10-K 1 form10k123113.htm RADIOSHACK CORPORATION FORM 10-K DECEMBER 31, 2013 form10k123113.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, 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
________________________
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 28, 2013, the aggregate market value of the voting common stock of the registrant held by non-affiliates of the registrant was $251,965,806 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 28, 2013, are the affiliates of the registrant.
 
As of February 21, 2014, there were 100,346,536 shares of the registrant's Common Stock outstanding.
 
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Documents Incorporated by Reference
Portions of the Proxy Statement for the 2014 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
13
 
Mine Safety Disclosures
13
   
13
     
PART II
    
       
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
14
 
Selected Financial Data
17
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
19
 
Quantitative and Qualitative Disclosures about Market Risk
31
 
Financial Statements and Supplementary Data
32
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
32
 
Controls and Procedures
32
 
Other Information
32
     
PART III
    
       
 
Directors, Executive Officers and Corporate Governance
32
 
Executive Compensation
32
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
32
 
Certain Relationships and Related Transactions, and Director Independence
33
 
Principal Accountant Fees and Services
33
     
PART IV
    
       
 
Exhibits, Financial Statement Schedules
33
   
34
   
35
   
36
   
74


 
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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, 2013, we operated 4,297 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.
 
To reflect more closely how we manage our merchandise and product assortment, we have consolidated our reporting structure into two platforms:  mobility and retail.
 
These platforms include the following product categories:
 
Mobility:  The mobility platform includes postpaid and prepaid wireless handsets, commissions, residual income, prepaid wireless airtime, e-readers, and tablet devices. Our wireless accessories and tablet accessories, which were previously included in our signature platform, are now also included in this platform.
 
Retail:  Our retail platform includes our remaining consumer electronics product categories and related accessories; batteries and power products; and technical products. This platform now also consists of products that were previously included in our signature and consumer electronics platforms, except wireless accessories and tablet accessories.
 
For information regarding the net sales and operating revenues and operating income for our reportable segments for fiscal years ended December 31, 2013, 2012 and 2011, see Note 14 – “Segment Reporting” in the Notes to Consolidated Financial Statements.
 
OTHER SALES CHANNELS
In addition to the reportable segment discussed above, we have the following additional sales channels and support operations:
 
Dealer Outlets: At December 31, 2013, we had a network of 943 RadioShack dealer outlets, including 42 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: At December 31, 2013, there were 274 company-operated stores under the RadioShack brand, 5 dealers, and one distribution center in Mexico.
 
RadioShack.com: Products and information are available through our 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 dealer outlets, are supported by an established infrastructure. Below are the major components of this support structure:
 
Distribution Centers - At December 31, 2013, 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.
 
RadioShack Technology Services (“RSTS”) - Our management information system is composed of a distributed, online network of computers that links all stores, customer channels, delivery locations, service centers, credit providers, distribution facilities and our home office into a fully integrated system. Each retail location has its own server to support the point-of-sale (“POS”) system. Our U.S. company-operated stores communicate through a broadband network, which provides efficient access to customer support data. This design also allows store management to track daily sales and inventory at the product or sales associate level. RSTS provides the majority of our programming and systems analysis needs.
 
RadioShack Global Sourcing (“RSGS”) - RSGS serves our wide-ranging international import/export, sourcing, evaluation, logistics and quality control needs. RSGS’s activities support our name brand and private brand businesses.
 
 
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DISCONTINUED OPERATIONS
In the third quarter of 2010, we signed a multi-year agreement to operate retail locations in Target stores (“Target Mobile”) throughout most of the United States. These retail locations, which were not RadioShack-branded, offered wireless handsets with activation of third-party postpaid wireless services. At December 31, 2012, we operated 1,522 Target Mobile centers.
 
We ceased operating all of our Target Mobile centers prior to March 31, 2013. 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. 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 Consolidated Statements of Income for all periods presented.
 
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. All of these kiosks were transitioned to Sam’s Club by June 30, 2011. We concluded that the cash flows from these kiosks were eliminated from our ongoing operations. Therefore, the results of these operations, net of income taxes, have been presented as discontinued operations in our Consolidated Statements of Income 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 15 – “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, Apple, Garmin, Hewlett-Packard, HTC, Microsoft, Blackberry, 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 certain product categories. We compete with wireless providers in our mobility platform 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’ needs, assisting with the selection of appropriate products and accessories and, when applicable, assisting customers with service activation.
 
EMPLOYEES
At December 31, 2013, we employed approximately 27,500 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 (the “SEC”) under that Act. The Exchange Act requires us to file reports, proxy statements and other information with the SEC.
 
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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
 
 
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.
 
