Edgar Filing: RADIOSHACK CORP

form10k123109.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, 2009

[ ]	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 __

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes __ No __

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, 2009, the aggregate market value of the voting common stock of the registrant held by non-affiliates of the registrant was $1,295,767,233 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, 2009, are the affiliates of the registrant.

As of February 16, 2010, there were 125,236,678 shares of the registrant's Common Stock outstanding.

Documents Incorporated by Reference

Portions of the Proxy Statement for the 2010 Annual Meeting of Stockholders are incorporated by reference into Part III.

TABLE OF CONTENTS
			Page
PART I

	Item 1.	Business	4
	Item 1A.	Risk Factors	8
	Item 1B.	Unresolved Staff Comments	13
	Item 2.	Properties	13
	Item 3.	Legal Proceedings	16
	Item 4.	Submission of Matters to a Vote of Security Holders	16
		Executive Officers of the Registrant	16

PART II

	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
	Item 6.	Selected Financial Data	20
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	40
	Item 8.	Financial Statements and Supplementary Data	40
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	41
	Item 9A.	Controls and Procedures	41
	Item 9B.	Other Information	41

PART III

	Item 10.	Directors, Executive Officers and Corporate Governance	41
	Item 11.	Executive Compensation	42
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	42
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	42
	Item 14.	Principal Accountant Fees and Services	43

PART IV

	Item 15.	Exhibits, Financial Statement Schedules	43
		Signatures	44
		Index to Consolidated Financial Statements	45
		Report of Independent Registered Public Accounting Firm	46
		Index to Exhibits	82

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, 2009, 2008 and 2007, please see Note 15 – “Segment Reporting” in the Notes to Consolidated Financial Statements.

U.S. RADIOSHACK COMPANY-OPERATED STORES

At December 31, 2009, we operated 4,476 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 are categorized into a number of platforms. Our wireless platform includes postpaid and prepaid wireless handsets and communication devices such as scanners and GPS products. Our accessory platform includes home entertainment, wireless, music, computer, video game and GPS accessories; media storage; power adapters; digital imaging products and headphones. Our modern home platform includes home audio and video end-products, personal computing products, residential telephones, and Voice over Internet Protocol products. Our personal electronics platform includes digital cameras, digital music players, toys, satellite radios, video gaming hardware, camcorders, and general radios. Our power platform includes general and special purpose batteries and battery chargers. Our technical platform includes wire and cable, connectivity products, components and tools, and hobby products. We also provide consumers access to third-party services such as wireless telephone activation, prepaid wireless airtime, extended service plans, and AT&T’s ConnecTech service.

KIOSKS

At December 31, 2009, we operated 562 kiosks located throughout the United States. These kiosks are primarily inside Sam’s Club and Target store locations. These locations, which are not RadioShack-branded, primarily offer wireless handsets and their associated accessories. We also provide consumers access to third-party wireless telephone services.

In February 2009, we signed a contract extension with Sam’s Club through March 31, 2011, with a transition period ending June 30, 2011, to continue operating kiosks in certain Sam’s Club locations. As part of the terms of the contract extension, we assigned the operation of 66 kiosk locations to Sam’s Club in 2009. We will assign at least 22 locations to Sam’s Club in 2010, and Sam’s Club still has the right to assume the operations of up to 23 additional kiosk locations.

In April 2009 we agreed with Sprint Nextel to cease our arrangement to jointly operate the Sprint-branded kiosks in operation at that date. This agreement allowed us to operate these kiosks under the Sprint name

for a reasonable period of time, allowing us to transition the kiosks to a new format. In August 2009, we transitioned these kiosks to multiple wireless carrier RadioShack-branded locations. They are now managed and reported as extensions of existing RadioShack company-operated stores located in the same shopping malls.

We are currently conducting a test rollout of kiosk locations in approximately 100 Target stores. This test will be completed in 2010. At the conclusion of the test, a determination will be made with Target regarding whether these operations will be expanded or closed.

OTHER

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

Dealer Outlets: At December 31, 2009, we had a network of 1,308 RadioShack dealer outlets, including 34 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, 2009, we had six RadioShack service centers in the U.S. and one in Puerto Rico.

International Operations: As of December 31, 2009, there were 204 company-operated stores under the RadioShack brand, 10 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, 2009, we had four U.S. distribution centers shipping approximately 875,000 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 daily 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 in China. These three manufacturing facilities employed approximately 2,100 employees as of December 31, 2009. We manufacture a variety of products, primarily sold through our retail outlets, including telephones, 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 fourth quarter, which includes the majority of the holiday shopping season in the U.S., 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 Requirements” under MD&A. Also, refer to Note 16 – “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 materially adversely affect our business. Our private brand manufactured products are sold primarily under the RadioShack, AUVIO, Accurian, Enercell 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 effect 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, T-Mobile, Apple, Casio, Garmin, Hewlett-Packard, Microsoft, Research In Motion, Samsung, and SanDisk. In the aggregate, these relationships have or are expected to have a significant effect 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 materially adversely affect 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 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, quality, features, product availability, 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 two primary factors differentiate 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 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, 2009, we employed approximately 36,700 people, including 1,900 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 rules and regulations adopted by the SEC under that Act. 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 corporate 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

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 certain events, including the following, could materially adversely affect 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 or want

Adverse changes in national and world-wide economic conditions could negatively affect our business.

The continued uncertainty in the economy could have a significant negative effect on U.S. consumer spending, particularly discretionary spending for consumer electronics products, which, in turn, could directly affect our 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, income tax rates and unemployment rates may affect 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 results of operations, including our net sales and profitability.

In addition, potential disruptions in the capital and credit markets could have a significant effect on our ability to access the U.S. and global capital and credit markets, if needed. These potential disruptions in the capital and credit market conditions could affect our ability to borrow under our credit facility, or adversely affect the banks that underwrote our credit facility. 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 of our operations 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 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 with appropriately trained employees

·	Our ability to remain relevant to the consumer

Any reductions or changes in the growth rate of the wireless industry or changes in the dynamics of the wireless communications industry could materially adversely affect our results of operations.

