UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD
Commission file number 1-5571
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TANDY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-1047710
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Throckmorton Street, Suite 1800, Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 415-3700
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
Common Stock, par value $1 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of March 23, 1999, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $5,265,940,296 based on the New York Stock
Exchange closing price.
As of March 23, 1999, there were 96,920,455 shares of the registrant's Common
Stock outstanding.
Documents Incorporated by Reference
Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders are
incorporated by reference into Part III.
The Index to Exhibits is on Sequential Page No. 59.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Tandy Corporation, a Delaware corporation, was incorporated in 1967 ("Tandy" or
the "Company"). The Company engages in the retail sale of consumer electronics
including personal computers, primarily in the United States. Sales derived
outside of the United States are not material. Tandy's principal retail
operations in 1998 included the RadioShack(R) and Computer City(R) store chains.
RadioShack. RadioShack is the Company's largest operating business unit. At
December 31, 1998, the RadioShack division operated 5,039 company-owned
stores located throughout the United States. These stores average
approximately 2,200 square feet in gross area and are located in major malls
and strip centers, as well as individual store fronts. RadioShack had, on
the same date, a network of 1,991 dealer/franchise stores. These stores
provide RadioShack products to smaller communities. The dealers are
generally engaged in other retail operations and augment their sales with
RadioShack products. This network included 53 international dealers at
December 31, 1998.
The company-owned RadioShack stores carry a broad assortment of mostly
private label electronic parts and accessories, cellular, PCS and
conventional telephones, audio and video equipment, digital satellite
systems, personal computers and related products, as well as specialized
products such as scanners, electronic toys and hard-to-find batteries.
RadioShack also provides consumers access to third party services such as
cellular phone, PCS, direct satellite programming and pager service.
RadioShack, through its "Sprint Store at RadioShack", provides customers
with access to wireless and residential telephones and related telephony
products and services. A second "store-within-a-store" concept was launched
in early 1998, when the Company announced its strategic alliance with Compaq
Computer Corporation ("Compaq").
Computer City. On June 22, 1998, the Company announced that it had signed a
definitive agreement to sell 100% of the outstanding common stock of its
Computer City, Inc. subsidiary ("CCI" or "Computer City") to CompUSA Inc.
("CompUSA"). The sale was completed August 31, 1998. (See "Sale of Computer
City, Inc." in Item 7 "Management's Discussion and Analysis of Results of
Operations and Financial Condition" ("MD&A")). Prior to the sale, there were
101 Computer City stores open, including seven in Canada. Operating
primarily as a supercenter format, the average store size approximated
21,050 square feet in gross area and offered approximately 4,000 products in
its merchandising assortment, including personal computer hardware and
software and related products and accessories. To complement its hardware
and software sales, Computer City also offered such services as classroom
and on-site training for widely-used software applications, as well as
repair, maintenance, custom configuration, diagnostic testing, computer
upgrades and other technical services on all major brands of computers and
related products.
Incredible Universe. In December 1996, the Company announced its intent to
exit the Incredible Universe business. All Incredible Universe stores were
closed or sold by the end of 1997. See "Provisions for Business
Restructuring and Asset Impairment" in MD&A for further discussion.
Supporting the retail operations is an extensive infrastructure that includes:
A&A International, Inc.("A&A") - This wholly-owned subsidiary of the Company
serves the wide-ranging international import/export, sourcing, evaluation,
logistics and quality control needs of the Company. A&A also provides
services for outside customers, primarily InterTAN, Inc. ("InterTAN"). Most
of A&A's activity for InterTAN involves sourcing of goods from manufacturers
in Asia.
Consumer Electronics Manufacturing - The Company operates seven
manufacturing facilities in the United States and one overseas manufacturing
operation in China, which is a joint venture. These eight manufacturing
facilities employed approximately 3,400 employees as of December 31, 1998.
The Company manufactures a variety of products, primarily sold through
RadioShack, including audio, video, telephony, antennas, wire and cable
products and a wide variety of "hard to find" parts for consumer electronic
products.
Tandy Service Centers-The Company maintains a service and support network to
service the consumer electronics and personal computer retail industry in
the U.S. At December 31, 1998, there were 53 Tandy Service Centers in the
U.S. which repaired name-brand and private label products sold through the
Company's retail distribution channels. The Company is a vendor-authorized
service provider for such leading manufacturers as Compaq, Sony, Panasonic,
Hitachi, Hewlett-Packard, RCA/Thomson and Nokia, among others, and also
performs repairs for third-party service centers and extended service plan
providers under national service agreements.
Regional Distribution Centers - The 11 distribution centers operated by the
Company ship over one million cartons each month to the Company's retail
outlets.
Tandy Transportation, Inc.-A large fleet of tractors and trailers transports
merchandise from manufacturers or ports of entry to the Company's regional
distribution centers and local distribution facilities and also delivers to
the Company's retail outlets.
Tandy Customer Support - Using state-of-the-art telephone and data networks,
Tandy Customer Support responds to more than five million calls annually for
answers to technical questions, customer service inquiries, and direct sales
related to RadioShack's catalog operations, the Internet and "hard to find"
products offered through its RadioShack Unlimited program.
SEASONALITY
As is the case with other retail businesses, the Company's net sales and other
revenues are greater during the Christmas season than during other periods of
the year. There is a corresponding pre-seasonal inventory build-up requiring
working capital associated with the anticipated increased sales volume. See Note
24 of the "Notes to Consolidated Financial Statements" for quarterly data.
PATENTS AND TRADEMARKS
Tandy owns or is licensed to use many trademarks related to its business in the
United States and in foreign countries. Radio Shack, RadioShack, Optimus and
You've Got Questions. We've Got Answers. are some of the registered marks most
widely used by the Company. Tandy believes that the RadioShack name and mark is
well-recognized by consumers, and that the name and mark are associated with a
high-quality service provider. The Company's manufactured products are sold
primarily under the RadioShack and Optimus trademarks which are registered in
the U.S. and many foreign countries. Tandy also owns various patents relating to
retail and support functions and various products which Tandy has previously
designed and continues to manufacture. The Company believes that the loss of the
RadioShack name and RadioShack trademarks would be material to its business, but
does not believe that the loss of any other marks would be material.
SUPPLIERS
The Company obtains merchandise from a large number of suppliers located in
various parts of the world. Alternative sources of supply exist for most
merchandise and raw materials purchased by the Company. As the Company's product
line is diverse, the Company would not expect a lack of availability of any
single product or raw material to have a material impact on its operations.
Management does not believe that the loss of any one supplier would have a
material impact on its operations.
BACKLOG ORDERS
The Company has no material backlog of orders for the products it sells.
COMPETITION
The consumer electronics retail business remains highly competitive, driven by
technology and product cycles, as well as the overall state of the economy. In
the consumer electronics retailing business, competitive factors include price,
product quality, product features, consumer services, manufacturing and
distribution capability and brand reputation. The Company competes in the sale
of its products and services with department stores, mail order houses, discount
stores, general merchants and gift stores which sell comparable products
manufactured by others. Competitors range in size from local drug and hardware
stores to large chains and department stores. Consumer electronics mail-order
companies also compete with the Company as do a number of competitors via
on-line commerce on the Internet. The products which compete with those sold by
the Company are manufactured by numerous domestic and foreign manufacturers.
Many of these products carry nationally recognized brand names or private labels
and are sold in markets common to the Company. Some of the Company's competitors
have financial resources equal to or greater than the Company's resources.
Management believes that many factors are important to its competitive position,
including price, quality, service and the broad selection of electronic and
telecommunications products carried at conveniently located RadioShack retail
outlets. RadioShack's strategic alliances with well-recognized partners such as
Sprint Communications Company, Compaq Computer Corporation and DirecTV, among
others, allow the Company to leverage name brand recognition and marketing
efforts and advertising campaigns as well as to create cross-revenue
opportunities such as repair service income, customer residuals and cellular
commissions. The Company's utilization of trained personnel and its ability to
use national and local advertising media are important to the Company's ability
to compete in the consumer electronics marketplace. Management of the Company
believes it is a strong competitor with respect to each of the factors
referenced above. Given the highly competitive nature of the consumer
electronics retail business, no assurance can be given that the Company will
continue to compete successfully with respect to each of the factors referenced
above. Also, in light of the ever-changing nature of the electronics retail
industry, the Company would be adversely affected if its competitors were to
offer their products at significantly lower prices, introduce innovative or
technologically superior products not yet available to the Company or if the
Company were unable to obtain products in a timely manner for an extended period
of time.
In 1998, Tandy operated two retailing formats: RadioShack and, until August 31,
1998, Computer City. Each of the Company's retailing formats used a distinct
path to the marketplace, based on its unique customer appeal, marketing
strengths and margin structure:
RadioShack: RadioShack stores offer the shopping convenience of approximately
7,000 company-owned and dealer/franchise stores which offer high quality
branded and private label computer, telephony and electronics products and
parts, unique selection, repair services, knowledgeable personnel, convenient
credit options and excellent customer service, including its
"service-oriented" approach. In addition to providing enhanced product
explanation, specially trained sales staff assist customers with service
activation, where applicable, and selection of appropriate accessories.
RadioShack has formed strategic relationships with key vendors in computers
(Compaq), "direct-to-home" satellite (RCA, PrimeStar, DirecTV, and USSB),
telecommunications (Sprint) and wireless communications (Sprint PCS) to
augment the strong position that it has historically maintained in core
product categories such as batteries, communications equipment, telephones,
antennas and electronic components, and parts and accessories.
Computer City, Inc.: This subsidiary operated 101 stores prior to the sale to
CompUSA. Computer City stores offered approximately 4,000 different name
brand items, competitive prices and excellent customer service on personal
computer hardware and software, as well as accessories, printers and
peripherals. The stores averaged approximately 21,050 square feet. Although
retail sales were the largest component of Computer City's business, its
stores also fulfilled other functions, including direct sales to corporate,
government and education customers, as well as software training and
technical services.
See "Segment Reporting Disclosures" in MD&A for 1998, 1997 and 1996 net sales
and operating revenues, operating profit (loss) and capital assets for
RadioShack and Computer City.
EMPLOYEES
As of December 31, 1998, the Company had approximately 38,200 employees. That
number included approximately 6,500 temporary retail employees who were hired
for the Christmas selling season. None of the Company's employees are covered by
collective bargaining agreements nor are they members of labor unions.
Management of the Company considers its relationship with its employees to be
good.
ITEM 2. PROPERTIES.
Information on the Company's properties is in MD&A and the financial statements
included in this Form 10-K and is incorporated herein by reference. The
following items are discussed further on the referenced pages:
Page
Retail Outlets............................... 12
Property, Plant and Equipment................ 45
Leases....................................... 48
The Company leases, rather than owns, most of its retail facilities. RadioShack
stores are located primarily in major shopping malls, stand-alone buildings or
shopping centers owned by other entities. The Company owns most of the property
on which its executive offices are located in downtown Fort Worth, Texas, all
distribution centers, except for two which are leased, and most of its
manufacturing facilities located throughout the United States. A&A, the
Company's import/export subsidiary, leases eight administrative offices in the
Asia Pacific region. Existing warehouse and office facilities are deemed
adequate to meet the Company's needs in the foreseeable future.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
Tandy has various claims, lawsuits, disputes with third parties, investigations
and pending actions involving allegations of negligence, product defects,
discrimination, infringement of intellectual property rights, tax deficiencies,
violations of permits or licenses, and breach of contract and other matters
against the Company and its subsidiaries incident to the operation of its
business. The liability, if any, associated with these matters was not
determinable at December 31, 1998. Although occasional adverse settlements or
resolutions may occur and negatively impact earnings in the year of settlement,
it is the opinion of management that their ultimate resolution will not have a
materially adverse effect on Tandy's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1998.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT (SEE ITEM 10 OF PART III).
The following is a list of the Company's executive officers and their ages,
positions and length of service with the Company as of February 28, 1999.
<TABLE>
<CAPTION>
Position Years with
Name (Date Elected to Current Position) Age Company
---- -------------------------------- --- -------
<S> <C> <C> <C>
Leonard H. Roberts President and Chief Executive Officer, 50 5 (1)
Tandy Corporation, (January 1999)
President, Tandy Corporation (December 1995)
President, RadioShack (July 1993)
David Christopher Executive Vice President, Tandy Corporation 56 32 (2)
(October 1998)
President, A&A International, Inc.
(July 1990)
David J. Edmondson Senior Vice President, Tandy Corporation 39 4 (3)
Executive Vice President and
Chief Operating Officer, RadioShack
(October 1998)
Robert M. McClure Senior Vice President, Tandy Corporation 63 26 (4)
(January 1994)
Dwain H. Hughes Senior Vice President and 51 19 (5)
Chief Financial Officer, Tandy Corporation
(January 1995)
Mark C. Hill Senior Vice President (October 1998), 47 2 (6)
Corporate Secretary and General Counsel
(July 1997), Tandy Corporation
Mark W. Barfield Vice President-Tax, Tandy Corporation 41 11 (7)
(May 1994)
Richard J. Borinstein Senior Vice President-Merchandising, 55 9 (8)
RadioShack (December 1996)
Henry G. Chiarelli Senior Vice President-New Ventures, RadioShack 44 28 (9)
(December 1997)
Evelyn V. Follit Vice President and Chief Information Officer, 52 2 (10)
Tandy Corporation (October 1997)
Loren K. Jensen Vice President and Treasurer, Tandy Corporation 38 3 (11)
(May 1995)
David P. Johnson Senior Vice President and Controller, RadioShack 46 26 (12)
(February 1998)
Martin O. Moad Vice President-Investor Relations, Tandy 42 13 (13)
Corporation (December 1996)
Louis W. Provost Senior Vice President-Retail Operations, 42 24 (14)
RadioShack (August 1998)
Richard L. Ramsey Vice President and Controller, Tandy Corporation 53 32
(January 1986)
Francesca M. Spinelli Vice President-People, Tandy Corporation 45 1 (15)
(July 1998)
John V. Roach Chairman of the Board, 60 31 (16)
Tandy Corporation (July 1982)
Chief Executive Officer, Tandy Corporation
(July 1981 - December 1998)
</TABLE>
There are no family relationships among the executive officers listed and there
are no arrangements or understandings pursuant to which any of them were
appointed as executive officers. All executive officers of Tandy Corporation are
elected by the Board of Directors annually to serve for the ensuing year, or
until their successors are elected. All of the executive officers listed above
have served the Company in various capacities over the past five years, except
for Messrs. Edmondson, Hill, Jensen and Mmes. Follit and Spinelli.
<PAGE>
(1) Mr. Roberts was elected Chief Executive Officer effective January 1999. Mr.
Roberts has been President of Tandy Corporation since December 1995 and has
been President of the RadioShack division since July 1993. Prior to joining
Tandy, he served as the Chairman and Chief Executive Officer of Shoney's,
Inc. from 1990 to 1993.
(2) Mr. Christopher served as Executive Vice President, RadioShack from January
1992 until October 1998, when he was named Executive Vice President, Tandy
Corporation. Mr. Christopher has also served as President of A&A
International, Inc. since July 1990. Mr. Christopher served as Executive
Vice President of RadioShack from January 1992 until October 1998.
(3) Mr. Edmondson was elected Senior Vice President, Tandy Corporation and
Executive Vice President and Chief Operating Officer, RadioShack effective
October 1998. Mr. Edmondson served as Senior Vice President of Marketing
and Advertising, RadioShack from November 1995 to October 1998. He served
as Vice President-Marketing, RadioShack from December 1994 until November
1995. Prior to joining Tandy Corporation, he served as National Account
Marketing Executive of Advo, Inc. where he was employed almost twelve
years.
(4) Mr. McClure served as President of the Tandy Electronics division from
August 1987 until January 1993, when he was elected as Chief Operating
Officer and President of TE Electronics Inc. Mr. McClure was named Senior
Vice President, Tandy Corporation in January 1994.
(5) Mr. Hughes was elected Senior Vice President and Chief Financial Officer,
Tandy Corporation effective January 1995. Mr. Hughes served as Vice
President and Treasurer, Tandy Corporation from June 1991 until December
1994.
(6) Mr. Hill served as Vice President, Corporate Secretary and General Counsel,
Tandy Corporation from July 1997 to October 1998, when he was named Senior
Vice President, Tandy Corporation. He continues to serve as Corporate
Secretary and General Counsel of the Company. Prior to joining Tandy, Mr.
Hill practiced law for 21 years and was a partner with the law firm of
Haynes and Boone LLP for the last 13 years.
(7) Mr. Barfield served as Director of Federal and International Taxes, Tandy
Corporation from April 1991 to May 1994, when he was named Vice
President-Tax, Tandy Corporation.
(8) Mr. Borinstein served as Vice President-Merchandise Marketing, RadioShack
from December 1993 to December 1998, when he was elected Senior Vice
President-Merchandising, RadioShack. Mr. Borinstein served as
Director-Merchandising, RadioShack from September 1991 through December
1993.
(9) Mr. Chiarelli was elected Senior Vice President-New Ventures, RadioShack
effective December 1997. He served as Senior Vice President-Merchandising
and Marketing, Computer City from January to December 1997. Mr. Chiarelli
served as Vice President and General Manager, Incredible Universe from
October 1995 to January 1997. He served as Vice President-New Venture
Group, RadioShack from September 1994 until October 1995.
(10) Ms. Follit was elected Vice President and Chief Information Officer, Tandy
Corporation effective October 1997. Prior to joining Tandy Corporation, she
was Vice President-Operations and Engineering for A.C. Nielsen Corporation
from October 1996 to March 1997. Ms. Follit held various management
positions at Dun & Bradstreet Corporation, ITT and IBM from 1970 to October
1996.
(11) Mr. Jensen has served as Vice President and Treasurer, Tandy Corporation
since May 1995. Prior to joining Tandy Corporation, he served as Senior
Vice President of Texas Commerce Bank where he was employed for almost 10
years.
(12) Mr. Johnson served as Vice President and Controller, RadioShack from June
1994 to February 1998, when he was named Senior Vice President and
Controller, RadioShack. Mr. Johnson served as Vice
President/Controller-Retail, RadioShack from August 1993 until June 1994.
(13) Mr. Moad served as Director of Investor Relations, Tandy Corporation from
February 1993 through December 1996, when he was named Vice
President-Investor Relations, Tandy Corporation.
(14) Mr. Provost was elected Senior Vice President-Retail Operations, RadioShack
effective August 1998. Mr. Provost served as Vice President and General
Manager, Tandy TechAmerica from April 1996 to August 1998. He served as
Vice President-Southeast Division, RadioShack from April 1993 to March
1996.
(15) Ms. Spinelli was elected Vice President of People, Tandy Corporation
effective July 1998. Prior to joining Tandy Corporation, she was employed
by Wal-Mart Stores, Inc. from March 1993 to July 1998. She served as
Corporate Vice President of Organizational Development of Wal-Mart Stores,
Inc. from February 1997 to July 1998.
(16) Mr. Roach has served as Chairman of the Board since July 1982 and he served
as Chief Executive Officer, Tandy Corporation from July 1981 to December
1998.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
PRICE RANGE OF COMMON STOCK (Restated for two-for-one stock split payable in
September 1997) Tandy's common stock is listed on the New York Stock Exchange
and trades under the symbol "TAN". The following table presents the high and low
trading prices for Tandy's common stock, as reported in the composite
transactions quotations of consolidated trading for issues on the New York Stock
Exchange, for each quarter of the two years ended December 31, 1998.
Dividends
Quarter Ended High Low Declared
- ------------- ---- --- --------
December 31, 1998 $ 53 1/4 $ 37 $ 0.10
September 30, 1998 63 7/8 50 13/16 0.10
June 30, 1998 54 5/8 41 1/16 0.10
March 31, 1998 48 7/8 30 3/8 0.10
December 31, 1997 $ 46 $ 33 5/16 $ 0.10
September 30, 1997 34 25/32 26 5/16 0.10
June 30, 1997 28 7/8 24 3/8 0.10
March 31, 1997 26 7/8 20 5/16 0.10
HOLDERS OF RECORD
At March 23, 1999 there were 27,322 holders of record of Tandy's common stock.
DIVIDENDS
The Board of Directors reviews Tandy's dividend policy annually. The quarterly
dividend rate is currently $0.10 per common share.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)
TANDY CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars and shares in millions, --------------------------------------------------------
except per share amounts and ratios) 1998(1) 1997 1996 1995 1994
================================================================================================
<S> <C> <C> <C> <C> <C>
Operations
Net sales and operating revenues $4,787.9 $5,372.2 $6,285.5 $5,839.1 $4,943.7
======== ======== ======== ======== ========
Income (loss) before income taxes $ 99.7 $ 303.9 $ (145.6) $ 343.2 $ 359.5
Provision (benefit) for taxes 38.4 117.0 ( 54.0) 131.3 135.2
-------- -------- -------- -------- --------
Net income (loss)(2)(3) $ 61.3 $ 186.9 $ (91.6) $ 211.9 $ 224.3
======== ======== ======== ======== ========
Net income (loss) available per
common share: (2)(3)
Basic $ 0.55 $ 1.69 $ (0.82) $ 1.62 $ 1.46
Diluted $ 0.54 $ 1.63 $ (0.82) $ 1.58 $ 1.43
Shares used in computing earnings
(loss) per common share:
Basic 100.6 107.2 119.7 126.5 149.2
Diluted 105.7 112.2 119.7 131.4 153.9
Dividends declared per common share $ 0.40 $ 0.40 $ 0.40 $ 0.37 $ 0.32
Ratio of earnings to fixed charges 1.84 3.52 N/A(4) 4.22 4.56
</TABLE>
<PAGE>
SELECTED SUPPLEMENTAL FINANCIAL DATA (UNAUDITED) Continued
TANDY CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Dollars and shares in Year Ended December 31,
millions, except per ---------------------------------------------------------------------
share amounts and ratios) 1998(1) 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year End Financial Position
Inventories $ 912.1 $ 1,205.2 $ 1,420.5 $ 1,512.0 $ 1,504.3
Total assets $ 1,993.6 $ 2,317.5 $ 2,583.4 $ 2,722.1 $ 3,243.8
Working capital $ 419.1 $ 739.1 $ 746.3 $ 1,088.3 $ 1,350.1
Current ratio 1.48 to 1 1.76 to 1 1.63 to 1 2.13 to 1 2.12 to 1
Capital structure:
Current debt (5) $ 233.2 $ 299.5 $ 258.0 $ 189.9 $ 229.1
Long-term debt (5) $ 235.1 $ 236.1 $ 104.3 $ 140.8 $ 153.3
Total debt $ 468.3 $ 535.6 $ 362.3 $ 330.7 $ 382.4
Total debt, net of cash and
cash equivalents $ 403.8 $ 429.7 $ 240.8 $ 187.2 $ 176.8
Stockholders' equity $ 848.2 $ 1,058.6 $ 1,264.8 $ 1,601.3 $ 1,850.2
Total capitalization $ 1,316.5 $ 1,594.2 $ 1,627.1 $ 1,932.0 $ 2,232.6
Long-term debt as a % of
total capitalization 17.9% 14.8% 6.4% 7.3% 6.9%
Total debt as a % of total
capitalization 35.6% 33.6% 22.3% 17.1% 17.1%
Stockholders' equity per
common share $ 8.25 $ 9.96 $ 10.74 $ 12.72 $ 13.01(6)
Financial Ratios
Return on average
stockholders' equity 6.4%(2) 16.1% N/A(3) 12.3% 11.8%
Percent of sales:
Income (loss) before income taxes 2.1%(2) 5.7% (2.3)%(3) 5.9% 7.3%
Net income (loss) 1.3%(2) 3.5% (1.5)%(3) 3.6% 4.5%
(1) Includes operations of Computer City, Inc. for only eight months, due to
sale to CompUSA Inc. on August 31, 1998.
(2) Excluding $183.9 million (net of taxes) for provisions related to
restricted stock awards and loss on sale of Computer City, as well as
Computer City operating losses and other business writedowns in 1998, net
income would have been $245.2 million, net income available per share
would have been $2.38 (basic) and $2.28 (diluted), return on average
stockholders' equity would have been 23.6%, income before income taxes as
a percent of sales would have been 11.1%, and net income as a percent of
sales would have been 6.8%.
(3) Excluding $230.3 million (net of taxes) in restructuring and other
charges in 1996, net income would have been $138.7 million, net income
available per share would have been $1.11 (basic) and $1.09 (diluted),
return on average stockholders' equity would have been 8.9%, income
before income taxes as a percent of sales would have been 3.5%, and net
income as a percent of sales would have been 2.2%.
(4) Pre-tax earnings were not sufficient to cover fixed charges during 1996
by approximately $145.6 million. Excluding $230.3 million (net of taxes)
in restructuring and other charges, the ratio of earnings to fixed
charges would have been 2.57.
(5) Includes capital leases and TESOP indebtedness.
(6) The year ended December 31, 1994 computed giving effect to the Series C
PERCS conversion into approximately 23.6 million shares of common stock.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION ("MD&A").
FACTORS THAT MAY AFFECT FUTURE RESULTS
With the exception of historical information, the matters discussed in MD&A
contain forward-looking statements that involve various risks and uncertainties
and are indicated by words such as "anticipates", "expects", "believes",
"plans", "could", and similar words and phrases. Factors that could cause Tandy
Corporation's ("Tandy" or the "Company") actual results to differ materially
from management's projections, forecasts, estimates and expectations include,
but are not limited to, the following:
o changes in the amount and degree of promotional intensity exerted by current
competitors and potential new competition from both retail stores and
alternative methods or channels of distribution, such as electronic and
telephone shopping services and mail order;
o changes in general U.S. or regional U.S. economic conditions including, but
not limited to, consumer credit availability, interest rates, inflation,
personal discretionary spending levels and consumer sentiment about the
economy in general;
o the presence or absence of new products or product features in the
merchandise categories the Company sells and changes in the Company's actual
merchandise sales mix;
o the inability to negotiate profitable contracts with service providers;
o the inability to collect the level of anticipated residuals and commissions
for products and services sold by the Company's RadioShack division;
o lack of availability or access to sources of supply inventory (as a large
importer of consumer electronic products from Asia, unfavorable trade
imbalances could negatively affect the Company);
o the inability to retain and grow an effective management team in a dynamic
environment or changes in the cost or availability of a suitable work force
to manage and support the Company's service-driven operating strategies;
o the potential negative impact of Year 2000 issues; or
o the imposition of new restrictions or regulations regarding the sale of
products and/or services the Company sells, changes in tax rules and
regulations applicable to the Company.
Additionally, as a result of the Telecommunications Act of 1996, the deregulated
telecommunications market will continue to present both opportunities and
increased competition for the provision of telecommunication equipment and
services to consumers.
STOCK SPLIT
On August 21, 1997, the Company's Board of Directors declared a two-for-one
split of Tandy common stock, payable on September 22, 1997. All references to
the number of shares of common stock issued or outstanding, per share prices,
cash dividends, income per common share amounts and any other reference to
shares, unless otherwise noted, have been adjusted to reflect the split on a
retroactive basis.
RETAIL OUTLETS
Average December 31,
Store Size ----------------------------------
(Sq. Ft.) 1998 1997 1996
- ---------------------------------------------------------------------------
RadioShack
Company-Owned 2,200 5,039 4,972 4,942 (1)
Dealer/Franchise N/A 1,991 1,934 1,927
-------- -------- --------
7,030 6,906 6,869
Computer City, Inc. 21,050 -- (2) 96 113 (3)
Incredible Universe(4) 184,000 -- -- 17
-------- -------- --------
7,030 7,002 6,999
======== ======== ========
(1) Includes 53 McDuff stores that were part of the store closure plan announced
in December 1996.
(2) Computer City, Inc. was sold to CompUSA Inc. on August 31, 1998.
(3) Includes 21 stores that were part of the store closure plan announced in
December 1996.
(4) The Incredible Universe division ceased operations in 1997.
<PAGE>
Space Owned and Leased
<TABLE>
<CAPTION>
Approximate Square Footage
at December 31,
----------------------------------------------------------------------------
1998 1997
------------------------------------ ------------------------------------
(In thousands) Owned Leased Total Owned Leased Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Retail
RadioShack -- 11,839 11,839 -- 11,655 11,655
Computer City -- -- -- 15 1,990 (1) 2,005
Other 162 -- 162 162 -- 162
-------- -------- -------- -------- -------- --------
162 11,839 12,001 177 13,645 13,822
Support Operations
Manufacturing 472 201 673 532 201 733
Warehouse and office 3,573 1,298 4,871 3,644 1,271 4,915
-------- -------- -------- -------- -------- --------
4,207 13,338 17,545 4,353 15,117 19,470
======== ======== ======== ======== ======== ========
(1 )Includes Computer City capital leases.