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 our turnaround strategy and return to profitability and all of our other plans. We have also instituted a cash management plan that includes reducing certain controllable expenses. However, there are no assurances that this plan would enable us to continue to satisfy our liquidity needs. Our inability to meet our liquidity needs could have a material adverse effect on our results of operations and financial condition. In addition, if a significant number of 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, 2013, the total principal amount of our long-term debt was $626.4 million. As of December 31, 2013, the maximum availability of revolving borrowings under our asset-based revolving credit facility was $429.5 million. This facility matures in December 2018. 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 affecting 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.
 
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Our inability to return to profitability would materially adversely affect our results of operations and financial condition.
 
A critical component of our business strategy is to return to profitability. In connection with this strategy, we are implementing a strategic turnaround plan that includes the repositioning of our brand, revamping of our product assortment, reinvigorating our store experience, enhancing our operational efficiency and maintaining our financial flexibility. For additional information regarding our strategic turnaround plan, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10-K. It may take longer than expected to execute our turnaround strategy and there can be no assurance that this plan will be successful.
 
Our ability to return to profitability may also be affected by:
 
·  
Our ability to offer and sell products with sufficient gross profit to improve our overall profitability
 
·  
Our ability to benefit from capital improvements made to our stores
 
·  
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 profitability or otherwise have a material adverse effect on our results of operations and financial condition.
 
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.
 
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.
 
Closing stores could result in significant costs and could materially adversely affect our results of operations and financial condition.
 
As part of our turnaround strategy and cash management plan, on March 4, 2014, we announced that we intend to close up to 1,100 stores. We expect to incur payments to landlords to terminate or “buy out” leases for these stores. The financial impact of terminating leases will vary depending on the terms of the lease, the condition of the local property market, demand for the specific property, our relationship with the landlord and the availability of potential sub-lease tenants. If these factors are unfavorable to us, then the costs of exiting a property may be significant. We also may incur severance costs related to the employees at such stores. Additionally, upon any store closure, the closing costs and the fixed asset and inventory write downs could adversely affect our results of operations and financial condition. Finally, if the number of domestic stores decreases below 4,278, we are required to establish additional reserves under our revolving credit facility. We will continue to evaluate the performance of our other stores. Additional store closures may occur in cases where stores are underperforming.  The proposed store closure program is subject to the consent of the lenders under our 2018 Credit Agreement and the 2018 Term Loan (as those terms are defined in Note 5 to the Consolidated Financial Statements included elsewhere in this report).
 
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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.
 
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 significant portion of our total revenue. Consequently, changes in the wireless industry, such as those discussed below, could materially adversely affect our results of operations and financial condition.
 
Lack of growth in the 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.
 
Consolidation in the wireless industry could lead to a concentration of competitive strength among 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 inability to manage our inventory effectively, particularly excess or inadequate amounts of and the payment terms for our 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.
 
We do not have long-term arrangements with respect to the payment terms with most of our suppliers. Any significant changes in the payment terms that we have with our key suppliers could materially adversely affect our results of operations and financial condition.
 
We may not be able to provide cost-effective solutions to meet the needs and wants of our customers.
 
We have undertaken a variety of strategic initiatives to be able to meet the needs and wants of our customers. Our failure to execute this strategy successfully or the occurrence of certain events, including the following, could materially adversely affect 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.
 
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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 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, 2013 and 2012, our net receivables from vendors and service providers were $144.2 million and $315.3 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 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.
 
8
 
For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, 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. These laws will impose numerous new mandatory types of coverage and reporting and other requirements on our health program. We believe these additional types of coverage and requirements will increase our costs, but we are not yet able to estimate the increases accurately because the regulations are new. Any significant increases in our costs could materially adversely affect our results of operations and financial condition.
 
In addition, in 2012 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 contract to 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.
 
Our net operating loss carryforwards could be subject to limitations under the Internal Revenue Code.
 
If we were to experience an “ownership change” under Section 382 of the Internal Revenue Code, our net operating loss carryforwards (NOLs) would be subject to annual limitations that could impact the timing of the utilization of our NOLs as well as limit our ability to fully utilize our NOLs prior to their expiration. The determination of whether an ownership change has occurred is complex and depends on a number of factors, including new issuances of shares by us and purchases and sales of shares by those shareholders owning a minimum of 5% of our shares over a rolling three-year period.
 
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.
 
9
 
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. 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.
 
10
 
 
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 13

We lease, rather than own, all 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.

RETAIL LOCATIONS
The table below shows our retail locations at December 31, 2013, allocated among U.S. and Mexico company-operated stores, discontinued kiosks and dealer and other outlets.
 
   
Average
                    
   
Store Size
    
At December 31,
  
   
(Sq. Ft.)
    