Sales of wireless handsets and the related commissions and residual income constitute a significant portion of our total revenue. Consequently, changes in the wireless industry, such as those discussed below, could materially adversely affect 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 and wireless service technologies, the absence of these new technologies, our suppliers 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 adversely affect our profitability is wireless industry consolidation. Consolidation in the wireless industry could lead to a concentration of competitive strength within a few wireless carriers, which could adversely affect our business if our ability to obtain competitive offerings from our wireless suppliers is reduced or as competition from wireless carrier stores increases.

Our competition is both intense and varied, and our failure to effectively compete could materially adversely affect our results of operations.

In the retail consumer electronics marketplace, the level of competition is intense. We compete with consumer electronics retail stores similarly situated to our 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 us and have greater market presence and financial and other resources than us, 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 results of operations.

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 become a larger percentage of our business, our gross margin will be adversely affected.

Our inability to effectively manage our receivable levels, particularly with our service providers, could adversely affect our results of operations.

We maintain significant receivable balances from various service providers, such as Sprint Nextel, AT&T, and T-Mobile, consisting of commissions, residuals and other funds related to these relationships. Changes in the financial markets or financial condition of these service providers could cause a delay or failure in receiving these funds. A significant delay or failure to receive these payments could adversely affect 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 results of operations.

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 product life cycles, leaving us with excess inventory. To reduce this excess inventory, we may be required to lower our prices, adversely affecting our results of operations.

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 affect our results of operations 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 strategies could adversely affect our results of operations.

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 generally, which could materially adversely affect our business and results of operations. 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 adversely affect 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 adversely affect our ability to increase or maintain our sales and profitability.

Failure to create, 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 effect 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 affected.

The occurrence of severe weather events or natural disasters could significantly damage or destroy our retail locations, could prohibit consumers from traveling to our retail locations, or could prevent us from resupplying our stores or distribution centers, 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 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 effect on 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 continuing obligations under leases related to discontinued retail operations that could materially adversely affect our results of operations.

We have ongoing obligations under retail leases for locations that we assigned to other businesses. The majority of these lease obligations arose from leases, for which CompUSA Inc. assumed responsibility as part of the sale of our Computer City, Inc. subsidiary to CompUSA in August 1998. Because the company that assumed responsibility for these leases has ceased operations, we may be responsible for rent due under the leases, which could materially adversely affect our results of operations.

Failure to comply with, or the additional implementation of, laws, rules, and regulations regarding our business could adversely affect our business and our results of operations.

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

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, 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 those items. Although our purchases are denominated in U.S. dollars, changes in the Chinese currency exchange rate against the U.S. dollar or other foreign currencies could cause our vendors to increase the prices of items we purchase from them. The occurrence of any of these events could materially adversely affect our results of operations.

Our ability to find qualified vendors that 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 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, product availability information, 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 difficulty maintaining and upgrading current systems, 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 our results of operations to be adversely affected. Additionally, if a significant compromise in the security of our customer information, including personal identification data, were to occur, it could materially adversely affect our reputation, business, results of operations, or 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, results of operations, or financial condition.

Terrorist activities and governmental efforts to thwart them could materially adversely affect our results of operations.

A terrorist attack or series of attacks on the United States could have a significant adverse effect on its economy. This downturn in the economy could, in turn, materially adversely affect 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.

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 in Mexico, China and Hong Kong. Part of our growth strategy is to expand our international business because we believe 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

·	Changes in currency exchange rates

·	Changes in 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

·	Changes in 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

·	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 adversely affect our business, results of operations or 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 affect 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 13

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 administrative offices throughout the United States and one manufacturing plant in China. We closed our leased distribution center in Columbus, Ohio, during the first half of 2008. We own the property on which our 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 approximately half of the space at market-based rents.

RETAIL LOCATIONS

The table below shows our retail locations at December 31, 2009, allocated among U.S. and Mexico company-operated stores, kiosks and dealer and other outlets.

	Average
	Store Size		At December 31,
	(Sq. Ft.)		2009		2008		2007
U.S. RadioShack company-operated stores		2,504		4,476		4,453		4,447
Kiosks (1) (2) (3) (4)		76		562		688		739
Mexico RadioShack company-operated stores		1,288		204		200		--
Dealer and other outlets (5)		N/A		1,321		1,411		1,484
Total number of retail locations				6,563		6,752		6,670

(1)	In April 2009 we agreed with Sprint Nextel to cease our arrangement to jointly operate the Sprint-branded kiosks in operation at that date. This agreement allowed us to operate these kiosks under the Sprint name for a reasonable period of time, allowing us to transition the kiosks to a new format. In August 2009, we transitioned these kiosks to multiple wireless carrier RadioShack-branded locations. We managed and reported 111 of these locations as extensions of existing RadioShack company-operated stores located in the same shopping malls at December 31, 2009.
(2)	In February 2009, we signed a contract extension with Sam’s Club through March 31, 2011, with a transition period ending June 30, 2011, to continue operating kiosks in certain Sam’s Club locations. As part of the terms of the contract extension, we assigned the operation of 66 kiosk locations to Sam’s Club in 2009. We will assign at least 22 locations to Sam’s Club in 2010, and Sam’s Club still has the right to assume the operations of up to 23 additional kiosk locations.
(3)	We are currently conducting a test rollout of kiosk locations in approximately 100 Target stores. This test will be completed in 2010. At the conclusion of the test, a determination will be made with Target regarding whether these operations will be expanded or closed.
(4)	The decrease of 51 locations during 2008 was primarily related to our decision not to renew leases on underperforming Sprint-branded kiosks.
(5)	Our dealer and other outlets decreased by 90 and 73 locations, net of new openings, during 2009 and 2008, respectively. These declines were primarily due to the closure of lower volume outlets.

