10-K 1 form10k123112.htm RADIOSHACK CORPORATION FORM 10-K DECEMBER 31, 2012 form10k123112.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
________________________
 
FORM 10-K
 
(Mark One)
 
 
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
OR
 
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
 
Commission file number 1-5571
 
________________________
 
RADIOSHACK CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
75-1047710
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
Mail Stop CF3-201, 300 RadioShack Circle, Fort Worth, Texas
76102
(Address of principal executive offices)
(Zip Code)
 
Registrant's telephone number, including area code (817) 415-3011
________________________
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
Title of each class
Name of each exchange 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 website, 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 X 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 [ ]
Accelerated filer [ X ]
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 29, 2012, the aggregate market value of the voting common stock of the registrant held by non-affiliates of the registrant was $236,150,074 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 29, 2012, are the affiliates of the registrant.
 
As of February 15, 2013, there were 99,611,504 shares of the registrant's Common Stock outstanding.
 
1

 
 
Documents Incorporated by Reference
Portions of the Proxy Statement for the 2013 Annual Meeting of Stockholders are incorporated by reference into Part III.
 

TABLE OF CONTENTS
     
Page
PART I
   
       
 
Business
3
 
Risk Factors
5
 
Unresolved Staff Comments
11
 
Properties
11
 
Legal Proceedings
14
 
Mine Safety Disclosures
14
   
Executive Officers of the Registrant
14
     
PART II
   
       
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
15
 
Selected Financial Data
18
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
 
Quantitative and Qualitative Disclosures about Market Risk
35
 
Financial Statements and Supplementary Data
35
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
35
 
Controls and Procedures
35
 
Other Information
36
     
PART III
   
       
 
Directors, Executive Officers and Corporate Governance
36
 
Executive Compensation
36
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
36
 
Certain Relationships and Related Transactions, and Director Independence
37
 
Principal Accountant Fees and Services
37
     
PART IV
   
       
 
Exhibits, Financial Statement Schedules
37
   
38
   
39
   
40
   
81
 
 
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PART I
 
 
GENERAL
RadioShack Corporation was incorporated in Delaware in 1967. Throughout this report, the terms “our,” “we,” “us” and “RadioShack” refer to RadioShack Corporation, including its subsidiaries. We primarily engage in the retail sale of consumer electronics goods and services through our RadioShack store chain. We seek to differentiate ourselves from our various competitors by providing:
 
·  
Innovative mobile technology products and services, as well as products related to personal and home technology and power supply needs at competitive prices
 
·  
Convenient neighborhood locations
 
·  
Knowledgeable, objective and friendly service
 
·  
Unique private brand offers and exclusive branded promotions
 
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”) included elsewhere in this Annual Report on Form 10-K.
 
U.S. RADIOSHACK COMPANY-OPERATED STORES
At December 31, 2012, we operated 4,395 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 strip centers and major shopping malls, 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 three platforms. Our mobility platform includes postpaid and prepaid wireless handsets, commissions and residual income, prepaid wireless airtime, tablet devices, and e-readers. Our signature platform includes home entertainment, wireless, computer, and music accessories; general purpose and special purpose power products; headphones; technical products; and services. Our consumer electronics platform includes laptop computers, personal computing products, digital music players, residential telephones, GPS devices, cameras, digital televisions, and other consumer electronics products.
 
TARGET MOBILE CENTERS
In the fourth quarter of 2009, we commenced a test rollout of retail locations in approximately 100 Target stores (“Target Mobile”). These retail locations, which are not RadioShack-branded, offer wireless handsets with activation of third-party postpaid wireless services. In the third quarter of 2010, we signed a multi-year agreement to operate these locations in certain Target stores throughout most of the United States. At December 31, 2012, we operated 1,522 Target Mobile centers.
 
In October 2012, we exercised our contractual right to notify Target of our intention to stop operating the Target Mobile centers if we could not amend the current arrangement. An acceptable arrangement was not negotiated; therefore, we will exit this business by April 8, 2013. The Target Mobile segment will be reported as discontinued operations after the wind-down of this business, which we currently expect to occur in the first quarter of 2013.
 
OTHER SALES CHANNELS
In addition to the reportable segments discussed above, we have the following additional sales channels and support operations:
 
Dealer Outlets: At December 31, 2012, we had a network of 1,008 RadioShack dealer outlets, including 32 located outside 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 the United States are not significant.
 
RadioShack de Mexico: As of December 31, 2012, there were 269 company-operated stores under the RadioShack brand, 6 dealers, and one distribution center in Mexico.
 
RadioShack.com: Products and information are available through our commercial website http://www.radioshack.com. Online customers can purchase, return or exchange various products available through this website. Additionally, certain products ordered online may be picked up, exchanged or returned at RadioShack stores.
 
SUPPORT OPERATIONS
Our retail stores, along with our Target Mobile centers and dealer outlets, are supported by an established infrastructure. Below are the major components of this support structure.
 
Distribution Centers - At December 31, 2012, we had three U.S. distribution centers shipping products to our U.S. retail locations and dealer outlets. One of these distribution centers also serves as a fulfillment center for our online customers and as a distribution center that ships store fixtures to our U.S. and Mexico company-operated stores and Target Mobile centers.
 
 
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RadioShack Technology Services (“RSTS”) - Our management information system architecture is composed of a distributed, online network of computers that links all stores, Target Mobile centers, customer channels, delivery locations, service centers, credit providers, distribution facilities and our home office into a fully integrated system. Each retail location has its own server to support the point-of-sale (“POS”) system. The majority of our U.S. company-operated stores and Target Mobile centers 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.
 
DISCONTINUED OPERATIONS
In February 2009 we signed a contract extension with Sam’s Club through March 31, 2011, with a transition period that ended on June 30, 2011, to continue operating wireless kiosks in certain Sam’s Club locations. As of December 31, 2010, we operated 417 of these kiosks. All of these kiosks were transitioned to Sam’s Club by June 30, 2011. We determined that the cash flows from these kiosks were eliminated from our ongoing operations. Therefore, these operations were classified as discontinued operations and the operating results of these kiosks are presented in our Consolidated Statements of Income as discontinued operations, net of income taxes, for all periods presented.
 
SEASONALITY
As with most other specialty retailers, our net sales and operating revenues are greater during the fourth calendar 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” in our MD&A. Also, refer to Note 17 – “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 brands include RadioShack, AUVIO, Enercell and Gigaware. We also own various patents and patent applications relating to consumer electronics products.
 
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 name brand and private brand merchandise. We have formed vendor and third-party service provider relationships with well-recognized companies such as Sprint, AT&T, Verizon Wireless (“Verizon”), T-Mobile, Apple, Garmin, Hewlett-Packard, HTC, 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.
 
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 short product cycles.
 
In the consumer electronics retail business, competitive factors include convenient retail locations, price, quality, features, product availability, consumer services, 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 handset category through their own retail and online presence. We compete with big-box retailers, discount and warehouse retailers, and Internet retailers on a more widespread basis. Numerous domestic and foreign companies manufacture products for other retailers that are similar to our privately-branded products and 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.
 
 
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EMPLOYEES
As of December 31, 2012, we employed approximately 34,500 people. Our U.S. 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 (the “Exchange Act”), and rules and regulations adopted by the U.S. Securities and Exchange Commission (“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:
 
http://www.sec.gov
 
In addition, we make available, free of charge on our corporate website, 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 website:
 
http://www.radioshackcorporation.com
 
For information regarding the net sales and operating revenues and operating income for our reportable segments for fiscal years ended December 31, 2012, 2011 and 2010, see Note 16 – “Segment Reporting” in the Notes to Consolidated Financial Statements.
 
 
You should carefully consider the risks and uncertainties described below in connection with evaluating the forward-looking statements we make, because if any of the events described below occur, our actual results of operations, financial condition, liquidity or access to capital could differ materially from those anticipated in our forward-looking statements. We may face additional risks that are not presently material or known, so the following should not be considered an exhaustive list of all factors that could cause such differences.
 
Our inability to attract and retain an effective management team or changes in the cost or availability of a suitable workforce to manage and support our strategies could materially adversely affect our results of operations and financial condition.
 
Our success depends in large part upon our ability to attract, motivate and retain a qualified management team and other employees. Qualified individuals needed to fill necessary positions could be in short supply either locally or regionally. The inability to recruit and retain such individuals on a continuous basis could result in high employee turnover at our stores and in our company generally, which could materially adversely affect our results of operations and financial condition. Additionally, competition for qualified employees requires us to assess our compensation structure continually. 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 minimum wage or health care reform may materially increase our employee-related costs.
 
We are dependent upon our relationships with a limited number of name brand product and service providers, and our inability to create, maintain and renew relationships with these parties on favorable terms could materially adversely affect our results of operations and financial condition.
 
A significant portion of our net sales and operating revenues is attributable to a limited number of name brand products and service providers. The concentration of revenue in our mobility platform means that our revenue is to a significant degree dependent upon a limited number of service providers such as Sprint, AT&T, and Verizon and related product suppliers such as Apple, Samsung and HTC. 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 our product or service providers on favorable terms or at all, or if our product or service providers limit or disrupt the supply of their products or services to us, or if our product or service providers change the payment terms they provide to us, our results of operations and financial condition could be materially adversely affected. 
 
 
5

 
 
Certain of our wireless service providers make operational changes from time to time that adversely affect our business and over which we have little, if any, influence. They may not inform us of such a change or may do so only after it is too late for us to adequately predict and plan for the consequences the change will have on our business. The information they provide to us about these changes may be incomplete or inaccurate. Examples of these changes include changes to customer credit requirements, product release dates, changes to the service providers’ service agreements with their customers on issues such as handset upgrade eligibility and contract renewal terms, and other changes that affect our mobility business. If we are not timely, accurately, and adequately informed about these changes or are unable to effectively mitigate the adverse impact of these changes on our business, these changes could materially adversely affect our results of operations and financial condition.
 
If we are unable to estimate and project accurately our liquidity and capital resources, our results of operations and financial condition could be materially adversely affected.
 
In Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources in this Annual Report on Form 10-K, we make estimates regarding our free cash flow, results of operations and ability to access our revolving credit facility for the current fiscal year. If our free cash flow, results of operations and ability to borrow under our revolving credit facility are significantly less favorable than we have estimated, we may not be able to make all of our planned capital expenditures or fully execute all of our other plans. Our inability to do so could have a material adverse effect on our results of operations and financial condition. In addition, if our product and service providers change the payment terms they provide to us, our cash flow may be negatively affected, which could negatively affect our ability to receive products and services on acceptable terms.
 
If our cash flow is negatively impacted, our current or future level of indebtedness may make it more difficult for us to pay our debts and more likely that it would be necessary for us to divert our cash flow from operations to debt service payments.
 
As of December 31, 2012, the principal amount of debt due in less than one year was $286.9 million and the total principal value of our long-term debt was $501.0 million. As of December 31, 2012, the maximum availability of revolving borrowings under our five-year $450 million asset-based revolving credit facility that expires in January 2016 was $393.7 million. Our debt service obligations could have an adverse impact on our earnings and cash flows for as long as the indebtedness is outstanding. Our indebtedness could have important consequences for our business. For example, it could:
 
·  
make it more difficult for us to pay our debts as they become due during general adverse economic and market or industry conditions, because any related decrease in revenues could cause us to have insufficient cash flows from operations to make our scheduled debt payments;
 
·  
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, including limiting our ability to invest in our strategic initiatives, and, consequently, place us at a competitive disadvantage to our competitors with less debt;
 
·  
require a substantial portion of our cash flows from operations to be used for debt service payments, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes; and
 
·  
cause our trade creditors to change their terms for payment on goods and services provided to us, thereby negatively impacting our ability to receive products and services on acceptable terms.
 
Additionally, if we incur additional indebtedness in the future and, if new debt is added to our current debt levels, the risks above could intensify. Additional debt would further increase the possibility that we may not generate sufficient cash to pay, when due, interest on and other amounts due in respect of our indebtedness, and would further reduce our funds available for operations, working capital, capital expenditures, acquisitions and other general purposes. Additional debt may also decrease our ability to refinance or restructure our indebtedness, and further limit our ability to adjust to changing market conditions. If we or our subsidiaries add new debt to our current debt levels, the related risks that we and they now face could increase.
 
 
6

 
 
We may not be able to execute successfully 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 execute our strategy successfully 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 recognize evolving consumer electronics trends and offer products that our target customer needs or wants
 
·  
Our employees’ inability to provide solutions, answers, and information related to increasingly complex consumer electronics products
 
·  
Our inability to keep our extensive store distribution system updated and conveniently located near our customers
 
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 adversely affect our sales. Consumer confidence, labor unrest, 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 in any of these economic conditions, whether national or regional in nature, could materially adversely affect our results of operations and financial condition.
 
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 markets could materially adversely affect our ability to borrow under our credit facility, or materially 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, the availability of credit, valuation of capital assets, 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 materially adversely affect our results of operations and financial condition.
 
A critical component of our business strategy is to improve our overall profitability. Our ability to increase profitable sales in existing retail locations may be affected by:
 
·  
Our ability to offer and sell products with sufficient gross profit to improve our overall profitability
 
·  
Our success in attracting customers into our retail locations
 
·  
Our ability to choose the correct mix of products to sell
 
·  
Our ability to keep our retail locations stocked with merchandise customers will purchase
 
·  
Our ability to maintain fully-staffed retail locations with appropriately trained employees
 
·  
Our ability to remain relevant to the consumer
 
Our products and services must appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to frequent change. Our success depends upon our ability to anticipate and respond in a timely manner to trends in consumer preferences relating to consumer electronics. If we fail to identify and respond to these trends in a timely manner, our sales may decline.
 
