Attached files
file | filename |
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EX-31.B - RADIOSHACK CORP FORM 10-Q SEPTEMBER 30, 2009 - RS Legacy Corp | exhibit31b.htm |
EX-31.A - RADIOSHACK CORP FORM 10-Q SEPTEMBER 30, 2009 EXHIBIT 31(A) - RS Legacy Corp | exhibit31a.htm |
EX-32 - RADIOSHACK CORP FORM 10-Q SEPTEMBER 30, 2009 - RS Legacy Corp | exhibit32.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
________________________
FORM
10-Q
X
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the quarterly
period ended September 30, 2009
OR
__
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition
period from _____ to _____
Commission File
Number: 1-5571
________________________
RADIOSHACK
CORPORATION
(Exact name of
registrant as specified in its charter)
Delaware
|
75-1047710
|
(State or
other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
Mail
Stop CF3-201, 300 RadioShack Circle, Fort Worth, Texas
|
76102
|
(Address of
principal executive offices)
|
(Zip
Code)
|
Registrant's
telephone number, including area code: (817)
415-3011
|
________________________
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X
No __
Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes __ No
__
Indicate by check
mark if the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
|
X
|
Accelerated
filer
|
__
|
||
Non-accelerated
filer
|
__
|
Smaller
reporting company
|
__
|
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes __ No X
The number of
shares outstanding of the issuer's Common Stock, $1 par value, on October 15,
2009 was 125,194,410.
1
TABLE OF
CONTENTS
Page
|
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PART
I – FINANCIAL INFORMATION
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3
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6
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16
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23
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|
24
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PART
II – OTHER INFORMATION
|
|||
|
24
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24
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24
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25
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26
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2
PART
I - FINANCIAL INFORMATION
RADIOSHACK
CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Income (Unaudited)
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
(In millions, except
per share amounts)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Net
sales and operating revenues
|
$ | 990.0 | $ | 1,021.9 | $ | 2,957.8 | $ | 2,965.8 | ||||||||
Cost of
products sold (includes depreciation
amounts of $2.4 million, $3.0 million,
$7.2
million, and $8.1 million,
respectively)
|
518.9 | 544.5 | 1,574.3 | 1,569.4 | ||||||||||||
Gross
profit
|
471.1 | 477.4 | 1,383.5 | 1,396.4 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Selling, general and
administrative
|
380.7 | 370.4 | 1,082.2 | 1,108.2 | ||||||||||||
Depreciation and
amortization
|
20.5 | 21.5 | 63.1 | 66.0 | ||||||||||||
Impairment of long-lived
assets
|
0.5 | 0.6 | 1.0 | 1.8 | ||||||||||||
Total
operating expenses
|
401.7 | 392.5 | 1,146.3 | 1,176.0 | ||||||||||||
Operating
income
|
69.4 | 84.9 | 237.2 | 220.4 | ||||||||||||
Interest
income
|
0.9 | 3.9 | 3.9 | 10.9 | ||||||||||||
Interest
expense
|
(11.2 | ) | (9.3 | ) | (33.8 | ) | (23.1 | ) | ||||||||
Other
loss
|
(1.6 | ) | (0.1 | ) | (1.6 | ) | (2.2 | ) | ||||||||
Income
before income taxes
|
57.5 | 79.4 | 205.7 | 206.0 | ||||||||||||
Income tax
expense
|
20.1 | 30.3 | 76.4 | 76.7 | ||||||||||||
Net
income
|
$ | 37.4 | $ | 49.1 | $ | 129.3 | $ | 129.3 | ||||||||
Net
income per share:
|
||||||||||||||||
Basic and diluted
|
$ | 0.30 | $ | 0.38 | $ | 1.03 | $ | 0.99 | ||||||||
Shares used
in computing net income
per share:
|
||||||||||||||||
Basic
|
125.5 | 128.4 | 125.4 | 130.3 | ||||||||||||
Diluted
|
126.3 | 128.8 | 125.8 | 130.4 | ||||||||||||
The accompanying
notes are an integral part of these consolidated financial
statements.
3
RADIOSHACK
CORPORATION AND SUBSIDIARIES
Consolidated
Balance Sheets (Unaudited)
September
30,
|
December
31,
|
September
30,
|
||||||||||
(In millions, except
for share amounts)
|
2009
|
2008
|
2008
|
|||||||||
Assets
|
||||||||||||
Current
assets:
|
||||||||||||
Cash and cash
equivalents
|
$ | 856.7 | $ | 814.8 | $ | 824.1 | ||||||
Accounts and notes receivable,
net
|
228.7 | 241.9 | 192.1 | |||||||||
Inventories
|
737.4 | 636.3 | 681.2 | |||||||||
Other current assets
|
100.2 | 98.6 | 116.4 | |||||||||
Total current
assets
|
1,923.0 | 1,791.6 | 1,813.8 | |||||||||
Property,
plant and equipment, net
|
286.5 | 306.4 | 278.6 | |||||||||
Other assets,
net
|
137.6 | 156.0 | 122.2 | |||||||||
Total
assets
|
$ | 2,347.1 | $ | 2,254.0 | $ | 2,214.6 | ||||||
Liabilities
and Stockholders’ Equity
|
||||||||||||
Current
liabilities:
|
||||||||||||
Short-term debt
|
$ | 62.8 | $ | 39.3 | $ | 35.9 | ||||||
Accounts payable
|
283.6 | 206.4 | 248.2 | |||||||||
Accrued expenses and other current
liabilities
|
290.0 | 367.3 | 330.8 | |||||||||
Income taxes payable
|
4.5 | 24.2 | 20.0 | |||||||||
Total current
liabilities
|
640.9 | 637.2 | 634.9 | |||||||||
Long-term
debt
|
624.9 | 659.5 | 649.8 | |||||||||
Other
non-current liabilities
|
81.3 | 96.5 | 99.1 | |||||||||
Total
liabilities
|
1,347.1 | 1,393.2 | 1,383.8 | |||||||||
Commitments
and contingencies
|
||||||||||||
Stockholders’
equity:
|
||||||||||||
Preferred stock, no par value,
1,000,000
shares authorized:
|
||||||||||||
Series A junior participating, 300,000
shares
designated and none
issued
|
-- | -- | -- | |||||||||
Common stock, $1 par value,
650,000,000
shares authorized; 191,033,000 shares
issued
|
191.0 | 191.0 | 191.0 | |||||||||
Additional paid-in
capital
|
159.3 | 152.5 | 150.2 | |||||||||
Retained earnings
|
2,279.5 | 2,150.2 | 2,121.4 | |||||||||
Treasury stock, at cost; 65,838,000,
65,950,000
and 65,961,000 shares,
respectively
|
(1,622.9 | ) | (1,625.9 | ) | (1,626.3 | ) | ||||||
Accumulated other comprehensive
loss
|
(6.9 | ) | (7.0 | ) | (5.5 | ) | ||||||
Total stockholders’
equity
|
1,000.0 | 860.8 | 830.8 | |||||||||
Total
liabilities and stockholders’ equity
|
$ | 2,347.1 | $ | 2,254.0 | $ | 2,214.6 |
The accompanying
notes are an integral part of these consolidated financial
statements.
4
RADIOSHACK
CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Cash Flows (Unaudited)
Nine
Months Ended
|
||||||||
September
30,
|
||||||||
(In
millions)
|
2009
|
2008
|
||||||
Cash
flows from operating activities:
|
||||||||
Net income
|
$ | 129.3 | $ | 129.3 | ||||
Adjustments to reconcile net income to
net cash
provided by operating
activities:
|
||||||||
Depreciation and
amortization
|
70.3 | 74.1 | ||||||
Amortization of discount on convertible
notes
|
10.2 | 1.9 | ||||||
Impairment of long-lived
assets
|
1.0 | 1.8 | ||||||
Stock option compensation
|
7.0 | 7.9 | ||||||
Net change in liability for unrecognized
tax benefits
|
(4.9 | ) | 3.7 | |||||
Deferred income taxes
|
13.3 | 0.6 | ||||||
Other non-cash items
|
6.8 | 10.1 | ||||||
Provision for credit losses and bad
debts
|
0.2 | 0.4 | ||||||
Changes in operating assets and
liabilities:
|
||||||||
Accounts and notes
receivable
|
14.0 | 64.7 | ||||||
Inventories
|
(89.1 | ) | 8.3 | |||||
Other current assets
|
1.8 | (8.5 | ) | |||||
Accounts payable, accrued expenses,
income taxes
payable and other
|
(36.3 | ) | (119.0 | ) | ||||
Net cash
provided by operating activities
|
123.6 | 175.3 | ||||||
Cash
flows from investing activities:
|
||||||||
Additions to property, plant and
equipment
|
(62.1 | ) | (45.0 | ) | ||||
Proceeds from sale of property, plant
and equipment
|
0.2 | 0.5 | ||||||
Other investing
activities
|
-- | 1.0 | ||||||
Net cash used
in investing activities
|
(61.9 | ) | (43.5 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Changes in short-term borrowings and
outstanding checks
in excess of cash balances,
net
|
23.4 | (20.2 | ) | |||||
Repayments of borrowings
|
(43.2 | ) | (5.0 | ) | ||||
Purchases of treasury
stock
|
-- | (111.4 | ) | |||||
Issuance of convertible
notes
|
-- | 375.0 | ||||||
Convertible notes issuance
costs
|
-- | (9.4 | ) | |||||
Purchase of convertible notes
hedges
|
-- | (86.3 | ) | |||||
Sale of common stock
warrants
|
-- | 39.9 | ||||||
Net cash
(used in) provided by financing activities
|
(19.8 | ) | 182.6 | |||||
Net
increase in cash and cash equivalents
|
41.9 | 314.4 | ||||||
Cash and cash
equivalents, beginning of period
|
814.8 | 509.7 | ||||||
Cash and cash
equivalents, end of period
|
$ | 856.7 | $ | 824.1 |
The accompanying
notes are an integral part of these consolidated financial
statements.
