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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-5571
------------------------
RADIOSHACK CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-1047710
(State or other jurisdiction of (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
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
The number of shares outstanding of the issuer's Common Stock, $1 par value, on
October 31, 2000 was 185,882,976.
Index to Exhibits is on Sequential Page No. 14. Total pages 15.
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
(In millions, except per share amounts) 2000 1999 2000 1999
------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales and operating revenues $1,140.4 $ 960.3 $3,211.0 $2,737.2
Cost of products sold 575.0 473.9 1,596.0 1,332.1
-------- -------- -------- --------
Gross profit 565.4 486.4 1,615.0 1,405.1
-------- -------- -------- --------
Expenses (income):
Selling, general and administrative 404.2 361.4 1,155.8 1,041.5
Depreciation and amortization 26.7 23.1 78.6 65.4
Interest income (4.3) (4.7) (13.1) (13.8)
Interest expense 14.4 8.5 36.3 26.4
Restricted stock awards -- -- (1.0) (5.1)
-------- -------- -------- --------
441.0 388.3 1,256.6 1,114.4
-------- -------- -------- --------
Income before income taxes 124.4 98.1 358.4 290.7
Provision for income taxes 47.3 38.3 136.2 113.4
-------- -------- -------- --------
Net income 77.1 59.8 222.2 177.3
Preferred dividends 1.3 1.4 4.0 4.2
-------- -------- -------- --------
Net income available to common shareholders $ 75.8 $ 58.4 $ 218.2 $ 173.1
======== ======== ======== ========
Net income available per common share:
Basic $ 0.41 $ 0.30 $ 1.16 $ 0.89
======== ======== ======== ========
Diluted $ 0.39 $ 0.29 $ 1.11 $ 0.85
======== ======== ======== ========
Shares used in computing earnings per common share:
Basic 186.7 194.3 187.6 194.3
======== ======== ======== ========
Diluted 197.8 205.4 198.0 204.7
======== ======== ======== ========
Dividends declared per common share $ 0.055 $ 0.050 $ 0.165 $ 0.150
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
September 30, December 31, September 30,
2000 1999 1999
(In millions, except for share amounts) (Unaudited) (Unaudited)
------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 74.9 $ 164.6 $ 54.3
Accounts and notes receivable, less allowance for
doubtful accounts 313.2 286.1 244.7
Inventories, at lower of cost or market 1,208.0 861.4 978.5
Other current assets 99.1 91.2 101.6
-------- -------- --------
Total current assets 1,695.2 1,403.3 1,379.1
Property, plant and equipment, at cost, less
accumulated depreciation 456.7 446.8 443.2
Other assets, net of accumulated amortization 306.4 291.9 323.9
-------- -------- --------
Total assets $2,458.3 $2,142.0 $2,146.2
======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt, including current maturities of
long-term debt $ 541.3 $ 188.9 $ 254.3
Accounts payable 258.6 234.8 224.9
Accrued expenses 259.0 350.8 263.3
Income taxes payable 144.6 150.7 137.7
-------- -------- --------
Total current liabilities 1,203.5 925.2 880.2
-------- -------- --------
Long-term debt, excluding current maturities 316.0 319.4 324.9
Other non-current liabilities 55.5 45.7 39.6
-------- -------- --------
Total other liabilities 371.5 365.1 364.5
-------- -------- --------
Minority interest - RadioShack.com 100.0 -- --
Common stock put options -- 21.0 25.2
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares
authorized
Series A junior participating, 300,000 shares
designated and none issued -- -- --
Series B convertible (TESOP), 100,000 shares
authorized; 69,700, 72,800 and 73,700 shares
issued, respectively 69.7 72.8 73.7
Common stock, $1 par value, 650,000,000 shares
authorized; 236,033,000, 235,840,000 and 235,840,000
shares issued, respectively 236.0 235.8 235.8
Additional paid-in capital 111.5 82.4 63.2
Retained earnings 1,530.5 1,353.3 1,247.4
Treasury stock, at cost; 49,710,000, 45,113,000 and
42,593,000 shares, respectively (1,149.8) (892.3) (716.5)
Unearned deferred compensation (13.7) (20.5) (23.3)
Accumulated other comprehensive loss (0.9) (0.8) (4.0)
-------- -------- --------
Total stockholders' equity 783.3 830.7 876.3
Commitments and contingent liabilities
-------- -------- --------
Total liabilities and stockholders' equity $2,458.3 $2,142.0 $2,146.2
======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
