Radio Shack 2009 Annual Report Download - page 35

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Net Interest Expense
Consolidated net interest expense, which is interest expense net of interest income, was $39.3 million for
2009 compared with $20.3 million for 2008.
Interest expense primarily consists of interest paid on the stated coupon rate for our outstanding bonds,
the non-cash amortization of discounts and premiums on our outstanding bonds, cash paid or received on
our interest rate swaps, and the non-cash change in fair value of our interest rate swaps in 2009. Interest
expense increased $9.2 million in 2009. This increase was primarily driven by increased interest expense
related to our 2013 convertible notes. These notes were outstanding for twelve months in 2009 and four
months in 2008. This increase was partially offset by increased payments received on our interest rate
swap contracts in 2009 and the repurchase of $43.2 million of our notes due in May 2011. Non-cash
interest expense was $13.7 million in 2009 compared with $5.0 million in 2008.
Interest income decreased $9.8 million in 2009. This decrease was due to a lower interest rate
environment in 2009, but was partially offset by larger average cash balances in 2009.
Other Loss
During 2009 we recorded a loss of $1.6 million compared with a loss of $2.4 million in 2008. The 2009
loss was recognized in conjunction with the repurchase of a portion of our 2011 Notes. The 2008 loss
represented losses related to our derivative exposure to Sirius XM Radio, Inc. warrants as a result of our
fair value measurements of these warrants. At December 31, 2008, the fair value of these warrants was
zero, and these warrants expired in the first quarter of 2009.
Income Tax Expense
Our effective tax rate for 2009 was 37.6% compared with 36.8% for 2008. The 2009 effective tax rate was
affected by the net reversal of approximately $6.1 million in previously unrecognized tax benefits,
deferred tax assets and accrued interest due to the effective settlement of state income tax matters
during the period. These discrete items lowered the effective tax rate by 1.9 percentage points.
The 2008 effective tax rate was affected by the execution of a closing agreement with respect to a Puerto
Rico income tax matter during the year, which resulted in a credit to income tax expense; this discrete
item lowered the effective tax rate for 2008 by 1.0 percentage point. In addition, the 2008 effective tax
rate was affected by the net reversal of approximately $4.1 million in unrecognized tax benefits, deferred
tax assets and accrued interest related to the settlement of various state income tax matters and the
expiration of the statute of limitations with respect to our 2002 taxable year; this net reversal lowered the
effective tax rate for 2008 by 1.4 percentage points.
2008 COMPARED WITH 2007
Net Sales and Operating Revenues
Consolidated net sales decreased 0.6% or $27.2 million to $4,224.5 million in 2008, from $4,251.7 million
in 2007. This decrease was primarily due to a comparable store sales decline of 0.6% in 2008. The
decrease in comparable store sales was primarily caused by decreased sales in our personal electronics
and modern home platforms, but was offset by increased sales in our accessory platform.
U.S. RadioShack Company-Operated Stores Segment
Sales in our wireless platform decreased 1.4% in 2008. While we recorded sales gains related to our
AT&T postpaid wireless business and prepaid wireless handsets, these gains were substantially offset by
declines in the Sprint Nextel postpaid wireless business and, to a lesser extent, sales of GPS devices.
Sales in our accessory platform increased 15.3% in 2008. This increase was driven by sales of digital-to-
analog television converter boxes. We also experienced sales gains in video game accessories in 2008.
This increase was partially offset by decreases in wireless, music, and imaging accessories sales.