10-Q 1 form10q033113.htm RADIOSHACK CORPORATION FORM 10-Q MARCH 31, 2013 form10q033113.htm


 
 
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
________________________
 
FORM 10-Q
 
(Mark One)
 
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
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
________________________
 
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 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
 
The number of shares outstanding of the issuer's Common Stock, $1 par value, on April 15, 2013, was 99,683,651.
 

 
1

 
 
TABLE OF CONTENTS
     
Page
PART I – FINANCIAL INFORMATION
 
       
 
Financial Statements
3
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
 
Quantitative and Qualitative Disclosures about Market Risk
25
 
Controls and Procedures
26
     
PART II – OTHER INFORMATION
 
       
 
Legal Proceedings
26
 
Unregistered Sales of Equity Securities and Use of Proceeds
26
 
Exhibits
27
   
27
   
28
 
 
 
2

 

PART I – FINANCIAL INFORMATION
 
 
RADIOSHACK CORPORATION AND SUBSIDIARIES
 
Condensed Consolidated Statements of Comprehensive Income (unaudited)

   
Three Months Ended
 
   
March 31,
 
(In millions, except per share amounts)
 
2013
   
2012
 
Net sales and operating revenues
  $ 849.0     $ 913.3  
Cost of products sold (includes depreciation amounts of
$2.3 million and $2.0 million, respectively)
    511.7       543.2  
Gross profit
    337.3       370.1  
                 
Operating expenses:
               
Selling, general and administrative
    337.9       345.3  
Depreciation and amortization
    16.5       17.2  
Impairment of long-lived assets
    1.4       0.5  
Total operating expenses
    355.8       363.0  
                 
Operating (loss) income
    (18.5 )     7.1  
                 
Interest income
    0.4       0.5  
Interest expense
    (15.0 )     (13.1 )
Other loss
    (0.3 )     --  
                 
Loss from continuing operations before income taxes
    (33.4 )     (5.5 )
Income tax expense (benefit)
    1.4       (0.8 )
                 
Loss from continuing operations
    (34.8 )     (4.7 )
Discontinued operations, net of income taxes
    (8.5 )     (3.3 )
                 
Net loss
  $ (43.3 )   $ (8.0 )
                 
Basic and diluted net loss per share:
               
Loss per share from continuing operations
  $ (0.35 )   $ (0.05 )
Loss per share from discontinued operations
    (0.08 )     (0.03 )
Net loss per share
  $ (0.43 )   $ (0.08 )
                 
Shares used in computing net loss
per share:
               
                 
Basic and diluted
    100.4       99.8  
                 
                 
Comprehensive loss
  $ (39.0 )   $ (2.4 )
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 

 
3

 

RADIOSHACK CORPORATION AND SUBSIDIARIES
 
Consolidated Balance Sheets (unaudited)

(In millions, except share amounts)
 
March 31,
2013
   
December 31,
2012
   
March 31,
2012
 
Assets
                 
Current assets:
                 
Cash and cash equivalents
  $ 434.9     $ 535.7     $ 566.4  
Accounts and notes receivable, net
    278.6       452.5       236.6  
Inventories
    926.5       908.3       730.2  
Other current assets
    83.0       85.4       131.3  
Total current assets
    1,723.0       1,981.9       1,664.5  
                         
Property, plant and equipment, net
    220.6       239.0       260.5  
Goodwill, net
    38.5       36.6       40.3  
Other assets, net
    43.1       41.6       52.7  
Total assets
  $ 2,025.2     $ 2,299.1     $ 2,018.0  
                         
Liabilities and Stockholders’ Equity
                       
Current liabilities:
                       
Current maturities of long-term debt
  $ 212.8     $ 278.7     $ --  
Accounts payable
    301.8       435.6       252.6  
Accrued expenses and other current liabilities
    229.7       263.9       237.7  
Total current liabilities
    744.3       978.2       490.3  
                         
Long-term debt, excluding current maturities
    499.1       499.0       674.9  
Other non-current liabilities
    220.4       223.2       113.1  
Total liabilities
    1,463.8       1,700.4       1,278.3  
                         
Commitments and contingencies (See Note 8)
                       
                         
Stockholders’ equity:
                       
Preferred stock, no par value, 1,000,000
shares authorized:
                       
Series A junior participating, 300,000 shares designated and none issued
    --       --       --  
Common stock, $1 par value, 650,000,000 shares authorized;
146,033,000 shares issued
    146.0       146.0       146.0  
Additional paid-in capital
    132.8       133.3       134.6  
Retained earnings
    1,317.5       1,360.8       1,504.7  
Treasury stock, at cost; 46,349,000, 46,425,000,
and 46,605,000 shares, respectively
    (1,031.7 )     (1,033.9 )     (1,039.3 )
Accumulated other comprehensive loss
    (3.2 )     (7.5 )     (6.3 )
Total stockholders’ equity
    561.4       598.7       739.7  
Total liabilities and stockholders’ equity
  $ 2,025.2     $ 2,299.1     $ 2,018.0  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 

 
4

 
 
RADIOSHACK CORPORATION AND SUBSIDIARIES
 
Consolidated Statements of Cash Flows (unaudited)

   
Three Months Ended
 
   
March 31,
 
(In millions)
 
2013
   
2012
 
Cash flows from operating activities:
           
Net loss
  $ (43.3 )   $ (8.0 )
Adjustments to reconcile net loss to net cash
               
provided by operating activities:
               
Depreciation and amortization
    20.0       20.9  
Amortization of discounts on long-term debt
    3.4       4.3  
Impairment of long-lived assets
    1.4       0.5  
Stock-based compensation
    1.9       1.9  
Other non-cash items
    0.1       2.2  
Changes in assets and liabilities:
               
Accounts and notes receivable
    174.7       124.8  
Inventories
    (16.2 )     16.8  
Other current assets
    3.0       13.4  
Accounts payable
    (89.5 )     (75.5 )
Accrued expenses and other
    (38.6 )     (52.8 )
Net cash provided by operating activities
    16.9       48.5  
                 