RADIOSHACK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
Nine Months Ended
September 30,
----------------------
(In millions) 2000 1999
----------- -------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 222.2 $ 177.3
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Depreciation and amortization 78.6 65.4
Restricted stock awards (1.0) (5.1)
Other items 23.3 19.7
Changes in operating assets and liabilities:
Receivables (14.6) (1.3)
Inventories (346.6) (64.5)
Other current assets (25.9) 6.3
Accounts payable, accrued expenses and income taxes (26.9) (8.5)
-------- --------
Net cash (used) provided by operating activities (90.9) 189.3
-------- --------
Investing activities:
Additions to property, plant and equipment (91.5) (71.2)
Proceeds from sale of property, plant and equipment 1.2 2.9
Investment in securities (30.0) (20.0)
Proceeds from sale of securities 17.9 --
Proceeds from sale of minority interest in RadioShack.com 100.0 --
Other investing activities (3.1) (4.3)
-------- --------
Net cash used by investing activities (5.5) (92.6)
-------- --------
Financing activities:
Purchases of treasury stock (351.4) (245.6)
Exercise of common stock put options (8.6) --
Proceeds from sale of common stock put options 0.5 3.5
Sales of treasury stock to employee stock plans 36.6 30.1
Proceeds from exercise of stock options 16.6 27.3
Dividends paid (33.6) (32.3)
Changes in short-term borrowings, net 354.8 23.9
Additions to long-term borrowings -- 100.6
Repayments of long-term borrowings (8.2) (14.4)
-------- --------
Net cash provided (used) by financing activities 6.7 (106.9)
-------- --------
Decrease in cash and cash equivalents (89.7) (10.2)
Cash and cash equivalents, beginning of period 164.6 64.5
-------- --------
Cash and cash equivalents, end of period $ 74.9 $ 54.3
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of RadioShack
Corporation ("RadioShack" or the "Company") have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. For further information, refer to the consolidated
financial statements and management's discussion and analysis of results of
operations and financial condition included in the Company's 1999 Annual Report
on Form 10-K for the year ended December 31, 1999.
NOTE 2 - BASIC AND DILUTED EARNINGS PER SHARE
The following schedule is a reconciliation of the numerators and denominators
used in computing the basic and diluted earnings per share calculations for the
three and nine months ended September 30, 2000 and 1999, respectively. 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.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
-------------------------------- --------------------------------
Income Shares Per Share Income Shares Per Share
(In millions, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 77.1 $ 59.8
Less: Preferred stock dividends (1.3) (1.4)
-------- --------
Basic EPS
Net income available to common
shareholders 75.8 186.7 $ 0.41 58.4 194.3 $ 0.30
======== ========
Effect of dilutive securities:
Dividends on Series B preferred stock 1.3 1.4
Additional contribution required
for TESOP if preferred stock had been
converted (0.9) 6.1 (1.1) 6.4
Stock options 5.0 4.7
-------- -------- -------- --------
Diluted EPS
Net income available to common
shareholders plus assumed conversions $ 76.2 197.8 $ 0.39 $ 58.7 205.4 $ 0.29
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
-------------------------------- --------------------------------
Income Shares Per Share Income Shares Per Share
(In millions, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 222.2 $ 177.3
Less: Preferred stock dividends (4.0) (4.2)
-------- --------
Basic EPS
Net income available to common
shareholders 218.2 187.6 $ 1.16 173.1 194.3 $ 0.89
======== ========
Effect of dilutive securities:
Dividends on Series B preferred stock 4.0 4.2
Additional contribution required
for TESOP if preferred stock had been
converted (2.6) 6.2 (3.2) 6.5
Stock options 4.2 3.9
-------- -------- -------- --------
Diluted EPS
Net income available to common
shareholders plus assumed conversions $ 219.6 198.0 $ 1.11 $ 174.1 204.7 $ 0.85
======== ======== ======== ======== ======== ========
</TABLE>
NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income for the three months ended September 30, 2000 and 1999 was
$77.1 million and $50.2 million, respectively, and comprehensive income for the
nine months ended September 30, 2000 and 1999 was $222.1 million and $174.3
million, respectively.
