Radio Shack 2010 Annual Report Download - page 76

66
• Beginning on July 1, 2010, the wireless service
provider was no longer obligated to pay future
residual revenue amounts to the Company for a
period of time for customers activated on or before
June 30, 2010. For the first six months of 2010,
these residual revenue amounts averaged
approximately $9 million per quarter. Based on this
average, we would receive no residual revenue
payments from this wireless service provider for
eight quarters beginning with the third quarter of
2010 under the terms of the settlement agreement.
The effects of the settlement agreement have been
reflected in net sales and operating revenues for 2010.
In the third quarter of 2010, we reached an agreement with
this wireless service provider to modify the commission and
chargeback provisions of our wireless reseller agreement.
Based on the terms of the settlement agreement, the terms
of the amended wireless reseller agreement, and the
performance of our business with this wireless service
provider, we do not believe that these events will have a
material effect on our results of operations for future
periods.
NOTE 15 – SUBSEQUENT EVENTS
On January 4, 2011, we terminated our $325 million credit
facility and entered into a five-year, $450 million revolving
credit agreement (“2016 Credit Facility”) with a group of
lenders with Bank of America, N.A., as administrative
agent. The 2016 Credit Facility expires on January 4, 2016.
The 2016 Credit Facility may be used for general corporate
purposes and the issuance of letters of credit. This facility is
secured by substantially all of the Company’s inventory,
accounts receivable, cash and cash equivalents, and
certain other personal property.
Borrowings under the 2016 Credit Facility are subject to a
borrowing base of certain secured assets and bear interest,
at our option, at a bank’s prime rate plus 1.25% to 1.75% or
LIBOR plus 2.25% to 2.75%. The applicable rates in these
ranges are based on the aggregate average availability
under the facility.
The 2016 Credit Facility also contains a $150 million sub-
limit for the issuance of standby and commercial letters of
credit. Issued letters of credit will reduce the amount
available under the credit facility. Letter of credit fees are
2.25% to 2.75% for standby letters of credit or 1.125% to
1.375% for commercial letters of credit.
We pay commitment fees to the lenders at an annual rate
of 0.50% of the unused amount of the credit facility. No
borrowings, other than the issuance of letters of credit
totaling $32.8 million as of February 15, 2011, have been
made under the 2016 Credit Facility.
The 2016 Credit Facility contains affirmative and negative
covenants that, among other things, restrict certain
payments, including dividends and share repurchases.
Also, we will be subject to a minimum consolidated fixed
charge coverage ratio if our unused amount under the
facility is less than the greater of 12.5% of the maximum
borrowing amount and $45.0 million.
We are generally free to pay dividends and repurchase
shares as long as the current and projected unused amount
under the facility is greater than 17.5% of the maximum
borrowing amount and the minimum consolidated fixed
charge coverage ratio is maintained. We may pay dividends
and repurchase shares without regard to the Company's
consolidated fixed charge coverage ratio as long as the
current and projected unused amount under the facility is
greater than 75% of the maximum borrowing amount and
cash on hand is used for the dividends or share
repurchases.
As a condition of the 2016 Credit Facility, we were required
to eliminate the restrictive covenants associated with our
2011 Notes. On January 4, 2011, we transferred $318.1
million to the trustee for the 2011 Notes that will be used to
pay principal and interest amounts due on redemption of
these notes. In connection with the deposit of these funds,
the trustee acknowledged the satisfaction and discharge of
the indenture as to the 2011 Notes, which had the effect of
eliminating the restrictive covenants referred to above. This
redemption is currently scheduled to take place on March 4,
2011. Any amounts remaining with the trustee after the
redemption of the 2011 Notes will be returned to us.
NOTE 16 – SEGMENT REPORTING
We have two reportable segments, U.S. RadioShack
company-operated stores and kiosks. The U.S.
RadioShack company-operated stores segment consists
solely of our 4,486 U.S. company-operated retail stores, all
operating under the RadioShack brand name. Our kiosks
segment consists of our network of 1,267 kiosks, primarily
located in Target and Sam’s Club locations. In April 2009
we agreed with Sprint to cease our arrangement to jointly
operate the Sprint-branded kiosks in operation at that date.
This agreement allowed us to operate these kiosks under
the Sprint name for a reasonable period of time, allowing us
to transition the kiosks to a new format. In August 2009, we
transitioned these kiosks to multiple wireless carrier
RadioShack-branded locations. They are now managed
and reported as extensions of existing RadioShack
company-operated stores located in the same shopping
malls. Both of our reportable segments engage in the sale
of consumer electronics products; however, our kiosks