5
RADIOSHACK
CORPORATION AND SUBSIDIARIES
NOTE
1 – BASIS OF PRESENTATION
Throughout this
report, the terms “our,” “we,” “us,” “Company,” and “RadioShack” refer to
RadioShack Corporation, including its subsidiaries. We prepared the accompanying
unaudited interim consolidated financial statements, which include the accounts
of RadioShack Corporation and all majority-owned domestic and foreign
subsidiaries, in accordance with the rules of the Securities and Exchange
Commission (“SEC”). Accordingly, we did not include all of the information and
footnotes required by generally accepted accounting principles (“GAAP”) for
complete financial statements. In management’s opinion, all adjustments of a
normal recurring nature considered necessary for a fair statement are included.
However, our operating results for the three and nine month periods ended
September 30, 2009 and 2008, do not necessarily indicate the results you might
expect for the full year. We have evaluated subsequent events for recognition or
disclosure through October 26, 2009, which was the date we filed this Form 10-Q
with the SEC. For further information, refer to our consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations included in our Annual Report on Form 10-K for the year
ended December 31, 2008.
NOTE
2 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued new
accounting guidance related to fair value measurements and related disclosures.
This new guidance defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. We adopted this
new guidance on January 1, 2008, as required for our financial assets and
financial liabilities. However, the FASB deferred the effective date of this new
guidance for one year as it relates to fair value measurement requirements for
nonfinancial assets and nonfinancial liabilities that are not recognized or
disclosed at fair value on a recurring basis. We adopted these remaining
provisions on January 1, 2009. The adoption of this accounting guidance did not
have a material impact on our consolidated financial statements.
In
December 2007, the FASB issued new accounting guidance related to the accounting
for business combinations and related disclosures. This new guidance addresses
the recognition and accounting for identifiable assets acquired, liabilities
assumed, and noncontrolling interests in business combinations. The guidance
also establishes expanded disclosure requirements for business combinations. The
guidance was effective for us on January 1, 2009, and we will apply this new
guidance prospectively to all business combinations subsequent to the effective
date.
In
December 2007, the FASB issued new accounting guidance related to the accounting
for noncontrolling interests in consolidated financial statements. This guidance
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. This guidance
requires that noncontrolling interests in subsidiaries be reported in the equity
section of the controlling company’s balance sheet. It also changes the manner
in which the net income of the subsidiary is reported and disclosed in the
controlling company’s income statement. This guidance is effective for fiscal
years beginning after December 15, 2008. We adopted this guidance on January 1,
2009, and it had no material impact on our consolidated financial
statements.
In
March 2008, the FASB issued new accounting guidance related to disclosures about
derivative instruments and hedging activities. This guidance amends and expands
disclosure requirements to provide a better understanding of how and why an
entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for, and their effect on an entity’s financial
position, financial performance, and cash flows. This guidance is effective for
fiscal years beginning after November 15, 2008. We adopted this guidance on
January 1, 2009, and have applied its requirements on a prospective basis.
Accordingly, disclosures related to periods prior to the date of adoption have
not been presented. See Note 9 - “Derivative Financial Instruments” for these
new disclosures.
In
April 2009, the FASB issued new accounting guidance related to interim
disclosures about the fair values of financial instruments. This guidance
requires disclosures about the fair value of financial instruments whenever a
public company issues financial information for interim reporting periods. This
guidance is effective for interim reporting periods ending after June 15, 2009.
We adopted this guidance upon its issuance, and it had no material impact on our
consolidated financial statements. See Note 8 - “Fair Value Measurements” for
these disclosures.
6
In
June 2009, the FASB issued new accounting guidance related to the accounting and
disclosures of subsequent events. This guidance incorporates the subsequent
events guidance contained in the auditing standards literature into
authoritative accounting literature. It also requires entities to disclose the
date through which they have evaluated subsequent events and whether the date
corresponds with the release of their financial statements. This guidance is
effective for all interim and annual periods ending after June 15, 2009. We
adopted this guidance upon its issuance and it had no material impact on our
consolidated financial statements. See Note 1 - “Basis of Presentation” for this
new disclosure.
In
June 2009, the FASB issued new accounting guidance related to the accounting and
disclosures for transfers of financial assets. This guidance will require
entities to provide more information about sales of securitized financial assets
and similar transactions, particularly if the seller retains some risk with
respect to the assets. This guidance is effective for fiscal years beginning
after November 15, 2009. We are currently evaluating the impact that the
adoption of this guidance will have on our consolidated financial
statements.
In
June 2009, the FASB issued new accounting guidance to improve financial
reporting by companies involved with variable interest entities and to provide
more relevant and reliable information to users of financial statements. This
guidance is effective for fiscal years beginning after November 15, 2009. We are
currently evaluating the impact that the adoption of this guidance will have on
our consolidated financial statements.
In
August 2009, the FASB issued new accounting guidance to provide clarification on
measuring liabilities at fair value when a quoted price in an active market is
not available. This guidance became effective for us on October 1, 2009. We
adopted this guidance on October 1, 2009, and it had no material impact on our
consolidated financial statements.
NOTE
3 – CHANGE IN METHOD OF ACCOUNTING FOR CONVERTIBLE NOTES
In
May 2008, the FASB issued new accounting guidance related to the accounting for
convertible debt instruments that may be settled in cash upon conversion. This
guidance requires us to account separately for the liability and equity
components of our convertible notes in a manner that reflects our nonconvertible
debt borrowing rate when interest cost is recognized in subsequent periods. This
guidance requires bifurcation of a component of the debt, classification of that
component in equity, and then accretion of the resulting discount on the debt as
part of interest expense being reflected in the income statement. The guidance
requires retrospective application to all periods presented and is effective for
fiscal years beginning after December 15, 2008.
Convertible Notes: In August
2008, we issued $375 million principal amount of convertible senior notes due
August 1, 2013, (the “Convertible Notes”) in a private offering to qualified
institutional buyers under SEC Rule 144A. The Convertible Notes were issued at
par and bear interest at a rate of 2.50% per annum. Interest is payable
semiannually, in arrears, on February 1 and August 1, beginning February 1,
2009.
Each $1,000 of
principal of the Convertible Notes is initially convertible, under certain
circumstances, into 41.2414 shares of our common stock (or a total of
approximately 15.5 million shares), which is the equivalent of $24.25 per share,
subject to adjustment upon the occurrence of specified events set forth under
terms of the Convertible Notes. Upon conversion, we would pay the holder the
cash value of the applicable number of shares of our common stock, up to the
principal amount of the note. Amounts in excess of the principal amount, if any,
(the “excess conversion value”) may be paid in cash or in stock, at our option.
Holders may convert their Convertible Notes into common stock on the net
settlement basis described above at any time from May 1, 2013, until the close
of business on July 29, 2013, or if, and only if, one of the following
conditions occurs:
·
|
During any
calendar quarter, and only during such calendar quarter, in which the
closing price of our common stock for at least 20 trading days in the
period of 30 consecutive trading days ending on the last trading day of
the preceding calendar quarter exceeds 130% of the conversion price per
share of common stock in effect on the last day of such preceding calendar
quarter
|
·
|
During the
five consecutive business days immediately after any 10 consecutive
trading day period in which the average trading price per $1,000 principal
amount of Convertible Notes was less than 98% of the product of the
closing price of the common stock on such date and the conversion rate on
such date
|
·
|
We make
specified distributions to holders of our common stock or specified
corporate transactions occur
|
7
Holders who convert
their Convertible Notes in connection with a change in control may be entitled
to a make-whole premium in the form of an increase in the conversion rate. In
addition, upon a change in control, liquidation, dissolution or delisting, the
holders of the Convertible Notes may require us to repurchase for cash all or
any portion of their Convertible Notes for 100% of the principal amount of the
notes plus accrued and unpaid interest, if any. As of September 30, 2009, none
of the conditions allowing holders of the Convertible Notes to convert or
requiring us to repurchase the Convertible Notes had been met.
In
connection with the issuance of the Convertible Notes, we entered into separate
convertible note hedge transactions and separate warrant transactions with
respect to our common stock to reduce the potential dilution upon conversion of
the Convertible Notes (collectively referred to as the “Call Spread
Transactions”). The convertible note hedges and warrants will generally have the
effect of increasing the economic conversion price of the Convertible Notes to
$36.60 per share of our common stock, representing a 100% conversion premium
based on the closing price of our common stock on August 12, 2008. See Note 5 -
“Stockholders’ Equity” for more information on the Call Spread
Transactions.
Because the
principal amount of the Convertible Notes will be settled in cash upon
conversion, the Convertible Notes will only impact diluted earnings per share
when the price of our common stock exceeds the conversion price (initially
$24.25 per share). We will include the effect of the additional shares that may
be issued from conversion in our diluted net income per share calculation using
the treasury stock method.
Application of the FASB’s New
Accounting Guidance: On January 1, 2009, as a result of adopting the new
accounting guidance, we recorded an adjustment to reduce the carrying value of
our Convertible Notes by $73.0 million. The adoption resulted in a carrying
amount for the Convertible Notes of $302.0 million and $298.9 million at
December 31, 2008, and September 30, 2008, respectively. The carrying amount for
the equity component was $78.0 million for all periods presented. The adjustment
to the carrying value of the Convertible Notes was based on the calculated fair
value of a similar debt instrument in August 2008 (at issuance) that does not
have an associated equity component. The annual interest rate calculated for a
similar debt instrument in August 2008 was 7.6%. The resulting discount is being
amortized to interest expense over the remaining term of the convertible notes.