NOTE 4 - REVOLVING CREDIT FACILITY
In the second quarter of 2000, RadioShack expanded its existing $200.0 million
364-day revolving credit facility to $300.0 million and also extended the
maturity date to June 2001. The terms of the 364-day revolving credit facility
remained similar to the previous facility. RadioShack also has a $300.0 million
five-year revolving credit facility maturing June 2003. The revolving credit
facilities are used as backup for the commercial paper program and may also be
utilized for general corporate purposes.
NOTE 5 - RADIOSHACK.COM, LLC
In October 1999, RadioShack launched its e-commerce enabled website,
www.RadioShack.com. On November 10, 1999, RadioShack and Microsoft Corporation
("Microsoft") formed a limited liability company, RadioShack.com, LLC, for the
purpose of marketing and selling electronics products on the Internet.
RadioShack contributed assets and also extended a royalty-free license for
certain trademarks and service marks to RadioShack.com, LLC and Microsoft
contributed $100.0 million on January 4, 2000. RadioShack owns 100% of the
common units of RadioShack.com, LLC, while Microsoft owns 100% of the preferred
units. RadioShack includes RadioShack.com, LLC in its consolidated financial
statements. RadioShack is entitled to receive 75% of the profits and losses of
RadioShack.com, LLC, while Microsoft receives 25%; however, the preferred units
have certain liquidation rights, which could allow Microsoft to recover its
initial investment. This liquidation preference affects the allocation of the
profits and losses among the partners. The preferred units are convertible into
common units at any time and must be converted in the event of certain capital
transactions. In certain circumstances, Microsoft has the option to require
RadioShack to purchase, and RadioShack has the right to purchase, Microsoft's
units.
NOTE 6 - BUSINESS RESTRUCTURING
In the fourth quarter of 1996, the Company 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 at the time. At December 31, 1999, the
balance in the restructuring reserve was $14.5 million and consisted of
remaining estimated real estate obligations to be paid. During the three and
nine months ended September 30, 2000, approximately $1.5 million and $3.6
million, respectively, were charged against the restructuring reserve. An
additional $0.8 million relating to real estate obligations was added to the
reserve during the second quarter of 2000, leaving a balance in the reserve of
$11.7 million at September 30, 2000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ("MD&A")
FACTORS THAT MAY AFFECT FUTURE RESULTS
With the exception of historical information, the matters discussed in MD&A
contain forward-looking statements that involve various risks and uncertainties
and are indicated by words such as "anticipates," "expects," "believes," "will,"
"should," could," and similar words and phrases. Factors that could cause
RadioShack Corporation's ("RadioShack" or the "Company") actual results to
differ materially from management's projections, forecasts, estimates and
expectations include, but are not limited to, the following:
o changes in the amount and degree of promotional intensity exerted by current
competitors and potential new competition from both retail stores and
alternative methods or channels of distribution, such as e-commerce,
telephone shopping services and mail order;
o changes in general U.S. or regional U.S. economic conditions including, but
not limited to, consumer credit availability, interest rates, inflation,
personal discretionary spending levels and consumer sentiment about the
economy in general;
o the inability to successfully implement, market and execute the RadioShack.
comSM website and its coordination with RadioShack retail outlets;
o the presence or absence of new services or products and product features in
the merchandise categories RadioShack sells and unexpected changes in
RadioShack's actual merchandise sales mix;
o the inability to negotiate and maintain profitable contracts or execute
business plans with providers of services relating to cellular and PCS
telephones, direct-to-home satellite, Internet access and high-speed
bandwidth;
o the inability to collect the level of anticipated residual revenues,
commissions and bounties for products and services sold by RadioShack;
o the inability to successfully implement and execute RadioShack's strategic
alliances with Thomson Multimedia SA (RCA), Microsoft Corporation
("Microsoft"), Cellco Partnership (dba Verizon Wireless) and/or At Home
Corporation (Excite@Home);
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 RadioShack);
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 RadioShack's service-driven operating strategies;
o the imposition of new restrictions or regulations regarding the sale of
products and/or services RadioShack sells or changes in tax rules and
regulations applicable to RadioShack;
o the adoption rate and market demand for high speed Internet and other
Internet-related services; or
o the occurrence of severe weather events which prohibits consumers from
travelling to the Company's retail locations, especially during peak holiday
periods.
