Radio Shack 2003 Annual Report Download

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Driving value
RadioShack Corporation
2003 Annual Report

Table of contents

  • Page 1
    RadioShack Corporation Driving value 2003 Annual Report

  • Page 2
    RadioShack Corporation is truly unique among consumer electronics retailers. With nearly 7,000 locations nationwide, a team of knowledgeable and relied-upon store associates, and a re-energized focus on innovation, RadioShack is perfectly positioned to pursue its strategy: To dominate cost-...

  • Page 3
    RadioShack excels at demystifying innovative technology and creating one-stop shopping convenience with products like distinctly-designed digital cameras, routine accessories, image libraries and digital picture frames. You've got questions. We've got answers.®

  • Page 4
    ... is that we stayed true to our strategy. In my letter to you last year, I described several merchandising and operational initiatives, including improved supply chain and store processes, that we believed would help deliver 2003 earnings per share (EPS) growth of 13-15%. I am pleased to be able to...

  • Page 5
    ... customers embraced our formidable product offerings and store associates executed well. Our merchants have also become highly skilled at securing, pricing and distributing these products. In 2004, we think wireless will have another good year due in part to a new product cycle and more accessory...

  • Page 6
    ... us on strategy in 2003. (4%) Supply chain management lowered costs and optimized inventory, primarily by securing better terms from vendors and RadioShack Sales Growth tying our organization's focus and compensation to more appropriate merchandising metrics. Packaging alkaline batteries within...

  • Page 7
    ... options are now opened up to drive sales from the space formerly dedicated solely to RCA products. This year for each store, we expect to do nearly equal sales of home entertainment products in about 14 linear feet of space versus the 22 linear feet of space dedicated to home entertainment in 2003...

  • Page 8
    ...end-of-life product management, information technology drivers, and several other activities. Value priced for family use, Hewlett-Packard's all-in-one color printer, flatbed scanner and copier replaces three old units and makes home projects fun and easy. 6 R A D I O S H A C K 2003 Annual Report

  • Page 9
    ... support of, and continuing interest in, RadioShack. I am committed to driving shareholder value for you in the future. I look forward to another good year in 2004 and an even brighter future beyond. Sincerely, LEONARD H. ROBERTS Chairman and Chief Executive Officer RadioShack Executive Corporate...

  • Page 10
    ... RC, a high-performance line of radio-controlled (RC) cars that complement our breakthrough ZipZaps line of micro RC cars. The digital imaging category is another innovative line that allows us to provide customers with complete solutions. From digital cameras to added storage and media readers, to...

  • Page 11
    new features , like the ability to take a photo and send it by email over the Internet, are why people are trading in their wireless phones on a more frequent basis . Wonderful

  • Page 12
    ... to drive more value into our business going forward. In inventory management, we were able to reduce our weeks of supply by 25%, exceeding our target. With fewer slow-selling products on our shelves, we're able to devote more space to our fast-moving items. Moving products to our stores has...

  • Page 13
    production process has been streamlined to better ensure that products like our exclusive LifeWise wellness line are available during peak promotional periods. TM Our advertising

  • Page 14
    ... a long-term planning component to drive sales and profit. The power of our marketing and advertising becomes even more important as we focus on trade areas and key customer segments using differentiated store configurations-stores offering different inventory for different customers. We are intent...

  • Page 15
    PointSource home theater system and the RadioShack Kameleon touch-screen remote control make high-tech entertainment more convenient and enjoyable. Innovative products like our exclusive

  • Page 16
    ... 15 minutes. Plus, each battery lasts up to four times longer than alkalines used in digital cameras. Driving value: Corporate Responsibility Last year, RadioShack launched StreetSentz , a community program designed to provide tools and education to families about ways to SM keep children safer...

