UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-5571
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RADIOSHACK CORPORATION
(Exact name of registrant as specified in our charter)
Delaware 75-1047710
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Throckmorton Street, Suite 1800, Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 415-3700
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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 __
The number of shares outstanding of the issuer's Common Stock, $1 par value, on
April 30, 2002 was 173,839,613.
Index to Exhibits is on Sequential Page No. 13. Total pages 17.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months Ended
March 31,
(In millions, except per share amounts) 2002 2001
--------------------------------------- -------- --------
Net sales and operating revenues $1,034.4 $1,139.5
Cost of products sold 514.7 593.0
-------- --------
Gross profit 519.7 546.5
-------- --------
Operating expenses:
Selling, general and administrative 393.2 405.2
Depreciation and amortization 24.6 27.7
-------- --------
Total operating expenses 417.8 432.9
-------- --------
Operating income 101.9 113.6
Interest income 1.8 4.4
Interest expense (10.8) (13.0)
Provision for loss on Internet-related investment -- (30.0)
-------- --------
Income before income taxes 92.9 75.0
Provision for income taxes 35.3 28.5
-------- --------
Net income 57.6 46.5
Preferred dividends 1.2 1.3
-------- --------
Net income available to common stockholders $ 56.4 $ 45.2
======== ========
Net income available per common share:
Basic $ 0.32 $ 0.24
======== ========
Diluted $ 0.31 $ 0.23
======== ========
Shares used in computing earnings per common share:
Basic 176.8 186.6
======== ========
Diluted 183.6 195.5
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31, March 31,
2002 2001 2001
(In millions, except for share amounts) (Unaudited) (Unaudited)
-------------------------------------- ----------- ------------ -----------
Assets
Current assets:
Cash and cash equivalents $ 434.4 $ 401.4 $ 113.9
Accounts and notes receivable, net 217.3 276.3 351.9
Inventories, net 831.1 949.8 1,061.0
Other current assets 88.8 86.8 68.8
---------- ---------- ----------
Total current assets 1,571.6 1,714.3 1,595.6
Property, plant and equipment, net 407.4 417.7 453.5
Other assets, net 108.9 113.1 274.3
---------- ---------- ----------
Total assets $ 2,087.9 $ 2,245.1 $ 2,323.4
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt, including current maturities of
long-term debt $ 72.2 $ 105.5 $ 407.5
Accounts payable 200.1 206.7 203.5
Accrued expenses 265.0 336.1 239.7
Income taxes payable 157.7 178.1 140.7
---------- ---------- ----------
Total current liabilities 695.0 826.4 991.4
Long-term debt, excluding current maturities 543.5 565.4 249.8
Other non-current liabilities 69.9 75.2 66.1
---------- ---------- ----------
Total liabilities 1,308.4 1,467.0 1,307.3
---------- ---------- ----------
Minority interest in consolidated subsidiary -- -- 100.0
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized:
Series A junior participating, 300,000 shares designated
and none issued -- -- --
Series B convertible (TESOP), 100,000 shares authorized;
63,200, 64,500 and 68,200 shares issued, respectively 63.2 64.5 68.2
Common stock, $1 par value, 650,000,000 shares authorized;
236,033,000 shares issued 236.0 236.0 236.0
Additional paid-in capital 139.0 138.8 125.8
Retained earnings 1,841.9 1,787.3 1,694.9
Treasury stock, at cost; 61,053,000, 59,233,000 and
50,234,000 shares, respectively (1,497.1) (1,443.5) (1,198.4)
Unearned deferred compensation (2.8) (4.3) (9.2)
Accumulated other comprehensive loss (0.7) (0.7) (1.2)
---------- ---------- ----------
Total stockholders' equity 779.5 778.1 916.1
---------- ---------- ----------
Commitments and contingent liabilities
---------- ---------- ----------
Total liabilities and stockholders' equity $ 2,087.9 $ 2,245.1 $ 2,323.4
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
(In millions) 2002 2001
------------ -------- --------
Cash flows from operating activities:
Net income $ 57.6 $ 46.5
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loss on Internet-related investment -- 30.0
Depreciation and amortization 24.6 27.7
Provision for credit losses and bad debts 1.5 0.1
Other items 1.7 5.7
Changes in operating assets and liabilities:
Receivables 59.3 113.4
Inventories 118.7 103.3
Other current assets (1.8) (11.2)
Accounts payable, accrued expenses and income taxes payable (103.2) (161.0)
-------- --------
Net cash provided by operating activities 158.4 154.5
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (16.0) (24.4)
Proceeds from sale of property, plant and equipment 1.0 0.2
Other investing activities -- (4.1)
-------- --------
