Radio Shack 2013 Annual Report Download

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2013 ANNUAL REPORT

Table of contents

  • Page 1
    2013 ANNUAL REPORT

  • Page 2
    ... brand. team has also been one of my top priorities. Over the past year, we have added best-in-class leadership in merchandising, marketing, product development, and planning and allocation, including the most recent addition of a new chief financial officer. This new leadership team is now working...

  • Page 3
    ... 2013, the aggregate market value of the voting common stock of the registrant held by non-affiliates of the registrant was $251,965,806 based on the New York Stock Exchange closing price. For the purposes of this disclosure only, the registrant has assumed that its directors, executive officers and...

  • Page 4
    ... 12. Item 13. Item 14. PART IV Item 15. Exhibits, Financial Statement Schedules Signatures Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Index to Exhibits 33 34 35 36 74 Directors, Executive Officers and Corporate Governance Executive Compensation...

  • Page 5
    ... shipping products to our U.S. retail locations and dealer outlets. One of these distribution centers also serves as a fulfillment center for our online customers and as a distribution center that ships store fixtures to our U.S. and Mexico company-operated stores. RadioShack Technology Services...

  • Page 6
    ... orders in any of our operating segments for the products or services we sell. COMPETITION Due to consumer demand for wireless products and services, as well as rapid consumer acceptance of new digital technology products, the consumer electronics retail business continues to be highly competitive...

  • Page 7
    ... due during general adverse economic and market or industry conditions, because any related decrease in revenues could cause us to have insufficient cash flows from operations to make our scheduled debt payments; • limit our flexibility in planning for, or reacting to, changes in our business and...

  • Page 8
    ... results of operations and financial condition. As part of our turnaround strategy and cash management plan, on March 4, 2014, we announced that we intend to close up to 1,100 stores. We expect to incur payments to landlords to terminate or "buy out" leases for these stores. The financial impact of...

  • Page 9
    ... be in short supply either locally or regionally. The inability to recruit and retain such individuals on a continuous basis could result in high employee turnover at our stores and in our company generally, which could materially adversely affect our results of operations and financial condition...

  • Page 10
    ... results of operations and financial condition. We maintain significant receivable balances from various vendors and service providers such as Sprint, AT&T, and Verizon consisting of commissions and other funds related to these relationships. At December 31, 2013 and 2012, our net receivables from...

  • Page 11
    ... in our costs could materially adversely affect our results of operations and financial condition. In addition, in 2012 the SEC, as directed in The DoddFrank Wall Street Reform and Consumer Protection Act, adopted new disclosure and reporting requirements for companies regarding the use of "conflict...

  • Page 12
    ... our results of operations and financial condition. We conduct business outside the United States, which presents potential risks. We have offices, assets, personnel, or generate a portion of our revenue, in Mexico, Hong Kong, Taiwan, Southeast Asia, and China. Part of our growth strategy is to...

  • Page 13
    ... leases. We opened 46 Mexico RadioShack company-operated stores during 2012. Our dealer and other outlets decreased by 66 and 96 locations, net of new openings, during 2013 and 2012, respectively. These declines were primarily due to either the closing of dealer store locations or dealer agreements...

  • Page 14
    Below is a listing at December 31, 2013, of our retail locations within the United States and its territories: U.S. RadioShack Stores Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland ...

  • Page 15
    ... to Current Position) Chief Executive Officer (February 2013) Executive Vice President - Chief Financial Officer (February 2014) Executive Vice President - Chief Human Resources Officer, Services, International (September 2012) Executive Vice President - Store Operations (January 2013) Senior...

  • Page 16
    ... of Retail Operations and has been employed by the Company since 1991. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. PRICE RANGE OF COMMON STOCK Our common stock is listed on the New York Stock Exchange and trades under...

  • Page 17
    ..., 2013 Total Total Number of Shares Purchased (3) 3,411 (3) 638 -4,049 Average Price Paid per Share $ 2.89 $ 2.65 $ -- (1) In October 2011 our Board of Directors approved an authorization for a total share repurchase of $200 million of the Company's common stock to be executed through open market...

  • Page 18
    ... in the filing. The graph below compares the cumulative total shareholder return on RadioShack common stock for the last five years with the cumulative total return on the Standard & Poor's 500 Index and the Standard & Poor's Specialty Retail Index. The S&P Specialty Retail Index is a capitalization...