  • Page 17
    stores have joined with local communities and law officers to hold Child ID Days and help families learn how to stay safe. Hundreds of RadioShack

  • Page 18
    ...wireless communications, electronic parts, batteries and accessories as well as other digital technology products and services. With an unprecedented retail distribution system, it is estimated that 94 percent of all Americans live or work within five minutes of a RadioShack store or dealer. Channel...

  • Page 19
    ... of Income Consolidated Balance Sheets 33 34 35 36 37 38 contents Consolidated Statements of Cash Flows Consolidated Statements of Stockholders' Equity Notes to Consolidated Financial Statements 55 Financial R A D I O S H A C K 2003 Annual Report 2003 Review Selected Financial Data 17

  • Page 20
    ... ourselves as an electronics specialty retailer in the U.S. marketplace; > the inability to create, maintain or renew profitable contracts or execute business plans with providers of third-party branded products and with service providers relating to cellular and PCS telephones; > the presence or...

  • Page 21
    ...returns, sales, fee or commission revenue adjustments exceed or are different from our estimates or assumptions. Additionally, we offer repair service (i.e., non-warranty) contracts on products sold. These contracts generally provide extended service coverage for periods ranging from 12 to 60 months...

  • Page 22
    ... company operated stores and dealer/ franchise outlets, our existing and emerging sales channels include our www.radioshack.com Web site and catalog operations, as well as sophisticated outbound and inbound telephone call centers. Overview of 2003 Financial Performance Management reviews a number...

  • Page 23
    ....8 4.1 100.0% Wireless communication Wired communication Radio communication Home entertainment Computer Power and technical Personal electronics, toys and personal audio Retail support operations, service plans, and other Net sales and operating revenues R A D I O S H A C K 2003 Annual Report 21

  • Page 24
    ... cars and related accessories not available in the first nine months of 2002 and, to a lesser extent, sales of wellness products sold under our LifeWiseâ„¢ brand. Also, increased sales of personal audio products had a positive impact for 2003, resulting from increases in national security...

  • Page 25
    ... Advertising Rent Other taxes Insurance Utilities and telephone Credit card fees Lawsuit settlement Stock purchase and savings plans Repairs and maintenance Printing, postage and office supplies Travel Loss on real estate sub-lease Bad debt Store closing costs Other R A D I O S H A C K 2003 Annual...

  • Page 26
    ...with new store fixtures, capitalized software related to inventory management, and information systems projects. Gain on Contract Termination Interest expense, net of interest income, is expected to decrease in 2004, when compared to 2003. Other Income, Net On July 28, 2003, we received payment of...

  • Page 27
    ... to increased sales of micro radio-controlled cars and related accessories, in addition to unique giftables. Gross Profit Gross profit in 2002 was $2,238.3 million or 48.9% of net sales and operating revenues, compared with $2,296.8 million or 48.1% of net sales and operating revenues in 2001...

  • Page 28
    ... balance sheet relating to RSIS. Loss on Sale of Assets In the fourth quarter of 2001, we sold and leased back most of our corporate headquarters at a loss of $44.8 million. In June 2001, we received $123.6 million for the settlement of the Computer City, Inc. purchase price and settlement of the...

  • Page 29
    ...million relating to quarterly payments under the tax sharing agreement with O'Sullivan. Provision for Loss on Internet-Related Investment During the second quarter of 2000, we made a $30.0 million investment in Digital:Convergence Corporation ("DC"), a privately-held Internet technology company. In...

  • Page 30
    ... inventory provided $202.3 million in cash, compared to a $21.4 million cash usage during 2002. The decrease in inventory since December 31, 2002, was primarily the result of supply chain initiatives, including a greater focus on reducing weeks-of-supply. 28 R A D I O S H A C K 2003 Annual Report

  • Page 31
    ... the sale of treasury stock to employee benefit plans and, to a lesser extent, from stock option exercises. The balance of capital to repurchase shares was obtained from cash generated from operations. We received $32.3 million from the sale and lease-back of our corporate technology center building...

