources equal to or greater than the
Company's resources.
Management believes that among the many factors important to its competitive
position are price, quality, service and the broad selection of electronic
products and computers carried at conveniently located retail outlets. The
Company's utilization of trained personnel and its ability to use national and
local advertising media are important to the Company's ability to compete in the
consumer electronics marketplace. Management of the Company believes it is a
strong competitor with respect to each of the factors referenced above. Given
the highly competitive nature of the consumer electronics retail business, no
assurance can be given that the Company will continue to compete successfully
with respect to each of the factors referenced above. Also, the Company would be
adversely affected if its competitors were to offer their products at
significantly lower prices, introduce innovative or technologically superior
products not yet available to the Company or if the Company were unable to
obtain products in a timely manner for an extended period of time.
The Company focuses on two types of store formats to address the marketplace.
Each of the Company's retailing formats uses a distinct path to the marketplace,
based on its unique customer appeal, marketing strengths and margin structure.
RadioShack. RadioShack stores offer the shopping convenience of
approximately 6,900 (inclusive of 53 McDuff stores included in the
closure plan) company-owned and dealer stores, primarily private
label high-quality products, unique selection, knowledgeable
personnel and excellent customer service, including its
"service-oriented" approach. RadioShack has formed strategic
relationships with key vendors in computers (IBM), home security
(ADT), direct-to-home satellite (RCA, PrimeStar, DirecTV, and USSB),
telecommunications (Sprint) and wireless communications (Sprint PCS)
to augment the strong position that it has historically maintained
in core product categories such as batteries, communications
equipment, telephones, antennas and electronic components, and parts
and accessories.
Computer City. Computer City stores offer approximately 4,400 different
name brand items, competitive prices and excellent customer service
on computers, computer software and accessories. This division
operates 92 stores (net of the 21 stores included in the December
1996 closure plan). Computer City operates two different size
formats, Computer City SuperCenters (81 units) and Computer City
Express (11 units). While the SuperCenters average approximately
21,150 square feet, Computer City Express stores average 12,300
square feet, serve smaller markets and also supplement SuperCenters
in larger markets.
The Company has faced intense competition in its consumer electronics
retailing businesses. Competition is driven by technology and product cycles, as
well as the economy. In the consumer electronics retailing business, competitive
factors include price, product quality, product features, consumer services,
manufacturing and distribution capability and brand reputation.
RESEARCH AND DEVELOPMENT
Research and development expenditures are not significant.
EMPLOYEES
As of December 31, 1996, the Company had approximately 48,400 employees. That
number includes approximately 8,500 temporary retail employees which were hired
for the Christmas selling season as well as 3,500 employees whose positions will
be eliminated due to the December 1996 store closure plan. Management of the
Company considers the relationship between the Company and its employees to be
good. It does not anticipate any work stoppage due to labor difficulties.
ITEM 2. PROPERTIES.
Information on the Company's properties is in "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and the financial
statements included in this Form 10-K and is incorporated herein by reference.
The following items are discussed further on the referenced pages:
Page
Retail Outlets......................... 15
Property, Plant and Equipment.......... 42
Leases................................. 44
The Company leases rather than owns most of its retail facilities. However,
the buildings of six Incredible Universe stores are owned rather than leased. As
discussed in Item 7 "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and Note 3 of the "Notes to the Consolidated
Financial Statements", Tandy has announced plans to exit the Incredible Universe
business. As a result of these plans, it is anticipated that the six Incredible
Universe buildings will be sold during 1997. The land and building of one
Computer City store is owned by the Company. The RadioShack and Computer City
stores are located primarily in major shopping malls, stand-alone buildings or
shopping centers owned by other companies. The Company owns most of the property
on which its executive offices are located in Fort Worth, Texas, and all
distribution centers, except for three which are leased. The Company owns most
of its manufacturing facilities and land located throughout the United States.
Existing warehouse and office facilities are deemed adequate to meet the
Company's needs in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
A consolidated action titled O'Sullivan Industries Holdings, Inc. Securities
Litigation, which involved the Company and was commenced in 1994 before the
United States District Court for the Western District of Missouri. The Court, on
July 2, 1996, approved the settlement of this litigation and entered a Final
Judgment thereby resolving this entire litigation. The Company had previously
reserved for the financial impact of the settlement and, therefore, the
settlement has not had a material adverse effect on its results of operations or
financial condition.
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 the Company and its subsidiaries incident to the operation
of its business. The liability, if any, associated with these matters was not
determinable at December 31, 1996. While certain of these matters involve
substantial amounts, and 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.
EXECUTIVE OFFICERS OF THE REGISTRANT (SEE ITEM 10 OF PART III). The following is
a list of the Company's executive officers during 1996 and their ages, positions
and length of service with the Company as of March 27, 1997.
Position
(Date Elected Years with
Name to Current Position) Age Company
John V. Roach Chairman of the Board 58 29
and Chief Executive Officer
(July 1982)
Leonard H. Roberts President of Tandy Corporation 48 3 (1)
(January 1996)
and President of RadioShack
(July 1993)
Robert M. McClure Senior Vice President - 61 24 (2)
Tandy Retail Services
(January 1994)
Herschel C. Winn Senior Vice President and 65 28
Secretary (November 1979)
Dwain H. Hughes Senior Vice President and 49 17 (3)
Chief Financial Officer
(January 1995)
Mark W. Barfield Vice President - Tax 39 9 (4)
(May 1994)
Lou Ann Blaylock Vice President - 58 26 (5)
Corporate Relations
(January 1993)
Loren K. Jensen Vice President and Treasurer 36 1 (6)
(May 1995)
Martin O. Moad Vice President-Investor
Relations 40 11 (7)
(December 1996)
Frederick W. Padden Vice President - Law 64 6 (8)
and Assistant Secretary
(January 1994)
Ronald L. Parrish Vice President - 54 10
Corporate Development
(April 1987)
Richard L. Ramsey Vice President and 51 30
Controller (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 the Company in various capacities over the past five years, except
for Messrs. Roberts, Jensen, and Moad.
(1) Mr. Roberts was elected President of Tandy Corporation effective
January 1, 1996. He has been President of the RadioShack division since
July 7, 1993. Prior to joining Tandy he served as the Chairman and Chief
Executive Officer of Shoney's, Inc. from 1990 to 1993.
(2) 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. On January 1, 1994, Mr.
McClure was named Senior Vice President - Tandy Retail Services.
(3) Mr. Hughes was elected Senior Vice President and Chief Financial
Officer of the Company effective January 1, 1995. Mr. Hughes served as Vice
President and Treasurer of the Company from June 1991 until December 1994.
From June 1989 until June 1991, Mr. Hughes was Assistant Treasurer of the
Company.
(4) Mr.Barfield served as Director of Federal and International Taxes
from April 1991 through May 1994 when he was named Vice President - Tax.
(5) Ms. Blaylock was Director of Corporate Relations from January 1986
until she was named Vice President - Corporate Relations in January 1993.
(6) Mr. Jensen became Vice President and Treasurer on May 18, 1995. Prior
to joining Tandy, he served as Senior Vice President of Texas Commerce
Bank where he was employed for almost 10 years.
(7) Mr. Moad was elected Vice President - Investor Relations effective
December 1996. Mr. Moad served as Director of Investor Relations from
February 1993 until December 1996. Prior to February 1993, he was Vice
President - Controller of InterTAN, Inc., a spin-off of Tandy Corporation
in 1987.
(8) Mr. Padden has been the Vice President - Law of the Company since
January 1994 and has been Vice President and Secretary of TE Electronics
Inc. since January 1993. From January 1991 to January 1993 he was the
Deputy General Counsel - Intellectual Property for Tandy Corporation.
PART II
ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET FOR COMMON STOCK
The Company'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
sale prices for the Company'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, 1996.
Dividends
Quarter Ended: High Low Close Declared
December 31, 1996 $47 1/4 $37 1/8 $44 $.20
September 30,1996 47 3/8 38 1/4 40 3/8 .20
June 30, 1996 59 1/8 44 3/4 47 3/8 .20
March 31, 1996 48 1/4 34 1/8 46 1/4 .20
December 31, 1995 61 1/2 36 1/2 41 1/2 20
September 30,1995 64 3/8 50 7/8 60 3/4 .18
June 30, 1995 53 45 5/8 51 7/8 .18
March 31, 1995 52 3/8 44 47 3/4 .18
HOLDERS OF RECORD
At March 18, 1997 there were 26,974 holders of record of the Company's common
stock.