Cash flows from investing activities:
               
Additions to property, plant and equipment
    (5.1 )     (11.2 )
Proceeds from sale of property, plant and equipment
    6.2       --  
Changes in restricted cash
    --       (28.0 )
Other investing activities
    (2.9 )     --  
Net cash used in investing activities
    (1.8 )     (39.2 )
                 
Cash flows from financing activities:
               
Principal amount of long-term debt repayments
    (70.5 )     --  
Payments of dividends
    --       (12.4 )
Changes in cash overdrafts
    (45.4 )     (22.2 )
Net cash used in financing activities
    (115.9 )     (34.6 )
                 
Net decrease in cash and cash equivalents
    (100.8 )     (25.3 )
Cash and cash equivalents, beginning of period
    535.7       591.7  
Cash and cash equivalents, end of period
  $ 434.9     $ 566.4  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
5

 
RADIOSHACK CORPORATION AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1 – BASIS OF PRESENTATION
 
Throughout this report, the terms “our,” “we,” “us,” “Company,” and “RadioShack” refer to RadioShack Corporation, including its subsidiaries. We prepared the accompanying unaudited condensed consolidated financial statements, which include the accounts of RadioShack Corporation and all majority-owned domestic and foreign subsidiaries, in accordance with the rules of the Securities and Exchange Commission (“SEC”). Accordingly, we did not include all of the information and footnotes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In management’s opinion, all adjustments of a normal recurring nature considered necessary for a fair statement are included. However, our operating results for the three month periods ended March 31, 2013 and 2012, do not necessarily indicate the results you might expect for the full year. For further information, refer to our consolidated financial statements and management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2012.
 
Reclassifications: Certain amounts in the March 31, 2012, financial statements have been reclassified to conform to the March 31, 2013, and December 31, 2012, presentations. These reclassifications had no effect on net income, total assets, total liabilities, or total stockholders’ equity as previously reported. The most significant reclassification was a change to our presentation of certain deferred rent in the amount of $26.6 million from a current liability to a non-current liability in our March 31, 2012, Consolidated Balance Sheet to be more consistent with retail industry practice.
 
NOTE 2 – NEW ACCOUNTING STANDARDS
 
New Accounting Standards: In February 2013, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance to update the presentation of reclassifications from comprehensive income to net income in consolidated financial statements. Under this new guidance, an entity is required to provide information about the amounts reclassified out of accumulated other comprehensive income either by the respective line items of net income or by cross-reference to other required disclosures. The new guidance does not change the requirements for reporting net income or other comprehensive income in financial statements. This guidance is effective for fiscal years beginning after December 15, 2012. We adopted this guidance effective January 1, 2013, and it did not have any effect on our consolidated financial statements.
 
NOTE 3 – DISCONTINUED OPERATIONS
 
We account for closed retail locations as discontinued operations when the cash flows of a retail location have been eliminated from ongoing operations and we do not have any significant continuing involvement in its operations. In reaching the determination as to whether the cash flows of a retail location have been eliminated from our ongoing operations, we consider whether it is likely that customers will migrate to our other retail locations in the same geographic market.
 
We ceased operating all of our Target Mobile centers prior to March 31, 2013. We concluded that the cash flows from these centers were eliminated from our ongoing operations. Therefore, the results of these operations, net of income taxes, have been presented as discontinued operations in the Condensed Consolidated Statements of Comprehensive Income for all periods presented.
 
Upon ceasing these operations, we transitioned substantially all of our Target Mobile center employees to a third-party service provider that will continue to operate these locations on Target Corporation’s behalf. Net sales and operating revenues related to these discontinued operations were $69.8 million for the first quarter of 2013, compared with $94.9 million for the first quarter of 2012. The loss before income taxes for these discontinued operations was $8.3 million for the first quarter of 2013, compared with $5.3 million for the first quarter of 2012. In a separately negotiated agreement, we agreed to transfer substantially all of the inventory located in the Target Mobile centers, which was included in our consolidated balance sheet at March 31, 2013, to Target Corporation on April 1, 2013. The proceeds from this transaction were $48.7 million, which also represented the net book value of the inventory. We received these proceeds on April 15, 2013.
 
NOTE 4 – INDEBTEDNESS
 
2013 Convertible Notes: In the first quarter of 2013, we repurchased $70.5 million of aggregate principal amount of 2.50% convertible senior notes due August 1, 2013 (the “2013 Convertible Notes”). We paid a total of $69.7 million, which consisted of the purchase price of $69.5 million for the 2013 Convertible Notes plus $0.2 million in accrued and unpaid interest, to the holders of the notes. This transaction resulted in a loss of $0.3 million, which was classified as other loss on our Condensed Consolidated Statements of Comprehensive Income. At March 31, 2013, there was $216.4 million aggregate principal amount of 2013 Convertible Notes still outstanding.
 
6

 
NOTE 5 – NET LOSS PER SHARE
 
Basic net loss per share is computed based on the weighted average number of common shares outstanding for each period presented. Diluted net loss per share reflects the potential dilution that would have occurred if securities or other contracts to issue common stock were exercised, converted, or resulted in the issuance of common stock that would have then shared in our earnings.
 
The following table reconciles the numerator and denominator used in the basic and diluted net loss per share calculations for the periods presented:
 
   
Three Months Ended
 
   
March 31,
 
(In millions)
 
2013
   
2012
 
             
Numerator:
           
Loss from continuing operations
  $ (34.8 )   $ (4.7 )
Discontinued operations, net of taxes
    (8.5 )     (3.3 )
Net loss
  $ (43.3 )   $ (8.0 )
                 
Denominator:
               
Weighted-average common shares outstanding
    100.4       99.8  
Dilutive effect of stock-based awards
    --       --  
Weighted average shares for diluted net loss per share
    100.4       99.8  

The following table includes common stock equivalents that were not included in the calculation of diluted net loss per share for the periods presented. These securities could be dilutive in future periods.
 
