form10k123108.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________

FORM 10-K

[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008

OR

[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
For the transition period from ________ to ___________

Commission file number 1-5571
________________________
 

 
RADIOSHACK CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
75-1047710
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
Mail Stop CF3-201, 300 RadioShack Circle, Fort Worth, Texas
76102
(Address of principal executive offices)
(Zip Code)
 
Registrant's telephone number, including area code (817) 415-3011
________________________

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 
Name of each exchange
Title of each class
on which registered
Common Stock, par value $1 per share
New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes X No  __

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes __ No X

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __


 
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by  reference in Part III of this Form 10-K or any amendment to this Form 10-K.__

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ X ]
Accelerated filer [ ]
   
Non-accelerated filer [ ]
Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes __ No X

As of June 30, 2008, the aggregate market value of the voting common stock of the registrant held by non-affiliates of the registrant was $1,008,064,132 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 beneficial owners of 5% or more of the registrant’s common stock as of June 30, 2008, are the affiliates of the registrant.

As of February 11, 2009, there were 125,082,669 shares of the registrant's Common Stock outstanding.

Documents Incorporated by Reference

Portions of the Proxy Statement for the 2009 Annual Meeting of Stockholders are incorporated by reference into Part III.


 
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TABLE OF CONTENTS
     
Page
PART I
   
       
 
Business
4
 
Risk Factors
8
 
Unresolved Staff Comments
13
 
Properties
13
 
Legal Proceedings
16
 
Submission of Matters to a Vote of Security Holders
16
   
Executive Officers of the Registrant
16
     
PART II
   
       
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
18
 
Selected Financial Data
19
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
 
Quantitative and Qualitative Disclosures about Market Risk
42
 
Financial Statements and Supplementary Data
42
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
42
 
Controls and Procedures
42
 
Other Information
43
     
PART III
   
       
 
Directors, Executive Officers and Corporate Governance
43
 
Executive Compensation
43
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
43
 
Certain Relationships and Related Transactions, and Director Independence
44
 
Principal Accountant Fees and Services
44
     
PART IV
   
       
 
Exhibits, Financial Statement Schedules
44
   
45
   
46
   
47
   
83

 
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PART I
ITEM 1. BUSINESS.

GENERAL
RadioShack Corporation was incorporated in Delaware in 1967. We primarily engage in the retail sale of consumer electronics goods and services through our RadioShack store chain and non-RadioShack branded kiosk operations. Our strategy is to provide cost-effective solutions to meet the routine electronics needs and distinct electronics wants of our customers. Throughout this report, the terms “our,” “we,”  “us” and “RadioShack” refer to RadioShack Corporation, including its subsidiaries.

Our day-to-day focus is concentrated in four major areas:

·  
Provide our customers a positive in-store experience
·  
Grow gross profit dollars by increasing the overall value of each ticket
·  
Control costs continuously throughout the organization
·  
Utilize the funds generated from operations appropriately and invest only in projects that have an adequate return or are operationally necessary

Additional information regarding our business segments is presented below and in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) elsewhere in this Annual Report on Form 10-K. For information regarding the net sales and operating revenues and operating income for each of our business segments for fiscal years ended December 31, 2008, 2007 and 2006, please see Note 16 – “Segment Reporting” in the Notes to Consolidated Financial Statements.

U.S. RADIOSHACK COMPANY-OPERATED STORES
At December 31, 2008, we operated 4,453 U.S. company-operated stores under the RadioShack brand located throughout the United States, as well as in Puerto Rico and the U.S. Virgin Islands. These stores are located in major shopping malls and strip centers, as well as individual storefronts. Each location carries a broad assortment of both name brand and private brand consumer electronics products. Our product lines include wireless telephones and communication devices such as scanners and global positioning satellite navigation units (“GPS”); flat panel televisions, residential telephones, DVD players, computers and direct-to-home (“DTH”) satellite systems; home entertainment, wireless, imaging and computer accessories; general and special purpose batteries; wire, cable and connectivity products; and digital cameras, radio-controlled cars and other toys, satellite radios and memory players. We also provide consumers access to third-party services such as wireless telephone and DTH satellite activation, satellite radio service, prepaid wireless airtime and extended service plans.

KIOSKS
At December 31, 2008, we operated 688 kiosks located throughout the United States and Puerto Rico. These kiosks are primarily inside Sam’s Club locations, as well as stand-alone Sprint Nextel kiosks in shopping malls. These locations, which are not RadioShack-branded, offer primarily wireless handsets and their associated accessories. We also provide consumers access to third-party wireless telephone services. Our contract to operate Sprint Nextel kiosks expires in June of 2009. We are currently in discussion with Sprint Nextel to renew this contract, but the ultimate resolution is unknown at this time. The possible outcomes include renewing the contract under the same terms and conditions, modifying the contract, or ceasing operations.

In February 2009, we signed a contract extension through March 31, 2011, with a transition period ending June 30, 2011, with Sam’s Club to continue operating kiosks in certain Sam’s Club locations. As part of the terms of the contract extension, we will assign the operation of 66 kiosk locations to Sam’s Club by July 2009. Upon the execution of this agreement, Sam’s Club had the right to assume the operation of approximately 25 kiosk locations. Based on certain performance metrics, Sam’s Club could acquire the right to assume approximately 25 additional kiosk locations in 2010. The total number of locations assumed by Sam’s Club, for any reason, may not exceed 51 kiosk locations during term of the contract.

OTHER
In addition to the reportable segments discussed above, we have other sales channels and support operations described as follows:

 
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Dealer Outlets: At December 31, 2008, we had a network of 1,394 RadioShack dealer outlets, including 36 located outside of North America. Our North American outlets provide name brand and private brand products and services, typically to smaller communities. These independent dealers are often engaged in other retail operations and augment their businesses with our products and service offerings. Our dealer sales derived outside of the United States are not material.

RadioShack.com: Products and information are available through our commercial Web site www.radioshack.com. Online customers can purchase, return or exchange various products available through this Web site. Additionally, certain products ordered online may be picked up, exchanged or returned at RadioShack stores.

RadioShack Service Centers: We maintain a service and support network to service the consumer electronics and personal computer retail industry in the U.S. We are a vendor-authorized service provider for many top tier manufacturers, such as Hewlett-Packard, LG Electronics, Motorola, Nokia and Sony, among others. In addition, we perform repairs for third-party extended service plan providers. At December 31, 2008, we had eight RadioShack service centers in the U.S. and one in Puerto Rico that repair certain name brand and private brand products sold through our various sales channels.

International Operations: As of December 31, 2008, there were 200 company-operated stores under the RadioShack brand, 14 dealers, and one distribution center in Mexico. Prior to December 2008, these operations were overseen by a joint venture in which we were a slightly less than 50% minority owner with Grupo Gigante, S.A.B. de C.V. In December 2008, we acquired 100% ownership of this joint venture. All of our 23 locations in Canada were closed by January 31, 2007.

Support Operations:
Our retail stores, along with our kiosks and dealer outlets, are supported by an established infrastructure. Below are the major components of this support structure.

Distribution Centers - At December 31, 2008, we had four distribution centers shipping over 900 thousand cartons each month, on average, to our U.S. retail stores and dealer outlets. One of these distribution centers also serves as a fulfillment center for our online customers. Additionally, we have a distribution center that ships fixtures to our U.S. company-operated stores. During the first half of 2008, we closed our distribution center in Columbus, Ohio.

RadioShack Technology Services (“RSTS”) - Our management information system architecture is composed of a distributed, online network of computers that links all stores, customer channels, delivery locations, service centers, credit providers, distribution facilities and our home office into a fully integrated system. Each store has its own server to support the point-of-sale (“POS”) system. The majority of our U.S. company-operated stores communicate through a broadband network, which provides efficient access to customer support data. This design also allows store management to track sales and inventory at the product or sales associate level. RSTS provides the majority of our programming and systems analysis needs.

RadioShack Global Sourcing (“RSGS”) - RSGS serves our wide-ranging international import/export, sourcing, evaluation, logistics and quality control needs. RSGS’s activities support our name brand and private brand businesses.

Consumer Electronics Manufacturing - We operate two manufacturing facilities in the United States and one overseas manufacturing operation in China. These three manufacturing facilities employed approximately 1,900 employees as of December 31, 2008. We manufacture a variety of products, primarily sold through our retail outlets, including telephone, antennas, wire and cable products, and a variety of “hard-to-find” parts and accessories for consumer electronics products.

SEASONALITY
As with most other specialty retailers, our net sales and operating revenues, operating income and cash flows are greater during the winter holiday season than during other periods of the year. There is a corresponding pre-seasonal inventory build-up, which requires working capital related to the anticipated increased sales volume. This is described in “Cash Flow and Liquidity” under MD&A. Also, refer to Note 17 –

 
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“Quarterly Data (Unaudited)” in the Notes to Consolidated Financial Statements for data showing seasonality trends. We expect this seasonality to continue.

PATENTS AND TRADEMARKS
We own or are licensed to use many trademarks and service marks related to our RadioShack stores in the United States and in foreign countries. We believe the RadioShack name and marks are well recognized by consumers, and that the name and marks are associated with high-quality products and services. We also believe the loss of the RadioShack name and RadioShack marks would have a material adverse impact on our business. Our private brand manufactured products are sold primarily under the RadioShack, Accurian or Gigaware trademarks. We also own various patents and patent applications relating to consumer electronics products.

We do not own any material patents or trademarks associated with our kiosk operations.

SUPPLIERS AND NAME BRAND RELATIONSHIPS
Our business strategy depends, in part, upon our ability to offer name brand and private brand products, as well as to provide our customers access to third-party services. We utilize a large number of suppliers located in various parts of the world to obtain raw materials and private brand merchandise. We do not expect a lack of availability of raw materials or any single private brand product to have a material impact on our operations overall or on any of our operating segments. We have formed vendor and third-party service provider relationships with well-recognized companies such as Sprint Nextel, AT&T, Apple, Casio, Duracell, Garmin, Hewlett-Packard, Microsoft, Mio, RIM, Samsung, and SanDisk. In the aggregate, these relationships have or are expected to have a significant impact on both our operations and financial strategy. Certain of these relationships are important to our business; the loss of or disruption in supply from these relationships could have a material adverse effect on our net sales and operating revenues. Additionally, we have been limited from time to time by various vendors and suppliers on an economic basis where demand has exceeded supply.

ORDER BACKLOG
We have no material backlog of orders in any of our operating segments for the products or services that 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, driven primarily by technology and product cycles.

In the consumer electronics retailing business, competitive factors include price, product availability, quality and features, consumer services, manufacturing and distribution capability, brand reputation and the number of competitors. We compete in the sale of our products and services with several retail formats including national, regional, and independent consumer electronics retailers. We compete with department and specialty retail stores in more select product categories. We compete with wireless providers in the wireless telephone category through their own retail and online presence. We compete with mass merchandisers and other alternative channels of distribution, such as mail order and e-commerce retailers, on a more widespread basis. Numerous domestic and foreign companies also manufacture products similar to ours for other retailers, which are sold under nationally-recognized brand names or private brands.

Management believes we have two primary factors differentiating us from our competition. First, we have an extensive physical retail presence with convenient locations throughout the United States. Second, our specially trained sales staff is capable of providing cost-effective solutions for our customers’ routine electronics needs and distinct electronics wants, assisting with the selection of appropriate products and accessories and, when applicable, assisting customers with service activation.

We cannot give assurance that we will compete successfully in the future, given the highly competitive nature of the consumer electronics retail business. Also, in light of the ever-changing nature of the consumer electronics retail industry, we would be adversely affected if our competitors were able to offer their products at significantly lower prices. Additionally, we would be adversely affected if our competitors were able to introduce innovative or technologically superior products not yet available to us, or if we were

 
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unable to obtain certain products in a timely manner or for an extended period of time. Furthermore, our business would be adversely affected if we failed to offer value-added solutions or if our competitors were to enhance their ability to provide these value-added solutions.