Net cash used in investing activities (15.0) (28.3)
-------- --------
Cash flows from financing activities:
Purchases of treasury stock (72.0) (28.2)
Proceeds from sale of common stock put options -- 0.3
Sales of treasury stock to employee stock plans 13.3 17.7
Proceeds from exercise of stock options 2.5 3.5
Dividends paid (0.8) (11.0)
Changes in short-term borrowings, net -- (124.0)
Repayments of long-term borrowings (53.4) (1.3)
-------- --------
Net cash used in financing activities (110.4) (143.0)
-------- --------
Net increase (decrease) in cash and cash equivalents 33.0 (16.8)
Cash and cash equivalents, beginning of period 401.4 130.7
-------- --------
Cash and cash equivalents, end of period $ 434.4 $ 113.9
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
We prepared the accompanying unaudited consolidated financial statements in
accordance with the rules of the Securities and Exchange Commission and we did
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In management's
opinion, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation are included. However, our
operating results for the three months ended March 31, 2002 do not necessarily
indicate the results you may expect for the year ending December 31, 2002. If
you desire further information, you should refer to our consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations included in our 2001 Annual Report on Form 10-K for the
year ended December 31, 2001.
NOTE 2 - EARNINGS PER SHARE
The following schedule is a reconciliation of the numerators and denominators
used in computing our basic and diluted earnings per share ("EPS") calculations
for the three months ended March 31, 2002 and 2001. Basic EPS excludes the
effect of potentially dilutive securities, while diluted EPS reflects the
potential dilution that would have occurred if our securities or other contracts
to issue common stock were exercised, converted, or resulted in the issuance of
our common stock that would have then shared in our earnings.
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
--------------------------------------- ---------------------------------------
Income Shares Per Share Income Shares Per Share
(In millions except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------- ----------- ------------- ----------- ----------- ------------- -----------
Net income $ 57.6 $ 46.5
Less: Preferred stock dividends (1.2) (1.3)
-------- --------
Basic EPS
Net income available to common
stockholders 56.4 176.8 $ 0.32 45.2 186.6 $ 0.24
======== ========
Effect of dilutive securities:
Plus dividends on Series B preferred stock 1.2 1.3
Additional contribution required for TESOP
if preferred stock had been converted (1.2) 5.5 (0.9) 5.9
Stock options 1.3 3.0
-------- -------- -------- --------
Diluted EPS
Net income available to common
stockholders plus assumed conversions $ 56.4 183.6 $ 0.31 $ 45.6 195.5 $ 0.23
======== ======== ======== ======== ======== ========
Options to purchase 13.5 million and 5.6 million shares of common stock for the
three months ended March 31, 2002 and 2001, respectively, were not included in
the computation of diluted earnings per common share because the exercise prices
of the options were greater than the average market price of the common stock
during the quarter.
NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income for the three months ended March 31, 2002 and 2001 was
$57.6 million and $46.3 million, respectively.
NOTE 4 - 1996 BUSINESS RESTRUCTURING
In 1996 and 1997, we initiated certain restructuring programs in which a number
of our former McDuff, Computer City and Incredible Universe retail stores were
closed. We still have certain real estate obligations related to some of these
stores. At December 31, 2001, the balance in the restructuring reserve was $11.8
million and consisted of the remaining estimated real estate obligations to be
paid. During the three months ended March 31, 2002, approximately $1.0 million
was charged against the reserve. An additional $1.2 million relating to real
estate obligations was added to the reserve during the quarter, leaving a
balance in the reserve of $12.0 million at March 31, 2002.
NOTE 5 - RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 144, "Accounting for
the Impairment of Long-Lived Assets" ("FAS 144"), in October 2001, which
establishes accounting and reporting standards for impairment and disposition of
long-lived assets (except unidentifiable intangibles), including discontinued
operations. FAS 144 became effective for all financial statements issued for
fiscal years beginning after December 15, 2001 and, generally, its provisions
are to be applied prospectively. We adopted FAS 144 effective January 1, 2002,
and there were no material adjustments as a result of this adoption.
NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES
We are currently a party to a class action lawsuit filed in the Superior Court
of Orange County, California, relating to the alleged miscalculation of overtime
wages for certain of our former and current employees in that state. In April
2002 a California Appellate Court held these types of cases are inappropriate
for class action treatment. We also believe we have meritorious defenses and are
vigorously defending this case.
We have various pending claims, lawsuits, disputes with third parties,
investigations and actions incidental to the operation of our business. Although
occasional adverse settlements or resolutions may occur and negatively impact
earnings in the year of settlement, it is our opinion that their ultimate
resolution will not have a materially adverse effect on our financial condition
or liquidity.
We lease rather than own most of our facilities. Our retail stores comprise the
largest portion of our leased facilities. These stores are located primarily in
major shopping malls and shopping centers owned by other companies. Some leases
are based on a minimum rental plus a percentage of the store's sales in excess
of a stipulated base figure. We also lease distribution centers, office space
and our corporate headquarters.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ("MD&A")
FACTORS THAT MAY AFFECT FUTURE RESULTS
Matters discussed in MD&A include forward-looking statements within the meaning
of the federal securities laws. This includes statements concerning management's
plans and objectives relating to our operations or economic performance and
related assumptions. Forward-looking statements are made based on management's
expectations and beliefs concerning future events and, therefore, involve a
number of risks and uncertainties. Management cautions that forward-looking
statements are not guarantees and actual results could differ materially from
those expressed or implied in the forward-looking statements. Important factors
that could cause our actual results of operations or financial condition to
differ include, but are not necessarily limited to:
o changes in national or regional U.S. economic conditions, including, but
not limited to, recessionary trends, consumer credit availability, interest
rates, inflation, consumers' disposable income and spending levels, job
security and unemployment, and overall consumer confidence;
o continuing terrorist activities in the U.S., as well as the resulting
international war on terrorism;
o the disruption of international, national or regional transportation
systems;
o changes in the amount and degree of promotional intensity exerted by
current competitors and potential new competition from both retail stores
and alternative methods or channels of distribution, such as e-commerce,
telephone shopping services and mail order;
o the inability to successfully execute our strategic initiatives, including
our strategic business units ("SBU") and emerging sales channels, as well
as new alliances which may be formed with other retailers and third party
service providers;
o the presence or absence of new services or products and product features in
the merchandise categories we sell and unexpected changes in our actual
merchandise sales mix;
o the inability to maintain profitable contracts or execute business plans
with providers of third party branded products and with service providers
relating to cellular and PCS telephones and direct-to-home ("DTH")
satellite programming;
o the inability to collect the level of anticipated residual income, consumer
acquisition fees and rebates for products and third party services offered
by us;
o the inability to successfully maintain our strategic alliances, including
those with Compaq, DIRECTV, DISH Network, Microsoft, Thomson/RCA, Sprint,
and/or Verizon Wireless;
o the lack of availability or access to sources of inventory;
o the inability to successfully reallocate a portion of our retail stores'
display space, which will permit us to enhance the display of other product
lines;
o changes in the financial markets that would reduce or eliminate access to
longer term capital or short-term credit availability;
o the inability to attract, retain and grow an effective management team in a
dynamic environment or changes in the cost or availability of a suitable
work force to manage and support our service-driven operating strategies;
o the imposition of new restrictions or regulations regarding the sale of
products and/or services we sell or changes in tax rules and regulations
applicable to us;
o the adoption rate and market demand for high-speed Internet and other
Internet-related services; or
o the occurrence of severe weather events which prohibit consumers from
travelling to our retail locations, especially during the peak winter
holiday season.
RESULTS OF OPERATIONS
Net Sales and Operating Revenues
Our sales decreased 9.2% to $1,034.4 million for the three months ended March
31, 2002, compared to $1,139.5 million in the corresponding prior year period.
Comparable store sales decreased 7% for the quarter, when compared to the first
quarter last year. Our comparable store sales decrease was primarily the result
of decreased sales of DTH satellite systems and services, as well as personal
computers and monitors. Increased sales of wireless phones, accessories and
batteries partially offset our comparable store sales decrease. We expect to see
comparable store sales improvement for the remainder of the year, compared to
2001.