  • Page 19
    ...) income per share Shares used in computing net (loss) income per share: Diluted Gross profit as a percent of sales SG&A expense as a percent of sales Operating (loss) income as a percent of sales Balance Sheet Data Inventories Total assets Working capital Capital structure: Current debt Long-term...

  • Page 20
    ... Comparable store sales include the sales of U.S. and Mexico RadioShack company-operated with more than 12 full months of recorded sales. Following their closure as Sprint-branded kiosks in August 2009, certain former Sprint-branded kiosk locations became multiple wireless carrier RadioShack-branded...

  • Page 21
    ...discounts, clearance events, and customer coupons. Selling, general and administrative ("SG&A") expense decreased $12.4 million, or 0.9%, when compared with last year. The decrease in SG&A expense was driven primarily by fewer stores in operation during 2013 versus 2012, and by lower severance costs...

  • Page 22
    ... RadioShack company-operated stores with more than 12 full months of recorded sales. Product Platform Consolidation To reflect more closely how we manage our merchandise and product assortment, we have consolidated our product platform reporting structure into two platforms: mobility and retail...

  • Page 23
    ... for 2013, 2012 and 2011, respectively. Other sales include outside sales from repair services and outside sales of our global sourcing operations and domestic and overseas manufacturing facilities. We closed our overseas manufacturing facility in June 2011. U.S. RadioShack Company-Operated Stores...

  • Page 24
    ... customer coupons; and inventory write downs related to our proposed store closure program. Selling, General and Administrative Expense Our consolidated SG&A expense decreased 0.9%, or $12.4 million, in 2013. SG&A as a percentage of net sales and operating revenues increased 3.9 percentage points...

  • Page 25
    ...AT&T postpaid wireless businesses. Some of the factors contributing to our lower unit sales were changes in Sprint's customer and credit models and the discontinuation of Sprint's early upgrade program for certain customers that began in mid-2011; higher sales in the third quarter of 2011 related to...

  • Page 26
    ...unit sold. When excluding the postpaid wireless business, the gross margin rate for the balance of our business was comparable to 2011. Selling, General and Administrative Expense Our consolidated SG&A expense decreased 3.7%, or $54.9 million, in 2012. SG&A as a percentage of net sales and operating...

  • Page 27
    ...Mexican subsidiary related to fewer new store openings in 2013. Capital expenditures primarily related to our U.S. RadioShack company-operated stores and information system projects in 2013 and 2012. Financing Activities: Net cash used in financing activities was $313.5 million in 2013 compared with...

  • Page 28
    ... other companies or sell all or substantially all our assets. At December 31, 2013, we were in compliance with these covenants. CASH REQUIREMENTS Capital Expenditures: The nature of our capital expenditures is comprised of a base level of investment required to support our current operations and...

  • Page 29
    ...For more information regarding lease commitments, refer to Note 13 - "Commitments and Contingencies" of our Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. Purchase obligations primarily include our product commitments and marketing agreements. These...

  • Page 30
    ... sales returns and wireless service deactivations. Our estimates for product refunds and returns, wireless service deactivations and commission revenue adjustments are based on historical information pertaining to these items. Based on our extensive history in selling activated wireless handsets...

  • Page 31
    ... selling prices, seasonality factors, consumer trends, competitive pricing, performance of similar products or accessories, planned promotional incentives, technological obsolescence, and estimated costs to sell or dispose of merchandise such as sales commissions. If the estimated market value...

  • Page 32
    ... periodic depreciation expense is adjusted based on the new existing carrying value of the asset and the new remaining useful life. Our policy is to evaluate long-lived assets for impairment at a store level for retail operations. We have acquired goodwill related to business acquisitions. Goodwill...

  • Page 33
    ... Policies" and Note 8 - "Stock-Based Incentive Plans" in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a more complete discussion of our stock-based compensation programs. At the date an award is granted, we determine the fair value...

  • Page 34
    ... public accounting firm that audited the Company's consolidated financial statements contained in this report, has issued an attestation report on the effectiveness of the 32 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. We will file a definitive proxy statement...