At September 30, 2009, the carrying value of the Convertible Notes was $312.2
million. We recognized interest expense of $2.3 million in the third quarter and
$7.0 million for the first nine months of 2009 related to the stated 2.50%
coupon, compared with $1.1 million for each of the same periods last year. We
recognized non-cash interest expense of $3.5 million in the third quarter and
$10.2 million for the first nine months of 2009 for the amortization of the
discount on the liability component, compared with $1.9 million for each of the
same periods last year.
Debt issuance costs
of $7.5 million were capitalized and are being amortized to interest expense
over the term of the Convertible Notes. Unamortized debt issuance costs were
$5.7 million at September 30, 2009. Debt issuance costs of $1.9 million were
related to the equity component and were recorded as a reduction of additional
paid-in capital.
For federal income
tax purposes, the issuance of the Convertible Notes and the purchase of the
convertible note hedges are treated as a single transaction whereby we are
considered to have issued debt with an original issue discount. The amortization
of this discount in future periods is deductible for tax purposes. Therefore,
upon issuance of the debt, we recorded an adjustment to increase our deferred
tax assets (included in other assets, net) and additional paid-in capital for
these future tax deductions. Upon adoption of the new accounting guidance in the
first quarter of 2009, this adjustment was reduced by $27.8 million because our
recorded interest expense for book purposes more closely aligns with federal tax
treatment.
8
The following table
details the application of the FASB’s new accounting guidance on previously
reported results:
(In millions, except
per share amounts)
|
As
Adjusted
|
As
Previously
Reported
|
||||||
For
the Three Months Ended September 30, 2008
|
||||||||
Depreciation
and amortization
|
$ | 21.5 | $ | 21.6 | ||||
Interest
expense
|
9.3 | 7.4 | ||||||
Income tax
expense
|
30.3 | 31.0 | ||||||
Net
income
|
49.1 | 50.2 | ||||||
Basic and
diluted net income per share
|
$ | 0.38 | $ | 0.39 | ||||
For
the Nine Months Ended September 30, 2008
|
||||||||
Depreciation
and amortization
|
$ | 66.0 | $ | 66.1 | ||||
Interest
expense
|
23.1 | 21.2 | ||||||
Income tax
expense
|
76.7 | 77.4 | ||||||
Net
income
|
129.3 | 130.4 | ||||||
Basic and
diluted net income per share
|
$ | 0.99 | $ | 1.00 | ||||
As
of September 30, 2008
|
||||||||
Other current
assets
|
$ | 116.4 | $ | 116.8 | ||||
Other assets,
net
|
122.2 | 153.2 | ||||||
Income taxes
payable
|
20.0 | 20.7 | ||||||
Long-term
debt
|
649.8 | 725.9 | ||||||
Additional
paid-in capital
|
150.2 | 103.7 | ||||||
Retained
earnings
|
2,121.4 | 2,122.5 | ||||||
As
of December 31, 2008
|
||||||||
Other current
assets
|
$ | 98.6 | $ | 99.0 | ||||
Other assets,
net
|
156.0 | 185.1 | ||||||
Long-term
debt
|
659.5 | 732.5 | ||||||
Additional
paid-in capital
|
152.5 | 106.0 | ||||||
Retained
earnings
|
2,150.2 | 2,153.2 | ||||||
NOTE
4 – LONG TERM DEBT
In
September 2009, we completed a tender offer to purchase for cash any and all of
our 7.375% notes due 2011 (the “2011 Notes”). Upon expiration of the offer,
$43.2 million of the aggregate outstanding principal amount of the 2011 Notes
was validly tendered and accepted. At December 31, 2008, the 2011 Notes had an
outstanding balance of $350 million and an original maturity of May 15, 2011. We
paid a total of $46.6 million, which consisted of the purchase price of $45.4
million for the tendered 2011 Notes plus $1.2 million in accrued and unpaid
interest, to the holders of the tendered 2011 Notes. We incurred $0.2 million in
expenses and adjusted the carrying value of the tendered notes by an incremental
$0.8 million to reflect a proportionate write-off of the balance associated with
our fair value hedge included in long-term debt. This transaction resulted in a
loss of $1.6 million classified as other loss on our consolidated statements of
income.
NOTE
5 – STOCKHOLDERS’ EQUITY
Share Repurchase Programs: On
August 20, 2009, our Board of Directors announced a $200 million increase in the
dollar amount of our common stock that the company is authorized to purchase
under a previously approved share repurchase program. As of September 30, 2009,
$290 million of the total authorized amount was available for share repurchases
under this plan. No shares have been repurchased under this plan in
2009.
9
Call Spread Transactions: In
connection with the issuance of the Convertible Notes (see Note 3 – “Change in
Method of Accounting for Convertible Notes”), we entered into separate
convertible note hedge transactions and separate warrant transactions related to
our common stock with Citigroup and Bank of America to reduce the potential
dilution upon conversion of the Convertible Notes.
Under the terms of
the convertible note hedge arrangements (the “Convertible Note Hedges”), we paid
$86.3 million for a forward purchase option contract under which we are entitled
to purchase a fixed number of shares of our common stock at a price per share of
$24.25. In the event of the conversion of the Convertible Notes, this forward
purchase option contract allows us to purchase, at a fixed price equal to the
implicit conversion price of common shares issued under the Convertible Notes, a
number of common shares equal to the common shares that we issue to a note
holder upon conversion. Settlement terms of this forward purchase option allow
us to elect cash or share settlement based on the settlement option we choose in
settling the conversion feature of the Convertible Notes. The Convertible Note
Hedges expire on August 1, 2013.
Also concurrent
with the issuance of the Convertible Notes, we sold warrants (the “Warrants”)
permitting the purchasers to acquire shares of our common stock. The Warrants
are currently exercisable for 15.5 million shares of RadioShack common stock at
a current exercise price of $36.60 per share. We received $39.9 million in
proceeds for the sale of the Warrants. The Warrants may be settled at various
dates beginning in November 2013 and ending in March 2014. The Warrants provide
for net share settlement. In no event will we be required to deliver a number of
shares in connection with the transaction in excess of twice the aggregate
number of Warrants.
We
determined that the Convertible Note Hedges and Warrants meet the requirements
of the FASB’s accounting guidance for accounting for derivative financial
instruments indexed to, and potentially settled in, a company's own stock and
other relevant guidance and, therefore, are classified as equity transactions.
As a result, we recorded the purchase of the Convertible Note Hedges as a
reduction in additional paid-in capital and the proceeds of the Warrants as an
increase to additional paid-in capital in the Consolidated Balance Sheets, and
we will not recognize subsequent changes in the fair value of the agreements in
the financial statements.
In
accordance with the FASB’s accounting guidance in calculating earnings per
share, the Warrants will have no impact on diluted net income per share until
our common stock price exceeds the per share strike price of $36.60 for the
Warrants. We will include the effect of additional shares that may be issued
upon exercise of the Warrants using the treasury stock method. The Convertible
Note Hedges are antidilutive and, therefore, will have no impact on diluted net
income per share.
NOTE
6 – NET INCOME PER SHARE
Basic net income
per share is computed based on the weighted average number of common shares
outstanding for each period presented. Diluted net income per share reflects the
potential dilution that would have occurred if securities or other contracts to
issue common stock were exercised, converted, or resulted in the issuance of
common stock that would have then shared in our earnings. The following table
reconciles the numerator and denominator used in the basic and diluted net
income per share calculations for the periods presented:
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
(In millions, except
per share amounts)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Numerator:
|
||||||||||||||||
Net income
|
$ | 37.4 | $ | 49.1 | $ | 129.3 | $ | 129.3 | ||||||||
Denominator:
|
||||||||||||||||
Weighted-average common
shares
outstanding
|
125.5 | 128.4 | 125.4 | 130.3 | ||||||||||||
Dilutive effect of share-based
awards
|
0.8 | 0.4 | 0.4 | 0.1 | ||||||||||||
Weighted average shares for
diluted
net income per share
|
126.3 | 128.8 | 125.8 | 130.4 | ||||||||||||
Basic and
diluted net income per share
|
$ | 0.30 | $ | 0.38 | $ | 1.03 | $ | 0.99 |
10
During the three
and nine month periods ended September 30, 2009, approximately 5.0 million and
9.1 million options to purchase shares of our common stock, respectively, were
excluded from the calculation of diluted net income per share because the
exercise prices exceeded the average market price of our common stock during the
periods, and the effect of their inclusion would be antidilutive. During the
three and nine month periods ended September 30, 2008, approximately 9.9 million
options to purchase shares of our common stock were excluded from the
calculation of diluted net income per share for the same reasons.
For all periods
presented, 15.5 million warrants to purchase shares of our common stock were
excluded from the calculation of diluted net income per share because the
exercise prices exceeded the average market price of our common stock during the
periods, and the effect of their inclusion would be antidilutive. Also,
approximately 15.5 million shares that underlie our convertible debt instruments
were excluded from the calculation of diluted net income per share for all
periods presented because the conversion price exceeded the average market price
of our common stock during the periods, and the effect of their inclusion would
be antidilutive. These securities could be dilutive in future
periods.
NOTE
7 – COMPREHENSIVE INCOME
Comprehensive
income for the three and nine month periods ended September 30, 2009, was $35.0
million and $129.4 million, respectively, compared with $49.1 million and $129.1
million, respectively, for the same periods last year. In addition to net
income, the other components of comprehensive income, all net of tax, were
foreign currency translation adjustments and the amortization of a prior year
gain on a cash flow hedge.