DIVIDENDS
The Board of Directors periodically reviews the Company's dividend policy.
The quarterly dividend rate is currently $0.20 per common share.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)
TANDY CORPORATION AND SUBSIDIARIES
Year
Six Months Ended (1) Ended
Dollars and shares in Year Ended December 31, December 31, June 30,
millions, except per ------------------------------------------------ -------------------- -------------
share amounts and ratios) 1996 1995 1994 1993 1992 1991 1992
- - --------------------------------------------------------------------------------------------------------------
Operations
Net sales and
operating revenues $ 6,285.5 $ 5,839.1 $ 4,943.7 $ 4,102.6 $ 2,161.1 $ 2,031.8 $ 3,649.3
========== ========== ========== ========== ========== ========== ==========
Income(loss) before
income taxes, dis-
continued operations
and cumulative
effect of change in
accounting principle $ (145.6) $ 343.2 $ 359.5 $ 311.1 $ 102.9 $ 201.9 $ 330.5
Provision (benefit)
for taxes (54.0) 131.3 135.2 115.5 35.2 73.2 119.8
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing
operations (91.6) 211.9 224.3 195.6 67.7 128.7 210.7
Loss from discontinued
operations (2) -- -- -- (111.8) (63.9) (8.1) (26.9)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
cumulative effect of
change in accounting
principle (91.6) 211.9 224.3 83.8 3.8 120.6 183.8
Cumulative effect of
change in accounting
principle (3) -- -- -- 13.0 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)(4) $ (91.6) $ 211.9 $ 224.3 $ 96.8 $ 3.8 $ 120.6 $ 183.8
========== ========== ========== ========== ========== ========== ==========
Net income (loss) available per average common and common equivalent share:
Income (loss) from
continuing
operations $ (1.64) $ 3.12 $ 2.91 $ 2.50 $ 0.87 $ 1.61 $ 2.61
Loss from
discontinued
operations (2) -- -- -- (1.48) (0.85) (0.10) (0.34)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
cumulative effect of
change in accounting
principle (1.64) 3.12 2.91 1.02 0.02 1.51 2.27
Cumulative effect of
change in accounting
principle (3) -- -- -- 0.17 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)
available per
average common and
common equivalent
share (4) $ (1.64) $ 3.12 $ 2.91 $ 1.19 $ 0.02 $ 1.51 $ 2.27
========== ========== ========== ========== ========== ========== ==========
Average common and
common equivalent
shares outstanding 59.8 65.9 74.9 75.5 74.9 78.1 78.8
Dividends declared per
common share $ 0.80 $ 0.74 $ 0.63 $ 0.60 $ 0.30 $ 0.30 $ 0.60
Ratio of earnings to
fixed charges (5) N/A(6) 4.22 4.56 3.89 2.83 N/A 3.95
Note: Footnotes for (1), (2), (3), (4) and (5)see next page.
SELECTED SUPPLEMENTAL FINANCIAL DATA(UNAUDITED)Continued
TANDY CORPORATION AND SUBSIDIARIES
Six Months Year
Ended (1) Ended
(Dollars and shares in Year Ended December 31, December 31, June 30
millions, except per ------------------------------------------------- ----------- ----------
share amounts and ratios) 1996 1995 1994 1993 1992 1992
- - -------------------------------------------------------------------------------------------------------------
Year End Financial Position
Inventories $ 1,420.5 $ 1,512.0 $ 1,504.3 $ 1,276.3 $ 1,472.4 $ 1,391.3
Total Assets (7) $ 2,583.4 $ 2,722.1 $ 3,243.8 $ 3,219.1 $ 3,381.4 $ 3,165.2
Working capital $ 746.3 $ 1,088.3 $ 1,350.1 $ 1,128.3 $ 1,478.0 $ 1,556.4
Current ratio 1.63 to 1 2.13 to 1 2.12 to 1 2.09 to 1 2.39 to 1 2.99 to 1
Capital structure:
Current debt (8) $ 258.0 $ 189.9 $ 229.1 $ 388.0 $ 385.7 $ 231.1
Long-term debt(8) $ 104.3 $ 140.8 $ 153.3 $ 186.6 $ 322.8 $ 357.5
Total debt $ 362.3 $ 330.7 $ 382.4 $ 574.6 $ 708.5 $ 588.6
Total debt, net of cash
and cash equivalents $ 240.8 $ 187.2 $ 176.8 $ 361.4 $ 595.9 $ 482.2
Stockholders' equity (7) $ 1,264.8 $ 1,601.3 $ 1,850.2 $ 1,950.8 $ 1,888.3 $ 1,930.7
Total capitalization $ 1,627.1 $ 1,932.0 $ 2,232.6 $ 2,525.4 $ 2,596.8 $ 2,519.3
Long-term debt as a % of
total capitalization 6.4% 7.3% 6.9% 7.4% 12.4% 14.2%
Total debt as a % of
total capitalization 22.3% 17.1% 17.1% 22.8% 27.3% 23.4%
Stockholders' equity per
common share (9) $ 21.49 $ 25.44 $ 26.02 $ 25.46 $ 24.95 $ 25.57
Financial Ratios
Return on average
stockholders' equity (5) N/A(4) 12.3% 11.8% 10.2% 3.5% 11.2%
Percent of sales:
Income (loss) before
income taxes, discontinued
operations & cumulative
effect of change in
accounting principle (4) (2.3)% 5.9% 7.3% 7.6% 4.8% 9.0%
Income (loss) from
continuing operations(4) (1.5)% 3.6% 4.5% 4.8% 3.2% 5.7%
(1) The Company changed its fiscal year end from June 30 to December 31
effective with the six-month transition period ended December 31, 1992.
(2) During 1993, the Company discontinued and disposed of its computer
manufacturing business, O'Sullivan Industries Inc., Memtek's Product
Division and the Lika printed circuit board business.
(3) The change in 1993 reflected the Company's change in accounting for income
taxes to comply with FAS 109.
(4) Excluding $230.3 million (net of taxes) in restructuring and other charges
in 1996, net income would have been $138.7 million, net income available per
common and common equivalent share would have been $2.21, return on average
stockholders' equity would have been 8.9%, income (loss) before income taxes
as a percent of sales would have been 3.5%, and income (loss) from
continuing operations would have been 2.2%.
(5) Computed using income from continuing operations.
(6) 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 ratio of earnings to fixed charges
would have been 2.57.
(7) Includes investment in discontinued operations through December 31, 1993.
(8) Includes capital leases and TESOP indebtedness.
(9) December 31, 1994, 1993 and 1992 and June 30, 1992 computed giving effect
to the Series C PERCS conversion into approximately 11,816,000 shares of
common stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Tandy Corporation ("Tandy" or "Company") participates in a highly
competitive industry that is characterized by aggressive pricing practices in an
attempt to gain market share. In developing strategies to achieve continued
increases in sales and operating profits, the Company anticipates customer
demand in managing its product transitions, inventory levels, and distribution
cycles. Due to rapid technological advances affecting consumer electronic
product cycles, the Company's operating results could be adversely affected
should the Company be unable to anticipate product cycle and/or customer demand
accurately. The Company's ability to achieve targeted sales and earnings levels
depends upon a number of competitive and market factors and, accordingly, are
subject to risk.
The regulatory and trade environment in which the Company operates is
subject to risk and uncertainty. Unfavorable tariffs affecting electronic
products imported from Asia as a result of a change in U.S. trade agreements or
trade imbalances could affect the Company. In addition, as a result of the
Telecommunications Act of 1996, the deregulated telecommunications market in the
future is expected to present both opportunities and increased competition to
the telecommunication industry's historical role of providing telecommunication
equipment and service to consumers. Also see "Net Sales and Operating Revenues"
for a discussion of a recent RadioShack(R) telecommunications alliance.
In arriving at the charges related to the restructuring plan, management was
required to make certain estimates, including but not limited to estimates about
expected proceeds from inventory sales in closed units, real estate valuations,
timing of closed store dispositions, and an assumption that Fry's Electronics,
Inc. and its affiliates would complete the purchase of six Incredible
Universe(R) stores pursuant to the purchase and sale agreements. Management made
these estimates based on the best information available at the time and believes
that these estimates were accurate at the time they were made. However,
unexpected delays in liquidation and closing of asset sales, among other
factors, could result in the charges and reserves previously estimated to be
inadequate, and future charges would be required.