2013
    
2012
    
2011
  
U.S. RadioShack company-operated stores (1)
     2,426       4,297       4,395       4,476  
Mexico RadioShack company-operated stores (2)
     1,339       274       269       227  
Dealer and other outlets (3)
     N/A       948       1,014       1,110  
Discontinued kiosks (4)
     N/A       --       1,522       1,496  
Total number of retail locations (5)
             5,519       7,200       7,309  
 
(1)
We closed 113 and 103 stores during 2013 and 2012, respectively, after we decided not to renew the leases.
(2)
We opened 46 Mexico RadioShack company-operated stores during 2012.
(3)
Our dealer and other outlets decreased by 66 and 96 locations, net of new openings, during 2013 and 2012, respectively. These declines were primarily due to either the closing of dealer store locations or dealer agreements not being renewed.
(4)
As of December 31, 2012 and 2011, we operated wireless kiosks in certain Target locations. The operation of all of these kiosks was transitioned to Target by March 31, 2013.
(5)
In 2013 the Company opened 52 retail locations and closed 1,713 retail locations. 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.

 
 
Real Estate Owned and Leased
   
Approximate Square Footage (in thousands)
At December 31,
  
         
2013
                
2012
        
   
Owned
    
Leased
    
Total
    
Owned
    
Leased
    
Total
  
Retail
                                    
U.S. RadioShack company-operated stores
     --       10,426       10,426       2       10,827       10,829  
Mexico company-operated stores
     --       367       367       --       356       356  
Discontinued kiosks
     --       --       --       --       24       24  
Support Operations
                                                
Manufacturing
     134       --       134       134       --       134  
Distribution centers and office space
     1,927       480       2,407       1,927       480       2,407  
      2,061       11,273       13,334       2,063       11,687       13,750  

 
11
 
 
Below is a listing at December 31, 2013, of our retail locations within the United States and its territories:

   
U.S. RadioShack
  
Dealers
    
   
Stores
  
and Other (1)
  
Total
                         
Alabama
    
 48 
      
 17 
      
 65 
  
Alaska
    
 --
      
 20 
      
 20 
  
Arizona
    
 61 
      
 15 
      
 76 
  
Arkansas
    
 27 
      
 26 
      
 53 
  
California
    
 532 
      
 33 
      
 565 
  
Colorado
    
 60 
      
 22 
      
 82 
  
Connecticut
    
 67 
      
 1 
      
 68 
  
Delaware
    
 18 
      
 --
      
 18 
  
Florida
    
 283 
      
 26 
      
 309 
  
Georgia
    
 98 
      
 29 
      
 127 
  
Hawaii
    
 24 
      
 --
      
 24 
  
Idaho
    
 17 
      
 11 
      
 28 
  
Illinois
    
 161 
      
 36 
      
 197 
  
Indiana
    
 92 
      
 30 
      
 122 
  
Iowa
    
 30 
      
 38 
      
 68 
  
Kansas
    
 35 
      
 21 
      
 56 
  
Kentucky
    
 52 
      
 23 
      
 75 
  
Louisiana
    
 68 
      
 13 
      
 81 
  
Maine
    
 22 
      
 11 
      
 33 
  
Maryland
    
 95 
      
 4 
      
 99 
  
Massachusetts
    
 110 
      
 5 
      
 115 
  
Michigan
    
 118 
      
 37 
      
 155 
  
Minnesota
    
 52 
      
 29 
      
 81 
  
Mississippi
    
 36 
      
 11 
      
 47 
  
Missouri
    
 70 
      
 27 
      
 97 
  
Montana
    
 5 
      
 23 
      
 28 
  
Nebraska
    
 18 
      
 15 
      
 33 
  
Nevada
    
 35 
      
 5 
      
 40 
  
New Hampshire
    
 31 
      
 5 
      
 36 
  
New Jersey
    
 152 
      
 4 
      
 156 
  
New Mexico
    
 31 
      
 10 
      
 41 
  
New York
    
 328 
      
 14 
      
 342 
  
North Carolina
    
 116 
      
 23 
      
 139 
  
North Dakota
    
 6 
      
 3 
      
 9 
  
Ohio
    
 180 
      
 23 
      
 203 
  
Oklahoma
    
 37 
      
 22 
      
 59 
  
Oregon
    
 51 
      
 19 
      
 70 
  
Pennsylvania
    
 210 
      
 22 
      
 232 
  
Rhode Island
    
 20 
      
 --
      
 20 
  
South Carolina
    
 56 
      
 13 
      
 69 
  
South Dakota
    
 10 
      
 12 
      
 22 
  
Tennessee
    
 66 
      
 22 
      
 88 
  
Texas
    
 356 
      
 52 
      
 408 
  
Utah
    
 27 
      
 14 
      
 41 
  
Vermont
    
 9 
      
 7 
      
 16 
  
Virginia
    
 117 
      
 27 
      
 144 
  
Washington
    
 88 
      
 23 
      
 111 
  
West Virginia
    
 28 
      
 8 
      
 36 
  
Wisconsin
    
 64 
      
 37 
      
 101 
  
Wyoming
    
 6 
      
 13 
      
 19 
  
                         
District of Columbia
    
 12 
      
 --
      
 12 
  
Puerto Rico
    
 58 
      
 --
      
 58 
  
U.S. Virgin Islands
    
 4 
      
 --
      
 4 
  
     
 4,297 
      
 901 
      
 5,198 
  
 
(1)
Does not include international dealers.
 