NOTE
8 – FAIR VALUE MEASUREMENTS
Assets
and Liabilities Measured at Fair Value on a Recurring Basis
Basis of Fair
Value Measurements
|
||||||||||||||||
Quoted
Prices
|
Significant
|
|||||||||||||||
in
Active
|
Other
|
Significant
|
||||||||||||||
Fair
Value
|
Markets
for
|
Observable
|
Unobservable
|
|||||||||||||
of
Assets
|
Identical
Items
|
Inputs
|
Inputs
|
|||||||||||||
(In
millions)
|
(Liabilities)
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
||||||||||||
As
of September 30, 2009
|
||||||||||||||||
Interest rate
swaps
|
$ | 5.9 | -- | $ | 5.9 | -- | ||||||||||
As
of December 31, 2008
|
||||||||||||||||
Interest rate
swaps
|
$ | 6.7 | -- | $ | 6.7 | -- | ||||||||||
Sirius XM
Radio Inc. warrants
|
0.0 | -- | 0.0 | -- | ||||||||||||
As
of September 30, 2008
|
||||||||||||||||
Interest rate
swaps
|
$ | 0.6 | -- | $ | 0.6 | -- | ||||||||||
Interest rate
swaps
|
(0.6 | ) | -- | (0.6 | ) | -- | ||||||||||
Sirius XM
Radio Inc. warrants
|
0.2 | -- | 0.2 | -- | ||||||||||||
Our interest rate
swap agreements effectively convert a portion of our long-term fixed rate debt
to a short-term variable rate. Under these agreements, we pay a variable rate of
LIBOR plus a markup and receive a fixed rate. The fair value of these interest
rate derivatives is based on quotes to offset these swaps from a commercial bank
that was ready to transact and, therefore, the interest rate derivatives are
considered a level 2 item.
Other financial
instruments not measured at fair value on a recurring basis include cash and
cash equivalents, accounts receivable, short-term debt, accounts payable,
accrued liabilities, and long-term debt. With the exception of long-term debt,
the financial statement carrying amounts of these items approximate their fair
values due to their short-term nature. Estimated fair values for long-term debt
have been determined using recent trading activity.
11
Carrying amounts
and the related estimated fair value of our long-term debt are as
follows:
September 30,
2009
|
December 31,
2008
|
|||||||||||||||
(In
millions)
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
||||||||||||
Long-term
debt
|
$ | 624.9 | $ | 698.8 | $ | 659.5 | $ | 653.4 | ||||||||
Assets
and Liabilities Measured at Fair Value on a Nonrecurring Basis
Basis of Fair
Value Measurements
|
||||
Quoted
Prices
|
Significant
|
|||
In
Active
|
Other
|
Significant
|
||
Fair
Value
|
Markets
for
|
Observable
|
Unobservable
|
|
of
Assets
|
Identical
Items
|
Inputs
|
Inputs
|
|
(In
millions)
|
(Liabilities)
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
Three
Months Ended
September
30, 2009
|
||||
Long-lived
assets held and used
|
$ 0.4
|
--
|
--
|
$ 0.4
|
For the quarter
ended September 30, 2009, long-lived assets held and used in our U.S. RadioShack
company-operated stores with a carrying value of $0.9 million were written down
to their fair value of $0.4 million, resulting in an impairment charge of $0.5
million, which was included in earnings for the period. The inputs used to
calculate the fair value of these long-lived assets included the projected cash
flows and a risk-adjusted rate of return that we estimated would be used by a
market participant in valuing these assets. For the quarter ended September 30,
2008, we recorded $0.6 million in impairment charges for long-lived assets held
and used in our U.S. RadioShack company-operated stores and kiosks.
NOTE
9 – DERIVATIVE FINANCIAL INSTRUMENTS
We
enter into derivative instruments for risk management purposes only, including
derivatives designated as hedging instruments under the FASB’s accounting
guidance on the accounting for derivative instruments and hedging activities. We
do not hold or issue derivative financial instruments for trading or speculative
purposes. To qualify for hedge accounting, derivatives must meet defined
correlation and effectiveness criteria, be designated as a hedge and result in
cash flows and financial statement effects that substantially offset those of
the position being hedged.
By
using these derivative instruments, we expose ourselves, from time to time, to
credit risk and market risk. Credit risk is the failure of the counterparty to
perform under the terms of the derivative contract. When the fair value of a
derivative contract is positive, the counterparty owes us, which creates credit
risk for us. We minimize this credit risk by entering into transactions with
high quality counterparties and do not anticipate significant losses due to our
counterparties’ nonperformance. Market risk is the adverse effect on the value
of a financial instrument that results from a change in the rate or value of the
underlying item being hedged. We minimize this market risk by establishing and
monitoring internal controls over our hedging activities, which include policies
and procedures that limit the types and degree of market risk that may be
undertaken.
Interest
Rate Swap Agreements
We
use interest rate-related derivative instruments to manage our exposure to
fluctuations of interest rates. In June and August 2003, we entered into
interest rate swap agreements with underlying notional amounts of debt of $100
million and $50 million, respectively, and both with maturities in May 2011.
These swaps effectively convert a portion of our long-term fixed rate debt to a
variable rate. We entered into these agreements to balance our fixed versus
floating rate debt portfolio to continue to take advantage of lower short-term
interest rates. Under these agreements, we have contracted to pay a variable
rate of LIBOR plus a markup and to receive fixed rates of
7.375%.
12
The swap agreements
were designated as fair value hedges of the related debt and met the
requirements to be accounted for under the short-cut method, resulting in no
ineffectiveness in the hedging relationship. The gain or loss on these
derivatives, as well as the offsetting loss or gain on the related debt, are
recognized in current earnings.
We
include the gain or loss on the related debt in the same line item – interest
expense – as the offsetting loss or gain on the related interest rate swaps. The
gains and losses were as follows:
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September 30,
2009
|
September 30,
2009
|
|||||||||||||||
(In
millions)
|
Gain
on
Swaps
|
Loss
on
Borrowings
|
Loss
on
Swaps
|
Gain
on
Borrowings
|
||||||||||||
Interest
expense
|
$ | 1.1 | $ | 1.1 | $ | 0.8 | $ | 0.8 |
The periodic
interest settlements, which occur at the same interval as the interest payments
on the 2011 Notes, are recorded as interest expense.
In
September 2009, we repurchased $43.2 million of our 7.375% unsecured notes due
in 2011. These notes were hedged by our interest rate swaps. Upon repurchase of
a portion of these notes, our fair value hedging relationship no longer
qualified for short-cut method hedge accounting. Accordingly, subsequent to the
debt repurchase, we have discontinued the hedge accounting treatment associated
with these derivative instruments.
Fair
Value of Derivative Instruments
(In
millions)
|
Balance
Sheet
Location
|
Sept.
30,
2009
|
||||||
Derivatives
Not Designated as
Hedging
Instruments
|
||||||||
Interest rate
swap agreements (1)
|
(2 | ) | $ | 5.9 | ||||
Total
derivatives
|
$ | 5.9 |
(1)
|
These
interest rate swaps serve as economic hedges on our 2011
Notes
|
(2)
|
Included in
other assets, net
|
NOTE
10 – COMMITMENTS AND CONTINGENCIES
Litigation: On October 10,
2008, the Los Angeles County Superior Court granted RadioShack's second Motion
for Class Decertification in the class action lawsuit of Brookler v. RadioShack
Corporation. Plaintiffs’ claims that RadioShack violated California's
wage and hour laws relating to meal periods was originally certified as a class
action on February 8, 2006. RadioShack's first Motion for Decertification of the
class initially was denied on August 29, 2007. However, after the California
Appellate Court's favorable decision on similar facts in Brinker Restaurant Corporation v.
Superior Court, RadioShack again sought class decertification. Based on
the California Appellate Court’s decision in Brinker, the court granted
RadioShack’s second Motion. The plaintiffs in Brookler have appealed this
ruling. Due to the unsettled nature of California state law regarding the
standard of liability for meal period violations, RadioShack and the Brookler plaintiffs were both
willing to agree to a stay with respect to the plaintiffs’ appeal of the class
decertification ruling, pending the outcome of the appeal of the California
Appellate court’s decision in Brinker. However, the Brookler appellate court
denied the parties’ agreed motion to stay, and ordered the parties to file
briefs in support of the agreed motion. The outcome of this action is uncertain
and the ultimate resolution of this matter could have a material adverse impact
on RadioShack’s financial position, results of operations, and cash flows in the
period in which any such effect is recorded; however, management believes the
outcome of this case will not have such an impact.
13
On
June 7, 2007, a purported class action lawsuit, Richard Stuart v. RadioShack
Corporation, et al, was filed against RadioShack in the U.S. District
Court for the Northern District of California, based on allegations that
RadioShack failed to properly reimburse employees in California for mileage
expenses associated with their use of personal vehicles to make transfers of
merchandise between Company stores. On February 9, 2009, the court granted the
plaintiffs’ Motion for Class Certification. Following a mediation held on
October 5, 2009, the parties reached a tentative settlement of the lawsuit
subject to court approval. Until the settlement is approved by the court, the
outcome of this action remains uncertain, although it is unlikely that the
ultimate resolution of this matter will have a material adverse impact on
RadioShack’s financial position, results of operations, and cash flows in the
period in which any such effect is recorded.
We
have various other pending claims, lawsuits, disputes with third parties,
investigations and actions incidental to the operation of our business,
including certain cases discussed generally below under Assigned Lease
Obligations. Although occasional adverse settlements or resolutions may occur
and negatively impact earnings in the period or year of settlement, it is our
belief that their ultimate resolution will not have a material adverse effect on
our financial condition or liquidity.
Assigned Lease Obligations: We
have continuing obligations under retail leases for locations that were assigned
to other businesses. The majority of these lease obligations arose from leases
assigned to CompUSA Inc. (“CompUSA”) as part of its purchase of our Computer
City, Inc. subsidiary in August 1998.
Following an
announcement by CompUSA in February 2007 of its intention to close as many as
126 stores and an announcement in December 2007 that it had been acquired by
Gordon Brothers Group, CompUSA’s stores ceased operations in January 2008. We
may be liable to pay rent on a portion of the leases that relate to the closed
stores. To date, we have been named as a defendant in a total of 12 lawsuits
from lessors seeking payment from us, four of which have been
resolved.