With the exception of historical information, the matters discussed herein
contain forward-looking statements that involve risks and uncertainties and are
indicated by words such as "anticipates", "expects", "believes", "plans",
"could", and similar words and phrases. These uncertainties include, but are not
limited to, economic conditions including consumer installment debt levels and
interest rate fluctuations, shifts in consumer electronic product cycles,
technological advances or a lack thereof, consumer demand for products and
services, competitive products and pricing, availability of products, inventory
risks due to shifts in market demand, the regulatory and trade environment and
other risks indicated in filings by the Company with the Securities and Exchange
Commission.
NET SALES AND OPERATING REVENUES
Year Ended
December 31,
------------------------------------------------
(In millions) 1996 1995 1994
- - ------------- ------------ ------------ ------------
RadioShack $ 3,237.0 $ 3,219.3 $ 3,022.8
Incredible Universe 908.5 742.0 381.7
Computer City 2,064.0 1,763.9 1,184.2
------------ ------------ ------------
6,209.5 5,725.2 4,588.7
Tandy Name Brand (closed) - 28.1 271.5
Other Sales 76.0 85.8 83.5
------------ ------------- ------------
$ 6,285.5 $ 5,839.1 $ 4,943.7
============ ============= ============
Consolidated net sales and operating revenues increased 7.6% to $6.285
billion in 1996 from $5.839 billion in 1995. The increase is primarily
attributable to two factors: (1) the addition of 111 RadioShack stores (net of
closures) and 14 Computer City(R) stores during 1996 and (2) the incremental
addition of a full year's revenue related to stores opened during 1995 whose
total 1995 revenue reflected a partial year. Tandy announced a store closure
plan in December 1996 and accordingly, 1997 consolidated revenues are not
expected to match levels obtained in 1996. Excluding the announced store
closures, consolidated sales for 1996 would have approximated $4.882 billion.
See Note 3 of "Notes to the Consolidated Financial Statements" for additional
information.
For the year ended December 31, 1996, the Company showed a 2.3% comparable
store sales decline, which was the result of all divisions experiencing
comparable sales declines during the year. Although the RadioShack division same
store sales declined less than 1%, Incredible Universe was down 4.2% and
Computer City was down 4.9%. These declines are indicative of the heightened
level of competition within the industry and lower consumer demand which
negatively impacted the consumer electronics industry as a whole. This lower
demand was primarily attributed to higher consumer debt levels and the lack of
new products with significant technological advances.
RadioShack sales for 1996 increased less than 1% to $3.237 billion from
$3.219 billion. The McDuff store closures, which are included in RadioShack
sales, totaled $135.8 million in 1996. Excluding McDuff, RadioShack sales
increased 2.8%. Consumer electronics, while remaining the single largest product
category of RadioShack's sales mix, declined slightly to 44.8% of sales from
46.1% in 1995 and 45.4% in 1994 principally due to declines in audio and video
and personal electronic sales including portable radio and cassette product,
VCRs, and camcorders. Parts and accessory sales, including batteries, rose to
34.1% of RadioShack business from 32.9% in 1995. The average 1996 selling price
on desktop computers and notebook computers rose 32.9% and 18.5%, respectively
over the 1995 average selling price. Although computer sales have increased as a
percentage of total sales, system units sold have declined. Repair income and
cellular commissions experienced a slight decline in 1996 to 10.1% of sales from
10.4% in 1995, which was up from 6.6% in 1994. The 1996 decline in cellular
commissions is partially attributable to the changes in the California market,
which experienced increased consumer demand in 1995 due to enactment of certain
laws at that time. RadioShack plans to expand its company-owned store base to
5,000 locations by the year 2000. In addition, through a new dealership program
entitled "RadioShack Select", the Company plans to award up to 1,000 new
dealerships over the next five years.
On September 10, 1996, the Company, through the RadioShack division,
entered into a telecommunications alliance with Sprint Communications Company,
L.P., Sprint United Management Company (collectively, "Sprint"), and Sprint
Spectrum L.P. ("Spectrum"). This alliance will allow consumers to purchase a
full range of Sprint-branded telecommunication services and products through
participating RadioShack retail stores. Under the agreement, Sprint, Spectrum
and RadioShack will create and advertise a "store-within-a-store" concept.
Customers will have access, where available, to a full service communications
information center that will offer Spectrum personal communications services
("PCS"), Sprint long distance, local and wireless phone service, Internet access
and paging, as well as Spree(SM) pre-paid phone cards and phone equipment.
RadioShack will also be the exclusive retailer of Sprint(R) branded
"residential" telephones. Sprint-branded PCS products and services were
available in 240 stores at the end of 1996. Sprint telecommunication services
are expected to be available in approximately 4,000 stores by late 1997.
RADIOSHACK SALES TO CUSTOMERS
Percent of Total Sales
Year Ended
December 31,
Class of Products 1996 1995 1994
- - ---------------------------------------------- --------------- --------------
Consumer electronics 44.8% 46.1% 45.4%
Electronic parts, accessories
and specialty equipment 34.1 32.9 36.0
Personal computers, peripherals,
software and accessories 11.0 10.6 12.0
Repair services, cellular
commissions and other 10.1 10.4 6.6
------------- --------------- --------------
100.0% 100.0% 100.0%
============= =============== ==============
Computer City sales in 1996 increased 17.0% to $2.064 billion from $1.764
billion in 1995. Revenues for 1995 increased 49% over 1994 revenues of $1.184
billion. These increases are the result of the chain's growth from 40 stores as
of January 1, 1994 to a total of 113 stores as of December 31, 1996. Although
the Company announced the closing of 21 Computer City stores in December 1996,
revenues in this division are not expected to change significantly, due in part
to stores opened in 1996 that were only opened a partial year, incremental
revenue from the anticipated addition of approximately five new stores as well
as Computer City`s increased focus on a more experienced target customer group.
The 21 closing Computer City stores generated revenues of $359.1 million in
1996. See discussion under Provision for Business Restructuring for certain
actions management is taking to improve sales and operating results for this
division.
Incredible Universe sales increased 22.4% to $908.5 million from $742.0
million in 1995. Revenues for 1995 increased 94.4% over 1994 revenues of $381.7
million. These increases are the result of the chain's growth from three stores
as of January 1, 1994 to a total of 17 stores as of December 31, 1996. Revenues
for 1997 will be materially reduced from 1996 levels due to the closure of this
division in 1997. Revenues will be eliminated entirely after 1997 (see Note 3 of
the "Notes to Consolidated Financial Statements").
For the year ended December 31, 1995, the Company's consolidated sales and
operating revenues increased 18.1% to $5.839 billion from $4.944 billion in
1994. The increase in sales is primarily attributable to the addition of 160
RadioShack stores (net of closures), eight Incredible Universe stores and 30
Computer City stores during 1995. Due to the closure of 233 Tandy Name Brand
Retail Group ("Tandy Name Brand") stores during the first quarter of 1995, sales
for that division decreased from $271.5 million in 1994 to $28.1 million in
1995. This division is now closed and sales of the remaining Tandy Name Brand
stores are included in the RadioShack total for each period presented in the
"Net Sales and Operating Revenues" table. See Note 3 of the "Notes to
Consolidated Financial Statements" for more information.
RETAIL OUTLETS
Average
Store
Size Dec. 31, Dec. 31, Dec. 31,
(Sq. Ft.) 1996 1995 1994
- - --------------------------------------------------------------------------------
RadioShack
Company Owned 2,450 4,942 (1) 4,831 4,598
Dealer/Franchise N/A 1,927 2,005 2,005
-------- -------- -------- --------
6,869 6,836 6,603
Computer City 21,150 113 (2) 99 69
Incredible Universe 184,000 17 (3) 17 9
Tandy Name Brand Retail Group
McDuff Supercenters -- -- 71
McDuff/VideoConcepts Mall Stores -- -- 219
The Edge in Electronics -- -- 16
-------- -------- -------
6,999 6,952 6,987
======== ======== =======
(1) Includes 53 McDuff stores that are part of the store closure plan announced
in December 1996.
(2 ) Includes 21 stores that are part of the store closure plan announced in
December 1996.
(3) Incredible Universe division will cease operations in 1997.
GROSS PROFIT
Gross profit as a percentage of sales declined from 35.5% in 1995 to 32.2%
in 1996. The Company's gross profit margin for 1996 was adversely affected by
approximately $91.4 million of lower of cost or market inventory writedowns and
related costs primarily associated with the restructuring announced in December
1996. Excluding these charges, the gross profit margin would have been 33.6% for
1996. The decrease in gross profit margin from 35.5% to 33.6% (as adjusted)
reflects the continued effect of Tandy's lower gross margin retail formats.