In addition, consumer spending remains uncertain, which makes it more challenging for us to maintain or grow our operating income. As a result, we must continue to control our expense structure. Failure to manage our labor and benefit rates, advertising and marketing expenses, or other store expenses could delay or prevent us from achieving increased profitability or otherwise have a material adverse effect on our results of operations and financial condition.
 
Any reductions or changes in the growth rate of the wireless industry or other changes in the dynamics of the industry could materially adversely affect our results of operations and financial condition.
 
Sales of wireless handsets and the related commissions and residual income constitute a majority 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 wireless industry tends to have a corresponding effect on our wireless sales. Wireless handsets are subject to significant technological changes, and it is possible that new products will never achieve widespread consumer acceptance or will be supplanted by alternative products and technologies that do not offer us a similar sales opportunity or are sold at lower price points or margins. 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 them, or the lack of consumer interest in adopting them, could materially adversely affect our results of operations and financial condition.
 
 
7

 
 
Another change in the wireless industry that could materially adversely affect our business is wireless industry consolidation. Consolidation in the wireless industry could lead to a concentration of competitive strength within a few wireless carriers, which could materially adversely affect our business if our ability to obtain competitive offerings from our wireless suppliers is reduced or if competition from wireless carrier stores or other retailers increases.
 
Our competition is both intense and varied, and our failure to effectively compete could materially adversely affect our results of operations and financial condition.
 
In the retail consumer electronics marketplace, the level of competition is intense. We compete with consumer electronics retail stores as well as big-box retailers, large specialty retailers, discount and warehouse retailers, and Internet retailers. We also compete with wireless service providers’ retail presence. Some of these competitors are large, have great market presence, and possess significant financial and other resources, which may provide them with competitive advantages over us.
 
Changes in the amount and degree of promotional intensity or merchandising strategy exerted by our current and potential competitors could present us with difficulties in retaining and attracting customers. In addition, pressure from our competitors could require us to reduce prices or increase our costs in certain product categories or across all our product categories.
 
Our competitors may use strategies such as lower pricing, price matching/guarantees, loyalty programs, value-added services, exclusives, wider selection of products, larger store size, higher advertising intensity, enhanced store design, and more efficient sales methods. Some of our competitors may be able to offer innovative, technologically superior, or more desirable products and services that are not available to us, are available in limited quantities, or become available to us only after the demand for the products and services has declined. 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. As a result of this competition, we may experience lower sales, margins or profitability, which could materially adversely affect our results of operations and financial condition.
 
Our inability to collect receivables from our vendors and service providers could materially adversely affect our results of operations and financial condition.
 
We maintain significant receivable balances from various vendors and service providers such as Sprint, AT&T, and Verizon consisting of commissions and other funds related to these relationships. At December 31, 2012 and 2011, our net receivables from vendors and service providers were $315.3 million and $273.8 million, respectively. The average payment term for these receivable balances is approximately 45 days. We do not factor these receivables. Changes in the financial condition of one or more of these vendors or service providers could cause a delay or failure in collecting these receivable balances. A significant delay or failure in collecting them could materially adversely affect our results of operations and financial condition.
 
Our inability to manage our inventory levels effectively, particularly excess or inadequate amounts of inventory, could materially adversely affect our results of operations and financial condition.
 
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, vendor-imposed quantity purchasing requirements, product defects, 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, which could materially adversely affect our results of operations and financial condition.
 
Alternatively, we may have inadequate inventory levels for particular items, including popular 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 materially adversely affect our results of operations and financial condition.
 
 
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Our inability to identify and enter into relationships with developers of new technologies successfully or the failure of these new technologies to be adopted by the market could materially 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 categories we sell could materially adversely affect our results of operations and financial condition.
 
Our ability to maintain and increase our revenue depends, to a large extent, on the periodic introduction and availability of new products, services and technologies. If we fail to identify these new products, services and technologies, or if we fail to enter into relationships with their developers prior to widespread distribution within the market, our results of operations and financial condition could be materially adversely affected. Any new products, services or technologies we identify may have a limited sales life.
 
Furthermore, it is possible that new products, services or technologies will never achieve widespread consumer acceptance, also materially adversely affecting our results of operations and financial condition. Finally, the lack of innovative consumer electronics products, features or services that can be effectively featured in our retail locations could also materially adversely affect our ability to increase or maintain our sales and profitability.
 
The occurrence of severe weather events or natural disasters could significantly damage or destroy our retail locations, prohibit consumers from traveling to them, or prevent us from resupplying them or our 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 retail locations in that area, our sales could be materially adversely affected. In addition, if severe weather, such as heavy snowfall or extreme temperatures, discourages or restricts customers in a particular region from traveling to our retail locations, our sales could be materially adversely affected. If severe weather occurs during the fourth quarter holiday season, the adverse effect on our sales could be even greater than at other times during the year because we generate a disproportionate amount of our sales during this period.
 
Failure to comply with laws, rules, and regulations regarding our business, or the additional costs of implementing new laws, rules, and regulations, could materially adversely affect our results of operations and financial condition.
 
We are subject to various foreign, federal, state and local laws, rules and regulations, including without limitation, the Fair Labor Standards Act, the Foreign Corrupt Practices Act, and ERISA, each as amended, and regulations promulgated by the Federal Trade Commission, SEC, Internal Revenue Service, Department of Labor, Occupational Safety and Health Administration, and Environmental Protection Agency. Failure to comply with these and other applicable laws, rules and regulations could result in the imposition of penalties or adverse legal judgments and could materially adversely affect our results of operations and financial condition. Similarly, the cost of complying with newly-implemented laws, rules, and regulations could materially adversely affect our results of operations and financial condition.
 
For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, which we will refer to together as the “Health Care Reform Law,” may cause us to incur significant additional costs. A significant proportion of the Company’s employees are covered by its health program, which is administered by a third party but is self-funded except for insurance we carry to cover catastrophic losses with respect to individual employees. The Health Care Reform Law will impose numerous new mandatory types of coverage and reporting and other requirements on our health program, but many of the regulations have not been finalized or, in some cases, even proposed. We believe these additional types of coverage and requirements will increase our costs, but we are not yet able to estimate the increases accurately due to the lack of finality in the requirements that will ultimately be imposed by the new regulations. Any significant increases in our costs could materially adversely affect our results of operations and financial condition.
 
In addition, last year the SEC, as directed in The Dodd-Frank Wall Street Reform and Consumer Protection Act, adopted new disclosure and reporting requirements for companies regarding the use of “conflict minerals” from the Democratic Republic of the Congo and adjoining countries. The new requirements could affect the sourcing, availability and cost of minerals used in the manufacture of certain of the products we sell, including some that we manufacture. We will also incur costs to comply with the related supply chain due diligence requirements, which could prove to be significant. Because our supply chain is complex, we may also face reputation challenges with our customers and other stakeholders if we are unable to verify sufficiently through the due diligence procedures we implement the origins of all minerals used in certain of these products.
 
 
9

 
 
Risks associated with the suppliers from whom our products are sourced could materially adversely affect our results of operations and financial condition.
 
We utilize a large number of suppliers located in various parts of the world to obtain 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 materially 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 and financial condition.
 
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, working conditions, work stoppages, child labor laws, 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. Concerns regarding the safety of products and services that we source from our suppliers and then sell could cause shoppers to avoid purchasing certain products and services from us, even if the basis for the concern is outside our control. Any lost confidence on the part of our customers would be difficult and costly to reestablish. 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 helps us track sales performance, inventory replenishment, product availability, product margin and customer information. These systems are complex and require integration with each other, with some of our service providers, and with our 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 errors by our employees. If we encounter damage to our systems, difficulty implementing new systems, security breaches of our 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 materially damage our standing with our customers and expose us to litigation.
 
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 materially adversely affect our results of operations. 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, results of operations and financial condition, and could increase the costs we incur to protect against such security breaches. To date, we have not experienced a significant security compromise.
 
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 results of operations and financial condition.
 
We conduct business outside the United States, which presents potential risks.
 
We have offices, assets, personnel, or generate a portion of our revenue, in Mexico, Hong Kong, Taiwan, Southeast Asia, and China. Part of our growth strategy is to expand our international business because we believe the growth rates and the opportunity to implement operating improvements there may be greater than those typically achievable in the United States.
 
 
10

 
 
International operations entail significant risks and uncertainties, however, 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
 
·  
Changes in U.S. or 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 expertise in generally accepted accounting principles in the United States
 
·  
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 foreign jurisdictions
 
·  
Potentially adverse tax consequences of operating in multiple jurisdictions
 
·  
Managing our relationship and contractual rights with any partner we enter into business with in a foreign country
 
·  
Access to sufficient capital
 
Any of these factors, by itself or in combination with others, could materially adversely affect our results of operations and financial condition.
 
We may be unable to keep existing retail locations or open new retail locations in desirable places, which could materially adversely affect our sales and profitability.
 
We may be unable to keep existing retail locations or open new retail locations in desirable places in the future. We compete with other retailers and businesses for suitable retail locations. Local land use, local zoning issues, environmental regulations and other regulations may affect our ability to find suitable retail locations and also influence the cost of leasing, building or buying them. We also may have difficulty negotiating real estate leases and purchase agreements on acceptable terms. Further, to relocate or open new retail locations successfully, we must hire and train employees for them. Construction, environmental, zoning and real estate delays may negatively affect retail location openings and increase costs and capital expenditures. In addition, when we open new retail locations in markets where we already have a presence, our existing locations may experience a decline in sales as a result, and when we open retail locations 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, competition with new competitors or with existing competitors with a large, established market presence, and seasonal differences in the market. We cannot be certain that new or relocated retail locations will produce the anticipated sales or return on investment or that existing retail locations will not be materially adversely affected by new or expanded competition in their market areas.
 
Terrorist activities and governmental efforts to thwart them could materially adversely affect our results of operations and financial condition.
 
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 and financial condition. 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.
 
 
None.
 
 
Information on our properties is presented in our MD&A and 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:
 
Summary of Significant Accounting Policies –
Property, Plant and Equipment
Note 2
Supplemental Balance Sheet Disclosures –
Property, Plant and Equipment, Net
Note 3
Commitments and Contingencies
Note 14
 
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 in Mexico, Hong Kong, and Taiwan. We own the property on which our three distribution centers and two manufacturing facilities are located within the United States. Previously, we leased a manufacturing plant in China. Our lease for this plant ended on December 31, 2011. We ceased manufacturing operations in this plant in 2011.
 
 
11

 
 
RETAIL LOCATIONS
The table below shows our retail locations at December 31, 2012, allocated among U.S. and Mexico company-operated stores, Target Mobile centers, discontinued kiosks and dealer and other outlets.
 
   
Average
                   
   
Store Size
   
At December 31,
 
   
(Sq. Ft.)
   
2012
   
2011
   
2010
 
U.S. RadioShack company-operated stores (1)
    2,464       4,395       4,476       4,486  
Target Mobile centers (2)
    16       1,522       1,496       850  
Mexico RadioShack company-operated stores (3)
    1,324       269       227       211  
Dealer and other outlets (4)
    N/A       1,014       1,110       1,219  
Discontinued kiosks (5)
    N/A       --       --       417  
Total number of retail locations (6)
            7,200       7,309       7,183  
 
(1)
We closed 103 stores after we decided not to renew their leases during 2012.
(2)
In 2009 we conducted a test program of retail locations in approximately 100 Target stores. In the third quarter of 2010 we signed a multi-year agreement with Target Corporation to operate Target Mobile centers in certain Target stores. In October 2012, we exercised our contractual right to notify Target of our intention to stop operating the Target Mobile centers if we could not amend the current arrangement. An acceptable arrangement was not negotiated; therefore, we will exit this business by April 8, 2013.
(3)
We opened 46 Mexico RadioShack company-operated stores during 2012.
(4)
Our dealer and other outlets decreased by 96 and 109 locations, net of new openings, during 2012 and 2011, respectively. These declines were primarily due to either the closing of dealer store locations or dealer agreements not being renewed.
(5)
As of December 31, 2010, we operated 417 wireless kiosks in certain Sam’s Club locations. The operation of all of these kiosks was transitioned to Sam’s Club by June 30, 2011.
(6)
In 2012 the Company opened 127 retail locations and closed 235 retail locations. In 2011 the Company opened 725 retail locations and closed 599 retail locations. In 2010 the Company opened 871 retail locations and closed 251 retail locations.