Based on all
available information pertaining to the status of these leases, and after
applying the provisions of the FASB’s accounting guidance on accounting for
contingencies, the balance of our accrual was $9.0 million at December 31, 2008.
We have continued to monitor this situation and have updated our accrual to
reflect new information on outstanding litigation and settlements as more
information becomes available. As of September 30, 2009, the accrual was $7.5
million.
NOTE
11 – SEGMENT REPORTING
We
have two reportable segments, U.S. RadioShack company-operated stores and
kiosks. The U.S. RadioShack company-operated store segment consists solely of
our 4,470 U.S. company-operated retail stores, all operating under the
RadioShack brand name. Kiosks consist of our network of 462 kiosks, primarily
located in Sam’s Club locations. In April 2009 we agreed with Sprint Nextel to
cease our arrangement to jointly operate the Sprint Nextel kiosks in operation
at that date. This agreement allowed us to operate these kiosks under the Sprint
name for a reasonable period of time allowing us to transition the kiosks to a
new format. In August 2009, we transitioned these kiosks to multiple wireless
carrier RadioShack branded locations. They are now managed and reported as
extensions of existing RadioShack company-operated stores. Both of our
reportable segments engage in the sale of consumer electronics products;
however, our kiosks primarily offer wireless products and associated
accessories. These reportable segments are managed separately due to our kiosks’
narrow product offerings and performance relative to size.
We
evaluate the performance of each reportable segment based on operating income,
which for management reporting purposes is defined as sales less cost of
products sold and certain direct operating expenses, including labor and
occupancy costs. Asset balances by reportable segment have not been included in
the segment table below, as these are managed on a company-wide level and are
not allocated to each segment for management reporting purposes.
14
Amounts in the
other category reflect our business activities that are not separately
reportable, which include our dealer network, e-commerce, third-party service
centers, manufacturing and foreign operations.
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
(In
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Net
sales and operating revenues:
|
||||||||||||||||
U.S.
RadioShack company-operated stores
|
$ | 838.7 | $ | 869.4 | $ | 2,522.6 | $ | 2,548.1 | ||||||||
Kiosks
|
57.1 | 69.5 | 182.8 | 204.2 | ||||||||||||
Other (1)
|
94.2 | 83.0 | 252.4 | 213.5 | ||||||||||||
$ | 990.0 | $ | 1,021.9 | $ | 2,957.8 | $ | 2,965.8 | |||||||||
Operating
income:
|
||||||||||||||||
U.S.
RadioShack company-operated stores (2)
(3)
|
$ | 158.9 | $ | 184.8 | $ | 477.0 | $ | 514.0 | ||||||||
Kiosks
|
3.8 | 2.4 | 8.4 | 3.9 | ||||||||||||
Other (1)
|
11.2 | 11.5 | 30.8 | 31.5 | ||||||||||||
173.9 | 198.7 | 516.2 | 549.4 | |||||||||||||
Unallocated
(2) (4)
(5) (6)
|
(104.5 | ) | (113.8 | ) | (279.0 | ) | (329.0 | ) | ||||||||
Operating
income
|
69.4 | 84.9 | 237.2 | 220.4 | ||||||||||||
Interest
income
|
0.9 | 3.9 | 3.9 | 10.9 | ||||||||||||
Interest
expense (7)
|
(11.2 | ) | (9.3 | ) | (33.8 | ) | (23.1 | ) | ||||||||
Other
loss
|
(1.6 | ) | (0.1 | ) | (1.6 | ) | (2.2 | ) | ||||||||
Income
before income taxes
|
$ | 57.5 | $ | 79.4 | $ | 205.7 | $ | 206.0 |
(1)
|
Net sales and
operating revenues and operating income for the three and nine month
periods ended September 30, 2009, include the full consolidation of our
Mexican subsidiary.
|
(2)
|
Amounts have
been retrospectively adjusted to conform to current year presentations.
Certain prior year inter-company amounts have been reallocated between the
segment and the unallocated category.
|
(3)
|
Operating
income for the three and nine month periods ended September 30, 2008,
includes $11.1 million in deferred revenue.
|
(4)
|
The
unallocated category included in operating income relates to our overhead
and corporate expenses that are not allocated to our operating segments
for management reporting purposes. Unallocated costs include corporate
departmental expenses such as labor and benefits, as well as advertising,
insurance, distribution and information technology costs plus certain
unusual or infrequent gains or losses.
|
(5)
|
Operating
income for the three and nine month periods ended September 30, 2008,
includes a $5.1 million sales and use tax refund.
|
(6)
|
The nine
month period ended September 30, 2008, includes net charges aggregating
$12.1 million associated with our amended lease for our corporate
headquarters.
|
(7)
|
The three and
nine month periods ended September 30, 2009, include non-cash interest
expense of $3.5 million and $10.2 million, respectively, compared with
$1.9 million for each of the same periods last year. See Note 3 – “Change
in Method of Accounting for Convertible Notes” for additional
information.
|
15
This MD&A
section of our Quarterly Report on Form 10-Q discusses our results of
operations, liquidity and capital resources, and certain factors that may affect
our future results, including economic and industry-wide factors. You should
read this MD&A in conjunction with our consolidated financial statements and
accompanying notes included under Part I, Item 1, of this Quarterly Report, as
well as with our Annual Report on Form 10-K for the calendar year ended December
31, 2008.
RESULTS
OF OPERATIONS
Overview
Highlights related
to the third quarter of 2009 include:
·
|
Net sales and
operating revenues decreased $31.9 million, or 3.1%, to $990.0 million
when compared with the same period last year. Comparable store sales
decreased 2.9%. These decreases were driven primarily by sales declines in
digital-to-analog converter boxes, laptop computers, batteries, wireless
accessories, and GPS products. These sales declines were substantially
offset by increased sales in our Sprint Nextel postpaid wireless business,
increased sales of prepaid wireless handsets and airtime, the addition of
T-Mobile as a postpaid wireless carrier in our company-operated stores,
and increased sales of netbooks.
|
·
|
Gross margin
increased 90 basis points to 47.6% from the third quarter of 2008. This
increase was primarily driven by a change in our sales mix away from lower
margin products such as converter boxes and laptop
computers.
|
·
|
Selling,
general and administrative (“SG&A”) expense increased $10.3 million to
$380.7 million when compared with the same period last year. As a
percentage of net sales and operating revenues, SG&A increased by 230
basis points from the same period last year to 38.5% of net sales and
operating revenues. The increase in SG&A for the third quarter was
primarily due to increased compensation expense, which was driven by
incentive compensation paid on increased wireless sales, additional
employee headcount across our stores, and the full consolidation of our
Mexican subsidiary in 2009. While our advertising expense in the third
quarter was consistent with the same period last year, we shifted a
significant portion of our marketing expenditures from product specific
promotional activities to building awareness of our new brand creative
platform, “THE SHACK.”
|
·
|
As a result
of the factors above, operating income decreased $15.5 million, or 18.3%,
to $69.4 million when compared with the third quarter of
2008.
|
·
|
Net income
decreased $11.7 million, or 23.8%, to $37.4 million when compared with the
third quarter of 2008. Net income per diluted share was $0.30 compared
with $0.38 for the same period last
year.
|
·
|
EBITDA
decreased $17.1 million, or 15.6%, to $92.3 million when compared with the
third quarter of 2008.
|
EBITDA, a non-GAAP
financial measure, is defined as earnings before interest, taxes, depreciation,
amortization and other loss. The comparable financial measure to EBITDA under
GAAP is net income. EBITDA is used by management to evaluate the operating
performance of our business for comparable periods. EBITDA should not be used by
investors or others as the sole basis for formulating investment decisions as it
excludes a number of important items. We compensate for this limitation by using
GAAP financial measures, as well, in managing our business. In the view of
management, EBITDA is an important indicator of operating performance because
EBITDA excludes the effects of financing and investing activities by eliminating
the effects of interest and depreciation costs. The following table is a
reconciliation of EBITDA to net income.
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
(In
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
EBITDA
|
$ | 92.3 | $ | 109.4 | $ | 307.5 | $ | 294.5 | ||||||||
Interest
expense, net of interest income
|
(10.3 | ) | (5.4 | ) | (29.9 | ) | (12.2 | ) | ||||||||
Income tax
expense
|
(20.1 | ) | (30.3 | ) | (76.4 | ) | (76.7 | ) | ||||||||
Depreciation
and amortization
|
(22.9 | ) | (24.5 | ) | (70.3 | ) | (74.1 | ) | ||||||||
Other
loss
|
(1.6 | ) | (0.1 | ) | (1.6 | ) | (2.2 | ) | ||||||||
Net
income
|
$ | 37.4 | $ | 49.1 | $ | 129.3 | $ | 129.3 |
16
RadioShack
Retail Outlets
The table below
shows our retail locations allocated among U.S. and Mexico company-operated
stores, kiosks, and dealer and other outlets at the following
dates.
Sept.
30,
|
June
30,
|
March
31,
|
Dec.
31,
|
Sept.
30,
|
||||||||||||||||
2009
|
2009
|
2009
|
2008
|
2008
|
||||||||||||||||
U.S.