During calendar year 1996, Computer City and Incredible Universe represented
47.3% of net sales and operating revenues as compared to 42.9% of the 1995 net
sales and operating revenues. Continuing Computer City stores would have
approximated 34.9% of 1996 sales after giving effect to the 1996 store closure
plan. Accordingly, management anticipates that Tandy's consolidated gross profit
percentage will increase slightly for the year ended December 31, 1997, due
primarily to the 1997 closure of the Incredible Universe division, which
historically operated at lower gross margins than consolidated Tandy
Corporation. Furthermore, gross profit margin for calendar year 1996, excluding
stores in the closure plan and the 1996 fourth quarter lower of cost or market
inventory impairment, would have approximated 38.8%. See Provision for Business
Restructuring below.
During 1996, RadioShack's gross margin was up slightly when compared to 1995
due to the relative stability of product mix as a percentage of overall sales
from 1995 to 1996. No significant change is expected in RadioShack's gross
margin for 1997. Excluding lower of cost or market writedowns associated with
store closures, Computer City's gross margin decreased slightly in 1996 due to
competitive forces which continue to exist in the computer retail industry and
the lack of introduction in 1996 of new products with significant technological
advances. Incredible Universe's gross margin percentage decreased 2.2 percentage
points from 1995 due to an increase in the relative percentage of lower margin
computer sales and price competition in the consumer electronics industry.
Gross profit as a percentage of sales declined from 39.0% in 1994 to 35.5%
in 1995. This decrease reflected the continued expansion of Tandy's lower gross
margin retail formats. During calendar year 1995, Computer City and Incredible
Universe represented 42.9% of net sales and operating revenues compared to 31.7%
of the 1994 total. During 1995, RadioShack's gross margin decreased when
compared to 1994 due to the rapid growth of cellular phone and digital satellite
system sales. Computer City's gross margin remained relatively flat in 1995 when
compared to 1994. Competitive forces continued to be a major factor in keeping
margins flat in 1995. Incredible Universe's gross margins decreased slightly in
1995 compared to 1994 reflecting the fact that personal computers and related
equipment, which inherently have lower margins, contributed a larger portion to
the overall sales mix in 1995 versus 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") as a percentage of
sales and operating revenues for the year ended December 31, 1996 declined from
the years ended December 31, 1995 and 1994. The accompanying table summarizes
the breakdown of various components of SG&A and their related percentage of
sales and operating revenues. The lower SG&A percentage reflects the lower
costs, relative to net sales and operating revenues, of Computer City and
Incredible Universe, which operate at lower relative costs than consolidated
Tandy Corporation. Accordingly, management anticipates that Tandy's SG&A as a
percentage of sales and operating revenues will increase slightly for the year
ended December 31, 1997, as Computer City and Incredible Universe begin to
decrease in their combined proportion of overall Tandy Corporation business.
Excluding those stores in the 1996 store closure plan, SG&A as a percentage of
sales would have approximated 29.7% versus 28.0% for the year ended December 31,
1996. See Provision for Business Restructuring below.
Payroll and commissions expense increased slightly in 1996 as a percentage of
net sales and operating revenues to 12.1% from 12.0% in 1995, down from 12.7% in
1994. The 1996 and 1995 decrease as a percentage of sales from 1994 is due to
the increase in combined Computer City and Incredible Universe sales as a
percentage of net sales and operating revenues from 31.7% in 1994 to 42.9% in
1995 and to 47.3% in 1996. These divisions have an inherently lower salary
structure when compared to the total company. As of December 31, 1996, the
Company had approximately 48,400 employees. The preceding number includes
approximately 8,500 temporary retail employees who were hired for the Christmas
selling season. See Provision for Business Restructuring below for anticipated
work force reductions related to the Company's restructuring programs.
Advertising costs for 1996 have decreased as a percentage of sales due to
nonrecurring 1995 promotional expenses relating to the grand opening of 30
Computer City stores and eight Incredible Universe stores during 1995.
Additionally, RadioShack's 1996 advertising expense as a percentage of sales
remained consistent with 1995.
Rent expense increased slightly as a percentage of sales to 3.8% in 1996 from
3.7% in 1995, down from 4.3% in 1994. The decrease from 1994 to 1996 as a
percentage of sales directly relates to the closing of 233 Tandy Name Brand
stores in the first quarter of 1995 and the increase in the number of Computer
City and Incredible Universe stores, which have lower rent expense as a
percentage of sales than the Company as a whole.
The expenses of the credit operations have significantly declined as a
result of the sale of the private label credit card portfolios which was
completed by March 31, 1995. The sale of the credit card portfolio balance in
1994 has significantly reduced the bad debt provision during 1995 as compared to
prior years. In addition, servicing costs associated with the portfolio have
also been eliminated with the sale. These factors were the primary contributors
to the decrease in the expenses of the credit operations from 1994 to 1995.
Offsetting these reductions is decreased interest income (see discussion below)
resulting from the credit card portfolio sale. Commencing in 1995, the Company
receives fees from an unrelated third party financier of its private label
credit card portfolio balance for the generation of normal interest-bearing
accounts, and pays a fee for the generation of special purpose promotional
accounts, such as "zero interest for twelve months." These fees are classified
as credit card fees in the accompanying SG&A table and are the primary reason
for the increase in this category in 1995 versus 1994. Credit card fees expense
also includes fees associated with third party bank credit cards.
Other SG&A expenses, which include repair, maintenance, travel, and other
miscellaneous expenses, have in total remained relatively consistent between
3.1% - 3.0% of sales during 1996, 1995, and 1994.
SUMMARY OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Year Ended
December 31,
----------------------------------------------------
1996 1995 1994
% of % of % of
Sales & Sales & Sales &
(In millions) Dollars Revenues Dollars Revenues Dollars Revenues
- - --------------------------------------------------------------------------------
Payroll and commissions $ 758.2 12.1% $ 698.9 12.0% $ 627.3 12.7%
Advertising 254.6 4.1 257.3 4.4 224.2 4.5
Rent 239.8 3.8 217.6 3.7 212.4 4.3
Other taxes 107.9 1.7 96.7 1.7 89.5 1.8
Utilities and telephone 77.0 1.2 71.3 1.2 67.4 1.4
Insurance 53.3 0.8 48.3 0.8 51.1 1.0
Stock purchase
and savings plans 18.5 0.3 19.7 0.3 21.0 0.4
Credit card operations -- -- 6.3 0.1 56.8 1.1
Credit card fees 57.2 0.9 52.7 0.9 28.5 0.6
Other 194.6 3.1 177.7 3.0 154.5 3.1
------- ------- -------- ------- -------- -------
$1,761.1 28.0% $1,646.5 28.2% $1,532.7 31.0%
======== ======= ======== ======= ======== =======
NET INTEREST INCOME (EXPENSE)
Year Ended
December 31,
(In millions) 1996 1995 1994
- - ------------- ----------- ----------- -----------
Interest income:
Credit card operations $ -- $ 18.5 $ 46.9
InterTAN notes receivable,
including accretion of discount 6.7 8.3 8.3
AST note receivable,
including accretion of discount 2.6 4.9 5.7
IRS settlements 0.3 6.2 9.6
Other interest income 3.4 4.4 8.1
-------- -------- --------
Total interest income 13.0 42.3 78.6
Interest expense (36.4) (33.7) (30.0)
-------- -------- --------
Net interest income (expense) $ (23.4) $ 8.6 $ 48.6
======== ======== ========
Net interest expense was $23.4 million for 1996 versus net interest income of
$8.6 million and $48.6 million for 1995 and 1994, respectively. The reversal to
a net interest expense position in 1996 is primarily attributable to the sale of
the Company's private label credit card portfolios in the fourth quarter of 1994
and the first quarter of 1995.
Interest income from the credit card operations decreased in 1995 and 1996
due to the sale of the Company's credit card portfolios. As a result of the sale
of the Computer City and Incredible Universe credit card portfolios in 1994 and
the RadioShack and McDuff credit card portfolios in 1995, the Company will no
longer earn interest income from these portfolios. Interest income for 1995
includes the amount of interest received prior to the sale of the RadioShack and
McDuff portfolios. Interest income relating to the InterTAN, Inc. ("InterTAN")
notes will continue in 1997 but at a reduced level as principal payments are
received. In addition, the AST Research, Inc. ("AST") note was repaid in 1996
and, accordingly, the Company will no longer receive interest income from this
source. Other interest income relates primarily to cash equivalents of the
Company and was higher in 1994 than in 1995 and 1996 due to increased cash
equivalents resulting from proceeds received from the 1993 divestiture of
discontinued manufacturing and marketing operations. The Company has entered
into contracts with Fry's Electronics, Inc. of Palo Alto, California for the
sale of the assets of six Incredible Universe stores and contracts with certain
affiliates for the sale of the real estate of those stores. Upon successful
completion of the anticipated closings, the Company will hold multiple notes
receivable approximating $100 million with varying maturities ranging from one
to five years and varying interest rates ranging from 5.91% to 6.7%. Interest
income of approximately $3.3 million relating to these notes is anticipated to
be recognized in 1997, contingent upon the transactions closing. Based on the
above, interest income is expected to decline slightly in 1997.