 
12
 
 
Refer to Note 13 – “Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
 
 
Not applicable.
 
 
The following is a list, as of February 20, 2014, of our executive officers and their ages and positions.
 
 
Name
Position
(Date Appointed to Current Position)
  
 
Age
Joseph C. Magnacca
Chief Executive Officer (February 2013)
  
51
John W. Feray
Executive Vice President – Chief Financial Officer  (February 2014)
  
47
Telvin P. Jeffries
Executive Vice President – Chief Human Resources Officer, Services, International (September 2012)
  
45
Troy H. Risch
Executive Vice President – Store Operations (January 2013)
  
46
Martin B. Amschler
Senior Vice President – Franchise (June 2013)
  
56
Mark A. Boerio
Senior Vice President – Inventory Planning and Allocation (December 2013)
  
45
Michael S. DeFazio
Senior Vice President – Store Concepts (March 2013)
  
54
Janet E. Fox
Senior Vice President – Global Sourcing (November 2013)
  
54
Paul Rutenis
Senior Vice President – Chief Merchandising Officer (October 2013)
  
47
Jennifer S. Warren
Senior Vice President – Chief Marketing Officer (April 2013)
  
40
Robert C. Donohoo
Vice President, General Counsel and Corporate Secretary (August 2007)
  
52
William R. Russum
Vice President and Controller (October 2013)
  
51

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. Feray was appointed Executive Vice President – Chief Financial Officer in February 2014. Mr. Feray most recently was employed by Dollar General Corporation where he was Senior Vice President – Finance and Strategy from May 2008 until joining the Company. Prior to joining Dollar General, Mr. Feray was Senior Vice President – Chief Financial Officer of First American Payment Systems and before that he spent several years as Senior Vice President – Chief Financial Officer of Haggar Corporation.
 
Mr. Jeffries was appointed Executive Vice President – Chief Human Resources Officer, Services, International in September 2012 and was previously Executive Vice President – Chief Human Resources Officer and General Manager of Retail Services of the Company from 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. Risch was appointed Executive Vice President – Store 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.
 
Mr. Amschler was appointed Senior Vice President – Franchise in June 2013. Previously Mr. Amschler was Vice President – Franchise of the Company from 2009. Prior to joining the Company Mr. Amschler was Chief Development Officer of New York based NexCen beginning in 2007.
 
Mr. Boerio was appointed Senior Vice President – Inventory Planning and Allocation in December 2013. Previously Mr. Boerio worked 11 years in executive roles at Belk Inc., most recently serving as Senior Vice President – Corporate Strategy.
 
13
 
Mr. DeFazio was appointed Senior Vice President – Store Concepts in March 2013. Mr. DeFazio was Division Vice President – Store Concepts for Walgreen Co. from 2011 until joining the Company. Prior to joining Walgreen’s, Mr. DeFazio was employed by Duane Reade as a Senior Director – Store Concepts from 2006 until 2011.
 
Ms. Fox was appointed Senior Vice President – Global Sourcing in November 2013.  Ms. Fox was Senior Vice President - Sourcing, Quality, Materials and Technical Design at Under Armour, Inc. from February 2012 until August 2013. Before joining Under Armour, Ms. Fox was Senior Vice President – Director of Sourcing for J.C, Penney Company, Inc. from 2006 until 2012.
 
Mr. Rutenis was appointed Senior Vice President – Chief Merchandising Officer in October 2013. Previously Mr. Rutenis was Senior Vice President – General Merchandising Manager, Home Division at J.C. Penney Company, Inc. from 2011 until joining the Company. Prior to working at J.C. Penney, Mr. Rutenis worked at Dick’s Sporting Goods, Inc. from 2006 until 2011 and was a Division Merchandising Manager.
 
Ms. Warren was appointed Senior Vice President – Chief Marketing Officer in April 2013. Previously Ms. Warren was Client Partner, Samsung at Razorfish LLC from 2012 to 2013. Prior to joining Razorfish, Ms. Warren built retail brands and businesses as Senior Vice President – Group Account Director at GSD&M Idea City LLC from 2000 until 2012.
 
Mr. Donohoo was appointed Vice President, General Counsel and Corporate Secretary in August 2007. Mr. Donohoo joined the Company from EFJ, Inc. where he was Senior Vice President, General Counsel and Secretary. Prior to working for EFJ, Mr. Donohoo was Senior Vice President, General Counsel and Secretary of i2 Technologies, Inc.
 