</TABLE>
SEGMENT REPORTING DISCLOSURES
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information". All references to RadioShack and Computer City in MD&A
refer to the Company's reportable segments, unless otherwise noted.
The RadioShack segment includes the RadioShack retail division and its related
retail support operations. The Computer City segment includes Computer City,
Inc. ("CCI" or "Computer City"), until its sale to CompUSA Inc. ("CompUSA") on
August 31, 1998, and, in the prior year's information, the five Computer City
Europe stores sold by the Company in the fourth quarter of 1997. Transactions
between operating segments are not common and the amounts included are not
material to the segment information. The closed units/restructuring segment
includes all Tandy stores and non-retail units which were part of the store
closure plan announced in December 1996 (see "Provisions For Business
Restructuring and Asset Impairment" below). The corporate administration and
other segment includes corporate units which serve all areas of the Company and,
also, income or expenses which are not allocated to the RadioShack and Computer
City segments.
Summarized in the table below are the net sales and operating revenues,
operating profit (loss) and assets for the Company's reportable segments for the
fiscal years ended December 31, 1998, 1997 and 1996:
Year Ended December 31,
-------------------------------------
(In millions) 1998 1997 1996
- ------------- -------- -------- --------
Net sales and operating revenues:
RadioShack (1) $3,591.2 $3,303.9 $3,160.5
Computer City 1,196.7(2) 1,903.7 1,721.6
Closed units/restructuring -- 164.6 1,403.4
-------- -------- --------
$4,787.9 $5,372.2 $6,285.5
======== ======== ========
Operating profit (loss):
RadioShack $ 377.7 (3) $ 398.4 $ 412.3
Computer City (95.6)(2) (14.9) (20.3)
Closed units/restructuring (120.8)(4) (30.1) (480.8)
Corporate administration and other (27.0) (16.6) (33.4)
-------- -------- --------
134.3 336.8 (122.2)
Interest income (5) 10.8 13.2 13.0
Interest expense (5) (45.4) (46.1) (36.4)
-------- -------- --------
Income (loss) before income taxes $ 99.7 $ 303.9 $ (145.6)
======== ======== ========
Assets:
RadioShack $1,437.1 $1,384.4
Computer City -- (6) 468.8
Closed units/restructuring -- 0.6
Corporate administration and other 556.5 463.7
-------- --------
$1,993.6 $2,317.5
======== ========
(1) Includes outside sales of $77.4 million, $88.2 million and $59.4 million for
the years ended December 31, 1998, 1997 and 1996, respectively, related to
retail support operations.
(2) Includes operations for only eight months, due to the sale to CompUSA on
August 31, 1998.
(3) Includes $82.6 million of compensation expense for store manager restricted
stock awards.
(4) Includes provision for loss on sale of Computer City of $108.2 million.
(5) The Company does not allocate interest income or expense to its operating
segments.
(6) Computer City was sold to CompUSA on August 31, 1998.
RESULTS OF OPERATIONS
CALENDAR 1998 COMPARED WITH CALENDAR 1997
- -----------------------------------------
NET SALES AND OPERATING REVENUES
Consolidated net sales and operating revenues decreased 10.9% from $5,372.2
million in 1997 to $4,787.9 million in 1998; this decrease was attributable
primarily to the sale of Computer City to CompUSA on August 31, 1998.
Consolidated comparable store sales for 1998 are not meaningful, due to the sale
of Computer City.
RadioShack Segment
- ------------------
Sales for the RadioShack segment in 1998 increased 8.7% to $3,591.2 million from
$3,303.9 million in 1997, due primarily to a 7.4% comparable store sales gain
and the opening of 67 new stores, net of store closures. RadioShack's comparable
store sales increase was driven primarily by increased sales of wireless
communication and telephony products and services. A continued healthy economy
and a strong retail consumer electronics industry are expected to result in a
comparable store sales gain for 1999. The following table summarizes
RadioShack's retail sales breakdown by class of products and each class as a
percent of total RadioShack retail sales (excluding outside sales from retail
support operations):
Percent of RadioShack Retail Sales
Year Ended December 31,
-----------------------------------------
Class of Products 1998 1997 1996
- ----------------- -------- -------- --------
Electronic parts, accessories
and specialty equipment(1) 30.0% 31.5% 32.3%
Communications 28.5 27.5 24.4
Audio and video 15.5 16.8 18.0
Personal electronics and seasonal 10.4 11.6 12.4
Personal computers and peripherals(1) 9.1 9.4 10.4
Services and other(2) 6.5 3.2 2.5
-------- -------- --------
100.0% 100.0% 100.0%
======== ======== ========
(1) Computer accessories have been reclassified in the prior years from the
personal computers category to the electronic parts and accessories
category.
(2) Includes residuals, prepaid wireless airtime, repair income and extended
service contracts.
Electronic parts, accessories and specialty equipment, the largest product
category of RadioShack's retail sales mix, decreased 1.5 percentage points in
1998 when compared to 1997, despite a 4.1% increase in dollar sales. This
decrease as a percent of retail sales was primarily due to the communications
and services categories becoming a higher percent of the product mix in 1998.
The communications category increased to 28.5% of retail sales from 27.5% in
1997. Dollar sales of the category increased 13.2% over last year. This
category, which includes wireless communications such as cellular and PCS
telephones, as well as residential telephones, answering machines, pagers and
other related telephony products, continues to benefit from the Sprint Store at
RadioShack launched in September 1997. This "store-within-a-store" concept
provides customers with access to a full service communications center that
offers, where available, Sprint local and long-distance telephone service, Spree
SM prepaid phone cards and Sprint branded residential telephones. Additionally,
RadioShack earns commissions from cellular carriers for activating customers
with cellular services. Sales of communication products are expected to continue
to grow in 1999.
Sales of audio and video products declined to 15.5% of retail sales in 1998 from
16.8% of retail sales in 1997, primarily due to the overall shift in the product
mix to communications and services. Sales dollars were flat from the prior year,
due in part to RadioShack's limited selection of name brand products. RadioShack
plans to announce a strategic alliance with a well-recognized audio and video
manufacturer in the second quarter of 1999, which management believes should
improve sales in this category. The audio and video category also includes
"direct-to-home" satellite sales, which includes digital satellite systems (DSS)
and Primestar satellite television services. Sales of these systems and services
increased significantly over the prior year.
Personal electronics and seasonal products decreased to 10.4% of RadioShack
retail sales in 1998 from 11.6% in 1997, due primarily to an overall shift in
the product mix to communications and services. The sales decreases since 1996
are also attributable to sales declines in such items as boomboxes, cassette
products and toys, other than remote control cars. This trend is indicative of
lower general consumer demand for these products. In 1999, RadioShack plans to
expand its marketing efforts in this category by advertising gift items year
round, as well as by offering a broader selection of products.
On February 25, 1998, RadioShack entered into a multi-year retail sales and
service agreement with Compaq Computer Corporation ("Compaq"). Under this
agreement, Compaq became the sole supplier of personal computers sold through
RadioShack retail outlets via a "store-within-a-store" concept similar to the
Sprint Store at RadioShack. Despite a large unit gain and a 5.8% sales gain for
this category for 1998, the personal computer category decreased to 9.1% of
RadioShack retail sales in 1998 from 9.4% in 1997. RadioShack computers
experienced a 32% decline in the average 1998 selling price of desktop computers
from the 1997 annual average selling price. Aggressive pricing strategies put
into place as RadioShack transitioned from IBM to Compaq branded computers and
products during the first six months of 1998 and general selling price declines
in the personal computer industry contributed to this decline. Management
believes that the downward trend in selling prices of personal computers will
continue in 1999, but to a lesser extent than seen in 1998. Despite this
downward trend, RadioShack believes that the higher unit sales volumes of
personal computers will contribute to increased sales of higher gross margin
products and services, such as accessories and extended service plans, as well
as to increased customer traffic to the store. Additionally, in the fourth
quarter of 1998, RadioShack launched the Compaq "Built-For-You" program which
enables consumers to custom-configure personal computers at their nearby
RadioShack store with convenient direct shipment to their home, office or nearby
RadioShack store.
Sales in the services and other category, which includes residuals, prepaid
wireless airtime, repair income and extended service contracts, increased in
1998 in dollars and as a percent of RadioShack retail sales, due to an increase
in residual income received from RadioShack's third party providers of
communication and "direct-to-home" satellite products and services, as well as
to a large increase in sales of prepaid wireless airtime. Residual income is
earned on sales of Sprint long distance and PCS services, sales of
"direct-to-home" satellite programming and sales of other wireless products and
services. Residuals vary by service provider, but are typically a portion of the
continuing service revenue throughout the ensuing months and/or years of that
customer's subscription. In 1998, RadioShack earned approximately $34.2 million
of residual income, compared to $7.9 million in 1997. Residual income is
expected to continue to increase in 1999; however, increases are dependent upon
such factors as customers' continued usage of certain services and stability of
average revenue per subscriber, among other factors. Prepaid wireless airtime
sales are expected to continue to increase in 1999.
Computer City Segment
- ---------------------
Computer City's overall sales decreased 37.1% to $1,196.7 million in 1998 from
1997, due to the sale of this subsidiary to CompUSA on August 31, 1998.
For the eight months ended August 31, 1998, sales of personal computers
decreased in dollars due to a reduction of approximately 25% in the average
selling price of desktop and notebook computers from the same period in 1997.
Additionally, both overall and comparable stores sales were negatively impacted
by the announced sale of Computer City to CompUSA on June 22, 1998, at which
time Computer City took promotional mark-downs to sell both its third-party and
private-label inventory in preparation for the sale to CompUSA.
See "Sale of Computer City, Inc." below.
<PAGE>
GROSS PROFIT
Gross profit for the Company was $2,004.4 million or 41.9% of net sales and
operating revenues in 1998, compared with $2,014.3 million or 37.5%, in 1997.
This increase in gross profit as a percentage of net sales and operating
revenues was primarily the result of RadioShack sales accounting for a larger
portion of the Company's consolidated net sales and operating revenues in 1998,
when compared to 1997due to the sale of Computer City to CompUSA on August 31,
1998. Computer City had an inherently lower gross margin than RadioShack.
RadioShack's gross profit increased in dollars for the year ended December 31,
1998 versus 1997, but decreased as a percentage of RadioShack's total sales by
0.6 percentage points over the same period. This percentage decrease was
primarily due to a shift within RadioShack's product offerings to increased
sales of prepaid wireless airtime, which has a significantly lower gross margin
than the overall RadioShack average gross margin. This decrease was partially
offset by an increase in residual income which has close to 100% gross margin.
Gross profit for RadioShack is expected to increase in dollars in 1999 due to
expected sales volume increases in both products and services, including
residual income and sales of prepaid wireless airtime. Gross profit as a
percentage of RadioShack's sales, however, is expected to decrease in 1999,
similar to 1998, because of increased sales of prepaid wireless airtime.
Computer City's gross profit as a percent of Computer City net sales and
operating revenues decreased 2.3 percentage points for the year ended December
31, 1998 when compared to 1997. This decrease was primarily due to aggressive
marketing of inventory, especially private-label branded inventory, in
preparation for the sale of the subsidiary.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSE
The accompanying table below summarizes the breakdown of various components of
the Company's consolidated SG&A expense and its related percentage of total
sales and operating revenues.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1998 1997 1996
% of % of % of
Sales & Sales & Sales &
(In millions) Dollars Revenues Dollars Revenues Dollars Revenues
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Payroll and commissions $ 734.1(1) 15.3% $ 734.1 13.7% $ 758.2 12.1%
Advertising 208.7 4.4 195.4 3.6 254.6 4.1
Rent 217.4 4.5 222.6 4.1 239.8 3.8
Other taxes 96.1 2.0 102.0 1.9 107.9 1.7
Utilities and telephone 71.5 1.5 72.2 1.3 77.0 1.2
Insurance 50.6 1.1 50.5 0.9 53.3 0.8
Stock purchase and savings plans 20.4 0.4 17.8 0.3 18.5 0.3
Credit card fees 38.6 0.8 43.1 0.8 57.2 0.9
Other 142.9 3.0 142.6 2.8 194.6 3.1
------------------------------------------------------------------
$1,580.3 33.0% $1,580.3 29.4% $1,761.1 28.0%
==================================================================
(1) Does not include $82.6 million of compensation expense for store manager
restricted stock awards.
</TABLE>
The Company's SG&A expense was flat in dollars, but increased as a percent of
net sales and operating revenues to 33.0% for the year ended December 31, 1998
versus 29.4% for the year ended December 31, 1997. The higher SG&A percentage is
due primarily to RadioShack becoming a larger percentage of Tandy's consolidated
operations during 1998 (see "Gross Profit" above). RadioShack operates at higher
relative SG&A expense levels than consolidated Tandy Corporation. Excluding
Computer City and closed units associated with the 1996 restructuring plan, SG&A
expense as a percentage of sales would have been 37.7% for the year ended
December 31, 1998 versus 38.9% for the year ended December 31, 1997.
Although payroll and commissions expense for 1998 remained flat in dollars in
comparison with 1997, this cost increased as a percentage of net sales and
operating revenues from 13.7% in 1997 to 15.3% in 1998, due in part to the
increase in RadioShack sales as a percentage of total Company sales and
operating revenues, as described above. RadioShack has inherently higher salary
expense as a percentage of sales, when compared to consolidated Tandy
Corporation. To a lesser extent, payroll expense was negatively impacted by
higher payroll costs associated with infrastructure-building at CCI, prior to
its announced sale in June 1998.
Advertising expense increased both in dollars and as a percentage of net sales
and operating revenues, in the year ended December 31, 1998 as compared to the
year ended December 31, 1997. This increase over the prior year is primarily
attributable to increased advertising expense at Computer City in 1998, compared
to 1997. Somewhat offsetting this increase was a dollar decrease in advertising
expense at RadioShack in 1998 from 1997. In 1997, however, the marketing launch
of the Sprint Store at RadioShack resulted in increased advertising expense for
that year. In 1999, advertising expense in dollars for RadioShack is expected to
be comparable to or slightly more than 1998.
Rent expense decreased in dollars in comparison with 1997 and increased slightly
as a percentage of net sales and operating revenues to 4.5% in 1998 from 4.1% in
1997. This increase is related to the sale of Computer City, which had lower
rent expense as a percentage of sales than consolidated Tandy Corporation. Rent
expense in dollars for RadioShack increased in 1998 compared to the prior year,
but decreased slightly as a percent of sales. Rent expense in dollars for
RadioShack is expected to increase slightly in 1999, due to new store openings
and lease renewals at slightly higher rates.
RESTRICTED STOCK AWARDS
On February 1, 1997, in an effort to reduce the turnover rate among its store
managers and to align the store managers' interests and goals with those of the
shareholders, the Company granted, under the 1993 Incentive Stock Plan,
approximately 2,041,200 restricted stock awards consisting of 400 shares each to
4,907 RadioShack store managers and 800 shares each to 98 Computer City store
managers. The restricted stock awards had a weighted average fair market value
of $22.59 per share when granted. This restricted stock vested at the end of
five years on February 2, 2002, if the Company employed the managers at a store
manager or higher position, at that time. However, the grants provided that the
restricted shares could vest early if the Company's common stock closed at $33
13/16 or more for any 20 consecutive trading days after February 1, 1999. At
December 31, 1998, it was probable that the 1,289,600 shares that remained
outstanding under this grant would vest under the early vesting provisions. The
resulting charge to compensation expense of $82.6 million, including related
payroll taxes, was recorded in the December 31, 1998 financial statements.
Vesting of these restricted stock awards occurred when the Company's common
stock closed above the targeted amount for the twentieth consecutive trading day
on March 1, 1999. Vesting resulted in the issuance of 1,272,000 shares of the
Company's common stock at a fair market value of $56.09 per share. The
difference between the December 31, 1998 accrual for compensation expense and
the actual expense when vested will be recorded in the first quarter of 1999.
On February 1, 1998, the Company granted, under the 1997 Incentive Stock Plan,
approximately 324,750 restricted stock awards consisting of 250 shares each to
1,299 RadioShack store managers not included in the February 1, 1997 grant
described above. The restricted stock awards had a weighted average fair market
value of $39.22 per share when granted. This restricted stock will vest at the
end of five years on February 2, 2003, if the Company employs the managers at a
store manager or higher position, at that time. However, the grants provide that
the restricted shares could vest early if the Company's common stock closes at
$58 1/8 or more for any 20 consecutive trading days after February 1, 2000.
Compensation expense, equal to the fair market value of the shares, will be
recognized over the remaining vesting period when it becomes probable that the
performance criteria will be met or upon actual vesting. At December 31, 1998,
there were 222,000 restricted stock awards outstanding and eligible for ultimate
vesting pursuant to this restricted stock award.
The Company does not plan to continue granting restricted stock awards to
RadioShack store managers. See "1999 Incentive Stock Plan" below regarding the
February 1999 grant of stock options to RadioShack store managers.
SALE OF COMPUTER CITY, INC.
On June 22, 1998, the Company announced that it had signed a definitive
agreement with CompUSA for the sale of 100% of the outstanding common stock of
the Company's Computer City, Inc. subsidiary. On August 31, 1998, the sale was
completed. The Company received approximately $36.5 million in cash and an
unsecured subordinated note for $136.0 million as consideration for the sale.
The note, which is of equal priority with CompUSA's existing subordinated debt,
bears interest at 9.48% per annum and is payable over a ten year period.
Interest is payable on June 30 and December 31 of each year, with the first
payment made on December 31, 1998. Beginning on December 31, 2001, principal
payments will be due semiannually until the note matures on June 30, 2008. The
Company recognized a loss of $108.2 million from the sale of CCI in 1998, which
included certain liabilities and contractual obligations incurred by the
Company. Although no significant additional provisions are expected in 1999
relating to the sale of CCI, unexpected contractual requirements associated with
the sale, among other factors, could result in additional charges. The
management of the Company believes that the sale of CCI will enable it to focus
exclusively on the growth potential of RadioShack.
Net sales and operating revenues, operating losses and restructuring and other
charges for Computer City for each of the three years ended December 31 are
presented below:
(In millions) 1998(1) 1997 1996
- ------------ -------- -------- --------
Net sales and operating revenues $1,196.7 $1,903.7 $1,721.6
Operating loss (95.6) (14.9) (20.3)
Restructuring and other charges -- -- (54.2)(2)
(1) Includes operations for only eight months, due to sale to CompUSA on
August 31, 1998.
(2) As described more fully in "Provisions for Business Restructuring and
Asset Impairment" below, during the fourth quarter of 1996 Tandy elected to
close 21 unprofitable stores. CCI recognized a restructuring charge
aggregating $14.8 million associated with these closings.The charges related
primarily to lease obligations and employee termination expenses. CCI also
recognized asset impairment charges aggregating $18.7 million during 1996
and lower of cost or market impairments aggregating approximately $20.7
million related to inventory liquidated at the affected stores.
NET INTEREST EXPENSE
The accompanying table below summarizes the breakdown of interest income and
interest expense:
Year Ended December 31,
----------------------------------
(In millions) 1998 1997 1996
- ------------- -------- -------- --------
Interest income:
Notes receivable $ 7.8 $ 8.7 $ 9.3
IRS settlements and other interest income 3.0 4.5 3.7
-------- -------- --------
Total interest income 10.8 13.2 13.0
Interest expense (45.4) (46.1) (36.4)
-------- -------- --------
Net interest expense $ (34.6) $ (32.9) $ (23.4)
======== ======== ========
Net interest expense was $34.6 million for 1998 versus $32.9 million for 1997.
Interest expense decreased slightly during 1998, due to a corresponding decrease
in the Company's average debt outstanding during 1998 as well as to a small
decrease in short-term interest rates for the year.
Interest income decreased in 1998 due to the repayment of the InterTAN, Inc.
("InterTAN") note receivable on December 31, 1997. On August 31, 1998, the
Company received a note from CompUSA for $136.0 million with an interest rate of
9.48% per annum. Interest income relating to the Fry's Electronics, Inc. and its
affiliates ("Fry's") notes receivables resulted from the 1997 sale of assets and
real estate of six Incredible Universe stores. At December 31, 1998, the Company
held multiple notes receivable from Fry's totaling approximately $47.6 million
(see "Provisions for Business Restructuring and Asset Impairment" below).
Assuming the existing interest rate environment remains stable, net interest
expense is expected to decrease during 1999, primarily due to anticipated
interest income of $12.9 million on the CompUSA note receivable.
PROVISION FOR INCOME TAXES
The provision for income taxes reflects an effective tax rate of 38.5% for
fiscal years 1998 and 1997. The Company expects the effective tax rate for 1999
to increase slightly to 39.0%, due primarily to an increase in the effective
state tax rate, which results from a higher percentage of income being earned in
states with higher tax rates.
CALENDAR 1997 COMPARED WITH CALENDAR 1996
- -----------------------------------------
NET SALES AND OPERATING REVENUES
Consolidated net sales and operating revenues decreased 14.5% to $5,372.2
million in 1997 from $6,285.5 million in 1996, attributable to Tandy's store
closure plan announced in December 1996. For the year ended December 31, 1997,
the Company showed a 2.0% comparable store sales increase over fiscal 1996.
RadioShack Segment
- ------------------
Sales for the RadioShack segment in 1997 increased 4.5% to $3,303.9 million from
$3,160.5 million in 1996, adjusted for stores closed under the 1996 store
closure plan, due to positive same store sales gains and the opening of 108 new
stores, net of RadioShack store closures. RadioShack's comparable store sales
increase was 1.9% for the year ended December 31, 1997, driven primarily by
increased sales of wireless communication and telephone products. Sales of
electronic parts, accessories and specialty equipment, the largest product
category of RadioShack's sales mix in 1997, remained relatively consistent with
the prior year; however, the category as a percentage of RadioShack retail sales
decreased as sales of communications products increased 16.7%. The
communications category increased to 27.5% of RadioShack retail sales from 24.4%
in 1996. This category benefited from the successful rollout of the Sprint Store
at RadioShack in September 1997. Sales of audio and video products declined to
16.8% of retail sales in 1997 from 18.0% in 1996, due to lower consumer demand
for these products and the heightened level of competition within the industry.
Offsetting the decline in audio and video sales was a 7.0% increase in 1997 of
"direct-to-home" satellite system sales, despite a substantially reduced average
selling price of digital satellite systems. Personal electronics and seasonal
products decreased to 11.6% of retail sales in 1997 from 12.4% in 1996, due
primarily to an overall shift in the product mix to communications. Personal
computer sales decreased as a percentage of total retail sales despite an
overall unit gain for 1997, due to a 17.8% decrease in the average 1997 selling
price on desktop and notebook computers from 1996. The services and other
category increased in 1997 due to residual income received from RadioShack's
third party providers of communication and "direct-to-home" satellite products,
as well as an increase in income from prepaid wireless airtime.
Computer City Segment
- ---------------------
Computer City's overall sales in 1997 increased 10.6% to $1,903.7 million from
$1,721.6 million in 1996, adjusted for the 21 stores closed pursuant to the 1996
store closure plan. Computer City's comparable store sales increased 2.2% for
the year ended December 31, 1997. The overall sales increase was primarily
attributable to positive same store sales plus revenues generated by 14 new
stores opened in 1996. In stores open at least one year, sales of personal
computers were up slightly in 1997 due to a significant increase in direct sales
to corporate, education and government customers. This increase was offset by
the decrease in the annual average selling price of retail desktop computers,
which fell approximately 15.0% from the 1996 annual average selling price. To a
lesser extent, a decrease in sales of non-DOS machines in 1997 also impacted the
personal computers sales increase. Product categories which experienced sales
and unit increases in 1997 included scanners, which benefited from both lower
selling prices and new technology, as well as notebook computers which
experienced a large increase in both sales dollars and unit sales. Sales of
software, accessories and supplies also experienced positive sales growth in
1997.
GROSS PROFIT
Gross profit for the Company was $2,014.3 million, or 37.5% of net sales and
operating revenues, in 1997, compared with $2,022.4 million, or 32.2%, in 1996.
This increase in gross profit as a percentage of net sales and operating
revenues was primarily due to RadioShack sales accounting for 61.5% of the
Company's total sales and operating revenues in fiscal year 1997, compared to
50.3% in fiscal year 1996; this occurred as a result of the closure of the
Incredible Universe stores in early 1997 and, to a lesser extent, the closure of
21 Computer City stores at December 31, 1996. Excluding stores in the 1996
closure plan and excluding the 1996 fourth quarter lower of cost or market
inventory impairment, the slight decline in the Company's gross profit margin
from 38.8% in 1996 to 38.4% in 1997 resulted primarily from the fact that
RadioShack's 1997 percentage sales increase was less than Computer City's
percentage sales increase. Computer City had inherently lower gross margins than
RadioShack.
RadioShack's gross profit as a percentage of RadioShack sales increased slightly
for the year ended December 31, 1997 versus 1996, due to a positive shift within
RadioShack's product offerings to increased cellular and telecommunication
sales, as a percent of sales, and was further enhanced by decreased sales of
lower margin personal computers.
Computer City's gross profit for continuing stores as a percent of Computer City
sales increased 0.9 percentage points in 1997 when compared to 1996, due to
improvement in inventory management, increased sales of higher margin
accessories and software and an increase in the ratio of service revenues to
total revenues. Service revenues typically have a higher gross margin than
merchandise sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
The Company's SG&A expense as a percent of net sales and operating revenues
increased for the year ended December 31, 1997 to 29.4% from 28.0% for the year
ended December 31, 1996. The higher SG&A percentage was due primarily to
RadioShack, which became a larger percentage of Tandy's consolidated operations
during 1997 (see "Gross Profit" above). RadioShack operated at higher relative
SG&A expense levels than consolidated Tandy Corporation. Excluding those stores
in the 1996 store closure plan, SG&A expense as a percentage of sales would have
approximated 29.5% for the year ended December 31, 1997. See "Provisions for
Business Restructuring and Asset Impairment" below.
Although payroll and commissions expense for 1997 decreased in dollars in
comparison with 1996, this cost increased as a percentage of sales and operating
revenues from 12.1% in 1996 to 13.7% in 1997, due to the increase in RadioShack
sales as a percentage of total sales and operating revenues described above.
RadioShack has inherently higher salary expense as a percentage of total
RadioShack sales when compared to the total Company. RadioShack payroll expense
increased in dollars and as a percentage of RadioShack sales in 1997 from 1996
due to increased staffing at the store level. Computer City payroll expense as a
percentage of Computer City sales increased from 1996 to 1997 due to the
addition of new stores in 1997, added headcount in the direct sales area and a
realignment of support staff from Tandy Corporation to Computer City.
Advertising expense decreased, both in dollars and as a percentage of sales and
operating revenues, in 1997 as compared to 1996. This decrease over the prior
year was primarily the result of reductions in Incredible Universe advertising
in 1997, due to stores closed pursuant to the 1996 restructuring plan. Computer
City had a substantial increase in vendor participation in its advertising
campaigns in 1997 compared to 1996. Somewhat offsetting these decreases was a
slight dollar increase in advertising expense at RadioShack to promote the
Sprint "store-within-a-store" concept, which was launched in September 1997.
RadioShack advertising expense as a percentage of RadioShack sales in 1997
remained constant with 1996.
Rent expense increased as a percentage of sales to 4.1% in 1997 from 3.8% in
1996. This increase was related to a decrease in the number of Computer City and
Incredible Universe stores which had lower rent expense as a percentage of sales
than the Company as a whole. Rent expense in dollars decreased in 1997 from 1996
due to Incredible Universe and Computer City store closures pursuant to the 1996
restructuring plan. Rent expense for RadioShack remained consistent with the
prior year in dollars and decreased slightly as a percentage of sales.
Credit card fees expense, which includes fees associated with third party bank
credit cards and fees paid for promotional accounts such as "zero interest for
six months", decreased as a result of the closure of the Incredible Universe
stores and decreased usage by RadioShack during 1997.
Other SG&A expense decreased both as a percentage of net sales and operating
revenues and in dollars when compared to fiscal year ended December 31, 1996.
Increases in other income were primarily attributable to the receipt of $9.0
million, pre-tax, of income from O'Sullivan Industries ("O'Sullivan") (see "Tax
Sharing and Tax Benefit Reimbursement Agreement" below) and non-recurring gains
of $4.7 million recorded on repayment of the note receivable from InterTAN and
$3.0 million on sale of certain assets. These increases were offset by
additional restructuring expense of the $11.6 million related to store closings
pursuant to the 1996 store closure plan.
NET INTEREST EXPENSE
Net interest expense was $32.9 million for 1997 versus $23.4 million in 1996.