Interest expense has grown since 1994 as a result of the Company's increased
usage of short-term borrowing facilities including seasonal bank credit lines
and commercial paper facilities, as excess funds from the 1993 manufacturing and
marketing operations divestiture and 1994/1995 sale of credit operations have
been fully utilized. The use of these facilities was significantly higher during
the years ended December 31, 1996, and 1995, as the Company retired long-term
debt, funded store expansion and executed a share repurchase program. Net
interest expense is expected to increase in 1997 as the Company continues to
fund a portion of its share repurchase program through existing borrowing
facilities.
PROVISION FOR BUSINESS RESTRUCTURING
Tandy has initiated certain restructuring programs affecting its retail
operations. These restructuring programs were undertaken as a result of the
highly competitive environment in the electronics industry. Management
anticipates these changes will strengthen its business by reducing costs.
1994 Restructuring: In December 1994, the Company adopted a business
restructuring plan to close or convert 233 of the 306 Tandy Name Brand stores.
At March 31, 1995, all 233 stores had been closed or converted. The remaining
stores became part of the Tandy Specialty Retail Group of RadioShack. A pre-tax
charge of $89.1 million was taken in the fourth quarter of fiscal 1994 related
to the closing and conversion of these stores. The components of the
restructuring charge and an analysis of the amounts charged against the reserve
are outlined in a table in Note 3 of the "Notes to Consolidated Financial
Statements".
1996 Restructurings: The Company recorded a pre-tax charge of $25.5 million
during the second quarter of 1996 related to an Incredible Universe
restructuring program announced on May 21, 1996. The charge related primarily to
future lease obligations, disposition of fixed assets, and certain termination
costs associated with employees. The components of the restructuring charge and
an analysis of the amounts charged against the reserve are outlined in a table
in Note 3 of the "Notes to Consolidated Financial Statements". This program
included an overhead reduction plan, the closing of two stores and costs
associated with the cancellation of certain real estate sites held for new store
development. A streamlining of the division's overhead costs included the
elimination of approximately 20 nonselling positions per store, reorganization
of some central unit functions, and a significant change in advertising
strategy. The two stores located in Potomac Mills, Virginia and Charlotte, North
Carolina were closed in the second quarter of 1996 due to inadequate sales
volumes.
The Company also recorded a pre-tax restructuring charge of $136.6 million in
the fourth quarter of 1996 related to additional restructuring programs. These
programs include the closure of the remaining 53 McDuff stores, exiting the
Incredible Universe business (consisting of 17 stores), and closure of 21
Computer City stores. Computer City will strive to reposition its focus on
target customers who are the experienced users, small office/home office group,
and corporate accounts. Along with the target customer group focus, Computer
City will work toward a more productive, higher margin mix of business in areas
such as services, software and peripherals. The Company will continue to closely
monitor the operating results of this division. Management believes that its
current restructuring strategy will improve this division's operations; however,
there can be no assurance that it will be successful.
The fourth quarter 1996 restructuring charges related primarily to lease
obligations, real estate costs, employee termination expenses, and contract
cancellation costs. The components of the restructuring charge and an analysis
of the reserve are outlined in a table in Note 3 of the "Notes to Consolidated
Financial Statements". Implementation of the restructuring programs will result
in the elimination of approximately 3,500 employee positions. Management expects
the restructuring plan and cash expenditures relating to the programs to be
completed by December 31, 1997 in all material respects. Cash expenditures are
anticipated to be funded through cash flow from operations and existing
borrowing facilities. The cumulative 1996 restructuring and store closure
programs resulted in significant impairments related to long-lived assets
totaling $112.8 million (see discussion below) and lower of cost or market
impairments totaling $91.4 million recognized within cost of sales (see Gross
Profit discussion above).
IMPAIRMENT OF ASSETS
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("FAS 121"), which was effective for fiscal years beginning after December 15,
1995. Effective January 1, 1996, the Company adopted FAS 121 which requires that
long-lived assets (primarily property, plant and equipment and goodwill) held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the net book value of the asset may not be
recoverable. An impairment loss will be recognized if the sum of the expected
future cash flows (undiscounted and before interest) from the use of the asset
is less than the net book value of the asset. The amount of the impairment loss
will generally be measured as the difference between the net book value of the
assets and the estimated fair value of the related assets.
Upon adoption of FAS 121 in the first quarter of 1996, the Company recognized
an initial non-cash impairment loss of approximately $26.0 million to conform
with this statement, primarily as a result of grouping assets at their lowest
level of cash flows to determine impairment as required by this statement. Fair
value was principally determined based upon estimated future discounted cash
flows (before interest) related to each group of assets. The Company also
recorded a non-cash impairment of $8.0 million in the restructuring charge in
May 1996.
The Company recognized an additional non-cash impairment charge of $86.8
million in the fourth quarter of 1996 primarily related to the disposal of
certain long-lived assets pursuant to its restructuring plan (see Note 3 of the
"Notes to Consolidated Financial Statements"). These assets principally relate
to the Incredible Universe, Computer City and remaining McDuff stores that are
part of the store closure plan and certain foreign real estate. Fair value was
principally determined by quoted market prices. Management expects the plan of
disposal to be accomplished in all material respects by approximately December
31, 1997. The net book value of the long-lived assets to be disposed of at
December 31, 1996 approximated $68.2 million. See Note 3 of the "Notes to
Consolidated Financial Statements" for the 1996 operating results of the stores
included in the store closure plan.
UNREALIZED LOSS ON AST SECURITIES
On July 12, 1996, the Company received $60.0 million in cash and $30.0
million in AST common stock as final payment of a $90.0 million note payable
from AST to the Company. The 4,498,594 shares of AST common stock Tandy received
represented approximately 7.8% of the outstanding common stock of AST at the
time of receipt. The Company's cost basis approximated $6.67 per share.
On January 30, 1997, Samsung Electronics Co., Ltd. ("Samsung") proposed to
purchase the remaining outstanding shares of AST common stock it does not own
(Samsung owned approximately 46% as of December 31, 1996) for cash consideration
of $5.10 per share. As a result, the Company considers the decline from its
original cost basis of $6.67 per share and Samsung's offer price of $5.10 per
share to be "other than temporary" and, accordingly, has assigned a new cost
basis to the stock of $5.10 per share. The recognition of this reduction in cost
basis was recorded as an unrealized loss of approximately $7.0 million which is
reflected as an increase to selling, general and administrative expense in the
accompanying 1996 Consolidated Statements of Income. Upon consummation of
Samsung's proposal at the offer price of $5.10 per share, the "unrealized loss"
would effectively become "realized".
Consummation of Samsung's proposed acquisition of AST is subject to several
conditions, including approval of the transaction by the independent directors,
negotiation and execution of a mutually satisfactory merger agreement, and
receipt of all required United States and Korean governmental approvals.
GAIN ON SALE OF CREDIT OPERATIONS AND EXTENDED SERVICE CONTRACTS
In December 1994, the Company entered into an agreement with SPS
Transaction Services, Inc., a majority-owned subsidiary of Dean Witter, Discover
& Company ("SPS") to sell its Computer City and Incredible Universe private
label credit card portfolios without recourse. As a result of the agreement,
Tandy received cash of $85.8 million and received a deferred payment of $179.8
million. The Company recognized a gain of $35.7 million in the accompanying 1994
Consolidated Statements of Income. The total principal amount of $179.8 million
was paid in full during 1995.
On March 30, 1995, the Company completed the sale, at net book value, of the
RadioShack and Tandy Name Brand private label credit card accounts and
substantially all related accounts receivable to Hurley State Bank, a subsidiary
of SPS. As a result of the transaction, Tandy received $342.8 million in cash
and a deferred payment amount of $49.4 million which has been paid in full.