EMPLOYEES
As of December 31, 2008, we employed approximately 36,800 people, including 2,600 temporary seasonal employees. Our employees are not covered by collective bargaining agreements, nor are they members of labor unions. We consider our relationship with our employees to be good.

AVAILABLE INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and its rules and regulations. The Exchange Act requires us to file reports, proxy statements and other information with the SEC. Copies of these reports, proxy statements and other information can be inspected and copied at:

SEC Public Reference Room
100 F Street, N.E.
Room 1580
Washington, D.C.  20549-0213

You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  You may also obtain copies of any material we have filed with the SEC by mail at prescribed rates from:

Public Reference Section
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C.  20549-0213

You may obtain these materials electronically by accessing the SEC’s home page on the Internet at:

http://www.sec.gov

In addition, we make available, free of charge on our Internet Web site, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as our proxy statements, as soon as reasonably practicable after we electronically file this material with, or furnish it to, the SEC. You may review these documents, under the heading “Investor Relations,” by accessing our corporate Web site:

http://www.radioshackcorporation.com


 
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ITEM 1A. RISK FACTORS.

One should carefully consider the following risks and uncertainties described below, as well as other information set forth in this Annual Report on Form 10-K. There may be additional risks that are not presently material or known, and the following list should not be construed as an exhaustive list of all factors that could cause actual results to differ materially from those expressed in forward-looking statements made by us. If any of the events described below occur, our business, financial condition, results of operations, liquidity or access to the capital markets could be materially adversely affected.

We may be unable to successfully execute our strategy to provide cost-effective solutions to meet the routine consumer electronics needs and distinct consumer electronics wants of our customers.

To achieve our strategy, we have undertaken a variety of strategic initiatives. Our failure to successfully execute our strategy or the occurrence of any of the following events could have a material adverse effect on our ability to maintain or grow our comparable store sales and our business generally:

·  
Our inability to keep our extensive store distribution system updated and conveniently located near our target customers
·  
Our employees’ inability to provide solutions, answers, and information related to increasingly complex consumer electronics products
·  
Our inability to recognize evolving consumer electronics trends and offer products that customers need and want

Adverse changes in national and world-wide economic conditions could negatively affect our business.
 
The national and world-wide financial crisis and related adverse changes in the economy could have a significant negative impact on U.S. consumer spending, particularly discretionary spending for consumer electronics products, which, in turn, could directly affect our overall sales. Consumer confidence, recessionary and inflationary trends, equity market levels, consumer credit availability, interest rates, consumers’ disposable income and spending levels, energy prices, job growth and unemployment rates may impact the volume of customer traffic and level of sales in our locations. Continued negative trends of any of these economic conditions, whether national or regional in nature, could adversely affect our financial results, including our net sales and profitability.

In addition, the national and world-wide financial crisis and potential disruptions in the capital and credit markets could have a significant impact on our ability to access the U.S. and global capital and credit markets, if needed. The capital and credit markets have been experiencing extreme volatility and disruption during the past several quarters. These market conditions could affect our ability to borrow under our credit facility, or adversely affect the bankers which underwrote our credit facility.  Even if the credit markets improve, the availability of financing will depend on a variety of factors, such as economic and market conditions and the availability of credit and our credit ratings. If needed, we may not be able to successfully obtain any necessary additional financing on favorable terms, or at all.

Our inability to increase or maintain profitability in both our wireless and non-wireless platforms could adversely affect our results.

A critical component of our business strategy is to improve our overall profitability. Our ability to increase profitable sales in existing stores may also be affected by:

·  
Our success in attracting customers into our stores
·  
Our ability to choose the correct mix of products to sell
·  
Our ability to keep stores stocked with merchandise customers will purchase
·  
Our ability to maintain fully-staffed stores and trained employees


 
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Any reductions or changes in the growth rate of the wireless industry or changes in the dynamics of the wireless communications industry could cause a material adverse effect on our financial results.

Sales of wireless handsets and the related commissions and residual income constitute approximately one-third of our total revenue. Consequently, changes in the wireless industry, such as those discussed below, could have a material adverse effect on our results of operations and financial condition.

Lack of growth in the overall wireless industry tends to have a corresponding effect on our wireless sales. Because growth in the wireless industry is often driven by the adoption rate of new wireless handset technologies, the absence of these new technologies, our partners not providing us with these new technologies, or the lack of consumer interest in adopting these new technologies, could adversely affect our business.

Another change in the wireless industry that could materially and adversely affect our profitability is wireless industry consolidation. Consolidation in the wireless industry could lead to a concentration of competitive strength, particularly competition from wireless carriers’ retail stores, which could adversely affect our business as competitive levels increase.

In recent periods, our results of operations have been adversely affected by a decline in our Sprint Nextel sales due to a weakening of Sprint Nextel wireless business across the market. If Sprint Nextel’s business were to continue to weaken, our business would be adversely affected and the collectability of receivables could be compromised.

Our competition is both intense and varied, and our failure to effectively compete could adversely affect our financial results.
 
In the retail consumer electronics marketplace, the level of competition is intense. We compete with consumer electronics retail stores as well as big-box retailers, large specialty retailers and discount or warehouse retailers and, to a lesser extent, with alternative channels of distribution such as e-commerce, telephone shopping services and mail order. We also compete with wireless carriers’ retail presence, as discussed above. Some of these other competitors are larger than we are and have greater market presence and financial and other resources than we do, which may provide them with a competitive advantage.

Changes in the amount and degree of promotional intensity or merchandising strategy exerted by our current competitors and potential new competition could present us with difficulties in retaining existing customers and attracting new customers. In addition, pressure from our competitors could require us to reduce prices or increase our costs in one product category or across all our product categories. As a result of this competition, we may experience lower sales, margins or profitability, which could materially adversely affect our financial results.

In addition, some of our competitors may use strategies such as lower pricing, wider selection of products, larger store size, higher advertising intensity, improved store design, and more efficient sales methods.
While we attempt to differentiate ourselves from our competitors by focusing on the electronics specialty retail market, our business model may not enable us to compete successfully against existing and future competitors.

We may not be able to maintain our historical gross margin levels.

Historically, we have maintained gross margin levels ranging from 45% to 48%. We may not be able to maintain these margin levels in the future due to various factors, including increased sales of lower margin products such as personal electronics products and name brand products or declines in average selling prices of key products. If sales of lower margin items continue to increase and replace sales of higher margin items, our gross margin and overall gross profit levels will be adversely affected.


 
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Our inability to effectively manage our receivable levels, particularly with our service providers, could adversely affect our financial results.
 
We maintain significant receivable balances from various service providers (i.e. Sprint Nextel and AT&T) consisting of commissions, residuals and marketing development funds. Changes in the financial markets or financial condition of these service providers could cause a delay or failure in receiving these funds. Failure to receive these payments could have an adverse affect on our financial results or financial condition.

Our inability to effectively manage our inventory levels, particularly excess or inadequate amounts of inventory, could adversely affect our financial results.
 
We source inventory both domestically and internationally, and our inventory levels are subject to a number of factors, some of which are beyond our control. These factors, including technology advancements, reduced consumer spending and consumer disinterest in our product offerings, could lead to excess inventory levels. Additionally, we may not accurately assess appropriate product life cycles or end-of-life products, leaving us with excess inventory. To reduce these inventory levels, we may be required to lower our prices, adversely impacting our financial results.

Alternatively, we may have inadequate inventory levels for particular items, including popular selling merchandise, due to factors such as unanticipated high demand for certain products, unavailability of products from our vendors, import delays, labor unrest, untimely deliveries or the disruption of international, national or regional transportation systems. The effect of the occurrence of any of these factors on our inventory supply could adversely impact our financial results or financial condition.

Our inability to attract, retain and grow an effective management team or changes in the cost or availability of a suitable workforce to manage and support our operating strategies could cause our operating results to suffer.
 
Our success depends in large part upon our ability to attract, motivate and retain a qualified management team and employees. Qualified individuals needed to fill necessary positions could be in short supply. 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 overall, which could have a material adverse effect on our business and financial results. Additionally, competition for qualified employees requires us to continually assess our compensation structure. Competition for qualified employees has required, and in the future could require, us to pay higher wages to attract a sufficient number of qualified employees, resulting in higher labor compensation expense. In addition, mandated changes in the federal minimum wage may adversely affect our compensation expense.

Our inability to successfully identify and enter into relationships with developers of new technologies or the failure of these new technologies to be adopted by the market could impact our ability to increase or maintain our sales and profitability. Additionally, the absence of new services or products and product features in the merchandise categories we sell could adversely affect our sales and profitability.

Our ability to maintain and increase revenues depends, to a large extent, on the periodic introduction and availability of new products and technologies. If we fail to identify these new products and technologies, or if we fail to enter into relationships with their developers prior to widespread distribution within the market, our sales and profitability could be adversely affected. Any new products or technologies we identify may have a limited sales life.

Furthermore, it is possible that new products or technologies will never achieve widespread consumer acceptance, also adversely affecting our sales and profitability. Finally, the lack of innovative consumer electronics products, features or services that can be effectively featured in our store model could also impact our ability to increase or maintain our sales and profitability.


 
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Failure to enter into, maintain and renew profitable relationships with name brand product and service providers could adversely affect our sales and profitability.

Our large selection of name brand products and service providers makes up a significant portion of our overall sales. In the aggregate, these relationships have or are expected to have a significant impact on both our operations and financial strategy. If we are unable to create, maintain or renew our relationships with such third parties on profitable terms or at all, our sales and our profitability could be adversely impacted.

The occurrence of severe weather events or natural disasters could significantly damage or destroy outlets or prohibit consumers from traveling to our retail locations, especially during the peak winter holiday shopping season.

If severe weather or a catastrophic natural event, such as a hurricane or earthquake, occurs in a particular region and damages or destroys a significant number of our stores in that area, our overall sales would be reduced accordingly. In addition, if severe weather, such as heavy snowfall or extreme temperatures, discourages or restricts customers in a particular region from traveling to our stores, our sales would also be adversely affected. If severe weather occurs during the fourth quarter holiday season, the adverse impact to our sales and gross profit could be even greater than at other times during the year because we generate a significant portion of our sales and gross profit during this period.

We have assigned lease obligations related to our discontinued retail operations that, if realized, could materially and adversely affect our financial results.

We have retail leases for locations that were assigned to other businesses. The majority of these lease obligations arose from leases assigned to CompUSA, Inc. as part of the sale of our Computer City, Inc. subsidiary to CompUSA in August 1998. In the event CompUSA or the other assignees, as applicable, are unable to fulfill these obligations, we may be responsible for rent due under the leases, which could have a material adverse affect on our financial results or financial condition.

Failure to comply with, or the additional implementation of, restrictions or regulations regarding the products and/or services we sell or changes in tax rules and regulations applicable to us could adversely affect our business and our financial results.

We are subject to various foreign, federal, state, and local laws and regulations including, but not limited to, the Fair Labor Standards Act and ERISA, each as amended, and regulations promulgated by the Internal Revenue Service, the United States Department of Labor, the Occupational Safety and Health Administration, and the Environmental Protection Agency. Failure to properly adhere to these and other applicable laws and regulations could result in the imposition of penalties or adverse legal judgments and could adversely affect our business and our financial results. Similarly, the cost of complying with newly-implemented laws and regulations could adversely affect our business and our financial results.

Risks associated with the suppliers from whom our raw materials and products are sourced could materially adversely affect our sales and profitability.

We utilize a large number of suppliers located in various parts of the world to obtain raw materials and private brand merchandise and other products. If any of our key vendors fail to supply us with products, we may not be able to meet the demands of our customers and our sales and profitability could be adversely affected.

We purchase a significant portion of our inventory from manufacturers located in China. Changes in trade regulations (including tariffs on imports) could increase the cost of items we purchase. Although our purchases are denominated in U.S. dollars, the continued strengthening of the Chinese currency against the U.S. dollar could cause our vendors to increase the prices of items we purchase. The occurrence of any of these events could have a material adverse effect on our financial results.