Interest expense increased in 1997 as the Company continued purchasing treasury
stock and continued to fund store expansion. Interest expense also increased
during 1997 when the Company refinanced existing short-term indebtedness
(average maturity of 90 days or less) by issuing $150.0 million of ten-year
unsecured notes, resulting in a moderately higher interest rate when compared to
the short-term financing used in 1996.
Interest income relating to the InterTAN notes decreased in 1997 as InterTAN
made the scheduled principal payments on the note balances. The remaining note
was repaid in December 1997. In addition, the $90.0 million AST Research, Inc.
("AST") note was repaid in 1996 and, accordingly, the Company no longer received
interest income from this source in 1997. Interest income relating to the Fry's
notes receivables resulted from the 1997 sale of assets and real estate of six
Incredible Universe stores. At December 31, 1997, the Company held multiple
notes receivable from Fry's of approximately $75.3 million with varying
maturities ranging from one to five years and interest rates ranging from
approximately 5.9% to 6.7%.
PROVISION FOR INCOME TAXES
The provision for income taxes reflects an effective tax rate of 38.5% for
fiscal year 1997, compared to an effective tax rate of 37.1% for the comparable
period in fiscal year 1996. The fiscal 1997 effective tax rate differed from the
fiscal 1996 effective tax rate primarily because the fiscal 1996 tax rate
included foreign income taxes which were incurred on foreign income despite the
overall loss incurred by the Company.
PROVISIONS FOR BUSINESS RESTRUCTURING AND ASSET IMPAIRMENT
In the fourth quarter of 1996, Tandy initiated certain restructuring programs to
exit its Incredible Universe business, close 21 unprofitable Computer City
stores and close its 53 remaining McDuff stores. These restructuring programs
were undertaken as a result of the highly competitive environment in the
electronics industry. The Company recorded total pre-tax charges of $162.1
million in 1996 related to future lease obligations, real estate costs,
disposition of fixed assets, employee termination expenses and contract
cancellation costs related to this restructuring program. The Company also
recognized, in 1996, lower of cost or market impairments aggregating
approximately $91.4 million, pre-tax, primarily related to inventory that was
liquidated at the affected stores. Inventory impairment charges were recognized
in the Consolidated Statements of Income as an increase in cost of sales in
1996. The Company also recognized a non-cash impairment charge of $86.8 million
to write down the carrying values of long-term assets pursuant to SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("FAS 121") as part of the restructuring plan.
Upon adoption of FAS 121 in the first quarter of 1996, the Company recognized an
initial non-cash impairment loss of approximately $26.0 million to conform with
this statement, primarily as a result of grouping long-lived assets at their
lowest level of cash flows to determine impairment as required by this
statement.
In January 1997, the Company closed the respective 53 McDuff and 21 Computer
City stores. Additionally, by July 1997, all of the Incredible Universe stores
were either closed or sold. During 1997, the Company sold the assets related to
several closed stores, including the sale of the real estate, related fixed
assets and inventory of six Incredible Universe stores to Fry's. These six
stores were sold for approximately $21.5 million in cash and $97.4 million in
notes receivable with no material gain or loss recognized upon the sale. At
December 31, 1998, the notes receivable balance was $47.6 million with remaining
interest rates ranging from 6.6% to 6.7% and maturity dates in 2001 and 2002. In
1997, additional costs totaling $11.6 million related to store closings were
recorded and included in SG&A expense in the accompanying Consolidated
Statements of Income.
On January 1, 1998, five closed Incredible Universe locations remained. During
1998, three were sold for a total of $13.3 million in cash and a $3.0 million
note receivable. The balance on the note receivable was approximately $3.0
million at December 31, 1998. The lease on an additional location was terminated
during 1998, leaving one Incredible Universe location remaining at December 31,
1998. In 1998, $6.5 million was accrued and charged to SG&A expense for
additional lease obligations and real estate costs.
The components of the restructuring charge and an analysis of the reserves are
outlined in a table in Note 5 - "Provisions for Business Restructuring and Asset
Impairment" of the Notes to Consolidated Financial Statements ("Notes").
Although no significant additional provisions are expected in 1999 relating to
the 1996 restructuring, unexpected delays in the closing of real estate sales,
among other factors, could result in additional charges.
Net sales and operating revenues and operating losses of the stores closed
pursuant to the restructuring plans are shown below for each year ended December
31 (unaudited):
(In millions) 1998 1997 1996
- ------------- ---- ---- ----
Net sales and operating revenues $ -- $ 164.6 $1,403.4
Operating loss -- (30.1)(1) (114.4)(1)
(1) Excludes business restructuring and asset impairment charges discussed
above.
TAX SHARING AND TAX BENEFIT REIMBURSEMENT AGREEMENT
Under the Company's Tax Sharing and Tax Benefit Reimbursement Agreement (the
"Agreement") with O'Sullivan Industries, a former subsidiary of Tandy, the
Company receives payments from O'Sullivan approximating the federal tax benefit
that O'Sullivan realizes from the increased tax basis of its assets resulting
from the initial public offering completed in February 1994. The higher tax
basis increases O'Sullivan's tax deductions and, accordingly, reduces income
taxes payable by O'Sullivan. For the years ended December 31, 1998, 1997 and
1996, the Company recognized income of $6.0 million, $5.8 million and $0.2
million, net of tax, respectively, under this Agreement. These payments will
continue to be made over a 15-year time period and are contingent upon
O'Sullivan's level of earnings from year to year. The income is recorded as a
reduction of SG&A expense in the accompanying Consolidated Statements of Income.
NEW PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which is
effective for all companies for quarters beginning after June 15, 1999. This
statement requires a company to record all derivative instruments at fair value
on the balance sheet. The Company does not use derivatives for speculative
purposes. As such, its market risk was not material in 1998 and is not expected
to be material in 1999.
CASH FLOW AND LIQUIDITY
Year Ended December 31,
----------------------------------
(In millions) 1998 1997 1996
- ------------- -------- -------- --------
Operating activities $ 414.8 $ 320.3 $ 307.5
Investing activities (93.0) (63.9) (112.9)
Financing activities (363.2) (272.0) (216.6)
In 1998, cash flow provided by operating activities approximated $414.8 million,
compared to $320.3 million in 1997. Cash flow from net income, adjusted for
non-cash items including restricted stock awards, loss on sale of Computer City,
depreciation and deferred tax items, decreased $33.1 million from 1997 to 1998.
This decrease was primarily due to the increased operating losses of CCI in
1998, prior to CCI's sale to CompUSA. During 1998, changes in working capital
generated $55.2 million of cash flow compared to a use of cash of $72.4 million
in 1997. The increase was caused primarily by the liquidation of CCI's
inventories.
In 1997, cash flow from operations before working capital changes increased to
approximately $392.7 million from $258.3 million in 1996, due to improved
operating performance. For 1997, the Company used $72.4 million in cash from
operations due to changes in working capital accounts, primarily attributable to
a decrease in other current liabilities of $209.6 million, related, for the most
part, to resulting expenditures associated with the 1996 restructuring activity.
Substantially offsetting the decreased cash flow from expenditures related to
restructuring was a decrease in inventory at closed Incredible Universe stores.
In 1996, the working capital components of operations cash flow generated $49.2
million of positive cash flow from a $38.1 million increase in current
liabilities. In 1996, inventory for RadioShack and related support operations
decreased approximately $30.0 million, while during the same period, Computer
City and Incredible Universe inventories (prior to the restructuring reserves)
increased approximately $30.1 million. These year-to-year inventory fluctuations
offset one another, resulting in no material net cash effect for 1996.
Investing activities used $93.0 million in cash in 1998, compared to $63.9
million in 1997 and $112.9 million in 1996. Capital expenditures approximated
$131.5 million in 1998, compared to $118.4 million in 1997 and $174.8 million in
1996. Capital expenditures for 1998 and 1997 were used primarily for retail
expansion, upgrading information systems and infrastructure enhancements prior
to the announced sale of CCI on June 22, 1998. Capital expenditures for 1996
were primarily used for retail expansion, upgrading information systems and
headquarter building renovations. Management anticipates that capital
expenditure requirements for 1999 will approximate $100.0 million to $110.0
million, and will consist primarily of RadioShack future store expansions and
remodels, upgrades of machinery in selected distribution centers and
manufacturing plants and updated information systems. These expenditures will be
funded primarily from operating cash flow. Cash proceeds from the sale of CCI
generated $36.5 million in cash in 1998. Cash proceeds in 1997 totaled $57.4
million and related to the sale of various corporate assets and certain
Incredible Universe locations, final repayment of the note receivable from
InterTAN and the sale of the Company's remaining shares of AST common stock. The
cash portion of payments on the AST note receivable amounted to $60.0 million in
1996.
Cash used by financing activities was $363.2 million in 1998, compared to $272.0
million and $216.6 million in 1997 and 1996, respectively. Purchases of treasury
stock required cash of $337.4 million, $425.6 million and $232.9 million in
1998, 1997 and 1996, respectively. (See "Capital Structure and Financial
Condition" below for further information on the Company's stock repurchase
programs.) The 1998, 1997 and 1996 stock repurchases were partially funded by
$57.8 million, $50.7 million and $46.8 million, respectively, received from
stock option exercises and the sale of treasury stock to Tandy's employee stock
purchase plans. Dividends paid, net of tax, in 1998, 1997 and 1996 amounted to
$44.8 million, $48.2 million and $52.5 million, respectively. In 1998, the
Company used excess cash flow to decrease its short-term debt from the prior
year by $44.9 million. Medium-term notes issued by the Company under its 1997
Debt Shelf Registration Statement provided approximately $45.0 million in cash
in 1998, the majority of which was used to repay current maturities of long-term
debt. In 1997, the Company's short-term debt increased over the prior year by
$43.6 million. The Company's net change in long-term debt was an increase of
$107.5 million, due to the utilization of $150.0 million of long-term debt under
the Company's $300.0 million Debt Shelf Registration Statement and the repayment
of $42.3 million of long-term borrowings, primarily medium-term notes.
The current credit ratings for Tandy, which are generally considered investment
grade, follow:
Standard Duff &
Category Moody's and Poor's Phelps
- -------- ------- ---------- ------
Medium-Term Notes Baa1 A- A-
ESOP Senior Notes Baa1 A- N/A
Commercial Paper P-2 A-2 D-1-
CAPITAL STRUCTURE AND FINANCIAL CONDITION
The Company's balance sheet and financial condition continue to be strong. The
Company's available borrowing facilities as of December 31, 1998 are detailed in
Note 10 - "Indebtedness and Borrowing Facilities" of the Notes.
On March 3, 1997, the Company announced that its Board of Directors authorized
management to purchase an additional 10.0 million shares, as adjusted to reflect
the two-for-one split, of its common stock through the Company's existing share
repurchase program. The share repurchase program was initially authorized in
December 1995 and increased in October 1996 and was undertaken as a result of
management's view of the economic value of the Company's stock. The share
increase for 1997 brought the total authorization to 30.0 million shares, of
which 25.9 million shares totaling $745.8 million had been purchased as of
December 31, 1998. Approximately 4.9 million shares were repurchased in 1998 for
$216.6 million under the program. Additionally, on October 26, 1998, the Company
announced that its Board of Directors authorized the repurchase of up to 5.0
million shares of the Company's common stock for an indefinite period of time to
be used to offset the dilution of grants under Tandy's incentive stock plans
(see Note 17 - "Stock Options and Performance Awards" in Notes). These purchases
are in addition to the shares required for employee stock plans, which are
purchased throughout the year. Purchases will continue to be made in 1999 in the
open market. It is expected that funding of the program will come from excess
free cash flow.
In connection with the share repurchase program, the Board of Directors, at
their October 23, 1998 meeting, authorized management to sell up to one million
put options on the Company's common stock. During 1998, the Company sold 80,000
put options with a strike price of $40.71 to an independent third party. Such
options grant the purchaser the right to sell shares of Tandy's common stock to
the Company at specified prices upon exercise of the options. These put options
are exercisable only at maturity and can be settled in cash at the Company's
option, in lieu of repurchasing the stock. The issued put options have a
maturity of six months. At December 31, 1998, all 80,000 options remained
outstanding and the full redemption value of the options was classified as
common stock put options in the accompanying 1998 Consolidated Balance Sheet.
The related offset was recorded in common stock in treasury, net of premiums
received. Additionally, 200,000 put options have been sold in 1999 at strike
prices ranging from $45.08 to $55.20; these put options have six month maturity
dates. Put options will continue to be sold by the Company from time to time in
order to take advantage of attractive share price levels, as determined by
management. The timing and terms of the transactions, including maturities,
depend on market conditions, the Company's liquidity and other considerations.
The Company's primary source of short-term debt consists of short-term seasonal
bank debt and commercial paper, which have maturities of less than 90 days. In
the second quarter of 1998, Tandy replaced its existing $500.0 million credit
facilities with new credit facilities, also totaling $500.0 million. The new
facilities were granted by a syndicate of 17 banks, including a new agent bank,
and consist of a $200.0 million 364-day revolving credit facility maturing June
1999 and a $300.0 million five-year revolving credit facility maturing June
2003. The revolving credit facilities are used as backup for the commercial
paper program and may also be utilized for general corporate purposes. Annual
commitment fees for the facilities are 0.06% of the $200.0 million facility per
annum and 0.085% of the $300.0 million facility per annum, whether used or
unused. Tandy plans to extend the $200.0 million facility to June 2000.
The total debt-to-capitalization ratio was 35.6% at December 31, 1998, 33.6% at
December 31, 1997 and 22.3% at December 31, 1996. These increases in the
debt-to-capitalization ratios in 1998 and 1997 resulted primarily from a
reduction in Tandy's stockholders' equity due to the share repurchase program
and the impact of divested businesses.
In May 1997, the Company filed a $300.0 million Debt Shelf Registration
Statement ("Shelf Registration") with the Securities and Exchange Commission,
which was declared effective in August 1997. On August 19, 1997, the Company
issued $150.0 million of 10 year unsecured notes under the Shelf Registration.
The interest rate on the notes is 6.95% per annum with interest payable on
September 1 and March 1 of each year, commencing March 1, 1998. The notes are
due September 1, 2007.
In December 1997, the Company issued $4.0 million in medium-term notes under the
Shelf Registration. In January 1998, the Company issued an additional $45.0
million in medium-term notes under the remaining $150.0 million of the Shelf
Registration. Tandy's medium-term notes outstanding at December 31, 1998 totaled
$49.8 million, compared to $30.0 million at December 31, 1997. The interest
rates at December 31, 1998 for the outstanding $49.8 million in medium-term
notes ranged from 6.09% to 7.25%, with weighted average coupon rates of 6.2% and
8.2% at December 31, 1998 and 1997, respectively. An additional $32.0 million of
medium-term notes were issued in January 1999 yielding a 6.15% interest rate. As
of February 24, 1999, the Company had remaining availability of $69.0 million
under the Shelf Registration.
Management believes that the Company's present borrowing capacity is greater
than the established credit lines and long-term debt in place. Management also
believes that the Company's cash flow from operations, cash and cash equivalents
and its available borrowing facilities are more than adequate to fund planned
store expansion, to meet debt service and dividend requirements and to fund its
share repurchase program.
1999 INCENTIVE STOCK PLAN
In February 1999, the Company, based upon the Board of Directors' authorization,
adopted the Tandy Corporation 1999 Incentive Stock Plan ("1999 ISP"), which
authorizes the grants of stock options and stock appreciation rights to broad
based employee groups and other eligible employees. Grants of restricted stock
and performance awards are not authorized under the 1999 ISP. In addition,
repricing of outstanding options is not permitted without shareholder approval.
The 1999 ISP will be administered as a broadly based plan to provide stock
option incentives primarily to the Company's 5,000 plus store managers and to
other eligible employees of the Company. A total of 4.75 million shares of the
Company's common stock was reserved for issuance under the 1999 ISP.
The Board granted approximately 1,082,000 stock options under the 1999 ISP at
fair market value on February 24, 1999 to over 5,000 RadioShack store managers
employed as of that date.
INFLATION
Inflation has not significantly impacted the Company over the past three years.
Management does not expect inflation to have a significant impact on operations
in the foreseeable future, unless global situations substantially affect the
world economy.
YEAR 2000 READINESS DISCLOSURE
The Company's management recognizes the need to take action to reach its goal
that its operations and relationships with key vendors, service providers,
customers and other third parties will not be adversely impacted by software
processing errors arising from calculations using the Year 2000 and beyond. Like
many companies, a significant number of Tandy's computer applications and
systems require modifications in order for these systems to be ready for the
Year 2000. All statements made and referred to here are Year 2000 Readiness
Disclosures under the Year 2000 Information and Readiness Disclosure Act.
The Company's State of Readiness: Tandy is using a combination of internal and
external resources to identify, assess, remediate and test its many different
information technology ("IT") systems such as point of sale, payroll, credit,
purchase ordering, merchandise distribution, management reporting,
manufacturing, mainframe, and client/server applications, as well as its non-IT
systems (e.g. heating, ventilating and air conditioning systems, building
security systems, etc.).
Since beginning the project in 1995, the Company has completed identifying and
assessing 100% of its internal mid-range and mainframe IT applications and
approximately 80% of its data communication and telecommunication systems for
Year 2000 readiness. An inventory and assessment of the Company's workstations,
which includes desktop and notebook computers, will be completed in the second
quarter of 1999. As of December 31, 1998, remediation and unit testing was
approximately 90% complete for mid-range and mainframe applications. Unit
testing ensures the accuracy of the programming changes to the code. For data
communication and telecommunication systems, remediation and unit testing was
approximately 75% complete as of December 31, 1998 and is expected to be 100%
complete by September 30, 1999. Remediation and testing to determine if all of
the Company's mission critical systems will interface and operate effectively to
process data containing dates subsequent to January 1, 2000 for all remaining
servers, systems software and personal computers are expected to be completed by
the third quarter of 1999.
Third-party software systems, including financial systems, point-of-sale and
manufacturing have been or will be implemented during 1999. The vendors of these
third-party software packages have stated that they are Year 2000 ready;
however, the Company has and/or intends to conduct its own testing in 1999.
With respect to non-IT system issues, the Company is in the process of
identifying, assessing and remediating, if necessary, its building and process
and production control systems for any Year 2000 issues relating to the
operations of its facilities. Identification and assessment of security access,
building control systems and elevators in the buildings which serve as the
Company's corporate headquarters have been completed and remediation was
approximately 60% complete at December 31, 1998. The Company is in the process
of identifying and assessing Year 2000 issues of its remote locations, such as
its distribution centers, manufacturing plants, and administrative offices and
does not expect any significant issues to arise from this process. All of the
Company's non-IT systems are expected to be Year 2000 ready by the third quarter
of 1999.
Although unforeseen circumstances may arise, the Year 2000 remediation program
is presently on schedule. The Company will continue communicating with its key
suppliers, utilities, financial institutions, customers and others to determine
their state of Year 2000 readiness, to coordinate Year 2000 conversions where
appropriate and to determine the extent to which the Company's interface systems
are vulnerable.
Costs: In management's opinion, the financial impact of being Year 2000 ready is
not expected to be material to the Company's consolidated financial position,
results of operations or cash flows. Management anticipates that total
expenditures associated with the Year 2000 internal modifications will range
from $10.0 million to $14.0 million, which has been and will continue to be
funded from operating cash flow. As of December 1998, approximately $6.5 million
representing internal payroll and related benefits, depreciation expense,
machine time and incentive bonuses, among other costs, has been spent on these
internal modifications. An additional $0.5 million has been paid to external
parties for consulting and professional fees. As required by generally accepted
accounting principles, all these costs are expensed as incurred. Combined,
internal and external costs related to the Year 2000 project account for
approximately 7.0% of the Company's annual IT budget. Additionally, the Company
has purchased and is installing third party financial software packages and
related hardware totaling approximately $20.0 million to $25.0 million in light
of the Year 2000 issue. These purchases are in addition to other capital
investments made in the normal course of business for certain third party
software systems and applications which address the ongoing retail and
operational needs of the Company.
The Risks of the Company's Year 2000 Issues: With respect to the risks
associated with its IT and non-IT systems, the Company believes that the most
reasonably likely worst case scenario is that some of the Company's store
operating and inventory management systems could fail in one or more geographic
areas of the United States. The consequence of such failure could include the
inability of those affected RadioShack stores to electronically record sales
transactions. This could further result in a breakdown in the Company's supply
chain as the Company relies on electronic information to replenish its stores.
Such an occurrence would result in a loss of revenue; however, it is not
possible to quantify the possible range of such loss.
There can be no assurance that the systems of third parties on which the
Company's systems rely will be converted timely and that the systems will not
have an adverse effect on the Company's systems or ongoing operations. However,
concerning the risks associated with third parties, the Company believes that
the most reasonably likely worst case scenario is that some of the Company's
merchandise vendors will not be compliant and will have difficulty filling and
distributing orders. Failure of one or more third party service providers on
whom the Company relies to address Year 2000 issues could also result, in a
worst case scenario, in some business interruption. The lost revenues, if any,
resulting from such failures would depend on the time period in which the
failure goes uncorrected and on how widespread the impact was.
The Company is also in the process of assessing the implications of possible
Year 2000-related claims regarding products it has manufactured or sold, or is
currently manufacturing or selling. The outcomes of any Year 2000 claims and the
impact of such claims cannot be determined at this time; such outcomes will
depend on the facts and circumstances of each situation and an evolving state of
law as these types of claims are addressed by legal systems in the United States
and worldwide.
The Company has limited the scope of its risk assessment to those factors upon
which it can reasonably be expected to have an influence. For example, the
Company has made the assumption that financial institutions and the Federal
Reserve System as well as most utility companies and national telecommunications
providers will continue to operate. Obviously, the lack of such services could
have a material effect on the Company's ability to operate, but the Company has
little, if any, ability to influence such an outcome, or to reasonably make
alternative arrangements in advance for such services in the event they are
unavailable.
Contingency Plans: The Company has completed a prioritization of Year 2000
issues in order to develop and document Year 2000 contingency plans. The Company
has identified its critical applications to be its merchandising and inventory
systems, which include purchasing, receiving and distribution and store
replenishment, its point-of-sale store operating system as well as its financial
systems, which includes payroll, accounts payable and receivable and banking and
other financial applications. Should any or all of the critical applications
fail to perform properly subsequent to January 1, 2000, the Company will resort
to temporary manual processing for recording sales, ordering product and
replenishing the Company's stores, which is not expected to have a material
adverse impact on its operations in the short-term. Management anticipates
having a formal documented contingency plan to deal with this scenario by
November 1999. The Company's eleven distribution centers are located in various
geographic areas of the United States. Should one or more of these distribution
centers fail to operate due to regional power outages or other unforeseen
circumstances, the Company's other distribution centers which may be operating
could replenish stores typically serviced by those distribution centers for a
relatively short period of time. Management is in the process of documenting
this contingency plan. Although no single internal or third party supplier
accounts for a material portion of the Company's sales and operating revenues,
management is evaluating the need for a formal list of alternative suppliers
should some existing suppliers be unable to provide product beyond the end of
calendar year 1999. Should the decision be made that such a list and agreements
with alternate suppliers be necessary, they will be developed prior to November
1999.
All statements concerning Year 2000 issues other than historical statements,
including, without limitation, estimated costs and the projected timetable of
Year 2000 compliance, constitute "forward-looking statements", as defined in the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements should be read in conjunction with the Company's disclosures under
the heading "Factors That May Affect Future Results".
ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which is
effective for all companies for quarters beginning after June 15, 1999. This
statement requires a company to record all derivative instruments at fair value
on the balance sheet. The Company does not use derivatives for speculative
purposes. As such, its market risk was not material in 1998 and is not expected
to be material in 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Index to Consolidated Financial Statements is found on page 59. The
Company's Financial Statements and Notes to Consolidated Financial Statements
follow the index.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Tandy will file a definitive proxy statement with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Form 10-K pursuant to Regulation 14A. The information called for by this
Item with respect to directors has been omitted pursuant to General Instruction
G(3). This information is incorporated by reference from the Proxy Statement for
the 1999 Annual Meeting. For information relating to the Executive Officers of
the Company, see Part I of this report. The Section 16(A) reporting information
is incorporated by reference from the Proxy Statement for the 1999 Annual
Meeting.
ITEM 11. EXECUTIVE COMPENSATION.
Tandy will file a definitive proxy statement with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Form 10-K pursuant to Regulation 14A. The information called for by this
Item with respect to executive compensation has been omitted pursuant to General
Instruction G(3). This information is incorporated by reference from the Proxy
Statement for the 1999 Annual Meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Tandy will file a definitive proxy statement with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Form 10-K pursuant to Regulation 14A. The information called for by this
Item with respect to security ownership of certain beneficial owners and
management has been omitted pursuant to General Instruction G(3). This
information is incorporated by reference from the Proxy Statement for the 1999
Annual Meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Tandy will file a definitive proxy statement with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Form 10-K pursuant to Regulation 14A. The information called for by this
Item with respect to certain relationships and transactions with management and
others has been omitted pursuant to General Instruction G(3). This information
is incorporated by reference from the Proxy Statement for the 1999 Annual
Meeting.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report.
1. Financial Statements
The financial statements filed as a part of this report are listed in the "Index
to Consolidated Financial Statements" on page 32. The index and statements are
incorporated herein by reference.
3. Exhibits required by Item 601 of Regulation S-K
A list of the exhibits required by Item 601 of Regulation S-K and filed as part
of this report is set forth in the Index to Exhibits on page 59, which
immediately precedes such exhibits.
Certain instruments defining the rights of holders of long-term debt of the
Company and its consolidated subsidiaries are not filed as exhibits to this
report because the total amount of securities authorized thereunder does not
exceed ten percent of the total assets of the Company on a consolidated basis.
The Company hereby agrees to furnish the Securities and Exchange Commission
copies of such instruments upon request.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Tandy Corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TANDY CORPORATION
March 29, 1999 /s/ Leonard H. Roberts
----------------------------
Leonard H. Roberts
President and Chief Executive Officer,
Tandy Corporation
President, RadioShack
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Tandy Corporation has duly caused this report to be signed on its
behalf by the following persons in the capacities indicated on this 29th day of
March, 1999.
Signature Title
/s/ Leonard H. Roberts President and Chief Executive Officer, Tandy
- ----------------------- Corporation, President, RadioShack, Director
Leonard H. Roberts (Chief Executive Officer)
/s/ Dwain H. Hughes Senior Vice President and Chief Financial Officer
- -----------------------
Dwain H. Hughes (Principal Financial Officer)
/s/ Richard L. Ramsey Vice President and Controller
- -----------------------
Richard L. Ramsey (Principal Accounting Officer)
/s/ John V. Roach Chairman of the Board, Director
- -----------------------
John V. Roach
/s/ Frank J. Belatti Director /s/ William G. Morton Director
- ----------------------- -----------------------
Frank J. Belatti William G. Morton
/s/ James I. Cash, Jr. Director /s/ Thomas G. Plaskett Director
- ----------------------- -----------------------
James I. Cash, Jr. Thomas G. Plaskett
/s/ Ronald E. Elmquist Director /s/ Alfred J. Stein Director
- ---------------------- -----------------------
Ronald E. Elmquist Alfred J. Stein
/s/ Lewis F. Kornfeld, Jr. Director /s/ William E. Tucker Director
- ----------------------- -----------------------
Lewis F. Kornfeld, Jr. William E. Tucker
/s/ Jack L. Messman Director /s/ Edwina D. Woodbury Director
- ----------------------- -----------------------
Jack L. Messman Edwina D. Woodbury
<PAGE>
TANDY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants............................... 33
Consolidated Statements of Income for each of the three
years ended December 31, 1998................................. 34
Consolidated Balance Sheets at December 31, 1998
and December 31, 1997......................................... 35
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1998................................. 36
Consolidated Statements of Stockholders' Equity for
the three years ended December 31, 1998....................... 37-38
Notes to Consolidated Financial Statements...................... 39-58
All schedules have been omitted because they are not applicable, not required or
the information is included in the consolidated financial statements or notes
thereto.