During 2001, we reorganized our marketing and merchandising departments into
three product groups, which we call Strategic Business Units ("SBU"). These SBUs
relate to our position of "Connecting People," "Connecting Places" and
"Connecting Things" in the consumer electronics marketplace. An explanation of
each unit is provided below. Each SBU is responsible for specific products and
third party relationships. These SBUs work with our brand management, sales
channels and support groups, which together allow RadioShack to target the right
customer through the right sales channel with the appropriate products and
support.
Each SBU is designed to focus on more efficient and convenient ways to serve our
sales channels. In addition to our 5,125 company-owned stores and 2,086
dealer/franchise outlets, our existing and emerging sales channels include the
www.radioshack.com Web site and online catalog operations, as well as an
outbound and inbound telephone call center.
The Connecting People SBU consists of the wireless communication, wired
communication and radio communication departments. The wireless communication
department includes products such as wireless handsets and related accessories,
in addition to prepaid wireless refill services and residuals. The wired
communication products department includes products such as cordless phones and
phone cords, plus prepaid long distance cards. Products including two-way radios
and scanners are part of the radio communication department. Our strategic
alliances for the Connecting People SBU include both Sprint and Verizon
Wireless.
The Connecting Places SBU has two departments, home entertainment and computers.
The home entertainment department includes audio and video products and services
such as DTH satellite systems, residuals, installation services, DVDs and
accessories. The computer department includes personal computers and
accessories, hand-held computers, Internet devices and services. This SBU is
responsible for our strategic alliances with Compaq, DIRECTV, DISH Network,
Microsoft and Thomson/RCA.
The Connecting Things SBU includes the accessories, batteries and technical
departments, as well as the personal electronics, seasonal and portable audio
departments. Products include AC and DC power adapters, general and special
purpose batteries, wire and connectors, toys and radio control cars, giftables
and personal portable audio.
Connecting People Strategic Business Unit: Sales in the Connecting People SBU
increased approximately 10% for the quarter ended March 31, 2002, when compared
to the corresponding prior year period. Sales in the wireless communication
department, which includes cellular and PCS handsets, accessories, related
residuals and prepaid airtime services, increased approximately 17% for the
quarter, when compared to the first quarter last year. This sales increase was
due primarily to an increase in sales of wireless phones and accessories, plus
an increase in residuals. The wired communication department, which includes
land-line telephones, answering machines and other related telephony products,
decreased approximately 6% for the quarter, when compared to the first quarter
last year. The decrease in this department was primarily the result of declining
sales of corded land-line telephones and answering machines. The radio
communication department decreased 7% for the quarter, when compared to the
first quarter last year. The decrease in this department was primarily the
result of a decrease in sales of scanners and CB radios. The Connecting People
SBU expects to maintain a sales increase for 2002, primarily driven by increases
in the wireless communication department.
Connecting Places Strategic Business Unit: Sales in the Connecting Places SBU
decreased approximately 29% for the quarter ended March 31, 2002, when compared
to the corresponding prior year period. The home entertainment department, which
consists of home audio and video products, including DTH satellites,
installation services and related residuals, decreased approximately 23% for the
quarter, when compared to the first quarter last year. This decrease was
primarily attributable to a decrease in sales of satellite systems, which was
partially offset by increased sales of video cables and accessories. The
computer department, which includes computers and related accessories, narrow
and broadband connectivity services, and home automation and networking
products, decreased approximately 40% for the quarter, when compared to the
first quarter last year. This decrease was primarily attributable to a decline
in unit sales and the average selling price of CPUs, as well as to a decrease in
sales of computer monitors, from the prior year period. The Connecting Places
SBU expects to continue to experience a sales decrease for 2002, primarily due
to lower sales of computer CPUs and a lower blended average selling price from
our two providers of DTH satellite systems.