The United States retail industry and the specialty retail industry in
particular are dynamic by nature and have undergone significant changes over the
past several years. RadioShack's ability to anticipate and successfully respond
to continuing challenges is key to achieving its expectations.
RESULTS OF OPERATIONS
Net Sales and Operating Revenues
RadioShack's overall sales increased 18.8% to $1,140.4 million for the three
months ended September 30, 2000, compared to $960.3 million in the corresponding
prior year period. Overall sales increased 17.3% to $3,211.0 million for the
nine months ended September 30, 2000, compared to $2,737.2 million for the same
period in 1999. Comparable store sales increased 13.8% and 11.6% for the third
quarter and nine month periods ended September 30, 2000, respectively, when
compared to the prior year third quarter and nine month periods. Sales increased
for both the three and nine month periods, driven primarily by increased sales
of audio and video equipment, including "direct-to-home" satellite systems and
services ("DTH"), as well as by increased sales of personal computers and
wireless communications products. Management anticipates that sales growth for
the remainder of 2000 will come from a broad assortment of products and product
categories, but primarily from audio and video products, DTH, personal computers
and wireless communications.
Sales in the audio and video category increased approximately 39% and 49% during
the three and nine months ended September 30, 2000, respectively, when compared
to the same periods ended September 30, 1999. This category continued to benefit
from the June 2000 launch of the RCA Digital Entertainment Center at RadioShack,
as well as from increased sales of DTH during the quarter and nine months ended
September 30, 2000.
Sales of communications products increased approximately 15% and 8% during the
three and nine months ended September 30, 2000, when compared to the same
periods in the prior year. For the three and nine months ended September 30,
2000, increased unit and dollar sales of PCS and digital cellular telephones
accounted for the majority of the increase in this category. Unit and dollar
sales of wireless telephones are expected to continue to increase over
comparable prior year periods for the remainder of 2000.
Sales in the personal computers and peripherals category increased approximately
35% and 21% during the three and nine months ended September 30, 2000,
respectively, when compared to the corresponding periods in the prior year. The
average selling price of personal computers decreased approximately 6% and 12%
during the three and nine months ended September 30, 2000, respectively, when
compared to 1999. However, increases in CPU units sold and increases in sales of
monitors and printers during the quarter and nine months ended September 30,
2000 more than offset these price reductions.
Sales in the personal electronics category increased approximately 2% and 7% for
the quarter and nine months ended September 30, 2000, respectively, when
compared to the quarter and nine months ended September 30, 1999. For the three
and nine months ended September 30, 2000, sales increased primarily due to
strong sales of giftable items. An increase in toys, primarily radio control
cars, also contributed to the year-to-date increase.
Sales in the parts, accessories and specialty equipment category increased
approximately 5% for both the three and nine month periods ended September 30,
2000, when compared to the same periods in the prior year, due primarily to
increased sales of accessories for personal computers, wireless communication
products and audio and video products.
Sales in the services and other category, which includes residual revenue and
sales from prepaid wireless airtime, repair services and extended service
contracts, increased for the quarter and nine months ended September 30, 2000,
when compared to the same periods in the previous year. During the third quarter
and first nine months of 2000, increases in residual revenue and sales of
extended service plans were partially offset by a decrease in sales of prepaid
wireless airtime. Management expects this trend to continue during the remainder
of 2000.
As of September 30, 2000, approximately 4,700 retail outlets had been fixtured
for the Microsoft Internet Center@RadioShack. Management anticipates that
fixtures for most of the remaining RadioShack company-owned stores will be
installed by the end of December 2000 and that most of these retail outlets will
be able to demonstrate and sell high-speed Internet access service by the end of
2000.