Effective December 1994, the Company transferred all of its existing
obligations with respect to extended service contracts in force at December 31,
1994, with the exception of certain contracts aggregating approximately $7.7
million, to an unrelated third party. The unrelated third party contractually
assumed all of the Company's legal obligations and risk of future loss pursuant
to the extended service contracts in exchange for $75.0 million. As a result,
the Company recognized a gain of $55.7 million associated with this transaction
in its accompanying 1994 Consolidated Statements of Income. The Company
continues to provide repair services to customers who tender products pursuant
to the extended service contracts on a non-exclusive basis. The unrelated third
party pays the Company competitive market rates for repairs on products tendered
pursuant to the extended service contracts.
PROVISION FOR INCOME TAXES
The effective tax benefit rate that resulted from the Company's net loss
position was 37.1% for the year ended December 31, 1996, and the effective
provision rate was 38.3% for the year ended December 31, 1995, and 37.6% for the
year ended December 31, 1994. The effective tax rate for 1996 changed from 1995
due primarily to foreign income taxes which were incurred on foreign income in
1996 despite the overall loss incurred by the Company.
The IRS Dallas office had previously referred certain issues in the Company's
1987 tax return to the IRS National Office. The issues involved the private
letter rulings issued by the IRS in connection with the spin-off of InterTAN and
certain other tax matters. On June 20, 1996, the IRS notified the Company that
it would no longer challenge the private letter ruling issued in connection with
the InterTAN spin-off. In December of 1996, the IRS Dallas Appeals Office
notified the Company that it is no longer pursuing the remaining matters
associated with the separation of InterTAN from the Company.
TAX SHARING AND TAX BENEFIT REIMBURSEMENT AGREEMENT
On February 2, 1994, O'Sullivan Industries ("O'Sullivan"), a former
subsidiary of Tandy Corporation, completed an initial public offering. Tandy has
recognized income of approximately $0.2 million, $1.3 million and $4.4 million,
net of tax, during the years ended December 31, 1996, 1995 and 1994,
respectively, pursuant to a Tax Sharing and Tax Benefit Reimbursement Agreement
(the "Agreement") between Tandy and O'Sullivan. Under the Agreement, 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. The higher tax basis increases O'Sullivan's tax
deductions and, accordingly, reduces income taxes payable by O'Sullivan. These
payments will be made over a 15-year time period and are contingent upon
O'Sullivan's taxable income each year. The Company is recognizing these payments
as additional sale proceeds and gain in the year in which the payments become
due and payable to the Company pursuant to the Agreement. The additional gain is
recorded as a reduction of SG&A expense in the accompanying Consolidated
Statements of Income.
CASH FLOW AND LIQUIDITY
Year Ended
December 31,
------------------------------------------------
(In millions) 1996 1995 1994
- - ------------- -------------- -------------- ------------
Operating activities $ 307.5 $ 673.0 $ 268.9
Investing activities (112.9) (180.3) 236.6
Financing activities (216.6) (554.8) (513.1)
Tandy's cash flow and liquidity, in management's opinion, remains strong.
During the year ended December 31, 1996, cash provided by operations was $307.5
million as compared to $673.0 million for the year ended December 31, 1995 and
$268.9 million for the year ended December 31, 1994.
The increased cash flow from operations for 1995 as compared to both 1996 and
1994 was the result of nonrecurring cash flows generated in 1995 primarily
related to the cash received from the sale of the credit card portfolios, which
approximated $342.8 million, and collection of the deferred payment amount from
SPS of $179.8 million.
Inventory for RadioShack and related support operations decreased
approximately $30.0 million in 1996, while during the same period, Computer City
and Incredible Universe inventories (prior to restructuring reserves) increased
approximately $30.1 million. These year-to-year inventory fluctuations offset
one another, resulting in no material net cash effect for the year. It is not
anticipated that additional stores in 1997 will materially impact inventory
levels. Other working capital components generated $49.2 million of positive
cash flow to operations in 1996. In 1995, inventory required less cash than in
1994 due to the liquidation of the closing Tandy Name Brand stores and a net
reduction in Computer City inventory which was partially offset by increases in
inventory to support Incredible Universe and RadioShack store expansion. Current
liability reductions in 1995 surpassed comparable 1994 amounts by $376.2
million.
Investing activities involved capital expenditures primarily for retail
expansion, upgrading information systems and headquarter building renovations
totaling $174.8 million for the year ended December 31, 1996, $226.5 million for
the year ended December 31, 1995, and $180.5 million for the year ended December
31, 1994. Proceeds from the sale of property, plant and equipment in 1995 and
1994 resulted primarily from sale-leaseback transactions which netted the
Company $37.6 million and $52.7 million, respectively, in cash. The cash portion
of payments on the note receivable from AST amounted to $6.7 million in 1995 and
$60.0 million in 1996. Proceeds received from the sale of divested manufacturing
and marketing operations totaled $359.0 million during the year ended December
31, 1994. Tandy's 1997 capital expenditures are expected to approximate $125.0 -
$135.0 million which consist primarily of future store expansions and
refurbishments, as well as other capital expenditures such as updated
information systems. These expenditures will be funded primarily from cash flow
from operations.
Purchases of treasury stock required cash of $232.9 million, $502.2 million,
and $275.4 million in 1996, 1995 and 1994, respectively. Sales of treasury stock
to the Tandy Stock Plan generated cash of $39.4 million, $44.6 million and $41.6
million in 1996, 1995 and 1994, respectively. Dividends paid, net of tax, in
1996, 1995 and 1994 amounted to $52.5 million, $63.0 million and $74.5 million,
respectively. As a result of the Company calling for the redemption of its $2.14
Depositary Shares of the Company's Series C Preferred Equity Redemption
Convertible Stock ("PERCS") in March 1995, the Company eliminated its annual
dividend payment to the PERCS shareholders of approximately $32.0 million. The
Company plans to fund common and Series B (Tandy Employees Stock Ownership Plan,
"TESOP") preferred stock dividends with available cash and cash flow from
operations.
At December 31, 1996, the Company increased short-term borrowings by $40.9
million. Short-term debt reductions of $1.8 million and $110.4 million were made
in 1995 and 1994, respectively. Reductions in short-term borrowings for 1994
were funded primarily by proceeds from the sale of divested operations and cash
provided by operations. The Company's primary source of short-term debt, for
which borrowings and repayments have been presented net in the Consolidated
Statements of Cash Flows, consists of short-term seasonal bank debt and
commercial paper, which have maturities of less than 90 days.
Repayments of long-term borrowings during 1996 primarily consist of $12.9
million of medium-term notes and $10.4 million of TESOP debt and $3.6 million in
capital lease reductions.
Following are the current credit ratings for Tandy, which are generally
considered investment grade:
Standard Duff &
Category Moody's and Poor's Phelps
- - -------- ------- ---------- ------
Medium-Term Notes Baa2 A- A-
ESOP Senior Notes Baa2 A- N/A
Commercial Paper P-2 A-2 D-1-
CAPITAL STRUCTURE AND FINANCIAL CONDITION
The Company's balance sheet and financial condition continue to be strong.
The Company's available borrowing facilities as of December 31, 1996 are
detailed in Note 12 of the "Notes to Consolidated Financial Statements".
On March 3, 1997, the Company announced that its Board of Directors
authorized management to purchase an additional 5 million shares of its common
stock through the Company's existing share repurchase program which was
initially authorized in December 1995 and subsequently increased in October
1996. The share increase brings the total authorization to 15 million shares of
which 4,582,200 shares had been purchased as of December 31, 1996. These
purchases are in addition to the 12.5 million share repurchase program which
began in August 1994 and concluded in December 1995 as well as the shares
required for employee plans which are purchased throughout the year. Purchases
will be made from time to time in the open market, and it is expected that
funding of the program will come from operating cash flow and existing bank
facilities.
The revolving credit backup facilities to Tandy's commercial paper program
were renewed during the second quarter of 1996. This agreement is composed of
two facilities -- one for $200.0 million expiring June 1997 and another $300.0
million facility expiring in June 2001. Annual commitment fees for the
facilities are 0.07% per annum and 0.10% per annum, respectively, whether used
or unused.
Tandy's medium-term notes outstanding under a 1991 shelf registration at
December 31, 1996 totaled $54.5 million compared to $67.1 million at December
31, 1995.
The total debt-to-capitalization ratio was 22.3% at December 31, 1996 and
17.1% at both December 31, 1995 and 1994. This debt-to-capitalization ratio
could increase as Tandy continues to repurchase shares under the existing
authorization and fund capital expenditures.