Connecting Things Strategic Business Unit: Sales in the Connecting Things SBU
were flat for the quarter ended March 31, 2002, when compared to the
corresponding prior year period. Sales for the accessories, batteries and
technical departments increased 4% for the quarter, when compared to the first
quarter last year. This increase was primarily due to increased sales of special
purpose batteries. Sales for the personal electronics, seasonal and portable
audio departments decreased 6% for the quarter, when compared to the first
quarter last year, due primarily to decreased sales of music-related products,
boom boxes, and educational and impulse toys. The Connecting Things SBU expects
to experience a sales increase in 2002, primarily driven by accessories,
batteries and digital audio product sales.
RadioShack Retail Outlets
March 31, December 31, September 30, June 30, March 31,
2002 2001 2001 2001 2001
----------- ----------- ----------- ----------- -----------
Company-owned 5,125 5,127 5,133 5,105 5,099
Cool Things @ Blockbuster -- 127 123 96 --
Dealer/franchise 2,086 2,119 2,101 2,079 2,067
----------- ----------- ----------- ----------- ------------
Total number of retail outlets 7,211 7,373 7,357 7,280 7,166
=========== =========== =========== =========== ============
Gross Profit
For the three months ended March 31, 2002, gross profit dollars decreased 4.9%,
but the gross profit percentage as a percent of net sales and operating revenues
increased 2.2 percentage points to 50.2%, compared to 48.0% for the
corresponding 2001 period. This percentage point increase was due primarily to a
decline in computer department sales as a percentage of the total retail sales
mix, as the computer department has a lower gross profit margin than our overall
average gross profit margin. In addition, we experienced an increase in the
gross profit margin associated with sales within the accessories, battery and
technical departments, which had a positive effect on both gross profit dollars
and gross profit margin in the first quarter of 2002. Gross profit margin
improvement in the computer and home entertainment departments also positively
affected the 2002 first quarter percentage point increase. We anticipate that
gross profit as a percentage of net sales and operating revenues for 2002 will
remain above the 2001 annual level, due primarily to the positive effect of
sales mix changes.
Selling, General and Administrative Expense
For the first quarter of 2002, our SG&A expense decreased 3.0% or $12.0 million,
when compared to the first quarter of 2001. However, SG&A expense as a
percentage of net sales and operating revenues increased 2.4 percentage points
when compared to the quarter ended March 31, 2001, due to lower overall sales in
the current year quarter. The dollar decrease was primarily due to a decrease in
payroll expense. Payroll expense decreased primarily due to decreases in
commission, bonuses and other incentives, which resulted from lower store sales
in 2002. The decrease in dollars was also a result of a reduction in headcount
during the second half of 2001. Additionally, for the three months ended March
31, 2002, both advertising and rent expense increased in both dollars and as a
percentage of net sales when compared to the same period in the prior year. We
expect SG&A expense to grow slightly in dollars for 2002 as compared to 2001.
Net Interest Expense
Interest expense, net of interest income, for the three months ended March 31,
2002 was $9.0 million versus $8.6 million for the first three months in 2001.
Interest expense for the quarter decreased $2.2 million from last year, due to
lower average debt outstanding during the first quarter of 2002. Interest income
decreased $2.6 million for the three months ended March 31, 2002, compared to
the prior year period, primarily as a result of the early repayment of the
CompUSA note receivable. We expect interest expense, net of interest income, to
increase slightly for calendar year 2002.
Provision for Income Taxes
Provision for income taxes for each quarterly period is based on our estimate of
the annual effective tax rate for the year, which we evaluate quarterly. The
effective tax rate for the first quarters of both 2002 and 2001 was 38.0%.
Impact of Recent Accounting Pronouncements
The Financial Accounting Standards Board issued SFAS No. 144, "Accounting for
the Impairment of Long-Lived Assets" ("FAS 144"), in October 2001, which
establishes accounting and reporting standards for impairment and disposition of
long-lived assets (except unidentifiable intangibles), including discontinued
operations. FAS 144 became effective for all financial statements issued for
fiscal years beginning after December 15, 2001 and, generally, its provisions
are to be applied prospectively. We adopted FAS 144 effective January 1, 2002,
and there were no material adjustments as a result of this adoption.