Our ability to find qualified vendors who meet our standards and supply products in a timely and efficient manner is a significant challenge, especially with respect to goods sourced from outside the United States. Merchandise quality issues, product safety concerns, trade restrictions, difficulties in enforcing intellectual

 
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property rights in foreign countries, work stoppages, transportation capacity and costs, tariffs, political or financial instability, foreign currency exchange rates, monetary, tax and fiscal policies, inflation, deflation, outbreak of pandemics and other factors relating to foreign trade are beyond our control. These and other issues affecting our vendors could materially adversely affect our sales and profitability.

Our business is heavily dependent upon information systems, which could result in higher maintenance costs and business disruption.

Our business is heavily dependent upon information systems, given the number of individual transactions we process each year. Our information systems include an in-store point-of-sale system that provides information used to track sales performance, inventory replenishment, e-commerce product availability, product margin information and customer information. In addition, we are in the process of upgrading our in-store point-of-sale system and related processes. These systems are complex and require integration with each other, with some of our service providers, and with business processes, which may increase the risk of disruption.

Our information systems are also subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, catastrophic events and usage errors by our employees. If we encounter damage to our systems, difficulty implementing new systems or maintaining and upgrading current systems, then our business operations could be disrupted, our sales could decline and our expenses could increase.

Failure to protect the integrity and security of our customers’ information could expose us to litigation, as well as materially damage our standing with our customers.

Increasing costs associated with information security, including increased investments in technology, the costs of compliance with consumer protection laws, and costs resulting from consumer fraud could cause our business and results of operations to suffer materially. Additionally, if a significant compromise in the security of our customer information, including personal identification data, were to occur, it could have a material adverse effect on our reputation, business, operating results and financial condition, and could increase the costs we incur to protect against such security breaches.

We are subject to other litigation risks and may face liabilities as a result of allegations and negative publicity.

Our operations expose us to litigation risks, such as class action lawsuits involving employees, consumers and shareholders. For example, from time to time putative class actions have been brought against us relating to various labor matters. Defending against lawsuits and other proceedings may involve significant expense and divert management’s attention and resources from other matters. In addition, if any lawsuits were brought against us and resulted in a finding of substantial legal liability, it could cause significant reputational harm to us and otherwise materially adversely affect our business, financial condition or results of operations.

Any terrorist activities in the U.S., as well as the international war on terror, could adversely affect our results of operations.

A terrorist attack or series of attacks on the United States could have a significant adverse impact on the United States’ economy. This downturn in the economy could, in turn, have a material adverse effect on our results of operations. The potential for future terrorist attacks, the national and international responses to terrorist attacks, and other acts of war or hostility could cause greater uncertainty and cause the economy to suffer in ways that we cannot predict.


 
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We conduct business outside the United States, which presents potential risks.

Some of our assets are held and a portion of our revenue is generated outside the United States in Mexico, China and Hong Kong. Part of our growth strategy is to expand our international business because the growth rates and the opportunity to implement operating improvements may be greater than those typically achievable in the United States. International operations entail significant risks and uncertainties, including, without limitation:

·  
Economic, social and political instability in any particular country or region
·  
Adverse changes in currency exchange rates
·  
Government restrictions on converting currencies or repatriating funds
·  
Unexpected changes in foreign laws and regulations or in trade, monetary or fiscal policies
·  
High inflation and monetary fluctuations
·  
Restrictions on imports and exports
·  
Difficulties in hiring, training and retaining qualified personnel, particularly finance and accounting personnel with U.S. GAAP expertise
·  
Inability to obtain access to fair and equitable political, regulatory, administrative and legal systems
·  
Adverse changes in government tax policy
·  
Difficulties in enforcing our contractual rights or enforcing judgments or obtaining a just result in local jurisdictions
·  
Potentially adverse tax consequences of operating in multiple jurisdictions

Any of these factors, by itself or in combination with others, could materially and adversely affect our business, results of operations and financial condition.

We may be unable to keep existing stores in current locations or open new stores in desirable locations, which could adversely affect our sales and profitability.

We may be unable to keep existing stores in current locations or open new stores in desirable locations in the future. We compete with other retailers and businesses for suitable locations for our stores. Local land use, local zoning issues, environmental regulations and other regulations may affect our ability to find suitable locations and also influence the cost of leasing, building or buying our stores. We also may have difficulty negotiating real estate leases and purchase agreements on acceptable terms. Further, to relocate or open new stores successfully, we must hire and train employees for the new location. Construction, environmental, zoning and real estate delays may negatively impact store openings and increase costs and capital expenditures. In addition, when we open new stores in markets where we already have a presence, our existing locations may experience a decline in sales as a result, and when we open stores in new markets, we may encounter difficulties in attracting customers due to a lack of customer familiarity with our brand, our lack of familiarity with local customer preferences, and seasonal differences in the market. We cannot be certain that new or relocated stores will produce the anticipated sales or return on investment or that existing stores will not be adversely affected by new or expanded competition in their market areas.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.
 
Information on our properties is located in MD&A and the financial statements included in this Annual Report on Form 10-K and is incorporated into this Item 2 by reference.

The following items are discussed further in the Notes to Consolidated Financial Statements:

Property, Plant and Equipment
Note 3
Commitments and Contingencies
Note 12

We lease, rather than own, most of our retail facilities. Our stores are located in shopping malls, stand-alone buildings and shopping centers owned by other entities. We lease one distribution center in the United States

 
13

 

and four administrative offices and one manufacturing plant in China. Our leased distribution center in Columbus, Ohio, was closed during the first half of 2008. We own the property on which the other five distribution centers and two manufacturing facilities are located within the United States. In 2008, we amended the lease for the buildings and certain property at our corporate headquarters located in downtown Fort Worth, Texas. The amended lease is for a reduced amount of space, requires no lease payments, and expires in June of 2011, with one two-year option to renew at market-based rents.

RETAIL LOCATIONS
The table below shows our retail locations at December 31, 2008, allocated among U.S. and Mexico company-operated stores, kiosks and dealer and other outlets.

   
Average
                   
   
Store Size
   
At December 31,
 
   
(Sq. Ft.)
   
2008
   
2007
   
2006
 
U.S. RadioShack company-operated
stores
    2,505       4,453       4,447       4,467  
Kiosks (1) (2) (3)
    99       688       739       772  
Mexico RadioShack company-operated
stores
    1,265       200       --       --  
Dealer and other outlets (4)
    N/A       1,411       1,484       1,596  
Total number of retail locations
            6,752       6,670       6,835  

(1)
Kiosks, which include Sprint-branded and Sam’s Club kiosks, decreased by 51 and 33 locations during 2008 and 2007, respectively. These closures primarily related to our decision not to renew leases on underperforming Sprint-branded kiosks.
(2)
Our contract to operate Sprint Nextel kiosks expires in June of 2009. We are currently in discussion with Sprint Nextel to renew this contract, but the ultimate resolution is unknown at this time. The possible outcomes include renewing the contract under the same terms and conditions, modifying the contract, or ceasing operations.
(3)
In February 2009, we signed a contract extension through March 31, 2011, with a transition period ending June 30, 2011, with Sam’s Club to continue operating kiosks in certain Sam’s Club locations. As part of the terms of the contract extension, we will assign the operation of 66 kiosk locations to Sam’s Club by July 2009. Upon the execution of this agreement, Sam’s Club had the right to assume the operation of approximately 25 kiosk locations. Based on certain performance metrics, Sam’s Club could acquire the right to assume approximately 25 additional kiosk locations in 2010. The total number of locations assumed by Sam’s Club, for any reason, may not exceed 51 kiosk locations during term of the contract.
(4)
Our dealer and other outlets decreased by 73 and 112 locations, net of new openings, during 2008 and 2007, respectively. This decline was primarily due to the closure of smaller outlets and conversion of dealers to U.S. RadioShack company-operated stores. Additionally, we closed all of our 23 locations in Canada by January 31, 2007.

Real Estate Owned and Leased
   
Approximate Square Footage
At December 31,
 
   
2008
   
2007
 
(In thousands)
 
Owned
   
Leased
   
Total
   
Owned
   
Leased
   
Total
 
Retail
                                   
RadioShack company-
  operated stores
    13       11,141       11,154       18       11,218       11,236  
Kiosks
    --       68       68       --       73       73  
Mexico company-
  operated stores
    --       253       253       --       --       --  
                                                 
Support Operations
                                               
Manufacturing
    134       320       454       134       320       454  
Distribution centers
  and office space
    2,229       1,021       3,250       2,229       1,689       3,918  
      2,376       12,803       15,179       2,381       13,300       15,681  

 
14

 

Below is a listing at December 31, 2008, of our retail locations within the United States and its territories:

   
U.S. RadioShack
Stores
   
Kiosks
   
Dealers and Other
   
Total
 
Alabama
    49       11       35       95  
Alaska
    --       3       24       27  
Arizona
    77       14       32       123  
Arkansas
    25       3       42       70  
California
    548       36       48       632  
Colorado
    63       17       35       115  
Connecticut
    70       3       2       75  
Delaware
    18       2       --       20  
Florida
    297       51       31       379  
Georgia
    98       25       51       174  
Hawaii
    24       --       --       24  
Idaho
    19       2       19       40  
Illinois
    172       25       38       235  
Indiana
    98       22       43       163  
Iowa
    34       10       51       95  
Kansas
    38       5       32       75  
Kentucky
    54       11       38       103  
Louisiana
    67       9       18       94  
Maine
    22       3       11       36  
Maryland
    97       16       8       121  
Massachusetts
    112       2       5       119  
Michigan
    121       31       50       202  
Minnesota
    62       13       41       116  
Mississippi
    37       6       23       66  
Missouri
    71       15       57       143  
Montana
    7       --       31       38  
Nebraska
    20       5       21       46  
Nevada
    38       7       10       55  
New Hampshire
    32       4       6       42  
New Jersey
    158       15       6       179  
New Mexico
    32       5       14       51  
New York
    333       19       24       376  
North Carolina
    123       26       41       190  
North Dakota
    6       2       6       14  
Ohio
    186       35       33       254  
Oklahoma
    39       8       33       80  
Oregon
    51       1       28       80  
Pennsylvania
    209       26       31       266  
Rhode Island
    21       1       --       22  
South Carolina
    53       9       24       86  
South Dakota
    11       2       13       26  
Tennessee
    69       21       31       121  
Texas
    371       92       97       560  
Utah
    27       10       19       56  
Vermont
    9       --       7       16  
Virginia
    124       27       44       195  
Washington
    91       9       35       135  
West Virginia
    28       9       9       46  
Wisconsin
    70       14       48       132  
Wyoming
    7       2       16       25  
                                 
District of Columbia
    13       --       --       13  
Puerto Rico
    49       4       --       53  
U.S. Virgin Islands
    3       --       --       3  
      4,453       688       1,361       6,502  

 
15

 

ITEM 3. LEGAL PROCEEDINGS.

Refer to Note 12 – “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth quarter of 2008.

EXECUTIVE OFFICERS OF THE REGISTRANT (SEE ITEM 10 OF PART III).
The following is a list, as of February 13, 2009, of our executive officers and their ages and positions.
 
Name
Position
(Date Appointed to Current Position)
Executive
Officer Since
 
Age
Julian C. Day (1)
Chief Executive Officer and Chairman of the Board (July 2006)
 
2006
56
Lee D. Applbaum (2)
Executive Vice President – Chief Marketing Officer (September 2008)
 
2008
38
Bryan Bevin (3)
Executive Vice President – Store Operations (January 2008)
 
2008
46
James F. Gooch (4)
Executive Vice President and Chief Financial Officer (August 2006)
 
2006
41
Peter J. Whitsett (5)
Executive Vice President – Chief Merchandising Officer (December 2007)
 
2007
43
John G. Ripperton (6)
Senior Vice President – Supply Chain (August 2006)
 
2006
55
Martin O. Moad (7)
Vice President and Controller (August 2007)
2007
 
52

There are no family relationships among the executive officers listed, and there are no undisclosed arrangements or understandings under which any of them were appointed as executive officers. All executive officers of RadioShack Corporation are appointed by the Board of Directors to serve until their successors are appointed.