   
Three Months Ended
 
   
March 31,
 
(In millions)
 
2013
   
2012
 
             
Employee stock options (1) (2)
    10.1       7.7  
Warrants to purchase common stock (3)
    15.8       15.8  
Convertible debt instruments (4)
    9.1       15.8  
 
(1)
For the first quarter of 2013, 9.9 million of these common stock equivalents were excluded because their exercise prices exceeded the average market price of our common stock during this period, and the effect of their inclusion would be antidilutive. The remaining 0.2 million of these common stock equivalents were excluded in 2013 because the effect of their inclusion would reduce our net loss per share and would be antidilutive.
(2)
For the first quarter of 2012, 6.4 million of these common stock equivalents were excluded because their exercise prices exceeded the average market price of our common stock during this period, and the effect of their inclusion would be antidilutive. The remaining 1.3 million of these common stock equivalents were excluded in 2012 because the effect of their inclusion would reduce our net loss per share and would be antidilutive.
(3)
These common stock equivalents were excluded because their exercise prices ($35.88 per share in both periods) exceeded the average market price of our common stock during these periods, and the effect of their inclusion would be antidilutive.
(4)
These common stock equivalents were excluded because their exercise prices ($23.77 per share in both periods) exceeded the average market price of our common stock during these periods, and the effect of their inclusion would be antidilutive.

 
7

 
NOTE 6 – FAIR VALUE MEASUREMENTS
 
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
 
         
Basis of Fair Value Measurements
 
   
 
Fair Value
of Assets
(Liabilities)
   
Quoted Prices
in Active
Markets for
Identical Items
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
 
 
 
(In millions)
                         
Three Months Ended March 31, 2013
                       
Long-lived assets held and used
  $ 1.1       --       --     $ 1.1  

 
The FASB’s accounting guidance utilizes a fair value hierarchy that prioritizes the inputs to the valuation techniques used to measure fair value into three broad levels:
 
·  
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities
 
·  
Level 2: Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active
 
·  
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions
 
U.S. RadioShack Company-Operated Stores: For the three months ended March 31, 2013, long-lived assets held and used in certain locations of our U.S. RadioShack company-operated stores segment with a total carrying value of $2.5 million were written down to their fair value of $1.1 million, resulting in an impairment charge of $1.4 million that was included in our operating results for the period.
 
The inputs used to calculate the fair value of these long-lived assets included the projected cash flows and a risk-adjusted rate of return that we estimated would be used by a market participant in valuing these assets. The projected cash flows for a particular store are based on average historical cash flows for that store and are projected through the remainder of its lease. The risk-adjusted rates of return used to discount these cash flows range from 15% to 20%.
 
Fair Value of Financial Instruments: Financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, and long-term debt. With the exception of long-term debt, the financial statement carrying amounts of these items approximate their fair values due to their short-term nature. Estimated fair values for our 2013 Convertible Notes and our 6.75% unsecured notes due in 2019 (“2019 Notes”) were determined using recent trading activity and/or bid-ask spreads and are classified as Level 2 in the FASB’s fair value hierarchy. Estimated fair values of our secured term loans approximate their carrying values and are classified as Level 3.
 
Carrying amounts and the related estimated fair values of our long-term debt financial instruments are as follows:
 
               
Basis of Fair Value Measurements
 
   
 
 
Carrying
Amount
   
 
 
Fair Value
of Liabilities
   
Quoted Prices
in Active
Markets for
Identical Items
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
 
 
 
(In millions)
                               
As of March 31, 2013
                             
2013 Convertible Notes
  $ 212.8     $ 213.3       --     $ 213.3       --  
2019 Notes
  $ 323.1     $ 236.4       --     $ 236.4       --  
Secured term loans
  $ 175.0     $ 175.0       --       --     $ 175.0  
Other
  $ 1.0     $ 1.0       --       --     $ 1.0  
                                         
As of December 31, 2012
                                       
2013 Convertible Notes
  $ 278.7     $ 265.9       --     $ 265.9       --  
2019 Notes
  $ 323.0     $ 198.3       --     $ 198.3       --  
Secured term loans
  $ 175.0     $ 175.0       --       --     $ 175.0  
Other
  $ 1.0     $ 1.0       --       --     $ 1.0  
 
8

 
NOTE 7 – INCOME TAXES
 
We continue to provide a valuation allowance against all of our U.S. federal and state deferred tax assets. As a result, we did not record any U.S. federal or state income tax benefit related to our operating losses for the first quarter of 2013. We continue to recognize income tax expense related to our foreign operations and interest accrued on our liabilities for uncertain tax positions. In addition, we continue to recognize income tax expense in certain state jurisdictions.
 
NOTE 8 – COMMITMENTS AND CONTINGENCIES
 
Loss Contingencies: FASB Accounting Standards Codification Topic 450 - Contingencies (“ASC 450”) governs our disclosure and recognition of loss contingencies, including pending claims, lawsuits, disputes with third parties, investigations and other actions that are incidental to the operation of our business. ASC 450 uses the following defined terms to describe the likelihood of a future loss:  probable – the future event or events are likely to occur, remote – the chance of the future event or events is slight, and reasonably possible – the chance of the future event or events occurring is more than remote but less than likely. ASC 450 also contains certain requirements with respect to how we accrue for and disclose information concerning our loss contingencies. We accrue for a loss contingency when we conclude that the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. When the reasonable estimate of the loss is within a range of amounts, and no amount in the range constitutes a better estimate than any other amount, we accrue for the amount at the low end of the range. We adjust our accruals from time to time as we receive additional information, but the loss we incur may be significantly greater than or less than the amount we have accrued. We disclose loss contingencies if there is at least a reasonable possibility that a loss has been incurred. No accrual or disclosure is required for losses that are remote.
 
