Radio Shack 2004 Annual Report Download

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300 RadioShack Circle
MS CF3-227
Fort Worth, TX 76102
www.radioshackcorporation.com
www.radioshack.com
RADIOSHACK CORPORATION 2004 Annual Report
What I want is...
0 3 4 - A R - 0 1
RADIOSHACK CORPORATION 2004 Annual Report

Table of contents

  • Page 1
    RA D IOSHACK CORPORATION 2004 A nnual Re port What I want is...

  • Page 2
    ...and helpful sales associates deliver convenient product and service solutions within an estimated five minutes of where 94 percent of all Americans either live or work. To learn more about RadioShack products and services or to purchase items online, please visit www.radioshack.com Statements made...

  • Page 3
    ... have things that we want and need, each according to our particular perspective. Customer or investor, neighbor or business partner, helping you get what you want and need is our driving passion. Over the next few pages, we'll show you how we're working to make that happen from the perspective of...

  • Page 4
    ... to create a uniquely superior customer experience. Product assortment and price are hugely important, of course, but customers want more. They want a total experience: more innovative products, attractively displayed in a fresh store environment, supported by helpful store associates who know their...

  • Page 5
    ...few years, rich in vibrant color and logically organized. People - We're investing in more technology and training to make sure that every sales associate and store manager has the knowledge and expertise to take care of customers the right way - first time, every time. In short we're offering fast...

  • Page 6
    ...what today's customers desire - convenience, mobility, wireless convergence, content-sharing technologies and power products that fuel the on-the-go life - with all the accessories that make everything look and work better. Customers want convenient solutions right in their neighborhood, or close to...

  • Page 7
    ..., handily solve the twin issues of hands-free simplicity and personal style across the entire wireless spectrum. SiriusTM satellite radio has hundreds of crystal-clear digital programming choices for every imaginable audience - at home, in the car or online. And the HP-branded iPod is a "gotta-have...

  • Page 8
    ... good sales gains in our stores from power devices through their line of iGo-branded products. But the benefits from our partnership reach further. In return for giving Mobility thousands of distribution points for their products, RadioShack benefits financially when Mobility products are sold...

  • Page 9
    ... overseas retailers who would love to have RadioShack-branded products on their shelves. And we'll get increased exposure and revenue without hurting our home store base. Partner and customer relationships are at the center of who we are, now and in the years to come. And strong relationships add up...

  • Page 10
    ...a company can't be a good neighbor, too? RadioShack invests in programs that can make a difference in the communities where our employees and customers live and work - United Way (local and national), SIFE (Students in Free Enterprise), and with our own Neighborhood Answers Grants and matching gifts...

  • Page 11
    ... Grants program. Additionally, RadioShack is the largest retail partner in the ADAM fax system, displaying prominent identification posters in community stores where a child has been reported missing. At RadioShack, we live where YOU live. As your neighbors, we believe that doing what's right for...

  • Page 12
    ... it. And what today's customers demand are solutions. That's why RadioShack works to bring timely solutions to customers through its core and close-to-core businesses. Core channels include our nearly 7,000 company-operated and dealer stores plus our dot.com presence. Core performance depends on the...

  • Page 13
    ... and operate Sprint-branded kiosks in about 200 of the nation's leading shopping malls in 2005, and we plan a total of 500 by the end of 2007. SAM'S CLUB stores are another example of retail services. By acquiring selected assets from a wireless distributor and contracting with SAM'S CLUB stores, we...

  • Page 14
    ... stock repurchase program, our favorable operating results helped generate earnings per share of $2.08, an increase of 18% over the prior year. Once again, wireless was at the heart of our growth. Wireless platform sales increased 22% in 2004 due to our formidable selection, marketing promotions...

  • Page 15
    ... for our residual model - a form of compensation we receive based on the spending of subscribers to whom we sold handsets. Digital imaging became an important sales driver for us as well. Though not extremely large, the business grew extremely fast. In just two years, digital imaging has grown from...