(1)
Mr. Day was appointed Chief Executive Officer and Chairman of the Board of RadioShack in July 2006.  Prior to his appointment, Mr. Day was a private investor. Mr. Day became the President and Chief Operating Officer of Kmart Corporation in March 2002 and served as Chief Executive Officer of Kmart from January 2003 to October 2004. Following the merger of Kmart and Sears, Roebuck and Co., Mr. Day served as a Director of Sears Holding Corporation (the parent company of Sears, Roebuck and Co. and Kmart Corporation) until April 2006. Mr. Day joined Sears as Executive Vice President and Chief Financial Officer in 1999, and was promoted to Chief Operating Officer and a member of the Office of the Chief Executive, where he served until 2002.
   
(2)
Mr. Applbaum was appointed Executive Vice President and Chief Marketing Officer in September 2008. Previously, Mr. Applbaum was Chief Marketing Officer for The Schottenstein Stores Corporation from February 2007 until August 2008, and Senior Vice President and Chief Marketing Officer for David's Bridal Group from April 2004 until February 2007.  Prior to joining David's Bridal Group, Mr. Applbaum served in various capacities for Footstar, Inc. from April 2000 until April 2004, including Chief Marketing Officer of Footstar Athletic and Vice President of Marketing for Footaction USA.
   

 
16

 


(3)
Mr. Bevin was appointed Executive Vice President – Store Operations in January 2008. Before joining RadioShack, Mr. Bevin was Senior Vice President, U.S. Operations, for Blockbuster Entertainment from January 2006 until October 2007, and Senior Vice President/General Manager – Games from June 2005 until December 2005. Prior to joining Blockbuster, Mr. Bevin was Vice President of Retail for Cingular and Managing Director for Interactive Telecom Solutions.

(4)
Mr. Gooch was appointed Executive Vice President and Chief Financial Officer in August 2006.  Previously, Mr. Gooch served as Executive Vice President – Chief Financial Officer of Entertainment Publications from May 2005 to August 2006.  From 1996 to May 2005, Mr. Gooch served in various positions at Kmart Corporation, including Vice President, Controller and Treasurer, and Vice President, Corporate Financial Planning and Analysis.
   
(5)
Mr. Whitsett was appointed Executive Vice President – Chief Merchandising Officer in December 2007.  Previously, Mr. Whitsett was Senior Vice President, Kmart Merchandising Officer, from July 2005 until November 2007. He joined Kmart in 1999 as Director, Merchandise Planning & Replenishment, and later served as Divisional Vice President, Merchandise Planning, Divisional Vice President, Merchandising Consumables, Vice President/General Merchandise Manager, Drug Store and Food, and Vice President/General Merchandise Manager.
   
(6)
Mr. Ripperton was appointed Senior Vice President – Supply Chain Management in August 2006. Mr. Ripperton joined RadioShack in 2000 and has served as Vice President – Distribution, Division Vice President - Distribution, Group General Manager, and Distribution Center Manager.
   
(7)
Mr. Moad was appointed Vice President and Controller in August 2007. He has worked for RadioShack for more than 25 years, and has served as Vice President and Treasurer, Vice President - Investor Relations, Director - Investor Relations, Vice President – Controller (InterTAN, Inc.), Vice President – Assistant Secretary (InterTAN, Inc.), Assistant Secretary (InterTAN, Inc.), Controller – International Division, and Staff Accountant – International Division.  InterTAN, Inc., was an NYSE-registered spin-off of RadioShack’s international units.


 
17

 

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 the symbol "RSH." The following table presents the high and low trading prices for our common stock, as reported in the composite transaction quotations of consolidated trading for issues on the New York Stock Exchange, for each quarter in the two years ended December 31, 2008.

               
Dividends
 
Quarter Ended
 
High
   
Low
   
Declared
 
December 31, 2008
  $ 17.28     $ 8.06     $ 0.25  
September 30, 2008
    19.90       11.56       --  
June 30, 2008
    17.62       11.93       --  
March 31, 2008
    19.46       13.31       --  
                         
December 31, 2007
  $ 23.42     $ 16.72     $ 0.25  
September 30, 2007
    34.98       20.09       --  
June 30, 2007
    35.00       26.66       --  
March 31, 2007
    27.88       16.69       --  

HOLDERS OF RECORD
At February 11, 2009, there were 18,636 holders of record of our common stock.

DIVIDENDS
The Board of Directors annually reviews our dividend policy. On November 6, 2008, our Board of Directors declared an annual dividend of $0.25 per share. The dividend was paid on December 17, 2008, to stockholders of record on November 28, 2008.

The following table sets forth information concerning purchases made by or on behalf of RadioShack or any affiliated purchaser (as defined in the SEC’s rules) of RadioShack common stock for the periods indicated.

PURCHASES OF EQUITY SECURITIES BY RADIOSHACK

   
 
 
 
Total Number
of Shares
Purchased
   
 
 
 
Average
Price Paid
per Share
   
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs (1) (2)
   
Approximate
Dollar Value of
Shares That May
Yet Be
Purchased Under
the Plans or
Programs (1) (2) (3)
 
October 1 – 31, 2008
    --     $ --       --     $ 90,042,027  
November 1 – 30, 2008
    --     $ --       --     $ 90,042,027  
December 1 – 31, 2008
    --     $ --       --     $ 90,042,027  
  Total
    --               --          

(1)
RadioShack announced a $250 million share repurchase program on March 16, 2005, which has no stated expiration date.  In 2008, we repurchased approximately 0.1 million shares or $1.4 million of our common stock under this plan. As of December 31, 2008, there were no further share repurchases authorized under this plan.
(2)
RadioShack announced a $200 million share repurchase program on July 24, 2008, which has no stated expiration date. We repurchased 6.0 million shares or $110.0 million of our common stock under this plan. As of December 31, 2008, there was $90.0 million available for share repurchases under this plan.
(3)
During the period covered by this table, no publicly announced plan or program expired or was terminated, and no determination was made by RadioShack to suspend or cancel purchases under our program.

 
18

 

ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED).

RADIOSHACK CORPORATION AND SUBSIDIARIES
   
Year Ended December 31,
 
(Dollars and shares in millions, except per share amounts, ratios, locations and square footage)
 
2008
   
2007
   
2006 (3)
   
2005
   
2004
 
Statements of Income Data
                             
Net sales and operating revenues
  $ 4,224.5     $ 4,251.7     $ 4,777.5     $ 5,081.7     $ 4,841.2  
Operating income
  $ 322.0     $ 381.9     $ 156.9     $ 349.9     $ 558.3  
Net income
  $ 192.4     $ 236.8     $ 73.4     $ 267.0     $ 337.2  
Net income per share:
                                       
Basic
  $ 1.49     $ 1.76     $ 0.54     $ 1.80     $ 2.09  
Diluted
  $ 1.49     $ 1.74     $ 0.54     $ 1.79     $ 2.08  
Shares used in computing income per share:
                                       
Basic
    129.0       134.6       136.2       148.1       161.0  
Diluted
    129.1       135.9       136.2       148.8       162.5  
Gross profit as a percent of sales
    45.5 %     47.6 %     44.6 %     44.6 %     48.2 %
SG&A expense as a percent of sales
    35.7 %     36.2 %     37.9 %     35.5 %     34.8 %
Operating income as a percent of sales
    7.6 %     9.0 %     3.3 %     6.9 %     11.5 %
Balance Sheet Data
                                       
Inventories
  $ 636.3     $ 705.4     $ 752.1     $ 964.9     $ 1,003.7  
Total assets
  $ 2,283.5     $ 1,989.6     $ 2,070.0     $ 2,205.1     $ 2,516.7  
Working capital
  $ 1,154.8     $ 818.8     $ 615.4     $ 641.0     $ 817.7  
Capital structure:
                                       
Current debt
  $ 39.3     $ 61.2     $ 194.9     $ 40.9     $ 55.6  
Long-term debt
  $ 732.5     $ 348.2     $ 345.8     $ 494.9     $ 506.9  
Total debt
  $ 771.8     $ 409.4     $ 540.7     $ 535.8     $ 562.5  
Cash and cash equivalents less total debt
  $ 43.0     $ 100.3     $ (68.7 )   $ (311.8 )   $ (124.6 )
Stockholders' equity
  $ 817.3     $ 769.7     $ 653.8     $ 588.8     $ 922.1  
Total capitalization (1)
  $ 1,589.1     $ 1,179.1     $ 1,194.5     $ 1,124.6     $ 1,484.6  
Long-term debt as a % of total capitalization (1)
    46.1 %     29.5 %     29.0 %     44.0 %     34.1 %
Total debt as a % of total capitalization (1)
    48.6 %     34.7 %     45.3 %     47.6 %     37.9 %
Book value per share at year end
  $ 6.53     $ 5.87     $ 4.81     $ 4.36     $ 5.83  
Financial Ratios
                                       
Return on average stockholders' equity
    23.8 %     33.2 %     11.8 %     35.3 %     39.9 %
Return on average assets
    9.4 %     12.3 %     3.4 %     11.3 %     14.2 %
Annual inventory turnover
    3.5       3.3       2.9       2.7       2.6  
Other Data
                                       
EBITDA (2)
  $ 421.3     $ 494.6     $ 285.1     $ 473.7     $ 659.7  
Dividends declared per share
  $ 0.25     $ 0.25     $ 0.25     $ 0.25     $ 0.25  
Capital expenditures
  $ 85.6     $ 45.3     $ 91.0     $ 170.7     $ 229.4  
Number of retail locations at year end:
                                       
U.S. RadioShack company-operated stores
    4,453       4,447       4,467       4,972       5,046  
Kiosks
    688       739       772       777       599  
Mexico RadioShack company-operated stores
    200       --       --       --       --  
Dealer and other outlets
    1,411       1,484       1,596       1,711       1,788  
Total
    6,752       6,670       6,835       7,460       7,433  
Average square footage per U.S. RadioShack
company-operated store
    2,505       2,527       2,496       2,489       2,529  
Comparable store sales (decrease) increase
    (0.6 %)     (8.2 %)     (5.6 %)     0.9 %     3.2 %
Shares outstanding
    125.1       131.1       135.8       135.0       158.2  

This table should be read in conjunction with MD&A and the Consolidated Financial Statements and related Notes.

(1)
Capitalization is defined as total debt plus total stockholders' equity.
(2)
EBITDA, a non-GAAP financial measure, is defined as earnings before interest, taxes, depreciation and amortization. Our calculation of EBITDA is also adjusted for other (loss) income and cumulative effect of change in accounting principle. The comparable financial measure to EBITDA under GAAP is net income. EBITDA is used by management to evaluate the operating performance of our business for comparable periods and is a metric used in the computation of annual and long-term incentive management bonuses. EBITDA should not be used by investors or others as the sole basis for formulating investment decisions as it excludes a number of important items. We compensate for this limitation by using GAAP financial measures as well in managing our business. In the view of management, EBITDA is an important indicator of operating performance because EBITDA excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs.
(3)
These amounts were impacted by our 2006 restructuring program. See Note 14 – “Restructuring Program” in the Notes to Consolidated Financial Statements for further information.

 
19

 

The following table is a reconciliation of EBITDA to net income.

   
Year Ended December 31,
 
(In millions)
 
2008
   
2007
   
2006
   
2005
   
2004
 
Reconciliation of EBITDA to Net Income
                             
EBITDA
  $ 421.3     $ 494.6     $ 285.1     $ 473.7     $ 659.7  
                                         
Interest expense, net of interest income
    (15.3 )     (16.2 )     (36.9 )     (38.6 )     (18.2 )
Provision for income taxes
    (111.9 )     (129.8 )     (38.0 )     (51.6 )     (204.9 )
Depreciation and amortization
    (99.3 )     (112.7 )     (128.2 )     (123.8 )     (101.4 )
Other (loss) income
    (2.4 )     0.9       (8.6 )     10.2       2.0  
Cumulative effect of change in accounting
  principle, net of $1.8 million tax benefit
    --       --       --       (2.9 )     --  
Net income
  $ 192.4     $ 236.8     $ 73.4     $ 267.0     $ 337.2  


 
20

 

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.