Securities Exchange Act Litigation:  In July and August 2012, two purported class action complaints were filed in the United States District Court, Southern District of New York against the Company and our former Chief Executive Officer. The complaints allege that we and our former CEO violated the federal securities laws, specifically Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by making purportedly false and misleading statements concerning the adverse impact of a corporate strategy to transform ourselves from a seller of consumer electronics and accessories into a reseller of wireless products. On November 27, 2012, acting upon the Company’s Motion to Transfer Venue, the United States District Court for the Southern District of New York transferred the cases to the United States District Court for the Northern District of Texas, which consolidated the cases on December 17, 2012. On January 2, 2013, the court was notified by plaintiffs’ counsel that they intended to file a motion to voluntary dismiss the case without prejudice. On January 3, 2013, the court entered an order dismissing the case without prejudice.
 
Shareholder Derivative Demand:  In September 2012, our Board of Directors received a shareholder letter demanding that the Board investigate current and former officers and directors to determine whether such individuals breached their fiduciary duties to the Company and our stockholders by failing to monitor and oversee our strategy to transform ourselves from a seller of consumer electronics and accessories into a reseller of wireless products. We subsequently reached an agreement with counsel for the shareholder to defer the matter pending a decision on our anticipated Motion to Dismiss in the underlying securities litigation. Now that the securities litigation has been voluntarily dismissed, it is our understanding that the shareholder and counsel are considering what further action, if any, to take with regard to the demand.
 
Brookler v. RadioShack Corporation:  On April 6, 2004, plaintiffs filed a putative class action in Los Angeles Superior Court, Brookler v. RadioShack Corporation, claiming that we violated California's wage and hour laws relating to meal and rest periods. The meal period portion of the case was originally certified as a class action in February 2006. Our first Motion for Decertification of the class was denied in August 2007. After a favorable decision at the California Court of Appeals in the similar case of Brinker Restaurant Corporation v. Superior Court, we filed a second motion for decertification, and in October 2008 the trial court granted our motion. The plaintiffs in Brookler appealed this ruling. Due to the unsettled nature of California law regarding the obligations of employers in respect of meal periods, we and the Brookler plaintiffs requested that the California Court of Appeals stay its ruling on the plaintiffs’ appeal of the class decertification ruling pending the California Supreme Court’s decision in Brinker. The appellate court denied this joint motion and then heard oral arguments in the case on August 5, 2010. On August 26, 2010, the California Court of Appeals reversed the trial court’s decertification of the class, and our Petition for Rehearing was denied on September 14, 2010. On September 28, 2010, we filed a Petition for Review with the California Supreme Court, which granted review and placed the case on hold pending its decision in Brinker. On April 12, 2012, the California Supreme Court issued its decision in Brinker. On June 20, 2012, the California Supreme Court remanded the Brookler case to the California Court of Appeals instructing it to vacate its prior order and reconsider its ruling in light of its ruling in Brinker. Both parties filed their supplemental briefs and oral argument was held on November 1, 2012. On December 5, 2012, the Court of Appeals affirmed the trial court’s decertification of the meal period class. It is anticipated that counsel for Brookler will attempt to amend the Complaint to add additional sub-classes. The outcome of this case is uncertain and the ultimate resolution of it could have a material adverse effect on our consolidated financial statements in the period in which the resolution is recorded.
 
9

 
Ordonez v. RadioShack Corporation:  In May 2010, Daniel Ordonez, on behalf of himself and all other similarly situated current and former employees, filed a Complaint against the Company in the Los Angeles Superior Court. In July 2010, Mr. Ordonez filed an Amended Complaint alleging, among other things, that we failed to provide required meal periods, provide required rest breaks, pay for all time worked, pay overtime compensation, pay minimum wages, and maintain required records. In September 2010 we removed the case to the United States District Court for the Central District of California. The proposed putative class in Ordonez consists of all current and former non-exempt employees who held the position of sales associate or stock person for a period within the four (4) years preceding the filing of the case. The meal period claims raised in Ordonez are similar to the claims raised in Brookler as discussed above. Pursuant to a motion filed by the Ordonez parties, the court granted a Stipulation and Order to Stay Proceedings pending the decision of the California Supreme Court in Brinker. On April 12, 2012, the California Supreme Court issued its decision in Brinker. On July 27, 2012, Ordonez filed its Motion for Class Certification. On October 1, 2012, we filed our opposition to the Motion. Ordonez’s reply brief was filed on October 31, 2012, and a hearing on the Motion was held on November 19, 2012. On January 17, 2013, the court denied Ordonez’s Motion for Class Certification as to all claims. On February 4, 2013, Ordonez filed a Motion for Reconsideration of the court’s denial of class certification with regard to the rest period claim. The outcome of this case is uncertain and the ultimate resolution of it could have a material adverse effect on our consolidated financial statements in the period in which the resolution is recorded.
 
Song-Beverly Credit Card Act Litigation:  In November 2010 RadioShack received service of process with respect to the first of four putative class action lawsuits filed in California (Sosinov v. RadioShack, Los Angeles Superior Court; Bitter v. RadioShack, Federal District Court, Central District of California; Moreno v. RadioShack, Federal District Court, Southern District of California; and Grant v. RadioShack, San Francisco Superior Court). The plaintiffs in all of these cases seek damages under California’s Song-Beverly Credit Card Act (the “Act”). Plaintiffs claim that under one section of the Act, retailers are prohibited from recording certain personal identification information regarding their customers while processing credit card transactions unless certain statutory exceptions are applicable. The Act provides that any person who violates this section is subject to a civil penalty not to exceed $250 for the first violation and $1,000 for each subsequent violation. In each of the cases, plaintiffs allege that we violated the Act by asking them for personal identification information while processing a credit card transaction and then recording it. In May 2011 the Bitter case was stayed by the court pending the conclusion of the Sosinov case. In June 2012, the Moreno case was settled for a nominal amount and dismissed. In July 2012, we reached a settlement of the Sosinov case. In November 2012, the court granted preliminary approval of the settlement. Notices were sent to the class members. The final approval hearing occurred on March 27, 2013. The class of plaintiffs in the Sosinov case includes the plaintiffs in the Grant and Bitter cases. Therefore resolving the Sosinov case will resolve the Grant and Bitter claims, although the plaintiffs in Bitter have filed an objection to the proposed settlement in Sosinov. The settlement will not have a material adverse effect on our consolidated financial statements.
 