  • Page 35
    ... from the Proxy Statement for the 2014 Annual Meeting under the heading Corporate Governance - Director Independence and Review and Approval of Transactions with Related Persons. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. Documents filed as part of this Annual Report on Form 10...

  • Page 36
    ...13 or 15(d) of the Securities Exchange Act of 1934, RadioShack Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RADIOSHACK CORPORATION March 4, 2014 By: /s/ Joseph C. Magnacca Joseph C. Magnacca Chief Executive Officer Pursuant to the...

  • Page 37
    RADIOSHACK CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 3 Report of Independent Registered Public Accounting Firm Consolidated Statements of Income for each of the three years in the period ended December 31, 2013 Consolidated Statements of Comprehensive Income for each of the three years...

  • Page 38
    Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of RadioShack Corporation: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of RadioShack ...

  • Page 39
    ... Statements of Income Year Ended December 31, 2012 % of Dollars Revenues $ 3,831.3 100.0 % 2013 (In millions, except per share amounts) Net sales and operating revenues Cost of products sold (includes depreciation amounts of $9.0 million, $8.4 million, and $7.5 million, respectively) Gross profit...

  • Page 40
    RADIOSHACK CORPORATION AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Year Ended December 31, 2012 $ (139.4) $ (In millions) Net (loss) income Other comprehensive income: Foreign currency translation adjustments: Foreign currency translation adjustments, net of tax Less: ...

  • Page 41
    RADIOSHACK CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31, (In millions, except share amounts) Assets Current assets: Cash and cash equivalents Accounts and notes receivable, net Inventories Other current assets Total current assets Property, plant and equipment, net Goodwill, ...

  • Page 42
    ... by (used in) operating activities: Depreciation and amortization Amortization of discounts on long-term debt Impairment of long-lived assets and goodwill Stock-based compensation Deferred income taxes Other non-cash items Changes in assets and liabilities: Accounts and notes receivable Inventories...

  • Page 43
    ... Purchase of treasury stock Issuance of common stock, net Exercise of stock options End of year Additional paid-in capital Beginning of year Issuance of common stock Exercise of stock options Stock-based compensation End of year Retained earnings Beginning of year Net income or loss Cash dividends...

  • Page 44
    ...of Business Summary of Significant Accounting Policies Supplemental Balance Sheet Disclosures Goodwill Indebtedness and Borrowing Facilities Stockholders' Equity Severance Costs and Exit Activities Stock-Based Incentive Plans Employee Benefit Plans Income Taxes Net (Loss) Income Per Share Fair Value...

  • Page 45
    ... shipping products to our U.S. retail locations and dealer outlets. One of these distribution centers also serves as a fulfillment center for our online customers and as a distribution center that ships store fixtures to our U.S. and Mexico company-operated stores. RadioShack Technology Services...

  • Page 46
    ... hand in stores, deposits in banks, credit card receivables, and all highly liquid investments with a maturity of three months or less at the time of purchase are considered cash and cash equivalents. We carry our cash equivalents at cost, which approximates fair value because of the short maturity...

  • Page 47
    ... market value, we consider the following items: inventory turnover statistics, current selling prices, seasonality factors, consumer trends, competitive pricing, performance of similar products or accessories, planned promotional incentives, technological obsolescence, and estimated costs to sell...

  • Page 48
    ... customer, generally on a monthly basis. Sales of wireless handsets and the related commissions and residual income are approximately 42 percent of our total revenue. Our three largest third-party wireless service providers are AT&T, Sprint, and Verizon. Cost of Products Sold: Cost of products sold...

  • Page 49
    ...in our postpaid wireless business and the timing of payments received from our service providers. The change in the allowance for doubtful accounts is as follows: December 31, 2011 2012 $ 1.4 $ 1.4 (In millions) Deferred credit facility fees Notes receivable Deferred debt issuance costs Other Total...

  • Page 50
    ... financial information, growth rates, terminal value, discount rates, and multiples from publicly traded companies that were comparable to our Mexican subsidiary. We did a multi-year projection based upon our normal annual planning process for the upcoming year during the fourth quarter of 2013...

  • Page 51
    ... or investments; • Pay dividends or repurchase our common stock; • Create liens on our property; • Change the nature of our business; • Dispose of assets, including in connection with store closures; • Amend or terminate certain material agreements; 49 Long-term borrowings outstanding at...