OVERVIEW
Highlights related to the year ended December 31, 2008, include:

·  
Net sales and operating revenues decreased $27.2 million, or 0.6%, to $4,224.5 million when compared with last year. Comparable store sales decreased 0.6% as well. This decrease was driven by lower sales in the fourth quarter primarily due to the global credit crisis and economic downturn, but was substantially offset by sales gains during the first nine months of the year. We recorded sales of approximately $200 million in digital-to-analog television converter boxes and significant sales increases in AT&T postpaid wireless handsets, video gaming products and accessories, laptop computers, and prepaid wireless handsets. We recorded sales declines in Sprint Nextel postpaid wireless handsets, digital music players and toys.
 
·  
Gross margin decreased 210 basis points to 45.5% from last year. This decrease was primarily driven by increased sales of lower margin products such as digital-to-analog television converter boxes, video gaming products and accessories, and laptop computers, as well as a continued shift away from higher-rate new activations to lower-rate existing customer upgrades in our postpaid wireless business.
 
·  
Selling, general and administrative (“SG&A”) expense decreased $28.7 million to $1,509.8 million when compared with last year. This decrease was driven in part by lower compensation expense. Other factors included decreased rent expense for our corporate headquarters for the last half of the year and an $8.2 million sales and use tax benefit from the settlement of a sales tax issue. Additionally, SG&A expense for 2007 included an $8.5 million charge for employee separation packages. As a percentage of net sales and operating revenues, SG&A declined 50 basis points to 35.7%.
 
·  
As a result of the factors above, operating income decreased $59.9 million, or 15.7%, to $322.0 million when compared with last year.
 
·  
Net income decreased $44.4 million to $192.4 million when compared with last year. Net income per diluted share was $1.49 compared with $1.74 last year.
 



 
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RESULTS OF OPERATIONS

NET SALES AND OPERATING REVENUES

Consolidated net sales decreased 0.6% or $27.2 million to $4,224.5 million for the year ended December 31, 2008, compared with $4,251.7 million in 2007. This decrease was primarily due to a comparable store sales decline of 0.6% in 2008. The decrease in comparable store sales was primarily caused by decreased sales in our personal electronics and modern home platforms, but was offset by increased sales in our accessory platform.

Consolidated net sales and operating revenues for our two reportable segments and other sales are as follows:

   
Year Ended December 31,
 
(In millions)
 
2008
   
2007
   
2006
 
U.S. RadioShack company-operated stores
  $ 3,611.1     $ 3,637.7     $ 4,079.8  
Kiosks
    283.5       297.0       340.5  
Other sales
    329.9       317.0       357.2  
Consolidated net sales and operating revenues
  $ 4,224.5     $ 4,251.7     $ 4,777.5  
                         
Consolidated net sales and operating
revenues decrease
    0.6 %     11.0 %     6.0 %
Comparable store sales decrease (1)
    0.6 %     8.2 %     5.6 %

(1)
Comparable store sales include the sales of U.S. RadioShack company-operated stores and kiosks with more than 12 full months of recorded sales.

The following table provides a summary of our consolidated net sales and operating revenues by platform and as a percent of net sales and operating revenues. These consolidated platform sales include sales from our U.S. RadioShack company-operated stores and kiosks, as well as other sales.

   
Consolidated Net Sales and Operating Revenues
 
   
Year Ended December 31,
 
(In millions)
 
2008
   
2007
   
2006
 
Wireless
  $ 1,393.8       33.0 %   $ 1,416.5       33.3 %   $ 1,654.8       34.6 %
Accessory
    1,183.9       28.0       1,029.7       24.2       1,087.6       22.8  
Personal electronics
    545.7       12.9       650.7       15.3       751.8       15.7  
Modern home
    527.1       12.5       556.2       13.1       612.1       12.8  
Power
    242.4       5.7       251.3       5.9       271.4       5.7  
Technical
    183.7       4.4       184.4       4.3       198.5       4.2  
Service
    95.8       2.3       100.5       2.4       106.3       2.2  
Service centers and other
sales (1)
    52.1       1.2       62.4       1.5       95.0       2.0  
Consolidated net sales and
operating revenues
  $ 4,224.5       100.0 %   $ 4,251.7       100.0 %   $ 4,777.5       100.0 %

(1)
Service centers and other sales include outside sales from our service centers, in addition to U.S. RadioShack company-operated store repair revenue, and outside sales of our global sourcing operations and domestic and overseas manufacturing facilities.


 
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2008 COMPARED WITH 2007

U.S. RadioShack Company-Operated Stores

The following table provides a summary of our net sales and operating revenues by platform and as a percent of net sales and operating revenues for the RadioShack segment.

   
Net Sales and Operating Revenues
 
   
Year Ended December 31,
 
(In millions)
 
2008
   
2007
   
2006
 
Wireless
  $ 1,075.7       29.8 %   $ 1,085.6       29.8 %   $ 1,288.1       31.6 %
Accessory
    1,091.8       30.2       949.3       26.1       1,006.6       24.7  
Personal electronics
    486.7       13.5       589.8       16.2       683.1       16.8  
Modern home
    457.7       12.7       494.5       13.6       539.5       13.2  
Power
    227.3       6.3       235.8       6.5       258.1       6.3  
Technical
    169.9       4.7       171.9       4.7       184.6       4.5  
Service
    93.2       2.6       97.3       2.7       102.3       2.5  
Other revenue
    8.8       0.2       13.5       0.4       17.5       0.4  
Net sales and operating
revenues
  $ 3,611.1       100.0 %   $ 3,637.7       100.0 %   $ 4,079.8       100.0 %

Sales in our wireless platform (includes postpaid and prepaid wireless handsets, commissions, residual income and communication devices such as scanners and GPS) decreased 0.9% in 2008. While we have recorded sales gains related to our AT&T postpaid wireless business and prepaid wireless handsets, these gains were substantially offset by declines in the Sprint Nextel postpaid wireless business and, to a lesser extent, sales of GPS devices.

Sales in our accessory platform (includes home entertainment, wireless, music, computer, video game and GPS accessories; media storage; power adapters; digital imaging products and headphones) increased 15.0% in 2008. This increase was driven by sales of digital-to-analog television converter boxes. The sales of the converter boxes are a result of the pending transition of full-power television broadcast signals in the United States from broadcasting in analog format to broadcasting only in digital format. This transition is scheduled to take place in the second quarter of 2009 and we expect a decrease in the sales of these units in the second half of the year. We also experienced sales gains in video game accessories in 2008. This increase was partially offset by decreases in wireless, music, and imaging accessories sales.

Sales in our personal electronics platform (includes digital cameras, digital music players, toys, satellite radios, video gaming hardware, camcorders, general radios, and wellness products) decreased 17.5% in 2008. This decrease was driven primarily by sales declines in digital music players, toys, and satellite radios, but was partially offset by increased sales of video game consoles.

Sales in our modern home platform (includes residential telephones, home audio and video end-products, direct-to-home (“DTH”) satellite systems, and computers) decreased 7.4% in 2008. This decrease was primarily the result of declines in sales of DVD players and recorders, cordless telephones, and flat panel televisions, but was partially offset by increased sales of laptop computers.

Sales in our power platform (includes general and special purpose batteries and battery chargers) decreased 3.6% in 2008. This decrease was primarily the result of decreased sales of certain special purpose and general purpose batteries.

Sales in our technical platform (includes wire and cable, connectivity products, components and tools, as well as hobby and robotic products) decreased 1.2% in 2008.

Sales in our service platform (includes prepaid wireless airtime, extended service plans and bill payment revenue) decreased 4.2% in 2008. This decrease was driven primarily by declines in bill payment revenue and sales of extended service plans, but was partially offset by increased sales of prepaid wireless airtime.

 
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Kiosks

Kiosk sales consist primarily of handset sales, postpaid and prepaid commission revenue and related wireless accessory sales. Kiosk sales decreased 4.5% or $13.5 million in 2008. This sales decrease was driven primarily by a decline in the number of our Sprint Nextel branded kiosks, but was partially offset by sales gains at our Sam’s Club kiosks. Our contract to operate Sprint Nextel kiosks expires in June of 2009. We are currently in discussion with Sprint Nextel to renew this contract, but the ultimate resolution is unknown at this time. The possible outcomes include renewing the contract under the same terms and conditions, modifying the contract, or ceasing operations.

In February 2009, we signed a contract extension through March 31, 2011, with a transition period ending June 30, 2011, with Sam’s Club to continue operating kiosks in certain Sam’s Club locations. As part of the terms of the contract extension, we will assign the operation of 66 kiosk locations to Sam’s Club by July 2009. Upon the execution of this agreement, Sam’s Club had the right to assume the operation of approximately 25 kiosk locations. Based on certain performance metrics, Sam’s Club could acquire the right to assume approximately 25 additional kiosk locations in 2010. The total number of locations assumed by Sam’s Club, for any reason, may not exceed 51 kiosk locations during term of the contract.

Other Sales

Other sales include sales to our independent dealers, outside sales through our service centers, sales generated by our www.radioshack.com Web site and our Mexican subsidiary, sales to commercial customers, and outside sales of our global sourcing operations and manufacturing. Other sales increased $12.9 million or 4.1% in 2008. This sales increase was driven primarily by increased sales at our RadioShack.com Web site and the recognition of 100% of the sales for RadioShack de Mexico in the month of December. If we had owned 100% of RadioShack de Mexico for all of 2008, we would have recognized a total of approximately $120 million in net sales and operating revenues for the year. Sales to independent dealers did not significantly change from 2007.

GROSS PROFIT

Consolidated gross profit and gross margin are as follows:

   
Year Ended December 31,
 
(In millions)
 
2008
   
2007
   
2006
 
Gross profit
  $ 1,922.7     $ 2,025.8     $ 2,129.4  
Gross profit decrease
    5.1 %     4.9 %     6.1 %
                         
Gross margin
    45.5 %     47.6 %     44.6 %

Consolidated gross profit and gross margin for 2008 were $1,922.7 million and 45.5%, respectively, compared with $2,025.8 million and 47.6% in 2007, resulting in a 5.1% decrease in gross profit dollars and a 210 basis point decrease in our gross margin.

This decrease was primarily driven by increased sales of lower margin products such as digital-to-analog television converter boxes, video gaming products and accessories, and laptop computers, as well as a product shift away from higher-rate new activations to lower-rate existing customer upgrades in our postpaid wireless business. Gross margin was also negatively impacted by lower average selling prices in GPS and media storage and by aggressive pricing required in our wireless platform in the first quarter to respond to a more competitive market environment.

Additionally, the 2007 gross margin was favorably impacted by refunds for federal telecommunications excise taxes we recorded in 2007. A portion of these refunds totaling $18.8 million was recorded as a reduction to cost of products sold, which accounted for a 44 basis point increase in our gross margin. See Note 13 – “Federal Excise Tax” in Notes to Consolidated Financial Statements for a discussion of the impact of the federal telecommunications excise tax.


 
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SELLING, GENERAL AND ADMINISTRATIVE (“SG&A”) EXPENSE

Our consolidated SG&A expense decreased 1.9% or $28.7 million in 2008. This represents a 50 basis point decrease as a percentage of net sales and operating revenues compared to 2007.

The table below summarizes the breakdown of various components of our consolidated SG&A expense and its related percentage of total net sales and operating revenues.