FACTA Litigation:  On September 26, 2011, Scott D.H. Redman filed a putative class action lawsuit against the Company in the United States District Court for the Northern District of Illinois. Mr. Redman claims that we violated certain provisions of the Fair and Accurate Credit Transactions Act of 2003 (“FACTA”), which amended the Fair Credit Reporting Act, by displaying the expiration dates of our customers’ credit or debit cards on electronically printed transaction receipts. Mr. Redman filed a motion seeking to certify a class that includes all persons to whom the Company provided an electronically printed transaction receipt, in transactions occurring after June 3, 2008, that displayed the expiration date of the person’s credit or debit card. On November 3, 2011, Mario Aliano and Vitoria Radavicuite filed a similar putative class action lawsuit against the Company, also in the United States District Court for the Northern District of Illinois, alleging similar violations of FACTA. Mr. Aliano and Ms. Radavicuite initially filed a motion seeking to certify a class that includes all persons to whom the Company provided an electronically printed transaction receipt, in transactions occurring in Illinois after June 3, 2008, that displayed the expiration date of the person's credit or debit card. On December 28, 2011, Mr. Aliano and Ms. Radavicuite filed an amended complaint and an amended motion seeking to certify a class that was not limited to transactions occurring in Illinois. On January 11, 2012, the Aliano lawsuit was reassigned to the judge presiding over the Redman lawsuit on the basis of relatedness, and the two cases were consolidated for all purposes. On January 25, 2012, the presiding judge referred the matter to the magistrate judge assigned to the consolidated cases for mediation, extending the time by which the Company must respond to the pending complaints to such time as the magistrate judge shall order, and holding the motions for class certification in abeyance. In November 2012 the parties reached a tentative settlement. The parties are currently negotiating the terms of a settlement agreement. The settlement has not been presented to the Court for approval. The outcome of these cases is still uncertain and the ultimate resolution of them could have a material adverse effect on our consolidated financial statements in the period in which the resolution is recorded.
 
10

 
Additional Disclosure:  For certain loss contingencies, we are currently able to estimate the reasonably possible loss or range of loss, including reasonably possible loss amounts in excess of our accruals, and we estimate that the aggregate of these amounts could be up to $15.0 million. This amount reflects recent developments in case law that pertain to certain claims currently pending against the Company. Probable and reasonably possible losses that we are currently unable to estimate are not included in this amount. In future periods, we may recognize a loss for all, part, or none of this amount.
 
We are currently unable to estimate the reasonably possible loss or range of loss in respect of certain loss contingencies. Some cases remain in an early stage, with few or no substantive legal decisions by the court defining the scope of the claims, the class (if any), or the potential damages. In addition, in some cases we are not able to estimate the amount of the loss, due to a significant unresolved question of law that is expected to have a significant impact on the probability or amount of loss when resolved. As these matters develop and we receive additional information, we may be able to estimate reasonably possible losses or range of loss for these matters.
 
Our evaluation of our loss contingencies involves subjective assessments, assumptions, and judgments, and actual losses incurred in future periods may differ significantly from our estimates. Accordingly, although occasional adverse resolutions may occur and negatively affect our consolidated financial statements in the period of the resolution, we believe that the ultimate resolution of our loss contingencies for which we have not accrued losses will not materially adversely affect our financial condition.
 
NOTE 9 – SEGMENT REPORTING
 
The U.S. RadioShack company-operated stores segment consists solely of our 4,331 U.S. company-operated retail stores, all operating under the RadioShack brand name. We evaluate the performance of our segments based on operating income, which is defined as sales less cost of products sold and certain direct operating expenses, including labor, rent, and occupancy costs. Asset balances by segment have not been included in the table below, as these are managed on a company-wide level and are not fully allocated to segments for management reporting purposes. Amounts in the other category reflect our business activities that are not separately reportable, which include sales to our independent dealers, sales generated by our Mexican subsidiary and our www.radioshack.com website, sales to commercial customers, and sales to other third parties through our global sourcing operations.
 
Revenue by reportable segment is as follows:
   
Three Months Ended
March 31,
 
(In millions)
 
2013
   
2012
 
U.S. RadioShack company-operated stores
  $ 770.1     $ 833.6  
Other
    78.9       79.7  
    $ 849.0     $ 913.3  

Operating (loss) income by reportable segment and the reconciliation to loss from continuing operations before income taxes are as follows:
   
Three Months Ended
March 31,
 
(In millions)
 
2013
   
2012
 
U.S. RadioShack company-operated stores
  $ 61.2     $ 91.3  
Other
    8.3       8.4  
      69.5       99.7  
                 
Unallocated (1) (2)
    (88.0 )     (92.6 )
Operating (loss) income
    (18.5 )     7.1  
                 
Interest income
    0.4       0.5  
Interest expense
    (15.0 )     (13.1 )
Other loss
    (0.3 )     --  
Loss from continuing operations before income taxes
  $ (33.4 )   $ (5.5 )
 
(1)
The unallocated category included in operating income relates to our overhead and corporate expenses that are not allocated to our operating segments for management reporting purposes. Unallocated costs include corporate departmental expenses such as labor and benefits, advertising, insurance, distribution, and information technology costs, plus certain unusual or infrequent gains or losses.
(2)
The operating loss for our unallocated category decreased by $4.6 million for the three month period ended March 31, 2013. This decrease was primarily driven by the receipt of $5.3 million from a non-merchandise vendor as settlement of a dispute.
 
