Radio Shack 2004 Annual Report Download - page 29

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 $352.5 $651.9 $521.6
Less:
Additions to property,
plant and equipment 229.4 189.6 106.8
Dividends paid 39.7 40.8 39.8
Free cash flow $ 83.4 $421.5 $375.0
Capital Structure and Financial Condition
We consider our financial structure and condition to be
sound. We had $437.9 million in cash and cash equivalents
at December 31, 2004, as a resource for our funding needs.
Additionally, borrowings are available under our $600.0 mil-
lion commercial paper program, which is supported by bank
credit facilities and can be utilized in the event the commer-
cial paper market becomes unavailable to us. However, we
currently expect that the commercial paper market would be
available to us, thus we do not expect to utilize our credit
facilities. As of December 31, 2004, we had no commercial
paper outstanding and had not utilized our credit facilities.
Debt Obligations
Debt Ratings: Our debt is considered investment grade by the
rating agencies. Below are the agencies’ latest ratings by cate-
gory, as well as their respective current outlook for the ratings.
Standard
Category Moody’s and Poor’s Fitch
Senior unsecured debt Baa1 A- BBB+
Commercial paper P-2 A-2 F2
Outlook Stable Stable Stable
Factors that can impact our credit ratings include changes in
our operating performance, the economic environment, con-
ditions in the retail and consumer electronics industries, our
financial position and changes in our business strategy. We
do not currently foresee any reasonable circumstances under
which our credit ratings would be significantly downgraded.
If a downgrade were to occur, it could adversely impact,
among other things, our future borrowing costs, access to
capital markets, vendor financing terms and future new store
occupancy costs.
Our senior unsecured debt primarily consists of two
issuances of 10-year long-term notes and an issuance of
medium-term notes.
Long-Term Notes: We have a $300.0 million debt shelf regis-
tration statement which became effective in August 1997. In
August 1997, we issued $150.0 million of 10-year unsecured
long-term notes under this 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. These notes are due
September 1, 2007.
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
of each year. The notes mature on May 15, 2011. In August
2001, under the terms of an exchange offering filed with the
SEC, we exchanged substantially all of these notes for a simi-
lar amount of publicly registered notes. Because no additional
debt was issued in the exchange offering, the net effect of
this exchange was that no additional debt was issued, and
substantially all of the notes were registered with the SEC.
During the third quarter of 2001, we entered into an interest
rate swap agreement with underlying notional amount of
$110.5 million with a maturity in 2007. In June and August
2003, we entered into interest rate swap agreements with
underlying notional amounts of debt of $100.0 million and
$50.0 million, respectively, and both with maturities in May
2011. These swaps effectively convert a portion of our long-
term fixed rate debt to a variable rate. We entered into these
agreements to balance our fixed versus floating rate debt
portfolio to continue to take advantage of lower short-term
interest rates. Under these agreements, we have contracted
to pay a variable rate of LIBOR plus a markup and to receive
a fixed rate of 6.95% for the swap entered into in 2001 and
7.375% for the swaps entered into in 2003. We have desig-
nated these agreements as fair value hedging instruments.
Medium-Term Notes: We also issued, in various amounts and
on various dates from December 1997 through September
1999, medium-term notes totaling $150.0 million under the
shelf registration described above. At December 31, 2004,
$5.0 million of these notes remained outstanding. The interest
rate at December 31, 2004, for the outstanding $5.0 million in
medium-term notes was 6.42%. These notes have a maturity
in 2008. As of December 31, 2004, there was no availability
under this shelf registration.
Available Financing
Commercial Paper: We have access to short-term debt
instruments, such as commercial paper issuances, which
are available to supplement our short-term financing needs.
The commercial paper program, when utilized, has a typical
Management’s Discussion and Analysis of Financial Condition and Results of Operations continued
RadioShack Corporation and Subsidiaries
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