Real Estate Owned and Leased

	Approximate Square Footage At December 31,
	2009						2008
(In thousands)	Owned		Leased		Total		Owned		Leased		Total
Retail
RadioShack company- operated stores		10		11,209		11,219		13		11,141		11,154
Kiosks		--		43		43		--		68		68
Mexico company- operated stores		--		263		263		--		253		253
Support Operations
Manufacturing		134		320		454		134		320		454
Distribution centers and office space		2,077		334		2,411		2,229		1,021		3,250
		2,221		12,169		14,390		2,376		12,803		15,179

Below is a listing at December 31, 2009, of our retail locations within the United States and its territories:

	U.S. RadioShack Stores		Kiosks		Dealers and Other *		Total
Alabama		48		11		34		93
Alaska		--		--		23		23
Arizona		79		11		29		119
Arkansas		25		3		40		68
California		550		108		43		701
Colorado		63		16		34		113
Connecticut		70		2		2		74
Delaware		19		1		--		20
Florida		299		35		28		362
Georgia		100		23		44		167
Hawaii		24		--		--		24
Idaho		19		--		17		36
Illinois		173		16		36		225
Indiana		98		15		42		155
Iowa		35		2		47		84
Kansas		37		4		30		71
Kentucky		56		5		37		98
Louisiana		67		9		17		93
Maine		22		3		12		37
Maryland		98		12		7		117
Massachusetts		113		2		5		120
Michigan		120		23		48		191
Minnesota		62		19		37		118
Mississippi		37		6		21		64
Missouri		72		4		53		129
Montana		7		--		28		35
Nebraska		21		2		20		43
Nevada		38		6		9		53
New Hampshire		32		4		6		42
New Jersey		159		12		6		177
New Mexico		32		5		13		50
New York		333		14		17		364
North Carolina		124		22		40		186
North Dakota		6		--		5		11
Ohio		187		14		33		234
Oklahoma		39		--		31		70
Oregon		51		--		25		76
Pennsylvania		210		20		29		259
Rhode Island		21		--		--		21
South Carolina		53		8		22		83
South Dakota		11		--		12		23
Tennessee		68		15		31		114
Texas		374		68		92		534
Utah		28		8		19		55
Vermont		9		--		7		16
Virginia		124		14		40		178
Washington		91		6		33		130
West Virginia		28		3		8		39
Wisconsin		70		10		49		129
Wyoming		7		1		16		24

District of Columbia		13		--		--		13
Puerto Rico		51		--		--		51
U.S. Virgin Islands		3		--		--		3
		4,476		562		1,277		6,315

* Does not include international dealers.

ITEM 3. LEGAL PROCEEDINGS.

Refer to Note 13 – “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 2009.

EXECUTIVE OFFICERS OF THE REGISTRANT (SEE ITEM 10 OF PART III).

The following is a list, as of February 9, 2010, 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	57
Lee D. Applbaum (2)	Executive Vice President – Chief Marketing Officer (September 2008)	2008	39
Bryan Bevin (3)	Executive Vice President – Store Operations (January 2008)	2008	47
James F. Gooch (4)	Executive Vice President and Chief Financial Officer (August 2006)	2006	42
John G. Ripperton (5)	Senior Vice President – Supply Chain (August 2006)	2006	56
Martin O. Moad (6)	Vice President and Controller (August 2007)	2007	53

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 or until their death, resignation, retirement, or removal from office.

(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, a mass merchandising company, 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., a broadline retailer, 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, a private retail holding company, from February 2007 until August 2008, and Senior Vice President and Chief Marketing Officer for David's Bridal Group, a national bridal retailer, from April 2004 until February 2007. Prior to joining David's Bridal Group, Mr. Applbaum served in various capacities for Footstar, Inc., a footwear retail holding company, from April 2000 until April 2004, including Chief Marketing Officer of Footstar Athletic and Vice President of Marketing for Footaction USA.

(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, a media entertainment company, 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, a wireless mobile communications provider, and Managing Director for Interactive Telecom Solutions, a telecommunications management firm.

(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, a discount and promotions company, from May 2005 to August 2006. From 1996 to May 2005, Mr. Gooch served in various positions at Kmart Corporation, a mass merchandising company, including Vice President, Controller and Treasurer, and Vice President, Corporate Financial Planning and Analysis.

(5)	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.

(6)	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.

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, 2009.

					Dividends
Quarter Ended	High		Low		Declared
December 31, 2009		$20.57		$14.82		$0.25
September 30, 2009		17.45		12.66		--
June 30, 2009		15.20		8.38		--
March 31, 2009		12.95		6.47		--

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		--

HOLDERS OF RECORD

At February 16, 2010, there were 18,050 holders of record of our common stock.

DIVIDENDS

The Board of Directors annually reviews our dividend policy. On November 9, 2009, our Board of Directors declared an annual dividend of $0.25 per share. The dividend was paid on December 16, 2009, to stockholders of record on November 27, 2009.

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)		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) (2)
October 1 – 31, 2009		1,732	(3)		$15.58		--		$290,042,027
November 1 – 30, 2009		--			--		--		$290,042,027
December 1 – 31, 2009		--			--		--		$290,042,027
Total		1,732					--

(1)	RadioShack announced a $200 million share repurchase program on July 24, 2008, which has no stated expiration date. On August 20, 2009, we announced a $200 million increase in this share repurchase program. As of December 31, 2009, $290 million of the total authorized amount was available for share repurchases under this program.
(2)	During the period covered by this table, no publicly announced program expired or was terminated, and no determination was made by RadioShack to suspend or cancel purchases under our program.
(3)	Shares acquired by RadioShack for tax withholdings upon vesting of restricted stock awards, which were not repurchased pursuant to a share repurchase program.

RADIOSHACK STOCK COMPARATIVE PERFORMANCE GRAPH

The following stock performance graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor shall such information be incorporated by reference into any of our future filings under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate it by reference in the filing.

The graph below compares the cumulative total shareholder return on RadioShack common stock for the last five years with the cumulative total return on the Standard & Poor's 500 Index, of which we are a component, and the Standard & Poor's Specialty Retail Index, of which we are also a component. The S&P Specialty Retail Index is a capitalization-weighted index of domestic equities traded on the NYSE and NASDAQ, and includes high-capitalization stocks representing the specialty retail sector of the S&P 500. The graph assumes an investment of $100 at the close of trading on December 31, 2004, in RadioShack common stock, the S&P 500 Index and the S&P Specialty Retail Index.