FINANCIAL CONDITION
Cash flow provided by operating activities approximated $158.4 million for the
three month period ended March 31, 2002, compared to $154.5 million in the prior
year first quarter. Cash flow from net income, adjusted for non-cash items,
decreased $24.6 million for the quarter ended March 31, 2002, when compared to
the same period in the prior year. This decrease was primarily due to the
provision for loss on an Internet-related investment in 2001. At March 31, 2002,
changes in accounts receivable had provided $59.3 million in cash since December
31, 2001, compared to $113.4 million in cash for the quarter ended March 31,
2001. This $54.1 million 2002 decrease in cash provided by accounts receivable
was due to an increase in collections of dealer/franchise receivables and vendor
and service provider receivables in the first quarter of 2001, when compared to
the first quarter of 2002. This decrease in collections for 2002 was the result
of the 2001 year-end accounts receivable balance being significantly lower than
the 2000 year-end balance. In addition, during the first quarter of 2001, $26.8
million more in cash was used for income taxes payable and $16.6 million more in
cash was used for accounts payable, compared to the first quarter of 2002.
Cash used in investing activities for the three months ended March 31, 2002 was
$15.0 million, compared to $28.3 million in the previous year. Investing
activities for the three months ended March 31, 2002 included capital
expenditures totaling $16.0 million, compared to $24.4 million in 2001,
consisting primarily of our retail store expansions and remodels and upgrades of
information systems. We anticipate that the capital expenditure requirement for
2002 will approximate $125.0 million to $130.0 million, primarily relating to
our continued store expansions and remodels and continuous improvement of our
information systems.
Cash used in financing activities for the three months ended March 31, 2002 was
$110.4 million, compared to a $143.0 million cash usage in the previous year. We
purchased $72.0 million of treasury stock during the three months ended March
31, 2002, compared to $28.2 million during the same period of 2001. Stock
repurchases during the first quarters of 2002 and 2001 were partially funded by
$15.8 million and $21.2 million, respectively, received from the sale of
treasury stock to employee stock plans and from stock option exercises.
Dividends paid, net of tax, in the first quarters of 2002 and 2001 amounted to
$0.8 million and $11.0 million, respectively. The decrease in dividends paid in
2002 resulted from a change in our dividend payment frequency from quarterly to
annually during the third quarter of 2001. The net decrease in short-term debt
of $124.0 million during the first quarter of 2001 was due primarily to
collections of accounts receivable outstanding at the end of 2000.
Free cash flow, defined as cash flow from operations less capital expenditures
and dividends paid, was $141.6 million for the three months ended March 31,
2002, compared to $119.1 million for the corresponding period in 2001. This
increase in free cash flow was due primarily to lower capital expenditures and
dividends paid in the first quarter of 2002. We expect free cash flow to be
approximately $200.0 million to $250.0 million in 2002.
At March 31, 2002, total capitalization was $1,395.2 million, which consisted of
$615.7 million of debt and $779.5 million of stockholders' equity, resulting in
a total debt to total capitalization ratio of 44.1%. The total debt to total
capitalization ratio was 46.3% at December 31, 2001 and 41.8% at March 31, 2001.
The decrease since 2001 year-end was primarily the result of a reduction of
total debt of $55.2 million. The increase in the ratio since March 31, 2001 was
primarily the result of a reduction in equity due to increased 2002 treasury
stock purchases. Long-term debt as a percentage of total capitalization was
39.0% at both March 31, 2002 and December 31, 2001, compared to 15.9% at March
31, 2001. The increases since last year's first quarter for both March 31, 2002
and December 31, 2001 were due to the May 2001 issuance of $350.0 million of
10-year 7 3/8% notes due May 15, 2011.
During the first quarter of 2002, we repurchased 1.9 million shares of our
common stock for $56.0 million under our share repurchase program. In connection
with our share repurchase program, our Board of Directors has authorized us to
sell up to 4.0 million shares of our common stock, through both equity forwards
and put options, with an expiration date no later than December 31, 2002. There
are no outstanding equity forward instruments or put options outstanding at
March 31, 2002.
We may continue to execute share repurchases from time to time in order to take
advantage of attractive share price levels, as determined by management. The
timing and terms of the transactions depend on market conditions, our liquidity
and other considerations. We anticipate that we will repurchase between $200.0
million and $250.0 million of our common stock in total for the year 2002.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
At March 31, 2002, we did not have derivative instruments that materially
increased our exposure to market risks for interest rates, foreign currency
rates, commodity prices or other market price risks other than the interest rate
swaps noted below. We do not use derivative instruments for speculative
purposes.