  • Page 32
    ... of $7.8 million during 2003, when compared to the fixed rates. At current interest rates, we expect this favorable condition to reoccur in 2004. (In millions) Net cash provided by operating activities Less: Additions to property, plant and equipment Dividends paid Free cash flow 189.6 40.8 $421...

  • Page 33
    ... programs will come from cash generated from net sales and operating revenues and cash and cash equivalents. Under the programs described above, we will also repurchase shares in the open market to offset the sales of shares to our employee benefit plans. On December 11, 2003, our Board of Directors...

  • Page 34
    ...to CompUSA, Inc. as part of the sale of our Computer City, Inc. subsidiary to CompUSA, Inc. in August 1998. In the event CompUSA or the other assignees, as applicable, are unable to fulfill their obligations, we would be responsible for rent due under the leases. Our rent exposure from the remaining...

  • Page 35
    ... 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 our opinion. PRICEWATERHOUSECOOPERS LLP Fort Worth, Texas March 10, 2004 R A D I O S H A C K 2003 Annual Report 33

  • Page 36
    ... RADIOSHACK CORPORATION AND SUBSIDIARIES Year Ended December 31, 2002 % of Dollars Revenues 2003 (In millions, except per share amounts) 2001 Dollars % of Revenues Dollars % of Revenues Net sales and operating revenues Cost of products sold Gross profit Operating expenses: Selling, general...

  • Page 37
    ... 31, (In millions, except for share amounts) 2003 2002 Assets Current assets: Cash and cash equivalents Accounts and notes receivable, net Inventories, net Other current assets Total current assets Property, plant and equipment, net Other assets, net Total assets Liabilities and Stockholders...

  • Page 38
    ... early retirement of CompUSA note Other investing activities Net cash used in investing activities Cash flows from financing activities: Purchases of treasury stock Exercise of common stock put options Proceeds from sale of common stock put options Sale of treasury stock to employee benefit plans...

  • Page 39
    ... stock to common stock Stock option income tax benefits Retirement of treasury stock Purchase of minority interest, net of taxes Other End of year Retained earnings Beginning of year Net income Series B convertible stock dividends, net of taxes Cancellation of preferred stock, net of repurchases...

  • Page 40
    ... reported amounts of assets and liabilities, related revenues and expenses and the disclosure of gain and loss contingencies at the date of the financial state- Additionally, we offer repair service (i.e., non-warranty) contracts on products sold. These contracts generally provide extended service...

  • Page 41
    ... compensation costs under Accounting Principles Board ("APB") Opinion No. 25,"Accounting for Stock Issued to Employees" and its related interpretations. Accordingly, no compensation expense has been recognized for our fixed price stock option plans, as the exercise price of options must be equal...

  • Page 42
    ... shares of common stock in 2003, 2002 and 2001, 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. Cash and Cash Equivalents: Cash on hand in stores...

  • Page 43
    ... of the purchase price over the fair value of net assets acquired. At December 31, 2003, the net goodwill balance totaled $2.9 million, composed primarily of goodwill resulting from the conversion of various dealer/franchise outlets to company retail stores. During 2002, we recorded an impairment...

  • Page 44
    ...VIEs acquired or created before February 1, 2003, to the interim period ending on March 31, 2004, and provided additional technical clarifications to implementation issues. We have determined that FIN 46 does not apply to our dealer/franchise outlets and we do not expect to make material adjustments...

  • Page 45
    ...(In millions) Receivables from vendors and service providers Trade accounts receivable Other receivables Allowance for doubtful accounts Accounts and notes receivable, net In the second quarter of 2002, we sold and leased back our corporate technology center building, recording this transaction as...

  • Page 46
    ... 2003, we sold RSIS, resulting in a loss of $1.8 million which was recorded in other income. Our test concept with Blockbuster to introduce a RadioShack "store-within-a-store" at Blockbuster locations in 2001 did not provide sufficient cash flows to recover our investment in fixtures and other fixed...