RSH Stock comparative Performance Graph December 31, 2009

		12/04		12/05		12/06		12/07		12/08		12/09
RadioShack Corporation	$	100.00	$	64.66	$	52.34	$	53.32	$	38.77	$	64.19
S&P 500 Index		100.00		104.91		121.48		128.16		80.74		102.11
S&P Specialty Retail Index		100.00		103.11		110.49		92.19		70.48		94.97

* Cumulative Total Return assumes dividend reinvestment.

Information Source: Standard & Poor's, a division of The McGraw-Hill Companies Inc.

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)	2009			2008 (4)			2007			2006 (5)			2005
Statements of Income Data
Net sales and operating revenues	$	4,276.0		$	4,224.5		$	4,251.7		$	4,777.5		$	5,081.7
Operating income	$	369.4		$	322.2		$	381.9		$	156.9		$	349.9
Net income	$	205.0		$	189.4		$	236.8		$	73.4		$	267.0
Net income per share:
Basic	$	1.63		$	1.47		$	1.76		$	0.54		$	1.80
Diluted	$	1.63		$	1.47		$	1.74		$	0.54		$	1.79
Shares used in computing income per share:
Basic		125.4			129.0			134.6			136.2			148.1
Diluted		126.1			129.1			135.9			136.2			148.8
Gross profit as a percent of sales		45.9	%		45.5	%		47.6	%		44.6	%		44.6	%
SG&A expense as a percent of sales		35.3	%		35.7	%		36.2	%		37.9	%		35.5	%
Operating income as a percent of sales		8.6	%		7.6	%		9.0	%		3.3	%		6.9	%
Balance Sheet Data
Inventories	$	670.6		$	636.3		$	705.4		$	752.1		$	964.9
Total assets	$	2,429.3		$	2,254.0		$	1,989.6		$	2,070.0		$	2,205.1
Working capital	$	1,361.2		$	1,154.4		$	818.8		$	615.4		$	641.0
Capital structure:
Current debt	$	41.6		$	39.3		$	61.2		$	194.9		$	40.9
Long-term debt	$	627.8		$	659.5		$	348.2		$	345.8		$	494.9
Total debt	$	669.4		$	698.8		$	409.4		$	540.7		$	535.8
Cash and cash equivalents less total debt	$	238.8		$	116.0		$	100.3		$	(68.7	)	$	(311.8	)
Stockholders' equity	$	1,048.3		$	860.8		$	769.7		$	653.8		$	588.8
Total capitalization (1)	$	1,717.7		$	1,559.6		$	1,179.1		$	1,194.5		$	1,124.6
Long-term debt as a % of total capitalization (1)		36.6	%		42.3	%		29.5	%		29.0	%		44.0	%
Total debt as a % of total capitalization (1)		39.0	%		44.8	%		34.7	%		45.3	%		47.6	%
Book value per share at year end	$	8.37		$	6.88		$	5.87		$	4.81		$	4.36
Financial Ratios
Return on average stockholders' equity		21.5	%		22.9	%		33.2	%		11.8	%		35.3	%
Return on average assets		8.9	%		9.3	%		12.3	%		3.4	%		11.3	%
Annual inventory turnover		3.6			3.5			3.3			2.9			2.7
Other Data
Adjusted EBITDA (2)	$	462.3		$	421.3		$	494.6		$	285.1		$	473.7
Dividends declared per share	$	0.25		$	0.25		$	0.25		$	0.25		$	0.25
Capital expenditures	$	81.0		$	85.6		$	45.3		$	91.0		$	170.7
Number of retail locations at year end:
U.S. RadioShack company-operated stores		4,476			4,453			4,447			4,467			4,972
Kiosks		562			688			739			772			777
Mexico RadioShack company-operated stores		204			200			--			--			--
Dealer and other outlets		1,321			1,411			1,484			1,596			1,711
Total		6,563			6,752			6,670			6,835			7,460
Average square footage per U.S. RadioShack company-operated store		2,504			2,505			2,527			2,496			2,489
Comparable store sales increase (decrease) (3)		1.3	%		(0.6	%)		(8.2	%)		(5.6	%)		0.9	%
Shares outstanding		125.2			125.1			131.1			135.8			135.0

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)	Adjusted EBITDA, a non-GAAP financial measure, is defined as earnings before interest, taxes, depreciation and amortization. Our calculation of adjusted EBITDA is also adjusted for other (loss) income and cumulative effect of change in accounting principle. The comparable financial measure to adjusted EBITDA under GAAP is net income. Adjusted 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. Adjusted 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, adjusted EBITDA is an important indicator of operating performance because adjusted EBITDA excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs.
(3)	Comparable store sales include the sales of U.S. RadioShack company-operated stores and kiosks with more than 12 full months of recorded sales. Following the termination of the Sprint-branded kiosk business, these former Sprint-branded kiosks were transformed into multiple wireless carrier RadioShack-branded locations. We managed and reported 111 of these locations as extensions of existing RadioShack company-operated stores located in the same shopping malls at December 31, 2009; current year results of such kiosks are included with these RadioShack company-operated stores for purposes of comparable store sales. For more information regarding the transition of the Sprint-branded kiosks to RadioShack-branded locations, see Item 1 – “Business” in this Annual Report on Form 10-K.
(4)	Due to our adoption of the FASB’s new rules regarding accounting for convertible debt, certain 2008 amounts have been adjusted from the amounts included in our Annual Report on Form 10-K for the year ended December 31, 2008. Refer to Note 2 – “Summary of Significant Accounting Policies” under the section titled “New Accounting Standards” in the Notes to Consolidated Financial Statements for discussion of these adjustments.
(5)	These amounts were affected by our 2006 restructuring program. For more information, please refer to our Consolidated Financial Statements and related Notes included in our 2006 Annual Report on Form 10-K.