  • Page 16
    ... timely solutions through our two main business channels: core channels, which include our company and dealer stores and our dot.com presence, and close-to-core channels such as overseas third-party retailers, expanded store counts in Mexico and, as mentioned previously, retail services. Earnings...

  • Page 17
    ... in-stock positions, and more sales-ready across the entire network. We also expect to have a much more sophisticated labor scheduling system in place that will allow us to provide better customer service and invest our labor dollars more wisely. RadioShack associates nationwide are hard at work to...

  • Page 18
    ...45 3 RadioShack Corporation Based on 2004 Sales as of 12/31 Company-Operated Stores Kiosks 93% Company-Operated Stores 1% 6% Kiosks Dealer & Other Dealer/Franchise Stores Other: - Service Centers - Manufacturing Facilities - radioshack.com 5,046 599 1,788 16 4 Chief Leadership Team LEONARD ROBERTS...

  • Page 19
    Financial Review RadioShack Corporation and Subsidiaries Table of Contents 18 Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") 33 Report of Independent Registered Public Accounting Firm 34 Consolidated Statements of Income 35 Consolidated Balance Sheets...

  • Page 20
    ... retail services business in 2005. Key Indicators of Financial Performance for Management To identify our progress in achieving our solutions strategy, we use several key financial performance metrics, including net sales and operating revenues metrics, gross margin metrics, and selling, general...

  • Page 21
    ... Dealer and other sales not only include our sales to the independent dealers, but also include sales and operating revenues generated from our www.radioshack.com Web site, outbound and inbound call centers, and our retail support operations. SG&A expense as a percentage of sales Operating margin...

  • Page 22
    ... sales from company-operated stores, kiosks, dealer outlets, and our RadioShack.com Web site. Net Sales and Operating Revenues Year Ended December 31, (In millions) 2004 2003 2002 Wireless Accessory Modern home Personal electronics Power Service Technical Retail support operations, service plans...

  • Page 23
    ... % of Sales & Revenues Dollars 2002 % of Sales & Revenues Payroll and commissions Advertising Rent Other taxes (excludes income taxes) Insurance Utilities and telephone Credit card fees Lawsuit settlement Stock purchase and savings plans Repairs and maintenance Printing, postage and office supplies...

  • Page 24
    ... in 2005 due to increases associated with our new corporate headquarters, which is now substantially complete and occupied, increased spending for our store remodel program, information system projects, and the amortization of intangibles related to our SAM'S CLUB kiosk business acquisition. Gain on...

  • Page 25
    ...of 40 company stores, net of store openings. Sales to our dealer outlets and other sales, including retail support operations, were down for 2003, when compared to 2002. Sales to our dealer outlets remained substantially less than 10% of our total sales. Retail support operation sales were generated...

  • Page 26
    ... paid as a result of the lawsuit. In September 2003 we sold our wholly-owned subsidiary AmeriLink to INSTALLS inc, LLC in a cash-for-stock sale, resulting in a loss of $1.8 million, based on AmeriLink's book value, which was recorded in other income. For the year ended December 31, 2003, we received...

  • Page 27
    ... 15, 2004. The application of FIN 46R did not have a material impact on our results of operations, financial position or liquidity, and does not apply to our dealer outlets. In December 2004, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 123R "Share-Based Payment." SFAS...

  • Page 28
    ... Structure and Financial Condition." During the fourth quarter of fiscal year 2004, we acquired certain assets and assumed certain liabilities of Wireless Retail, Inc. ("WRI"). These assets included wireless kiosks and inventory located within SAM'S CLUB retail locations. The total purchase price...

  • Page 29
    ... RadioShack Corporation and Subsidiaries continued The following table is a reconciliation of cash flows from operating activities to free cash flow. Year Ended December 31, (In millions) 2004 2003 2002 Net cash provided by operating activities Less: Additions to property, plant and equipment...

  • Page 30
    ...years. On September 24, 2004, our Board of Directors declared an annual dividend of $0.25 per common share. The dividend was paid on December 20, 2004, to shareholders of record on December 1, 2004. The dividend payment of $39.7 million was funded from cash on hand. Operating Leases We use operating...