Our exposure to market risk is principally the result of changes in short-term
interest rates. Interest rate risk exists principally with respect to $150.0
million of indebtedness, which, because of our interest rate swaps, effectively
bears interest at short-term floating rates. An unfavorable change of 100 basis
points in the interest rate applicable to this floating-rate indebtedness could
result in additional interest expense of $0.4 million quarterly. This assumes no
change in the principal or the incurrence of additional indebtedness.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are currently a party to a class action lawsuit filed in the Superior Court
of Orange County, California, relating to the alleged miscalculation of overtime
wages for certain of our former and current employees in that state. In April
2002 a California Appellate Court held these types of cases are inappropriate
for class action treatment. We also believe we have meritorious defenses and are
vigorously defending this case.
We have various pending claims, lawsuits, disputes with third parties,
investigations and actions incidental to the operation of our business. Although
occasional adverse settlements or resolutions may occur and negatively impact
earnings in the year of settlement, it is our opinion that their ultimate
resolution will not have a materially adverse effect on our financial condition
or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) 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 13, which immediately precede such exhibits.
b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RadioShack Corporation
(Registrant)
Date: May 10, 2002 By /s/ Loren K. Jensen
-----------------------------------
Loren K. Jensen
Vice President of Finance and
Corporate Development
(Authorized Officer)
Date: May 10, 2002 By /s/ Michael D. Newman
-----------------------------------
Michael D. Newman
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
RADIOSHACK CORPORATION
INDEX TO EXHIBITS
Exhibit
Number Description
3a Certificate of Amendment of Restated Certificate of Incorporation
dated May 18, 2000 (filed as Exhibit 3a to RadioShack's Form 10-Q
filed on August 11, 2000 for the fiscal quarter ended June 30,
2000).
3a(i) Restated Certificate of Incorporation of RadioShack Corporation
dated July 26, 1999 (filed as Exhibit 3a(i) to RadioShack's Form
10-Q filed on August 11, 1999 for the fiscal quarter ended June
30, 1999).
3b RadioShack Corporation Bylaws, amended and restated as of July
22, 2000 (filed as Exhibit 3b to RadioShack's Form 10-Q filed on
August 11, 2000 for the fiscal quarter ended June 30, 2000).
10(a)* Death Benefit Agreement effective December 27, 2001 among Leonard
H. Roberts, Laurie Roberts and RadioShack Corporation.
11* Statements of Computation of Ratio of Earnings to Fixed Charges.
----------------------------
* filed with this report
Exihibit 10(a)
DEATH BENEFIT AGREEMENT
This Agreement ("Agreement") is entered into among Leonard H. Roberts (the
"Executive"), Laurie Roberts (the "Executive's Spouse"), and RadioShack
Corporation (the "Company"), effective December 27, 2001.
WHEREAS, the Executive is a valued key employee of the Company; and
WHEREAS, the Company desires to provide a death benefit payment to the
beneficiary or beneficiaries ("Beneficiary/ies") designated initially by the
Executive and the Executive's Spouse;
NOW, THEREFORE, in consideration of the promises and representations of the
parties as herein specified, and in recognition of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows, effective December 27, 2001.
1. If, within ninety (90) days following the death of the last survivor of the
Executive and the Executive's Spouse, the Company receives payment in full
of all debts or obligations owed to the Company by that certain trust
created on December 27, 2001 by Executive and Executive's spouse and known
as the Leonard and Laurie Roberts Heritage Trust, then in that event, and
only in that event, the Company shall pay a death benefit to the
Beneficiary/ies (the "Beneficiary Death Benefit"). The Beneficiary Death
Benefit shall be calculated to equal the amount(s), if any, in the year of
death of the last survivor of the Executive and Executive's Spouse as set
forth on Schedule A.
2. Any amount payable under this Agreement shall be paid from the general
funds of the Company, and the Executive, Executive's Spouse, and the
Beneficiary/ies designated herein shall not have, as a result of this
Agreement, or otherwise, any rights or interest in any other assets of the
Company. Nothing in this Agreement shall negate any rights of the
Executive, Executive's Spouse, or the Company in any other agreement
between or among such parties.