Separate financial statements of Tandy Corporation have been omitted because
Tandy is primarily an operating company and the amount of restricted net assets
of consolidated and unconsolidated subsidiaries and Tandy's equity in
undistributed earnings of 50% or less-owned companies accounted for by the
equity method are not significant. All subsidiaries of Tandy Corporation are
included in the consolidated financial statements. Financial statements of 50%
or less-owned companies have been omitted because they do not, considered
individually or in the aggregate, constitute a significant subsidiary.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Tandy Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index on page 32 present fairly, in all material respects, the financial
position of Tandy Corporation and its subsidiaries (the "Company") at December
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- -------------------------------
PRICEWATERHOUSECOOPERS LLP
Fort Worth, Texas
February 24, 1999
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Tandy Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1998 1997 1996
(In millions, except % of % of % of
per share amounts) Dollars Revenues Dollars Revenues Dollars Revenues
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales and operating revenues $4,787.9 100.0% $5,372.2 100.0% $6,285.5 100.0%
Cost of products sold 2,783.5 58.1 3,357.9 62.5 4,263.1 67.8
-------- -------- -------- -------- -------- --------
Gross profit 2,004.4 41.9 2,014.3 37.5 2,022.4 32.2
-------- -------- -------- -------- -------- --------
Expenses (income):
Selling, general and administrative 1,580.3 33.0 1,580.3 29.4 1,761.1 28.0
Depreciation and amortization 99.0 2.1 97.2 1.8 108.6 1.7
Interest income (10.8) (0.2) (13.2) (0.2) (13.0) (0.2)
Interest expense 45.4 0.9 46.1 0.9 36.4 0.6
Restricted stock awards 82.6 1.7 -- -- -- --
Provision for loss on sale of
Computer City 108.2 2.3 -- -- -- --
Provision for restructuring costs -- -- -- -- 162.1 2.6
Impairment of long-lived assets -- -- -- -- 112.8 1.8
-------- -------- -------- -------- -------- --------
1,904.7 39.8 1,710.4 31.8 2,168.0 34.5
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes 99.7 2.1 303.9 5.7 (145.6) (2.3)
Provision (benefit) for income taxes 38.4 0.8 117.0 2.2 (54.0) (0.9)
-------- -------- -------- -------- -------- --------
Net income (loss) 61.3 1.3 186.9 3.5 (91.6) (1.4)
Preferred dividends 5.8 0.1 6.1 0.1 6.3 0.1
-------- -------- -------- -------- -------- --------
Net income (loss) available to
common shareholders $ 55.5 1.2% $ 180.8 3.4% $ (97.9) (1.5)%
======== ======== ======== ======== ======== ========
Net income (loss) available per
common share:
Basic $ 0.55 $ 1.69 $ (0.82)
======== ======== ========
Diluted $ 0.54 $ 1.63 $ (0.82)
======== ======== ========
Shares used in computing earnings
(loss) per common share:
Basic 100.6 107.2 119.7
======== ======== ========
Diluted 105.7 112.2 119.7
======== ======== ========
Dividends declared per common share $ 0.40 $ 0.40 $ 0.40
======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
Tandy Corporation and Subsidiaries
December 31,
----------------------
(In millions, except for share amounts) 1998 1997
- ------------------------------------------------------------------- --------
Assets
Current assets:
Cash and cash equivalents $ 64.5 $ 105.9
Accounts and notes receivable, less
allowance for doubtful accounts 215.2 251.3
Inventories, at lower of cost or market 912.1 1,205.2
Other current assets 106.8 153.1
-------- --------
Total current assets 1,298.6 1,715.5
-------- --------
Property, plant and equipment, at cost,
less accumulated depreciation 433.8 521.9
Other assets, net of accumulated amortization 261.2 80.1
-------- --------
$1,993.6 $2,317.5
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt, including current maturities
of long-term debt $ 233.2 $ 299.5
Accounts payable 206.4 325.2
Accrued expenses 334.4 273.1
Income taxes payable 105.5 78.6
-------- --------
Total current liabilities 879.5 976.4
-------- --------
Long-term debt, excluding current maturities 235.1 236.1
Other non-current liabilities 27.5 46.4
-------- --------
Total other liabilities 262.6 282.5
-------- --------
Common stock put options 3.3 --
Stockholders' Equity
Preferred stock, no par value, 1,000,000 shares
authorized Series A junior participating,
100,000 shares authorized and none issued -- --
Series B convertible (TESOP), 100,000 shares
authorized and issued, 77,000 and 80,000
shares outstanding, respectively 100.0 100.0
Common stock, $1 par value, 250,000,000 shares
authorized with 139,184,000 and 138,332,000
shares issued, respectively 139.2 138.3
Additional paid-in capital 109.7 19.2
Retained earnings 1,693.4 1,676.3
Common stock in treasury, at cost, 41,747,000
and 36,023,000 shares, respectively (1,161.6) (836.1)
Unearned deferred compensation (31.5) (37.4)
Accumulated other comprehensive loss (1.0) (1.7)
-------- --------
Total stockholders' equity 848.2 1,058.6
Commitments and contingent liabilities
-------- --------
$1,993.6 $2,317.5
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Tandy Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
(In millions) 1998 1997 1996
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 61.3 $ 186.9 $ (91.6)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Restricted stock awards 82.6 -- --
Provision for loss on sale of Computer City 108.2 -- --
Depreciation and amortization 99.0 97.2 108.6
Impairment of long-lived assets -- -- 112.8
Provision for restructuring cost and other charges -- -- 253.5
Deferred income taxes and other items (4.0) 106.0 (127.8)
Provision for credit losses and bad debts 12.5 2.6 2.8
Changes in operating assets and liabilities:
Receivables (36.7) (5.9) 8.0
Inventories 85.6 163.8 (0.1)
Other current assets 17.7 (20.7) 3.2
Accounts payable, accrued expenses and income taxes (11.4) (209.6) 38.1
-------- -------- --------
Net cash provided by operating activities 414.8 320.3 307.5
-------- -------- --------
Investing activities:
Additions to property, plant and equipment (131.5) (118.4) (174.8)
Proceeds from sale of property, plant and equipment 6.7 12.7 2.8
Proceeds from sale of Computer City 36.5 -- --
Proceeds from sale of AST common stock -- 23.8 --
Payment received on AST note -- -- 60.0
Payment received on InterTAN note -- 20.9 --
Other investing activities (4.7) (2.9) (0.9)
-------- -------- --------
Net cash used by investing activities (93.0) (63.9) (112.9)
-------- -------- --------
Financing activities:
Purchases of treasury stock (337.4) (425.6) (232.9)
Proceeds from sale of common stock put options 0.3 -- --
Sale of treasury stock to employee stock plans 35.4 35.2 39.4
Proceeds from exercise of stock options 22.4 15.5 7.4
Dividends paid (44.8) (48.2) (52.5)
Changes in short-term borrowings, net (44.9) 43.6 40.9
Additions to long-term borrowings 45.7 149.8 8.0
Repayments of long-term borrowings (39.9) (42.3) (26.9)
-------- -------- --------
Net cash used by financing activities (363.2) (272.0) (216.6)
-------- -------- --------
Decrease in cash and cash equivalents (41.4) (15.6) (22.0)
Cash and cash equivalents, beginning of period 105.9 121.5 143.5
-------- -------- --------
Cash and cash equivalents, end of period $ 64.5 $ 105.9 $ 121.5
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Tandy Corporation and Subsidiaries
<TABLE>
<CAPTION>
Common Stock Treasury Stock
Preferred ----------------- ------------------
(In millions) Stock Shares Dollars Shares Dollars
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 100.0 85.6 $ 85.6 (23.9) $(963.3)
Comprehensive loss:
Net loss -- -- -- -- --
Other comprehensive loss, net of tax:
Foreign currency translation adjustments
Reclassification for losses included in
net loss
Net unrealized gain on foreign currency
translation
Unrealized loss on securities
Reclassification for losses included in
net loss
Net unrealized loss on securities
Other comprehensive loss -- -- -- -- --
Comprehensive loss
Purchase of treasury stock -- -- -- (5.7) (245.9)
Sale of treasury stock to employee stock plans -- -- -- 0.9 36.6
Exercise of stock options and grant of stock
awards -- -- -- 0.3 11.8
Series B convertible stock dividends,
net of taxes of $2.2 -- -- -- -- --
Deferred compensation earned -- -- -- -- --
Repurchase of preferred stock -- -- -- -- (3.7)
Common stock dividends declared -- -- -- -- --
------- ------- ------- ------- -------
Balance at December 31, 1996 $ 100.0 85.6 $ 85.6 (28.4) $(1,164.5)
Comprehensive income:
Net income -- -- -- -- --
Other comprehensive income, net of tax:
Foreign currency translation adjustments
Reclassification for losses included in
net income
Net unrealized loss on foreign currency
translation
Unrealized gain on securities
Reclassification for gains included in
net income
Net unrealized gain on securities
Other comprehensive income -- -- -- -- --
Comprehensive income
Purchase of treasury stock -- -- -- (9.1) (412.1)
Sale of treasury stock to employee stock plans -- -- -- 0.8 26.5
Exercise of stock options and grant of stock
awards -- -- -- 0.7 23.9
Series B convertible stock dividends,
net of taxes of $2.1 -- -- -- -- --
Deferred compensation earned -- -- -- -- --
Repurchase of preferred stock -- -- -- -- (4.5)
Common stock dividends declared -- -- -- -- --
Two-for-one common stock split -- 52.7 52.7 -- 694.6
------- ------- ---------- ------- ----------
Balance at December 31, 1997 $ 100.0 138.3 $138.3 (36.0) $(836.1)
Comprehensive income:
Net income
Other comprehensive income, net of tax: -- -- -- -- --
Foreign currency translation adjustments
Reclassification for losses included in
net income
Net unrealized gain on foreign currency
translation
Other comprehensive income -- -- -- -- --
Comprehensive income
Purchase of treasury stock -- -- -- (7.5) (339.3)
Sale of treasury stock to employee stock plans -- -- -- 0.8 19.3
Restricted stock awards -- 0.9 0.9 (0.3) (29.1)
Exercise of stock options and grant of stock
awards -- -- -- 1.2 29.9
Series B convertible stock dividends,
net of taxes of $1.9 -- -- -- -- --
Deferred compensation earned -- -- -- -- --
Repurchase of preferred stock -- -- -- -- (6.3)
Common stock dividends declared -- -- -- -- --
------- ------- ------ ------- -------
Balance at December 31, 1998 $ 100.0 139.2 $139.2 (41.8) $(1,161.6)
======= ======= ====== ======= =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - continued
Tandy Corporation and Subsidiaries
<TABLE>
<CAPTION>
Accumulated
Additional Unearned Comprehensive Other
Paid-In Retained Deferred Income Comprehensive
(In millions) Capital Earnings Compensation (Loss) Loss Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 102.8 $2,332.1 $(54.8) $ (1.1) $1,601.3
Comprehensive loss:
Net loss -- (91.6) -- $ (91.6) -- (91.6)
-------
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (2.5)
Reclassification for losses included
in net loss 2.6
-------
Net unrealized gain on foreign 0.1
currency translation (7.1)
Unrealized loss on securities
Reclassification for losses included
in net loss 4.5
-------
Net unrealized loss on securities (2.6)
-------
Other comprehensive loss -- -- -- (2.5) (2.5) (2.5)
-------
Comprehensive loss $ (94.1)
Purchase of treasury stock -- -- -- -- (245.9)
Sale of treasury stock to employee stock plans 2.8 -- -- -- 39.4
Exercise of stock options and grant of
stock awards (0.3) -- -- -- 11.5
Series B convertible stock dividends,
net of taxes of $2.2 -- (4.1) -- -- (4.1)
Deferred compensation earned -- -- 7.9 -- 7.9
Repurchase of preferred stock -- -- -- -- (3.7)
Common stock dividends declared -- (47.5) -- -- (47.5)
----------------------------- --------------------
Balance at December 31, 1996 $ 105.3 $2,188.9 $ (46.9) $ (3.6) $1,264.8
Comprehensive income:
Net income -- 186.9 -- $186.9 -- 186.9
-------
Other comprehensive income, net of tax:
Foreign currency translation adjustments (1.8)
Reclassification for losses included
in net income 1.1
-------
Net unrealized loss on foreign
currency translation (0.7)
Unrealized gain on securities 3.4
Reclassification for gains included
in net income (0.8)
------
Net unrealized gain on securities 2.6
-------
Other comprehensive income -- -- -- 1.9 1.9 1.9
-------
Comprehensive income $ 188.8
Purchase of treasury stock -- -- -- -- (412.1)
Sale of treasury stock to employee stock plans 8.7 -- -- -- 35.2
Exercise of stock options and grant of
stock awards 0.5 -- -- -- 24.4
Series B convertible stock
dividends, net of taxes of $2.1 -- (4.0) -- -- (4.0)
Deferred compensation earned -- -- 9.5 -- 9.5
Repurchase of preferred stock -- -- -- -- (4.5)
Common stock dividends declared -- (43.2) -- -- (43.2)
Two-for-one common stock split (95.3) (652.3) -- -- (0.3)
----------------------------- --------------------
Balance at December 31, 1997 $ 19.2 $1,676.3 $ (37.4) $ (1.7) $1,058.6
Comprehensive income:
Net income -- 61.3 -- $ 61.3 -- 61.3
-------
Other comprehensive income, net of tax:
Foreign currency translation adjustments (0.7)
Reclassification for losses included
in net income 1.4
-------
Net unrealized gain on foreign
currency translation 0.7
-------
Other comprehensive income -- -- -- 0.7 0.7 0.7
-------
Comprehensive income $ 62.0
Purchase of treasury stock -- -- -- -- (339.3)
Sale of treasury stock to employee stock plans 16.0 -- -- -- 35.3
Restricted stock awards 68.8 -- (4.2) -- 36.4
Exercise of stock options and grant of
stock awards 5.7 -- -- -- 35.6
Series B convertible stock dividends,
net of taxes of $1.9 -- (3.7) -- -- (3.7)
Deferred compensation earned -- -- 10.1 -- 10.1
Repurchase of preferred stock -- -- -- -- (6.3)
Common stock dividends declared -- (40.5) -- -- (40.5)
----------------------------- --------------------
Balance at December 31, 1998 $ 109.7 $1,693.4 $ (31.5) $ (1.0) $ 848.2
============================= ====================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tandy Corporation and Subsidiaries
NOTE 1 - DESCRIPTION OF BUSINESS
Tandy Corporation ("Tandy" or the "Company") is primarily engaged in consumer
electronics retailing principally through RadioShack's company-owned stores and
dealer/franchise outlets. RadioShack's sales and operating revenues are related
to private label and branded consumer electronics, brand name personal
computers, wireless communication products and services, telephony and
"direct-to-home" satellite systems. Additionally, Tandy operates certain related
retail support groups and consumer electronics manufacturing businesses.
Another retail concept, Computer City, Inc. ("CCI" or "Computer City") was sold
effective August 31, 1998. Computer City sales related to personal computer
hardware and software, printers, peripheral equipment and accessories sold
through retail locations and direct sales to corporate, government and education
customers.
In December 1996, the Company announced its intention to exit the Incredible
Universe business and certain other stores (see Note 5).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of Tandy and its majority owned subsidiaries. CCI was included in
Consolidated Financial Statements through August 31, 1998, the date of its sale.
Investments in 20% to 50% owned companies are accounted for on the equity
method. The fiscal periods of certain foreign operations end one month earlier
than the Company's year end to facilitate their inclusion in the consolidated
financial statements. Significant intercompany transactions are eliminated in
consolidation.
Foreign Currency Translation: The functional currency of substantially all
operations outside the U.S. is the respective local currency. Translation gains
or losses related to net assets located outside the United States are shown as a
component of comprehensive loss, and classified in the equity section of the
balance sheet.
Cash and Cash Equivalents: Cash on hand in stores, deposits in banks and all
highly liquid investments with a remaining maturity of three months or less at
the time of purchase are considered cash and cash equivalents. Cash equivalents
are carried at cost, which approximates market value.
Marketable Securities: The Company had an investment in AST Research, Inc.
("AST") common stock at December 31, 1996 which it sold in August 1997. This
investment was classified in other current assets in the Consolidated Balance
Sheet at December 31, 1996 and categorized as "available for sale". Securities
classified as "available for sale" are marked to market based upon market value
fluctuations. Resulting adjustments, net of deferred taxes, are reported as a
component of stockholders' equity until realized. Declines in fair value that
are considered to be other than temporary are recognized in earnings and
establish a new cost basis for the security. Realized gains and losses are also
included in earnings and are determined on the specific identification method.
Accounts Receivable and Allowance For Doubtful Accounts: An allowance for
doubtful accounts is provided when accounts are determined to be uncollectible.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Company's customer base and
their location in many different geographic areas of the country; however, the
Company does have some concentration of credit risk in the cellular telephone
industry due to increased sales and outstanding balances as of December 31, 1998
from cellular telephone carriers. The increase was due primarily to RadioShack's
growth in wireless telephone sales (see Note 7).
Inventories: Inventories are stated at the lower of cost (principally based on
average cost) or market value and are comprised primarily of finished goods.
Property, Plant and Equipment: Property and equipment are stated at cost. For
financial reporting purposes, depreciation and amortization are primarily
calculated using the straight-line method, which amortizes the cost of the
assets over their estimated useful lives. When depreciable assets are sold or
retired, the related cost and accumulated depreciation are removed from the
accounts. Any gains or losses are included in selling, general and
administrative SG&A expense. Major additions and betterments are capitalized.
Maintenance and repairs which do not materially improve or extend the lives of
the respective assets are charged to operating expenses as incurred.
Amortization of buildings under capital leases is included in depreciation and
amortization in the Consolidated Statements of Income.
Impairment of Long-Lived Assets: Long-lived assets (primarily property, plant
and equipment and goodwill) held and used by the Company or to be disposed of
are reviewed for impairment whenever events or changes in circumstances indicate
that the net book value of the asset may not be recoverable. An impairment loss
is recognized if the sum of the expected future cash flows (undiscounted and
before interest) from the use of the asset is less than the net book value of
the asset. The amount of the impairment loss is generally measured as the
difference between the net book value of the assets and the estimated fair value
of the related assets.
Fair Value of Financial Instruments: The fair value of financial instruments is
determined by reference to various market data and other valuation techniques as
appropriate. Unless otherwise disclosed, the fair values of financial
instruments approximate their recorded values due primarily to the short-term
nature of their maturities or their varying interest rate.
Hedging and Derivative Activity: The Company entered into interest rate swap
agreements in the first quarter of 1995 to manage its interest rate exposure by
effectively trading floating interest rates for fixed interest rates. The
Company used the swaps to hedge certain obligations with floating rates; thus,
the difference between the floating and fixed interest rate amounts, based on
these swap agreements, was recorded as income or expense. Through December 31,
1996, the Company had entered into five swaps with regard to notional amounts
totaling $90.0 million. In 1996, the Company terminated the underlying lease
obligations related to these swaps and recognized a charge of $3.8 million,
which was the fair market value of the swaps at the time of the lease
terminations (see Note 5). These swaps were terminated in March 1997 at no
material gain or loss.
Revenues: Retail sales are recorded on the accrual basis. Residual income is
typically recognized based upon the contractual percentage of each customer's
monthly bill.
Extended Service Contracts: Tandy's retail operations offer extended service
contracts on products sold. These contracts generally provide extended service
coverage for periods of 12 to 60 months. The Company extends service contracts
on behalf of an unrelated third party and, to a much lesser extent, sells its
own extended service contracts. Revenues from sales of its own extended service
contracts are recognized ratably over the lives of the contracts. Costs directly
related to sales of such contracts are deferred and charged to expense
proportionately as the revenues are recognized. A loss is recognized on extended
service contracts if the sum of the expected costs of providing services under
the contracts exceeds related unearned revenue. Commission revenue for the
unrelated third party extended service contracts is recognized at the time of
sale.
Income Taxes: Income taxes are accounted for using the asset and liability
method. Deferred taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement and carrying amounts and the tax
basis of existing assets and liabilities. The effect on deferred taxes for a
change in tax rates is recognized in income in the period that includes the
enactment date. In addition, the Company recognizes future tax benefits to the
extent that realization of such benefits are more likely than not.
Earnings Per Share: Effective December 31, 1997, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" ("FAS
128"). FAS 128 establishes standards for computing and presenting earnings per
share ("EPS"). The statement requires dual presentation of basic and diluted EPS
on the face of the income statement for entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes the effect of potentially dilutive securities while diluted
EPS 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 the earnings of the
entity. EPS data for the year ended December 31, 1997 and all prior periods
presented herein have been restated to conform with the provisions of this
statement.
<PAGE>
The following is a reconciliation of the numerator and denominator used in the
basic and diluted EPS calculation for the years ended December 31, 1998, 1997
and 1996:
<TABLE>
<CAPTION>
(Dollars and shares in 1998 1997 1996
millions, except per ---------------------------------- -------------------------------- --------------------------------
share amounts) Income Shares Per Share Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income $ 61.3 $ 186.9 $ (91.6)
Less: Preferred stock
dividends (5.8) (6.1) (6.3)
------- ------- -------
Basic EPS
Net income (loss)
available to
common shareholders 55.5 100.6 $ 0.55 180.8 107.2 $ 1.69 (97.9) 119.7 $ (0.82)
======= ======= =======
Effect of dilutive
securities:
Plus dividends on Series
B preferred stock 5.8 6.1
Additional contribution
required for TESOP if
preferred stock had
been converted (4.1) 3.4 (3.9) 3.5
Stock options 1.7 1.5
------- ------- ------- -------
Diluted EPS
Net income (loss) available
to common shareholders
plus assumed conversions $ 57.2 105.7 $ 0.54 $ 183.0 112.2 $ 1.63 $ (97.9) 119.7 $ (0.82)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Options to purchase 1.6 million and 0.7 million shares of common stock in 1998
and 1997, respectively, were not included in the computation of diluted earnings
per common share because the option exercise price was greater than the average
market price of the common stock during the year. In 1996, 4.6 million options
to purchase common stock and an additional 3.6 million shares of Series B
preferred stock were not included in the computation of diluted earnings per
common share because the Company was in a loss position and their inclusion
would have been antidilutive.
Stock-Based Compensation: The Company adopted, on a disclosure basis only, SFAS
No. 123, "Accounting for Stock-Based Compensation" ("FAS 123") in 1996. The
Company continues to measure compensation costs under Accounting Principles
Board Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25") and its
related interpretations.
Advertising Costs: All advertising costs of the Company are expensed the first
time the advertising takes place. Advertising expense was $208.7 million, $195.4
million, and $254.6 million for the years ended December 31, 1998, 1997 and
1996, respectively.
Capitalized Software Costs: The Company capitalizes qualifying costs relating to
developing or obtaining internal-use software. Capitalization of costs begins
after the conceptual formulation stage has been completed. Capitalized costs are
amortized over the estimated useful life of the software, which ranges between
three and five years. Capitalized software costs at December 31, 1998, 1997 and
1996 totaled $27.6 million, $25.4 million, and $23.5 million, net of accumulated
amortization of $4.0 million, $5.7 million and $2.4 million, respectively.
Pervasiveness of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and related revenues and expenses, and disclosure of gain and loss
contingencies at the date of the financial statements. Actual results could
differ from those estimates.
<PAGE>
Comprehensive Income (Loss): Effective January 1, 1998, the Company adopted SFAS
No. 130, "Reporting Comprehensive Income". Comprehensive income is defined as
the change in equity (net assets) of a business enterprise during a period,
except those changes resulting from investments by owners and distributions to
owners.
The following tables summarize the tax effects and the cumulative amount of the
separate components of other comprehensive income (loss) for the years ended
December 31, 1998, 1997 and 1996:
Tax Effects of Other Comprehensive Income (Loss)
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- ------------------------- -------------------------
Pre-Tax Tax After Tax Pre-Tax Tax After Tax Pre-Tax Tax After Tax
(In millions) Amount Expense Amount Amount Expense Amount Amount Benefit Amount
----------- ------ ------- ------ ------ ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign currency
translation adjustments $(1.2) $(0.5) $(0.7) $(2.9) $(1.1) $(1.8) $(3.5) $(1.0) $(2.5)
Less: Reclassification
adjustment for losses
included in net income
(loss) 2.3 0.9 1.4 1.8 0.7 1.1 3.6 1.0 2.6
------------------------ ------------------------ -------------------------
Net unrealized gain (loss) 1.1 0.4 0.7 (1.1) (0.4) (0.7) 0.1 -- 0.1
------------------------ ------------------------ -------------------------
Unrealized gain (loss) on
securities -- -- -- 5.3 1.9 3.4 (11.0) (3.9) (7.1)
Less: Reclassification
adjustment for (gains)
losses included in net
income (loss) -- -- -- (1.3) (0.5) (0.8) 7.0 2.5 4.5
------------------------ ------------------------ -------------------------
Net unrealized gain (loss) -- -- -- 4.0 1.4 2.6 (4.0) (1.4) (2.6)
------------------------ ------------------------ -------------------------
Other comprehensive
income (loss) $ 1.1 $ 0.4 $ 0.7 $ 2.9 $ 1.0 $ 1.9 $(3.9 $(1.4) $(2.5)
======================== ======================== =========================
Cumulative Amount of Separate Components of Other Comprehensive Loss
1998 1997 1996
------------------------------------ ------------------------------------ ------------------------------------
Foreign Accumulated Foreign Accumulated Foreign Accumulated
Currency Unrealized Other Currency Unrealized Other Currency Unrealized Other
Translation Gain on Comprehensive Translation Gain on Comprehensive Translation Gain on Comprehensive
(In millions) Adjustment Securities Loss Adjustment Securities Loss Adjustment Securities Loss
----------- ---------- ---------- ---- ---------- ---------- ---- ---------- ---------- ----
Beginning balance $ (1.7) $ -- $ (1.7) $ (1.0) $ (2.6) $ (3.6) $ (1.1) $ -- $ (1.1)
Current period change 0.7 -- 0.7 (0.7) 2.6 1.9 0.1 (2.6) (2.5)
--------------------------------- ----------------------------------- ------------------------------------
Ending balance $ (1.0) $ -- $ (1.0) $ (1.7) $ -- $ (1.7) $ (1.0) $ (2.6) $ (3.6)
================================= =================================== ====================================
</TABLE>
NOTE 3 - STOCK SPLIT
On September 22, 1997, the Company distributed a two-for-one split of Tandy
common stock. This resulted in the issuance of 52.7 million shares of common
stock along with a corresponding decrease of $52.7 million in additional paid-in
capital. Treasury shares were not split. However, an adjustment was made to the
Company's stockholders' equity section of the balance sheet to split the cost of
treasury stock (in effect a cancellation of treasury shares). All references to
the number of shares of common stock issued or outstanding, per share prices,
and income per common share amounts in the Consolidated Financial Statements and
the accompanying Notes to Consolidated Financial Statements ("Notes") have been
adjusted to reflect the split on a retroactive basis. Previously awarded stock
options, restricted stock awards, and all other agreements payable in the
Company's common stock have been adjusted or amended to reflect the split.
Additionally, cash dividends which were $0.20 per share per quarter prior to the
two-for-one split have been restated at $0.10 per share per quarter to reflect
the two-for-one split.
NOTE 4 - SALE OF COMPUTER CITY, INC.
On June 22, 1998, the Company announced that it had signed a definitive
agreement with CompUSA, Inc. ("CompUSA") for the sale of 100% of the outstanding
common stock of the Company's Computer City, Inc. subsidiary. On August 31,
1998, the sale was completed. The Company received approximately $36.5 million
in cash and an unsecured subordinated note for $136.0 million as consideration
for the sale. The note, which is of equal priority with CompUSA's existing
subordinated debt, bears interest at 9.48% per annum and is payable over a ten
year period. Interest is payable on June 30 and December 31 of each year, with
the first payment made on December 31, 1998. Beginning on December 31, 2001,
principal payments will be due semiannually until the note matures on June 30,
2008. The Company recognized a loss of $108.2 million from the sale of CCI in
1998, which included certain liabilities and contractual obligations incurred by
the Company.
In connection with the sale, the Company reacquired the 19.9% interest of CCI
from Eureka Venture Partners III LLP ("EVP"), which was acquired by EVP from the
Company in July 1997. Related to the reacquisition of EVP's ownership in CCI,
the management agreement with the three principals of EVP was terminated. In
addition, the warrant that EVP purchased for an additional 20.1% interest in CCI
was canceled.
Net sales and operating revenues, operating losses and restructuring and other
charges for Computer City for each of the three years ended December 31 are
presented below:
(In millions) 1998(1) 1997 1996
----------- -------- -------- --------
Net sales and operating revenues $1,196.7 $1,903.7 $1,721.6
Operating loss (95.6) (14.9) (20.3)
Restructuring and other charges -- -- (54.2)(2)
(1) Includes operations for only eight months, due to sale to CompUSA on August
31, 1998.
(2) As described more fully in Note 5, during the fourth quarter of 1996 Tandy
elected to close 21 unprofitable stores. CCI recognized a restructuring
charge aggregating $14.8 million associated with these closings. The charges
related primarily to lease obligations and employee termination expenses.
CCI also recognized asset impairment charges aggregating $18.7 million
during 1996 and lower of cost or market impairments aggregating
approximately $20.7 million related to inventory liquidated at the affected
stores.