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

	Year Ended December 31,
(In millions)	2009			2008 (4)			2007			2006 (5)			2005
Reconciliation of Adjusted EBITDA to Net Income
Adjusted EBITDA	$	462.3		$	421.3		$	494.6		$	285.1		$	473.7

Interest expense, net of interest income		(39.3	)		(20.3	)		(16.2	)		(36.9	)		(38.6	)
Provision for income taxes		(123.5	)		(110.1	)		(129.8	)		(38.0	)		(51.6	)
Depreciation and amortization		(92.9	)		(99.1	)		(112.7	)		(128.2	)		(123.8	)
Other (loss) income		(1.6	)		(2.4	)		0.9			(8.6	)		10.2
Cumulative effect of change in accounting principle, net of $1.8 million tax benefit		--			--			--			--			(2.9	)
Net income	$	205.0		$	189.4		$	236.8		$	73.4		$	267.0

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, 2009, include:

Net sales and operating revenues increased $51.5 million, or 1.2%, to $4,276.0 million when compared with last year. Comparable store sales increased 1.3%. This increase was driven primarily by increased sales in our Sprint Nextel postpaid wireless business, the addition of T-Mobile as a postpaid wireless carrier in our company-operated stores, increased sales of prepaid wireless handsets and airtime, increased sales of netbooks, and increased sales of digital televisions, but was partially offset by sales declines in GPS products, digital-to-analog converter boxes, wireless accessories, digital music players, batteries, and digital cameras. Consolidated net sales and operating revenues also benefited from the consolidation of our Mexico subsidiary for all of 2009.

·	Gross margin increased 40 basis points to 45.9% from last year. Gross margin was positively impacted by improved product mix combined with fewer markdowns as a result of more effective promotional productivity, inventory management and higher sell-through of seasonal products.

Selling, general and administrative (“SG&A”) expense decreased $1.9 million when compared with last year. As a percentage of net sales and operating revenues, SG&A decreased by 40 basis points to 35.3%. Significant changes within SG&A expense include the full year results of our Mexican subsidiary, more incentive compensation, and lower advertising expense.

·	As a result of the factors above, operating income increased $47.2 million, or 14.6%, to $369.4 million when compared with last year.

·	Net income increased $15.6 million to $205.0 million when compared with last year. Net income per diluted share was $1.63 compared with $1.47 last year.

·	Adjusted EBITDA increased $41.0 million, or 9.7%, to $462.3 million when compared with last year.

RESULTS OF OPERATIONS

Due to our adoption of the FASB’s new rules regarding accounting for convertible debt, certain 2008 amounts have been adjusted from the amounts included in our Annual Report on Form 10-K for the year ended December 31, 2008. Refer to Note 2 – “Summary of Significant Accounting Policies” under the section titled “New Accounting Standards” in the Notes to Consolidated Financial Statements for discussion of these adjustments.

Net Sales and Operating Revenues

Consolidated net sales increased 1.2% or $51.5 million to $4,276.0 million for the year ended December 31, 2009, compared with $4,224.5 million in 2008. This increase was primarily due to a comparable store sales increase of 1.3% in 2009. The increase in comparable store sales was driven primarily by increased sales in our wireless and modern home platforms, but was partially offset by decreased sales in our accessory and personal electronics platforms.

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

	Year Ended December 31,
(In millions)	2009			2008			2007
U.S. RadioShack company-operated stores	$	3,650.9		$	3,611.1		$	3,637.7
Kiosks		250.0			283.5			297.0
Other (1)		375.1			329.9			317.0
Consolidated net sales and operating revenues	$	4,276.0		$	4,224.5		$	4,251.7

Consolidated net sales and operating revenues increase (decrease)		1.2	%		(0.6	%)		(11.0	%)
Comparable store sales increase (decrease) (2)		1.3	%		(0.6	%)		(8.2	%)

(1)

Net sales and operating revenues for 2009 include the consolidation of our Mexican subsidiary.

(2)

Comparable store sales include the sales of U.S. RadioShack company-operated stores and kiosks with more than 12 full months of recorded sales. Following the termination of the Sprint-branded kiosk business, these former Sprint-branded kiosks were transformed into multiple wireless carrier RadioShack-branded locations. We managed and reported 111 of these locations as extensions of existing RadioShack company-operated stores located in the same shopping malls at December 31, 2009; current year results of such kiosks are included with these RadioShack company-operated stores for purposes of comparable store sales. For more information regarding the transition of the Sprint-branded kiosks to RadioShack-branded locations, see Item 1 – “Business” in this Annual Report on Form 10-K.

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)	2009				2008				2007
Wireless	$	1,633.3	38.2	%	$	1,387.3	32.8	%	$	1,415.8	33.3	%
Accessory		1,058.6	24.8			1,174.6	27.8			1,019.2	24.0
Modern home		561.0	13.1			531.8	12.6			557.1	13.1
Personal electronics		454.9	10.6			549.2	13.0			657.2	15.5
Power		227.6	5.3			244.9	5.8			251.7	5.9
Technical		181.1	4.2			184.6	4.4			185.5	4.4
Service		115.3	2.7			95.5	2.3			100.3	2.3
Other sales (1)		44.2	1.1			56.6	1.3			64.9	1.5
Consolidated net sales and operating revenues	$	4,276.0	100.0	%	$	4,224.5	100.0	%	$	4,251.7	100.0	%

(1)	Other sales include outside sales from repair services and outside sales of our global sourcing operations and domestic and overseas manufacturing facilities.

2009 COMPARED WITH 2008

U.S. RadioShack Company-Operated Stores Segment

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 U.S. RadioShack company-operated stores segment.