 
11

 
NOTE 10 – SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
 
The obligation to pay principal and interest on our 2019 Notes is jointly and severally guaranteed on a full and unconditional basis, subject to customary release provisions, by all of the guarantors under our amended and restated $450 million revolving credit agreement that expires on January 4, 2016 (the “2016 Credit Facility”). The 2019 Notes are guaranteed by all of our wholly-owned domestic subsidiaries except Tandy Life Insurance Company. Refer to Note 5 – “Indebtedness and Borrowing Facilities” of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012, for additional information on the 2019 Notes and the 2016 Credit Facility.
 
The following condensed consolidating financial information represents the financial information of RadioShack Corporation, its guarantor subsidiaries, and its non-guarantor subsidiaries prepared on the equity basis of accounting. Earnings of subsidiaries are, therefore, reflected in the parent company's investment accounts and earnings. The elimination entries primarily eliminate investments in subsidiaries and intercompany balances and transactions. The non-guarantor subsidiaries are comprised of the foreign subsidiaries of the Company and Tandy Life Insurance Company. The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the guarantor or non-guarantor subsidiaries operated as independent entities.
 
Condensed Consolidating Statements of Comprehensive Income (unaudited)
 
For the Three Months Ended March 31, 2013

 
(In millions)
 
RadioShack
Corporation
(Parent Co.)
   
Guarantor
Subsidiaries
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Consolidated
 
                               
Net sales and operating revenues
  $ 884.5     $ 725.8     $ 34.7     $ (796.0 )   $ 849.0  
Cost of products sold
    570.5       714.6       22.6       (796.0 )     511.7  
Gross profit
    314.0       11.2       12.1       --       337.3  
                                         
Operating expenses:
                                       
Selling, general and administrative
    327.0       (0.5 )     11.4       --       337.9  
Depreciation and amortization
    15.7       --       0.8       --       16.5  
Impairment of long-lived assets
    1.4       --       --       --       1.4  
Total operating expenses
    344.1       (0.5 )     12.2       --       355.8  
                                         
Operating (loss) income
    (30.1 )     11.7       (0.1 )     --       (18.5 )
                                         
Interest income
    0.3       2.6       1.4       (3.9 )     0.4  
Interest expense
    (18.8 )     --       (0.1 )     3.9       (15.0 )
Other loss
    (0.3 )     --       --       --       (0.3 )
                                         
(Loss) income from continuing operations
before income taxes
    (48.9 )     14.3       1.2       --       (33.4 )
Income tax (benefit) expense
    (1.6 )     2.6       0.4       --       1.4  
Equity in earnings of subsidiaries, net of income taxes
    4.0       0.1       --       (4.1 )     --  
                                         
(Loss) income from continuing operations
    (43.3 )     11.8       0.8       (4.1 )     (34.8 )
Discontinued operations, net of income taxes
    --       (8.5 )     --       --       (8.5 )
                                         
Net (loss) income
  $ (43.3 )   $ 3.3     $ 0.8     $ (4.1 )   $ (43.3 )
                                         
Comprehensive (loss) income
  $ (39.0 )   $ 7.7     $ 5.0     $ (12.7 )   $ (39.0 )

 
12

 

Condensed Consolidating Statements of Comprehensive Income (unaudited)
 
For the Three Months Ended March 31, 2012

 
(In millions)
 
RadioShack
Corporation
(Parent Co.)
   
Guarantor
Subsidiaries
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Consolidated
 
                               
Net sales and operating revenues
  $ 978.8     $ 757.6     $ 31.4     $ (854.5 )   $ 913.3  
Cost of products sold
    658.4       719.8       19.5       (854.5 )     543.2  
Gross profit
    320.4       37.8       11.9       --       370.1  
                                         
Operating expenses:
                                       
Selling, general and administrative
    333.4       2.0       9.9       --       345.3  
Depreciation and amortization
    16.7       --       0.5       --       17.2  
Impairment of long-lived assets
    0.5       --       --       --       0.5  
Total operating expenses
    350.6       2.0       10.4       --       363.0  
                                         
Operating (loss) income
    (30.2 )     35.8       1.5       --       7.1  
                                         
Interest income
    0.1       2.7       1.5       (3.8 )     0.5  
Interest expense
    (16.9 )     --       --       3.8       (13.1 )
                                         
(Loss) income from continuing operations
before income taxes
    (47.0 )     38.5       3.0       --       (5.5 )
Income tax (benefit) expense
    (16.8 )     15.0       1.0       --       (0.8 )
Equity in earnings of subsidiaries, net of income taxes
    22.2       1.5       --       (23.7 )     --  
                                         
(Loss) income from continuing operations
    (8.0 )     25.0       2.0       (23.7 )     (4.7 )
Discontinued operations, net of income taxes
    --       (3.3 )     --       --       (3.3 )
                                         
Net (loss) income
  $ (8.0 )   $ 21.7     $ 2.0     $ (23.7 )   $ (8.0 )
                                         
Comprehensive (loss) income
  $ (2.4 )   $ 27.3     $ 7.6     $ (34.9 )   $ (2.4 )

 
 
13

 
 
 
Condensed Consolidating Balance Sheets (unaudited)
 
At March 31, 2013
 
 
(In millions)
 
RadioShack
Corporation
(Parent Co.)
   