RadioShack Retail Outlets
September 30, June 30, March 31, December 31, September 30,
2000 2000 2000 1999 1999
-------- -------- -------- -------- --------
Company-owned 5,082 5,060 5,052 5,087 5,042
Dealer/Franchise 2,092 2,073 2,091 2,099 2,057
-------- -------- -------- -------- --------
Total number of
retail outlets 7,174 7,133 7,143 7,186 7,099
======== ======== ======== ======== ========
Gross Profit
During the third quarter of 2000, gross profit dollars increased 16.2% to $565.4
million, but decreased 1.1 percentage points to 49.6% of net sales and operating
revenues, compared to 50.7% in the third quarter of 1999. For the nine months
ended September 30, 2000, gross profit dollars increased 14.9% to $1,615.0
million, but decreased 1.0 percentage point to 50.3% of net sales and operating
revenues, versus the corresponding period in 1999. These gross profit percentage
decreases were partly due to a shift within RadioShack's product offerings to
increased sales of branded audio and video products and personal computers,
which have a lower gross margin than RadioShack overall, and were further
impacted by increased sales to dealer stores, which have a lower gross margin
percentage than sales to retail customers. These decreases were partially offset
by an increase in residual revenue, which has 100% gross margin, as well as by
an increase in the gross profit percentages in the parts, accessories and
specialty equipment category. Management anticipates that gross profit as a
percentage of net sales and operating revenues will continue to decrease
slightly during the remainder of 2000, when compared to the prior year.
Selling, General and Administrative Expense
Selling, general and administrative ("SG&A") expense increased by $42.8 million
and $114.3 million, respectively, but decreased as a percent of net sales and
operating revenues by 2.2 and 2.0 percentage points, respectively, for the three
and nine month periods, when compared to the same periods in the prior year. For
these three and nine months ended September 30, 2000, rent, payroll and
advertising expense increased in dollars, but decreased as a percent of sales
and operating revenues when compared to the same periods in the prior year.
These decreases as a percentage of sales and operating revenues were due
primarily to the favorable effect of increased comparable store sales on the
expense rate structure during the periods. Rent expense increased in dollars for
the quarter and nine months ended September 30, 2000, due primarily to lease
renewals at slightly higher rates and retail store expansion. Payroll expense
increased in dollars during these same periods due to retail store expansion and
increases in commissions, bonuses and other incentives resulting from strong
comparable store sales and profits. Advertising expense increased in dollars for
the quarter and nine months ended September 30, 2000, when compared to the same
periods in the prior year. The quarterly increase was due primarily to increases
in television advertising, while the year-to-date increase is attributed to a
shift in advertising from print to television advertising. Management
anticipates that RadioShack will continue to obtain positive leverage in its
major expense categories for the remainder of 2000, dependent upon continuous
sales growth.
Net Interest Expense
Interest expense, net of interest income, for the three and nine months ended
September 30, 2000 was $10.1 million and $23.2 million, respectively versus $3.8
million and $12.6 million for the comparable three and nine months in 1999.
Interest expense increased $5.9 million and $9.9 million for the three and nine
month periods, due to higher nominal interest rates and higher average
short-term debt outstanding resulting from increased inventory levels and share
repurchases. Interest expense, net of interest income, is expected to continue
to increase during the remainder of 2000, when compared to the prior year.
Provision for Income Taxes
Provision for income taxes for each quarterly period is based on the estimate of
the annual effective tax rate for the fiscal year, as evaluated at the end of
each quarter. The effective tax rates for the third quarters of 2000 and 1999
were 38.0% and 39.0%, respectively. The rate decrease resulted primarily from
improved utilization of foreign tax credits and implementation of certain state
income tax initiatives.
FINANCIAL CONDITION
Cash flow used by operating activities approximated $90.9 million for the nine
month period ended September 30, 2000, compared to cash flow provided by
operating activities of $189.3 million in the prior year. This decrease in cash
flow was primarily attributable to a $346.0 million use of working capital
during the nine month period ended September 30, 2000, primarily resulting from
increases in inventory and other current assets and a reduction in accrued
expenses. The decrease in cash flow was partially offset by a $65.8 million
increase in net income after adjustments for non-cash items in the first nine
months of 2000, when compared to the first nine months of 1999.