RadioShack company-
operated stores
|
4,470 | 4,450 | 4,448 | 4,453 | 4,435 | |||||||||||||||
Kiosks (1)
|
462 | 617 | 662 | 688 | 685 | |||||||||||||||
Mexico
RadioShack company-
operated stores
|
204 | 201 | 202 | 200 | -- | |||||||||||||||
Dealer and
other outlets (2)
|
1,343 | 1,372 | 1,384 | 1,411 | 1,407 | |||||||||||||||
Total number
of retail locations
|
6,479 | 6,640 | 6,696 | 6,752 | 6,527 |
(1)
|
Kiosks
decreased by 155 locations, net of new kiosk openings, during the third
quarter. In April 2009 we agreed with Sprint Nextel to cease our
arrangement to jointly operate the Sprint Nextel kiosks in operation at
that date. This agreement allowed us to operate these kiosks under the
Sprint name for a reasonable period of time allowing us to transition the
kiosks to a new format. In August 2009, we transitioned these kiosks to
multiple wireless carrier RadioShack branded locations. They are now
managed and reported as extensions of existing RadioShack company-operated
stores. The remaining decrease in kiosk locations was attributable to the
assignment of certain kiosk locations to Sam’s Club control in accordance
with the contract extension signed in February 2009. In June 2009, Sam’s
Club notified us of their intent to exercise their right to assume
operation of certain kiosk locations. This could result in the transfer of
up to approximately 25 kiosks to Sam’s Club starting in the first quarter
of 2010.
|
(2)
|
Our dealer and
other outlets decreased by 29 locations, net of new openings, during the
third quarter. This decline was due to the closure of lower volume
outlets.
|
Net
Sales and Operating Revenues
Consolidated net
sales and operating revenues allocated among our two operating segments and
other sales are as follows:
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
(In
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
U.S.
RadioShack company-operated stores
|
$ | 838.7 | $ | 869.4 | $ | 2,522.6 | $ | 2,548.1 | ||||||||
Kiosks
|
57.1 | 69.5 | 182.8 | 204.2 | ||||||||||||
Other (1)
|
94.2 | 83.0 | 252.4 | 213.5 | ||||||||||||
Consolidated
net sales and operating revenues
|
$ | 990.0 | $ | 1,021.9 | $ | 2,957.8 | $ | 2,965.8 | ||||||||
Consolidated
net sales and operating revenues
(decrease)
increase
|
(3.1 | %) | 6.4 | % | (0.3 | %) | 2.7 | % | ||||||||
Comparable
store sales(2)
(decrease) increase
|
(2.9 | %) | 7.7 | % | (0.7 | %) | 3.4 | % |
(1)
|
Net sales and
operating revenues for the three and nine month periods ended September
30, 2009, include the full consolidation of our Mexican
subsidiary.
|
(2)
|
Comparable
store sales include the sales of U.S. RadioShack company-operated stores
and kiosks with more than 12 full months of recorded sales. Following
the termination of the Sprint-branded kiosk business, these
former Sprint–branded kiosks were transformed into multiple wireless
carrier RadioShack branded locations that are now managed
as extensions of a RadioShack company-operated store and current year
results are included with such stores for purposes of comparable
store sales. For more information regarding the transition of the
Sprint-branded kiosks to RadioShack, see Note 11 – “Segment Reporting” in
Notes to Consolidated Financial Statements and “RadioShack Retail Outlets”
in this Form 10-Q.
|
17
Consolidated net
sales in the third quarter decreased 3.1%, or $31.9 million, to
$990.0 million compared with $1,021.9 million in the same period last
year. Consolidated net sales for the first nine months of 2009 decreased
0.3%, or $8.0 million,
to $2,957.8 million compared with $2,965.8 million in the same period last year.
Comparable store sales decreased 2.9% in the third
quarter and 0.7%
for the first nine months of 2009.
U.S.
RadioShack Company-Operated Stores Segment
Sales for the U.S.
RadioShack company-operated store segment decreased $30.7 million, or 3.5%, in the third
quarter and decreased $25.5 million, or 1.0%, for the first
nine months of 2009 when compared with the same periods last year.
Sales in our
wireless platform (includes postpaid and prepaid wireless handsets, commissions,
residual income and communication devices such as scanners and GPS) increased
40.2% for the
third quarter and increased 13.8% for the first nine
months of 2009 when compared with the same periods last year. For the
third quarter and the first nine months of 2009, these sales increases were
driven by increased sales in our Sprint Nextel postpaid wireless business, the
addition of T-Mobile as a postpaid wireless carrier, and increased sales of
prepaid wireless handsets. These increases were partially offset by decreased
sales of GPS products.
Sales in our
accessory platform (includes home entertainment, wireless, music, computer,
video game and GPS accessories; media storage; power adapters; digital imaging
products and headphones) decreased 28.2% for the third
quarter and decreased 7.5% for the first nine
months of 2009 when compared with the same periods last year. The third
quarter decrease was driven primarily by decreased sales of digital-to-analog
television converter boxes and wireless accessories. The sales decrease for the
first nine months of 2009 was primarily driven by decreased sales in wireless
accessories, music accessories, and media storage, but was partially offset by
increased sales of converter boxes in the first quarter of 2009 and increased
sales of television antennas in the first half of 2009. Consolidated sales of
converter boxes were $30.2 million for the third quarter and $157.0 million for
the first nine months of 2009, compared with $88.5 million and $150.4 million,
respectively, for the same periods last year. The sales of converter boxes are a
result of the transition of full-power television broadcast signals in the
United States from broadcasting in analog format to broadcasting only in digital
format. This transition took place in the second quarter of 2009, and we expect
a continued decrease in the sales of these units for the remainder of the
year.
Sales in our modern
home platform (includes residential telephones, Voice over Internet Protocol
(“VoIP”) products, home audio and video end-products, direct-to-home (“DTH”)
satellite systems, and computers) decreased 13.6% for the third
quarter and increased 7.2% for the first nine
months of 2009 when compared with the same periods last year. For the
third quarter, we recorded sales declines in laptop and desktop computers and
residential telephones, which were partially offset by increased sales of
netbooks and VoIP products. The sales change for the first nine months of 2009
was impacted by the same product category declines that impacted the third
quarter; however, we also recorded a sales gain in digital televisions in the
first half of 2009.
Sales in our
personal electronics platform (includes digital cameras, digital music players,
toys, satellite radios, video gaming hardware, camcorders, general radios, and
wellness products) decreased 27.8% for the third
quarter and decreased 27.6% for the first nine
months of 2009 when compared with the same periods last year. These
decreases were driven primarily by decreased sales in digital music players,
digital cameras, video game consoles, and satellite radios.
Sales in our power
platform (includes general and special purpose batteries and battery chargers)
decreased 18.4%
for the third quarter and decreased 9.3% for the first nine
months of 2009 when compared with the same periods last year. These
decreases were primarily driven by decreased sales of both general and special
purpose batteries. This platform was negatively impacted by the commencement of
our chain-wide refresh of in-store power display areas in the third quarter,
which is targeted for completion in the fourth quarter.
Sales in our
technical platform (includes wire and cable, connectivity products, components
and tools, as well as hobby and robotic products) decreased 3.9% for the third
quarter and decreased 1.2% for the first
nine months of 2009 when compared with the same periods last year. We recorded
gains in sales of wire and cable for both periods, which were more than offset
by decreased sales across most of the other product categories.
18
Sales in our
service platform (includes prepaid wireless airtime, extended service plans,
AT&T’s ConnecTech service, and bill payment revenue) increased 15.1% for the third
quarter and increased 13.9% for the first nine
months of 2009 when compared with the same periods last year. These
increases were primarily driven by increased sales of prepaid wireless airtime.
We also recorded a sales increase in extended service plans in the first half of
2009.
Kiosks
Segment
Kiosk sales consist
primarily of handset sales, postpaid and prepaid commission revenue and related
wireless accessory sales. Kiosk sales decreased $12.4 million, or 17.8%, in the third
quarter and decreased $21.4 million, or 10.5%, for
the first nine months of 2009 when compared with the same periods last
year. For the third quarter and the first nine months of 2009, we recorded sales
increases in our Sam’s Club locations, which were offset by the reduced number
of kiosk locations in both periods. This decrease in locations was partially due
to the closure of underperforming Sprint kiosk locations in the first half of
2009 and the closure of our Sprint-branded kiosks in the third quarter. See
footnote 1 of the RadioShack Retail Outlets table for further information on the
reduction in kiosk outlets.
In
June 2009, Sam’s Club notified us of their intent to exercise their right to
assume operation of certain kiosk locations. This could result in the transfer
of up to approximately 25 kiosks to Sam’s Club starting in the first quarter of
2010.
Other
Sales
Other sales include
sales to our independent dealers, outside sales through our service centers,
sales generated by our www.radioshack.com Web site,
sales generated by our Mexican subsidiary, sales to commercial customers, and
outside sales of our global sourcing operations and manufacturing. Other sales
increased $11.2
million, or 13.5%, in the third
quarter and increased $38.9 million, or 18.2%, for
the first nine months of 2009 when compared with the same periods last
year. These increases in other sales are primarily attributable to the full
consolidation of our Mexican subsidiary for the first nine months of 2009, but
were partially offset by decreased sales to our independent
dealers.
Gross
Profit
Consolidated gross profit and gross
margin are as follows:
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
(In
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Gross
profit
|
$ | 471.1 | $ | 477.4 | $ | 1,383.5 | $ | 1,396.4 | ||||||||
Gross
margin
|
47.6 | % | 46.7 | % | 46.8 | % | 47.1 | % | ||||||||
Gross profit
(decrease) increase
|
(1.3 | %) | 2.1 | % | (0.9 | %) | (1.3 | %) |
Consolidated gross profit and gross margin for the third quarter were $471.1 million and 47.6%, respectively, compared with $477.4 million and 46.7% in the third quarter of last year. This resulted in a 1.3% decrease in gross profit dollars year over year, primarily due to a decline in net sales and operating revenues. Consolidated gross profit and gross margin for the first nine months of 2009 were $1,383.5 million and 46.8%, respectively, compared with $1,396.4 million and 47.1% in the same period last year. This resulted in a 0.9% decrease in gross profit dollars year over year, due to a decline in net sales and operating revenues and our gross margin rate.