 
 
Real Estate Owned and Leased
   
Approximate Square Footage (in thousands)
At December 31,
 
         
2012
               
2011
       
   
Owned
   
Leased
   
Total
   
Owned
   
Leased
   
Total
 
Retail
                                   
U.S. RadioShack company-operated stores
    2       10,827       10,829       2       11,065       11,067  
Kiosks
    --       24       24       --       24       24  
Mexico company-operated stores
    --       356       356       --       299       299  
Support Operations
                                               
Manufacturing
    134       --       134       134       --       134  
Distribution centers and office space
    1,927       480       2,407       2,005       677       2,682  
      2,063       11,687       13,750       2,141       12,065       14,206  

 
 
12

 

 
Below is a listing at December 31, 2012, of our retail locations within the United States and its territories:
 
   
U.S. RadioShack
Stores
 
Target
Mobile
Centers (1)
 
Dealers
and Other (2)
 
Total
Alabama
 
51
 
14
 
19
 
84
Alaska
 
--
 
--
 
21
 
21
Arizona
 
68
 
38
 
18
 
124
Arkansas
 
29
 
4
 
28
 
61
California
 
538
 
241
 
33
 
812
Colorado
 
61
 
36
 
27
 
124
Connecticut
 
68
 
18
 
2
 
88
Delaware
 
18
 
3
 
--
 
21
Florida
 
296
 
100
 
26
 
422
Georgia
 
101
 
41
 
33
 
175
Hawaii
 
24
 
--
 
--
 
24
Idaho
 
17
 
3
 
11
 
31
Illinois
 
167
 
80
 
35
 
282
Indiana
 
94
 
29
 
31
 
154
Iowa
 
32
 
20
 
38
 
90
Kansas
 
36
 
13
 
21
 
70
Kentucky
 
54
 
11
 
30
 
95
Louisiana
 
68
 
15
 
15
 
98
Maine
 
22
 
4
 
12
 
38
Maryland
 
97
 
36
 
3
 
136
Massachusetts
 
111
 
34
 
5
 
150
Michigan
 
118
 
54
 
39
 
211
Minnesota
 
54
 
69
 
30
 
153
Mississippi
 
37
 
5
 
13
 
55
Missouri
 
71
 
28
 
35
 
134
Montana
 
6
 
6
 
23
 
35
Nebraska
 
19
 
10
 
17
 
46
Nevada
 
36
 
15
 
6
 
57
New Hampshire
 
31
 
8
 
5
 
44
New Jersey
 
154
 
42
 
4
 
200
New Mexico
 
31
 
6
 
12
 
49
New York
 
331
 
65
 
13
 
409
North Carolina
 
124
 
41
 
31
 
196
North Dakota
 
6
 
4
 
3
 
13
Ohio
 
184
 
45
 
22
 
251
Oklahoma
 
37
 
10
 
23
 
70
Oregon
 
51
 
16
 
19
 
86
Pennsylvania
 
210
 
55
 
22
 
287
Rhode Island
 
20
 
4
 
--
 
24
South Carolina
 
56
 
19
 
15
 
90
South Dakota
 
11
 
3
 
11
 
25
Tennessee
 
68
 
26
 
24
 
118
Texas
 
365
 
131
 
63
 
559
Utah
 
27
 
11
 
18
 
56
Vermont
 
9
 
--
 
7
 
16
Virginia
 
122
 
44
 
30
 
196
Washington
 
89
 
29
 
24
 
142
West Virginia
 
28
 
3
 
8
 
39
Wisconsin
 
66
 
31
 
37
 
134
Wyoming
 
6
 
1
 
14
 
21
                 
District of Columbia
 
12
 
1
 
--
 
13
Puerto Rico
 
60
 
--
 
--
 
60
U.S. Virgin Islands
 
4
 
--
 
--
 
4
   
4,395
 
1,522
 
976
 
6,893
 
(1)
In October 2012, we exercised our contractual right to notify Target of our intention to stop operating the Target Mobile centers if we could not amend the current arrangement. An acceptable arrangement was not negotiated; therefore, we will exit this business by April 8, 2013.
(2)
Does not include international dealers.
 
 
13

 
 
 
Refer to Note 14 – “Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
 
 
Not applicable.
 
EXECUTIVE OFFICERS OF THE REGISTRANT (SEE ITEM 10 OF PART III).

The following is a list, as of February 15, 2013, of our executive officers and their ages and positions.
 
 
Name
Position
(Date Appointed to Current Position)
Executive
Officer Since
 
Age
Joseph C. Magnacca
Chief Executive Officer (February 2013)
2013
50
Dorvin D. Lively
Executive Vice President – Chief Financial Officer and Chief Administrative Officer (August 2011)
2011
54
Telvin P. Jeffries
Executive Vice President – Chief Human Resources Officer and General Manager of Retail Services (July 2012)
2012
43
Huey P. Long
Executive Vice President – Strategy and Consumer Insights (January 2013)
2013
44
Troy H. Risch
Executive Vice President – Operations (January 2013)
2013
45
Sharon S. Stufflebeme
Senior Vice President – Chief Information Officer (June 2009)
2009
51
Martin O. Moad
Vice President and Controller (August 2007)
2007
56

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.
 
Mr. Magnacca was appointed Chief Executive Officer in February 2013. Mr. Magnacca joined the Company from Walgreen Co., a drugstore chain, where he most recently served as Executive Vice President and President of Daily Living Products and Solutions. Mr. Magnacca served as President of Duane Reade Holdings, Inc., a drugstore chain, from July 2010 until April 2011 and as Senior Vice President and Chief Merchandising Officer of Duane Reade Holdings, Inc. from September 2008 until July 2010. Prior to that time, Mr. Magnacca served as Executive Vice President of Shoppers Drug Mart Corporation, a drugstore chain, from 2001 until 2008.
 
Mr. Lively was appointed Executive Vice President - Chief Financial Officer and Chief Administrative Officer in August 2011. From September 2012 until February 11, 2013, Mr. Lively also served as Interim Chief Executive Officer of the Company. Mr. Lively joined the Company from Ace Hardware Corporation, a retail hardware cooperative, where he served as Senior Vice President and Chief Financial Officer from March 2008 to December 2010, and Executive Vice President and Chief Financial Officer from December 2010 to August 2011. From 2004 to 2008, Mr. Lively served as Executive Vice President and Chief Financial Officer of Maidenform Brands, Inc., an intimate apparel company. From 2001 to 2004, he served as Senior Vice President and Corporate Controller of Toys R Us, Inc., a toy and juvenile products retailer. Mr. Lively previously held accounting and finance-related positions at Readers Digest Association, Inc., Silverado Foods, Inc., and Pepsi-Cola International Limited (U.S.A.). Earlier in his career, Mr. Lively worked for the Financial Accounting Standards Board and Arthur Andersen LLP.
 
Mr. Jeffries was appointed Executive Vice President – Chief Human Resources Officer and General Manager of Retail Services in July 2012. Mr. Jeffries joined the Company from Kohl’s Corporation, a department store retailer, where he worked from 1993 to 2012 and most recently served as the executive vice president of human resources. Mr. Jeffries also held the following positions at Kohl’s: assistant store manager, director of executive recruiting, vice president of corporate human resources, and senior vice president of corporate human resources.
 
Mr. Long was appointed Executive Vice President – Strategy and Consumer Insights in January 2013. From 2010 to 2012, Mr. Long held the position of global officer senior vice president and general merchandise manager at Sam’s Club, a division of Wal-Mart Stores, Inc., a general merchandise retailer. From 2008 to 2010, Mr. Long was director of global merchandising at Amazon.com, Inc., an internet retailer, and from 2001 to 2008 he was president of Premier Resources International, a global sourcing, logistics and IT services company. Mr. Long previously was chief operating officer at AB&T Sales, Marketing and Telecom, a national sales, marketing, and logistics service provider, and merchandise manager and national buyer at Circuit City, Inc., a consumer electronics retailer.
 
 
14

 
 
Mr. Risch was appointed Executive Vice President – Operations in January 2013. Previously, Mr. Risch held the following positions at Target Corporation, a general merchandise retailer, from 1997 to 2011: store manager, district manager, group director, group vice president, and executive vice president of stores.
 
Ms. Stufflebeme was appointed Senior Vice President – Chief Information Officer in June 2009. Previously, Ms. Stufflebeme served as Senior Vice President – Chief Information Officer of 7-Eleven, Inc., a convenience retailer, where she began working in 2004. Before working for 7-Eleven, Inc., she worked for Andersen Consulting, Hitachi Consulting and Michaels Stores, Inc.
 
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-listed spin-off of RadioShack’s international units.
 

PART II
 
 
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, and the declared dividends for each quarter in the two years ended December 31, 2012.
 
 
Quarter Ended
 
High
   
Low
   
Dividends Declared
 
December 31, 2012
  $ 2.71     $ 1.90     $ --  
September 30, 2012
    4.17       2.36       --  
June 30, 2012
    6.38       3.78       0.125  
March 31, 2012
    11.10       6.14       0.125  
                         
December 31, 2011
  $ 13.94     $ 9.15     $ 0.50  
September 30, 2011
    16.25       11.38       --  
June 30, 2011
    16.70       12.28       --  
March 31, 2011
    18.74       13.61       --  

 
HOLDERS OF RECORD
At February 11, 2013, there were 16,643 holders of record of our common stock.
 
DIVIDENDS
We paid $0.125 per share dividends in the first and second quarters of 2012. On July 25, 2012, we announced that we were suspending our dividend. We paid per share annual dividends of $0.50 and $0.25 in 2011 and 2010, respectively.
 
 
15

 
 
PURCHASES OF EQUITY SECURITIES BY RADIOSHACK
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.
 
 
 
 
 
Period
 
 
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, 2012
    85,922 (3)   $ 2.27       --     $ 188,100,224  
November 1 – 30, 2012
    --     $ --       --     $ 188,100,224  
December 1 – 31, 2012
    --     $ --       --     $ 188,100,224  
  Total
    --               --          
 
(1)
In October 2011 our Board of Directors approved an authorization for a total share repurchase of $200 million of the Company’s common stock to be executed through open market or private transactions. The share repurchase authorization has no stated expiration date. As of December 31, 2012, $188.1 million of the total authorized amount was available for share repurchases under this program. We announced on January 30, 2012, that we had suspended further share repurchases under this program.
(2)
During the period covered by this table, no publicly-announced stock purchase program expired or was terminated.
(3)
Shares acquired by RadioShack for tax withholdings upon vesting of restricted stock awards, which were not repurchased pursuant to a share repurchase program.
 
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Refer to "Securities Authorized for Issuance Under Equity Compensation Plans" included in Part III, Item 12 of this Annual Report on Form 10-K.
 
RECENT SALES OF UNREGISTERED SECURITIES
Refer to Note 5 – “Indebtedness and Borrowing Facilities” and Note 6 – “Stockholders’ Equity” in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
 
 
16

 
 
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 and the Standard & Poor's Specialty Retail Index. 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, 2007, in RadioShack common stock, the S&P 500 Index and the S&P Specialty Retail Index.
 

 

 

      12/07       12/08       12/09       12/10       12/11       12/12  
RadioShack Corporation
  $ 100.00     $ 72.62     $ 120.17     $ 115.49     $ 63.29     $ 14.48  
S&P 500 Index
    100.00       63.00       79.67       91.68       93.61       108.59  
S&P Specialty Retail Index
    100.00       75.66       101.44       123.19       136.70       174.53  
 
* Cumulative Total Return assumes dividend reinvestment.
 
Information Source: Standard & Poor's, a division of The McGraw-Hill Companies Inc.
 
 
17

 
 
 
RADIOSHACK CORPORATION AND SUBSIDIARIES
   
Year Ended December 31,
 
(Dollars and shares in millions, except per share amounts, ratios, locations and square footage)
 
2012
   
2011
   
2010
   
2009
   
2008
 
Statements of Income Data
                             
Net sales and operating revenues
  $ 4,257.8     $ 4,378.0     $ 4,265.8     $ 4,073.6     $ 4,034.8  
Operating (loss) income
  $ (60.9 )   $ 155.1     $ 350.2     $ 355.5     $ 311.1  
(Loss) income from continuing operations (1)
  $ (139.4 )   $ 67.1     $ 190.7     $ 196.5     $ 183.2  
Net (loss) income (1)
  $ (139.4 )   $ 72.2     $ 206.1     $ 205.0     $ 189.4  
Basic (loss) income per share from continuing operations
  $ (1.39 )   $ 0.65     $ 1.58     $ 1.56     $ 1.42  
Basic net (loss) income per share
  $ (1.39 )   $ 0.70     $ 1.71     $ 1.63     $ 1.47  
Diluted (loss) income per share from continuing operations
  $ (1.39 )   $ 0.65     $ 1.55     $ 1.56     $ 1.42  
Diluted net (loss) income per share
  $ (1.39 )   $ 0.70     $ 1.68     $ 1.63     $ 1.47  
Shares used in computing net (loss) income per share:
                                       
Basic
    100.1       102.5       120.5       125.4       129.0  
Diluted
    100.1       103.3       122.7       126.1       129.1  
Gross profit as a percent of sales
    36.7 %     41.4 %     44.9 %     46.0 %     45.4 %
SG&A expense as a percent of sales
    35.9 %     36.0 %     34.8 %     35.2 %     35.6 %
Operating (loss) income as a percent of sales
    (1.4 %)     3.5 %     8.2 %     8.7 %     7.7 %
                                         
Balance Sheet Data
                                       
Inventories
  $ 908.3     $ 744.4     $ 723.7     $ 670.6     $ 636.3  
Total assets
  $ 2,299.1     $ 2,175.1     $ 2,175.4     $ 2,429.3     $ 2,254.0  
Working capital
  $ 1,003.7     $ 1,176.7     $ 898.6     $ 1,389.7     $ 1,187.2  
Capital structure:
                                       