Mr. Russum was appointed Vice President – Corporate Controller in October 2013. Mr. Russum was previously the Company’s Controller of Retail Operations and has been employed by the Company since 1991.

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, 2013.
 
Quarter Ended
  
High
    
Low
    
Dividends Declared
  
December 31, 2013
   $ 3.88     $ 2.57     $ --  
September 30, 2013
     4.36       2.18       --  
June 30, 2013
     4.28       2.94       --  
March 31, 2013
     3.87       2.08       --  
                         
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  

HOLDERS OF RECORD
At February 21, 2014, there were 15,969 holders of record of our common stock.
 
DIVIDENDS
We paid a dividend of $0.125 per share in the first and second quarters of 2012 and an annual dividend of $0.50 per share in 2011. On July 25, 2012, we announced that we were suspending our dividend. Accordingly, we did not pay any dividends during 2013.
 
14
 
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, 2013
  
3,411 (3)
  
$  2.89
  
--
  
$  188,100,224
November 1 – 30, 2013
  
638 (3)
  
$  2.65
  
--
  
$  188,100,224
December 1 – 31, 2013
  
--
  
$  --
  
--
  
$  188,100,224
  Total
  
4,049
      
--
    
 
(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, 2013, $188.1 million of the total authorized amount was available for share repurchases under this program. On January 30, 2012, we announced the suspension of 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.
 
RECENT SALES OF UNREGISTERED SECURITIES
None.
 

 
15
 
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, 2008, in RadioShack common stock, the S&P 500 Index and the S&P Specialty Retail Index.
 

 
             
 
12/08
12/09
12/10
12/11
12/12
12/13
RadioShack Corporation
$100.00
$165.48
$159.04
$    87.16
$    19.93
$  24.45
S&P 500 Index
100.00
126.46
145.51
148.59
172.37
228.19
S&P Specialty Retail Index
100.00
134.07
162.82
180.67
230.67
323.45

* Cumulative Total Return assumes dividend reinvestment.
Information Source: Standard & Poor's, a division of The McGraw-Hill Companies Inc.
 


 
16
 
 
RADIOSHACK CORPORATION AND SUBSIDIARIES
                                         
(Dollars and shares in millions, except per share
  
Year Ended December 31,
amounts, ratios, locations and square footage)
  
2013
  
2012
  
2011
  
2010
  
2009
Statements of Income Data
                                        
Net sales and operating revenues
  
$
 3,434.3 
    
$
 3,831.3 
    
$
 4,032.1 
    
$
 4,201.1 
    
$
 4,065.8 
  
Operating (loss) income
  
$
 (344.0)
    
$
 (25.0)
    
$
 174.0 
    
$
 354.6 
    
$
 355.1 
  
(Loss) income from continuing operations (1)
  
$
 (392.0)
    
$
 (110.8)
    
$
 78.7 
    
$
 193.4 
    
$
 196.2 
  
Net (loss) income (1)
  
$
 (400.2)
    
$
 (139.4)
    
$
 72.2 
    
$
 206.1 
    
$
 205.0 
  
Diluted (loss) income per share
                                        
from continuing operations
  
$
 (3.89)
    
$
 (1.11)
    
$
 0.76 
    
$
 1.58 
    
$
 1.56 
  
Diluted net (loss) income per share
  
$
 (3.97)
    
$
 (1.39)
    
$
 0.70 
    
$
 1.68 
    
$
 1.63 
  
Shares used in computing
                                        
net (loss) income per share:
                                        
Diluted
    
 100.7 
      
 100.1 
      
 103.3 
      
 122.7 
      
 126.1 
  
Gross profit as a percent of sales
    
 34.1 
%
    
 38.4 
%
    
 42.7 
%
    
 45.0 
%
    
 46.0 
%
SG&A expense as a percent of sales
    
 41.0 
%
    
 37.1 
%
    
 36.6 
%
    
 34.7 
%
    
 35.2 
%
Operating (loss) income as a percent of sales
    
 (10.1)
%
    
 (0.7)
%
    
 4.3 
%
    
 8.4 
%
    
 8.7 
%
                                         
Balance Sheet Data
                                        
Inventories
  
$
 802.3 
    
$
 908.3 
    
$
 744.4 
    
$
 723.7 
    
$
 670.6 
  
Total assets
  
$
 1,591.2 
    
$
 2,299.1 
    
$
 2,175.1 
    
$
 2,175.4 
    
$
 2,429.3 
  
Working capital
  
$
 748.4 
    
$
 1,003.7 
    
$
 1,176.7 
    
$
 898.6 
    
$
 1,389.7 
  
Capital structure:
                                        