Our gross margin
increased 90
basis points for the third quarter, when compared with the same period
last year. This increase was primarily driven by a change in our sales mix away
from lower margin products such as converter boxes, laptop computers, and
GPS products.
Our gross margin
decreased 30
basis points for the first nine months of 2009, when compared with the
same period last year. This decrease was primarily driven by a change in our
sales mix towards lower margin products such as digital televisions and netbooks
in the first half of 2009, but was partially offset by the sales mix away from
lower margin products in the third quarter as discussed above.
19
Selling,
General and Administrative Expense
Consolidated
SG&A expense is as follows:
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
(In
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
SG&A
|
$ | 380.7 | $ | 370.4 | $ | 1,082.2 | $ | 1,108.2 | ||||||||
% of net
sales and operating revenues
|
38.5 | % | 36.2 | % | 36.6 | % | 37.4 | % | ||||||||
SG&A
increase (decrease)
|
2.8 | % | 1.8 | % | (2.3 | %) | (0.8 | %) |
Consolidated SG&A expense increased 2.8%, or $10.3 million, for the third quarter and decreased 2.3%, or $26.0 million, for the first nine months of 2009 when compared with the same periods last year. This represents a 230 basis point increase and an 80 basis point decrease as a percentage of net sales and operating revenues, respectively, for each period.
The increase in
SG&A for the third quarter was primarily due to increased compensation
expense and legal settlements. The increased compensation expense was
driven by incentive compensation paid on increased wireless sales, additional
employee headcount across our stores, and the full consolidation of our Mexican
subsidiary in 2009. While our advertising expense in the third quarter was
consistent with the same period last year, we shifted a significant portion of
our marketing expenditures from product specific promotional activities to
building awareness of our new brand creative platform, “THE SHACK.”
The decrease in
SG&A for the first nine months of 2009 was primarily due to decreased
advertising expense in the first half of 2009. In addition, SG&A expense for
the first nine months of 2008 included a net charge of $12.1 million associated
with the amended lease for our corporate headquarters and a benefit of $5.1
million related to a sales and use tax settlement.
Depreciation
and Amortization
Consolidated
depreciation and amortization was $22.9 million for the third
quarter and $70.3 million for the first nine months of 2009 compared with $24.5
million and $74.1 million, respectively, in the same periods last year.
Of these amounts, depreciation and amortization classified as cost of products
sold on the consolidated statements of income includes $2.4 million for the
third quarter and $7.2
million for the first nine months of 2009 compared with $3.0 million and $8.1 million,
respectively, in the same periods last year.
Net
Interest Expense
Consolidated net
interest expense, which is interest expense net of interest income, was $10.3 million for the
third quarter and $29.9
million for the first nine months of 2009 compared with $5.4 million and $12.2 million,
respectively, for the same periods last year.
Reported interest
expense increased $1.9 million in the
third quarter and increased $10.7 million for the first
nine months of 2009 when compared with the same periods last year. These
increases were primarily due to additional debt outstanding in 2009 in the form
of our convertible notes and interest recorded in accordance with the FASB’s new
accounting guidance on accounting for convertible debt instruments that may be
settled in cash upon conversion. See Note 3 – “Change in Method of Accounting
for Convertible Notes” in Notes to Consolidated Financial Statements of this
Form 10-Q for additional information. Due to this accounting change, we
recognized non-cash interest expense of $3.5 million in the
third quarter and $10.2
million for the first nine months of 2009, compared with $1.9 million for
each of the same periods last year. We expect to
recognize approximately $14 million in non-cash interest expense for the full
year ended December 31, 2009. The increases to interest expense were partially
offset by increased payments received on our interest rate swap contracts in
2009.
Interest income
decreased $3.0
million in the third quarter and decreased $7.0 million for the first
nine months of 2009 when compared with the same periods last year. These
decreases were due to a lower interest rate environment in the current periods,
but were partially offset by larger average cash balances in
2009.
20
Income
Tax Provision
The income tax
provision for each quarterly period reflects our current estimate of the
effective tax rate for the full year, adjusted for any discrete events that are
reported in the quarterly period in which they occur. Our effective tax rate was
35.0% for the
third quarter and 37.1%
for the first nine months of 2009 compared with 38.2% and 37.2%, respectively,
for the same periods last year.
The effective tax
rate for the third quarter and the first nine months of 2009 was impacted by the
recognition of previously unrecognized tax benefits due to the effective
settlement of state income tax matters during the periods. These discrete items
lowered the effective tax rate by 5.2 and 2.6 percentage points for the third
quarter and the first nine months of 2009, respectively.
The effective tax
rate for the first nine months of 2008 was impacted by the execution of a
closing agreement with respect to a Puerto Rico income tax issue during the
period, which resulted in a credit to income tax expense as a discrete item.
This discrete item lowered the effective tax rate by 1.4 percentage points in
the first nine months of 2008.
Recently
Issued Accounting Pronouncements
Refer to Note 2 –
“Recently Issued Accounting Pronouncements” and Note 3 – “Change in Method of
Accounting for Convertible Notes” in Notes to Consolidated Financial Statements
of this Form 10-Q for information regarding recently issued accounting
pronouncements that may impact our financial statements.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Flow Overview
Cash provided by
operating activities for the first nine months of 2009 was $123.6 million
compared with $175.3 million for the
same period last year. Cash flows from operating activities are comprised of net
income plus non-cash adjustments to net income and working capital components.
Cash provided by net income plus non-cash adjustments to net income was
$233.2 million and
$229.8 million
for the first nine months of 2009 and 2008, respectively. Cash used in working
capital components for the first nine months of 2009 was $109.6 million compared
with $54.5
million in the same period last year. The additional cash used in working
capital components in 2009 was primarily due to increased inventory levels at
September 30, 2009. This increase was partly due to increased inventory related
to our T-Mobile offering in U.S. RadioShack company-operated
stores.
Cash used in
investing activities was $61.9 million for the
first nine months of 2009 compared with $43.5 million for the
same period last year. This increase was primarily driven by increased capital
spending in 2009. Capital expenditures for these periods related primarily to
U.S. RadioShack company-operated stores and information systems projects. We
anticipate that our capital expenditure requirements for 2009 will range from
$75 million to
$100 million.
U.S. RadioShack company-operated store remodels and relocations, as well as
information systems projects, will account for the majority of our anticipated
2009 capital expenditures. Cash and cash equivalents and cash generated from
operating activities will be used to fund future capital expenditure
needs.
Cash used in
financing activities was $19.8 million for the
first nine months of 2009 compared with cash provided by financing activities of
$182.6 million
during the same period last year. This change was primarily related to the $43.2
million repurchase of our 2011 notes in the third quarter of this year and the
issuance of our convertible notes and the related call spread transactions in
the third quarter of 2008, which generated net proceeds of $319.2 million. This
change was also impacted by our repurchase of $111.4 million of our common stock
during the third quarter of 2008.
Free
Cash Flow
Our free cash flow,
defined as cash flows from operating activities less dividends paid and
additions to property, plant and equipment, was $61.5 million for the
first nine months of 2009 compared with $130.3 million during
the same period last year. This decrease in 2009 was primarily driven by our
decrease in net cash provided by operating activities and increased capital
spending as discussed above.
21
We
believe free cash flow is a relevant indicator of our ability to repay maturing
debt, change dividend payments, or fund other uses of capital that management
believes will enhance shareholder value. The comparable financial measure to
free cash flow under generally accepted accounting principles is cash flows from
operating activities, which provided $123.6 million for the
first nine months of 2009 compared with $175.3 million for the
same period last year. We do not intend the presentation of free cash flow, a
non-GAAP financial measure, to be considered in isolation or as a substitute for
measures prepared in accordance with GAAP.
The following table
is a reconciliation of net cash provided by operating activities to free cash
flow:
Nine Months
Ended
|
Year
Ended
|
|||||||||||
September
30,
|
December
31,
|
|||||||||||
(In
millions)
|
2009
|
2008
|
2008
|
|||||||||
Net cash
provided by operating activities
|
$ | 123.6 | $ | 175.3 | $ | 274.6 | ||||||
Less:
|
||||||||||||
Additions
to property, plant and equipment
|
62.1 | 45.0 | 85.6 | |||||||||
Dividends
paid
|
-- | -- | 31.3 | |||||||||
Free cash
flow
|
$ | 61.5 | $ | 130.3 | $ | 157.7 |
Share
Repurchases
On
August 20, 2009, our Board of Directors announced a $200 million increase in the
dollar amount of our common stock that the company is authorized to purchase
under a previously approved share repurchase program. As of September 30, 2009,
$290 million of the total authorized amount was available for share repurchases
under this plan. No shares have been repurchased under this plan in
2009.
Debt
Ratings
On
October 20, 2009, Fitch updated our rating outlook to stable from negative. Our
credit ratings and outlooks at October 20, 2009, are summarized below and, other
than the change in Fitch’s outlook, are consistent with the ratings and outlooks
reported in our Annual Report on Form 10-K for the calendar year ended December
31, 2008:
Rating
Agency
|
Rating
|
Outlook
|
||||
Standard and
Poor’s
|
BB
|
Stable
|
||||
Moody's
|
Ba1
|
Stable
|
||||
Fitch
|
BB
|
Stable
|
Repayment
of Borrowings
In
September 2009, we commenced and completed a tender offer to purchase for cash
any and all of our 7.375% notes due 2011 (the “2011 Notes”). Upon expiration of
the offer, $43.2 million of the aggregate outstanding principal amount of the
2011 Notes was validly tendered and accepted. We paid a total of $46.6 million,
which consisted of the purchase price of $45.4 million for the tendered 2011
Notes plus $1.2 million in accrued and unpaid interest, to the holders of the
tendered 2011 Notes. We incurred $0.2 million in expenses and adjusted the
carrying value of the tendered notes by an incremental $0.8 million to reflect a
proportionate write-off of the balance associated with our fair value hedge
included in long-term debt. This transaction resulted in a loss of $1.6 million
classified as other loss on our consolidated statements of income.