Current debt
  $ 278.7     $ --     $ 308.0     $ --     $ --  
Long-term debt
  $ 499.0     $ 670.6     $ 331.8     $ 627.8     $ 659.5  
Total debt
  $ 777.7     $ 670.6     $ 639.8     $ 627.8     $ 659.5  
Total debt less cash and cash equivalents
  $ 242.0     $ 78.9     $ 70.4     $ (280.4 )   $ (155.3 )
Stockholders' equity
  $ 598.7     $ 753.3     $ 842.5     $ 1,048.3     $ 860.8  
Total capitalization (2)
  $ 1,376.4     $ 1,423.9     $ 1,482.3     $ 1,676.1     $ 1,520.3  
Long-term debt as a % of total capitalization (2)
    36.3 %     47.1 %     22.4 %     37.5 %     43.4 %
Total debt as a % of total capitalization (2)
    56.5 %     47.1 %     43.2 %     37.5 %     43.4 %
Book value per share at year end
  $ 6.01     $ 7.59     $ 7.97     $ 8.37     $ 6.88  
                                         
Financial Ratios
                                       
Return on average stockholders' equity
    (20.2 %)     8.8 %     20.3 %     21.5 %     22.9 %
Return on average assets
    (6.4 %)     3.5 %     8.9 %     8.9 %     9.3 %
Annual inventory turnover (3)
    3.3       3.5       3.5       3.6       3.5  
                                         
Other Data
                                       
Adjusted EBITDA from continuing operations (4)
  $ 19.8     $ 237.8     $ 433.6     $ 445.8     $ 405.3  
Dividends declared per share (5)
  $ 0.25     $ 0.50     $ 0.25     $ 0.25     $ 0.25  
Capital expenditures
  $ 67.8     $ 82.1     $ 80.1     $ 81.0     $ 85.6  
Number of retail locations at year end:
                                       
U.S. RadioShack company-operated stores
    4,395       4,476       4,486       4,476       4,453  
Target Mobile centers (6)
    1,522       1,496       850       104       --  
Mexico RadioShack company-operated stores
    269       227       211       204       200  
Dealer and other outlets
    1,014       1,110       1,219       1,321       1,411  
Discontinued kiosks
    --       --       417       458       688  
Total
    7,200       7,309       7,183       6,563       6,752  
Average square footage per U.S. RadioShack company-operated store
    2,464       2,473       2,482       2,504       2,505  
Comparable store sales (decrease) increase (7)
    (3.5 %)     (2.2 %)     4.1 %     0.8 %     (0.9 %)
Common shares outstanding
    99.6       99.3       105.7       125.2       125.1  
 
This table should be read in conjunction with our MD&A and the Consolidated Financial Statements and related Notes included in this Annual Report on Form 10-K.
 
 
18

 
 
(1)
For 2012, this amount includes the recognition of a valuation allowance against deferred tax assets in the amount of $68.8 million.
(2)
Total capitalization is defined as total debt plus total stockholders' equity.
(3)
This ratio is calculated by dividing our cost of products sold by our average inventory balance. For comparative purposes, we have included the cost of products sold by and the inventory balances of our discontinued operations in this ratio for all periods presented.
(4)
Adjusted EBITDA from continuing operations (“Adjusted EBITDA”), a non-GAAP financial measure, is defined as earnings from continuing operations before interest, taxes, depreciation, and amortization. Our calculation of Adjusted EBITDA is also adjusted for other income or loss. The comparable financial measure to Adjusted EBITDA under GAAP is income from continuing operations. Adjusted EBITDA is used by management to evaluate the operating performance of our business for comparable periods. 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.
(5)
On July 25, 2012, we announced that we were suspending our dividend.
(6)
In October 2012, we exercised our contractual right to notify Target of our intention to stop operating the Target Mobile centers if we could not amend the current arrangement. An acceptable arrangement was not negotiated; therefore, we will exit this business by April 8, 2013.
(7)
Comparable store sales include the sales of U.S. and Mexico RadioShack company-operated stores as well as Target Mobile centers and kiosks with more than 12 full months of recorded sales. Following their closure as Sprint-branded kiosks in August 2009, certain former Sprint-branded kiosk locations became multiple wireless carrier RadioShack-branded locations. At December 31, 2009, we managed and reported 111 of these locations as extensions of existing RadioShack company-operated stores located in the same shopping malls. For purposes of calculating our comparable store sales, we include sales from these locations for periods after they became extensions of existing RadioShack company-operated stores, but we do not include sales from these locations for periods while they were operated as Sprint-branded kiosks.

 
The following table is a reconciliation of adjusted EBITDA from continuing operations to income from continuing operations.
 
   
Year Ended December 31,
 
(In millions)
 
2012
   
2011
   
2010
   
2009
   
2008
 
Reconciliation of adjusted EBITDA from continuing
operations to income from continuing operations
                             
Adjusted EBITDA from continuing operations
  $ 19.8     $ 237.8     $ 433.6     $ 445.8     $ 405.3  
                                         
Interest expense, net of interest income
    (52.6 )     (43.7 )     (39.3 )     (39.3 )     (20.3 )
Income tax expense
    (25.3 )     (40.2 )     (120.2 )     (118.1 )     (105.2 )
Depreciation and amortization
    (80.7 )     (82.7 )     (83.4 )     (90.3 )     (94.2 )
Other loss
    (0.6 )     (4.1 )     --       (1.6 )     (2.4 )
(Loss) income from continuing operations
  $ (139.4 )   $ 67.1     $ 190.7     $ 196.5     $ 183.2  
 
 
19

 
 
 
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.
 
2012 SUMMARY
Net sales and operating revenues decreased $120.2 million, or 2.7%, to $4,257.8 million when compared with last year. This decrease was primarily driven by a 3.5% decrease in comparable store sales, which was partially offset by increased sales in our Target Mobile centers that were open for all of 2012 but not all of 2011. The 3.5% decrease in comparable store sales was primarily driven by sales decreases in our consumer electronics and mobility platforms at our U.S. RadioShack company-operated stores, which were partially offset by increased sales in our signature platform and increased comparable store sales at our Target Mobile centers.
 
Gross profit decreased by $249.0 million, or 13.8%, to $1,561.8 million when compared with last year. This decrease was primarily driven by decreased gross profit in our postpaid wireless business in our U.S. RadioShack company-operated stores. Gross margin rate decreased by 4.7 percentage points from last year to 36.7%. The decrease in our consolidated gross margin rate was a result of the decrease in the gross margin rate of our postpaid wireless business. When excluding the postpaid wireless business, the gross margin rate for the balance of our business was comparable to 2011.
 
Selling, general and administrative (“SG&A”) expense decreased $48.4 million when compared with last year. This decrease was primarily driven by decreased advertising expense, decreased rent and occupancy expense, and decreased compensation expense in the second half of 2012. Additionally, SG&A in 2012 was lower due to a one-time $23.4 million charge in 2011 related to our transition from T-Mobile to Verizon and a one-time $9.5 million charge in 2011 related to the closure of our Chinese manufacturing plant. These decreases were partially offset by increased costs in the first half of 2012 to support additional Target Mobile centers that were not open in the same period in 2011 and severance costs of $8.5 million in connection with the departure of our Chief Executive Officer combined with the termination of employment of certain corporate headquarters support staff in the third quarter of 2012.
 
As a result of the factors above, we incurred an operating loss of $60.9 million, compared with operating income of $155.1 million last year. Operating income for our U.S. RadioShack company-operated stores segment was $337.7 million, compared with $530.2 million last year. The operating loss for our Target Mobile centers was $37.5 million, compared with an operating loss of $21.0 million last year.
 
Our effective tax rate for 2012 was a negative 22.2%, compared with 37.5% for 2011. The 2012 effective tax rate was affected by a valuation allowance in the amount of $68.8 million that we established to reduce our deferred tax assets. The valuation allowance was partially offset by an income tax benefit related to our current year operating loss. See Note 10 – “Income Taxes” in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information regarding our 2012 income tax expense and valuation allowance.
 
Loss from continuing operations was $139.4 million, or $1.39 per share, in 2012, compared with income from continuing operations of $67.1 million, or $0.70 per diluted share, in 2011.
 
EXECUTIVE OVERVIEW
During 2012 our operating results were significantly affected by our postpaid wireless business in our U.S. RadioShack company-operated stores and our Target Mobile segment.
 
Postpaid Wireless Business
The combination of the following factors at our U.S. RadioShack company-operated stores contributed to more than half of our $249.0 million decrease in consolidated gross profit from 2011:
 
·  
Total postpaid units sold decreased by 20% from 2011
 
·  
The average cost per unit sold increased by 36% from 2011
 
·  
The average revenue per unit sold increased by 19% from 2011
 
These factors were also present at our Target Mobile centers; however, gross profit increased at our Target Mobile centers in 2012 due to increased sales primarily from the additional 646 Target Mobile centers that were open for the full first six months of 2012 but were not open for the full first six months of 2011.
 
The decrease in the number of postpaid units sold at our U.S. RadioShack company-operated stores was primarily driven by decreased unit sales in our Sprint and AT&T postpaid wireless businesses. Some of the factors contributing to our lower unit sales were changes in Sprint’s customer and credit models and the discontinuation of Sprint’s early upgrade program for certain customers that began in mid-2011; higher sales in the third quarter of 2011 related to a special wireless handset promotion; the soft postpaid market due to consumer anticipation of the iPhone 5 launch; and inventory supply constraints during the initial iPhone 5 launch period.
 
 
20

 
 
The increase in average cost per unit was driven by the change in our sales mix towards higher cost smartphones such as the Apple iPhone and Android-based smartphones.
 
The increase in the average revenue per postpaid unit was primarily driven by a change in our sales mix towards higher-priced smartphones, which was partially offset by an increase in commissions repaid to wireless service providers related to customers whose wireless handsets were deactivated from a wireless network because either they could not afford to, or chose not to, pay the higher monthly payments for wireless service associated with their smartphones. We have undertaken initiatives to reduce wireless service deactivations in 2013. For further discussion of our accounting for these service deactivations, see “Critical Accounting Policies and Estimates” later in this MD&A.

Target Mobile Centers
In October 2012, we exercised our contractual right to notify Target of our intention to stop operating the Target Mobile centers if we could not amend the current arrangement. An acceptable arrangement was not negotiated; therefore, we will exit this business by April 8, 2013. We project that our Target Mobile business will not be profitable in the first quarter of 2013.
 
Capital Transactions
During 2012 we took a number of actions regarding our liquidity:
 
·  
On July 25, 2012, we suspended our dividend payments to preserve cash as a result of our operating performance
 
·  
In the second half of the year, we borrowed a total of $175 million in advance of the maturity of our 2.50% convertible senior notes due August 1, 2013 (“2013 Convertible Notes”)
 
·  
In the third quarter, we repurchased $88.1 million principal amount of the 2013 Convertible Notes at a discount to their par value
 
For further discussion of our liquidity position, please see “Liquidity Outlook” later in this MD&A.
 
RESULTS OF OPERATIONS
 
 
2012 COMPARED WITH 2011
 
Net Sales and Operating Revenues
Consolidated net sales and operating revenues are as follows:
 
   
Year Ended December 31,
 
(In millions)
 
2012
   
2011
   
2010
 
U.S. RadioShack company-operated stores
  $ 3,456.5     $ 3,663.3     $ 3,808.2  
Target Mobile centers (1)
    426.5       342.4       64.6  
Other
    374.8       372.3       393.0  
Consolidated net sales and operating revenues
  $ 4,257.8     $ 4,378.0     $ 4,265.8  
                         
Consolidated net sales and operating revenues (decrease) increase
    (2.7 %)     2.6 %     4.7 %
Comparable store sales (decrease) increase (2)
    (3.5 %)     (2.2 %)     4.1 %

(1)
In October 2012, we exercised our contractual right to notify Target of our intention to stop operating the Target Mobile centers if we could not amend the current arrangement. An acceptable arrangement was not negotiated; therefore, we will exit this business by April 8, 2013.
(2)
Comparable store sales include the sales of U.S. and Mexico RadioShack company-operated stores and Target Mobile centers with more than 12 full months of recorded sales.

 
21

 
 
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.
 
   
Consolidated Net Sales and Operating Revenues
 
   
Year Ended December 31,
 
(In millions)
 
2012
   
2011
   
2010
 
Mobility (1)
  $ 2,260.2       53.1 %   $ 2,251.2       51.4 %   $ 1,884.9       44.2 %
Signature
    1,293.3       30.4       1,265.8       28.9       1,314.9       30.8  
Consumer electronics
    661.9       15.5       831.1       19.0       1,030.7       24.2  
Other sales (2)
    42.4       1.0       29.9       0.7       35.3       0.8  
Consolidated net sales and operating revenues
  $ 4,257.8       100.0 %   $ 4,378.0       100.0 %   $ 4,265.8       100.0 %

(1)
The aggregate amounts of upfront commission revenue and residual income received from wireless service providers and recorded in this platform were $1,333.9 million, $1,499.1 million and $1,270.5 million for 2012, 2011 and 2010, respectively.
(2)
Other sales include outside sales from repair services and outside sales of our global sourcing operations and domestic and overseas manufacturing facilities. We closed our overseas manufacturing facility in June 2011.

 
U.S. RadioShack Company-Operated Stores 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.
 
   
U.S. RadioShack Company-Operated Stores Segment
 
   
Net Sales and Operating Revenues
 
   
Year Ended December 31,
 
(In millions)
 
2012
   
2011
   
2010
 
Mobility
  $ 1,781.2       51.5 %   $ 1,851.4       50.5 %   $ 1,753.7       46.0 %
Signature
    1,171.1       33.9       1,153.5       31.5       1,209.9       31.8  
Consumer electronics
    504.2       14.6       658.4       18.0       844.6       22.2  
Net sales and operating revenues
  $ 3,456.5       100.0 %   $ 3,663.3       100.0 %   $ 3,808.2       100.0 %
 
Sales in our U.S. RadioShack company-operated stores segment decreased $206.8 million or 5.6% in 2012.
 