Guarantor
Subsidiaries
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Current assets:
                             
Cash and cash equivalents
  $ 94.1     $ 317.8     $ 23.0     $ --     $ 434.9  
Accounts and notes receivable, net
    258.4       18.9       1.3       --       278.6  
Inventories
    820.3       66.8       39.4       --       926.5  
Other current assets
    71.5       4.8       6.7       --       83.0  
Intercompany receivables
    --       185.5       --       (185.5 )     --  
Intercompany notes receivable
    --       1,467.8       --       (1,467.8 )     --  
Total current assets
    1,244.3       2,061.6       70.4       (1,653.3 )     1,723.0  
                                         
Property, plant and equipment, net
    205.5       0.9       14.2       --       220.6  
Goodwill, net
    --       0.5       38.0       --       38.5  
Other assets, net
    29.4       0.1       13.6       --       43.1  
Investment in subsidiaries
    2,052.2       85.2       --       (2,137.4 )     --  
Total assets
  $ 3,531.4     $ 2,148.3     $ 136.2     $ (3,790.7 )   $ 2,025.2  
                                         
Liabilities and Stockholders’ Equity
                                       
Current liabilities:
                                       
Current maturities of long-term debt
  $ 212.8     $ --     $ --     $ --     $ 212.8  
Accounts payable
    255.3       31.3       15.2       --       301.8  
Accrued expenses and other current liabilities
    192.2       30.0       7.5       --       229.7  
Intercompany payables
    169.3       --       16.2       (185.5 )     --  
Intercompany notes payable
    1,467.8       --       --       (1,467.8 )     --  
Total current liabilities
    2,297.4       61.3       38.9       (1,653.3 )     744.3  
                                         
Long-term debt, excluding current maturities
    499.1       --       --       --       499.1  
Other non-current liabilities
    173.5       46.6       0.3       --       220.4  
Total liabilities
    2,970.0       107.9       39.2       (1,653.3 )     1,463.8  
                                         
Stockholders’ equity
    561.4       2,040.4       97.0       (2,137.4 )     561.4  
Total liabilities and stockholders’ equity
  $ 3,531.4     $ 2,148.3     $ 136.2     $ (3,790.7 )   $ 2,025.2  

 
 
14

 
 
Condensed Consolidating Balance Sheets (unaudited)
 
At December 31, 2012

 
(In millions)
 
RadioShack
Corporation
(Parent Co.)
   
Guarantor
Subsidiaries
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Current assets:
                             
Cash and cash equivalents
  $ 84.9     $ 430.5     $ 20.3     $ --     $ 535.7  
Accounts and notes receivable, net
    381.0       69.6       1.9       --       452.5  
Inventories
    804.8       62.7       40.8       --       908.3  
Other current assets
    74.8       4.2       6.4       --       85.4  
Intercompany receivables
    --       146.9       --       (146.9 )     --  
Intercompany notes receivable
    --       1,354.5       --       (1,354.5 )     --  
Total current assets
    1,345.5       2,068.4       69.4       (1,501.4 )     1,981.9  
                                         
Property, plant and equipment, net
    218.5       6.3       14.2       --       239.0  
Goodwill, net
    --       0.5       36.1       --       36.6  
Other assets, net
    30.7       0.1       10.8       --       41.6  
Investment in subsidiaries
    2,041.0       77.8       --       (2,118.8 )     --  
Total assets
  $ 3,635.7     $ 2,153.1     $ 130.5     $ (3,620.2 )   $ 2,299.1  
                                         
Liabilities and Stockholders’ Equity
                                       
Current liabilities:
                                       
Current maturities of long-term debt
  $ 278.7     $ --     $ --     $ --     $ 278.7  
Accounts payable
    373.0       36.5       26.1       --       435.6  
Accrued expenses and other current liabilities
    217.6       36.4       9.9       --       263.9  
Intercompany payables
    141.7       --       5.2       (146.9 )     --  
Intercompany notes payable
    1,354.5       --       --       (1,354.5       --  
Total current liabilities
    2,365.5       72.9       41.2       (1,501.4 )     978.2  
                                         
Long-term debt, excluding current maturities
    499.0       --       --       --       499.0  
Other non-current liabilities
    172.5       50.5       0.2       --       223.2  
Total liabilities
    3,037.0       123.4       41.4       (1,501.4 )     1,700.4  
                                         
Stockholders’ equity
    598.7       2,029.7       89.1       (2,118.8 )     598.7  
Total liabilities and stockholders’ equity
  $ 3,635.7     $ 2,153.1     $ 130.5     $ (3,620.2 )   $ 2,299.1  

 
 
15

 
 
Condensed Consolidating Balance Sheets (unaudited)
 
At March 31, 2012

 
(In millions)
 
RadioShack
Corporation
(Parent Co.)
   
Guarantor
Subsidiaries
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Current assets:
                             
Cash and cash equivalents
  $ 151.2     $ 395.5     $ 19.7     $ --     $ 566.4  
Accounts and notes receivable, net
    197.1       33.7       5.8       --       236.6  
Inventories
    636.7       65.3       28.2       --       730.2  
Other current assets
    125.3       1.0       5.0       --       131.3  
Intercompany receivables
    --       208.9       --       (208.9 )     --  
Intercompany notes receivable
    --       1,330.3       --       (1,330.3 )     --  
Total current assets
    1,110.3       2,034.7       58.7       (1,539.2 )     1,664.5  
                                         
Property, plant and equipment, net
    229.8       21.8       8.9       --       260.5  
Goodwill
    3.1       0.5       36.7       --       40.3  
Other assets, net
    40.9       1.3       10.5       --       52.7  
Investment in subsidiaries
    2,060.8       77.0       --       (2,137.8 )     --  
Total assets
  $ 3,444.9     $ 2,135.3     $ 114.8     $ (3,677.0 )   $ 2,018.0  
                                         
Liabilities and Stockholders’ Equity
                                       
Current liabilities:
                                       
Accounts payable
  $ 222.0     $ 16.4     $ 14.2     $ --     $ 252.6  
Accrued expenses and other current liabilities
    186.4       43.1       8.2       --       237.7  
Intercompany payables
    206.9       --       2.0       (208.9 )     --  
Intercompany notes payable
    1,330.3       --       --       (1,330.3 )     --  
Total current liabilities
    1,945.6       59.5       24.4       (1,539.2 )     490.3  
                                         
Long-term debt
    674.9       --       --       --       674.9  
Other non-current liabilities
    84.7       27.5       0.9       --       113.1  
Total liabilities
    2,705.2       87.0       25.3       (1,539.2 )     1,278.3  
                                         
Stockholders’ equity
    739.7       2,048.3       89.5       (2,137.8 )     739.7  
Total liabilities and stockholders’ equity
  $ 3,444.9     $ 2,135.3     $ 114.8     $ (3,677.0 )   $ 2,018.0  

 
 
16

 
 
Condensed Consolidating Statements of Cash Flows (unaudited)
 
For the Three Months Ended March 31, 2013

 
(In millions)
 
RadioShack
Corporation
(Parent Co.)
   
