Radio Shack 2008 Annual Report Download - page 41

In June and August 2003, we entered into interest rate swap agreements with underlying notional amounts of
debt of $100 million and $50 million, respectively, and both with maturities in May 2011. Our counterparty for
these swaps is Citi. 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 designated these agreements as fair value hedging
instruments. We recorded $6.7 million in other non-current assets, net at December 31, 2008, and $1.5
million in other non-current liabilities at December 31, 2007, for the fair value of these agreements and
adjusted the carrying value of the related debt by the same amounts.
In August 1997 we filed a $300 million debt shelf registration statement. In August 1997, we issued $150
million of 10-year unsecured long-term notes under this shelf registration. The interest rate on the notes
was 6.95% per annum with interest payable on September 1 and March 1 of each year. These notes
contained customary non-financial covenants. In September 2007, our $150 million ten-year unsecured
note payable came due. Upon maturity, we paid off the $150 million note payable utilizing our available
cash and cash equivalents. During the third quarter of 2001, we entered into an interest rate swap
agreement with an underlying notional amount of $110.5 million. This interest rate swap agreement expired
in conjunction with the maturity of the note payable.
Medium-Term Notes: We also issued, in various amounts and on various dates from December 1997
through September 1999, medium-term notes totaling $150 million under the shelf registration described
above. At December 31, 2007, $5 million of these notes remained outstanding with an interest rate of
6.42%; they contained customary non-financial covenants. As of December 31, 2007, there was no
availability under this shelf registration. In January 2008, the remaining $5 million of the medium-term
notes payable came due, and was paid off utilizing our available cash and cash equivalents.
Available Financing
Credit Facilities: At December 31, 2008, we had $325 million borrowing capacity available under our
existing credit facility. This facility expires in May of 2011.
As mentioned above, on September 11, 2008, we terminated our $300 million credit facility which was set
to expire in June of 2009. This facility was no longer required due to the issuance of our Convertible Notes
as discussed above.
Our $325 million credit facility provides us a source of liquidity. This facility is provided by a syndicate of
lenders with a majority of the facility provided by Wells Fargo, Citi, and Bank of America. As of December
31, 2008, there were no outstanding borrowings under this credit facility, nor were any of our facilities
utilized during 2008. Interest charges under our facilities are derived using a base LIBOR rate plus a
margin which changes based on our credit ratings. Our bank syndicated credit facility has customary
terms and covenants, and we were in compliance with these covenants at December 31, 2008.
Impact of 2008 Global Credit Crisis and Economic Downturn
During the last four months of 2008, a combination of economic factors created an extremely adverse
environment for the retail industry. These factors included volatility in the capital markets, increased costs
associated with issuing debt instruments, and limited or no access to those markets for many companies
and consumers. These credit market conditions, the general downturn in the U.S. economy, and
consumer sentiment as reflected in record low measurements of The Conference Board Consumer
Confidence Index™ during the fourth quarter of 2008 contributed to a significant reduction in consumer
spending during the fourth quarter as compared to 2007 and other recent years.
Our consolidated net sales decreased 7.7% or $105.6 million to $1,258.7 million for the fourth quarter,
compared with $1,364.3 million in 2007. Consolidated gross profit decreased 13.9% or $84.9 million to
$526.3 million for the fourth quarter, compared with $611.2 million in 2007. While these declines were
significant, we were able to generate $96.5 million in pre-tax income and $99.3 million of net cash
provided by operating activities during the fourth quarter.
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