  • Page 52
    ... Company of $237.0 million, after the payment of debt issuance costs of $3.8 million. A portion of these proceeds was used to repay outstanding debt at the time of the borrowing. The remaining proceeds will be used for working capital and general corporate purposes. Obligations under the 2018 Term...

  • Page 53
    ..., which was classified as other loss on our Consolidated Statements of Income. In the third quarter of 2012, we repurchased $88.1 million of aggregate principal amount of the 2013 Convertible Notes. We paid a total of $84.8 million, which consisted of the purchase price of $84.6 million for the...

  • Page 54
    ... Sheets, and we do not recognize subsequent changes in the fair value of the agreements in the financial statements. In accordance with the FASB's accounting guidance in calculating earnings per share, the Warrants will have no effect on diluted net income per share until our common stock price...

  • Page 55
    ... down from his position as Chief Executive Officer and as a director of the Company, effective immediately. Under Mr. Gooch's employment agreement, he was entitled to a specified cash payment and the accelerated vesting of certain stock awards. During the third quarter ended September 30, 2012, we...

  • Page 56
    ... options under this plan. In 2013, we granted 2.5 million non-plan options to our Chief Executive Officer as part of an inducement grant related to the terms of his employment. These options vest over 7 years from the date of grant and expire in 2020. An additional market condition was attached to...

  • Page 57
    ... in 2013, 2012 and 2011, respectively. The total income tax benefit recognized for all stock-based compensation plans was $2.1 million in 2011. The tax benefit that would have been recognized for all 55 (1) For plan participants age 55 and older, certain granted but unvested shares are released...

  • Page 58
    ... plan, each non-employee director received a one-time initial grant of units equal to the number of shares of our common stock that represent a fair market value of $150,000 on the grant date, and an annual grant of units equal to the number of shares of our common stock that represent a fair market...

  • Page 59
    ... expire in 2033, of $132 million as of December 31, 2013. Net operating losses generated in 2011 and 2012 were carried back to offset prior year taxable income. Deferred tax assets associated with U.S. general business credits, which expire on various dates between 2031 and 2033, were $2.8 million...

  • Page 60
    ... associated with unrecognized tax benefits of $4.2 million, $2.5 million, and $2.7 million, in 2013, 2012 and 2011, respectively. RadioShack Corporation and its U.S. subsidiaries join in the filing of a U.S. federal consolidated income tax return. The U.S. federal statute of limitations is closed...

  • Page 61
    ... estimated would be used by a market participant in valuing these assets. The projected cash flows for a particular store are based on average historical cash flows for that store and are projected through the remainder of its lease. The risk-adjusted rate of return used to discount these cash flows...

  • Page 62
    ... store's sales in excess of a stipulated base figure (contingent rent). Certain leases contain escalation clauses. We also lease a distribution center in Mexico, our corporate headquarters, and automobiles. Future minimum rent commitments at December 31, 2013, under non-cancelable operating leases...

  • Page 63
    ... laws of Pennsylvania, New York, New Jersey and Ohio based on our use of the "fluctuating workweek" method to calculate overtime pay. The outcome of these cases is still uncertain and the ultimate resolution of them could have a material adverse effect on our consolidated financial statements in the...

  • Page 64
    ... company-operated stores (1) Other stores, all operating under the RadioShack brand name. In 2013 we closed out Target Mobile centers and the segment has been reclassified to discontinued operations. We evaluate the performance of our segments based on operating income, which is defined as sales...

  • Page 65
    ...current presentation): Consolidated Net Sales and Operating Revenues Year Ended December 31, 2012 2011 52.4 % $ 2,008.6 52.4 % $ 2,014.8 46.9 1,794.0 46.8 1,992.1 0.7 28.7 0.8 25.2 100.0 % $ 3,831.3 100.0 % $ 4,032.1 (In millions) Mobility Retail (1) Other sales Consolidated net sales and operating...

  • Page 66
    ... 511.7 337.3 Three Months Ended June 30, September 30, 2013 2013 $ 805.4 $ 844.5 530.7 562.7 313.8 242.7 December 31, 2013 $ 935.4 657.0 278.4 (In millions, except per share amounts) Net sales and operating revenues (1) (2) Cost of products sold Gross profit Operating expenses: Selling, general and...