Guarantor
Subsidiaries
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Consolidated
 
                               
Net cash (used in) provided by operating activities
  $ (8.0 )   $ 33.0     $ (8.1 )   $ --     $ 16.9  
                                         
Cash flows from investing activities:
                                       
Additions to property, plant and equipment
    (4.9 )     --       (0.2 )     --       (5.1 )
Proceeds from sale of property, plant and equipment
    --       6.2       --       --       6.2  
Other investing activities
    --       --       (2.9 )     --       (2.9 )
Investment in subsidiary
    (2.9 )     (2.9 )     --       5.8       --  
Net cash (used in) provided by investing activities
    (7.8 )     3.3       (3.1 )     5.8       (1.8 )
                                         
Cash flows from financing activities:
                                       
Principal amount of long-term debt repayments
    (70.5 )     --       --       --       (70.5 )
Changes in cash overdrafts
    (45.4 )     --       --       --       (45.4 )
Capital contribution
    --       2.9       2.9       (5.8 )     --  
Change in intercompany receivable/payable
    140.9       (151.9 )     11.0       --       --  
Net cash provided by (used in) financing activities
    25.0       (149.0 )     13.9       (5.8 )     (115.9 )
                                         
Net increase (decrease) in cash and cash equivalents
    9.2       (112.7 )     2.7       --       (100.8 )
Cash and cash equivalents, beginning of period
    84.9       430.5       20.3       --       535.7  
Cash and cash equivalents, end of period
  $ 94.1     $ 317.8     $ 23.0     $ --     $ 434.9  
 
Condensed Consolidating Statements of Cash Flows (unaudited)
 
For the Three Months Ended March 31, 2012

 
(In millions)
 
RadioShack
Corporation
(Parent Co.)
   
Guarantor
Subsidiaries
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Consolidated
 
                               
Net cash provided by (used in) operating activities
  $ 28.2     $ 30.3     $ (10.0 )   $ --     $ 48.5  
                                         
Cash flows from investing activities:
                                       
Additions to property, plant and equipment
    (10.1 )     (1.0 )     (0.1 )     --       (11.2 )
Changes in restricted cash
    (28.0 )     --       --       --       (28.0 )
Net cash used in investing activities
    (38.1 )     (1.0 )     (0.1 )     --       (39.2 )
                                         
Cash flows from financing activities:
                                       
Payments of dividends
    (12.4 )     --       --       --       (12.4 )
Changes in cash overdrafts
    (22.2 )     --       --       --       (22.2 )
Change in intercompany receivable/payable
    41.1       (38.7 )     (2.4 )     --       --  
Net cash provided by (used in) financing activities
    6.5       (38.7 )     (2.4 )     --       (34.6 )
                                         
Net decrease in cash and cash equivalents
    (3.4 )     (9.4 )     (12.5 )     --       (25.3 )
Cash and cash equivalents, beginning of period
    154.6       404.9       32.2       --       591.7  
Cash and cash equivalents, end of period
  $ 151.2     $ 395.5     $ 19.7     $ --     $ 566.4  

 
 
17

 
 
This MD&A section of our Quarterly Report on Form 10-Q discusses our results of operations, liquidity and capital resources, and certain factors that may affect our future results of operations. You should read this MD&A in conjunction with our condensed consolidated financial statements and accompanying notes included under Part I, Item 1, of this Quarterly Report, as well as with our Annual Report on Form 10-K for the year ended December 31, 2012.
 
RESULTS OF OPERATIONS
 
We ceased operating all of our Target Mobile centers prior to March 31, 2013. Therefore, unless specifically noted, the following discussion excludes the operating results of the Target Mobile centers, which have been presented as discontinued operations.
 
First Quarter Summary
Net sales and operating revenues decreased $64.3 million, or 7.0%, to $849.0 million when compared with the same period last year. Comparable store sales decreased 5.7%. Our decrease in net sales and operating revenues was driven by decreased sales in our consumer electronics and mobility platforms.
 
Consolidated gross profit decreased $32.8 million, or 8.9%, for the first quarter, when compared with the same period last year. The decrease in gross profit dollars was primarily driven by decreased gross profit for our postpaid wireless business. Consolidated gross margin decreased by 0.8 percentage points to 39.7% in the first quarter when compared with the same period last year. The decrease in our consolidated gross margin rate was driven by a 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 increased slightly from the first quarter of last year.
 
Consolidated SG&A expense decreased $7.4 million, or 2.1%, for the first quarter, when compared with the same period last year. This resulted in SG&A expense as a percentage of net sales and operating revenues of 39.8%, which was a 2.0 percentage point increase from the first quarter of 2012. The decrease in SG&A expense was primarily driven by the receipt of $5.3 million from a non-merchandise vendor as settlement of a dispute and a $2.4 million gain on the sale of a building. Additionally, we operated fewer stores in the first quarter of 2013 than in the first quarter of 2012, which reduced SG&A expense, but these savings were offset by increased advertising and other corporate expenses.
 
Our loss from continuing operations was $34.8 million ($0.35 per share) for the first quarter, compared with $4.7 million ($0.05 per share) for the same period last year.
 
Adjusted EBITDA from continuing operations was $0.3 million, compared with $26.3 million for the same period last year.
 
   
Three Months Ended
 
   
March 31,
 
(In millions)
 
2013
   
2012
 
Reconciliation of adjusted EBITDA from continuing
operations to loss from continuing operations