Current debt
  
$
 1.1 
    
$
 278.7 
    
$
 --
    
$
 308.0 
    
$
 --
  
Long-term debt
  
$
 613.0 
    
$
 499.0 
    
$
 670.6 
    
$
 331.8 
    
$
 627.8 
  
Total debt
  
$
 614.1 
    
$
 777.7 
    
$
 670.6 
    
$
 639.8 
    
$
 627.8 
  
Total debt less cash and cash equivalents
  
$
 434.3 
    
$
 242.0 
    
$
 78.9 
    
$
 70.4 
    
$
 (280.4)
  
Stockholders' equity
  
$
 206.4 
    
$
 598.7 
    
$
 753.3 
    
$
 842.5 
    
$
 1,048.3 
  
Total capitalization (2)
  
$
 820.5 
    
$
 1,376.4 
    
$
 1,423.9 
    
$
 1,482.3 
    
$
 1,676.1 
  
Long-term debt as a % of total capitalization (2)
    
 74.7 
%
    
 36.3 
%
    
 47.1 
%
    
 22.4 
%
    
 37.5 
%
Total debt as a % of total capitalization (2)
    
 74.8 
%
    
 56.5 
%
    
 47.1 
%
    
 43.2 
%
    
 37.5 
%
Book value per share at year end
  
$
 2.06 
    
$
 6.01 
    
$
 7.59 
    
$
 7.97 
    
$
 8.37 
  
                                         
Financial Ratios
                                        
Return on average stockholders' equity
    
 (88.3)
%
    
 (20.2)
%
    
 8.8 
%
    
 20.3 
%
    
 21.5 
%
Return on average assets
    
 (21.3)
%
    
 (6.4)
%
    
 3.5 
%
    
 8.9 
%
    
 8.9 
%
Annual inventory turnover (3)
    
 2.8 
      
 3.3 
      
 3.5 
      
 3.5 
      
 3.6 
  
                                         
Other Data
                                        
Dividends declared per share (4)
  
$
 --
    
$
 0.25 
    
$
 0.50 
    
$
 0.25 
    
$
 0.25 
  
Capital expenditures
  
$
 42.3 
    
$
 67.8 
    
$
 82.1 
    
$
 80.1 
    
$
 81.0 
  
Number of retail locations at year end:
                                        
U.S. RadioShack company-operated stores
    
 4,297 
      
 4,395 
      
 4,476 
      
 4,486 
      
 4,476 
  
Mexico RadioShack company-operated stores
    
 274 
      
 269 
      
 227 
      
 211 
      
 204 
  
Dealer and other outlets
    
 948 
      
 1,014 
      
 1,110 
      
 1,219 
      
 1,321 
  
Discontinued kiosks
    
 --
      
 1,522 
      
 1,496 
      
 1,267 
      
 562 
  
Total
    
 5,519 
      
 7,200 
      
 7,309 
      
 7,183 
      
 6,563 
  
Average square footage per U.S. RadioShack
                                        
company-operated store
    
 2,426 
      
 2,464 
      
 2,473 
      
 2,482 
      
 2,504 
  
Comparable store sales (decrease) increase (5)
    
 (8.8)
%
    
 (4.5)
%
    
 (3.2)
%
    
 4.1 
%
    
 0.8 
%
Common shares outstanding
    
 100.3 
      
 99.6 
      
 99.3 
      
 105.7 
      
 125.2 
  

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.
 
 
17
 
 
 
(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)
On July 25, 2012, we announced that we were suspending our dividend.
(5)
Comparable store sales include the sales of U.S. and Mexico RadioShack company-operated 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.
 
 

 
 
18
 
 
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.
 
EXECUTIVE SUMMARY
 
Strategic Turnaround Plan
In February 2013 we hired a new Chief Executive Officer to lead a turnaround of the business by focusing on an initial set of strategic initiatives (“Strategic Plan”):
 
·  
Reposition our brand to reignite our customer base and connect to a new generation of shoppers through a modernized and relevant brand position.
 
·  
Revamp our product assortment to focus on relevant categories and higher-margin private brands.
 
·  
Reinvigorate our store experience through the use of high-touch, interactive content in strategic locations and the use of key design and aesthetic elements on a cost-effective basis.
 
·  
Increase operational efficiency by evaluating our retail operations, supply chain, and corporate functions and reengineering our processes to emphasize efficiencies.
 
·  
Increase our financial flexibility by providing the necessary capital and liquidity to fund the turnaround of the business. Refer to Note 5 to our Consolidated Financial Statements included elsewhere in this report for further discussion.
 
The implementation of these strategic initiatives will continue throughout 2014.
 
2013 Summary
Net sales and operating revenues decreased $397.0 million, or 10.4%, to $3,434.3 million when compared with last year. This decrease was primarily driven by an 8.8% decrease in comparable store sales. We experienced soft sales in many of our product categories. Areas showing sales growth were prepaid wireless, portable speakers, music accessories, and AC adaptors.
 