Sales in our mobility platform (which includes postpaid and prepaid wireless handsets, commissions and residual income, prepaid wireless airtime, e-readers, and tablet devices) decreased 3.8% in 2012.
 
This decrease in sales was primarily driven by decreased sales in our postpaid wireless business. This decrease was partially offset by increased sales of tablet devices.
 
The sales decrease in our postpaid wireless business was driven by a decrease in the number of postpaid units sold, which was partially offset by an increase in the average revenue per unit sold. The decrease in the number of postpaid wireless handsets sold was primarily driven by decreased unit sales in our Sprint and AT&T postpaid wireless businesses.
 
Some of the factors contributing to our lower unit sales were changes in Sprint’s customer and credit models and the discontinuation of Sprint’s early upgrade program for certain customers that began in mid-2011; higher sales in the third quarter of 2011 related to a special wireless handset promotion; the soft postpaid market due to consumer anticipation of the iPhone 5 launch; and inventory supply constraints during the initial iPhone 5 launch period.
 
The increase in the average revenue per postpaid unit was primarily driven by a change in our sales mix towards higher-priced smartphones, which was partially offset by an increase in commissions repaid to wireless service providers related to wireless handset deactivations. See the executive summary of this MD&A for further discussion of these wireless handset deactivations.
 
Sales in our signature platform (which includes accessories for wireless, tablet, music, and home entertainment products; batteries and power products; and technical products) increased 1.5% in 2012. Product categories with sales increases during this period included wireless accessories, headphones, and tablet accessories. Product categories with sales decreases during the period included home entertainment accessories and personal computer accessories.
 
Sales in our consumer electronics platform (which includes laptop computers, residential telephones, toys, GPS units, digital music players, personal computing products, cameras, and other consumer electronics products) decreased 23.4% in 2012. This sales decrease was driven by sales declines in laptop computers, cameras, music players, GPS devices, and televisions. The decrease in sales for many of these categories has been driven by the migration of the capabilities of these products into smartphones.
 
 
22

 
 
Target Mobile Centers
 
Sales in our Target Mobile centers segment increased $84.1 million or 24.6% in 2012. This sales increase was driven primarily by increased sales at our Target Mobile centers in the first half of 2012, when compared with the same period in 2011. This increase in Target Mobile center sales was driven by the additional 646 Target Mobile centers that were open for the full first six months of 2012 but were not open for the full first six months of 2011. In October 2012, we exercised our contractual right to notify Target of our intention to stop operating the Target Mobile centers if we could not amend the current arrangement. An acceptable arrangement was not negotiated; therefore, we will exit this business by April 8, 2013.
 
Other Sales
 
Amounts in other sales reflect our business activities that are not separately reportable, including sales to our independent dealers, sales generated by our www.radioshack.com website, and sales at our Mexican subsidiary. Each of these business activities accounted for less than 5% of our consolidated net sales and operating revenues in 2012. Other sales were essentially flat for 2012, when compared with last year. Our sales increased at our Mexican subsidiary due to new store openings, but this increase was substantially offset by decreased sales to our U.S. independent dealers. Additionally, we recognized $3.0 million of franchise fee revenue in the third quarter related to the opening of our first franchised stores in Southeast Asia.
 
Gross Profit
Consolidated gross profit and gross margin are as follows:
 
   
Year Ended December 31,
 
(In millions)
 
2012
   
2011
   
2010
 
Gross profit
  $ 1,561.8     $ 1,810.8     $ 1,913.7  
Gross profit (decrease) increase
    (13.8 %)     (5.4 %)     2.2 %
                         
Gross margin rate
    36.7 %     41.4 %     44.9 %

 
Consolidated gross profit and gross margin for 2012 were $1,561.8 million and 36.7%, respectively, compared with $1,810.8 million and 41.4%, respectively, in 2011, resulting in a 13.8% decrease in gross profit dollars and a 4.7 percentage point decrease in our gross margin. These decreases were primarily driven by decreased gross profit of the postpaid wireless business in our U.S. RadioShack company-operated stores.
 
The decrease in gross profit dollars of the postpaid wireless business in our U.S. RadioShack company-operated stores was the result of decreases in 2012 in the number of units sold and in the average gross profit dollars per unit sold, when compared with 2011. Average gross profit dollars per unit sold decreased because our average cost per unit increased from last year at a higher rate than the increase in our average revenue per unit. The increase in average cost per unit was driven by the change in our sales mix towards higher cost smartphones such as the Apple iPhone and Android-based smartphones.
 
The decrease in our consolidated gross margin rate was a result of the decrease in the gross margin rate of the postpaid wireless business in our U.S. RadioShack company-operated stores and Target Mobile centers. The decrease in the gross margin rate of our postpaid wireless business was driven by a change in our sales mix towards lower-margin smartphones and a decrease in the average gross profit dollars per unit sold.
 
When excluding the postpaid wireless business, the gross margin rate for the balance of our business was comparable to 2011.
 
 
23

 
 
Selling, General and Administrative Expense
Our consolidated SG&A expense decreased 3.1%, or $48.4 million, in 2012. SG&A as a percentage of net sales and operating revenues was essentially flat when compared with 2011. The table below summarizes the breakdown of various components of our consolidated SG&A expense and their related percentages of total net sales and operating revenues.
 
   
Year Ended December 31,
 
   
2012
   
2011
   
2010
 
   
 
Dollars
   
% of
Sales &
Revenues
   
 
Dollars
   
% of
Sales &
Revenues
   
 
Dollars
   
% of
Sales &
Revenues
 
 
(In millions)
Compensation
  $ 696.4       16.4 %   $ 693.4       15.8 %   $ 663.1       15.5 %
Rent and occupancy
    252.3       5.9       261.5       6.0       265.3       6.2  
Advertising
    182.9       4.3       208.9       4.8       205.9       4.8  
Other taxes (excludes income taxes)
    108.7       2.6       108.3       2.5       97.7       2.3  
Utilities
    53.5       1.3       56.0       1.3       54.4       1.3  
Insurance
    46.6       1.1       49.6       1.1       45.9       1.1  
Credit card fees
    35.9       0.8       35.6       0.8       34.9       0.8  
Professional fees
    30.5       0.7       26.7       0.6       21.3       0.5  
Repairs and maintenance
    22.9       0.5       25.7       0.6       20.1       0.5  
Licenses
    14.5       0.3       14.9       0.3       13.2       0.3  
Printing, postage and office supplies
    9.3       0.2       9.0       0.2       6.9       0.2  
Recruiting, training and employee relations
    6.3       0.1       6.5       0.1       5.4       0.1  
Travel
    6.1       0.1       6.4       0.1       4.9       0.1  
Matching contributions to savings plans
    5.1       0.1       4.9       0.1       5.4       0.1  
Other
    58.0       1.5       70.0       1.7       39.4       1.0  
                                                 
    $ 1,529.0       35.9 %   $ 1,577.4       36.0 %   $ 1,483.8       34.8 %

 
The decrease in SG&A expense was driven by decreased advertising expense, decreased rent and occupancy expense, and decreased compensation expense in the second half of 2012. Additionally, SG&A in 2012 was lower due to a one-time $23.4 million charge in 2011 related to our transition from T-Mobile to Verizon and a one-time $9.5 million charge in 2011 related to the closure of our Chinese manufacturing plant. These decreases were partially offset by increased costs in the first half of 2012 to support additional Target Mobile centers that were not open in the same period last year and severance costs of $8.5 million in connection with the departure of our Chief Executive Officer combined with the termination of employment of certain corporate headquarters support staff in the third quarter of 2012.
 
We announced on September 25, 2012, that our Board of Directors and Mr. James F. Gooch had agreed that Mr. Gooch would step down from his position as Chief Executive Officer and as a director of the Company, effective immediately. Under Mr. Gooch’s employment agreement, he was entitled to a specified cash payment and the accelerated vesting of certain stock awards. During the third quarter ended September 30, 2012, we recorded $5.6 million of employee separation charges in connection with Mr. Gooch’s departure. This included a cash charge of $4.0 million and a non-cash charge of $1.6 million related to the accelerated vesting of stock awards.
 
During the third quarter ended September 30, 2012, we recorded $2.9 million of employee separation charges in connection with the termination of the employment of approximately 150 employees, who worked primarily at our corporate headquarters.
 
Depreciation and Amortization
The table below provides a summary of our total depreciation and amortization by segment.
 
   
Year Ended December 31,
 
(In millions)
 
2012
   
2011
   
2010
 
U.S. RadioShack company-operated stores
  $ 31.8     $ 37.9     $ 45.4  
Target Mobile centers
    6.4       4.7       1.5  
Other
    3.8       4.0       3.7  
Unallocated
    38.7       36.1       32.8  
Total depreciation and amortization from continuing operations
  $ 80.7     $ 82.7     $ 83.4  

 
The table below provides an analysis of total depreciation and amortization.
 
   
Year Ended December 31,
 
(In millions)
 
2012
   
2011
   
2010
 
Depreciation and amortization expense
  $ 72.3     $ 75.2     $ 75.7  
Depreciation and amortization included in cost of products sold
      8.4         7.5         7.7  
Total depreciation and amortization from continuing operations
  $ 80.7     $ 82.7     $ 83.4  

 
 
24

 
 
Impairment of Long-Lived Assets and Goodwill
Impairment of long-lived assets was $21.4 million in 2012 compared with $3.1 million in 2011.
 
Target Mobile Centers: In October 2012 we exercised our contractual right to notify Target of our intention to stop operating the Target Mobile centers by no later than April 2013 if we could not amend the current arrangement.
 
We concluded that the cash flows generated by our Target Mobile centers under our current contractual arrangements would not recover the net book value of our long-lived assets held and used in these locations. Therefore, the long-lived assets at these locations with a total carrying value of $12.8 million were written down to their fair value of $1.1 million, resulting in an impairment charge of $11.7 million that was included in our operating results for the third quarter of 2012. We will exit this business by April 8, 2013.
 
The fair value of these “in-use” assets was based on the projected cash flows at each location under our current contractual arrangements.
 
U.S. RadioShack Company-Operated Stores: Impairments for long-lived assets held and used in certain stores were $6.7 million in 2012 compared with $3.1 million in 2011. This increase was primarily driven by an increase in the number of stores that were evaluated for impairment throughout 2012 because of their decreased operating results. If our operating results do not improve, we will continue to incur a similar or higher amount of long-lived asset impairments for U.S. RadioShack company-operated stores in future periods.
 
Goodwill Impairment: For the first half of 2012, we experienced a significant decline in the market capitalization of our common stock, which was driven primarily by lower than expected operating results. Our market capitalization was lower than our consolidated net book value for much of this period. We determined that these facts were an indicator that we should conduct an interim goodwill impairment test in the third quarter.
 
After reviewing our reporting units, we determined that the fair value of our U.S. RadioShack company-operated stores reporting unit could not support its $3.0 million of goodwill due to our lower market capitalization. This resulted in a $3.0 million impairment charge that was included in our operating results for the third quarter of 2012. Our U.S. RadioShack company-operated stores reporting unit is comprised of our U.S. RadioShack company-operated stores operating segment, our overhead and corporate expenses that are not allocated to our operating segments, and all of our interest expense.
 
Net Interest Expense
Consolidated net interest expense, which is interest expense net of interest income, was $52.6 million in 2012, compared with $43.7 million in 2011.
 
In 2012 and 2011, interest expense consisted primarily of interest paid at the stated coupon rate on our outstanding notes, the non-cash amortization of the discounts on our long-term debt, and interest paid on our term loans. Interest expense increased $7.7 million in 2012. This increase was driven by the increased average amount of long-term debt outstanding during 2012. Non-cash interest expense was $16.3 million in 2012 compared with $17.0 million in 2011.
 
Income Tax Expense
Our effective tax rate for 2012 was a negative 22.2%, compared with a positive 37.5% for 2011. The 2012 effective tax rate was affected by a valuation allowance in the amount of $68.8 million that we established to reduce our U.S. deferred tax assets. The valuation allowance was partially offset by an income tax benefit related to our current year operating loss. See Note 10 – “Income Taxes” in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information regarding our 2012 income tax expense and valuation allowance.
 
The 2011 effective tax rate was affected by the realization of job retention credits generated pursuant to the Hiring Incentives to Restore Employment Act. These credits lowered the effective tax rate by 1.1 percentage points.
 
2011 COMPARED WITH 2010
 
Net Sales and Operating Revenues
Net sales and operating revenues for 2011 increased $112.2 million, or 2.6%, to $4,378.0 million when compared with 2010. Comparable store sales decreased 2.2%. The increase in our net sales and operating revenues was driven primarily by sales at the 646 Target Mobile centers that were open on December 31, 2011, but not on December 31, 2010. The increase in sales that was driven by our additional Target Mobile centers was partially offset by a decrease in comparable store sales. The decrease in comparable store sales was primarily driven by sales decreases in our consumer electronics and signature platforms, which were partially offset by an increase in our mobility platform sales.
 
U.S. RadioShack Company-Operated Stores Segment
 
Sales in our U.S. RadioShack company-operated stores segment for 2011 decreased $144.9 million or 3.8% when compared with 2010.
 