	Net Sales and Operating Revenues
	Year Ended December 31,
(In millions)	2009				2008				2007
Wireless	$	1,342.1	36.8	%	$	1,070.7	29.7	%	$	1,085.6	29.8	%
Accessory		968.6	26.5			1,085.0	30.0			941.1	25.9
Modern home		471.8	12.9			462.6	12.8			494.5	13.6
Personal electronics		384.7	10.5			492.3	13.6			596.6	16.4
Power		204.7	5.6			227.3	6.3			235.8	6.5
Technical		167.3	4.6			170.9	4.7			173.3	4.7
Service		109.3	3.0			93.1	2.6			97.2	2.7
Other		2.4	0.1			9.2	0.3			13.6	0.4
Net sales and operating revenues	$	3,650.9	100.0	%	$	3,611.1	100.0	%	$	3,637.7	100.0	%

Sales in our wireless platform (includes postpaid and prepaid wireless handsets, commissions, residual income and communication devices such as scanners and GPS products) increased 25.3% in 2009. This sales increase was driven by increased sales in our Sprint Nextel postpaid wireless business, the addition of T-Mobile as a postpaid wireless carrier, and increased sales of prepaid wireless handsets. These increases were partially offset by decreased sales of GPS products.

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) decreased 10.7% in 2009. This sales decrease was primarily driven by decreased sales in digital-to-analog converter boxes, wireless accessories, imaging accessories, and media storage, but was partially offset by increased sales of television antennas. Consolidated sales of converter boxes were $170.1 million and $204.8 million in 2009 and 2008, respectively. The decrease in converter box sales occurred in the second half of the year after the transition to digital television occurred in June 2009. We expect sales of converter boxes to be minimal in 2010.

Sales in our modern home platform (includes home audio and video end-products, personal computing products, residential telephones, and Voice over Internet Protocol (“VoIP”) products) increased 2.0% in 2009. In this platform we recorded sales gains in netbooks, digital televisions, and VoIP products, which were substantially offset by sales declines in laptops, residential telephones, and DVD players.

Sales in our personal electronics platform (includes digital cameras, digital music players, toys, satellite radios, video gaming hardware, camcorders, and general radios) decreased 21.9% in 2009. This decrease was driven primarily by sales declines in digital cameras, digital music players, video game consoles, satellite radios, and toys.

Sales in our power platform (includes general and special purpose batteries and battery chargers) decreased 9.9% in 2009. This decrease was primarily driven by decreased sales of both general and special purpose batteries. Our sales performance in this platform was negatively affected by the disruption during the transition process of the assortment to our Enercell brand. This transition process will be complete in the first quarter of 2010.

Sales in our technical platform (includes wire and cable, connectivity products, components and tools, and hobby products) decreased 2.1% in 2009. We recorded an increase in sales of wire and cable products, which was more than offset by decreased sales across most of the other product categories in this platform.

Sales in our service platform (includes prepaid wireless airtime, extended service plans, AT&T’s ConnecTech service, and bill payment revenue) increased 17.4% in 2009. This increase was driven primarily by increased sales of prepaid wireless airtime and extended service plans.

Kiosks Segment

Kiosk sales consist primarily of handset sales, postpaid and prepaid commission revenue and related wireless accessory sales. Kiosk sales decreased 11.8% or $33.5 million in 2009. We realized a sales increase in our Sam’s Club business, which was offset by a reduced number of kiosk locations. This decrease in locations was partially due to the closure of underperforming Sprint-branded kiosk locations in the first half of 2009 and the closure of the remainder of our Sprint-branded kiosks in the third quarter. For more information regarding the reduction in kiosk outlets, see the Retail Locations table in Item 2 – “Properties” in this Annual Report on Form 10-K.

In June 2009, Sam’s Club notified us of their intent to exercise their right to assume operation of certain kiosk locations. This could result in the transfer of up to approximately 45 kiosks to Sam’s Club starting in the first quarter of 2010. For more information regarding our arrangement with Sam’s Club, see the Kiosks section in Item 1 – “Business” in this Annual Report on Form 10-K.

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 $45.2 million or 13.7% in 2009. This sales increase was primarily attributable to the consolidation of our Mexican subsidiary for all of 2009, but was partially offset by decreased sales to our independent dealers. Our Mexican subsidiary represented less than 5% of consolidated net sales and operating revenues in 2009.

Gross Profit

Consolidated gross profit and gross margin are as follows:

	Year Ended December 31,
(In millions)	2009			2008			2007
Gross profit	$	1,962.5		$	1,922.7		$	2,025.8
Gross profit increase (decrease)		2.1	%		(5.1	%)		(4.9	%)

Gross margin		45.9	%		45.5	%		47.6	%

Consolidated gross profit and gross margin for 2009 were $1,962.5 million and 45.9%, respectively, compared with $1,922.7 million and 45.5% in 2008, resulting in a 2.1% increase in gross profit dollars and a 40 basis point increase in our gross margin.

The improvement in gross margin was partially driven by improved product mix combined with fewer markdowns as a result of more effective promotional productivity, inventory management and higher sell-through of seasonal products.

Selling, General and Administrative Expense

Our consolidated SG&A expense decreased 0.1% or $1.9 million in 2009. This represents a 40 basis point decrease as a percentage of net sales and operating revenues compared to 2008.

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,
	2009					2008					2007
			% of					% of					% of
			Sales &					Sales &					Sales &
(In millions)	Dollars		Revenues			Dollars		Revenues			Dollars		Revenues
Compensation	$	655.7		15.3	%	$	617.5		14.6	%	$	638.6		15.0	%
Rent and occupancy		289.7		6.8			292.6		6.9			301.5		7.1
Advertising		193.0		4.5			214.5		5.1			208.8		4.9
Other taxes (excludes income taxes)		102.0		2.4			87.9		2.1			103.0		2.4
Utilities		55.3		1.3			58.7		1.4			61.4		1.4
Insurance		47.5		1.1			55.0		1.3			58.1		1.4
Credit card fees		37.7		0.9			37.7		0.9			37.8		0.9
Professional fees		23.9		0.6			23.7		0.6			16.6		0.4
Repairs and maintenance		22.3		0.5			19.5		0.5			14.1		0.3
Licenses		11.5		0.3			12.4		0.3			12.7		0.3
Printing, postage and office supplies		8.1		0.2			8.1		0.2			9.6		0.2
Matching contributions to savings plans		6.0		0.1			6.5		0.2			7.2		0.2
Recruiting, training & employee relations		5.4		0.1			6.9		0.2			6.8		0.2
Travel		4.6		0.1			5.4		0.1			5.2		0.1
Warranty and product repair		2.7		0.1			4.2		0.1			5.1		0.1
Other		42.5		1.0			59.2		1.2			52.0		1.3

	$	1,507.9		35.3	%	$	1,509.8		35.7	%	$	1,538.5		36.2	%

Compensation expense increased in dollars and as a percentage of net sales and operating revenues. This increase was driven by more incentive compensation and the consolidation of our Mexican subsidiary for all of 2009.