Tandy anticipates receiving a net positive cash effect from the restructuring
activities. Primary positive contributors to this cash effect are the
liquidation of closed store inventory and other related assets and the tax
benefit created by the restructuring and FAS 121 charges. Primary cash
expenditures related to the charge are expected to aggregate approximately
$138.0 million and primarily relate to lease buyout payments and real estate
disposal expenses. The Company expects to receive a major portion of this
positive cash effect prior to December 31, 1997 (see Note 3 of the "Notes to
Consolidated Financial Statements").
The Company announced on March 3, 1997 that the Board of Directors had
authorized the filing of a $300.0 million Debt Registration Statement with the
Securities and Exchange Commission. Funding under the Registration Statement
will take the form of senior unsecured notes and medium-term notes and will be
used to refinance existing short-term indebtedness and for general corporate
purposes. The filing and funding of this debt registration is subject to future
market conditions and unforeseen events.
Management believes that the Company's present borrowing capacity is greater
than the established credit lines and long-term debt in place. Management also
believes that the Company's cash flow from operations, cash and cash equivalents
and its available borrowing facilities are more than adequate to fund planned
store expansion, to meet debt service and dividend requirements and to fund its
share repurchase program. If filed and funded, the issuance of longer term debt
under the new shelf registration should improve the Company's balance between
short-term and long-term debt.
INFLATION
Inflation has not significantly impacted the Company 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.
INTERTAN UPDATE
Summarized in the tables below are the notes and other receivables due from
InterTAN at December 31, 1996 and 1995 as well as the income components
generated from operations relative to InterTAN for each of the three years ended
December 31, 1996, 1995 and 1994. The estimated fair market value of the note
receivable approximates $28.4 million at December 31, 1996. The Company
purchased the notes at a discount and InterTAN has an obligation to pay the
gross amount of the notes.
Balance at December 31,
--------------------------
(In millions) 1996 1995
- - ------------- -------- --------
Gross amount of notes $ 27.8 $ 44.9
Discount (8.3) (12.2)
-------- --------
Net amount of notes $ 19.5 $ 32.7
======== ========
Current portion of notes $ 4.9 $ 14.6
Non-current portion of notes 14.6 18.1
Other current receivables 4.6 6.7
-------- --------
$ 24.1 $ 39.4
======== ========
Year Ended December 31,
-----------------------------------------
(In millions) 1996 1995 1994
- - ------------- -------- -------- --------
Sales and commission income $ 8.5 $ 10.9 $ 19.8
Interest income 2.9 4.1 4.4
Accretion of discount 3.8 4.2 3.9
Royalty income 2.0 0.8 --
-------- -------- --------
Total income $ 17.2 $ 20.0 $ 28.1
======== ======== ========
InterTAN, the former foreign retail operations of Tandy, was spun off to
Tandy stockholders as a tax-free dividend in fiscal 1987. Under the merchandise
purchase terms of the original distribution agreement, InterTAN could purchase
on payment terms products sold or secured by Tandy. A&A, a subsidiary of Tandy,
was the exclusive purchasing agent for products originating in the Far East for
InterTAN.
In August 1993, Trans World Electronics, Inc. ("Trans World"), a subsidiary
of Tandy, reached an agreement with InterTAN's banking syndicate to buy
approximately $42.0 million of InterTAN's debt at a negotiated, discounted
price. The debt purchased from the banks was restructured into a seven-year note
with interest of 8.64% due semiannually beginning February 25, 1994 and
semiannual principal payments beginning February 25, 1995 (the "Series A" note).
Trans World provided approximately $10.0 million in working capital and trade
credit to InterTAN. Interest on the working capital loan (the "Series B" note)
of 8.11% was due semiannually beginning February 25, 1994 and the note was paid
in full in 1996. Trans World also has received warrants with a five-year term
exercisable for approximately 1,450,000 shares of InterTAN common stock at an
exercise price of $6.618 per share. The fair market value of these warrants was
approximately $1.0 million at December 31, 1996. As required by an agreement
with Tandy, InterTAN has registered the warrants under the Securities Act of
1933. At December 31, 1996, InterTAN's common stock price was $4.88 per share.
At February 19, 1997, InterTAN's common stock price was $4.25 per share.
Subject to certain conditions described below, all of Tandy's debt from
InterTAN is secured by a first priority lien on substantially all of InterTAN's
assets in Canada and the U.K. The Company was also granted a mortgage by
InterTAN on certain real property in Australia in 1996.
A merchandise agreement was reached with InterTAN in October 1993, as
subsequently amended, which requires a percentage of future purchase orders to
be backed by letters of credit posted by InterTAN. New license agreements, as
amended, provide a royalty payable to Tandy, which began in the September 1995
quarter. InterTAN had obligations for purchase orders outstanding for
merchandise ordered by A&A for InterTAN but not yet shipped totaling
approximately $23.2 million at December 31, 1996.
InterTAN increased its bank revolving credit facility with its new banking
syndicate to Canadian $60.0 million (U.S. $43.8 million equivalent at December
31, 1996) in 1994. At December 31, 1996, InterTAN had borrowed $2.6 million
under this facility. In the event of InterTAN's default on the bank credit line,
Tandy will, at the option of InterTAN's new banking syndicate, purchase
InterTAN's inventory and related accounts receivable at 50% of their net book
value, up to the amount of outstanding bank loans, but not to exceed Canadian
$60.0 million. In that event, Tandy could foreclose on its first priority lien
on InterTAN's assets in Canada and the U.K. If Tandy fails to purchase the
inventory and related accounts receivable of InterTAN from the banking
syndicate, the syndicate, upon notice to Tandy and expiration of time, can
foreclose upon InterTAN's assets in Canada and the U.K. ahead of Tandy. The
inventory repurchase agreement between InterTAN's banking syndicate and Tandy
has been amended and restated to reflect the foregoing.
A&A will continue as the exclusive purchasing agent for InterTAN in the Far
East on a commission basis.
Through February 1997, InterTAN has met all of its payment obligations to
Tandy. Reported income before taxes for the six months ended December 31, 1996
approximated $10.0 million compared to $13.2 million for the six months ended
December 31, 1995. Nothing has come to the attention of management which would
indicate that InterTAN would not be able to continue to meet its payment
obligations pursuant to the debt agreements with Tandy.
Canadian tax authorities are reviewing InterTAN's Canadian subsidiary's
1987-93 tax returns. The Company cannot determine whether the ultimate
resolution of that review will have an effect on InterTAN's ability to meet its
obligations to Tandy, but at present, nothing has come to the attention of the
Company which would lead it to believe that the ultimate resolution of this
review would impair InterTAN's ability to meet its obligations to Tandy.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Index to Consolidated Financial Statements is found on page 28. The
Company'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 fiscal 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 1997 Annual Meeting. For information relating to the Executive Officers of
the Company, see Part I of this report. The Section 16(A) reporting information
is incorporated by reference from the Proxy Statement for the 1997 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 fiscal 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 1997 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 fiscal 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 1997
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 fiscal 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 1997 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 28. The index and
statements are incorporated herein by reference.
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 55, which
immediately precedes such exhibits.
Certain instruments defining the rights of holders of long-term debt of the
Company 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.
The Company hereby agrees to furnish the Securities and Exchange Commission
copies of such instruments upon request.
(b) Reports on Form 8-K.
1) On December 30, 1996, the Company announced its plan to exit the
Incredible Universe and its agreements to sell multiple Incredible Universe
locations. The Form 8-K was filed on January 14, 1997.
2) On January 15, 1997 Jesse L. Upchurch resigned as a director of Tandy
Corporation. The Form 8-K was filed on January 22, 1997.
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 27, 1997 /s/John V. Roach
---------------------------
John V. Roach
Chairman of the Board and
Chief Executive Officer
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 27th day of
March, 1997.