  • Page 31
    ...1-3 years 3-5 years Over 5 years Lines of credit Stand-by letters of credit Total credit commitments $600.0 18.5 $618.5 $ - 0.9 $ 0.9 $ 300.0 17.6 $ 317.6 $ 300.0 - $ 300.0 $ $ - - - We have contingent liabilities related to retail leases of locations which were assigned to other businesses...

  • Page 32
    ... million for the fiscal year ended December 31, 2004. Inventory Valuation: Our inventory consists primarily of finished goods available for sale at our retail locations or within our distribution centers and is recorded at the lower of average cost or expected sales price (i.e., market value). The...

  • Page 33
    ... include the use of estimates that we provide concerning future profitability, cash flows and other judgmental factors. We review our goodwill and intangible balances on an annual basis, typically near our fiscal year end, and whenever events or changes in circumstances indicate the carrying value...

  • Page 34
    ... profitable contracts or execute business plans with providers of third-party branded products and with service providers relating to cellular and PCS telephones which could cause the reduction or elimination of our commissions as well as residual income; > the presence or absence of new services...

  • Page 35
    Report of Independent Registered Public Accounting Firm RadioShack Corporation and Subsidiaries To the Board of Directors and Stockholders of RadioShack Corporation: We have completed an integrated audit of RadioShack Corporation's 2004 consolidated financial statements and of its internal control ...

  • Page 36
    Consolidated Statements of Income RadioShack Corporation and Subsidiaries Year Ended December 31, 2004 % of (In millions, except per share amounts) Dollars Revenues Dollars 2003 % of Revenues Dollars 2002 % of Revenues Net sales and operating revenues Cost of products sold Gross profit Operating ...

  • Page 37
    ... Balance Sheets RadioShack Corporation and Subsidiaries December 31, (In millions, except for share amounts) 2004 2003 Assets Current assets: Cash and cash equivalents Accounts and notes receivable, net Inventories, net Other current assets Total current assets Property, plant and equipment...

  • Page 38
    ... sale of property, plant and equipment Proceeds from sale of installation subsidiary Purchase of retail service business Other investing activities Net cash used in investing activities Cash flows from financing activities: Purchases of treasury stock Sale of treasury stock to employee benefit plans...

  • Page 39
    ... benefits Retirement of treasury stock 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 Retirement of treasury stock Common stock cash dividends declared End of year Unearned compensation...

  • Page 40
    ... activation, satellite radio service, prepaid wireless airtime and extended service plans. Dealer Outlets: At December 31, 2004, we also had a network of 1,788 dealer outlets, including 45 located outside of the U.S. These outlets provide private label and third-party branded products and services...

  • Page 41
    ... compensation plans in use. We measure stock-based 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...

  • Page 42
    ... market price of the common stock during the year and the effect of their inclusion would be anti-dilutive. Cash and Cash Equivalents: Cash on hand in stores, deposits in banks and all highly liquid investments with an original or remaining maturity of three months or less at the time of purchase...

  • Page 43
    ..., but are reviewed annually at the end of our fiscal year for impairment (and in interim periods if certain events occur indicating that the carrying value of goodwill and intangible assets may be impaired). Goodwill and Intangibles: Goodwill represents the excess of the purchase price over the fair...

  • Page 44
    ... offered directly to consumers (i.e., manufacturers' coupons) should not be recorded as a reduction of the cost of the reseller's purchases from the vendor. The adoption of EITF No. 03-10 did not materially impact our results of operations, financial position or liquidity in fiscal year 2004...

  • Page 45
    ..., net Balance at December 31, 2004 $ 2.9 23.1 0.8 $26.8 During the third quarter of fiscal year 2004, we acquired certain assets and assumed certain liabilities of Wireless Retail, Inc. ("WRI"). These assets included wireless kiosks and inventory located within SAM'S CLUB retail locations. This...

  • Page 46
    ...On May 11, 2001, we issued $350.0 million of 10-year 7 3/8% notes in a private offering to initial purchasers who in turn offered the notes to qualified institutional buyers under SEC Rule 144A. The annual interest rate on the notes is 7.375% per annum with interest payable on November 15 and May 15...