NOTE 5 - PROVISIONS FOR BUSINESS RESTRUCTURING AND ASSET IMPAIRMENT
In the fourth quarter of 1996, Tandy initiated certain restructuring programs to
exit its Incredible Universe business, close 21 unprofitable Computer City
stores and close its 53 remaining McDuff stores. These restructuring programs
were undertaken as a result of the highly competitive environment in the
electronics industry. The Company recorded total pre-tax charges of $162.1
million in 1996 related to future lease obligations, real estate costs,
disposition of fixed assets, employee termination expenses and contract
cancellation costs related to this restructuring program. The Company also
recognized, in 1996, lower of cost or market impairments aggregating
approximately $91.4 million, pre-tax, primarily related to inventory that was
liquidated at the affected stores. Inventory impairment charges were recognized
in the Consolidated Statements of Income as an increase in cost of sales in
1996. The Company also recognized a non-cash impairment charge of $86.8 million
to write down the carrying values of long-term assets pursuant to SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("FAS 121") as part of the restructuring plan.
Upon adoption of FAS 121 in the first quarter of 1996, the Company recognized an
initial non-cash impairment loss of approximately $26.0 million to conform with
this statement, primarily as a result of grouping long-lived assets at their
lowest level of cash flows to determine impairment as required by this
statement.
In January 1997, the Company closed the respective 53 McDuff and 21 Computer
City stores. Additionally, by July 1997, all of the Incredible Universe stores
were either closed or sold. During 1997, the Company sold the assets related to
several closed stores, including the sale of the real estate, related fixed
assets and inventory of six Incredible Universe stores to Fry's Electronics,
Inc. and its affiliates ("Fry's"). These six stores were sold for approximately
$21.5 million in cash and $97.4 million in notes receivable with no material
gain or loss recognized upon the sale. At December 31, 1998, the notes
receivable balance was $47.6 million with remaining interest rates ranging from
6.6% to 6.7% and maturity dates in 2001 and 2002. In 1997, additional costs
totaling $11.6 million related to store closings were recorded and included in
SG&A expense in the accompanying Consolidated Statements of Income.
On January 1, 1998, five closed Incredible Universe locations remained. During
1998, three were sold for a total of $13.3 million in cash and a $3.0 million
note receivable. The balance on the note receivable was approximately $3.0
million at December 31, 1998. The lease on an additional location was terminated
during 1998, leaving one Incredible Universe location remaining at December 31,
1998. In 1998, $6.5 million was accrued and charged to SG&A expense for
additional lease obligations and real estate costs.
Net sales and operating revenues and operating losses of the stores closed
pursuant to the restructuring plans are shown below for each year ended December
31 (unaudited):
(In millions) 1998 1997 1996
- ------------- -------- -------- --------
Net sales and operating revenues $ -- $ 164.6 $1,403.4
Operating loss -- (30.1)(1) (114.4)(1)
(1) Excludes business restructuring and asset impairment charges discussed
above.
The components of the combined restructuring charges and an analysis of the
amounts charged against the reserve are outlined in the following table:
1996 Business Restructuring
<TABLE>
<CAPTION>
Charges Charges Charges
Balance Additional 1/1/96- Balance Additional 1/1/97- Balance Additional 1/1/98- Balance
(In millions) 12/31/95 Reserves 12/31/96 12/31/96 Reserves 12/31/97 12/31/97 Reserves 12/31/98 12/31/98
- ------------ -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> > <C> <C>
Real estate
obligations $ 12.2 96.8 (15.5) 93.5 11.6 (78.1) 27.0 6.5 (14.1) $ 19.4
Disposal of fixed
assets -- 8.0 (8.0) -- -- -- -- -- -- --
Inventory
impairment -- 2.5 (2.5) -- -- -- -- -- -- --
Termination
benefits -- 7.1 (2.5) 4.6 -- (4.6) -- -- -- --
Contract
termination costs -- 13.2 -- 13.2 -- (13.2) -- -- -- --
Other -- 34.5 (8.1) 26.4 -- (24.8) 1.6 -- (0.8) 0.8
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
$ 12.2 162.1 (36.6) 137.7 11.6 (120.7) 28.6 6.5 (14.9) $ 20.2
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
NOTE 6 - CASH EQUIVALENTS
The weighted average interest rates were 6.0% and 5.9% at December 31, 1998 and
1997, respectively, for cash equivalents totaling $16.2 million and $53.1
million, respectively.
NOTE 7 - ACCOUNTS AND NOTES RECEIVABLE
As of December 31, 1998 and 1997, the Company had the following accounts and
notes receivable outstanding on the Consolidated Balance Sheets:
Accounts and Notes Receivable
December 31,
---------------------
(In millions) 1998 1997
- ------------- -------- --------
Trade accounts receivable $ 68.2 $ 125.0
Receivables from InterTAN (see Note 22) 4.2 3.1
Current portion of Fry's notes
receivable (see Note 5) 1.0 27.6
Receivables from vendors and service
providers(1) 133.2 73.8
Other receivables 27.4 30.6
Less allowance for doubtful accounts (18.8) (8.8)
-------- --------
$ 215.2 $ 251.3
======== ========
(1) Includes residuals and commissions from wireless telephone carriers and
residuals from long distance, digital satellite service and pager activation
providers.
<PAGE>
Notes Receivable
December 31,
---------------------
(In millions) 1998 1997
- ------------- -------- --------
CompUSA (see Note 4) $ 136.0 $ --
Fry's (see Note 5) 47.6 75.3
Other notes 4.7 4.7
-------- --------
188.3 80.0
Less amount classified as
accounts and notes receivable (2.2) (28.8)
-------- --------
Total amount classified as other
assets $ 186.1 $ 51.2
======== ========
Interest income earned, including accretion of discount if applicable, on the
amounts outstanding during the three years ended December 31, 1998, 1997 and
1996 was as follows:
Year Ended December 31,
---------------------------------
(In millions) 1998 1997 1996
- ------------- -------- --------- --------
CompUSA (1) $ 4.3 $ -- $ --
InterTAN (2) -- 5.4 6.7
Fry's 3.5 3.3 --
Other 3.0 4.5 6.3
-------- -------- --------
Total $ 10.8 $ 13.2 $ 13.0
======== ========= ========
(1) The note receivable from CompUSA originated August 31, 1998.
(2) The note receivable from InterTAN, Inc. was paid in full on December 31,
1997.
Allowance for Doubtful Accounts
December 31,
---------------------------------
(In millions) 1998 1997 1996
- ------------- --------- -------- --------
Balance at the beginning of the year $ 8.8 $ 7.9 $ 5.8
Provision for credit losses and bad debt
included in SG&A expense 12.5 2.6 2.8
Uncollected receivables written off,
net of recoveries (2.5) (1.7) (0.7)
--------- -------- --------
Balance at the end of the year $ 18.8 $ 8.8 $ 7.9
========= ======== ========
<PAGE>
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT
The following table outlines the ranges of estimated useful lives and balances
of each major fixed asset category:
<TABLE>
<CAPTION>
December 31,
Range of ----------------------
(In millions) Estimated Useful Life 1998 1997
- ------------- --------------------- -------- --------
<S> <C> <C> <C>
Land -- $ 16.6 $ 16.9
Buildings 10 - 40 years 183.1 180.9
Buildings under capital lease Over the life of the lease -- 31.3
Furniture, fixtures and equipment 2 -15 years 451.9(1) 474.8
Leasehold improvements Primarily, the shorter of 323.1 377.8
the life of the improvements
or the term of the related
lease and certain renewal
periods
-------- --------
974.7 1,081.7
Less accumulated depreciation and
amortization of capital leases (540.9) (559.8)
-------- --------
$ 433.8 $ 521.9
======== ========
(1) Includes $22.1 million of assets under capital leases.
</TABLE>
NOTE 9 - TREASURY STOCK REPURCHASE PROGRAM
On March 3, 1997, the Company announced that its Board of Directors authorized
management to purchase an additional 10.0 million shares of its common stock
through the Company's existing share repurchase program. The share repurchase
program was initially authorized in December 1995 and increased in October 1996.
The share increase for 1997 brought the total authorization to 30.0 million
shares, of which 25.9 million shares totaling $745.8 million had been purchased
as of December 31, 1998. Additionally, on October 26, 1998, the Company
announced that its Board of Directors authorized the repurchase of up to 5.0
million shares of the Company's common stock for an indefinite period of time to
be used to offset the dilution of grants under Tandy's incentive stock plans
(see Note 17). These purchases are in addition to the shares required for
employee stock plans, which are purchased throughout the year.
In connection with the share repurchase program, the Board of Directors, at
their October 23, 1998 meeting, authorized management to sell up to one million
put options on the Company's common stock. During 1998, the Company sold 80,000
put options with a strike price of $40.71 to an independent third party. Such
options grant the purchaser the right to sell shares of Tandy's common stock to
the Company at specified prices upon exercise of the options. These put options
are exercisable only at maturity and can be settled in cash at the Company's
option, in lieu of repurchasing the stock. The issued put options have a
maturity of six months. At December 31, 1998, all 80,000 options remained
outstanding and the full redemption value of the options was classified as
common stock put options in the accompanying 1998 Consolidated Balance Sheet.
The related offset was recorded in common stock in treasury, net of premiums
received. Additionally, 200,000 put options have been sold in 1999 at strike
prices ranging from $45.08 to $55.20; these put options have six month maturity
dates.
NOTE 10 - INDEBTEDNESS AND BORROWING FACILITIES
Tandy's short-term credit facilities, including revolving credit lines, are
summarized in the accompanying short-term borrowing facilities table below. The
method used to compute averages in the short-term borrowing facilities table is
based on a daily weighted average computation which takes into consideration the
time period such debt was outstanding as well as the amount outstanding. The
Company's primary source of short-term debt, for which borrowings and repayments
are presented net of each other in the Consolidated Statements of Cash Flows,
consists of short-term seasonal bank debt and commercial paper. The commercial
paper has a typical maturity of 90 days or less, as does the short-term seasonal
bank debt. The amount of commercial paper that may be outstanding is limited to
a maximum of $500.0 million.
In the second quarter of 1998, Tandy replaced its existing $500.0 million credit
facilities with new credit facilities, also totaling $500.0 million. The new
facilities were granted by a syndicate of 17 banks, including a new agent bank,
and consist of a $200.0 million 364-day revolving credit facility maturing June
1999 and a $300.0 million five-year revolving credit facility maturing June
2003. The Company plans to extend the $200.0 million facility to June 2000.
Annual commitment fees for the two facilities are 0.06% of the $200.0 million
facility per annum and 0.085% of the $300.0 million facility per annum, whether
used or unused. The revolving credit facilities are used as backup for the
commercial paper program and may be utilized for general corporate purposes. At
December 31, 1998, there was $179.0 million of commercial paper outstanding
backed by these facilities.
On August 19, 1997, the Company issued $150.0 million of 10 year unsecured
senior notes under a $300.0 million Debt Shelf Registration Statement (the
"Shelf Registration"), which was effective August 6, 1997. The interest rate on
the notes is 6.95% per annum with interest payable on September 1 and March 1 of
each year, commencing on March 1, 1998. The notes are due September 1, 2007. In
December 1997 and January 1998, the Company issued $49.0 million in medium-term
notes under the Shelf Registration. The proceeds were used to repay current
maturities of long-term debt. Tandy's medium-term notes outstanding at December
31, 1998 totaled $49.8 million compared to $30.0 million at December 31, 1997.
The interest rates at December 31, 1998 for the outstanding $49.8 million in
medium-term notes ranged from 6.09% to 7.25%, with weighted average coupon rates
of 6.2% and 8.2% at December 31, 1998 and 1997, respectively. An additional
$32.0 million of medium-term notes were issued in January 1999 at a coupon rate
of 6.15%. As of February 24, 1999, the Company had remaining availability of
$69.0 million under the Shelf Registration.
At December 31, 1997, a wholly-owned subsidiary of Tandy had a $125.0 million
subordinated note which was repaid by Tandy on July 14, 1998.
The Company established an employee stock ownership trust in June 1990. Further
information on the trust and its related indebtedness, which is guaranteed by
the Company, is detailed in the discussion of the Tandy Fund in Note 15.
Long-term borrowings and capital lease obligations outstanding at December 31,
1998 mature as follows:
(In millions)
- -----------------------------------------------------------------
1999.................................................. $ 17.7
2000.................................................. 14.5
2001.................................................. 17.2
2002.................................................. 25.4
2003.................................................. 19.9
2004 and thereafter................................... 158.1
------
Total................................................. $ 252.8
=======
- -----------------------------------------------------------------
The fair value of the Company's long-term debt of $233.7 million (including
current portion, but excluding capital leases) was approximately $236.7 million
at December 31, 1998. The fair value was computed using interest rates which
were in effect at December 31, 1998 for similar debt instruments.
Borrowings payable within one year are summarized in the accompanying short-term
debt table below. Short-term debt at December 31, 1998 consisted primarily of
domestic seasonal borrowings. Short-term debt at December 31, 1997 consisted of
the $125.0 million note payable and the $30.0 million outstanding on the CCI
revolving credit facility (see above) as well as $70.2 million in domestic
seasonal borrowings.
Short-Term Debt
December 31,
---------------------
(In millions) 1998 1997
- ------------- -------- --------
Short-term bank debt and other short-term debt $ 36.5 $ 225.2
Current portion of long-term debt 1.0 25.0
Commercial paper, less unamortized discount 179.0 35.0
Current portion of capitalized lease obligations 6.6 1.9
Current portion of guarantee of TESOP indebtedness 10.1 12.4
-------- --------
Total short-term debt $ 233.2 $ 299.5
======== ========
Long-Term Debt
December 31,
---------------------
(In millions) 1998 1997
- ------------- -------- --------
Notes payable with interest rates at December 31, 1998
ranging from 4.65% to 5.12% $ 9.1 $ 9.1
Notes payable issued pursuant to the Shelf
Registration with an interest rate of 6.95%, net of
unamortized issuance costs of $6.0 million and $6.3
million, respectively 144.0 143.7
Medium-term notes payable, net of issuance cost, with
interest rates at December 31, 1998 ranging from 6.09%
to 7.25% 49.8 30.0
-------- --------
202.9 182.8
Less portion due within one year included in current
notes payable (1.0) (25.0)
-------- --------
201.9 157.8
-------- --------
Capital lease obligations (see Note 20) 19.1 50.5
Less current portion (6.6) (1.9)
-------- --------
12.5 48.6
-------- --------
Guarantee of TESOP indebtedness (see Note 15) 30.8 42.1
Less current portion (10.1) (12.4)
-------- --------
20.7 29.7
-------- --------
Total long-term debt $ 235.1 $ 236.1
======== ========
<PAGE>
Short-Term Borrowing Facilities
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
(In millions) 1998 1997 1996
- ------------- -------- -------- ---------
<S> <C> <C> <C>
Domestic seasonal bank credit lines
and bank money market lines:
Lines available at year end $ 895.0 $1,190.0 $ 987.0
Loans outstanding at year end $ 33.9 $ 225.2 $ 147.2
Weighted average interest rate at year end 5.9% 6.5% 5.9%
Weighted average of loans outstanding
during year $ 49.8 $ 216.9 $ 91.8
Weighted average interest rate during year 5.7% 5.9% 5.6%
Short-term foreign credit lines:
Lines available at year end $ 156.4 $ 132.3 $ 157.6
Loans outstanding at year end 2.6 None None
Weighted average interest rate at year end 6.3% N/A N/A
Weighted average of loans outstanding
during year $ 5.3 $ 0.8 N/A
Weighted average interest rate during year 6.1% 6.0% N/A
Letters of credit and banker's acceptance
lines of credit:
Lines available at year end $ 212.3 $ 237.3 $ 230.3
Acceptances outstanding at year end None None None
Letters of credit open against outstanding
purchase orders at year end $ 52.1 $ 65.9 $ 33.9
Commercial paper credit facilities:
Commercial paper outstanding at year end $ 179.0 $ 35.0 $ 59.9
Weighted average interest rate at year end 6.0% 7.1% 5.8%
Weighted average of commercial paper
outstanding during year $ 120.6 $ 189.7 $ 210.2
Weighted average interest rate during period 5.7% 5.9% 5.7%
</TABLE>
NOTE 11 - LEASES AND COMMITMENTS
Tandy leases rather than owns most of its facilities. The RadioShack(R) stores
comprise the largest portion of Tandy's leased facilities. The RadioShack stores
are located primarily in major shopping malls and shopping centers owned by
other companies. Store leases are generally based on a minimum rental plus a
percentage of the store's sales in excess of a stipulated base figure. Tandy
also leases distribution centers and office space. In addition, the Company also
has capital leases related to its computer and operating systems.
Future minimum rent commitments at December 31, 1998 for all long-term
noncancelable leases (net of immaterial amounts of sublease rent income) are
included in the following table.
(In millions) Operating Leases Capital Leases
- -------------------------------------------------------------------
1999....................... $ 150.0 $ 7.4
2000....................... 135.7 5.6
2001....................... 104.3 5.7
2002....................... 71.0 2.2
2003....................... 46.3 --
2004 and thereafter........ 71.0 --
--------
Total minimum lease payments....................... 20.9
Less: Amount representing interest................. (1.8)
--------
Present value of net minimum lease payments........ $ 19.1
========
<PAGE>
Future minimum rent commitments in the table above exclude future rent
obligations associated with stores closed pursuant to the restructuring plan.
Estimated payments to settle future rent obligations associated with these
stores have been accrued in the restructuring reserve (see Note 5).
Rent Expense
Year Ended December 31,
-------------------------------
(In millions) 1998 1997 1996
- ------------- -------- -------- --------
Minimum rents $ 216.5 $ 221.9 $ 238.9
Contingent rents 3.0 2.8 2.8
Sublease rent income (2.1) (2.1) (1.9)
-------- -------- --------
Total rent expense $ 217.4 $ 222.6 $ 239.8
======== ======== ========
NOTE 12 - ACCRUED EXPENSES
December 31,
-------------------
(In millions) 1998 1997
- ------------- -------- --------
Payroll and bonuses $ 67.3 $ 56.6
Sales and payroll taxes 74.6 52.0
Insurance 70.2 66.8
Other 122.3 97.7
-------- --------
$ 334.4 $ 273.1
======== ========
NOTE 13 - INCOME TAXES
The components of the provision (benefit) for income taxes and a reconciliation
of the U.S. statutory tax rate to the Company's effective income tax rate are
given in the accompanying tables.
Income Tax Expense (Benefit)
Year Ended December 31,
-------------------------------
(In millions) 1998 1997 1996
- ------------- -------- -------- --------
Current
Federal $ 87.5 $ 12.4 $ 79.7
State 14.5 2.6 5.3
Foreign 2.4 2.3 2.5
-------- -------- --------
104.4 17.3 87.5
-------- -------- --------
Deferred
Federal (55.0) 92.3 (131.8)
State (11.0) 7.4 (9.7)
Foreign -- -- --
-------- -------- --------
(66.0) 99.7 (141.5)
-------- -------- --------
Provision (benefit) for income taxes $ 38.4 $ 117.0 $ (54.0)
======== ======== ========
<PAGE>
Statutory vs. Effective Tax Rate
Year Ended December 31,
-------------------------------
(In millions) 1998 1997 1996
- ------------- -------- -------- --------
Components of pre-tax income (loss)
from continuing operations:
United States $ 85.4 $ 295.0 $ (148.6)
Foreign 14.3 8.9 3.0
-------- -------- --------
Income (loss) before income taxes 99.7 303.9 (145.6)
Statutory tax rate x 35.0% x 35.0% x 35.0%
-------- -------- --------
Federal income tax expense (benefit)
at statutory rate 34.9 106.4 (51.0)
State income taxes, less federal
income tax effect 2.2 6.5 (2.8)
Other, net 1.3 4.1 (0.2)
-------- -------- --------
Total income tax expense (benefit) $ 38.4 $ 117.0 $ (54.0)
======== ======== ========
Effective tax rate 38.5% 38.5% 37.1%
======== ======== ========
The 1996 tax rate differed from the 1998 and 1997 tax rates due primarily to
foreign income taxes which were incurred on foreign income despite the overall
loss incurred by the Company.
Deferred tax assets and liabilities as of December 31, 1998 and 1997 were
comprised of the following:
December 31,
--------------------
(In millions) 1998 1997
- ------------- -------- --------
Deferred Tax Assets
Bad debt reserve $ 7.2 $ 3.9
Restructuring reserves 12.8 35.5
Restricted stock 28.9 --
Long-lived asset impairment -- 4.0
Insurance reserves 19.7 18.6
Depreciation and amortization 20.1 --
Other 33.2 33.4
-------- --------
Total deferred tax assets 121.9 95.4
-------- --------
Deferred Tax Liabilities
Inventory adjustments, net 6.1 5.0
Deferred taxes on foreign operations 7.1 3.4
Depreciation and amortization -- 38.0
Other 2.9 10.0
-------- --------
Total deferred tax liabilities 16.1 56.4
-------- --------
Net Deferred Tax Assets $ 105.8 $ 39.0
======== ========
The net deferred tax asset is classified
as follows:
Other current assets $ 55.7 $ 67.5
Noncurrent assets (liabilities) 50.1 (28.5)
-------- --------
Net Deferred Tax Assets $ 105.8 $ 39.0
======== ========
Management anticipates generating enough pre-tax income in the future to realize
the full benefit of U.S. deferred tax assets related to future deductible
amounts. Accordingly, a valuation allowance is not required at December 31, 1998
or 1997.
<PAGE>
NOTE 14 - TANDY STOCK PLAN
Eligible employees may contribute 1% to 7% of annual compensation to purchase
Company common stock at the monthly average daily closing price. The Company
matches 40%, 60% or 80% of the employee's contribution, depending on the length
of the employee's continuous participation in the Tandy Stock Plan. Tandy's
contributions to the Stock Plan were $14.5 million, $13.7 million and $14.5
million for the years ended December 31, 1998, 1997 and 1996, respectively.
NOTE 15 - TANDY FUND
On January 1, 1996, the Tandy Employees Stock Ownership Plan ("TESOP"), a
leveraged employee stock ownership plan, was amended and merged with the Tandy
Employees Deferred Salary and Investment Plan ("DIP") and renamed the Tandy Fund
("Plan"). The Plan is a defined contribution plan. Eligible employees may direct
their contributions into various investment options, including investing in
Company common stock. Participants may defer, via payroll reductions, 1% to 8%
of annual compensation. Contributions per participant are limited to certain
annual maximums permitted by the Internal Revenue Code. Company contributions
are made directly to the Plan through the TESOP portion of the Plan.
Participants become fully vested in Company contributions upon the earlier to
occur of five years of service with the Company or three years of participation
in the Plan.
TESOP Portion of the Plan: On July 31, 1990, prior to its merger into the Tandy
Fund, the trustee of the TESOP, now the Plan, borrowed $100.0 million at an
interest rate of 9.34% with varying semiannual principal payments due through
June 30, 2000 ("TESOP Notes"). The Plan trustee used the proceeds from the
issuance of the TESOP Notes to purchase 100,000 shares of TESOP Preferred Stock
from Tandy at a price of $1,000 per share. In December 1994, the Plan entered
into an agreement with an unrelated third party to refinance up to $16.7 million
of the TESOP Notes in a series of up to six annual notes, beginning December 30,
1994. As of December 31, 1998, the Plan had borrowed $16.2 million (the
"Refinanced Notes") of a possible $16.7 million at interest rates ranging from
5.84% to 8.76% to refinance the TESOP Notes. The maturity dates of these five
notes range from December 2000 to December 2002. Dividend payments and
contributions received by the Plan from Tandy will be used to repay the
indebtedness. Each share of TESOP Preferred Stock is convertible into 43.536
shares of Company common stock. The annual cumulative dividend on TESOP
Preferred Stock is $75.00 per share, payable semiannually. Because Tandy has
guaranteed the repayment of the TESOP Notes and the Refinanced Notes, the
indebtedness of the Plan is recognized as a long-term obligation in the
accompanying Consolidated Balance Sheets. An offsetting charge has been made in
the stockholders' equity section of the accompanying Consolidated Balance Sheets
to reflect unearned deferred compensation related to the Plan.
Compensation and interest expenses related to the Plan before the reduction for
the allocation of dividends are presented below for each year ended December 31:
(In millions) 1998 1997 1996
- ------------- -------- -------- --------
Compensation expense $ 10.2 $ 9.5 $ 8.0
Interest expense 3.4 4.4 5.1
During the terms of the TESOP Notes and Refinanced Notes, the TESOP Preferred
Stock will be allocated to the participants annually, based on the total debt
service made on the indebtedness. As shares of the TESOP Preferred Stock are
allocated to Plan participants, compensation expense is recorded and unearned
deferred compensation is reduced. Interest expense on the TESOP Notes and
Refinanced Notes is also recognized as a cost of the Plan. The compensation
component of the Plan expense is reduced by the amount of dividends accrued on
the TESOP Preferred Stock, with any dividends in excess of the compensation
expense reflected as a reduction of interest expense.
Contributions from Tandy to the Plan for the years ended December 31, 1998, 1997
and 1996 totaled $14.7 million, $14.5 million and $11.4 million, respectively,
including dividends paid on the TESOP Preferred Stock of $5.8 million, $6.1
million and $6.3 million, respectively.
At December 31, 1998, 65,290 shares of TESOP Preferred Stock had been released
and allocated to participants' accounts in the Plan (including 23,029 shares
which had been withdrawn by participants). At December 31, 1998, an additional
10,152 shares of TESOP Preferred Stock were released for allocation to
participants on the March 31, 1999 annual allocation date. At December 31, 1998,
24,558 shares of TESOP Preferred Stock were available for later release and
allocation to participants over the remaining life of the TESOP Notes and
Refinanced Notes. The appraised value of these shares was $44.9 million at
December 31, 1998. The TESOP Preferred Stock has certain liquidation preferences
and may be redeemed after July 1, 1994, at specified premiums.
NOTE 16 - DEFERRED COMPENSATION PLANS
In October 1997, the Board of Directors approved the Tandy Corporation Executive
Deferred Compensation Plan and the Tandy Corporation Executive Deferred Stock
Plan, which became effective on April 1, 1998. These plans permit employees who
are corporate or division officers to defer, on a pre-tax basis, up to 80% of
their base salary and/or bonuses. Certain executive officers may defer up to
100% of their base salary and/or bonuses. In addition, officers are permitted to
defer any restricted stock or nonstatutory stock option gains that would
otherwise vest. Cash deferrals may be invested in Company common stock or mutual
funds; however, restricted stock and nonstatutory stock option gains may only be
invested in Company common stock. The Company matches 12% of salary and bonus
deferrals in the form of Company common stock. Tandy will match an additional
25% of salary and bonus deferrals if the deferral period exceeds five years and
the deferrals are invested in Company common stock. Payment of deferrals will be
made in cash and Company common stock in accordance with the employee's
specifications at the time of the deferral; payments may be received in a lump
sum or annual installments not to exceed 20 years.
NOTE 17 - STOCK OPTIONS AND PERFORMANCE AWARDS
The Company applies APB No. 25 and related interpretations in accounting for its
stock option plans, which are described below. Historically, the exercise price
of options has been equal to or greater than the fair market value on the date
of grant.
The 1993 and 1997 Incentive Stock Plans shall each terminate on the tenth
anniversary of the day preceding the date of its adoption by the Board and no
option or award shall be granted under each plan thereafter.
Tandy Corporation 1985 Stock Option Plan ("1985 SOP"): Under the 1985 SOP, as
amended, options to acquire up to 4.0 million registered shares of Tandy's
common stock were authorized to be granted to officers and key management
employees of the Company. The 1985 SOP expired in 1995 and no further grants may
be made under the 1985 SOP. Under the 1985 SOP there were 264,671 and 916,513
vested options which could have been exercised for a total price of $4.0 million
and $15.6 million at December 31, 1998 and 1997, respectively.
Tandy Corporation 1993 Incentive Stock Plan ("1993 ISP"): The 1993 ISP permits
the grant of up to 6.0 million shares in the form of incentive stock options
("ISOs"), nonstatutory stock options (options which are not ISOs) ("NSOs"),
stock appreciation rights ("SARs"), restricted stock, performance units or
performance shares. Grants of options under the 1993 ISP shall be for terms
specified by the Organization and Compensation Committee of the Board of
Directors (the "Committee"), except that the term shall not exceed 10 years.
Option agreements issued under the 1993 ISP generally provide that, in the event
of a change in control, all options become immediately and fully exercisable.
Under the 1993 ISP, each non-employee director of the Company receives a grant
of NSOs for 8,000 shares of the Company's common stock on the first business day
of September of each year ("Director Options"), unless similar options are
granted from any other plan. Director Options have an exercise price of 100% of
the fair market value of the Company's common stock on the trading day prior to
the date of grant, vest as to one-third of the shares annually on the first
three anniversary dates of the date of grant and expire 10 years after the date
of grant.