   
Year Ended December 31,
 
   
2008
   
2007
   
2006
 
         
% of
         
% of
         
% of
 
         
Sales &
         
Sales &
         
Sales &
 
(In millions)
 
Dollars
   
Revenues
   
Dollars
   
Revenues
   
Dollars
   
Revenues
 
Payroll and commissions
  $ 617.5       14.6 %   $ 638.6       15.0 %   $ 798.2       16.7 %
Rent
    300.9       7.1       304.7       7.2       312.1       6.5  
Advertising
    214.5       5.1       208.8       4.9       216.3       4.5  
Other taxes (excludes
income taxes)
    87.9       2.1       103.0       2.4       121.2       2.5  
Utilities and telephone
    58.7       1.4       61.4       1.4       64.7       1.4  
Insurance
    55.0       1.3       58.1       1.4       62.8       1.3  
Credit card fees
    37.7       0.9       37.8       0.9       40.1       0.8  
Professional fees
    26.3       0.6       19.1       0.4       49.2       1.0  
Licenses
    12.4       0.3       12.7       0.3       13.2       0.3  
Repairs and maintenance
    11.2       0.3       10.9       0.3       11.7       0.3  
Printing, postage and office
supplies
    8.1       0.2       9.6       0.2       11.7       0.3  
Recruiting, training &
employee relations
    6.9       0.2       6.8       0.2       12.3       0.3  
Stock purchase and
savings plans
    6.5       0.2       7.2       0.2       11.1       0.2  
Travel
    5.4       0.1       5.2       0.1       8.3       0.2  
Warranty and product repair
    4.2       0.1       5.1       0.1       7.1       0.1  
Other
    56.6       1.2       49.5       1.2       70.7       1.5  
                                                 
    $ 1,509.8       35.7 %   $ 1,538.5       36.2 %   $ 1,810.7       37.9 %

Payroll and commissions expense decreased in dollars and as a percentage of net sales and operating revenues. This decrease was partially driven by lower incentive compensation paid to store and corporate personnel and fewer employees in our kiosk operation, distribution centers, and at our corporate headquarters. Additionally, in 2007 we reduced our accrued vacation liability by $14.3 million in connection with the modification of our employee vacation policy and recorded an $8.5 million charge for employee separation charges.

Rent expense decreased primarily due to lower rent expense associated with our corporate headquarters for the second half of 2008. See below for further discussion.

The decrease in other taxes was partially driven by reduced payroll taxes associated with the decreased compensation expense. Additionally, we recorded an $8.2 million sales and use tax benefit from the settlement of a sales tax issue.

The increase in other SG&A was primarily due to a $12.1 million non-cash charge recorded in connection with our amended headquarters lease. See below for further discussion.

Corporate Headquarters’ Amended Lease: In June 2008, Tarrant County College District (“TCC”) announced that it had purchased from Kan Am Grund Kapitalanlagegesellschaft mbH (“Kan Am”) the buildings and real property comprising our corporate headquarters in Fort Worth, Texas, which we had previously sold to Kan Am and then leased for a period of 20 years in a sale and lease-back transaction in December 2005.

 
25

 

In connection with the above sale to TCC, we entered into an agreement with TCC to convey certain personal property located in the corporate headquarters and certain real property located in close proximity to the corporate headquarters in exchange for an amended and restated lease to occupy a reduced portion of the corporate headquarters for a shorter time period. The amended and restated lease agreement provides for us to occupy approximately 40% of the corporate headquarters complex for a primary term of three years with no rental payments required during the term.  The agreement also provides for a renewal option on approximately half of this space for an additional two years at market rents.

This agreement resulted in a non-cash net charge to other SG&A of $12.1 million for the second quarter of 2008. This net amount consisted of a net loss of $2.8 million related to the assets conveyed to TCC and a $9.3 million charge to reduce a receivable for economic development incentives associated with the corporate headquarters to its net realizable value.

DEPRECIATION AND AMORTIZATION

The table below gives a summary of our total depreciation and amortization by segment.

   
Year Ended December 31,
 
(In millions)
 
2008
   
2007
   
2006
 
U.S. RadioShack company-operated stores
  $ 52.9     $ 53.4     $ 58.2  
Kiosks
    5.8       6.3       10.2  
Other
    1.8       1.7       2.3  
Unallocated
    38.8       51.3       57.5  
Total depreciation and amortization
  $ 99.3     $ 112.7     $ 128.2  

The table below provides an analysis of total depreciation and amortization.

   
Year Ended December 31,
 
(In millions)
 
2008
   
2007
   
2006
 
Depreciation and amortization expense
  $ 88.1     $ 102.7     $ 117.5  
Depreciation and amortization included in
cost of products sold
    11.2       10.0       10.7  
Total depreciation and amortization
  $ 99.3     $ 112.7     $ 128.2  

Total depreciation and amortization for 2008 declined $13.4 million or 11.9%. This decrease was primarily due to reduced capital expenditures in 2006 and 2007 when compared with prior years.

IMPAIRMENT OF LONG-LIVED ASSETS AND OTHER CHARGES

Impairment of long-lived assets and other charges was $2.8 million and $2.7 million for 2008 and 2007, respectively. These amounts were related primarily to our Sprint Nextel kiosk operations and underperforming U.S. RadioShack company-operated stores. We recorded this amount based on the remaining estimated future cash flows related to these specific stores. It was determined that the net book value of many of the stores' long-lived assets was not recoverable. For the stores with insufficient estimated cash flows, we wrote down the associated long-lived assets to their estimated fair value.

NET INTEREST EXPENSE

Consolidated interest expense, net of interest income, was $15.3 million for 2008 versus $16.2 million for 2007, a decrease of $0.9 million or 5.6%.

Interest expense decreased $8.9 million to $29.9 million in 2008 from $38.8 million in 2007. This decrease was primarily attributable to lower interest rates on our floating rate debt exposure resulting from our interest rate swaps. Due to the implementation of FASB Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion,” for our convertible notes, we will recognize additional non-cash interest expense of $14 million for the year ended December 31, 2009.

 
26

 

Interest income decreased $8.0 million to $14.6 million in 2008 from $22.6 million in 2007. This decrease was primarily due to a lower interest rate environment. Additionally, we recorded interest income related to the federal telecommunications excise tax refund of $0.5 million in the first quarter of 2008 and $1.4 million in the first nine months of 2007.

OTHER (LOSS) INCOME

During 2008 we recorded a loss of $2.4 million compared with income of $0.9 million in 2007. These amounts represent unrealized losses and gains related to our derivative exposure to Sirius XM Radio, Inc. warrants as a result of our fair value measurements of these warrants. At December 31, 2008, the fair value of these warrants was zero.

INCOME TAX PROVISION

Our effective tax rate for 2008 was 36.8% compared to 35.4% for 2007. The 2008 effective tax rate was impacted by the execution of a closing agreement with respect to a Puerto Rico income tax issue during the year, which resulted in a credit to income tax expense. This discrete item lowered the effective tax rate for 2008 by 95 basis points. In addition, the 2008 effective tax rate was impacted by the net reversal of approximately $4.1 million in unrecognized tax benefits, deferred tax assets and accrued interest related to the settlement of various state income tax issues and the expiration of the statute of limitations with respect to our 2002 taxable year. This net reversal lowered the effective tax rate for 2008 by 137 basis points. The 2007 effective tax rate was impacted by the net reversal in June 2007 of approximately $10.0 million in unrecognized tax benefits, deferred tax assets and accrued interest. Refer to Note 9 – “Income Taxes” of our consolidated financial statements for additional information. This $10.0 million reversal lowered our effective tax rate 273 basis points for the year ended December 31, 2007.

Acquisition of RadioShack de Mexico

In December 2008, we acquired the remaining interest (slightly more than 50%) of our Mexican joint venture - RadioShack de Mexico, S.A. de C.V. - with Grupo Gigante, S.A.B. de C.V. We now own 100% of this subsidiary which consists of 200 RadioShack-branded stores and 14 dealers throughout Mexico. The purchase price was $44.7 million which consisted of $42.0 million in cash paid and transaction costs, net of cash acquired, plus $2.7 million in assumed debt. The acquisition was accounted for using the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations.” The purchase price allocation resulted in an excess of purchase price over net tangible assets acquired of $35.2 million, all of which was attributed to goodwill. The goodwill will not be subject to amortization for book purposes but rather an annual test for impairment. The premium we paid in excess of the fair value of the net assets acquired was based on the established business in Mexico and our ability to expand our business in Mexico and possibly other countries. The goodwill will not be deductible for tax purposes. Results of the acquired business have been included in our operations from December 1, 2008, and were immaterial. If we had owned 100% of RadioShack de Mexico for all of 2008, we would have recognized approximately $100 million in additional net sales and operating revenues.

2007 COMPARED WITH 2006

2006 RESTRUCTURING REVIEW

Due to negative trends that developed in our business during calendar year 2005, we announced a restructuring program on February 17, 2006, that contained four key components:

·  
Update our inventory
·  
Focus on our top-performing U.S. RadioShack company-operated stores, while closing 400 to 700 U.S. RadioShack company-operated stores, and aggressively relocate other U.S. RadioShack company-operated stores
·  
Consolidate our distribution centers
·  
Reduce our overhead costs

Through December 31, 2006, we conducted a liquidation of certain inventory during the summer and fall of 2006, and replaced underperforming merchandise with new faster-moving merchandise. During the

 
27

 

summer of 2006, we also focused on our top-performing stores and completed the closure of 481 underperforming stores, reducing the number of retail employees in connection with these closures. Additionally, we consolidated our distribution centers in the fall of 2006. Management also reduced our cost structure, including our advertising spend rate and our workforce within our corporate headquarters. A number of other cost reductions were implemented. As of December 31, 2006, we considered our restructuring program to be substantially complete.

The 2006 restructuring affects comparability in certain areas of this MD&A discussion and is discussed where necessary.

See “Financial Impact of Restructuring Program” below for a discussion of the financial impact of our 2006 restructuring program.

NET SALES AND OPERATING REVENUES

Consolidated net sales decreased 11.0% or $525.8 million to $4,251.7 million in 2007, from $4,777.5 million in 2006. This decrease was primarily due to a comparable store sales decline of 8.2% in addition to the closure of 481 U.S. RadioShack company-operated stores during June and July 2006 as part of our 2006 restructuring. Approximately 290 of the 481 stores were closed in July 2006, with a majority of the remainder closed in the last half of June 2006. The decrease in comparable store sales was primarily caused by a decline in our wireless and personal electronics platform sales.

U.S. RadioShack Company-Operated Stores

To assist in comparability, the revenue discussion presented below primarily analyzes results excluding the stores closed in 2006.

Excluding the effects of the 2006 store closures, sales in our wireless platform decreased 13.7% in 2007. This decrease was primarily driven by a decline in postpaid wireless sales for our two main wireless carriers. We believe that these sales declines were the result of increased wireless competition, a challenging wireless industry environment, and a shift to prepaid handsets and corresponding service plans. This decrease, however, was partially offset by increased sales of GPS products, particularly in the fourth quarter of 2007, and prepaid wireless handset sales. Including the effects of the 2006 store closures, wireless platform sales decreased 15.7%.

Excluding the effects of the 2006 store closures, sales in our accessory platform decreased 2.3% in 2007. This decrease was primarily the result of declines in wireless and home entertainment accessory sales, but partially offset by increases in media storage and imaging accessories sales. Including the effects of the 2006 store closures, accessory platform sales decreased 5.7%.

Excluding the effects of the 2006 store closures, sales in our personal electronics platform decreased 11.7% in 2007. This decrease was driven primarily by sales declines in satellite radios and digital music players, but was partially offset by increased sales of video gaming products. Including the effects of the 2006 store closures, personal electronics platform sales decreased 13.7%.

Excluding the effects of the 2006 store closures, sales in our modern home platform decreased 5.7% in 2007. This decrease was the result of sales declines in residential telephones, and DVD players and recorders, offset by increased sales of laptop computers, PC peripherals, and flash drives. Including the effects of the 2006 store closures, modern home platform sales decreased 8.3%.

Excluding the effects of the 2006 store closures, sales in our power platform decreased 5.6% in 2007. This sales decline was the result of decreased sales of general purpose and special purpose telephone batteries. Including the effects of the 2006 store closures, power platform sales decreased 8.6%.

Excluding the effects of the 2006 store closures, sales in our technical platform decreased 2.2% in 2007. This sales decline was due primarily to a decrease in sales of robotic kits, metal detectors and tools, partially offset by an increase in audio cable sales. Including the effects of the 2006 store closures, technical platform sales decreased 6.9%.