Inventory at September 30, 2000 increased $346.6 million or 40.2% since December
31, 1999 and increased $229.5 million or 23.5% since September 30, 1999. The
increase since September 30, 1999 was due primarily to DTH inventory and
additional audio and video products related to RadioShack's introduction of the
RCA Digital Entertainment Center at RadioShack in June 2000 and, to a lesser
extent, increases in digital cellular handsets. These increases were partially
offset by decreases in computers resulting from strong sales during the third
quarter, as well as decreases in residential telephones. The increase since
December 31, 1999 was due primarily to increases in DTH inventory, audio and
video products and digital cellular handsets, as well as normal seasonal
fluctuations.
Total accounts receivable at September 30, 2000 increased $27.1 million or 9.5%
since December 31, 1999 and increased $68.5 million or 28.0% since September 30,
1999. The increase in accounts receivable since December 31, 1999 was due
primarily to an increase in sales to dealers, which was partially offset by a
decrease in receivables from service providers. The receivables increase since
September 30, 1999 related primarily to an increase in residual revenue from
service providers resulting from increased sales of wireless communications and
DTH, as well as rebates relating to the sale of MSN(TM) Internet access.
Additionally, an increase in sales to dealers contributed to the increase in
receivables since September 30, 1999.
Cash used by investing activities for the nine months ended September 30, 2000
was $5.5 million, compared to cash used by investing activities of $92.6 million
in the previous year. Investing activities for the nine months ended September
30, 2000 included capital expenditures totaling $91.5 million, primarily for
retail expansion, costs related to a new distribution facility and upgrades of
information systems. Management anticipates that capital expenditure
requirements will approximate $25.0 million to $30.0 million for the remainder
of 2000, primarily to support RadioShack store refurbishments and expansions
and, to a lesser extent, enhance information systems. On January 4, 2000,
RadioShack received $100.0 million in cash from Microsoft, which related to
Microsoft's investment in RadioShack.com, LLC, a limited liability company
formed by RadioShack and Microsoft for the purpose of marketing and selling
electronics products on the Internet. Proceeds from the sale of marketable
securities provided $17.9 million in cash, while RadioShack's investment in
Digital:Convergence Corporation, an Internet technology company, used $30.0
million in cash for the nine months ended September 30, 2000.
Cash provided by financing activities for the nine months ended September 30,
2000 was $6.7 million, compared to the $106.9 million used the previous year.
Purchases of treasury stock required $351.4 million for the nine months ended
September 30, 2000, compared to $245.6 million during the same period of 1999.
The current year's stock repurchases were partially funded by a net increase in
short-term debt, as well as by $53.2 million received from the sale of treasury
stock to employee stock plans and from stock option exercises. Dividends used
$33.6 million of cash for the nine months ended September 30, 2000, compared to
a $32.3 million usage in the same period of the prior year. In October 1999,
RadioShack announced a 10% increase in the quarterly dividend payment from
$0.050 per common share to $0.055 per common share, which impacted the quarterly
2000 dividend payments.
In the second quarter of 2000, RadioShack expanded its existing $200.0 million
364-day revolving credit facility to $300.0 million and also extended the
maturity date to June 2001. The terms of the 364-day revolving credit facility
remained similar to the previous facility. RadioShack also has a $300.0 million
five-year revolving credit facility maturing June 2003. The revolving credit
facilities are used as backup for the commercial paper program and may also be
utilized for general corporate purposes.
Cash and cash equivalents at September 30, 2000 were $74.9 million, compared to
$164.6 million at December 31, 1999 and $54.3 million at September 30, 1999.
Total debt as a percentage of total capitalization was 52.3% at September 30,
2000, compared to 38.0% at December 31, 1999 and 39.8% at September 30, 1999.