The exercise price of an option (other than a Director Option) is determined by
the Committee, provided that the exercise price shall not be less than 100% of
the fair market value of a share of the Company's common stock on the date of
grant.
Under the 1993 ISP, there were 2,058,426 and 1,528,054 vested options which
could have been exercised for a total exercise price of $51.2 million and $34.8
million at December 31, 1998 and 1997, respectively. In addition, at December
31, 1998 and 1997 there were 332,826 and 59,160 shares available for additional
grants under the 1993 ISP, respectively.
On February 1, 1997, in an effort to reduce the turnover rate among its store
managers and to align the store managers' interests and goals with those of the
shareholders, the Company granted, under the 1993 ISP, approximately 2,041,200
restricted stock awards consisting of 400 shares each to 4,907 RadioShack store
managers and 800 shares each to 98 Computer City store managers. The restricted
stock awards had a weighted average fair market value of $22.59 per share when
granted. This restricted stock vested at the end of five years on February 2,
2002, if the Company employed the managers at a store manager or higher
position, at that time. However, the grants provided that the restricted shares
could vest early if the Company's common stock closed at $33 13/16 or more for
any 20 consecutive trading days after February 1, 1999. At December 31, 1998, it
was probable that the 1,289,600 shares that remained outstanding under this
grant would vest under the early vesting provisions. The resulting charge to
compensation expense of $82.6 million, including related payroll taxes, was
recorded in the December 31, 1998 financial statements.
Tandy Corporation 1997 Incentive Stock Plan ("1997 ISP"): The 1997 ISP permits
the grant of up to 5.5 million shares in the form of ISOs, NSOs, SARs,
restricted stock, performance units or performance shares. Grants of options
under the 1997 ISP shall be for terms specified by the Committee, except that
the term shall not exceed 10 years. Option agreements issued under the 1997 ISP
generally provide that in the event of a change in control, all options become
immediately and fully exercisable. The 1997 ISP provides that the maximum number
of shares of Company common stock that an eligible employee may receive in any
calendar year in respect to options and performance awards may not exceed
500,000 shares. The maximum dollar amount of cash or the fair market value of
shares in any calendar year in respect of performance units may not exceed $1.5
million.
As part of the 1997 ISP, each non-employee director of the Company receives,
unless a grant is made at that time under the 1993 ISP, Director Options under
similar terms as described in the 1993 ISP section above. New directors upon
election or appointment will, unless a grant is made at that time under the 1993
ISP, receive a one-time grant of 10,000 shares.
The exercise price of shares under an option (other than a Director Option) is
determined by the Committee, provided that the exercise price shall not be less
than 100% of the fair market value of a share of the Company's common stock on
the date of grant. As provided in the 1993 ISP, the exercise price of each
Director Option shall not be less than 100% of the fair market value of the
Company's common stock on the day preceding the date of grant.
Under the 1997 ISP, there were 1,000 vested options which could have been
exercised at December 31, 1998; there were no vested options at December 31,
1997. In addition, there were 3,380,000 and 5,500,000 shares available on
December 31, 1998 and 1997, respectively, for grants under the 1997 ISP.
On February 1, 1998, the Company granted, under the 1997 ISP, approximately
324,750 restricted stock awards consisting of 250 shares each to 1,299
RadioShack store managers not included in the February 1, 1997 grant described
above. The restricted stock awards had a weighted average fair market value of
$39.22 per share when granted. This restricted stock will vest at the end of
five years on February 2, 2003, if the Company employs the managers at a store
manager or higher position, at that time. However, the grants provide that the
restricted shares could vest early if the Company's common stock closes at $58
1/8 or more for any 20 consecutive trading days after February 1, 2000.
Compensation expense, equal to the fair market value of the shares, will be
recognized over the remaining vesting period when it becomes probable that the
performance criteria will be met or upon actual vesting. At December 31, 1998,
there were 222,000 restricted stock awards outstanding and eligible for ultimate
vesting pursuant to this restricted stock award.
Also during 1998, the Committee granted a total of 50,000 shares of restricted
stock awards to three executive officers; 30,000 shares were granted under the
1997 ISP and 20,000 shares were granted under the 1993 ISP. These shares vest
ratably over a three year period. The Company also granted an additional 36,000
shares of restricted stock awards under the 1997 ISP to an executive officer.
These shares vest on October 23, 2005; however, shares in blocks of 12,000 can
vest earlier if the Company's common stock price exceeds certain levels for 15
consecutive trading days.
<PAGE>
Stock Option Activity: A summary of stock option transactions under the
Company's stock option plans and information about fixed price stock options
follows:
Summary of Stock Option Transactions
<TABLE>
<CAPTION>
(Share amounts in thousands) 1998 1997 1996
-------------------------- -------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 4,446 $ 23.36 4,568 $ 20.67 4,398 $ 20.52
Grants.......................... 1,941 49.93 1,044 30.29 908 20.96
Exercised....................... (1,240) 20.00 (1,086) 18.66 (536) 17.53
Forfeited....................... (70) 38.01 (80) 23.96 (202) 26.98
-------- -------- --------
Outstanding at end of year...... 5,077 $ 34.14 4,446 $ 23.36 4,568 $ 20.67
======== ======== ========
Exercisable at end of year...... 2,324 $ 23.75 2,445 $ 20.63 2,736 $ 19.20
======== ======== ========
Weighted average fair value of
options granted during the year $ 13.48 $ 9.64 $ 7.50
======== ======== ========
</TABLE>
Fixed Price Stock Options
<TABLE>
<CAPTION>
(Share amounts
in thousands) Options Outstanding Options Exercisable
------------ --------------------------------------------- ---------------------------
Weighted
Shares Average Weighted Shares Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$12.53 - 20.09 1,033 4.90 yrs $ 18.38 850 $ 18.01
20.09 - 27.75 1,437 5.23 yrs 24.44 1,115 24.74
28.39 - 45.69 925 7.34 yrs 35.66 358 34.21
50.00 - 50.00 1,422 9.77 yrs 50.00 1 50.00
54.25 - 65.00 260 9.74 yrs 58.18 -- --
-------- --------
$12.53 - 65.00 5,077 7.05 yrs $ 34.14 2,324 $23.75
======== ========
</TABLE>
Pro Forma Information: Pro forma information regarding net income and earnings
per share as required by FAS 123 has been determined as if the Company had
accounted for its employee stock options and restricted stock awards under the
fair value method of that statement. The fair value of each option or restricted
stock award is estimated on the date of grant using the Black-Scholes option
pricing model. The weighted average assumptions used for stock option grants in
1998, 1997 and 1996 were, respectively: expected dividend yields of 1.6%, 1.7%
and 2.0%; expected volatilities of 24.3%, 25.5% and 27.9%; risk free interest
rates of 4.5%, 6.1% and 6.7% and expected lives of six, six and seven years. The
weighted average assumptions used for restricted stock grants in 1998 and 1997
were: expected dividend yields of 1.6% and 1.7%; expected volatilities of 24.8%
and 25.9%; risk free interest rates of 5.4% and 6.3% and expected lives of five
years.
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the options
and restricted stock awards is amortized to expense over the vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
(In millions, except
per share amounts) 1998 1997 1996
----------------- ------------------------- ------------------------- -------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
------------ --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) available
to common shareholders $ 55.5 $ 80.4 $ 180.8 $ 171.5 $ (97.9) $ (101.6)
Net income (loss) available
per common share:
Basic $ 0.55 $ 0.80 $ 1.69 $ 1.60 $ (0.82) $ (0.85)
Diluted $ 0.54 $ 0.78 $ 1.63 $ 1.55 $ (0.82) $ (0.85)
</TABLE>
The effects of applying FAS 123 in this pro forma disclosure are not indicative
of future amounts, as the pro forma amounts above do not include the impact of
stock option and restricted stock awards granted prior to 1995.
NOTE 18 - PREFERRED SHARE PURCHASE RIGHTS
In August 1986, the Board of Directors adopted a stockholder rights plan and
declared a dividend of one right for each outstanding share of Tandy common
stock. The rights, as amended, which will expire on June 22, 2000, are currently
represented by the common stock certificates and when they become exercisable
will entitle holders to purchase one one-thousandth of a share of Tandy Series A
Junior Participating Preferred Stock for an exercise price of $70 (subject to
adjustment). The rights will become exercisable and will trade separately from
the common stock only upon the date of public announcement that a person, entity
or group ("Person") has acquired 15% or more of Tandy's outstanding common stock
without the prior consent or approval of the disinterested directors ("Acquiring
Person") or ten days after the commencement or public announcement of a tender
or exchange offer which would result in any person becoming an Acquiring Person.
In the event that any person becomes an Acquiring Person, the rights will be
exercisable for 60 days thereafter for Tandy common stock with a prior market
value (as determined under the rights plan) equal to twice the exercise price.
In the event that, after any person becomes an Acquiring Person, the Company
engages in certain mergers, consolidations, or sales of assets representing 50%
or more of its assets or earning power with an Acquiring Person (or persons
acting on behalf of or in concert with an Acquiring Person) or in which all
holders of common stock are not treated alike, the rights will be exercisable
for common stock of the acquiring or surviving company with a prior market value
(as determined under the rights plan) equal to twice the exercise price. The
rights will not be exercisable by any Acquiring Person. The rights are
redeemable at a price of $0.05 per right prior to any person becoming an
Acquiring Person or, under certain circumstances, after the expiration of the
60-day period described above, but the rights may not be redeemed or the rights
plan amended for 180 days following a change in a majority of the members of the
Board (or if certain agreements are entered into during such 180-day period).
NOTE 19 - TERMINATION PROTECTION PLANS
In August 1990 and in May 1995, the Board of Directors of the Company approved
termination protection plans and amendments to the termination protection plans,
respectively. These plans provide for defined termination benefits to be paid to
eligible employees of the Company who have been terminated, without cause,
following a change in control of the Company (as defined). In addition, for a
certain period of time following employee termination, the Company, at its
expense, must continue to provide on behalf of the terminated employee certain
employment benefits. In general, during the twelve months following a change in
control, the Company may not terminate or change existing employee benefit plans
in any way which will affect accrued benefits or decrease the rate of the
Company's contribution to the plans.
<PAGE>
NOTE 20 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash flows from operating activities included cash payments as follows:
Year Ended December 31,
--------------------------------
(In millions) 1998 1997 1996
- ------------- -------- -------- --------
Interest paid $ 46.9 $ 42.8 $ 37.8
Income taxes paid 84.2 51.9 60.7
The Company received a subordinated unsecured note for $136.0 million in 1998 as
partial payment on the sale of CCI to CompUSA. In 1998 and 1997, the Company
received notes receivable of $3.0 million and $98.3 million, respectively, as
partial payment on the sales of Incredible Universe assets. In 1996, the Company
received $30.0 million in AST common stock as partial payment of a $90.0 million
note receivable from AST.
No capital lease obligations were recorded in 1998. Capital lease obligations of
$22.1 million and $4.4 million were recorded during the years ended December 31,
1997 and 1996, respectively, for the lease of equipment and certain retail
stores.
NOTE 21 - CONTINGENCIES
Tandy has various claims, lawsuits, disputes with third parties, investigations
and pending actions involving allegations of negligence, product defects,
discrimination, infringement of intellectual property rights, tax deficiencies,
violations of permits or licenses, and breach of contract and other matters
against the Company and its subsidiaries incident to the operation of its
business. The liability, if any, associated with these matters was not
determinable at December 31, 1998. Although occasional adverse settlements or
resolutions may occur and negatively impact earnings in the year of settlement,
it is the opinion of management that their ultimate resolution will not have a
materially adverse effect on Tandy's financial position.
NOTE 22 - RELATIONS WITH INTERTAN
InterTAN, Inc., the former foreign retail operations of Tandy, was spun off to
Tandy stockholders as a tax-free dividend in fiscal 1987. Under the terms of a
merchandise agreement reached with InterTAN in October 1993, as amended,
InterTAN may purchase, on payment terms, certain products sold or secured by
Tandy. A&A International, Inc. ("A&A"), a subsidiary of Tandy, is and will
continue to be the exclusive purchasing agent for products originating in Asia
for InterTAN. A&A receives commission income for this service. License
agreements, as amended, also provide a royalty payable to Tandy. The following
table summarizes the income components generated from operations relative to
InterTAN for each of the three years ended December 31, 1998, 1997 and 1996:
Year Ended December 31,
--------------------------------
(In millions) 1998 1997 1996
- ------------- -------- -------- --------
Sales and commission income $ 7.5 $ 8.4 $ 8.5
Interest income -- 2.0 2.9
Accretion of discount -- 3.4 3.8
Royalty income 5.5 3.3 2.0
-------- -------- --------
Total income $ 13.0 $ 17.1 $ 17.2
======== ======== ========
NOTE 23 - SEGMENT REPORTING DISCLOSURES
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". All references to RadioShack
and Computer City in the Notes refer to the Company's reportable segments,
unless otherwise noted.
The RadioShack segment includes the RadioShack retail division and its related
retail support operations. The Computer City segment includes Computer City,
which was sold to CompUSA on August 31, 1998, and, in the prior year's
information, the five Computer City Europe stores sold by the Company in the
fourth quarter of 1997. Transactions between operating segments are not common
and the amounts included are not material to the segment information. The closed
units/restructuring segment includes all Tandy stores and non-retail units which
were part of the store closure plan announced in December 1996 (see Note 5). The
corporate administration and other segment includes corporate units which serve
all areas of the Company and, also, income or expenses which are not allocated
to the RadioShack and Computer City segments.
<PAGE>
Summarized in the table below are the net sales and operating revenues,
depreciation and amortization expense, operating profit (loss), capital
expenditures and assets for the Company's reportable segments for the fiscal
years ended December 31, 1998, 1997 and 1996:
Year Ended December 31,
------------------------------------
(In millions) 1998 1997 1996
- ------------- -------- -------- --------
Net sales and operating revenues:
RadioShack (1) $3,591.2 $3,303.9 $3,160.5
Computer City 1,196.7(2) 1,903.7 1,721.6
Closed units/restructuring -- 164.6 1,403.4
-------- -------- --------
$4,787.9 $5,372.2 $6,285.5
======== ======== ========
Depreciation and amortization:
RadioShack $ 65.7 $ 58.4 $ 51.0
Computer City 16.6 20.5 16.8
Closed units/restructuring -- 0.6 21.3
Corporate administration and other 16.7 17.7 19.5
-------- -------- --------
$ 99.0 $ 97.2 $ 108.6
======== ======== ========
Operating profit (loss):
RadioShack $ 377.7 (3) $ 398.4 $ 412.3
Computer City (95.6)(2) (14.9) (20.3)
Closed units/restructuring (120.8)(4) (30.1) (480.8)
Corporate administration and other (27.0) (16.6) (33.4)
-------- -------- --------
134.3 336.8 (122.2)
Interest income (5) 10.8 13.2 13.0
Interest expense (5) (45.4) (46.1) (36.4)
-------- -------- --------
Income (loss) before income taxes $ 99.7 $ 303.9 $ (145.6)
======== ======== ========
Capital expenditures:
RadioShack $ 72.3 $ 95.9
Computer City 33.6 22.4
Closed units/restructuring -- --
Corporate administration and other 25.6 22.1
-------- --------
$ 131.5 $ 140.4
======== ========
Assets:
RadioShack $1,437.1 $1,384.4
Computer City -- (6) 468.8
Closed units/restructuring -- 0.6
Corporate administration and other 556.5 463.7
-------- --------
$1,993.6 $2,317.5
======== ========
(1) Includes outside sales of $77.4 million, $88.2 million and $59.4 million for
the years ended December 31, 1998, 1997 and 1996, respectively, related to
retail support operations.
(2) Includes operations for only eight months, due to the sale to CompUSA on
August 31, 1998.
(3) Includes $82.6 million of compensation expense for store manager restricted
stock awards.
(4) Includes provision for loss on sale of Computer City of $108.2 million.
(5) The Company does not allocate interest income or expense to its operating
segments.
(6) Computer City was sold to CompUSA on August 31, 1998.
NOTE 24 - QUARTERLY DATA (UNAUDITED)
As the Company's operations are predominantly retail oriented, its business is
subject to seasonal fluctuations with the December 31 quarter being the most
significant in terms of sales and profits because of the Christmas selling
season.
As a result of the sale of Computer City (see Note 4), the Company recorded a
loss of $108.2 million in 1998. The Company recorded $73.2 million of the loss
during the second quarter upon announcing the sale, $30.0 million in the third
quarter and $5.0 million in the fourth quarter upon completion of due diligence.
Additionally, the Company recorded a provision of $82.6 million related to
restricted stock awards for RadioShack store managers (see Note 17) in the
fourth quarter of 1998.
<PAGE>
QUARTERLY DATA (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
(In millions, except per share amounts) March 31 June 30 Sept. 30 Dec. 31
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Net sales and operating revenues $1,258.3 $1,192.8 $1,128.6 $1,208.2
Gross profit $ 474.3 $ 465.7 $ 452.3 $ 612.1
Net income (loss) $ 37.1 $ (20.1) $ (4.1) $ 48.4
Preferred dividends $ 1.5 $ 1.4 $ 1.5 $ 1.4
Net income (loss) available to common
shareholders $ 35.6 $ (21.5) $ (5.6) $ 47.0
Net income (loss) available per
common share:
Basic $ 0.35 $ (0.21) $ (0.06) $ 0.47
Diluted $ 0.34 $ (0.21) $ (0.06) $ 0.46
Shares used in computing earnings
(loss) per common share:
Basic 101.8 101.0 100.3 99.2
Diluted 106.8 101.0 100.3 104.0
Dividends declared per common share $ 0.10 $ 0.10 $ 0.10 $ 0.10
Year ended December 31, 1997:
Net sales and operating revenues $1,291.7 $1,146.0 $1,227.5 $1,707.0
Gross profit $ 451.6 $ 445.6 $ 468.0 $ 649.1
Net income $ 25.6 $ 28.7 $ 36.4 $ 96.2
Preferred dividends $ 1.6 $ 1.5 $ 1.5 $ 1.5
Net income available to common
shareholders $ 24.0 $ 27.2 $ 34.9 $ 94.7
Net income available per common share:
Basic $ 0.22 $ 0.25 $ 0.33 $ 0.92
Diluted $ 0.21 $ 0.24 $ 0.32 $ 0.88
Shares used in computing earnings per
common share:
Basic 111.8 108.3 105.7 103.2
Diluted 116.4 113.2 110.8 108.6
Dividends declared per common share $ 0.10 $ 0.10 $ 0.10 $ 0.10
</TABLE>
<PAGE>
TANDY CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page No.
<S> <C> <C>
2a Agreement for Purchase and Sale of Assets dated as of June 30,
1993 between AST Research, Inc., as Purchaser and Tandy
Corporation, TE Electronics Inc., and GRiD Systems Corporation,
as Sellers (without exhibits) (filed as Exhibit 2 to Tandy's July
13, 1993 Form 8-K filed on July 27, 1993, Accession No.
0000096289-93-000004 and incorporated herein by reference).
2b Amended and Restated Stock Exchange Agreement dated February 1,
1994 by and among O'Sullivan Industries Holdings, Inc., and TE
Electronics Inc. (filed as Exhibit 2b to Tandy's Form 10-K filed
on March 30, 1994, Accession No. 0000096289-94-000029 and
incorporated herein by reference).
2c U.S. Purchase Agreement dated January 26, 1994 by and among
O'Sullivan Industries Holdings, Inc., TE Electronics Inc. and the
U.S. Underwriters which included Merrill Lynch & Co., Wheat First
Butcher & Singer, The Chicago Dearborn Company and Rauscher
Pierce Refsnes, Inc. (filed as Exhibit 2c to Tandy's Form 10-K
filed on March 30, 1994, Accession No. 0000096289-94-000029 and
incorporated herein by reference).
2d International Purchase Agreement dated January 26, 1994 by and
among O'Sullivan Industries Holdings, Inc., TE Electronics Inc.
and the U.S. Underwriters which included Merrill Lynch
International Limited and UBS Limited (filed as Exhibit 2d to
Tandy's Form 10-K filed on March 30, 1994, Accession No.
0000096289-94-000029 and incorporated herein by reference).
2e Stock Purchase Agreement as of July 17, 1997 by and among Tandy
Corporation as Seller, EVP Colonial, Inc. as Company and Eureka
Venture Partners III LLP as
Purchaser (without exhibits), (filed as Exhibit 2g to Tandy's
Form 10-Q filed on August 8, 1997, Accession No.
0000096289-97-000023 and incorporated herein by reference).
3a(i) Restated Certificate of Incorporation of Tandy dated December 10,
1982 (filed as Exhibit 4A to Tandy's 1993 Form S-8 for the Tandy
Corporation Incentive Stock Plan, Reg. No. 33-51603, filed on
November 12, 1993, Accession No. 0000096289-93-000017 and
incorporated herein by reference).
3a(ii) Certificate of Amendment of Certificate of Incorporation of Tandy
Corporation dated November 13, 1986 (filed as Exhibit 4A to
Tandy's 1993 Form S-8 for the Tandy Corporation Incentive Stock
Plan, Reg. No. 33-51603, filed on November 12, 1993, Accession
No. 0000096289-93-000017 and incorporated herein by reference).
3a(iii) Certificate of Amendment of Certificate of Incorporation,
amending and restating the Certificate of Designation,
Preferences and Rights of Series A Junior Participating Preferred
Stock dated June 22, 1990 (filed as Exhibit 4A to Tandy's 1993
Form S-8 for the Tandy Corporation Incentive Stock Plan, Reg. No.
33-51603, filed on November 12, 1993, Accession No.
0000096289-93-000017 and incorporated herein by reference).
3a(iv) Certificate of Designations of Series B TESOP Convertible
Preferred dated June 29, 1990 (filed as Exhibit 4A to Tandy's
1993 Form S-8 for the Tandy Corporation Incentive Stock Plan,
Reg. No. 33-51603, filed on November 12, 1993, Accession No.
0000096289-93-000017 and incorporated herein by reference).
3b Tandy Corporation Bylaws, restated as of December 16, 1998. 64
4a Amended and Restated Rights Agreement with the First National
Bank of Boston dated June 22, 1990 for Preferred Share Purchase
Rights (filed as Exhibit 4b to Tandy's Form 10-K filed on March
30, 1994, Accession No. 0000096289-94-000029 and incorporated
herein by reference).
4b Revolving Credit Agreement between Tandy Corporation and Texas
Commerce Bank, individually and as Agent for sixteen other banks,
dated as of May 27, 1994 (without exhibits) (filed as Exhibit 4c
to Tandy's Form 10-Q filed on August 15, 1994, Accession No.
0000096289-94-000039 and incorporated herein by reference).
4c First Amendment to the Revolving Credit Agreement between Tandy
Corporation and Texas Commerce Bank as Agent for sixteen other
banks, dated as of May 26, 1995 (Facility A) (filed as Exhibit 4c
to Tandy's Form 10-K filed on March 28, 1996, Accession No.
0000096289-96-000004 and incorporated herein by reference).
4d First Amendment to the Revolving Credit Agreement between Tandy
Corporation and Texas Commerce Bank as Agent for sixteen other
banks, dated as of May 26, 1995 (Facility B) (filed as Exhibit 4d
to Tandy's Form 10-K filed on March 28, 1996, Accession No.
0000096289-96-000004 and incorporated herein by reference).
4e Second Amendment to the Revolving Credit Agreement between Tandy
Corporation and Texas Commerce Bank as Agent for sixteen other
banks, dated as of May 24, 1996 (Facility A) (filed as Exhibit 4e
to Tandy's Form 10-Q filed on August 14, 1996, Accession No.
0000096289-96-000010 and incorporated herein by reference).
4f Second Amendment to the Revolving Credit Agreement between Tandy
Corporation and Texas Commerce Bank as Agent for eighteen banks,
dated as of June 28, 1996 (Facility B) (filed as Exhibit 4f to
Tandy's Form 10-Q filed on August 14, 1996, Accession No.
0000096289-96-000010 and incorporated herein by reference).
4g Third Amendment to the Revolving Credit Agreement between Tandy
Corporation and Texas Commerce Bank as Agent for eighteen banks,
dated as of June 28, 1996 (Facility A) (filed as Exhibit 4g to
Tandy's Form 10-Q on August 14, 1996, Accession No.
0000096289-96-000010 and incorporated herein by reference).
4h Fourth Amendment to the Revolving Credit Agreement between Tandy
Corporation and Texas Commerce Bank as Agent for eighteen banks,
dated as of February 18, 1997 (Facility A) (filed as Exhibit 4h
to Tandy's Form 10-K filed on March 27, 1997, Accession No.
0000096289-97-000006 and incorporated herein by reference).
4i Third Amendment to the Revolving Credit Agreement between Tandy
Corporation and Texas Commerce Bank as Agent for eighteen banks,
dated as of February 18, 1997 (Facility B) (filed as Exhibit 4i
to Tandy's Form 10-K filed on March 27, 1997, Accession No.
0000096289-97-000006 and incorporated herein by reference).
4j Fifth Amendment to the Revolving Credit Agreement between Tandy
Corporation and Texas Commerce Bank as Agent for eighteen other
banks, dated as of June 26, 1997 (Facility A), (filed as Exhibit
4j to Tandy's Form 10-Q filed on August 8, 1997, Accession No.
0000096289-97-000023 and incorporated herein by reference).
4k Fourth Amendment to the Revolving Credit Agreement between Tandy
Corporation and Texas Commerce Bank as Agent for eighteen other
banks, dated as of June 26, 1997 (Facility B), (filed as Exhibit
4k to Tandy's Form 10-Q filed on August 8, 1997, Accession No.
0000096289-97-000023 and incorporated herein by reference).
4l Credit Agreement between Trans World Electronics, Inc. (a
wholly-owned subsidiary of the Company) and Texas Commerce Bank
individually and as agent for four other banks dated as of July
15, 1997 (without exhibits), (filed as Exhibit 4l to Tandy's Form
10-Q filed on August 8, 1997, Accession No. 0000096289-97-000023
and incorporated herein by reference).
4m Guaranty Agreement made by Tandy Corporation in favor of Texas
Commerce Bank as agent for the benefit of Texas Commerce Bank and
four other banks named therein, dated July 15, 1997, (filed as
Exhibit 4m to Tandy's Form 10-Q filed on August 8, 1997,
Accession No. 0000096289-97-000023 and incorporated herein by
reference).
4n Revolving Credit Agreement (Facility A) dated as of June 25, 1998
among Tandy Corporation, NationsBank, N.A., as Agent and Lender,
Citibank, N.A., as Syndication Agent and Lender, Bank of America
National Trust & Savings Association, as Documentation Agent and
Lender, BankBoston, N.A., Co-Agent and Lender, The Bank of New
York, Co-Agent and Lender, First Union National Bank, Co-Agent
and Lender, Fleet National Bank, Co-Agent and Lender, and twelve
other banks as Lenders (filed as Exhibit 4n to Tandy's Form 10-Q
filed on August 13, 1998, Accession No. 0000096289-98-000039 and
incorporated herein by reference).
4o Revolving Credit Agreement (Facility B) dated as of June 25, 1998
among Tandy Corporation, NationsBank, N.A., as Agent and Lender,
Citibank, N.A., as Syndication Agent and Lender, Bank of America
National Trust & Savings Association, as Documentation Agent and
Lender, BankBoston, N.A., Co-Agent and Lender, The Bank of New
York, Co-Agent and Lender, First Union National Bank, Co-Agent
and Lender, Fleet National Bank, Co-Agent and Lender, and twelve
other banks as Lenders (filed as Exhibit 4o to Tandy's Form 10-Q
filed on August 13, 1998, Accession No. 0000096289-98-000039 and
incorporated herein by reference).
10a* Salary Continuation Plan for Executive Employees of Tandy
Corporation and Subsidiaries including amendment dated June 14,
1984 with respect to participation by certain executive
employees, as restated October 4, 1990 (filed as Exhibit 10a to
Tandy's Form 10-K filed on March 30, 1994, Accession No.
0000096289-94-000029 and incorporated herein by reference).
10b* Form of Executive Pay Plan Letters. 74
10c* Post Retirement Death Benefit Plan for Selected Executive
Employees of Tandy Corporation and Subsidiaries as restated June
10, 1991 (filed as Exhibit 10c to Tandy's Form 10-K filed on
March 30, 1994, Accession No. 0000096289-94-000029 and
incorporated herein by reference).