 
28

 

Excluding the effects of the 2006 store closures, sales in our service platform decreased 2.6% in 2007. Prepaid airtime sales increased for the year ended December 31, 2007; however, this gain was more than offset by decreases in bill payment revenue. Including the effects of the 2006 store closures, service platform sales decreased 4.9%.Other revenue decreased $4.0 million or 22.9% in 2007 due in part to the 2006 store closures and to a decline in store repair revenue.

Kiosks

Kiosk sales decreased 12.8% or $43.5 million in 2007. While this decrease is partially attributable to fewer kiosk locations compared to the prior year, we believe that this sales decline was primarily the result of increased wireless competition, a challenging wireless industry environment, and a customer shift to prepaid handsets which are generally priced lower than postpaid handsets.

Other Sales

Other sales in 2006 included sales of our now closed Canadian company-operated stores. Other sales were down $40.2 million or 11.3% in 2007. This sales decrease was primarily due to the sale or closure of five service centers late in the second quarter of 2006, fewer dealer outlets in 2007, and a decline in product sales to the remaining dealers.

GROSS PROFIT

Consolidated gross profit and gross margin for 2007 were $2,025.8 million and 47.6%, respectively, compared with $2,129.4 million and 44.6% in 2006 resulting in a 4.9% decrease in gross profit dollars and a 300 basis point increase in our gross margin.

The decrease in gross profit for 2007 was the result of a decline in net sales and operating revenues primarily due to a comparable store sales decrease and store closures associated with our 2006 restructuring. Our 2007 gross margin increased primarily due to an improvement in our inventory management and a shift in product mix. In addition, refunds of $14.0 million and $5.2 million for federal telecommunications excise taxes were recorded in the first and fourth quarters of 2007, respectively. A portion of these refunds totaling $18.8 million was recorded as a reduction to cost of products sold, which accounted for a 44 basis point increase in our gross margin. See Note 13 – “Federal Excise Tax” for a discussion of the impact of the federal telecommunications excise tax.

SELLING, GENERAL AND ADMINISTRATIVE (“SG&A”) EXPENSE

Our consolidated SG&A expense decreased 15.0% or $272.2 million in 2007. This represents a 170 basis point decrease as a percentage of net sales and operating revenues compared to 2006.

Payroll and commissions expense decreased in dollars and as a percentage of net sales and operating revenues. This decrease was primarily driven by a reduction in our corporate support staff, a reduction of store personnel from store closures in 2006, and better management of store labor hours. Additionally, compensation included an $8.5 million charge recorded in the first quarter of 2007 associated with the reduction of approximately 280 corporate support employees, while the year ended December 31, 2006, included employee separation charges of approximately $16.1 million connected with the 2006 restructuring. Furthermore, our accrued vacation was reduced $14.3 million in 2007 in connection with the modification of our employee vacation policy during 2007.

Rent expense decreased in dollars, but increased as a percent of net sales and operating revenues. The rent decrease was primarily driven by store closures from our 2006 restructuring.

Advertising expense decreased in dollars, but increased as a percent of net sales and operating revenues. This decrease was primarily due to a change in our media strategy, as we changed the mix of media used in our advertising program from television to more radio and newspaper usage, as well as reduced sponsorship programs.

Professional fees decreased in both dollars and as a percent of net sales and operating revenues. The decrease relates to a decline in our use of consultants and lower fees incurred as a result of our defense

 
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of certain class action lawsuits during 2006, as well as prior year recognition of $5.1 million of the $8.8 million charge to establish a legal reserve for the settlement of these lawsuits. See Note 12 – “Commitments and Contingencies” in the Notes to Consolidated Financial Statements for a discussion of these lawsuits.

DEPRECIATION AND AMORTIZATION

Total depreciation and amortization for 2007 declined $15.5 million or 12.1%. This decrease was primarily due to the closure of stores and acceleration of depreciation as part of our 2006 restructuring, as well as a reduction in our capital expenditures during 2007. Additionally, the 2007 decline within the kiosk segment was the result of an impairment recorded during the third quarter of 2006.

IMPAIRMENT OF LONG-LIVED ASSETS AND OTHER CHARGES

During 2007, we recorded impairment charges for long-lived assets related primarily to our Sprint Nextel kiosk operations and U.S. RadioShack company-operated stores of $2.7 million. We recorded this amount based on the remaining estimated future cash flows related to these specific stores. It was determined that the net book value of many of the stores' long-lived assets was not recoverable. For the stores with insufficient estimated cash flows, we wrote down the associated long-lived assets to their estimated fair value.

In February 2006, as part of our restructuring program, our board of directors approved the closure of 400 to 700 U.S. RadioShack company-operated stores. During the first half of 2006, we identified the stores for closure and subsequently performed the impairment test. Based on the remaining estimated future cash flows related to these specific stores, it was determined that the net book value of some of the stores' long-lived assets to be held for use was not recoverable. For the stores with insufficient estimated cash flows, we wrote down the associated long-lived assets to their estimated fair value, resulting in a $9.2 million impairment loss related to our U.S. RadioShack company-operated store segment. By July 31, 2006, we had closed 481 specific stores under the restructuring program; there were no additional closures under this program for the remainder of the year.

Also, we purchased certain assets from Wireless Retail, Inc. during the fourth quarter of 2004 for $59.6 million, which resulted in the recognition of $18.6 million of goodwill and a $32.1 million intangible asset related to a five-year agreement with Sam’s Club to operate wireless kiosks in approximately 540 Sam’s Club locations nationwide. These assets relate to our kiosk segment. As a result of continued company and wireless industry growth challenges, together with changes in our senior leadership team during the third quarter of 2006 that resulted in a refocus on allocation of capital and resources towards other areas of our business, we determined that our long-lived assets, including goodwill associated with our kiosk operations, were impaired. We performed impairment tests on both the long-lived assets associated with our Sam’s Club agreement, including the intangible asset relating to the five-year agreement, and the accompanying goodwill.

With respect to the long-lived tangible and intangible assets, we compared their carrying values with their estimated fair values using a discounted cash flow model, which reflected our lowered expectations of wireless revenue growth and the ceased expansion of our kiosk business, and determined that the intangible asset relating to the five-year agreement was impaired. This assessment resulted in a $10.7 million impairment charge to the intangible asset related to our kiosk segment in 2006. The remaining intangible balance is being amortized over the remaining life of the Sam’s Club agreement, which was originally scheduled to expire in September 2009.

With respect to the goodwill of $18.6 million, we estimated the fair value of the Sam’s Club reporting unit using a discounted cash flow model similar to that used in the long-lived asset impairment test. We compared it with the carrying value of the reporting unit and determined that the goodwill was impaired.  As the carrying value of the reporting unit exceeded its estimated fair value, we then compared the implied fair value of the reporting unit's goodwill with the carrying amount of goodwill. This resulted in an $18.6 million impairment of goodwill related to our kiosk segment in 2006.

 
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Additionally, based on historical and expected cash flows for U.S. RadioShack company-operated stores and kiosks, we recorded an impairment charge of $4.6 million related to property and equipment and an impairment charge of $1.2 million related to goodwill.These 2006 impairment charges, aggregating $44.3 million, were recorded within impairment of long-lived assets and other charges in the accompanying Consolidated Statement of Income.

NET INTEREST EXPENSE

Consolidated interest expense, net of interest income, was $16.2 million for 2007 versus $36.9 million for 2006, a decrease of $20.7 million or 56%.

Interest expense decreased 12% to $38.8 million in 2007 from $44.3 million in 2006. This decrease was attributable to lower average outstanding debt, which was partially offset by rising interest rates on our floating rate debt exposure.

Interest income increased 205% to $22.6 million in 2007 from $7.4 million in 2006. This increase was due to a higher average investment balance for 2007, as well as higher average investment rates. Additionally, we recorded $2.6 million of interest income related to federal telecommunications excise tax refunds during 2007. See Note 13 – “Federal Excise Tax” for a discussion of the impact of the federal telecommunications excise tax.

OTHER INCOME (LOSS)

In 2007, we recognized a net gain of $0.9 million relating to our derivative exposure to Sirius. During the third quarter of 2007, we modified the expected date at which we would settle the warrants, resulting in a $2.4 million unrealized gain, which was offset by mark-to-market losses of $1.5 million during the year, compared to a loss of $5.9 million for the year ended December 31, 2006.

Additionally, in 2006 we had a $2.7 million loss related to an other than temporary impairment of other investments.

INCOME TAX PROVISION

Our effective tax rate for 2007 was 35.4% compared to 34.1% in 2006. The 2007 effective tax rate was impacted by the net reversal in June 2007 of approximately $10.0 million in unrecognized tax benefits, deferred tax assets and accrued interest. Refer to Note 9 – “Income Taxes” of our consolidated financial statements for additional information. This $10.0 million reversal lowered our effective tax rate 273 basis points for the year ended December 31, 2007. Furthermore, the effective tax rate for 2006 was primarily affected by the tax benefit associated with inventory donations occurring in the quarter ended June 30, 2006. During the second quarter of 2006, we donated approximately $20 million in inventory to charitable organizations in a manner that provided us with a tax deduction in excess of the inventory cost. The entire tax benefit attributable to this charitable donation deduction is reflected in the effective tax rate for the second quarter of 2006.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Refer to Note 2 – “Summary of Significant Accounting Policies” under the section titled “Recently Issued Accounting Pronouncements” in the Notes to Consolidated Financial Statements.

CASH FLOW AND LIQUIDITY

A summary of cash flows from operating, investing and financing activities is outlined in the table below.

   
Year Ended December 31,
 
(In millions)
 
2008
   
2007
   
2006
 
Operating activities
  $ 274.6     $ 379.0     $ 314.8  
Investing activities
    (124.3 )     (42.0 )     (79.3 )
Financing activities
    154.8       (299.3 )     12.5  

 
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Cash Flow – Operating Activities

Cash flows from operating activities provide us with the majority of our liquidity. Cash provided by operating activities in 2008 was $274.6 million, compared with $379.0 million and $314.8 million in 2007 and 2006, respectively. Cash flows from operating activities are comprised of net income plus non-cash adjustments to net income and working capital components. Cash provided by net income plus non-cash adjustments to net income was $339.5 million, $358.9 million, and $230.7 million for 2008, 2007, and 2006, respectively. Cash used in working capital components was $64.9 million in 2008 compared with cash provided by working capital components of $20.1 million and $84.1 million in 2007 and 2006, respectively.

Cash Flow – Investing Activities

Cash used in investing activities was $124.3 million, $42.0 million, and $79.3 million in 2008, 2007, and 2006, respectively. The 2008 increase was primarily the result of our $42.0 million acquisition of RadioShack de Mexico and $85.6 million in capital expenditures for our U.S. RadioShack company-operated stores and information system projects. We anticipate that our capital expenditure requirements for 2009 will range from $75 million to $100 million. U.S. RadioShack company-operated store remodels and relocations, as well as information systems projects, will account for the majority of our anticipated 2009 capital expenditures. As of December 31, 2008, we had $814.8 million in cash and cash equivalents. Cash and cash equivalents and cash generated from operating activities will be used to fund future capital expenditure needs.

Cash Flow – Financing Activities

Cash provided by financing activities was $154.8 million and $12.5 million for 2008 and 2006, respectively, compared to cash used of $299.3 million in 2007. The cash provided by financing activities in 2008 was primarily driven by the issuance of our 2013 convertible notes and associated hedge and warrant transactions. We used cash of $111.3 million and $208.5 million to repurchase our common stock during 2008 and 2007, respectively. The 2007 stock repurchases were partially funded by $81.3 million received from stock option exercises. The balance of capital to repurchase shares was obtained from cash generated from operations. Additionally, we paid off our $150.0 million ten-year unsecured note payable which matured in September 2007.