Total rent and occupancy decreased from 2008. This decrease was primarily driven by reduced rent related to our amended headquarters lease, discussed below, and the closing of our Sprint-branded kiosks. These decreases were partially offset by the consolidation of our Mexican subsidiary for all of 2009.

Advertising expense decreased in 2009 primarily due to reduced spending in the second quarter of the year. While our advertising expense in the second half of the year was consistent with the same period last year, we shifted a significant portion of our advertising expenditures from product specific promotional activities to building awareness of our new brand creative platform, THE SHACK™.

The increase in other taxes was partially driven by increased payroll taxes associated with increased compensation expense. Additionally, we recorded an $8.2 million sales and use tax benefit from the settlement of a sales tax issue in 2008.

Our insurance expense has decreased in recent years due to lower workers’ compensation costs. This has been the result of better claims experience during this time.

The decrease in other SG&A expense was primarily due to a $12.1 million non-cash charge recorded in connection with our amended headquarters lease in 2008. See below for further discussion.

Amended Corporate Headquarters 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.

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 one two-year option to renew approximately half of the space at market-based rents.

This agreement resulted in a non-cash net charge to other SG&A expense 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)	2009		2008		2007
U.S. RadioShack company-operated stores	$	45.8	$	52.9	$	53.4
Kiosks		3.2		5.8		6.3
Other		5.8		1.8		1.7
Unallocated		38.1		38.6		51.3
Total depreciation and amortization	$	92.9	$	99.1	$	112.7

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

	Year Ended December 31,
(In millions)	2009		2008		2007
Depreciation and amortization expense	$	83.7	$	87.9	$	102.7
Depreciation and amortization included in cost of products sold		9.2		11.2		10.0
Total depreciation and amortization	$	92.9	$	99.1	$	112.7

Total depreciation and amortization for 2009 declined $6.2 million or 6.3%. This decrease was primarily due to reduced capital expenditures in recent years when compared with prior years.

Impairment of Long-Lived Assets

Impairment of long-lived assets was $1.5 million and $2.8 million for 2009 and 2008, respectively. These amounts were related primarily to underperforming U.S. RadioShack company-operated stores and kiosk locations.

Net Interest Expense

Consolidated net interest expense, which is interest expense net of interest income, was $39.3 million for 2009 compared with $20.3 million for 2008.

Interest expense primarily consists of interest paid on the stated coupon rate for our outstanding bonds, the non-cash amortization of discounts and premiums on our outstanding bonds, cash paid or received on our interest rate swaps, and the non-cash change in fair value of our interest rate swaps in 2009. Interest expense increased $9.2 million in 2009. This increase was primarily driven by increased interest expense related to our 2013 convertible notes. These notes were outstanding for twelve months in 2009 and four months in 2008. This increase was partially offset by increased payments received on our interest rate swap contracts in 2009 and the repurchase of $43.2 million of our notes due in May 2011. Non-cash interest expense was $13.7 million in 2009 compared with $5.0 million in 2008.

Interest income decreased $9.8 million in 2009. This decrease was due to a lower interest rate environment in 2009, but was partially offset by larger average cash balances in 2009.

Other Loss

During 2009 we recorded a loss of $1.6 million compared with a loss of $2.4 million in 2008. The 2009 loss was recognized in conjunction with the repurchase of a portion of our 2011 Notes. The 2008 loss represented losses 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, and these warrants expired in the first quarter of 2009.

Income Tax Expense

Our effective tax rate for 2009 was 37.6% compared with 36.8% for 2008. The 2009 effective tax rate was affected by the net reversal of approximately $6.1 million in previously unrecognized tax benefits, deferred tax assets and accrued interest due to the effective settlement of state income tax matters during the period. These discrete items lowered the effective tax rate by 1.9 percentage points.

The 2008 effective tax rate was affected by the execution of a closing agreement with respect to a Puerto Rico income tax matter during the year, which resulted in a credit to income tax expense; this discrete item lowered the effective tax rate for 2008 by 1.0 percentage point. In addition, the 2008 effective tax rate was affected 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 matters 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 1.4 percentage points.

2008 COMPARED WITH 2007

Net Sales and Operating Revenues

Consolidated net sales decreased 0.6% or $27.2 million to $4,224.5 million in 2008, from $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.

U.S. RadioShack Company-Operated Stores Segment

Sales in our wireless platform decreased 1.4% in 2008. While we 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 increased 15.3% in 2008. This increase was driven by sales of digital-to-analog television converter boxes. 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 modern home platform decreased 6.5% 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 personal electronics platform 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 power platform 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 decreased 1.4% in 2008.

Sales in our service platform 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.

Kiosks Segment

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-branded kiosks, but was partially offset by sales gains at our Sam’s Club kiosks.

Other Sales

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 approximately $100 million in additional 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 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 affected 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 affected 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.

Selling, General and Administrative 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 with 2007.

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 operations, 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 above 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 in 2008 as previously discussed.

Depreciation and Amortization

Total depreciation and amortization for 2008 declined $13.6 million or 12.1%. This decrease was primarily due to reduced capital expenditures in 2006 and 2007 when compared with prior years.

Impairment of Long-Lived Assets

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-branded 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 $20.3 million for 2008 versus $16.2 million for 2007, an increase of $4.1 million or 25.3%.

Interest expense decreased $3.9 million to $34.9 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, but was partially offset by additional interest expense related to our 2013 convertible notes.