3. The Beneficiary/ies of any amount payable under this Death Benefit
Agreement shall be the Leonard H. and Laurie S. Roberts Charitable
Foundation of the Ayco Charitable Foundation.
This designation of Beneficiary/ies may be changed by the Executive and
Executive's Spouse by completing and submitting to the Company a Change of
Beneficiary on a form provided by the Company. After the death of the first
to die of the Executive or the Executive's Spouse; the survivor may change
a designation of Beneficiary/ies in the same manner as during the lifetime
of the Executive and the Executive's Spouse, provided, if the
Beneficiary/ies designated at the time of the first to die of Executive or
Executive's Spouse is an organization described in Internal Revenue Code
Sections 170(c) and 2055 (a), as either Section may be amended from time to
time, then any Beneficiary/ies designated by the survivor must also be an
organization similarly described.
4. This Agreement shall be governed by and construed in accordance with the
substantive laws of the State of Texas without giving effect to the choice
of law rules of the State of Texas.
5. All notices hereunder shall be in writing and sent by first class mail with
postage prepaid. Any notice to the Company shall be addressed to the
attention of the General Counsel of the Company at the principal office of
the Company at 100 Throckmorton Street, Suite 1800, Fort Worth, Texas
76102. Any notice to the Executive or the Executive's Spouse shall be
addressed to the address following such parties' signatures on this
Agreement. Any party may change its address by giving written notice of
such change to the other party pursuant to this Section.
6. The terms and conditions of this Agreement shall inure to the benefit of
and bind the Company, the Executive, the Executive's Spouse and their
respective successors, beneficiaries, assignees, and representatives.
RadioShack Corporation
/s/ Leonard H. Roberts By: /s/ Francesca Spinelli
---------------------- ----------------------
Leonard H. Roberts
/s/ Laurie Roberts Francesca Spinelli
Laurie Roberts Name
Address: Senior Vice President - People
------------------------------
Title
Death Benefit Agreement
Schedule A
Year of Death of Company-Paid Death
Last Survivor Benefit
---------------- ------------------
2002 $2,180,000
2003 2,290,090
2004 2,405,740
2005 2,527,229
2006 2,654,854
2007 2,788,925
2008 2,929,765
2009 3,077,718
2010 3,233,143
2011 3,396,417
2012 3,567,936
2013 3,748,117
2014 3,937,397
2015 4,136,235
2016 4,345,115
2017 4,564,543
2018 4,795,053
2019 5,014,642
2020 5,174,425
2021 5,311,594
2022 5,417,934
2023 5,483,212
2024 5,494,380
2025 5,427,852
2026 5,330,445
2027 5,198,398
2028 5,027,583
2029 4,813,476
2030 4,551,116
2031 4,235,072
2032 3,859,397
2033 3,417,587
2034 2,902,529
2035 2,306,449
2036 1,620,855
2037 836,472
2038 and years thereafter 0
*Year of Death of last survivor means the death of the survivor of the Executive
and the Executive's Spouse. The first year shall begin on January 1, 2002, and
each following year shall begin on each successive anniversary of such date.
EXHIBIT 11
RADIOSHACK CORPORATION
STATEMENTS OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
Three Months Ended
March 31,
------------------
(In millions, except ratios) 2002 2001
---------------------------- ------- -------
Ratio of Earnings to Fixed Charges:
Net income $ 57.6 $ 46.5
Plus provision for income taxes 35.3 28.5
------- -------
Income before income taxes 92.9 75.0
------- -------
Fixed charges:
Interest expense and amortization, including debt discount 10.8 13.0
Amortization of debt issuance expense -- 0.2
Appropriate portion (33 1/3%) of rentals 19.9 18.8
------- -------
Total fixed charges 30.7 32.0
------- -------
Earnings before income taxes and fixed charges $ 123.6 $ 107.0
======= =======
Ratio of earnings to fixed charges 4.03 3.34
======= =======
Ratio of Earnings to Fixed Charges and Preferred Dividends:
Total fixed charges, as above $ 30.7 $ 32.0
Preferred dividends 1.2 1.3
------- -------
Total fixed charges and preferred dividends $ 31.9 $ 33.3
======= =======
Earnings before income taxes and fixed charges $ 123.6 $ 107.0
======= =======
Ratio of earnings to fixed charges and preferred dividends 3.87 3.21
======= =======