Signature Title
/s/John V. Roach Chairman of the Board, Director and
- - ------------------------
John V. Roach Chief Executive Officer (Chief Executive Officer)
/s/Dwain H. Hughes Senior Vice President and Chief Financial Officer
- - ------------------------
Dwain H. Hughes (Principal Financial Officer)
/s/Richard L. Ramsey Vice President and Controller
- - ------------------------
Richard L. Ramsey (Principal Accounting Officer)
/s/James I. Cash, Jr. Director /s/Thomas G. Plaskett Director
- - ------------------------ -----------------------
James I. Cash, Jr. Thomas G. Plaskett
/s/Lewis F. Kornfeld, Jr. Director /s/William E. Tucker Director
- - ------------------------ -----------------------
Lewis F. Kornfeld, Jr. William E. Tucker
/s/Jack L. Messman Director /s/ Alfred J. Stein Director
- - ------------------------ -----------------------
Jack L. Messman Alfred J. Stein
/s/William G. Morton Director /s/ John A. Wilson Director
- - ------------------------ -----------------------
William G. Morton John A. Wilson
/s/Leonard H. Roberts Director
- - ------------------------
Leonard H. Roberts
TANDY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants............................... 29
Consolidated Statements of Income for each of the three
years ended December 31, 1996................................. 30
Consolidated Balance Sheets at December 31, 1996
and December 31, 1995......................................... 31
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1996................................. 32
Consolidated Statements of Stockholders' Equity for
the three years ended December 31, 1996....................... 33-34
Notes to Consolidated Financial Statements...................... 35-54
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 28 present fairly, in all material respects, the financial
position of Tandy Corporation and its subsidiaries (the "Company") at December
31, 1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles. 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 generally accepted auditing
standards 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/ Price Waterhouse LLP
- - -----------------------------
PRICE WATERHOUSE LLP
Fort Worth, Texas
February 19, 1997 except for Note 11
as to which the date is March 3, 1997
CONSOLIDATED STATEMENTS OF INCOME
Tandy Corporation and Subsidiaries
Year Ended
December 31,
-----------------------------------------------------------------
1996 1995 1994
% of % of % of
(In millions, except per share amounts) Dollars Revenues Dollars Revenues Dollars Revenues
- - -------------------------------------------------------------------------------------------------------
Net sales and operating revenues $ 6,285.5 100.0% $ 5,839.1 100.0% $ 4,943.7 100.0%
Cost of products sold 4,263.1 67.8 3,764.9 64.5 3,017.6 61.0
---------- ---------- ----------
Gross profit 2,022.4 32.2 2,074.2 35.5 1,926.1 39.0
---------- ---------- ----------
Expenses/(income):
Selling, general and administrative 1,761.1 28.0 1,646.5 28.2 1,532.7 31.0
Depreciation and amortization 108.6 1.7 92.0 1.6 84.8 1.7
Interest income (13.0) (0.2) (42.3) (0.7) (78.6) (1.6)
Interest expense 36.4 0.6 33.7 0.6 30.0 0.6
Provision for restructuring costs 162.1 2.6 1.1 -- 89.1 1.8
Impairment of long-lived assets 112.8 1.8 -- -- -- --
Gain from sale of credit accounts
and extended service contracts -- -- -- -- (91.4) (1.8)
---------- ---------- ----------
2,168.0 34.5 1,731.0 29.6 1,566.6 31.7
---------- ---------- ----------
Income (loss) before income taxes (145.6) (2.3) 343.2 5.9 359.5 7.3
Provision (benefit) for income taxes (54.0) (0.9) 131.3 2.2 135.2 2.7
---------- ---------- ----------
Net Income (loss) (91.6) (1.5) 211.9 3.6 224.3 4.5
Preferred dividends 6.3 0.1 6.5 0.1 6.7 0.1
---------- ---------- ----------
Net income (loss)available to common
shareholders $ (97.9) (1.6)% $ 205.4 3.5% $ 217.6 4.4%
========== ========== ==========
Net income (loss) available per average
common and common equivalent share $ (1.64) $ 3.12 $ 2.91
========== ========== ==========
Average common and common
equivalent shares outstanding 59.8 65.9 74.9
========== ========== ==========
Dividends declared per common share $ 0.80 $ 0.74 $ 0.63
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
Tandy Corporation and Subsidiaries
December 31,
(In millions) 1996 1995
- - ------------------------------------------------------------------------------ -----------
Assets
Current assets:
Cash and cash equivalents $ 121.5 $ 143.5
Accounts and notes receivable, less
allowance for doubtful accounts 227.2 320.6
Inventories, at lower of cost or market 1,420.5 1,512.0
Other current assets 170.6 72.2
---------- ----------
Total current assets 1,939.8 2,048.3
---------- ----------
Property, plant and equipment, at cost,
less accumulated depreciation 545.6 577.7
Other assets, net of accumulated amortization 98.0 96.1
---------- ----------
$ 2,583.4 $ 2,722.1
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt, including current maturities
of long-term debt $ 245.3 $ 179.1
Current portion of capital lease obligations 0.4 0.4
Current portion of TESOP guarantee 12.3 10.4
Accounts payable 404.9 365.1
Accrued expenses 425.3 322.0
Income taxes payable 105.3 83.0
---------- ----------
Total current liabilities 1,193.5 960.0
---------- ----------
Long-term debt, excluding current maturities 35.1 63.7
Capital lease obligations 29.3 28.4
Guarantee of TESOP indebtedness 39.9 48.7
Other non-current liabilities 20.8 20.0
---------- ----------
Total other liabilities 125.1 160.8
---------- ----------
Stockholders' Equity
Preferred stock, no par value, 1,000,000 shares authorized Series A junior
participating, 100,000 shares
authorized and none issued -- --
Series B convertible (TESOP), 100,000 shares authorized
and issued, 83,785 shares outstanding 100.0 100.0
Common stock, $1 par value, 250,000,000 shares authorized
with 85,645,000 shares issued 85.6 85.6
Additional paid-in capital 105.3 102.8
Retained earnings 2,188.9 2,332.1
Foreign currency translation effects (1.0) (1.1)
Common stock in treasury, at cost, 28,417,000
and 23,918,000 shares, respectively (1,164.5) (963.3)
Unearned deferred compensation related to TESOP (46.9) (54.8)
Unrealized loss on securities available for sale (2.6) --
---------- ----------
Total stockholders' equity 1,264.8 1,601.3
Commitments and contingent liabilities
---------- ----------
$ 2,583.4 $ 2,722.1
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Tandy Corporation and Subsidiaries
Year Ended
December 31,
(In millions) 1996 1995 1994
-----------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (91.6) $ 211.9 $ 224.3
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Impairment of long-lived assets 112.8 -- --
Provision for restructuring cost and other charges 253.5 1.1 89.1
Gain on sale of extended service contracts -- -- (55.7)
Gain on sale of credit card portfolios -- -- (35.7)
Depreciation and amortization 108.6 92.0 84.8
Deferred income taxes and other items (127.8) 20.1 68.2
Provision for credit losses and bad debts 2.8 15.7 49.3
Changes in operating assets and liabilities:
Sale of credit card portfolios -- 342.8 85.8
Receivables 8.0 167.4 (230.9)
Inventories (0.1) (23.3) (220.1)
Other current assets 3.2 3.2 (8.5)
Accounts payable, accrued expenses and income
taxes 38.1 (157.9) 218.3
-------- -------- --------
Net cash provided by operating activities 307.5 673.0 268.9
-------- -------- --------
Investing activities:
Additions to property, plant and equipment (174.8) (226.5) (180.5)
Proceeds from sale of property, plant and
equipment 2.8 42.0 56.4
Proceeds from sale of divested operations -- -- 359.0
Payment on AST note 60.0 6.7 --
Other investing activities (0.9) (2.5) 1.7
-------- -------- --------
Net cash (used) provided by investing activities (112.9) (180.3) 236.6
-------- -------- --------
Financing activities:
Purchase of treasury stock (232.9) (502.2) (275.4)
Sale of treasury stock to employee stock
purchase program 39.4 44.6 41.6
Proceeds from exercise of stock options 7.4 18.2 2.5
Dividends paid, net of taxes (52.5) (63.0) (74.5)
Changes in short-term borrowings, net 40.9 (1.8) (110.4)
Additions to long-term borrowings 8.0 10.3 28.9
Repayments of long-term borrowings (26.9) (60.9) (125.8)
-------- -------- --------
Net cash used by financing activities (216.6) (554.8) (513.1)
-------- -------- --------
Decrease in cash and cash equivalents (22.0) (62.1) (7.6)
Cash and cash equivalents, at the beginning of the
year 143.5 205.6 213.2
-------- -------- --------
Cash and cash equivalents, at the end of the year $ 121.5 $ 143.5 $ 205.6
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Tandy Corporation and Subsidiaries
Preferred Common Stock
(In millions) Stock Shares Dollars
- - --------------------------------------------------------------------------------
Balance at December 31, 1993 $ 530.0 85.6 $ 85.6
Purchase of treasury stock -- -- --
Foreign currency translation
adjustments, net of taxes -- -- --
Sale of treasury stock to SPP -- -- --
Exercise of stock options -- -- --
Series B convertible stock dividends,
net of taxes of $2,372,000 -- -- --
TESOP deferred compensation earned -- -- --
Series C PERCS dividends