  • Page 67
    ... sales and operating revenues Cost of products sold Gross profit Operating expenses: (2) (3) Selling, general and administrative Depreciation and amortization (4) Impairment of long-lived assets and goodwill Total operating expenses Operating income (loss) Interest income Interest expense Other loss...

  • Page 68
    ... Statements of Comprehensive Income For the Year Ended December 31, 2013 RadioShack Corporation (Parent Co.) $ 3,354.3 2,278.1 1,076.2 NonGuarantor Subsidiaries $ 147.1 102.3 44.8 (In millions) Net sales and operating revenues Cost of products sold Gross profit Operating expenses: Selling, general...

  • Page 69
    ... Statements of Comprehensive Income For the Year Ended December 31, 2012 RadioShack Corporation (Parent Co.) $ 4,103.1 2,773.2 1,329.9 NonGuarantor Subsidiaries $ 145.0 94.4 50.6 (In millions) Net sales and operating revenues Cost of products sold Gross profit Operating expenses: Selling, general...

  • Page 70
    ... Statements of Comprehensive Income For the Year Ended December 31, 2011 RadioShack Corporation (Parent Co.) $ 4,288.2 2,821.1 1,467.1 NonGuarantor Subsidiaries $ 149.5 105.0 44.5 (In millions) Net sales and operating revenues Cost of products sold Gross profit Operating expenses: Selling, general...

  • Page 71
    ... Balance Sheets At December 31, 2013 RadioShack Corporation (Parent Co.) NonGuarantor Subsidiaries (In millions) Assets Current assets: Cash and cash equivalents Accounts and notes receivable, net Inventories Other current assets Intercompany receivables Intercompany notes receivable Total current...

  • Page 72
    ... Balance Sheets At December 31, 2012 RadioShack Corporation (Parent Co.) NonGuarantor Subsidiaries (In millions) Assets Current assets: Cash and cash equivalents Accounts and notes receivable, net Inventories Other current assets Intercompany receivables Intercompany notes receivable Total current...

  • Page 73
    ... 31, 2013 RadioShack Corporation (Parent Co.) $ (142.9) NonGuarantor Subsidiaries $ 3.8 (In millions) Net cash (used in) provided by operating activities Cash flows from investing activities: Additions to property, plant and equipment Proceeds from sale of property, plant and equipment Changes in...

  • Page 74
    ... Statements of Cash Flows For the Year Ended December 31, 2012 RadioShack Corporation (Parent Co.) $ (65.9) NonGuarantor Subsidiaries $ (2.9) (In millions) Net cash (used in) provided by operating activities Cash flows from investing activities: Additions to property, plant and equipment Changes...

  • Page 75
    ...Consolidating Statements of Cash Flows For the Year Ended December 31, 2011 RadioShack Corporation (Parent Co.) $ 95.2 NonGuarantor Subsidiaries $ (9.8) (In millions) Net cash provided by (used in) operating activities Cash flows from investing activities: Additions to property, plant and equipment...

  • Page 76
    ... Plan for Executive Employees of RadioShack Corporation and Subsidiaries, effective as of December 31, 2008 (filed as Exhibit 10.53 to RadioShack's Form 10-K filed on February 24, 2009, and incorporated herein by reference). Form of September 30, 1997 Deferred Compensation (1) Agreement (filed...

  • Page 77
    ... Corporation Officers' Severance Program, effective December 31, 2011 (filed as Exhibit 10.40 to RadioShack's Form 10K filed on February 21, 2012, and incorporated herein by reference). RadioShack Corporation 2007 Restricted Stock Plan (included as Appendix A to RadioShack's Proxy Statement filed...

  • Page 78
    Exhibit Number 10.29 Description Credit Agreement, dated December 10, 2013, among RadioShack, certain subsidiaries of RadioShack that are designated as credit parties, the lenders party thereto and General Electric Capital Corporation, as agent for the lenders (filed as Exhibit 10.1 to RadioShack's...

  • Page 79
    ... RadioShack Corporation is an Equal Opportunity Employer. Printed in the USA. RADIOSHACK has included as Exhibits 31(a) and 31(b) to its Annual Report on Form 10-K for fiscal year 2013 filed with the Securities and Exchange Commission certificates of the Chief Executive Officer and Chief Financial...

  • Page 80