Gross profit decreased by $298.2 million, or 20.3%, to $1,172.2 million when compared with last year. This decrease was primarily driven by our lower revenue and our lower gross margin rate. The gross margin rate decreased from last year by 4.3 percentage points to 34.1%. This was a result of: a change in sales mix towards higher-priced and lower gross margin rate smartphones; an inventory write off of $46.6 million in the third quarter associated with product we have removed from our assortment; and more aggressive sales promotions such as aggressive discounts, clearance events, and customer coupons.
 
Selling, general and administrative (“SG&A”) expense decreased $12.4 million, or 0.9%, when compared with last year. The decrease in SG&A expense was driven primarily by fewer stores in operation during 2013 versus 2012, and by lower severance costs in 2013 when compared to 2012 primarily due to severance paid in 2012 to our former Chief Executive Officer and other corporate headquarters staff reductions. These decreases were partially offset by increased professional fees and increased self-insurance costs related to workers compensation and theft losses.
 
As a result of the factors above, we incurred an operating loss of $344.0 million, compared with an operating loss of $25.0 million last year. Operating income for our U.S. company-operated stores segment was $73.8 million, compared with $337.7 million last year.
 
Loss from continuing operations was $392.0 million, or $3.89 per diluted share, in 2013, compared with a loss from continuing operations of $110.8 million, or $1.11 per diluted share, in 2012.
 
Update on Postpaid Wireless Business
The combination of the following factors at our U.S. company-operated stores contributed to the substantial decrease in consolidated gross profit over the past two years:
 
·  
Total postpaid units sold decreased by 23% in 2013 and decreased by 20% in 2012
 
·  
The average cost per unit sold increased by 14.3% in 2013 and increased by 36% in 2012
 
·  
The average revenue per unit sold increased by 7% in 2013 and increased 19% in 2012
 
The decrease in the number of postpaid units sold at our U.S. company-operated stores was primarily driven by lower than anticipated adoption of new handsets.
 
The increase in the average revenue per postpaid unit was primarily driven by a change in our sales mix towards higher-priced smartphones, partially offset by an increase in commissions repaid to wireless service providers related to customers whose wireless handsets were deactivated from a wireless network. This deactivation took place either because they could not afford to, or chose not to, pay the monthly payments for wireless service associated with their smartphones. For further discussion of our accounting for these service deactivations, see “Critical Accounting Policies and Estimates” later in this MD&A.
 
Discontinued Operations
We ceased operating all of our Target Mobile centers prior to March 31, 2013, and since then have 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 Consolidated Statements of Income for all periods presented.
 
19
 
Capital Transactions
During 2013 we took a number of actions regarding our liquidity:
 
·  
We repaid $286.9 million remaining aggregate principal amount of our 2013 convertible notes
 
·  
In December we borrowed $300 million in secured term loans and repaid $175 million of debt
 
·  
Also in December we closed on a new $535 million asset-based revolving credit facility that matures in December 2018 (“2018 Credit Facility”) to replace our previous $450 million asset-based revolving credit facility
 
Liquidity Outlook
As of December 31, 2013, we had $179.8 million in cash and cash equivalents, compared with $535.7 million at December 31, 2012. Additionally, we had a credit facility of $535 million with availability of $374.5 million as of December 31, 2013. This resulted in a total liquidity position of $554.3 million at December 31, 2013.
 
We experienced losses of $400.2 million and $139.4 million in 2013 and 2012. In 2013 our net cash provided by operating activities was $35.8 million compared to net cash used in operating activities of $43.0 million in 2012.
 
We currently use our 2018 Credit Facility to provide letters of credit to a limited number of vendors. Based on our forecast for 2014, we anticipate that we will continue to use part of our availability under the credit facility for letters of credit and other corporate purposes.
 
As we execute the strategic turnaround plan and move through 2014, we will be tightly managing our cash and monitoring our liquidity position. We have implemented a number of initiatives to conserve our liquidity position including activities such as reducing our capital expenditures, reducing discretionary spending and selling surplus property. Many of the aspects of the plan involve management’s judgments and estimates that include factors that could be beyond our control and actual results could differ from our estimates. These and other factors could cause the strategic turnaround plan and the proposed store closure program to be unsuccessful which could have a material adverse effect on our operating results, financial condition and liquidity.
 
Store Closure Program: On March 4, 2014, along with our fourth quarter earnings release, we announced that we intend to close up to 1,100 underperforming stores. This program was driven by a comprehensive review of the existing store base and selection of stores based upon historical and projected financial performance, lease termination costs, and impact to the market and nearby stores. This proposed store closure program is expected to preserve liquidity by avoiding operating losses and generating cash by liquidating inventory in those stores. This will be partially offset by lease termination payments and liquidation costs. This program resulted in a non-cash impairment charge of fixed assets in these stores of $11.2 million and an inventory write down of $10.1 million, reflected in the 2013 financial statements. The proposed store closure program is subject to the consent of the lenders under our 2018 Credit Agreement and 2018 Term Loan. If we are unsuccessful in obtaining consent, we believe that we have sufficient liquidity to meet our obligations through 2014.
 