The increase in the debt-to-capitalization ratio resulted primarily from a
reduction in RadioShack's stockholders' equity due to the share repurchase
programs, as well as to an increase in short-term borrowings related to
RadioShack's inventory purchases and share repurchase programs. Long-term debt
as a percentage of total capitalization was 19.3% at September 30, 2000,
compared to 23.9% at December 31, 1999 and 22.3% at September 30, 1999.
The Board of Directors has authorized management to purchase up to 70.0 million
shares of RadioShack common stock through its two existing share repurchase
programs, of which approximately 69.2 million shares, totaling $1,467.8 million,
had been purchased as of September 30, 2000. During the quarter ended September
30, 2000, RadioShack repurchased approximately 0.5 million shares for an
aggregate cost of $26.5 million and for the nine months ended September 30,
2000, RadioShack repurchased approximately 5.5 million shares totaling $264.4
million under the programs. Purchases for either or both of these programs may
continue to be made from time to time in the open market and management expects
that funding of these programs will come primarily from excess free cash flow,
short-term borrowings and, if needed, from the sale of treasury stock to
employee stock plans.
In connection with the share repurchase program, the Board of Directors has
authorized management to sell up to 2.0 million put options on RadioShack common
stock. RadioShack has sold approximately 1.5 million put options since the
inception of the program and no put options were outstanding at September 30,
2000. Additionally, at its February 23, 2000 meeting, the Board of Directors
authorized management to supplement the put option program with equity forwards
and increased the number of shares subject to put options and equity forwards to
4.0 million shares. The Board of Directors also extended the expiration date for
the program to no later than December 31, 2002. Put options and equity forwards
will continue to be executed from time to time in order to take advantage of
attractive share price levels, as determined by management. The timing and terms
of the transactions, including maturities, depend on market conditions,
RadioShack's liquidity and other considerations.
On May 18, 2000, the Company's stockholders voted to approve an amendment to
increase the number of authorized shares of RadioShack common stock from 250.0
million shares to 650.0 million shares. The increase in the number of authorized
shares of common stock may be used for general corporate purposes, including
future stock splits, if any, and other transactions. There was no increase in
the number of authorized shares of RadioShack preferred stock.
RECENT EVENTS
RadioShack entered into the following two agreements in 2000, which management
believes enhance its strategic plan to become "America's Home Connectivity
Store."
On August 1, 2000, RadioShack announced a multi-year cellular wireless telephone
alliance with Verizon Wireless, the nation's largest wireless communications
service provider. This strategic alliance will permit over 3,700 company-owned
RadioShack stores to consolidate cellular service offerings with a single
service provider, thereby creating training, marketing, inventory, repair and
other supply-chain synergies. Additionally, RadioShack and Verizon Wireless will
create and implement a "store-within-a-store" concept, which management
anticipates launching in mid-2001. In addition to RadioShack's existing
relationship with Sprint PCS, the Verizon Wireless alliance allows RadioShack to
offer a second national wireless carrier in a majority of the Company's retail
stores. RadioShack continues to offer cellular service in its other retail
outlets through various cellular carriers in areas not covered by Verizon
Wireless.
On October 20, 2000, RadioShack announced a strategic alliance with At Home
Corporation (Excite@Home), the country's leading broadband online service
provider, whose major cable partners include Comcast, AT&T and Cox, among
others. Excite@Home service will be rolled out at RadioShack on a
market-by-market basis, with an initial launch beginning in November 2000 in
selected markets. Management anticipates that by December 31, 2001,
approximately 1,500 RadioShack retail outlets will be able to offer high-speed
Internet cable service through Excite@Home. The service will be distributed via
a simple self-installation kit with a phone call to the local cable company to
activate the service. The agreement also encompasses joint marketing and an
Excite@Home promotional display in RadioShack stores.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), in June 1998, which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS 133 becomes effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. RadioShack uses derivatives only in limited
circumstances and does not expect the impact of SFAS 133 to be material.