  • Page 47
    ... an employee stock ownership trust in June 1990. Further information on the trust and its related indebtedness, which we guaranteed, is detailed in the discussion of the RadioShack 401(k) Plan in Note 19. In the second quarter of 2002, we sold and leased back our corporate technology center building...

  • Page 48
    ... principally relating to the settlement of one location in Miami, Florida. NOTE 12 Gain on Contract Termination Accrued Expenses and Other Current Liabilities December 31, (In millions) 200 4 2003 Payroll and bonuses Insurance Sales and payroll taxes Rent Gift card deferred revenue Other Total...

  • Page 49
    ... settlement of $29.9 million in a class action lawsuit, which was originally filed in March 2000 in Orange County, California. Actual payments under this lawsuit totaled $29.0 million. The lawsuit related to the alleged miscalculation of overtime wages for certain of our former and current employees...

  • Page 50
    ... systems equipment. From time to time, we enter into store operating leases that provide for free or reduced rental periods, usually during the finish-out of our retail locations before the store opens for business. These periods are commonly referred to as "rent holidays" and average 60 days...

  • Page 51
    ...approved the RadioShack 2004 Deferred Stock Unit Plan for Non-Employee Directors ("Deferred Plan"). The Deferred Plan replaced the one-time and annual stock option grants to non-employee directors ("Directors") as specified in the 1997, 1999 and 2001 ISPs. New Directors will receive a one-time grant...

  • Page 52
    ... to Consolidated Financial Statements RadioShack Corporation and Subsidiaries Stock Option Activity: See tables below for a summary of stock option transactions under our stock option plans and information about fixed price stock options. Summary of Stock Option Transactions 2004 Weighted Average...

  • Page 53
    ... company contribution $4.7 $4.7 $3.9 On April 30, 2004, we amended our employee stock purchase plan and renamed it the RadioShack Investment Plan (the "Investment Plan"). Only employees participating in the former plan as of April 29, 2004, may participate in the Investment Plan. New employees...

  • Page 54
    ... each year ended December 31: (In millions) 2004 2003 2002 On February 25, 2005, our Board of Directors approved a new share repurchase program. This new program authorizes management to repurchase up to $250 million in open market purchases and has no expiration date. NOTE 22 Compensation expense...

  • Page 55
    ...of similar products and services as follows: Net Sales and Operating Revenues Year Ended December 31, (In millions) 2004 2003 2002 Wireless Accessory Modern home Personal electronics Power Service Technical Retail support operations, service plans, and other Net sales and operating revenues $1,636...

  • Page 56
    ... Statements RadioShack Corporation and Subsidiaries Three Months Ended (In millions, except per share amounts) March 31 June 30 Sept. 30 Dec. 31 Year ended December 31, 2003: Net sales and operating revenues Cost of products sold Gross profit SG&A expense Depreciation and amortization Total...

  • Page 57
    ... Return on average assets Annual inventory turnover Other Data Dividends declared per common share Dividends paid per common share Capital expenditures Number of retail locations at year end Average square footage per company-operated store Comparable company store sales increase (decrease) Shares...

  • Page 58
    ... Listing New York Stock Exchange Common Stock (Ticker Symbol "RSH") Independent Auditors PricewaterhouseCoopers LLP Fort Worth,Texas Direct Stock Purchase and Dividend Reinvestment Plan "RadioShack Shares" direct stock purchase and dividend reinvestment plan provides a low-cost, convenient way...

  • Page 59
    Board of Directors LEONARD H. ROBERTS Chairman and CEO RadioShack Corporation Fort Worth,Texas Chair of Executive Committee DAVID J. EDMONDSON President, Chief Operating Officer and CEO - Elect RadioShack Corporation Fort Worth,Texas Member of Executive Committee FRANK J. BELATTI Chairman and ...

  • Page 60
    300 RadioShack Circle MS CF3-227 Fort Worth, TX 76102 www.radioshackcorporation.com www.radioshack.com 034-AR-01