10d* Tandy Corporation Officers Deferred Compensation Plan as restated
July 10, 1992 (filed as Exhibit 10d to Tandy's Form 10-K filed on
March 30, 1994, Accession No. 0000096289-94-000029 and
incorporated herein by reference).
10e* Special Compensation Plan for Directors of Tandy Corporation
dated November 13, 1986 (filed as Exhibit 10g to Tandy's Form
10-K filed on March 30, 1994, Accession No. 0000096289-94-000029
and incorporated herein by reference).
10f* Director Fee Resolution (filed as Exhibit 10h to Tandy's Form
10-K filed on March 30, 1994, Accession No. 0000096289-94-000029
and incorporated herein by reference).
10g* Tandy Corporation 1985 Stock Option Plan as restated effective
August 1990 (filed as Exhibit 10i to Tandy's Form 10-K filed on
March 30, 1994, Accession No. 0000096289-94-000029 and
incorporated herein by reference).
10h* Tandy Corporation 1993 Incentive Stock Plan as restated May 18,
1995 (filed as Exhibit 10j to Tandy's Form 10-Q filed on August
14, 1995, Accession No. 0000096289-95-000016 and incorporated
herein by reference).
10i* Tandy Corporation Officers Life Insurance Plan as amended and
restated effective August 22, 1990 (filed as Exhibit 10k to
Tandy's Form 10-K filed on March 30, 1994, Accession No.
0000096289-94-000029 and incorporated herein by reference).
10j* First Restated Trust Agreement Tandy Employees Supplemental Stock
Program through Amendment No. IV dated January 1, 1996 (filed as
exhibit 4d to Tandy's Form 10-K filed on March 28, 1996,
Accession No. 0000096289-96-000004 and incorporated herein by
reference).
10k* Forms of Termination Protection Agreements for (i) Corporate
Executives, (ii) Division Executives, and (iii) Subsidiary
Executives (filed as Exhibit 10m to Tandy's Form 10-Q filed on
August 14, 1995, Accession No. 0000096289-95-000016 and
incorporated herein by reference).
10l* Tandy Corporation Termination Protection Plans for Executive
Employees of Tandy Corporation and its Subsidiaries (i) the Level
I and (ii) Level II Plans (filed as Exhibit 10n to Tandy's Form
10-Q filed on August 14, 1995, Accession No. 0000096289-95-000016
to and incorporated herein by reference).
10m* Forms of Bonus Guarantee Letter Agreements with certain Executive
Employees of Tandy Corporation and its Subsidiaries (i) Formula,
(ii) Discretionary, and (iii) Pay Plan (filed as Exhibit 10o to
Tandy's Form 10-K filed on March 30, 1994, Accession No.
0000096289-94-000029 and incorporated herein by reference).
10n* Form of Indemnity Agreement with Directors, Corporate Officers
and two Division Officers of Tandy Corporation (filed as Exhibit
10p to Tandy's Form 10-K filed on March 28, 1996, Accession No.
0000096289-96-000004 and incorporated herein by reference).
10o* Tandy Corporation 1997 Incentive Stock Plan, (filed as Exhibit
10q to Tandy's Form 10-Q filed on August 8, 1997, Accession No.
0000096289-97-000023 and incorporated herein by reference).
10p* Management Agreement, dated July 17, 1997, by and among Eureka
Venture Partners, III LLP, EVP Colonial, Inc., Nathan Morton,
Avery More and Robert Boutin, (filed as Exhibit 10r to Tandy's
Form 10-Q filed on August 8, 1997, Accession No.
0000096289-97-000023 and incorporated herein by reference).
10q* Form of Deferred Compensation Agreement dated October 2, 1997
with selected Executive Employees of Tandy Corporation (filed as
10s to Tandy's Form 10-K filed on March 26, 1998, Accession No.
0000096289-98-000017 and incorporated herein by reference).
10r* Form of Deferred Compensation Agreement dated October 2, 1997
with selected Executive Employees of Tandy Corporation (filed as
10t to Tandy's Form 10-K filed on March 26, 1998, Accession No.
0000096289-98-000017 and incorporated herein by reference).
10s* Form of December 1997 Deferred Salary and Bonus Agreement (Stock
Investment) with selected Executive Employees of Tandy
Corporation (filed as 10u to Tandy's Form 10-K filed on March 26,
1998, Accession No. 0000096289-98-000017 and incorporated herein
by reference).
10t* Form of December 1997 Salary and Bonus Agreement with selected
Executive Employees of Tandy Corporation (filed as 10v to Tandy's
Form 10-K filed on March 26, 1998, Accession No.
0000096289-98-000017 and incorporated herein by reference).
10u* Tandy Corporation Executive Deferred Compensation Plan, effective
April 1, 1998 (filed as 10s to Tandy's Form 10-K filed on March
26, 1998, Accession No. 0000096289-98-000017 and incorporated
herein by reference).
10v* Tandy Corporation Executive Deferred Stock Plan, effective April
1, 1998 (filed as 10x to Tandy's Form 10-K filed on March 26,
1998, Accession No. 0000096289-98-000017 and incorporated herein
by reference).
10w* Tandy Corporation Unfunded Deferred Compensation Plan for
Directors as amended and restated January 1, 1998 (filed as 10y
to Tandy's Form 10-K filed on March 26, 1998, Accession No.
0000096289-98-000017 and incorporated herein by reference).
10x* Form of September 30, 1997 Deferred Compensation Agreement
between Tandy Corporation and John V. Roach (filed as 10z to
Tandy's Form 10-Q filed on May 13, 1998, Accession No.
0000096289-98-000025 and incorporated herein by reference).
10y* Form of September 30, 1997 Deferred Compensation Agreement
between Tandy Corporation and Leonard H. Roberts (filed as 10aa
to Tandy's Form 10-Q filed on May 13, 1998, Accession No.
0000096289-98-000025 and incorporated herein by reference).
10z Severance Agreement dated October 23, 1998 between Leonard H. 80
Roberts and Tandy Corporation.
11 Statement of Computation of Ratios of Earnings to Fixed Charges. 83
21 Subsidiaries. 84
23 Consent of Independent Accountants. 85
27.1 Financial Data Schedule.
- -----------------------
* Each of these exhibits is a "management contract or compensatory plan,
contract, or arrangement".
</TABLE>
<PAGE>
EXHIBIT 3b
TANDY CORPORATION BYLAWS
RESTATED AS OF
DECEMBER 16, 1998
ARTICLE I
OFFICES
SECTION 1. Registered Office. The Registered office of the Corporation in the
State of Delaware shall be located in the City of Wilmington, County of New
Castle, State of Delaware, and the name of the resident agent in charge thereof
shall be The Corporation Trust Company.
SECTION 2. Other Offices. The principal office shall be at 1800 One Tandy
Center, Fort Worth, Texas. The Corporation may also have offices at other places
as the Board of Directors may from time to time appoint or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meeting. All meetings of the stockholders for the election
of directors shall be held at such place within or without the State of Delaware
as the Board of Directors may designate, provided that at least ten (10) days'
notice must be given to the stockholders entitled to vote thereat of the place
so fixed. Until the Board of Directors shall designate otherwise the annual
meeting of stockholders and the election of directors shall take place at the
office of the Corporation at 1800 One Tandy Center, Fort Worth, Texas. Meetings
of stockholders for any other purpose may be held at such place and time as
shall be stated in the notice of the meeting.
SECTION 2. Annual Meetings. The annual meeting of the stockholders for the year
1993 shall be held on October 7, 1993, at 10:00 A.M., or on such other date and
at such other time as shall be designated by the Board of Directors and stated
in the notice of the meeting. The annual meeting of the stockholders shall be
held on the Third Thursday in May of each year beginning with the year 1994, if
not a legal holiday, and if a legal holiday, then on the next business day
following, at 10:00 A.M., or on such other date and at such other time as shall
be designated from time to time by the Board of Directors and stated in the
notice of the meeting. At such annual meetings the stockholders shall elect a
Board of Directors by a plurality vote and shall transact such other business as
may properly be brought before the meeting.
SECTION 3. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or the Certificate
of inCorporation, may be called by the Chairman of the Board or the President,
and shall be called by the Secretary at the request in writing of a majority of
the Board of Directors. Such request shall state the purpose or purposes of the
proposed meeting.
SECTION 4. Notice. Written or printed notice of every meeting of stockholders,
annual or special, stating the time and place thereof, and, if a special
meeting, the purpose or purposes in general terms for which the meeting is
called, shall not be less than ten (10) days before such meeting be served upon
or mailed to each stockholder entitled to vote thereat, at his address as it
appears upon the books of the Corporation or, if such stockholder shall have
filed with the Secretary of the Corporation a written request that notices
intended for him be mailed to some other address, then to the address designated
in such request.
SECTION 5. Quorum. Except as otherwise provided by law or by the Certificate of
Incorporation, the presence in person or by proxy at any meeting of stockholders
of the holders of a majority of the shares of the capital stock of the
Corporation issued and outstanding and entitled to vote thereat shall be
requisite and shall constitute a quorum. If, however, such majority shall not be
represented at any meeting of the stockholders regularly called, the holders of
a majority of the shares present in person or by proxy and entitled to vote
thereat shall have power to adjourn the meeting to another time, or to another
time and place, without notice other than announcement of adjournment at the
meeting, and there may be successive adjournments for like cause and in like
manner until the requisite amount of shares entitled to vote at such meeting
shall be represented. At such adjourned meeting at which the requisite amount of
shares entitled to vote thereat shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
SECTION 6. Votes. Proxies. At each meeting of stockholders every stockholder
shall have one vote for each share of capital stock entitled to vote which is
registered in his name on the books of the Corporation on the date on which the
transfer books were closed, if closed, or on the date set by the Board of
Directors for the determination of stockholders entitled to vote at such
meeting. At each such meeting every stockholder shall be entitled to vote in
person, or by proxy appointed by an instrument in writing subscribed by such
stockholder and bearing a date not more than three years prior to the meeting in
question, unless said instrument provides for a longer period during which it is
to remain in force.
At all meetings of the stockholders, a quorum being present, all matters shall
be decided by majority vote of the shares of stock entitled to vote held by
stockholders present in person or by proxy, except as otherwise required by the
Certificate of Incorporation or the laws of the State of Delaware. Unless so
directed by the chairman of the meeting, or required by the laws of the State of
Delaware, the vote thereat on any question need not be by ballot.
On a vote by ballot, each ballot shall be signed by the stockholder voting, or
in his name by his proxy, if there be such proxy, and shall state the number of
shares voted by him and the number of votes to which each share is entitled. On
a vote by ballot, the chairman shall appoint two inspectors of election, who
shall first take and subscribe an oath or affirmation faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to
the best of their ability and who shall take charge of the polls and after the
balloting shall make a certificate of the result of the vote taken; but no
director or candidate for the office of director shall be appointed as such
inspector.
SECTION 7. Stock List. At least ten (10) days before every election of
directors, a complete list of stockholders entitled to vote at such election,
arranged in alphabetical order, with the residence of each and the number of
voting shares held by each shall be prepared by the Secretary. Such list shall
be open at the place where the election is to be held for said ten (10) days, to
the examination of any stockholder entitled to vote at that election and shall
be produced and kept at the time and place of election during the whole time
thereof, and subject to the inspection of any stockholder who may be present.
SECTION 8. Notice of Stockholder Proposals.
(a) At an annual meeting of the stockholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been
brought before the annual meeting (i) by, or at the direction of, the Board of
Directors or (ii) by any stockholder of record of the Corporation who complies
with the notice procedures set forth in this Section 8 of these Bylaws. For a
proposal to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the Corporation not
less than sixty (60) days nor more than ninety (90) days prior to the scheduled
annual meeting, regardless of any postponements, deferrals or adjournments of
that meeting to a later date; provided, however, that if less than seventy (70)
days' notice or prior public disclosure of the date of the scheduled annual
meeting is given or made, notice by the stockholder to be timely must be so
delivered or received not later than the close of business on the tenth (10th)
day following the earlier of the day on which such notice of the date of the
scheduled annual meeting was mailed or the day on which such public disclosure
was made. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (i) a brief
description of the proposal desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business and any other stockholders known by such stockholder to
be supporting such proposal, (iii) the class and number of shares of the
Corporation's stock which are beneficially owned by the stockholder on the date
of such stockholder notice and by any other stockholders known by such
stockholder to be supporting such proposal on the date of such stockholder
notice, and (iv) any financial interest of the stockholder in such proposal.
(b) If the presiding officer of the annual meeting determines that a stockholder
proposal was not made in accordance with the terms of this Section 8, he shall
so declare at the annual meeting and any such proposal shall not be acted upon
at the annual meeting.
(c) This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but, in connection with such reports, no
business shall be acted upon at such annual meeting unless stated, filed and
received as herein provided.
(d) Any stockholder seeking to bring a proposal before an annual meeting of the
Corporation shall continue to be subject, to the extent applicable, to the
requirements of Section 14(a) of the Securities Act of 1934, as amended, and the
regulations thereunder, as well as the requirements of this Section 8.
ARTICLE III
DIRECTORS
SECTION 1. Number. The business and property of the Corporation shall be
conducted and managed by a Board of Directors consisting of not less than three
(3) or more than fourteen (14) members, none of whom need be a stockholder.
The Board of Directors of the Corporation shall initially be composed of three
(3) directors, but the Board may at any time by resolution increase or decrease
the number of directors to not more than fourteen (14) or less than three (3).
The vacancies resulting from any such increase in the Board of Directors, or an
increase resulting from an amendment of this Section, shall be filled as
provided in Section 3 of this ARTICLE III.
SECTION 2. Term of Office. Except as otherwise provided by law such director
shall hold office until the next annual meeting of stockholders, and until his
successor is duly elected and qualified or until his earlier death or
resignation.
SECTION 3. Vacancies. If any vacancy shall occur among the directors, or if the
number of directors shall at any time be increased, the directors in office,
although less than a quorum, by a majority vote may fill the vacancies or newly
created directorships, or any such vacancies or newly created directorships may
be filled by the stockholders at any meeting. When one or more directors shall
resign from the Board of Directors, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each director so
chosen shall hold office as herein provided in the filling of other vacancies.
SECTION 4. Meetings. Meetings of the Board of Directors shall be held at such
place within or without the State of Delaware as may from time to time be fixed
by resolution of the Board of Directors or by the Chairman of the Board, or the
CEO as may be specified in the notice or waiver of notice of any meeting. A
regular meeting of the Board of Directors may be held without notice immediately
following the annual meeting of stockholders at the place where such annual
meeting is held. Regular meetings of the Board may also be held without notice
at such time and place as shall from time to time be determined by resolution of
the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman of the
Board, the CEO or the Secretary and shall be called by the Secretary on the
written request of two members of the Board of Directors. Notice of any special
meeting shall be given to each director at least (a) twelve (12) hours before
the meeting by telephone or by being personally delivered or sent by telex,
telecopy, telegraph, or similar means or (b) three (3) days before the meeting
if delivered by mail to the director's residence or usual place of business.
Such notice shall be deemed to be delivered when deposited in the United States
mail so addressed, with postage prepaid, or when transmitted if sent by telex,
telecopy, telegraph or similar means. Neither the business to be transacted at,
nor the purpose of, any special meeting of the Board of Directors needs to be
specified in the notice or waiver of notice of such meeting.
Members of the Board of Directors may participate in a meeting of such Board by
means of conference telephone or similar communication equipment by means of
which all persons participating in the meeting can hear each other, and
participation in the meeting pursuant hereto shall constitute presence in person
at such meeting.
Any director may waive notice of any meeting by a writing signed by the director
entitled to the notice and filed with the minutes or corporate records. The
attendance at or participation of the director at a meeting shall constitute
waiver of notice of such meeting, unless the director at the beginning of the
meeting or promptly upon his arrival objects to holding the meeting or
transacting business at the meeting.
SECTION 5. Quorum. A majority, but not less than two (2), of the directors shall
constitute a quorum for the transaction of business. If at any meeting of the
Board of Directors there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time without notice other
than announcement of the adjournment at the meeting, and at such adjourned
meeting at which a quorum is present any business may be transacted which might
have been transacted at the meeting as originally notified.
SECTION 6. Compensation. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors, a fixed sum for attendance
at each meeting of the Board of Directors and/or a stated fee as director. No
such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor. Members of the Executive
Committee and/or of other committees may be allowed like compensation and
reimbursement of expenses for attending committee meetings.
SECTION 7. Chairman. From its members, the Board of Directors will elect a
chairman to preside over meetings of the shareholders and of the Board. The
Chairman may simultaneously serve as any Officer of the Corporation set forth in
Article V. The Board may elect one or more Vice Chairmen. In the absence of the
Chairman or a Vice Chairman, if any, the Board shall designate a person to
preside at such meetings. The director's fee of the Chairman and the Vice
Chairman, if any, will be set by the Board.
SECTION 8. Director Nominations. Nominations for the election of directors may
be made by the Board of Directors or a nominating committee appointed by the
Board of Directors or by any stockholder entitled to vote in the election of
directors generally. However, any stockholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such stockholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Secretary of the Corporation
not later than (i) with respect to an election to be held at an annual meeting
of stockholders, ninety (90) days prior to the first anniversary date of the
immediately preceding annual meeting, and (ii) with respect to an election to be
held at a special meeting of stockholders for the election of directors, the
close of business on the tenth (10th) day following the date on which notice of
such meeting is first given to stockholders. Each such notice shall set forth:
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated: (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission as then in effect; and (e) the consent
of each nominee to serve as a director of the Corporation if so elected. The
presiding officer of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
SECTION 1. Executive Committee. The Board of Directors may, by resolution passed
by a majority of the whole Board, appoint an Executive Committee of two (2) or
more members, to serve during the pleasure of the Board of Directors, to consist
of such directors as the Board of Directors may from time to time designate. The
Chairman of the Executive Committee shall be designated by the Board of
Directors.
SECTION 2. Procedure. The Executive Committee, by a vote of a majority of its
members, shall fix its own times and places of meeting, shall determine the
number of its members constituting a quorum for the transaction of business, and
shall prescribe its own rules of procedure, no change in which shall be made
save by a majority vote of its members. Members of the Executive Committee or
any other committee may participate in a meeting of such Committee by means of
conference telephone or similar communication equipment by means of which all
persons participating in the meeting can hear each other, and participation in
the meeting pursuant hereto shall constitute presence in person at such meeting.
SECTION 3. Powers. During the intervals between the meetings of the Board of
Directors, the Executive Committee shall possess and may exercise all the powers
of the Board of Directors in the management and direction of the business and
affairs of the Corporation, to the extent permitted by law.
SECTION 4. Minutes. The Executive Committee shall keep regular minutes of its
proceedings and all action by the Executive Committee shall be reported to the
Board of Directors at its next meeting. Such action shall be subject to review
by the Board of Directors, provided that no rights of third parties shall be
affected by such review.
SECTION 5. Other Committees. From time to time the Board of Directors, by the
affirmative vote of a majority of the whole Board of Directors, may appoint
other committees for any purpose or purposes, and such committees shall have
such powers as shall be conferred by the resolution of appointment, and as shall
be permitted by law.
ARTICLE V
OFFICERS
SECTION 1. Officers. The Board of Directors shall elect, as officers, a Chief
Executive Officer ("CEO"), a President, a Treasurer and a Secretary, and in
their discretion one or more of the following officers: Executive Vice
Presidents, Senior Vice Presidents, Vice Presidents, Assistant Secretaries, and
Assistant Treasurers. Such officers shall be elected annually by the Board of
Directors at its first meeting following the annual meeting of stockholders, and
each shall hold office until the corresponding meeting of the Board of Directors
in the next year and until his successor shall have been duly elected and
qualified, or until he shall have died or resigned or shall have been removed in
the manner provided herein. The powers and duties of two or more offices may be
exercised and performed by the same person, except the offices of CEO and
Secretary.
SECTION 2. Vacancies. Any vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors at any regular or special meeting.
SECTION 3. Chief Executive Officer The Chief Executive Officer shall be the
chief executive officer (CEO) of the Corporation. Subject to the direction of
the Board of Directors, he shall have and exercise direct charge of and general
supervision over the business and affairs of the Corporation and shall perform
such other duties as may be assigned to him from time to time by the Board of
Directors.
SECTION 4. President. The President shall perform such duties as the Board of
Directors may prescribe. In the absence or disability of the CEO, the President
shall perform and exercise the powers of the CEO. In addition, the President
shall perform such duties as from time to time may be delegated to him by the
CEO.
SECTION 5. Executive Vice Presidents. The Executive Vice Presidents shall
perform such duties as the Board of Directors may prescribe. In the absence or
disability of the CEO and President, the Executive Vice Presidents in the order
of their seniority or in such order as may be specified by the Board of
Directors, shall perform the duties of CEO. In addition, the Executive Vice
Presidents shall perform such duties as may from time to time be delegated to
them by the CEO.
SECTION 6. Senior Vice Presidents. The Senior Vice Presidents shall perform such
duties as the Board of Directors may prescribe. In the absence or disability of
the CEO, President, and the Executive Vice Presidents, the Senior Vice
Presidents in the order of their seniority or in such other order as may be
specified by the Board of Directors, shall perform the duties and exercise the
powers of the President. In addition, the Senior Vice Presidents shall perform
such duties as from time to time may be delegated to them by the CEO.
SECTION 7. Vice Presidents. The Vice Presidents shall perform such duties as the
Board of Directors may prescribe. In the absence or disability of the CEO,
President, the Executive Vice Presidents and the Senior Vice Presidents, the
Vice Presidents in the order of their seniority or in such other order as may be
specified by the Board of Directors, shall perform the duties and exercise the
powers of the President. In addition, the Vice Presidents shall perform such
duties as may from time to time be delegated to them by the CEO.
SECTION 8. Treasurer. The Treasurer shall have charge of and be responsible for
all funds, securities, receipts and disbursements of the Corporation, and shall
deposit, or cause to be deposited, in the name of the Corporation, all moneys or
other valuable effects in such banks, trust companies or other depositaries as
shall, from time to time, be selected by the Board of Directors; he may endorse
for collection on behalf of the Corporation, checks, notes and other
obligations; he may sign receipts and vouchers for payments made to the
Corporation; singly or jointly with another person as the Board of Directors may
authorize, he may sign checks of the Corporation and pay out and dispose of the
proceeds under the direction of the Board of Directors; he shall cause to be
kept correct books of account of all the business and transactions of the
Corporation, shall see that adequate audits thereof are currently and regularly
made, and shall examine and certify the accounts of the Corporation; he shall
render to the Board of Directors, the Executive Committee, the Chairman of the
Board, the Vice Chairman, the CEO or to the President, whenever requested, an
account of the financial condition of the Corporation; he may sign with the
Chairman of the Board, the Vice Chairman of the Board, the CEO, the President or
a Vice President, certificates of stock of the Corporation; and, in general,
shall perform all the duties incident to the office of a treasurer of a
Corporation, and such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 9. Assistant Treasurers. The Assistant Treasurers in order of their
seniority shall, in the absence or disability of the Treasurer, perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties as the CEO, or the Board of Directors shall prescribe.
SECTION 10. Secretary. The Secretary shall keep the minutes of all meetings of
the stockholders and of the Board of Directors in books provided for the
purpose; he shall see that all notices are duly given in accordance with the
provisions of law and these Bylaws; he shall be custodian of the records and of
the corporate seal or seals of the Corporation; he shall see that the corporate
seal is affixed to all documents, the execution of which, on behalf of the
Corporation, under its seal, is duly authorized and when the seal is so affixed
he may attest the same; he may sign, with the Chairman of the Board, the Vice
Chairman, the CEO, the President or a Vice President, certificates of stock of
the Corporation; and in general he shall perform all duties incident to the
office of a secretary of a corporation, and such other duties as from time to
time may be assigned to him by the Board of Directors or the CEO.
SECTION 11. Assistant Secretaries. The Assistant Secretaries in order of their
seniority shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties as the CEO, or the Board of Directors shall prescribe.
SECTION 12. Subordinate Officers. The Board of Directors may appoint such
subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority and perform such duties as the Board
of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officer to appoint and remove subordinate officers and to
prescribe the powers and duties thereof.
SECTION 13. Compensation. The Board of Directors shall have power to fix the
compensation of all officers of the Corporation. It may authorize any officer,
upon whom the power of appointing subordinate officers may have been conferred,
to fix the compensation of such subordinate officers.
SECTION 14. Removal. Any officer of the Corporation may be removed, with or
without cause, by a majority vote of the Board of Directors at a meeting called
for that purpose.
SECTION 15. Bonds. The Board of Directors may require any officer of the
Corporation to give a bond to the Corporation, conditional upon the faithful
performance of his duties, with one or more sureties and in such amounts as may
be satisfactory to the Board of Directors.
ARTICLE VI
CERTIFICATES OF STOCK
SECTION 1. Form and Execution of Certificates. The interest of each stockholder
of the Corporation shall be evidenced by a certificate or certificates for
shares of stock in such form as may be prescribed from time to time by law and
by the Board of Directors. The certificates of stock of each class and series
now authorized or which may hereafter be authorized by the Certificate of
Incorporation shall be consecutively numbered and signed by either the Chairman
of the Board or the CEO or the President or a Vice President together either
with the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer of the Corporation, and may be countersigned and registered in such
manner as the Board of Directors may prescribe, and shall bear the corporate
seal or a printed or engraved facsimile thereof. Where any such certificate is
signed by a transfer agent or transfer clerk and by a registrar, the signatures
of any such Chairman of the Board, CEO, President, Vice President, Treasurer,
Assistant Treasurer, Secretary or Assistant Secretary upon such certificate may
be facsimiles engraved or printed. In case any officer or officers who shall
have signed, or whose facsimile signature or signatures shall have been placed
upon, such certificate or certificates shall have ceased to be such, whether
because of death, resignation or otherwise, before such certificate or
certificates shall have been issued and delivered, such certificate or
certificates may nevertheless be issued and delivered with the same effect as if
such officer or officers had not ceased to be such at the date of its issue and
delivery.
SECTION 2. Transfer of Shares. The shares of the stock of the Corporation shall
be transferred on the books of the Corporation by the holder thereof in person
or by his attorney lawfully constituted, upon surrender for cancellation of
certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such proof or
guaranty of the authenticity of the signature as the Corporation or its agents
may reasonably require. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person whether or not
it shall have express or other notice thereof, except as otherwise expressly
provided by law.
SECTION 3. Closing of Transfer Books and Record Dates. The Board of Directors
may in its discretion prescribe in advance a period not exceeding sixty (60)
days prior to the date of any meeting of the stockholders or prior to the last
day on which the consent or dissent of stockholders may be effectively expressed
for any purpose without a meeting, during which no transfer of stock on the
books of the Corporation may be made; or in lieu of prohibiting the transfer of
stock, may fix in advance a time not more than sixty (60) days prior to the date
of any meeting of stockholders or prior to the last day on which the consent or
dissent of stockholders may be effectively expressed for any purpose without a
meeting, as the time as of which stockholders entitled to notice of and to vote
at such a meeting or whose consent or dissent is required or may be expressed
for any purpose, as the case may be, shall be determined; and all persons who
were holders of record of voting stock at such time and no others shall be
entitled to notice of and to vote at such meeting or to express their consent or
dissent, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any record date fixed as aforesaid. The Board of
Directors may also, in its discretion, fix in advance a date not exceeding sixty
(60) days preceding the date fixed for the payment of any dividend or the making
of any distribution, or for the delivery of evidence of rights, or evidences of
interests arising out of any issuance, change, conversion or exchange of capital
stock, as a record date for the determination of the stockholders entitled to
receive or participate in any such dividend, distribution, rights or interests,
notwithstanding any transfer of any stock on the books of the Corporation after
any record date fixed as aforesaid, or, at its option, in lieu of so fixing a
record date, may prescribe in advance a period not exceeding sixty (60) days
prior to the date for such payment, distribution or delivery during which no
transfer of stock on the books of the Corporation may be made.