Sales in our mobility platform increased 5.6% in 2011. This sales increase was driven by increased sales in our AT&T postpaid business, sales in our Verizon postpaid business, and sales of tablet devices. These sales increases were partially offset by decreased sales in our T-Mobile postpaid wireless business and decreased sales in our Sprint postpaid wireless business. The decreased sales in our Sprint postpaid wireless business were due to changes in Sprint’s customer and credit models, which resulted in fewer new and upgrade activations in the last three quarters of 2011.
 
 
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Sales in our signature platform decreased 4.7% in 2011. This sales decrease was primarily driven by decreased sales of digital-to-analog television converter boxes and related television antennas, music accessories, and media storage, but was partially offset by increased sales of headphones and tablet accessories.
 
Sales in our consumer electronics platform decreased 22.0% in 2011. This sales decrease was driven by sales declines in substantially all of the categories in this platform, but was primarily driven by decreased sales of digital music players, digital cameras and camcorders, and GPS devices. The convergence of these products’ functionality into smartphones contributed to these sales decreases.
 
Target Mobile Centers
 
Sales in our Target Mobile centers segment for 2011 increased $277.8 million when compared with 2010. This sales increase was driven primarily by sales at the 646 Target Mobile centers that were open on December 31, 2011, but not on December 31, 2010.
 
Other Sales
 
Other sales decreased $20.7 million, or 5.3%, in 2011. This sales decrease was primarily driven by decreased sales to our independent dealers, which was partially offset by a sales increase at our Mexican subsidiary. Our Mexican subsidiary accounted for less than 5% of our consolidated net sales and operating revenues in 2011.
 
Gross Profit
Consolidated gross profit and gross margin for 2011 were $1,810.8 million and 41.4%, respectively, compared with $1,913.7 million and 44.9%, respectively, in 2010, resulting in a 5.4% decrease in gross profit dollars and a 3.5 percentage point decrease in our gross margin rate.
 
Gross margin decreased by 3.5 percentage points from 2010 to 41.4%. This decrease was primarily driven by a change in our sales mix within our mobility platform towards lower-margin smartphones and tablets, combined with the overall growth of our mobility platform through our Target Mobile centers and U.S. RadioShack company-operated stores. Smartphones generally, and the Apple iPhone in particular, carry a lower gross margin rate given their higher average cost basis. Revenue from smartphones as a percentage of our mobility platform in 2011 was 17.3 percentage points higher than in 2010. Additionally, our gross margin rate was negatively affected by more promotional pricing in the fourth quarter of 2011 when compared with the same period in 2010.
 
The gross margin rate for our U.S. RadioShack company-operated stores segment decreased by 2.2 percentage points in 2011, primarily due to a change in sales mix towards lower-margin smartphones as discussed above.
 
Selling, General and Administrative Expense
Our consolidated SG&A expense increased 6.3%, or $93.6 million, in 2011. This represents a 1.2 percentage point increase as a percentage of net sales and operating revenues compared to 2010.
 
The increase in SG&A expense was primarily driven by increased costs to support our Target Mobile centers of approximately $76 million, a one-time charge of $23.4 million related to our transition from T-Mobile to Verizon classified as other SG&A, and $9.5 million in costs related to the closure of our Chinese manufacturing plant. These increases were partially offset by decreased incentive compensation expense in our other retail channels as well as our corporate office.
 
Depreciation and Amortization
Total depreciation and amortization from continuing operations for 2011 declined $0.7 million or 0.8%.
 
Impairment of Long-Lived Assets
Impairments of long-lived assets were $3.1 million and $4.0 million in 2011 and 2010, respectively. In 2011 these amounts were related primarily to underperforming U.S. RadioShack company-operated stores. In 2010 this amount was related primarily to underperforming U.S. RadioShack company-operated stores and certain test store formats.
 
Net Interest Expense
Consolidated net interest expense, which is interest expense net of interest income, was $43.7 million in 2011, compared with $39.3 million in 2010.
 
In 2011 and 2010, interest expense primarily consisted of interest paid at the stated coupon rate on our outstanding notes, the non-cash amortization of the discounts on our long-term debt, cash received on our interest rate swaps, and the non-cash change in fair value of our interest rate swaps. Interest expense increased $4.9 million in 2011. This increase was driven by the increased average amount of long-term debt outstanding during 2011, the increased debt discount amortization related to our 2013 Convertible Notes, and increased commitment fees related to the five-year $450 million asset-based revolving credit facility we entered into on January 4, 2011, with a group of lenders with Bank of America, N.A., as administrative and collateral agent (the “2016 Credit Facility”). Non-cash interest expense was $17.0 million in 2011 compared with $15.2 million in 2010.
 
 
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Income Tax Expense
Our effective tax rate for 2011 was 37.5%, compared with 38.7% for 2010. The 2011 effective tax rate was affected by the realization of job retention credits generated pursuant to the Hiring Incentives to Restore Employment Act. These credits lowered the effective tax rate by 1.1 percentage points.
 
The 2010 effective tax rate was affected by the net reversal of approximately $1.2 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 0.4 percentage points.
 
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 used in operating activities in 2012 was $43.0 million, compared with cash provided by operating activities of $217.9 million in 2011. Cash flows from operating activities are comprised of net income or loss plus non-cash adjustments to net income or loss and the net changes in assets and liabilities. The amounts of cash provided by net income or loss plus non-cash adjustments to net income or loss were $59.9 million and $215.4 million in 2012 and 2011, respectively. The decrease in net income plus non-cash adjustments was primarily driven by our net loss in 2012 of $139.4 million compared with a net income of $72.2 million in 2011. The amount of cash used by the net changes in assets and liabilities was $102.9 million in 2012, compared with cash provided by the net changes in assets and liabilities of $2.5 million in 2011. The increase in cash used by the net changes in assets and liabilities in 2012 was primarily driven by cash used for our increased inventory balance at December 31, 2012, which was partially offset by income tax refunds of $118.6 million and by cash provided by our increased accounts payable balance. Our inventory balance was larger at December 31, 2012, than it was at December 31, 2011, primarily due to a higher average unit cost of, and larger quantities of, wireless handsets. The increase in inventory was also driven by increased inventory in our higher-margin signature platform, which was primarily driven by increased wireless accessories and headphones.
 
Investing Activities: The amounts of cash used in investing activities were $94.2 million and $80.1 million in 2012 and 2011, respectively. This change was driven by the increase in our restricted cash balance, which was partially offset by decreased capital expenditures in 2012. For further discussion of our restricted cash, see “Cash Requirements” later in this MD&A. Capital expenditures were $67.8 million in 2012 compared with $82.1 million in 2011. This decrease was primarily driven by higher capital expenditures for our Target Mobile centers in 2011 when we opened many of these locations. Capital expenditures primarily related to our U.S. RadioShack company-operated stores and information system projects in 2012 and 2011. Our capital expenditures in 2011 also related to our Target Mobile centers.
 
Financing Activities: Net cash provided by financing activities was $81.2 million in 2012 compared with net cash used in financing activities of $115.5 million in 2011. Our net cash provided by financing activities in 2012 was primarily due to the $175.0 million of new borrowings. These borrowings were partially offset by the purchase of $88.1 million principal amount of our 2013 Convertible Notes and our dividend payments of $24.9 million. Our net cash used in financing activities for 2011 was primarily driven by the repurchase of $113.3 million of our common stock and the payment of a $49.6 million annual dividend.
 
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 a negative $135.7 million in 2012, $86.2 million in 2011, and $48.4 million in 2010. The decrease in free cash flow for 2012 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. See “Liquidity Outlook” later in this MD&A for further discussion of our sources of liquidity and our cash requirements in future periods. The comparable financial measure to free cash flow under generally accepted accounting principles is net cash flows provided by or used in operating activities. Net cash flows used in operating activities was $43.0 million in 2012, compared with net cash provided by operating activities of $217.9 million and $155.0 million in 2011 and 2010, respectively. 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.
 
 
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Year Ended December 31,
 
(In millions)
 
2012
   
2011
   
2010
 
Net cash (used in) provided by operating activities
  $ (43.0 )   $ 217.9     $ 155.0  
Less:
                       
Additions to property, plant and equipment
    67.8       82.1       80.1  
Dividends paid
    24.9       49.6       26.5  
                         
Free cash flow
  $ (135.7 )   $ 86.2     $ 48.4  
 
 
SOURCES OF LIQUIDITY
As of December 31, 2012, we had $535.7 million in cash and cash equivalents, compared with $591.7 million as of December 31, 2011. The table below lists our credit commitments from various financial institutions at December 31, 2012.
 
(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 (1)
  $ 450.0     $ --     $ --     $ 450.0     $ --  
Standby letters of credit
    --       --       --       --       --  
Total commercial commitments
  $ 450.0     $ --     $ --     $ 450.0     $ --  
 
(1)
At December 31, 2012, our maximum availability for revolving borrowings was $393.7 million. No revolving borrowings have been made under the facility, and letters of credit totaling $3.1 million had been issued as of December 31, 2012, resulting in $390.6 million of availability for revolving borrowings.

 
2016 Credit Facility: In August 2012 we entered into an amended and restated credit agreement (“Restated 2016 Credit Facility” or “2016 Credit Facility”) with a group of lenders with Bank of America, N.A., as the administrative and collateral agent. The Restated 2016 Credit Facility amends and restates the Company’s existing asset-based revolving credit agreement (the “Original 2016 Credit Facility”). The Restated 2016 Credit Facility revised the terms of the Original 2016 Credit Facility to, among other things, provide for $75 million of term loans.
 
Like the Original 2016 Credit Facility, the Restated 2016 Credit Facility matures on January 4, 2016, and provides for an asset-based revolving credit line of $450 million, subject to a borrowing base, which was $642.8 million at December 31, 2012. As with the Original 2016 Credit Facility, obligations under the Restated 2016 Credit Facility are secured by substantially all of our inventory, accounts receivable, cash, and cash equivalents. Obligations under the Restated 2016 Credit Facility are also secured by certain real estate.
 
As with the Original 2016 Credit Facility, revolving borrowings under the Restated 2016 Credit Facility bear interest at our choice of a bank’s prime rate plus 1.25% to 1.75% or LIBOR plus 2.25% to 2.75%. The applicable rates in these ranges are based on the aggregate average availability under the facility. The Restated 2016 Credit Facility also contains a $200 million sub-limit for the issuance of standby and commercial letters of credit. The issuance of letters of credit reduces the amount available under the facility. Letter of credit fees are 2.25% to 2.75% for standby letters of credit and 1.125% to 1.375% for commercial letters of credit. We pay commitment fees to the lenders at an annual rate of 0.50% of the unused amount of the facility.
 
The maximum availability for revolving borrowings under the 2016 Credit Facility is determined at the end of each month and is calculated as the lesser of:
 
·  
$450 million, or
 
·  
Our borrowing base for revolving borrowings less $45 million (calculated as $597.8 million at December 31, 2012), or
 
·  
Our borrowing base for revolving borrowings up to a maximum amount of $450 million less the greater of 12.5% (currently $56.3 million) or $45 million if we do not meet a specified consolidated fixed charge coverage ratio during a trailing twelve-month period (calculated as $393.7 million at December 31, 2012).
 
As of December 31, 2012, our maximum availability for revolving borrowings under the 2016 Credit Facility was $393.7 million as a result of us not meeting the consolidated fixed charge coverage ratio at December 31, 2012. As of December 31, 2012, no revolving borrowings had been made under the facility, and letters of credit totaling $3.1 million had been issued, resulting in $390.6 million of availability for revolving borrowings under the 2016 Credit Facility. We believe that we will not meet the consolidated fixed charge coverage ratio for at least the next twelve months.
 
 
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If at any time the outstanding revolving borrowings and term loans under the 2016 Credit Facility exceed the sum of the revolving borrowing base and the term loan borrowing base, we will be required to repay an amount equal to such excess. No payments (whether optional or mandatory) may be made in respect of the principal amount of these term loans unless all revolving borrowings have been repaid, any outstanding letters of credit have been cash collateralized, and all other commitments under the Restated 2016 Credit Facility have been repaid or otherwise satisfied. The revolving borrowing base and term loan borrowing base are subject to customary reserves that may be implemented by the administrative agent at its permitted discretion.
 
The Restated 2016 Credit Facility contains customary affirmative and negative covenants and events of default that are substantially consistent with those contained in the Original 2016 Credit Facility. These covenants could, among other things, restrict certain payments, including dividends and share repurchases. We do not believe the limitations contained in the credit facility will, in the foreseeable future, adversely affect our ability to use the credit facility and execute our business plan.
 
CASH REQUIREMENTS
 
Capital Expenditures: The nature of our capital expenditures is comprised of a base level of investment required to support our current operations and a discretionary amount related to our strategic initiatives. The base level of capital expenditures required to support our operations ranges from $40 million to $50 million. The remaining amount of anticipated capital expenditures relates to strategic initiatives as reflected in our annual plan. These capital expenditures are discretionary and, therefore, may not be spent if we decide not to pursue one or more of our strategic initiatives. We estimate that our capital expenditures for 2013 will range from $70 million to $90 million based on our operating performance during the year. U.S. RadioShack company-operated store remodels and relocations and information systems projects will account for the majority of our anticipated 2013 capital expenditures. Cash and cash equivalents and cash generated from operating activities will be used to fund future capital expenditure needs. Additionally, our 2016 Credit Facility could be utilized to fund capital expenditures.
 
