Radio Shack 2011 Annual Report Download - page 27

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19
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (“MD&A”).
This MD&A section discusses our results of operations,
liquidity and financial condition, risk management practices,
critical accounting policies, and estimates and certain
factors that may affect our future results, including
economic and industry-wide factors. Our MD&A should be
read in conjunction with our consolidated financial
statements and accompanying notes included in this
Annual Report on Form 10-K, as well as the Risk Factors
set forth in Item 1A above.
EXECUTIVE OVERVIEW
RadioShack is a leading national retailer of innovative
mobile technology products and services, as well as
products related to personal and home technology and
power supply needs. We offer a targeted assortment of
wireless phones and other electronic products and services
from leading national brands, exclusive private brands and
major wireless carriers.
Our more than 7,200 locations in the U.S. and Mexico give
us a unique competitive advantage in scale, reach and
convenience. We seek to differentiate ourselves from our
various competitors by providing:
• Innovative mobile technology products and services,
as well as products related to personal and home
technology and power supply needs, at competitive
prices
• Convenient neighborhood locations
• Knowledgeable, objective and friendly service
• Unique private brand offers and exclusive branded
promotions
Our day-to-day focus is concentrated on:
• Providing our customers with a positive in-store
experience
• Growing gross profit dollars
• Controlling costs throughout the organization
• Utilizing funds generated from operations to enhance
long-term shareholder value
External Factors Affecting Our Business
In 2011, we continued to experience a highly challenging
U.S. economic environment and reduced consumer
spending that began in the fourth quarter of 2008.
Consumer spending on wireless handsets has increased
significantly over the past several years. The spending
growth for wireless handsets has been primarily driven by
increased purchases of smartphones such as Apple’s
iPhone and Android-based devices.
A smartphone is a wireless handset that offers more
advanced computing ability, connectivity to the Internet,
and multimedia capabilities than a basic feature wireless
phone. Smartphones typically combine wireless handset
capabilities with capabilities previously found on separate
devices. Some examples include GPS (global positioning
system) navigation, digital music players and camera
capabilities. We believe this convergence of capabilities
into smartphones has contributed to a decline in these
product categories. This convergence trend is likely to
continue as smartphones evolve and as more consumers
adopt smartphone technology.
According to the Consumer Electronics Association
(“CEA”), in 2012 the consumer electronics industry will
surpass $200 billion in overall revenues in the U.S. for the
first time. The industry is expected to grow 3.7 percent in
2012, after reaching an estimated $195.2 billion in
revenues in 2011. Smartphones are expected to continue
to be the primary revenue driver for the industry.
Smartphone unit sales are expected to increase 24 percent
in 2012 to 108.8 million units, with total revenue exceeding
$33 billion.
The innovation in certain mature consumer electronic
product categories, such as DVD players, camcorders and
audio products, has not been sufficient to maintain average
selling prices. These mature products have become
commoditized, and we continue to experience price
declines and reduced margins for them.
Business Performance
2011 was a year of progress and transitions for our
business. During 2011, we successfully completed several
initiatives:
• Added wireless offerings from Verizon Wireless to
our portfolio of top national wireless carriers
• Successfully completed the rollout of our Target
Mobile centers to 1,496 Target stores throughout the
U.S.
• Closed our Chinese manufacturing plant to transition
to a more efficient global sourcing operation
• Doubled our annual dividend to $0.50 per share to
increase value returned to shareholders
• Maintained our liquidity by entering into a new $450
million credit facility that expires in January 2016.
• Enhanced our balance sheet by selling $325 million
of 8-year 6.75% senior notes
During 2011, our Mobility business, which includes postpaid
and prepaid wireless handsets, commissions and residual
income, prepaid wireless airtime, e-readers, and tablet
devices, increased from 44.2% of our net sales and
operating revenues in 2010 to 51.4% in 2011. This and