We
may from time to time seek to retire or purchase our outstanding debt through
cash purchases, open market purchases, privately negotiated transactions, or
otherwise. Such repurchases, if any, will depend on prevailing market
conditions, our liquidity requirements, contractual restrictions and other
factors.
Capital
Resources
As
of September 30, 2009, we had $856.7 million in cash
and cash equivalents. Additionally, we have a bank credit facility of $325
million. As of September 30, 2009, we had $291.3 million
available under this credit facility due to standby letters of credit. We have
not drawn on this facility. Much of the U.S. retail industry is experiencing an
unfavorable economic environment; however, we continue to believe that our cash
flows from operations and
22
available cash and
cash equivalents will adequately fund our operations and our capital
expenditures. Additionally, our revolving credit facility is available for
additional working capital needs or investment opportunities.
Capitalization
The following table
sets forth information about our capitalization at the dates
indicated.
September
30,
|
December
31,
|
September
30,
|
||||||||||||||||||||||
2009
|
2008
|
2008
|
||||||||||||||||||||||
(In
millions)
|
Dollars
|
Percent
|
Dollars
|
Percent
|
Dollars
|
Percent
|
||||||||||||||||||
Current
debt
|
$ | 62.8 | 3.7 | % | $ | 39.3 | 2.5 | % | $ | 35.9 | 2.4 | % | ||||||||||||
Long-term
debt
|
624.9 | 37.0 | 659.5 | 42.3 | 649.8 | 42.8 | ||||||||||||||||||
Total debt
|
687.7 | 40.7 | 698.8 | 44.8 | 685.7 | 45.2 | ||||||||||||||||||
Stockholders’
equity
|
1,000.0 | 59.3 | 860.8 | 55.2 | 830.8 | 54.8 | ||||||||||||||||||
Total
capitalization
|
$ | 1,687.7 | 100.0 | % | $ | 1,559.6 | 100.0 | % | $ | 1,516.5 | 100.0 | % |
We continually assess alternatives to our capital structure and evaluate strategic capital initiatives which may include, but are not limited to, additional share repurchases and modification of existing debt, including the amount of debt outstanding, the types of debt issued and the maturity dates of the debt. These alternatives, if implemented, could materially impact our total capitalization, debt ratios and cash balances.
FACTORS
THAT MAY AFFECT FUTURE RESULTS
Matters discussed
in MD&A and in other parts of this report include forward-looking statements
within the meaning of the federal securities laws, including Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements are
statements that are not historical and may be identified by the use of words
such as “expect,” “anticipate,” “believe,” “estimate,” “potential” or similar
words. These matters include statements concerning management's plans and
objectives relating to our operations or economic performance and related
assumptions. We specifically disclaim any duty to update any of the information
set forth in this report, including any forward-looking statements.
Forward-looking statements are made based on management's current expectations
and beliefs concerning future events and, therefore, involve a number of
assumptions, risks and uncertainties, including the risk factors described in
Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended
December 31, 2008. Management cautions that forward-looking statements are not
guarantees, and our actual results could differ materially from those expressed
or implied in the forward-looking statements.
At
September 30, 2009, the only derivative instruments that materially increased
our exposure to market risks for interest rates, foreign currency rates,
commodity prices or other market price risks were interest rate swaps, which
serve as an economic hedge on our long term debt. We do not use derivatives for
speculative purposes. Refer to Note 9 – “Derivative Financial Instruments” in
Notes to Consolidated Financial Statements of this Form 10-Q for additional
information.
Our exposure to
interest rate risk results from changes in short-term interest rates. Interest
rate risk exists with respect to our net investment position at September 30,
2009, of $565.7
million, consisting of fluctuating short-term investments of $715.7 million and
offset by $150 million of indebtedness which, because of our interest rate
swaps, effectively bears interest at short-term floating rates. A hypothetical
increase or decrease of 100 basis points in the interest rate applicable to this
floating-rate net exposure would result in a change in annual net interest
expense of $5.7
million and an approximate $3 million change to the fair value of our interest
rate swaps, which would also impact net interest expense. This hypothesis
assumes no change in the principal or investment balance.
We
have market risk arising from changes in foreign currency exchange rates related
to our purchase of inventory from manufacturers located in China and other areas
outside of the U.S. Our purchases are denominated in U.S. dollars; however, the
continued strengthening of the Chinese currency, or other currencies, against
the U.S. dollar could cause our vendors to increase the prices of items we
purchase. It is not possible to estimate the impact of foreign currency exchange
rate changes on our purchases of this inventory.
23
Evaluation
of Disclosure Controls and Procedures
We
have established a system of disclosure controls and procedures that are
designed to ensure that information relating to the Company, which is required
to be disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 (“Exchange Act”), is recorded, processed, summarized and
reported within the time periods specified by the SEC’s rules and forms, and
that such information is accumulated and communicated to management, including
our Chief Executive Officer and Chief Financial Officer, in a timely fashion. An
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act)
was performed as of the end of the period covered by this quarterly report. This
evaluation was performed under the supervision and with the participation of
management, including our CEO and CFO. Based upon that evaluation, our CEO and
CFO have concluded that these disclosure controls and procedures were
effective.
Changes
in Internal Controls
There were no
changes in our internal control over financial reporting that occurred during
our last fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
PART
II - OTHER INFORMATION
Refer to Note 10 –
“Commitments and Contingencies” in Notes to Consolidated Financial Statements of
this Form 10-Q for information on legal proceedings.
The following table
sets forth information concerning purchases made by or on behalf of RadioShack
or any affiliated purchaser (as defined in the SEC’s rules) of RadioShack common
stock for the periods indicated.
PURCHASES
OF EQUITY SECURITIES BY RADIOSHACK
Total
Number
of
Shares
Purchased
|
Average
Price
Paid
per
Share
|
Total
Number
of
Shares
Purchased
as
Part of
Publicly
Announced
Plans
or
Programs
(1)
(2)
|
Approximate
Dollar Value
of
Shares That
May
Yet
Be
Purchased
Under
the Plans
or
Programs
(1)
(2)
|
|||||||||||||
July 1 – 31,
2009
|
-- | $ | -- | -- | $ | 90,042,027 | ||||||||||
August 1 –
31, 2009
|
1,043 | (3) | $ | 14.30 | -- | $ | 290,042,027 | |||||||||
September 1 –
30, 2009
|
361 | (3) | $ | 16.46 | -- | $ | 290,042,027 | |||||||||
Total
|
1,404 | -- |
(1)
|
RadioShack
announced a $200 million share repurchase program on July 24, 2008, which
has no stated expiration date. On August 20, 2009, our Board of Directors
announced a $200 million increase to this share repurchase program. As of
September 30, 2009, $290 million of the total authorized amount was
available for share repurchases under this plan.
|
(2)
|
During the
period covered by this table, no publicly announced plan or program
expired or was terminated, and no determination was made by RadioShack to
suspend or cancel purchases under our program.
|
(3)
|
Shares
acquired by RadioShack for tax withholdings upon vesting of restricted
stock awards.
|
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 26, which immediately
precedes such exhibits.
24
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
RadioShack
Corporation
|
||||
(Registrant)
|
||||
Date: October
26, 2009
|
By:
|
/s/
|
Martin O.
Moad
|
|
Martin O.
Moad
|
||||
Vice
President and
|
||||
Corporate
Controller
|
||||
(Authorized
Officer)
|
||||
Date: October
26, 2009
|
By:
|
/s/
|
James F.
Gooch
|
|
James F.
Gooch
|
||||
Executive
Vice President and
|
||||
Chief
Financial Officer
|
||||
(Principal
Financial Officer)
|
25
RADIOSHACK
CORPORATION
Exhibit
Number
|
Description
|
3.1
|
Certificate
of Amendment of Restated Certificate of Incorporation dated May 18, 2000
(filed as Exhibit 3a to RadioShack’s Form 10-Q filed on August 11, 2000,
for the fiscal quarter ended June 30, 2000, and incorporated herein by
reference).
|
3.2
|
Restated
Certificate of Incorporation of RadioShack Corporation dated July 26, 1999
(filed as Exhibit 3a(i) to RadioShack’s Form 10-Q filed on August 11,
1999, for the fiscal quarter ended June 30, 1999, and incorporated herein
by reference).
|
3.3
|
RadioShack
Corporation Bylaws, amended and restated as of September 11, 2008 (filed
as Exhibit 3.1 to RadioShack’s Form 8-K filed on September 17, 2008, and
incorporated herein by reference).
|
4.1
|
Indenture,
dated August 18, 2008, between RadioShack Corporation and Bank of New York
Mellon Trust Company, N.A., as trustee (filed as Exhibit 4.1 to
RadioShack’s Form 8-K filed on August 18, 2008 and incorporated herein by
reference).
|
4.2
|
Form of the
2.50% Convertible Senior Notes due 2013, included as Exhibit A to the
Indenture (filed as Exhibit 4.2 to RadioShack’s Form 8-K filed on August
18, 2008 and incorporated herein by reference).
|
31(a)*
|
Rule
13a-14(a) Certification of the Chief Executive Officer of RadioShack
Corporation.
|
31(b)*
|
Rule
13a-14(a) Certification of the Chief Financial Officer of RadioShack
Corporation.
|
32**
|
Section 1350
Certifications.
|
____________________________
*
|
Filed with
this report
|
**
|
These
Certifications shall not be deemed “filed” for purposes of Section 18 of
the Exchange Act, as amended, or otherwise subject to the liability of
that section. These Certifications shall not be deemed to be incorporated
by reference into any filing under the Securities Act of 1933, as amended,
or the Exchange Act, except to the extent that the Company specifically
incorporates them by reference.
|
26