Restricted Cash: Restricted cash totaled $26.5 million at December 31, 2012, and is included in other current assets in our Consolidated Balance Sheets. This cash is pledged as collateral for a standby letter of credit issued to our general liability insurance provider. We have the ability to withdraw this cash at any time and instead provide a letter of credit issued under our 2016 Credit Facility similar to the letter of credit that was issued under our 2016 Credit Facility at December 31, 2011. We have elected to pledge this cash as collateral to reduce our costs associated with our general liability insurance.
 
Seasonal Inventory Buildup: Typically, our annual cash requirements for pre-seasonal inventory buildup from August to November range between $150 million and $250 million. The funding required for this buildup will be primarily from cash and cash equivalents and any cash generated from operating activities. Additionally, our 2016 Credit Facility could be utilized to fund the inventory buildup, if necessary.
 
Operating Leases: We use operating leases, primarily for our retail locations and our corporate campus, to lower our capital requirements.

 
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Contractual Obligations
The table below contains our known contractual commitments as of December 31, 2012.
 
(In millions)
 
Payments Due by Period
 
 
Contractual Obligations
 
Total
   
Less Than
1 Year
   
1-3 Years
   
3-5 Years
   
More than
5 Years
 
Long-term debt obligations (1)
  $ 787.9     $ 286.9     $ 9.4     $ 166.6     $ 325.0  
Interest obligations
    209.7       42.1       73.0       65.2       29.4  
Operating lease obligations (2)
    598.9       202.8       260.2       106.7       29.2  
Purchase obligations (3)
    313.0       301.7       11.3       --       --  
Other long-term liabilities reflected on the balance sheet (4)
    167.9               6.4       33.5       128.0  
Total
  $ 2,077.4     $ 833.5     $ 360.3     $ 372.0     $ 511.6  
 
(1)
For more information regarding long-term debt, refer to Note 5 – “Indebtedness and Borrowing Facilities” of our Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
(2)
For more information regarding lease commitments, refer to Note 14 – “Commitments and Contingencies” of our Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
(3)
Purchase obligations primarily include our product commitments and marketing agreements.
(4)
These long-term liabilities reflected on our Consolidated Balance Sheet represented contractual obligations for which we could reasonably estimate the timing of cash payments. Additionally, we had a $21.2 million non-current deferred tax liability that we are not able to reasonably estimate the amount by which this liability will increase or decrease over time; therefore, this amount has not been included in the table. The remaining non-current liabilities reflected on our Consolidated Balance Sheet did not represent contractual obligations for future cash payments.

In 2012 we entered into a $50 million secured term loan due in January 2016, a $100 million secured term loan due in September 2017, and a $25 million secured term loan due in September 2017. We borrowed these amounts in advance of the maturity of our 2013 Convertible Notes. These new loans represented approximately 47% of the original $375 million principal amount of the 2013 Convertible Notes. We repurchased $88.1 million principal amount of the 2013 Convertible Notes at a discount in 2012. We plan to repay the remaining $286.9 million of 2013 Convertible Notes with cash on hand and borrowings from our 2016 Credit Facility, if necessary. For more information regarding our long-term debt, refer to Note 5 – “Indebtedness and Borrowing Facilities” of our Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
 
LIQUIDITY OUTLOOK
 
As of December 31, 2012, we had $535.7 million in cash and cash equivalents, compared with $591.7 million in 2011. Additionally, we had a credit facility of $450 million with availability of $390.6 million as of December 31, 2012. This resulted in a total liquidity position of $926.3 million at December 31, 2012.
 
We experienced a loss of $139.4 million in 2012, and our cash flows from operating activities declined from cash provided by operations of $217.9 million in 2011 to cash used in operations of $43.0 million in 2012. Although we do not anticipate borrowing under our 2016 Credit Facility during 2013, we may cause letters of credit to be issued under this credit facility, which would reduce our total liquidity position.
 
If our results of operations for 2013 are significantly worse than 2012, or if our trade payables decrease, we could be required to utilize more of our 2016 Credit Facility in the form of borrowings or additional letters of credit. However, in this event, we could implement cash conservation activities such as reducing our spending for professional fees, reducing our capital expenditures, reducing our spending for advertising, lowering our inventory balances or not taking advantage of discounts for early payments to vendors.
 
We have considered the impact of our financial projections on our liquidity analysis and have evaluated the appropriateness of the key assumptions in our forecast such as sales, gross profit and SG&A expenses. We have analyzed our cash requirements, including our inventory position, other working capital changes, capital expenditures and borrowing availability under our credit facility. Based upon these evaluations and analyses, we expect that our anticipated sources of liquidity will be sufficient to meet our obligations without disposition of assets outside the ordinary course of business or significant revisions of our planned operations through 2013.
 
If the trend in our results of operations continues or worsens after 2013, we may be required to borrow more under our 2016 Credit Facility, or to take additional actions to improve our liquidity that would be outside the ordinary course of business. These actions could include: incurring additional debt at higher interest rates, reducing our capital expenditures to amounts below those required to support our current level of operations, closing a significant number of stores, further reducing our employee headcount, or selling one or more subsidiaries.
 
Capitalization
The declaration of dividends, the dividend rate, and the amount and timing of share repurchases are at the sole discretion of our Board of Directors, and plans for future dividends and share repurchases may be revised by the Board of Directors at any time.
 
 
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The following table sets forth information about our capitalization on the dates indicated.
 
   
December 31,
 
   
2012
   
2011
 
 
(Dollars in millions)
 
Dollars
   
% of Total
Capitalization
   
Dollars
   
% of Total
Capitalization
 
Short-term debt
  $ 278.7       20.2 %   $ --       0.0 %
Long-term debt
    499.0       36.3       670.6       47.1  
Total debt
    777.7       56.5       670.6       47.1  
Stockholders’ equity
    598.7       43.5       753.3       52.9  
Total capitalization
  $ 1,376.4       100.0 %   $ 1,423.9       100.0 %

Our debt-to-total capitalization ratio increased in 2012 from 2011, primarily due to the $175.0 million of new borrowings under the secured term loans due in 2016 and 2017. These borrowings were partially offset by purchase of $88.1 million principal amount of the 2013 Convertible Notes.
 
Dividends: We paid $0.125 per share dividends in the first and second quarters of 2012. On July 25, 2012, we announced that we were suspending our dividend. We paid per share annual dividends of $0.50 and $0.25 in 2011 and 2010, respectively. Our dividend payments totaled $24.9 million, $49.6 million, and $26.5 million in 2012, 2011 and 2010, respectively, and were funded from cash on hand.
 
2011 Share Repurchase Program: In October 2011 our Board of Directors approved a share repurchase program with no expiration date authorizing management to repurchase up to $200 million of our common stock to be executed through open market or private transactions. During the fourth quarter of 2011, we paid $11.9 million to purchase approximately 0.9 million shares of our common stock in open market purchases. As of December 31, 2011, there was $188.1 million available for share repurchases under this program. We announced on January 30, 2012, that we had suspended further share repurchases under this program.
 
2008 Share Repurchase Program: In November 2010 we completed a $300 million accelerated share repurchase (“ASR”) program that we entered into in August 2010. We repurchased 14.9 million shares under the ASR program. In addition, after the conclusion of the ASR program in November 2010, we repurchased $98.6 million worth of shares in the open market, representing 4.9 million shares. During the second quarter of 2011, we paid $101.4 million to purchase 6.3 million shares of our common stock in open market purchases. This completed our purchases under our 2008 share repurchase program.
 
OFF-BALANCE SHEET ARRANGEMENTS
Other than the operating leases described above, we do not have any off-balance sheet financing arrangements, transactions, or special purpose entities.
 
INFLATION
Inflation has not significantly affected us over the past three years. We do not expect inflation to have a significant effect on our operations in the foreseeable future.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States. The application of GAAP requires us to make estimates and assumptions that affect the reported values of assets and liabilities at the date of the financial statements, the reported amount of revenues and expenses during the reporting period, and the related disclosures of contingent assets and liabilities. The use of estimates is pervasive throughout our financial statements and is affected by management’s judgment and uncertainties. Our estimates, assumptions and judgments are based on historical experience, current market trends and other factors that we believe to be relevant and reasonable at the time the consolidated financial statements are prepared. We continually evaluate the information used to make these estimates as our business and the economic environment change. Actual results may differ materially from these estimates under different assumptions or conditions.
 
In the Notes to Consolidated Financial Statements, we describe the significant accounting policies used in the preparation of our consolidated financial statements. The accounting policies and estimates we consider most critical are revenue recognition; inventory valuation; estimation of reserves and valuation allowances specifically related to insurance, tax and legal contingencies; valuation of long-lived assets and goodwill; and stock-based compensation.
 
We consider an accounting policy or estimate to be critical if it requires difficult, subjective or complex judgments, and is material to the portrayal of our financial condition, changes in financial condition or results of operations. The selection, application and disclosure of our critical accounting policies and estimates have been reviewed by the Audit and Compliance Committee of our Board of Directors.
 
Revenue Recognition
 
Description
 
Our revenue is derived principally from the sale of name brand and private brand products and services to consumers. Revenue is recognized, net of an estimate for customer refunds and product returns, when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured.
 
 
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Certain products, such as wireless telephone handsets, require the customer to use the services of a third-party wireless service provider. The wireless service provider pays us an upfront commission for obtaining a new customer or upgrading an existing customer and, in some cases, a monthly recurring residual amount based upon the ongoing arrangement between the service provider and the customer. For certain new customers the upfront commission revenue is repaid to the wireless service provider if the wireless handset is subsequently deactivated from the wireless network during a specified period. Our sale of an activated wireless handset is the single event required to meet the delivery criterion for both the upfront commission and the recurring residual revenue. Upfront commission revenue, net of estimated wireless service deactivations, is recognized at the time an activated wireless handset is sold to the customer at the point-of-sale. Recurring residual revenue, which is not fixed and determinable at the point of sale, is recognized as earned under the terms of each contract with the wireless service provider, which is typically as the wireless service provider bills its customer, generally on a monthly basis.
 
Judgments and uncertainties involved in the estimate
 
Our revenue recognition accounting methodology requires us to make certain judgments regarding the estimate of future sales returns and wireless service deactivations. Our estimates for product refunds and returns, wireless service deactivations and commission revenue adjustments are based on historical information pertaining to these items. Based on our extensive history in selling activated wireless handsets, we have been able to establish reliable estimates for wireless service deactivations. However, our estimates for wireless service deactivations can be affected by certain characteristics of and decisions made by our service providers. These factors include changes in the quality of their customer service, the quality and performance of their networks, their rate plan offerings, their policies regarding extensions of customer credit, and their wireless handset product offerings. These factors add uncertainty to our estimates.
 
Effect if actual results differ from assumptions
 
We have not made any material changes in the methodology used to estimate sales returns or wireless service deactivations during the past three fiscal years. We continue to update our estimate for wireless service deactivations to reflect the most recently available information regarding the characteristics of and decisions made by our service providers discussed above. If actual results differ from our estimates due to these or various other factors, the amount of revenue recorded could be materially affected. A 10% difference in our reserves for the estimates noted above would have affected net sales and operating revenues by approximately $5.6 million in 2012.
 
Inventory Valuation
 
Description
 
Our inventory consists primarily of finished goods available for sale at our retail locations or within our distribution centers and is recorded at the lower of cost - on a first-in first-out basis - or market. The cost components recorded within inventory are the vendor invoice cost, which is net of vendor allowances, and certain allocated freight, distribution, warehousing and other costs relating to merchandise acquisition required to bring the merchandise from the vendor to the location where it is offered for sale.
 
Judgments and uncertainties involved in the estimate
 
Typically, the market value of our inventory is higher than its aggregate cost. Determination of the market value may be very complex and, therefore, requires a high degree of judgment. In order for management to make the appropriate determination of market value, the following items are commonly considered: inventory turnover statistics, current selling prices, seasonality factors, consumer trends, competitive pricing, performance of similar products or accessories, planned promotional incentives, technological obsolescence, and estimated costs to sell or dispose of merchandise such as sales commissions.
 
If the estimated market value, calculated as the amount we expect to realize, net of estimated selling costs, from the ultimate sale or disposal of the inventory, is determined to be less than the recorded cost, we record a provision to reduce the carrying amount of the inventory item to its net realizable value.
 
Effect if actual results differ from assumptions
 
We have not made any material changes in the methodology used to establish our inventory valuation or the related reserves during the past three fiscal years, and we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to estimate our inventory valuation reserves. Differences between management estimates and actual performance and pricing of our merchandise could result in inventory valuations that differ from the amount recorded at the financial statement date and could also cause fluctuations in the amount of recorded cost of products sold. If our estimates regarding market value are inaccurate or changes in consumer demand affect certain products in an unforeseen manner, we may be exposed to material losses or gains in excess of our established valuation reserve. We believe that we have sufficient current and historical knowledge to record reasonable estimates for our inventory valuation reserves. However, it is possible that actual results could differ from recorded reserves.
 
 
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Estimation of Reserves and Valuation Allowances for Self-Insurance, Income Taxes, and Litigation Contingencies
 
Description
 
The amount of liability or valuation allowance we record related to insurance claims, tax positions, and legal contingencies requires us to make judgments about the amount of expense that will ultimately be incurred or the realization of certain assets.
 
We are insured for certain losses related to workers' compensation, property and other liability claims, with deductibles up to $1.0 million per occurrence. This insurance coverage limits our exposure for any catastrophic claims that result in liability in excess of the deductible. We also have a self-insured health program administered by a third-party covering the majority of our employees that participate in our health insurance programs. We estimate the amount of our reserves for all insurance programs discussed above at the end of each reporting period. This estimate is based on historical claims experience, demographic factors, severity factors, and other factors we deem relevant.
 
