Radio Shack 2003 Annual Report Download - page 32

RADIOSHACK 2003 Annual Report
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under this shelf registration. In August 1997, we issued
$150.0 million of 10-year unsecured long-term notes under
this shelf registration.The interest rate on the notes is
6.95% per annum with interest payable on September 1
and March 1 of each year, commencing March 1, 1998.
These notes are due September 1, 2007.
We also issued, in various amounts and on various dates
from December 1997 through September 1999, medium-
term notes totaling $150.0 million under the shelf
registration. At December 31, 2003, $44.5 million of these
notes remained outstanding.The interest rates at
December 31, 2003, for the outstanding $44.5 million
medium-term notes ranged from 6.42% to 7.35% and had a
weighted average coupon rate of 7.19%.These notes have
maturities ranging from 2004 to 2008.
On May 11, 2001, we issued $350.0 million of 10-year 7 3/8%
notes in a private offering to initial purchasers who offered
the notes to qualified institutional buyers under SEC Rule
144A.The annual interest rate on the notes is 7.375% per
annum with interest payable on November 15 and May 15
of each year. Payment of interest on the notes commenced
on November 15, 2001, and the notes mature on May 15,
2011. In August 2001, under the terms of an exchange offer-
ing filed with the SEC, we exchanged substantially all of
these notes for a similar amount of publicly registered
notes. Because no additional debt was issued in the
exchange offering, the net effect of this exchange was that
no additional debt was issued on August 3, 2001, and sub-
stantially all of the notes are now registered with the SEC.
During the third quarter of 2001, we entered into several
interest rate swap agreements with notional amounts total-
ing $150.0 million and maturities ranging from 2004 to
2007. In June and August 2003, we entered into additional
interest rate swap agreements with underlying notional
amounts of debt of $100.0 million and $50.0 million,
respectively, with maturities in May 2011.We entered into
these agreements to effectively convert a portion of our
long-term fixed rate debt to a variable rate. Under these
agreements, we have contracted to pay a variable rate of
LIBOR plus a markup and to receive fixed rates ranging
from 6.950% to 7.375%.We have designated these agree-
ments as fair value hedging instruments. At December 31,
2003, we recorded an amount in other assets, net, of $4.5
million (its fair value) for the swap agreements and
adjusted the fair value of the related debt by the same
amount.The effect of these agreements was a reduction in
our interest expense of $7.8 million during 2003, when
compared to the fixed rates. At current interest rates, we
expect this favorable condition to reoccur in 2004.
presentation of free cash flow, a non-GAAP financial measure,
to be considered in isolation or as a substitute for measures
prepared in accordance with GAAP.
The following table is a reconciliation of cash flows from
operating activities to free cash flow.
Year Ended December 31,
(In millions) 2003 2002 2001
Net cash provided by operating
activities $651.9 $ 521.6 $775.8
Less:
Additions to property, plant
and equipment 189.6 106.8 139.2
Dividends paid 40.8 39.8 43.7
Free cash flow $421.5 $375.0 $592.9
Capital Structure and Financial Condition
Management considers our financial structure and condition
solid. At December 31, 2003, total capitalization was
$1,388.0 million, consisting of $618.7 million of debt and
$769.3 million of equity, which resulted in a debt-to-total
capitalization ratio of 44.6%, compared to 46.3% for the
corresponding prior year period.The ratio decreased from
the prior year due to a smaller increase in debt of $8.6 mil-
lion, compared to a larger increase in equity of $41.2 million
from 2002.
Long-term debt as a percentage of total capitalization was
39.0% at December 31, 2003, compared to 43.6% at
December 31, 2002, and 39.0% at December 31, 2001.The
decrease in 2003 was due to the decrease in long-term
debt, as some of the notes moved to the short-term debt
classification as current maturities.
Our debt is considered investment grade by the rating
agencies. On May 20, 2003, Fitch changed our senior unse-
cured debt from “A-“ to “BBB+.” Below are the agencies’
latest ratings by category.
Standard
Category Moody’s and Poor’s Fitch
Senior unsecured debt Baa1 A- BBB+
Commercial paper P-2 A-2 F2
Our senior unsecured debt primarily consists of two
issuances of 10-year long-term notes and an issuance of
medium-term notes.
We have a $300.0 million debt shelf registration statement
which became effective in August 1997. As of December
31, 2003, there was no availability for further debt issuances