Free Cash Flow

Our free cash flow, defined as cash flows from operating activities less dividends paid and additions to property, plant and equipment, was $157.7 million in 2008, $300.9 million in 2007, and $189.9 million in 2006. The decrease in free cash flow for 2008 was attributable to lower earnings, more cash used in working capital, and increased capital expenditures.

We believe free cash flow is a relevant indicator of our ability to repay maturing debt, change dividend payments or fund other uses of capital that management believes will enhance shareholder value. The comparable financial measure to free cash flow under generally accepted accounting principles is cash flows from operating activities, which was $274.6 million in 2008, $379.0 million in 2007, and $314.8 million in 2006. We do not intend for the 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)
 
2008
   
2007
   
2006
 
Net cash provided by operating activities
  $ 274.6     $ 379.0     $ 314.8  
Less:
                       
Additions to property, plant and equipment
    85.6       45.3       91.0  
Dividends paid
    31.3       32.8       33.9  
                         
Free cash flow
  $ 157.7     $ 300.9     $ 189.9  

 
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CAPITAL STRUCTURE AND FINANCIAL CONDITION

We consider our capital structure and financial condition to be strong. We had $814.8 million in cash and cash equivalents at December 31, 2008, for our funding needs. Additionally, we have available to us a $325 million bank credit facility. As of December 31, 2008, we had no borrowings under this credit facility.

Debt Obligations

Convertible Notes: In August 2008, we issued $375 million principal amount of convertible senior notes due August 1, 2013, (the “Convertible Notes”) in a private offering. Each $1,000 of principal of the Convertible Notes is initially convertible, under certain circumstances, into 41.2414 shares of our common stock (or a total of approximately 15.5 million shares), which is the equivalent of $24.25 per share, subject to adjustment upon the occurrence of specified events set forth under terms of the Convertible Notes. Upon conversion, we would pay the holder the cash value of the applicable number of shares of our common stock, up to the principal amount of the note. Amounts in excess of the principal amount, if any, (the “excess conversion value”) may be paid in cash or in stock, at our option. Holders may convert their Convertible Notes into common stock on the net settlement basis described above at any time from May 1, 2013, until the close of business on July 29, 2013, or if, and only if, one of the following conditions occurs:

·  
During any calendar quarter, and only during such calendar quarter, if the closing price of our common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter exceeds 130% of the conversion price per share of common stock in effect on the last day of such preceding calendar quarter
·  
During the five consecutive business days immediately after any 10 consecutive trading day period in which the average trading price per $1,000 principal amount of Convertible Notes was less than 98% of the product of the closing price of the common stock on such date and the conversion rate on such date
·  
We make specified distributions to holders of our common stock or specified corporate transactions occur

Concurrent with the issuance of the Convertible Notes, we entered into note hedge transactions with Citi and Bank of America whereby we have the option to purchase up to 15.5 million shares of our common stock at a price of $24.25 per share (the “Convertible Note Hedges”), and we sold warrants to the same financial institutions whereby they have the option to purchase up to 15.5 million shares of our common stock at a per share price of $36.60 (the “Warrants”). The Convertible Note Hedges and Warrants were structured to reduce the potential future share dilution associated with the conversion of the Convertible Notes. The Convertible Note Hedges and Warrants are separate contracts with the two financial institutions, are not part of the terms of the Convertible Notes, and do not affect the rights of holders under the Convertible Notes. A holder of the Convertible Notes does not have any rights with respect to the Convertible Note Hedges or Warrants.

The net proceeds retained by RadioShack as a result of the issuance of the Convertible Notes, the purchase of the Convertible Note Hedges, and the proceeds received from the issuance of the Warrants were approximately $319.2 million. We completed these transactions to secure a source of liquidity in preparation for our $300 million credit facility expiring in June of 2009. On September 11, 2008, we terminated this credit facility.

For a more detailed description of the Convertible Notes, Convertible Note Hedges and Warrants, please see Note 5 – “Indebtedness and Borrowing Facilities” and Note 6 – “Stockholders’ Equity” in the Notes to Consolidated Financial Statements.

Long-Term Notes: On May 11, 2001, we issued $350 million of 10-year 7.375% notes in a private offering 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. The notes contain certain non-financial covenants and mature on May 15, 2011. In August 2001, under the terms of an exchange offering filed with the SEC, we exchanged substantially all of these notes for a similar amount of publicly registered notes. The exchange resulted in substantially all of the notes becoming registered with the SEC and did not result in additional debt being issued.

 
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In June and August 2003, we entered into interest rate swap agreements with underlying notional amounts of debt of $100 million and $50 million, respectively, and both with maturities in May 2011. Our counterparty for these swaps is Citi. These swaps effectively convert a portion of our long-term fixed rate debt to a variable rate. We entered into these agreements to balance our fixed versus floating rate debt portfolio to continue to take advantage of lower short-term interest rates. Under these agreements, we have contracted to pay a variable rate of LIBOR plus a markup and to receive a fixed rate of 6.95% for the swap entered into in 2001 and 7.375% for the swaps entered into in 2003. We have designated these agreements as fair value hedging instruments. We recorded $6.7 million in other non-current assets, net at December 31, 2008, and $1.5 million in other non-current liabilities at December 31, 2007, for the fair value of these agreements and adjusted the carrying value of the related debt by the same amounts.

In August 1997 we filed a $300 million debt shelf registration statement. In August 1997, we issued $150 million of 10-year unsecured long-term notes under this shelf registration. The interest rate on the notes was 6.95% per annum with interest payable on September 1 and March 1 of each year. These notes contained customary non-financial covenants. In September 2007, our $150 million ten-year unsecured note payable came due. Upon maturity, we paid off the $150 million note payable utilizing our available cash and cash equivalents. During the third quarter of 2001, we entered into an interest rate swap agreement with an underlying notional amount of $110.5 million. This interest rate swap agreement expired in conjunction with the maturity of the note payable.

Medium-Term Notes: We also issued, in various amounts and on various dates from December 1997 through September 1999, medium-term notes totaling $150 million under the shelf registration described above. At December 31, 2007, $5 million of these notes remained outstanding with an interest rate of 6.42%; they contained customary non-financial covenants. As of December 31, 2007, there was no availability under this shelf registration. In January 2008, the remaining $5 million of the medium-term notes payable came due, and was paid off utilizing our available cash and cash equivalents.

Available Financing

Credit Facilities: At December 31, 2008, we had $325 million borrowing capacity available under our existing credit facility. This facility expires in May of 2011.

As mentioned above, on September 11, 2008, we terminated our $300 million credit facility which was set to expire in June of 2009. This facility was no longer required due to the issuance of our Convertible Notes as discussed above.

Our $325 million credit facility provides us a source of liquidity. This facility is provided by a syndicate of lenders with a majority of the facility provided by Wells Fargo, Citi, and Bank of America. As of December 31, 2008, there were no outstanding borrowings under this credit facility, nor were any of our facilities utilized during 2008. Interest charges under our facilities are derived using a base LIBOR rate plus a margin which changes based on our credit ratings. Our bank syndicated credit facility has customary terms and covenants, and we were in compliance with these covenants at December 31, 2008.

Impact of 2008 Global Credit Crisis and Economic Downturn

During the last four months of 2008, a combination of economic factors created an extremely adverse environment for the retail industry. These factors included volatility in the capital markets, increased costs associated with issuing debt instruments, and limited or no access to those markets for many companies and consumers. These credit market conditions, the general downturn in the U.S. economy, and consumer sentiment as reflected in record low measurements of The Conference Board Consumer Confidence Index™ during the fourth quarter of 2008 contributed to a significant reduction in consumer spending during the fourth quarter as compared to 2007 and other recent years.

Our consolidated net sales decreased 7.7% or $105.6 million to $1,258.7 million for the fourth quarter, compared with $1,364.3 million in 2007. Consolidated gross profit decreased 13.9% or $84.9 million to $526.3 million for the fourth quarter, compared with $611.2 million in 2007. While these declines were significant, we were able to generate $96.5 million in pre-tax income and $99.3 million of net cash provided by operating activities during the fourth quarter.

 
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If the current economic conditions persist or worsen, it could have an adverse impact on our business and on the financial condition of some of our customers, wireless and other service providers, and merchandise suppliers. Although we have not experienced a material increase in customer bad debts or non-performance by suppliers or service providers, current market conditions increase the probability that we could experience losses from customer, supplier, or service provider defaults.

If a scenario as described above occurred, it could cause the rating agencies to lower our credit ratings, thereby increasing our borrowing costs, or even causing a further reduction in or elimination of our access to debt and/or equity markets.

We do not have any debt maturities until 2011 and, as discussed above, our liquidity needs are generally met through cash provided by operations and our cash on hand. If we need additional funds, we can draw on our credit facility expiring in 2011.

Capitalization

The following table sets forth information about our capitalization on the dates indicated.

   
December 31,
 
   
2008
   
2007
 
 
(Dollars in millions)
 
Dollars
   
% of Total Capitalization
   
Dollars
   
% of Total Capitalization
 
Current debt
  $ 39.3       2.5 %   $ 61.2       5.2 %
Long-term debt
    732.5       46.1       348.2       29.5  
  Total debt
    771.8       48.6       409.4       34.7  
Stockholders’ equity
    817.3       51.4       769.7       65.3  
Total capitalization
  $ 1,589.1       100.0 %   $ 1,179.1       100.0 %

Our debt-to-total capitalization ratio increased in 2008 from 2007, due to the issuance of $375 million of Convertible Notes.

Debt Ratings

Below are the agencies’ ratings by category, as well as their respective current outlook for the ratings, as of February 5, 2009.

 
Rating Agency
 
Rating
 
Outlook
 
 
Standard and Poor’s
 
BB
 
Stable
 
 
Moody's
 
Ba1
 
Stable
 
 
Fitch
 
BB
 
Negative
 

On August 11, 2008, Standard and Poor’s revised their outlook to stable from negative and affirmed our BB corporate credit and senior unsecured ratings. The remaining ratings and outlooks are consistent with those reported in our Annual Report on Form 10-K for the calendar year ended December 31, 2007, and were affirmed by Moody’s and Fitch on August 11, 2008, and August 7, 2008, respectively.

Factors that could impact our future credit ratings include free cash flow and cash levels, changes in our operating performance, the adoption of a more aggressive financial strategy, the economic environment, conditions in the retail and consumer electronics industries, continued sales declines in comparable stores, our financial position and changes in our business strategy. If further downgrades occur, they will adversely impact, among other things, our future borrowing costs, access to debt capital markets, vendor financing terms and future new store occupancy costs. Due to improvements in liquidity, we terminated our commercial paper program during the third quarter of 2007.

Dividends

We have paid common stock cash dividends for 22 consecutive years. On November 6, 2008, our Board of Directors declared an annual dividend of $0.25 per share. The dividend was paid on December 17,

 
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2008, to stockholders of record on November 28, 2008. The dividend payment of $31.3 million was funded from cash on hand.

Operating Leases

We use operating leases, primarily for our retail locations and our corporate campus, to lower our capital requirements.

Share Repurchases

In February 2005, our Board of Directors approved a share repurchase program with no expiration date authorizing management to repurchase up to $250 million of our common stock in open market purchases. During 2008, we repurchased approximately 0.1 million shares or $1.4 million of our common stock under this program. During 2007, we repurchased 8.7 million shares or $208.5 million of our common stock under this program. As of December 31, 2008, there were no further share repurchases authorized under this program.

In July 2008, our Board of Directors approved a share repurchase program with no expiration date authorizing management to repurchase up to $200 million of our common stock. During the third quarter of 2008, we repurchased 6.0 million shares or $110.0 million of our common stock under this plan. As of December 31, 2008, there was $90.0 million available for share repurchases under this plan.

Seasonal Inventory Buildup

Typically, our annual cash requirements for pre-seasonal inventory buildup range between $200 million and $400 million. The funding required for this buildup comes primarily from cash on hand and cash generated from net sales and operating revenues. We had $814.8 million in cash and cash equivalents as of December 31, 2008, as a resource for our funding needs. Additionally, borrowings may be utilized to fund the inventory buildup as described in “Available Financing” above.