Radio Shack 2013 Annual Report Download - page 25

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of stores that were evaluated for impairment during the
periods because of their decreased operating results. If our
operating results do not improve, we will continue to incur a
similar or higher amount of long-lived asset impairments for
U.S. RadioShack company-operated stores in future
periods.
Net Interest Expense
Consolidated net interest expense, which is interest
expense net of interest income, was $50.1 million in 2013,
compared with $52.6 million in 2012.
In 2013 and 2012, interest expense consisted primarily of
interest paid at the stated coupon rate on our outstanding
notes, the non-cash amortization of the discounts on our
long-term debt, and interest paid on our term loans. Interest
expense decreased $2.2 million in 2013. This decrease
was driven by the decreased average amount of long-term
debt outstanding during 2013. Non-cash interest expense
was $7.3 million in 2013 compared with $16.3 million in
2012.
Interest income increased $0.3 million in 2013. This
increase was driven by $1.0 million of interest income
received in 2013 related to a federal excise tax refund,
which was partially offset by decreased interest income due
to our decreased average amount of cash and cash
equivalents in 2013.
Income Tax Expense
Our effective tax rate for 2013 was a positive 3.2%,
compared with a negative 41.7% for 2012. The 2013
effective tax rate was affected by the recognition of
previously unrecognized tax benefits and the reversal of
interest accrued thereon in the amount of $21.0 million,
primarily related to the effective settlement of certain
federal and state income tax matters. This income tax
benefit was partially offset by state and foreign income
taxes recognized in certain jurisdictions, interest accrued
with respect to our unrecognized tax benefits, and a
valuation allowance established against the net deferred
tax assets of our foreign subsidiary, RadioShack de
Mexico. See Note 10 – “Income Taxes” in the Notes to
Consolidated Financial Statements included in this Annual
Report on Form 10-K for more information regarding our
2013 income tax expense and valuation allowance.
2012 COMPARED WITH 2011
Net Sales and Operating Revenues
Net sales and operating revenues decreased $200.8
million, or 5.0%, to $3,831.3 million in 2012 when compared
with 2011. This decrease was primarily driven by a 4.5%
decrease in comparable store sales.
U.S. RadioShack Company-Operated Stores Segment
Sales in our U.S. RadioShack company-operated stores
segment decreased $206.8 million or 5.6% in 2012.
Sales in our mobility platform decreased 0.6% in 2012. This
decrease in sales was primarily driven by decreased sales
in our postpaid wireless business. This decrease was
substantially offset by increased sales of wireless
accessories, tablet devices and tablet accessories.
The sales decrease in our postpaid wireless business was
driven by a decrease in the number of postpaid units sold,
which was partially offset by an increase in the average
revenue per unit sold. The decrease in the number of
postpaid wireless handsets sold was primarily driven by
decreased unit sales in our Sprint and 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 a special wireless
handset promotion; the soft postpaid market due to
consumer anticipation of the iPhone 5 launch; and
inventory supply constraints during the initial iPhone 5
launch period.
The increase in the average revenue per postpaid unit was
primarily driven by a change in our sales mix towards
higher-priced smartphones, which was partially offset by an
increase in commissions repaid to wireless service
providers related to wireless handset deactivations. See the
executive summary of this MD&A for further discussion of
these wireless handset deactivations.
Sales in our retail platform decreased 11.3% in 2012. This
sales decrease was driven by sales declines in laptop
computers, cameras, music players, GPS devices, home
entertainment accessories, televisions, and personal
computer accessories. The decrease in sales for many of
these categories has been driven by the migration of the
capabilities of these products into smartphones. These
sales decreases were partially offset by increased sales of
headphones.
Other Sales
Amounts in other sales reflect our business activities that
are not separately reportable, including sales to our
independent dealers, sales generated by our
www.radioshack.com website, and sales at our Mexican
subsidiary. Each of these business activities accounted for
less than 5% of our consolidated net sales and operating
revenues in 2012. Other sales increased slightly in 2012,
when compared with 2011. Our sales increased at our
Mexican subsidiary due to new store openings, but this
increase was substantially offset by decreased sales to our
U.S. independent dealers. Additionally, we recognized $3.0
million of franchise fee revenue in the third quarter of 2012
related to the opening of our first franchised stores in
Southeast Asia.
Gross Profit
Consolidated gross profit and gross margin for 2012 were
$1,470.4 million and 38.4%, respectively, compared with
$1,722.4 million and 42.7%, respectively, in 2011, resulting
in a 14.6% decrease in gross profit dollars and a 4.3
percentage point decrease in our gross margin. These
decreases were primarily driven by decreased gross profit
of the postpaid wireless business in our U.S. RadioShack
company-operated stores.