SECTION 4. Lost or Destroyed Certificates. In case of the loss or destruction of
any outstanding certificate of stock, a new certificate may be issued upon the
following conditions:
The owner of said certificate shall file with the Secretary of the Corporation
an affidavit giving the facts in relation to the ownership, and in relation to
the loss or destruction of said certificate, stating its number and the number
of shares represented thereby; such affidavit to be in such form and contain
such statements as shall satisfy the Chairman of the Board and Secretary that
said certificate has been accidentally destroyed or lost, and that a new
certificate ought to be issued in lieu thereof. Upon being so satisfied, the
Chairman of the Board and Secretary shall require such owner to file with the
Secretary a bond in such penal sum and in such form as they may deem advisable,
and with a surety or sureties approved by them, to indemnify and save harmless
the Corporation from any claim, loss, damage or liability which may be
occasioned by the issuance of a new certificate in lieu thereof, or if they deem
it appropriate, to waive the requirement to secure a bond with a surety. Upon
such bond being so filed, a new certificate for the same number of shares shall
be issued to the owner of the certificate so lost or destroyed; and the transfer
agent and registrar of stock, if any, shall countersign and register such new
certificate upon receipt of a written order signed by the said Chairman of the
Board and Secretary, and thereupon the Corporation will save harmless said
transfer agent and registrar in the premises. The CEO or the President or any
Vice President may act hereunder in the stead of the Chairman of the Board, and
an Assistant Secretary in the stead of the Secretary. In case of the surrender
of the original certificate, in lieu of which a new certificate has been issued,
or the surrender of such new certificate, for cancellation, the bond of
indemnity given as a condition of the issue of such new certificate may be
surrendered. A new certificate may be issued without requiring any bond when in
the judgment of the Board of Directors it is proper to do so.
ARTICLE VII
CHECKS, NOTES, ETC.
SECTION 1. Execution of Checks, Notes, etc. All checks and drafts on the
Corporation's bank accounts and all bills of exchange and promissory notes, and
all acceptances, obligations and other instruments for the payment of money,
shall be signed by such officer or officers, agent or agents, as shall be
thereunto authorized from time to time by the Board of Directors.
SECTION 2. Execution of Contracts, Assignments, etc. All contracts, agreements,
endorsements, assignments, transfers, stock powers, or other instruments (except
as provided in Sections 1 and 3 of this Article VII) shall be signed by the CEO,
the President, any Executive Vice President, Senior Vice President, or Vice
President and by the Secretary or any Assistant Secretary or the Treasurer or
any Assistant Treasurer, or by such other officer or officers, agent or agents,
as shall be thereunto authorized from time to time by the Board of Directors.
SECTION 3. Execution of Proxies. The Chairman of the Board, the CEO, President,
or a Vice President of the Corporation may authorize from time to time the
signature and issuance of proxies to vote upon shares of stock of other
companies standing in the name of the Corporation. All such proxies shall be
signed in the name of the Corporation by the Chairman of the Board, the CEO,
President or a Vice President and by the Secretary or an Assistant Secretary.
ARTICLE VIII
WAIVERS AND CONSENTS
SECTION 1. Waivers. Whenever under the provisions of any law or under the
provisions of the Certificate of InCorporation of the Corporation or these
Bylaws, the Corporation, or the Board of Directors or any committee thereof, is
authorized to take any action after notice to stockholders or the directors or
the members of such committee, or after the lapse of a prescribed period of
time, such action may be taken without notice and without the lapse of any
period of time if, at any time before or after such action be completed, such
requirements be waived in writing by the person or persons entitled to said
notice or entitled to participate in the action to be taken, or, in the case of
a stockholder, by his attorney thereunto authorized.
SECTION 2. Consents. Any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee of the Board of Directors may be
taken without a meeting, if prior to such action a written consent thereto is
signed by all members of the Board of Directors or of such committee as the case
may be, and such written consent is filed with the minutes of proceedings of the
Board of Directors or of such committee.
ARTICLE IX
DIVIDENDS AND RESERVE FUNDS
SECTION 1. Dividends. Except as otherwise provided by law or by the Certificate
of InCorporation, the Board of Directors may declare dividends out of the
surplus of the Corporation at such times and in such amounts as it may from time
to time designate.
SECTION 2. Reserve Funds. Before crediting net profits to the surplus in any
year, there may be set aside out of the net profits of the Corporation for that
year such sum or sums as the Board of Directors from time to time in its
absolute discretion may deem proper as a reserve fund or funds to meet
contingencies or for equalizing dividends or for repairing or maintaining any
property of the Corporation or for such other purpose as the Board of Directors
shall deem conducive to the interests of the Corporation.
ARTICLE X
INSPECTION OF BOOKS
The Board of Directors shall determine from time to time whether, and if allowed
when and under what conditions and regulations, the accounts and books of the
Corporation (except such as may by statute be specifically open to inspection)
or any of them shall be open to the inspection of the stockholders; and the
stockholders' rights in this respect are and shall be restricted and limited
accordingly.
ARTICLE XI
FISCAL YEAR
The fiscal year of the Corporation shall end on the thirty first day of December
each year commencing with December 31, 1992, unless another date shall be fixed
by resolution of the Board of Directors. After such date is fixed, it may be
changed for future fiscal years at any time or from time to time by further
resolution of the Board of Directors.
ARTICLE XII
SEAL
The corporate seal shall be circular in form and shall contain the name of the
Corporation, the state of incorporation, and the words "Corporate Seal".
ARTICLE XIII
AMENDMENTS
SECTION 1. By Stockholders. These Bylaws may be amended by a majority vote of
the stock entitled to vote and present or represented at any annual or special
meeting of the stockholders at which a quorum is present or represented, if
notice of the proposed amendment shall have been contained in the notice of the
meeting.
SECTION 2. By Directors. Except as otherwise specifically provided in the
Bylaws, if any, adopted by the stockholders, these Bylaws may be amended by the
affirmative vote of a majority of the Board of Directors, at any regular meeting
or special meeting thereof, if notice of the proposed amendment shall have been
contained in the notice of such meeting. If any Bylaw regulating an impending
election of directors is adopted or amended or repealed by the Board of
Directors, there shall be set forth in the notice of the next meeting of the
stockholders for the election of directors the Bylaws so adopted or amended or
repealed together with a concise statement of the changes made.
ARTICLE XIV
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
The Corporation shall indemnify and reimburse each person, and his heirs,
executors or administrators, who is made or is threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he was or is a director, officer,
employee or agent of the Corporation or was or is serving at the request of the
Corporation as a director, officer, employee or agent of another Corporation,
partnership, joint venture, trust, or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement,
actually or reasonably incurred by him in connection with such action, suit or
proceeding and shall advance the expenses incurred by any officer or director in
defending any such action, suit or proceeding to the full extent permitted by
Section 145 of the General Corporation Law of the State of Delaware as it may be
amended or supplemented from time to time. Such right of indemnification or
advancement of expenses of any such person shall not be deemed exclusive of any
other rights to which he may be entitled under any statute, bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office.
The foregoing provisions of this Article XIV shall be deemed to be a contract
between the Corporation and each person who serves in any capacity specified
therein at any time while this bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon any such state of facts.
<PAGE>
EXHIBIT 10b
January 1, 1998
TO:
FROM: Richard Ramsey
SUBJECT: Compensation Plan, Fiscal Year 1998
Your compensation plan for fiscal year 1998 is outlined below.
I. FY 1998 Base Salary
Your Base Salary for FY98 shall be $.
II. Your bonus for FY98 shall be determined by multiplying the percent
determined in the following TARGET INCENTIVE GOALS times the FACTORS set
forth below.
The bonus amounts payable are subject to limitations set forth in Paragraph
III and IV.
TARGET INCENTIVE GOALS:
1. INCOME
Each percentage point of positive change that the Tandy Corporation and
subsidiaries income from operations (before income taxes) increases from
$.
2. EARNINGS PER SHARE
Each percentage point of positive change that the Tandy Corporation
diluted earnings per share increases from $ per share.
3. STOCK PRICE
a. Each percentage point of positive change that the Tandy
Corporation stock price increases, based on the average daily closing
price for 1997 and 1998.
b. If Tandy's average daily closing stock price outperforms the
"Peer Group's" average daily closing stock price, you will receive
an additional bonus of $.
Income and Earnings Per Share will be calculated excluding
the effect of Financial Accounting Standards requirements i.e.
FAS121. Percentages shall be calculated to two decimal points.
Your factors to be used for each of the calculations above are as
follows:
1. Income increase: $
2. Earnings per share increase: $
3. Stock price increase: $
Page 2
January 1, 1998
Compensation Plan, FY98
III. Minimum Bonus
Minimum Threshold Increase Percent for Each Target Incentive Goal
Minimum Increase %
------------------
1. Income
2. Earnings per share
3. Stock price
a. Tandy Stock Increase
b. Peer Group N/A
Per letter agreement, the minimum bonus paid will be $
IV. Maximum Bonus:
The bonus paid will be limited to an amount not to exceed $.
V. This compensation plan is not an employment contract, but a method of
calculating your total earnings. You forfeit your rights to receive a bonus
if you resign before the end of the current fiscal year. If you are
terminated by the Company, your rights to receive a bonus will be at the
sole discretion of the Company and in such amount as the Company might
decide. If you retire at age 55 or over, provided the Company has given its
consent to your early retirement, or die before the end of the then current
fiscal year, your bonus will be calculated using actual results to the
nearest end of the month preceding or succeeding such event, which will
then be adjusted using the latest budget to include the remaining months of
the year. Example: Retirement date is August 10. Bonus calculations would
include actual results thru July 31 and the latest budgeted numbers from
August thru December. The bonus calculated, which will be an annual bonus,
will then be prorated for the partial year worked i.e. 7/12 times annual
bonus calculated in this example. The Stock Price percentage will be
calculated using only actual results to the nearest end of the month for
this year and last year. The amount will be paid to you or the legal
representative of your estate.
VI. If at any time during your continued employment, your responsibility,
duties or title changes, this plan is subject to revision or termination by
the Company at the time of the foregoing change. A partial year bonus will
be calculated using the methodology set forth in paragraph V.
<PAGE>
January 1, 1998
TO:
FROM: Richard Ramsey
SUBJECT: Compensation Plan, Fiscal Year 1998
Your compensation plan for fiscal year 1998 is outlined below.
I. FY 1998 Base Salary
Your Base Salary for FY98 shall be $.
II. Your bonus for FY98 shall be determined by multiplying the percent
determined in the following TARGET INCENTIVE GOALS times the FACTORS set
forth below.
The bonus amounts payable are subject to limitations set forth in
Paragraph III and IV.
TARGET INCENTIVE GOALS:
RADIOSHACK
1. INCOME
Each percentage point of positive change that the RadioShack Division
net income (before income taxes) increases from $.
2. SALES
Each percentage point of positive change that the RadioShack Division
sales increase from $.
3. GROSS PROFIT
Each percentage point of positive change that the RadioShack Division
gross profit dollars increase from $.
RadioShack results will be adjusted to reflect TE Manufacturing,
distribution operations, A&A and Tandy Retail Services for 1997 and
1998.
Percentages shall be calculated to two decimal points.
Your factors to be used for each of the calculations above are as
follows:
1. RadioShack income increase: $
2. RadioShack sales increase: $
3. RadioShack gross profit dollars increase: $
Page 2
January 1, 1998
Compensation Plan, FY98
A&A NET INCOME (PRE TANDY ADMIN)
You will receive a bonus of % times each dollar of profit from the A&A
Division.
Example: For a $ profit your bonus is $
$ x = $
III. Minimum Bonus
Minimum Threshold Increase Percent for Each Target Incentive Goal
Minimum
-------
1. Income % Increase
2. Sales % Increase
3. Gross Profit % Increase
4. A&A Net Income $ Profit
Bonus amounts earned from each of the factors which exceed the Minimum
Increase above will be accumulated. No bonus will be paid unless the
accumulated bonus exceeds % of your base salary.
Bonus will only be paid on each goal which exceeds the Minimum Increase
% set forth above.
IV. Maximum Bonus:
The bonus paid will be limited to an amount not to exceed $.
V. This compensation plan is not an employment contract, but a method of
calculating your total earnings. You forfeit your rights to receive a bonus
if you resign before the end of the current fiscal year. If you are
terminated by the Company, your rights to receive a bonus will be at the
sole discretion of the Company and in such amount as the Company might
decide. If you retire at age 55 or over, provided the Company has given its
consent to your early retirement, or die before the end of the then current
fiscal year, your bonus will be calculated using actual results to the
nearest end of the month preceding or succeeding such event, which will
then be adjusted using the latest budget to include the remaining months of
the year. Example: Retirement date is August 10. Bonus calculations would
include actual results thru July 31 and the latest budgeted numbers from
August thru December. The bonus calculated, which will be an annual bonus,
will then be prorated for the partial year worked i.e. 7/12 times annual
bonus calculated in this example. The Stock Price percentage will be
calculated using only actual results to the nearest end of the month for
this year and last year. The amount will be paid to you or the legal
representative of your estate.
VI. If at any time during your continued employment, your responsibility,
duties or title changes, this plan is subject to revision or termination by
the Company at the time of the foregoing change. A partial year bonus will
be calculated using the methodology set forth in paragraph V.
<PAGE>
January 1, 1998
TO:
FROM: Richard Ramsey
SUBJECT: Compensation Plan, Fiscal Year 1998
Your compensation plan for fiscal year 1998 is outlined below.
I. FY 1998 Base Salary
Your Base Salary for FY98 shall be $.
II. Your bonus for FY98 shall be determined by multiplying the percent
determined in the following TARGET INCENTIVE GOALS times the FACTORS set
forth below.
The bonus amounts payable are subject to limitations set forth in
Paragraph III and IV.
TARGET INCENTIVE GOALS:
1. INCOME
Each percentage point of positive change that the Tandy Corporation and
subsidiaries income from operations (before income taxes) increases from
$.
2. EARNINGS PER SHARE
Each percentage point of positive change that the Tandy Corporation
diluted earnings per share increases from $ per share.
3. STOCK PRICE
a. Each percentage point of positive change that the Tandy
Corporation stock price increases, based on the average daily closing
price for 1997 and 1998.
b. If Tandy's average daily closing stock price outperforms the
"Peer Group's" average daily closing stock price, you will receive an
additional bonus of $.
Income and Earnings Per Share will be calculated excluding the
effect of Financial Accounting Standards requirements i.e. FAS121.
Your factors to be used for each of the calculations above are as
follows:
1. Income increase: $
2. Earnings per share increase: $
3. Stock price increase: $
INCOME - TE, ETC.
You will receive a bonus of % for each dollar of income (Pre Admin) from
the TE-US and TE-Asia divisions net income (Pre Admin).
INCOME - REPAIR, ETC.
You will receive a bonus of % for each dollar of income (Pre Admin) for
the Tandy Retail Services (Repair, Parts Departments), Falcon and all
the Distribution Operating Units, and Tandy Transportation.
Percentages shall be calculated to two decimal points.
Page 2
January 1, 1998
Compensation Plan, FY98
III. Minimum Bonus
Minimum Threshold Increase Percent for Each Target Incentive Goal
Minimum Increase %
1. Tandy Corp Income ------------------
2. Earnings per share
3. Stock price
a. Tandy Stock Increase
b. Peer Group N/A
4. Net Income - TE, etc. Income
5. Net Income - Repair, etc. Income
Bonus amounts earned from each of the factors which exceed the Minimum
Increase above will be accumulated. No bonus will be paid unless the
accumulated bonus exceeds % of your base salary.
Bonus will only be paid on each goal which exceeds the Minimum Increase
% set forth above.
IV. Maximum Bonus:
The bonus paid will be limited to an amount not to exceed $.
V. This compensation plan is not an employment contract, but a method of
calculating your total earnings. You forfeit your rights to receive a bonus
if you resign before the end of the current fiscal year. If you are
terminated by the Company, your rights to receive a bonus will be at the
sole discretion of the Company and in such amount as the Company might
decide. If you retire at age 55 or over, provided the Company has given its
consent to your early retirement, or die before the end of the then current
fiscal year, your bonus will be calculated using actual results to the
nearest end of the month preceding or succeeding such event, which will
then be adjusted using the latest budget to include the remaining months of
the year. Example: Retirement date is August 10. Bonus calculations would
include actual results thru July 31 and the latest budgeted numbers from
August thru December. The bonus calculated, which will be an annual bonus,
will then be prorated for the partial year worked i.e. 7/12 times annual
bonus calculated in this example. The Stock Price percentage will be
calculated using only actual results to the nearest end of the month for
this year and last year. The amount will be paid to you or the legal
representative of your estate.
VI. If at any time during your continued employment, your responsibility,
duties or title changes, this plan is subject to revision or termination by
the Company at the time of the foregoing change. A partial year bonus will
be calculated using the methodology set forth in paragraph V.
<PAGE>
EXHIBIT 10z
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into as of October
23, 1998 by and between Leonard H. Roberts ("Executive") and Tandy Corporation
("Tandy").
WHEREAS, the Board of Directors of Tandy (the "Board") recognizes Executive's
valuable experience;
WHEREAS, the Board has determined it is in the best interest of Tandy and its
shareholders to enter into this Agreement with Executive; and
WHEREAS, for these reasons Executive and Tandy desire to enter into this
Agreement.
NOW, THEREFORE, in consideration of the respective agreements of the parties
contained herein, it is agreed as follows:
1. Term of Agreement and Renewal. This Agreement shall commence as of October
23, 1998 and shall continue in effect until October 23, 2005 (the "Term").
Tandy, in its sole and absolute discretion, shall have the sole right and
option to extend the Term of this Agreement for such time and under such
terms and conditions it may deem necessary or desirable.
2. Definitions. For purposes of this Agreement the following terms shall have
the following meaning:
A. "Base Amount" shall mean the Executive's annual salary at the highest rate
in effect at any time during the 12 month period ending on the termination
date of his employment with Tandy, determined without regard to any salary
reduction or deferred compensation elections made by the Executive.
B. "Cause" shall mean if (i) the Executive intentionally fails to
substantially perform his reasonably assigned duties with Tandy, (ii)
Executive engages in conduct which is demonstrably and materially injurious
to Tandy, (iii) Executive commits or otherwise is charged with a felony or
any crime involving moral turpitude, or any other criminal activity or
unethical conduct which in the good faith opinion of the Board impairs his
ability to perform the duties of his job with Tandy, or (iv) Executive
fails or refuses to comply with the policies, standards or regulations of
Tandy.
C. "Disability" shall mean the Executive is suffering from a physical or
mental condition which, in the opinion of the Board, based upon appropriate
medical advice and examination, prevents the Executive from performing the
duties of his job with Tandy.
D. "Target Bonus" shall mean 75% of the Base Amount or the applicable
percentage of the Base Amount then in effect.
3. Compensation and Benefits Upon Termination of Employment. If, during the
Term, the Executive's employment with Tandy shall be involuntarily
terminated without (i) Cause, or other than by virtue of (ii) the
Executive's Disability or (iii) the Executive's death, Tandy shall pay to
the Executive, in lieu of any further compensation for periods subsequent
to the termination date, an amount in cash equal to two times the sum of
(x) the Executive's Base Amount and (y) the Executive's Target Bonus (such
total being hereinafter referred to as the "Cash Severance Payment"). The
Cash Severance Payment shall be paid in two installments with the first
such installment payable on or before ninety (90) days from the date of
termination and the second and final installment payable within eighteen
(18) months from the date of the first installment. In addition, all
outstanding Tandy stock options and restricted stock awards that would have
otherwise become exercisable or vested within two years following the date
of Executive's termination of employment with Tandy, shall become
exercisable or vested, as the case may be, as if Executive was still
employed by Tandy during such two year period. Any options exercisable by
Executive at the time of his termination including any options that may
become exercisable as a result of this provision in the two years following
termination must be exercised by Executive within ninety (90) days after
the second anniversary of such termination. Also, in the event of the
termination described above, Executive shall be credited with two years of
age under any age based benefit plan that may be maintained by Tandy, with
any such age based benefits being payable under the terms of any such plan
or plans.
4. Termination of Employment for Cause, Death, Disability or Voluntary
Termination. In the event that Executive's employment with Tandy is
terminated because of (i) Cause, (ii) Executive's death, (iii) Executive's
Disability or (iv) or the voluntary termination of employment by the
Executive, then the Executive shall not receive any payments or benefits
under this Agreement.
5. Payment of Benefits.
A. If Base Amount and Target Bonus are payable under the terms hereof, the
same shall be payable in two equal installments. The first installment
shall be payable 90 days after the date of termination of Executive's
employment with Tandy and the second installment shall be payable one
calendar year after the date of the first installment payment.
B. In the event Executive's employment is terminated with Tandy, and Executive
is due payments and benefits from Tandy under that certain Termination
Protection Agreement for Corporate Executives dated May 18, 1995 between
Executive and Tandy (the "Termination Protection Agreement"), and such
payments and benefits are greater than those provided in this Agreement,
then Executive shall only receive benefits and payments under the
Termination Protection Agreement and no benefits and payments shall be
provided or paid under this Agreement. However, should the benefits and
payments due Executive under this Agreement be greater than those under the
Termination Protection Agreement, then benefits and payments shall only be
paid under this Agreement and no benefits and payments shall be paid or
provided to Executive under the Termination Protection Agreement.
6. Non-Competition Clause. Executive hereby agrees that for a period of three
years after the termination of his employment with Tandy, Executive will
not, directly or indirectly, own, have a proprietary interest (except for
less than 5% of any listed company or company traded in the
over-the-counter market) of any kind in, be employed by, be a partner in,
or serve as a consultant to or in any other capacity with any firm,
partnership, corporation, business enterprise or individual, which is
engaged in competition with any business conducted, or to Executive's
knowledge contemplated, by Tandy in any of the geographic areas in which
Tandy is operating or proposes to operate.
7. Remedy for Breach. In the event of any claimed breach of this Agreement,
the party alleged to have committed such breach shall be entitled to
written notice of such alleged breach and a period of fifteen (15) days to
remedy such breach. Executive understands that a breach of any one or more
of the covenants contained herein will result in irreparable and continuing
damage to Tandy for which there will be no adequate remedy at law, and in
the event of any breach or threatened breach of Executive's obligations
hereunder, Tandy may, in addition to the other remedies which may be
available to it:
A. declare forfeited any sums representing Base Amount, Target Bonus or other
fringe benefits (including any unexercised stock options or unvested
restricted stock) otherwise due and payable to Executive hereunder, and, or
alternatively,
B. file suit to enjoin Executive from the breach or threatened breach of such
covenants.
8. Successors; Binding Agreement. The terms and provisions of this Agreement
shall be binding upon, shall inure to the benefit of, and shall be
enforceable by Tandy and its Successors and Assigns. Tandy shall require
any successors or Assigns to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that Tandy would be
required to perform it if no such succession or assignment had taken place.
This Agreement shall be binding upon the Executive and his heirs,
executors, administrators and legal representatives provided, however, that
the Executive may not assign his obligations hereunder, except by will or
the laws of descent or distribution.
9. Notice. For the purposes hereof, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been
duly given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid or prepaid
overnight express delivery service, addressed to Tandy at its principal
place of business and to Executive at his address as shown on the records
of Tandy, provided that all notices to Tandy shall be directed to the
attention of the General Counsel of Tandy or to such other officer as may
be designated in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
10. Miscellaneous. No provisions herein may be amended, modified, waived or
discharged unless such amendment, waiver, modification or discharge is
agreed to in writing signed by Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with,
any condition or provision hereof to be performed by such other party shall
be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not set forth expressly
herein.
11. Validity. The invalidity or unenforceability of any provisions hereof shall
not affect the validity or enforceability of any other provision hereof,
which shall remain in full force and effect.
12. Non-Exclusivity Of Rights. Except as otherwise expressly provided, nothing
herein shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive, deferred compensation plan,
stock plan, salary continuation plan, post retirement death benefit plan or
other plans, practices, policies or programs provided by Tandy and for
which the Executive may have under any stock option or other agreements,
plans or arrangements with Tandy. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan,
practice, policy, arrangement or program of Tandy at or subsequent to the
date of termination of employment shall be payable in accordance with such
plan, practice, policy, arrangement or program. Notwithstanding the
foregoing provisions of this Section 11, this Agreement contains the entire
agreement of the parties regarding the severance benefits provided for
herein.
13. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together
will constitute one and the same instrument.
14. Governing Law. This Agreement has been executed and delivered in Tarrant
County, Texas and its validity, interpretation, performance and enforcement
shall be governed by the laws of the State of Texas.
15. Forum. Any suit brought by either the Executive or Tandy under this
Agreement shall be brought in the appropriate state or federal court for
Tarrant County, Texas.
16. Captions and Gender. The use of captions and Section headings herein is for
purposes of convenience only and shall not effect the interpretation or
substance of any provisions contained herein. Similarly, the use of the
masculine gender with respect to pronouns herein is for purposes of
convenience and includes either sex who may be a signatory.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement to be
effective as of the day and year first above written.
TANDY CORPORATION
/s/ Leonard H. Roberts By: /s/ James I. Cash, Jr.
- ---------------------- --------------------------
Leonard H. Roberts James I. Cash, Jr.
Chairman, Organization and
Compensation Committee
Board of Directors
Tandy Corporation
<PAGE>
EXHIBIT 11
TANDY CORPORATION
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
Year Ended December 31,
(In millions, except --------------------------------------------------------
per share amounts) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Income (loss) from continuing operations $ 61.3 $ 186.9 $ (91.6) $ 211.9 $ 224.3
Plus provision (benefit) for income taxes 38.4 117.0 (54.0) 131.3 135.2
-------- -------- -------- --------- --------
Income (loss) before income taxes 99.7 303.9 (145.6) 343.2 359.5
-------- -------- -------- --------- --------
Fixed charges:
Interest expense and amortization of
debt discount 45.4 46.1 36.4 33.7 30.0
Amortization of issuance expense 0.7 0.4 0.2 0.3 0.3
Appropriate portion (33 1/3%)of rentals 72.5 74.2 80.0 72.5 70.8
-------- -------- -------- --------- --------
Total fixed charges 118.6 120.7 116.6 106.5 101.1
-------- -------- -------- --------- --------
Earnings before income taxes and
fixed charges $ 218.3 $ 424.6 $ (29.0) $ 449.7 $ 460.6
======== ======== ======== ========= ========
Ratio of earnings to fixed charges 1.84 3.52 (a) 4.22 4.56
======== ======== ======== ========= ========
Ratio of Earnings to Fixed
Charges and Preferred Dividends:
Total fixed charges, as above $ 118.6 $ 120.7 $ 116.6 $ 106.5 $ 101.1
Preferred dividends 5.8 6.1 6.3 11.3 38.9
-------- -------- -------- --------- --------
Total fixed charges and preferred
dividends $ 124.4 $ 126.8 $ 122.9 $ 117.8 $ 140.0
======== ======== ======== ========= ========
Earnings (loss) before income taxes
and fixed charges $ 218.3 $ 424.6 $ (29.0) $ 449.7 $ 460.6
======== ======== ======== ========= ========
Ratio of earnings to fixed
charges and preferred dividends 1.75 3.35 (b) 3.82 3.29
======== ======== ======== ========= ========
(a) Earnings were not sufficient to cover fixed charges during 1996 by
approximately $145.6 million.
(b) Earnings were not sufficient to cover fixed charges and preferred dividends
during 1996 by approximately $151.9 million.
</TABLE>
<PAGE>
TANDY CORPORATION
EXHIBIT 21
SUBSIDIARIES
The Company's only significant large subsidiary is:
State of Incorporation
----------------------
Technology Properties, Inc. Delaware
All of the subsidiaries of Tandy Corporation are included in the Company's
consolidated financial statements. All other subsidiaries, considered in the
aggregate as a single subsidiary, would not constitute a significant subsidiary.
<PAGE>
TANDY CORPORATION
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Registration Nos.
33-37970, 333-27297, 333-44125 and 333-60803) of Tandy Corporation and to the
incorporation by reference in the Registration Statements on Form S-8
(Registration Nos. 33-23178, 33-41523, 33-51019, 33-51599, 33-51603, 333-27437,
333-47893, 333-48331, 333-63659 and 333-63661) of our report dated February 24,
1999, appearing on page in this Annual Report on Form 10-K.
\s\ PricewaterhouseCoopers LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
Fort Worth, Texas
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income contained in
Tandy Corporation's 10-K and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000096289
<NAME> TANDY CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 64,500
<SECURITIES> 0
<RECEIVABLES> 234,000
<ALLOWANCES> 18,800
<INVENTORY> 912,100
<CURRENT-ASSETS> 1,298,600
<PP&E> 974,700
<DEPRECIATION> 540,900
<TOTAL-ASSETS> 1,993,600
<CURRENT-LIABILITIES> 879,500
<BONDS> 235,100
0
100,000
<COMMON> 139,200
<OTHER-SE> 609,000
<TOTAL-LIABILITY-AND-EQUITY> 1,993,600
<SALES> 4,787,900
<TOTAL-REVENUES> 4,787,900
<CGS> 2,783,500
<TOTAL-COSTS> 2,783,500
<OTHER-EXPENSES> 82,600
<LOSS-PROVISION> 108,200
<INTEREST-EXPENSE> 34,600
<INCOME-PRETAX> 99,700
<INCOME-TAX> 38,400
<INCOME-CONTINUING> 61,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,300
<EPS-PRIMARY> .55
<EPS-DILUTED> .54
</TABLE>