In addition, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"), in late 1999. SAB 101 provides
guidance in the recognition, presentation and disclosure of revenue in financial
statements. The SEC recently delayed the date that companies were required to
adopt the provisions of SAB 101 to the fourth quarter of fiscal years beginning
after December 31, 1999. RadioShack is continuing to analyze the provisions of
SAB 101 and the SEC interpretations, as they relate to the Company's revenue
recognition policies. The full impact of the adoption of SAB 101 has not been
determined at this time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RadioShack does not have any derivative instruments that materially increase the
Company's exposure to market risks for interest rates, foreign currency rates,
commodity prices or other market price risks.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
RadioShack 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, breach of contract and other
matters against RadioShack and its subsidiaries incident to the operation of its
business. The liability, if any, associated with these matters was not
determinable at September 30, 2000. 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 RadioShack's financial position.
ITEM 5. OTHER INFORMATION
a) RadioShack announced on October 23, 2000 the appointment of
Lawrence V. Jackson to the Board of Directors of RadioShack
Corporation. Mr. Jackson is currently Senior Vice President of
Supply Operations and an executive officer of Safeway, Inc.
b) In order to provide all investors with accurate and timely
market-moving data, RadioShack's conference calls on its
quarterly results, management's recorded monthly sales comments
following monthly sales releases and any conference calls after
an announcement of a major event can be accessed (in listen only
mode) on the Company's web page, www.RadioShackCorporation.com
five days following their initial posting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits Required by Item 601 of Regulation S-K.
A list of the exhibits required by Item 601 of Regulation S-K
and filed as part of this report is set forth in the Index to
Exhibits on page 14, which immediately precedes such exhibits.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RadioShack Corporation
(Registrant)
Date: November 10, 2000 By /s/ Richard L. Ramsey
---------------------------
Richard L. Ramsey
Vice President and Controller
(Authorized Officer)
Date: November 10, 2000 /s/ Dwain H. Hughes
---------------------------
Dwain H. Hughes
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
RADIOSHACK CORPORATION
INDEX TO EXHIBITS
Exhibit
Number Description
3a Certificate of Amendment of Restated Certificate of Incorporation
dated May 18, 2000. (Filed as Exhibit 3a to RadioShack's Form
10-Q filed on August 11, 2000 for the fiscal quarter ended June
30, 2000.)
3b RadioShack Corporation Bylaws Amended and Restated as of July 22,
2000. (Filed as Exhibit 3b to RadioShack's Form 10-Q filed on
August 11, 2000 for the fiscal quarter ended June 30, 2000.)
11* Statement of Computation of Ratios of Earnings to Fixed Charges.
27.1* Financial Data Schedule.
----------------------------
* filed with this report
<PAGE>
<TABLE>
EXHIBIT 11
RADIOSHACK CORPORATION
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------
(In millions, except ratios) 2000 1999 2000 1999
-------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Net income $ 77.1 $ 59.8 $ 222.2 $ 177.3
Plus provision for income taxes 47.3 38.3 136.2 113.4
-------- -------- -------- --------
Income before income taxes 124.4 98.1 358.4 290.7
-------- -------- -------- --------
Fixed charges:
Interest expense and amortization of debt discount 14.4 8.5 36.3 26.4
Amortization of issuance expense 0.1 0.2 0.6 0.6
Appropriate portion (33 1/3%) of rentals 17.9 17.2 53.2 50.9
-------- -------- -------- --------
Total fixed charges 32.4 25.9 90.1 77.9
-------- -------- -------- --------
Earnings before income taxes and fixed charges $ 156.8 $ 124.0 $ 448.5 $ 368.6
======== ======== ======== ========
Ratio of earnings to fixed charges 4.84 4.79 4.98 4.73
======== ======== ======== ========
Ratio of Earnings to Fixed Charges and Preferred
Dividends:
Total fixed charges, as above $ 32.4 $ 25.9 $ 90.1 $ 77.9
Preferred dividends 1.3 1.4 4.0 4.2
-------- -------- -------- --------
Total fixed charges and preferred dividends $ 33.7 $ 27.3 $ 94.1 $ 82.1
======== ======== ======== ========
Earnings before income taxes and fixed charges $ 156.8 $ 124.0 $ 448.5 $ 368.6
======== ======== ======== ========
Ratio of earnings to fixed charges and preferred
dividends 4.65 4.54 4.77 4.49
======== ======== ======== ========
</TABLE>