We are subject to periodic audits from multiple domestic and foreign tax authorities related to income tax, sales and use tax, personal property tax, and other forms of taxation. These audits examine our tax positions, timing of income and deductions, and allocation procedures across multiple jurisdictions. Our accounting for tax estimates and contingencies requires us to evaluate tax issues and establish reserves in our consolidated financial statements based on our estimate of the probability of realizing these tax exposures. Depending on the nature of the tax issue, we could be subject to audit over several years; therefore, our estimated reserve balances might exist for multiple years before an issue is resolved by the taxing authority.
 
We record a valuation allowance to reduce a deferred tax asset if based on the consideration of all available evidence, it is more likely than not that all or some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be objectively verified. We evaluate our deferred income taxes quarterly to determine if valuation allowances are required by considering available evidence, including historical and projected taxable income and tax planning strategies. Any deferred tax asset subject to a valuation allowance is still available to us to offset future taxable income, and we will adjust a previously established valuation allowance if we change our assessment of the amount of deferred income tax asset that is more likely than not to be realized.
 
We are involved in legal proceedings and governmental inquiries associated with employment and other matters. Our accounting for legal contingencies requires us to estimate the probable losses in these matters. These estimates have been developed in consultation with in-house and outside legal counsel and are based upon a combination of litigation and settlement strategies.
 
Judgments and uncertainties involved in the estimate
 
Our liabilities for insurance, tax and legal contingencies contain uncertainties because we are required to make assumptions and to apply judgment to estimate the exposures associated with these items. We use our history and experience, as well as the specific circumstances surrounding these claims, in evaluating the amount of liability we should record. As additional information becomes available, we assess the potential liability related to our various claims and revise our estimates as appropriate. These revisions could materially affect our results of operations and financial position or liquidity.
 
Effect if actual results differ from assumptions
 
We have not made any material changes in the methodology used to estimate our insurance, tax, or legal contingencies reserves during the past three fiscal years, and we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions for these items. However, a 10% change in our insurance reserves at December 31, 2012, would have affected net income by approximately $3.9 million. As of December 31, 2012, actual losses had not exceeded our estimates. Additionally, for claims that exceed our deductible amount, we record a gross liability and corresponding receivable representing expected recoveries, since we are not legally relieved of our obligation to the claimant.
 
Although we believe that our insurance, tax and legal reserves are based on reasonable judgments and estimates, actual results could differ, which may expose us to material gains or losses in future periods. These actual results could materially affect our effective tax rate, earnings, deferred tax balances and cash flows in the period of resolution.
 
Valuation of Long-Lived Assets and Goodwill
 
Description
 
Long-lived assets, such as property and equipment, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable, such as insufficient cash flows or plans to dispose of or sell long-lived assets before the end of their previously estimated useful lives. The carrying amount is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying amount is not recoverable, we recognize an impairment loss equal to the amount by which the carrying amount exceeds fair value. We estimate fair value based on projected future discounted cash flows. Impairment losses, if any, are recorded in the period in which the impairment occurs. The carrying value of the asset is adjusted to the new carrying value, and any subsequent increases in fair value are not recorded. Additionally, if it is determined that the estimated remaining useful life of the asset should be decreased, the periodic depreciation expense is adjusted based on the new existing carrying value of the asset and the new remaining useful life. Our policy is to evaluate long-lived assets for impairment at a store level for retail operations.
 
 
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We have acquired goodwill related to business acquisitions. Goodwill represents the excess of the purchase price over the fair value of net assets acquired. We review our goodwill balances on an annual basis, during the fourth quarter, and whenever events or changes in circumstances indicate the carrying value of a reporting unit might exceed its fair value. If the carrying amount of a reporting unit exceeds its fair value, we recognize an impairment loss for this difference.
 
Judgments and uncertainties involved in the estimate
 
Our impairment loss calculations for long-lived assets contain uncertainties because they require us to apply judgment and estimates concerning future cash flows, strategic plans, useful lives and assumptions about market performance. We also apply judgment in the selection of a discount rate that reflects the risk inherent in our current business model.
 
Our impairment loss calculations for goodwill contain uncertainties because they require us to estimate fair values of our reporting units. We estimate fair values based on various valuation techniques such as discounted cash flows and comparable market analyses. These types of analyses contain uncertainties because they require us to make judgments and assumptions regarding future profitability, industry factors, planned strategic initiatives, discount rates and other factors.
 
Effect if actual results differ from assumptions
 
We have not made any material changes in the accounting methodologies we use to assess impairment loss for long-lived assets or goodwill during the past three fiscal years, and we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use in calculating goodwill impairment. If actual results or performance of certain business units are not consistent with our estimates and assumptions, we may be exposed to additional impairment charges, which could be material to our results of operations. For example, if the profitability of our U.S. RadioShack company-operated stores segment does not increase from our 2012 level, there could be a material increase in the impairment of long-lived assets at certain of our U.S. RadioShack company-operated stores in future periods.
 
The total value of our goodwill at December 31, 2012, was $36.6 million. Of this amount, $36.1 million related to goodwill from the purchase of RadioShack de Mexico. Based on our most recent review of goodwill impairment, we noted that the fair values of our reporting units that had goodwill balances were substantially greater than their carrying values.
 
Stock-Based Compensation
 
Description
 
We have historically granted certain stock-based awards to employees and directors in the form of non-qualified stock options, incentive stock options, restricted stock and deferred stock units. See Note 2 - “Summary of Significant Accounting Policies” and Note 8 - “Stock-Based Incentive Plans” in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a more complete discussion of our stock-based compensation programs.
 
At the date an award is granted, we determine the fair value of the award and recognize the compensation expense over the requisite service period, which typically is the period over which the award vests. The restricted stock and deferred stock units are valued at the fair market value of our stock on the date of grant. The fair value of stock options with only service conditions is estimated using the Black-Scholes-Merton option-pricing model. The fair value of stock options with service and market conditions is valued utilizing a lattice model with Monte Carlo simulations.
 
Judgments and uncertainties involved in the estimate
 
The Black-Scholes-Merton and lattice models require management to apply judgment and use subjective assumptions, including expected option life, volatility of stock prices, and employee forfeiture rate. We use historical data and judgment to estimate the expected option life and employee forfeiture rate, and use historical and implied volatility when estimating the stock price volatility. Changes in these assumptions can materially affect the fair value estimate.
 
Effect if actual results differ from assumptions
 
We have not made any material changes in the accounting methodologies used to record stock-based compensation during the past three years. While the assumptions that we develop are based on our best expectations, they involve inherent uncertainties based on market conditions and employee behavior that are outside of our control. If actual results are not consistent with the assumptions used, the stock-based compensation expense reported in our financial statements may not be representative of the actual economic cost of the stock-based compensation. Additionally, if actual employee forfeitures significantly differ from our estimated forfeitures, we may have an adjustment to our financial statements in future periods. A 10% change in our stock-based compensation expense in 2012 would have affected our net income by approximately $0.7 million.
 
 
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FACTORS THAT MAY AFFECT FUTURE RESULTS
Matters discussed in our MD&A and in other parts of this Annual Report on Form 10-K include forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These forward-looking statements are statements that are not historical and may be identified by the use of words such as “expect,” “believe,” “anticipate,” “estimate,” “intend,” “potential” or similar words. These matters include statements concerning management’s plans and objectives relating to our operations or economic performance and related assumptions. We specifically disclaim any duty to update any of the information set forth in this report, including any forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future events and, therefore, involve a number of assumptions, risks and uncertainties, including the risk factors described in Item 1A, “Risk Factors,” of this Annual Report on Form 10-K. Management cautions that forward-looking statements are not guarantees, and our actual results could differ materially from those expressed or implied in the forward-looking statements.
 
 
At December 31, 2012, we held no derivative instruments that materially increased our exposure to market risks for interest rates, foreign currency rates, commodity prices or other market price risks.
 
Our exposure to interest rate risk results from changes in short-term interest rates. Interest rate risk exists with respect to our cash equivalents of $408.2 million and our $175 million of term loans that bear interest at variable rates, in each case at December 31, 2012. A hypothetical 1% increase in short-term interest rates would result in a corresponding decrease in annual net interest expense of approximately $3.0 million. Short-term liquid investments at variable interest rates currently yield less than 1% on an annualized basis. A hypothetical decrease of short-term interest rates to zero would result in a corresponding increase in annual net interest expense of approximately $1.0 million. This hypothetical example assumes no change in the proportionate relationship between our cash equivalent balance and the amount of our variable interest rate debt.
 
We have market risk arising from changes in foreign currency exchange rates related to our purchase of inventory from manufacturers located in China and other areas outside the U.S. Our purchases are denominated in U.S. dollars, and any weakening of the U.S. dollar against the Chinese currency, or other currencies, could cause our vendors to increase the prices of items we purchase from them. It is not possible to estimate the effect of foreign currency exchange rate changes on our purchases of this inventory. We are also exposed to foreign currency fluctuations related to our Mexican subsidiary, which accounted for less than 5% of our consolidated net sales and operating revenues in 2012.
 
 
The Index to our Consolidated Financial Statements is found on page 39. Our Consolidated Financial Statements and Notes to Consolidated Financial Statements follow the index.
 
 
None.
 
ITEM 9A.  CONTROLS AND PROCEDURES.
 
Evaluation of Disclosure Controls and Procedures
 
We have established a system of disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) designed to ensure that information relating to the Company that is required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, both of these positions were held by Dorvin D. Lively. Effective February 11, 2013, Joseph C. Magnacca joined the Company as Chief Executive Officer, at which time he became our principal executive officer. An evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report was performed under the supervision and with the participation of management, including Messrs. Lively and Magnacca. Based upon that evaluation, management, including Messrs. Lively and Magnacca, concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
 
 
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Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) for the Company. Under the supervision and with the participation of management, including Messrs. Lively and Magnacca, an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2012, was conducted based upon criteria established in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon that evaluation, management, including Messrs. Lively and Magnacca, concluded that our internal control over financial reporting was effective as of that date. PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements contained in this report, has issued an attestation report on the Company’s internal control over financial reporting, which report is included herein.
 
Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
None.
 
PART III
 
 
We will file a definitive proxy statement with the SEC on or about April 11, 2013. The information called for by this Item with respect to directors and the Audit and Compliance Committee of the Board of Directors is incorporated by reference from the Proxy Statement for the 2013 Annual Meeting under the headings “Item 1 - Election of Directors” and “Meetings and Committees of the Board.” For information relating to our Executive Officers, see Part I of this Annual Report on Form 10-K. The Section 16(a) reporting information is incorporated by reference from the Proxy Statement for the 2013 Annual Meeting under the heading “Section 16(a) Beneficial Ownership Reporting Compliance.” Information regarding our Financial Code of Ethics is incorporated by reference from the Proxy Statement for the 2013 Annual Meeting under the heading “Corporate Governance – Code of Conduct and Financial Code of Ethics.”
 
 
The information called for by this Item with respect to executive compensation is incorporated by reference from the Proxy Statement for the 2013 Annual Meeting under the headings “Compensation Discussion and Analysis,” “Executive Compensation,” “Non-Employee Director Compensation” and “Compensation Committee Report.”
 
 
The information called for by this Item with respect to security ownership of certain beneficial owners and management is incorporated by reference from the Proxy Statement for the 2013 Annual Meeting under the heading “Ownership of Securities.”

 
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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides a summary of information as of December 31, 2012, relating to our equity compensation plans in which our common stock is authorized for issuance.
 
Equity Compensation Plan Information
 
 
 
 
 
 
(Share amounts in thousands)
 
(a)
 
 
Number of shares to be
issued upon exercise of
outstanding options,
warrants and rights
   
(b)
 
 
Weighted-average
exercise price of
outstanding options,
warrants and rights
   
(c)
Number of shares
remaining available for
future issuance under
equity compensation plans
(excluding shares reflected
in column (a))
 
Equity compensation plans approved by shareholders (1)
    4,860 (2)   $ 13.58       7,719 (3)
Equity compensation plans not approved by shareholders (4)
    3,203     $ 14.42       --  
Total
    8,063     $ 13.97       7,719  
 
(1)
Includes the 1997 Incentive Stock Plan (“ISP”), the 2001 ISP, the 2004 Deferred Stock Unit Plan for Non-Employee Directors, and the 2009 ISP. Refer to Note 8 - “Stock-Based Incentive Plans” of our Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further information. The 1997 ISP expired on February 27, 2007, and no further grants may be made under this plan. The 2001 ISP terminated upon shareholder approval of the 2009 ISP on May 21, 2009. No further grants may be made under the 2001 ISP.
(2)
This amount includes approximately 751,000 shares of restricted stock and approximately 451,000 deferred stock units.
(3)
This amount includes approximately 464,000 deferred stock units.
(4)
Includes the 1999 ISP and options granted as an inducement grant in connection with our former Chief Executive Officer’s employment with RadioShack in 2006. Refer to Note 8 - “Stock-Based Incentive Plans” in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for more information concerning the 1999 ISP and the 2006 inducement grant. The 1999 ISP expired on February 23, 2009, and no further grants may be made under this plan.

 
 
The information called for by this Item with respect to certain relationships and transactions with management and others is incorporated by reference from the Proxy Statement for the 2013 Annual Meeting under the heading Corporate Governance - Director Independence and - Review and Approval of Transactions with Related Persons.