  • Page 47
    ... interest rate during year Letters of credit and banker's acceptance lines of credit: Lines available at year end Acceptances outstanding at year end Letters of credit open against outstanding purchase orders at year end Commercial paper credit facilities: Commercial paper outstanding at year end...

  • Page 48
    ... was added during 2003, On August 31, 1998, we completed the sale of our wholly owned subsidiary, Computer City, Inc., to CompUSA Inc. for cash and an unsecured note of $136.0 million. On June 22, 2001, we received $123.6 million for the final determination of the purchase price and settlement of...

  • Page 49
    ...tax rate are given in the two accompanying tables. INCOME TAX EXPENSE (In millions) Year Ended December 31, 2003 2002 2001 Note 13 During the second quarter of 2000, we made a $30.0 million cash investment in Digital:Convergence Corporation ("DC"), a privately-held Internet technology company. In...

  • Page 50
    ... in RadioShack.com LLC. The difference in the initial price of the preferred units and repurchase price was treated as a redemption of mandatorily redeemable preferred units, which resulted in an increase to additional paid-in capital. We are currently a party to a class action lawsuit, styled...

  • Page 51
    ...shares at the time they attend their first Board meeting, and these new directors will not receive the annual Director Option grant until they have served at least one year. Director Options under the 1997 ISP have an exercise price of 100% of the fair market value of our common stock on the trading...

  • Page 52
    ... than 2002 and 2003 due to the issuance of options to employees in both February and December of 2001. The December 2001 grant did not include named executive officers or directors. FIXED PRICE STOCK OPTIONS Options Outstanding Weighted Average Remaining Contractual Life 4.95 years 5.09 5.16 6.92...

  • Page 53
    ...annual compensation to purchase our common stock at the monthly average daily closing price. We match 40%, 60% or 80% of the employee's contribution, depending on the employee's length of continuous participation in the Stock Purchase Plan. This match is also in the form of our common stock. Company...

  • Page 54
    ... for these share repurchase programs will come from cash generated from net sales and operating revenues and cash and cash equivalents. Under our programs described above, we will also repurchase shares in the open market to offset the sales of shares to our employee benefit plans. At February...

  • Page 55
    ... have been paid annually in December. In April 2002, we entered into a supply chain management consulting agreement with a company affiliated with a corporation whose chairman and chief executive officer is a member of our Board of Directors and who currently serves on the Corporate Governance and...

  • Page 56
    ...used in computing earnings per common share: Basic Diluted Year ended December 31, 2002: Net sales and operating revenues Gross profit SG&A expense Net income Preferred dividends Net income available to common stockholders Net income available per common share: Basic Diluted Shares used in computing...

  • Page 57
    ... share: Basic Diluted Shares used in computing earnings per common share: Basic Diluted Gross profit as a percent of sales SG&A expense as a percent of sales Balance Sheet Data Inventories Total assets Working capital Capital structure: Current debt Long-term debt Total debt Total debt, net of cash...

  • Page 58
    ...on the New York Stock Exchange. Company Data Corporate Offices Independent Auditors Form 10-K Available 100 Throckmorton Street Suite 1800 Fort Worth, Texas 76102 (817) 415-3700 Annual Meeting PricewaterhouseCoopers LLP Fort Worth, Texas Direct Stock Purchase and Dividend Reinvestment Plan 10...

  • Page 59
    ... Member of Management Development and Compensation Committee Executive Vice President and CFO BearingPoint, Inc. McLean, Virginia Member of Audit and Compliance Committee Member of Corporate Governance Committee CEO and President Cash America International, Inc. Fort Worth, Texas Member of...

  • Page 60
    RadioShack Corporation 100 Throckmorton Street, Suite 1800 Fort Worth, Texas 76102 www.radioshackcorporation.com www.radioshack.com 034-AR-01