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 refunds of $0.5 million in 2008 and $1.4 million in 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 Expense

Our effective tax rate for 2008 was 36.8% compared with 35.4% for 2007. The 2008 effective tax rate was affected 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 1.0 percentage point. In addition, the 2008 effective tax rate was affected 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 1.4 percentage points.

The 2007 effective tax rate was affected by the net reversal in June 2007 of approximately $10.0 million in unrecognized tax benefits, deferred tax assets and accrued interest. This $10.0 million reversal lowered our effective tax rate 2.7 percentage 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 consisted of 200 RadioShack-branded stores and 14 dealers throughout Mexico at the time of acquisition. The purchase price was $44.9 million which consisted of $42.2 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 the FASB’s accounting guidance for business combinations. The purchase price allocation resulted in an excess of purchase price over net tangible assets acquired of $35.5 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 for 2008. 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 for the year.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Overview

Operating Activities: Cash provided by operating activities in 2009 was $245.8 million, compared with $274.6 million in 2008. This decrease was primarily driven by less cash received from customers, dealers and service providers than in 2008. This decrease in cash receipts was attributable to higher outstanding accounts receivable balances at December 31, 2009, related to our increased commissions on wireless sales. We collected a significant portion of these receivables in early 2010. The decrease in cash received from customers, dealers and service providers was partially offset by less cash paid to suppliers and employees than in 2008; this was primarily attributable to our continued focus on managing our inventory and accounts payable balances. We also received less interest on our cash balance and paid more interest on our long-term debt than in 2008.

Investing Activities: Cash used in investing activities was $80.8 million and $124.3 million in 2009 and 2008, respectively. The decrease from 2008 was primarily the result of $42.0 million in cash paid in 2008 for our acquisition of RadioShack de Mexico. Capital expenditures of $81.0 million in 2009 were consistent with last year. Capital expenditures primarily relate to our U.S. RadioShack company-operated stores and information system projects.

Financing Activities: Net cash used in financing activities was $71.6 million in 2009 compared with net cash provided by financing activities of $154.8 million in 2008. This change was partially driven by the repurchase of $43.2 million of our 2011 Notes in 2009. The change was also driven by the issuance of our 2013 convertible notes and associated hedge and warrant transactions in 2008. We also repurchased $111.3 million of our common stock in 2008 under our share repurchase program, compared with no repurchases in 2009.

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 $133.5 million in 2009, $157.7 million in 2008, and $300.9 million in 2007. The decrease in free cash flow for 2009 was attributable to decreased cash flow from operating activities as described above.

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 $245.8 million in 2009, $274.6 million in 2008, and $379.0 million in 2007. 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, nor do we intend to imply that free cash flow represents cash flow available for discretionary expenditures.

The following table is a reconciliation of cash flows from operating activities to free cash flow.

	Year Ended December 31,
(In millions)	2009		2008		2007
Net cash provided by operating activities	$	245.8	$	274.6	$	379.0
Less:
Additions to property, plant and equipment		81.0		85.6		45.3
Dividends paid		31.3		31.3		32.8

Free cash flow	$	133.5	$	157.7	$	300.9

SOURCES OF LIQUIDITY

As of December 31, 2009, we had $908.2 million in cash and cash equivalents. Additionally, we have a credit facility of $325 million. As of December 31, 2009, we had $291.3 million available under this credit facility due to the issuance of standby letters of credit. We have not borrowed from this facility. We believe that our cash flows from operations and available cash and cash equivalents will adequately fund our operations, our capital expenditures, and our maturing debt obligations. Additionally, our credit facility is available for additional working capital needs or investment opportunities.

The table below lists our credit commitments from various financial institutions.

(In millions)	Commitment Expiration per Period
Credit Commitments	Total Amounts Committed		Less Than 1 Year		1-3 Years		3-5 Years		Over 5 Years
Lines of credit	$	325.0	$	--	$	325.0	$	--	$	--
Standby letters of credit		--		--		--		--		--
Total commercial commitments	$	325.0	$	--	$	325.0	$	--	$	--

Available Financing: As of December 31, 2009, we had $291.3 million in borrowing capacity available under our existing credit facility due to the issuance of standby letters of credit. We incurred no borrowings from this facility during 2009. This facility expires in May of 2011.

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, Citigroup, and Bank of America. We incurred no borrowings from this facility in 2009. Interest charges under this facility are derived using a base LIBOR rate plus a margin which changes based on our credit ratings. Our credit facility has customary terms and covenants, and we were in compliance with these covenants at December 31, 2009.

Credit Ratings: Below are the agencies’ ratings by category, as well as their respective current outlook for the ratings, as of February 8, 2010.

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

On October 20, 2009, Fitch updated our rating outlook to stable from negative. Other than the change in Fitch’s outlook, these ratings are consistent with the ratings and outlooks reported in our Annual Report on Form 10-K for the year ended December 31, 2008. Factors that could affect 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, sales declines in comparable stores, our financial position and changes in our business strategy. If downgrades occur, which we do not expect, they will adversely affect our future borrowing costs, access to debt capital markets, vendor financing terms and future new store occupancy costs.

CASH REQUIREMENTS

Capital Expenditures: We anticipate that our capital expenditure requirements for 2010 will range from $100 million to $120 million. U.S. RadioShack company-operated store remodels and relocations, as well as information systems projects, will account for the majority of our anticipated 2010 capital expenditures. Cash and cash equivalents and cash generated from operating activities will be used to fund future capital expenditure needs.

Seasonal Inventory Buildup: Typically, our annual cash requirements for pre-seasonal inventory buildup range between $150 million and $250 million. The funding required for this buildup comes primarily from cash on hand and cash generated from net sales and operating revenues. Additionally, our credit facility could be utilized to fund the inventory buildup.

Contractual Obligations

The following tables, as well as the information contained in Note 5 - "Indebtedness and Borrowing Facilities" to our Notes to Consolidated Financial Statements, provide a summary of our various contractual commitments, debt and interest repayment requirements, and available credit lines.

The table below contains our known contractual commitments as of December 31, 2009.

(In millions)

Payments Due by Period

Contractual Obligations

Total Amounts Committed

Less Than

1 Year

1-3 Years