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 through 2014.
 
If our results fall below our expectations, we may use the liquidity provided by the availability on our credit facility or  take additional actions that would be outside the ordinary course of business. Other actions could include: raising additional capital by issuing debt or equity, further reducing our capital expenditures, reducing inventory levels, closing additional stores, reducing our employee headcount, or selling one or more subsidiaries.
 
For further discussion of our liquidity, please see “Liquidity and Capital Resources” later in this MD&A.
 
RESULTS OF OPERATIONS
 
2013 COMPARED WITH 2012
 
Net Sales and Operating Revenues
Consolidated net sales and operating revenues are as follows:
 
Year Ended December 31,
(In millions)
2013
  
2012
  
2011
U.S. RadioShack company-operated stores
$
 3,094.9 
    
$
 3,456.5 
    
$
 3,663.3 
  
Other
  
 339.4 
      
 374.8 
      
 368.8 
  
Consolidated net sales and operating revenues
$
 3,434.3 
    
$
 3,831.3 
    
$
 4,032.1 
  
                       
Consolidated net sales and operating revenues decrease
  
 (10.4)
%
    
 (5.0)
%
    
 (4.0)
%
Comparable store sales (1) decrease
  
 (8.8)
%
    
 (4.5)
%
    
 (3.2)
%

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

Product Platform Consolidation
 
To reflect more closely how we manage our merchandise and product assortment, we have consolidated our product platform reporting structure into two platforms:  mobility and retail.
 
20
 
These platforms include the following product categories:
 
Mobility:  The mobility platform includes postpaid and prepaid wireless handsets, commissions, residual income, prepaid wireless airtime, e-readers, and tablet devices. Our wireless accessories and tablet accessories, which were previously included in our signature platform, are now also included in this platform.
 
Retail:  Our retail platform includes our remaining consumer electronics product categories and related accessories; batteries and power products; and technical products. This platform now also consists of products that were previously included in our signature and consumer electronics platforms, except wireless accessories and tablet accessories, which are now included in the mobility platform. 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. Prior period amounts have been reclassified to conform to our current presentation.
 
   
Consolidated Net Sales and Operating Revenues
   
Year Ended December 31,
(In millions)
  
2013
  
2012
  
2011
Mobility (1)
  
$
 1,799.7 
      
 52.4 
%
  
$
 2,008.6 
      
 52.4 
%
  
$
 2,014.8 
      
 50.0 
%
Retail
    
 1,612.2 
      
 46.9 
      
 1,794.0 
      
 46.8 
      
 1,992.1 
      
 49.4 
  
Other sales (2)
    
 22.4 
      
 0.7 
      
 28.7 
      
 0.8 
      
 25.2 
      
 0.6 
  
Consolidated net sales and operating revenues
  
$
 3,434.3 
      
 100.0 
%
  
$
 3,831.3 
      
 100.0 
%
  
$
 4,032.1 
      
 100.0 
%
 
(1)
The aggregate amounts of upfront commission revenue and residual income received from wireless service providers and recorded in this platform were $851.1 million, $1,029.6 million and $1,233.1 million for 2013, 2012 and 2011, 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)
  
2013
  
2012
  
2011
Mobility
  
$
 1,706.2 
      
 55.1 
%
  
$
 1,923.0 
      
 55.6 
%
  
$
 1,935.3 
      
 52.8 
%
Retail
    
 1,388.7 
      
 44.9 
      
 1,533.5 
      
 44.4 
      
 1,728.0 
      
 47.2 
  
Net sales and operating revenues
  
$
 3,094.9 
      
 100.0 
%
  
$
 3,456.5 
      
 100.0 
%
  
$
 3,663.3 
      
 100.0 
%

Sales in our U.S. RadioShack company-operated stores segment decreased $361.6 million or 10.5% in 2013. These decreases in sales were driven by decreased sales in our mobility and retail platforms. Additionally, we operated 98 fewer stores at December 31, 2013, than we did at December 31, 2012, which contributed to a decrease in consolidated sales and affected the sales results for each platform discussed below.
 
Sales in our mobility platform (which includes postpaid and prepaid wireless handsets, commissions and residual income, prepaid wireless airtime, e-readers, tablet devices, wireless accessories, and tablet accessories) decreased 11.3% in 2013. This decrease in sales was primarily driven by decreased sales in our postpaid wireless business, which were partially offset by increased sales in our prepaid wireless business. Comparable store sales in this platform decreased 9.0% in 2013.
 
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 postpaid wireless business.
 
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 retail platform (which includes our remaining consumer electronics product categories and related accessories; batteries and power products; and technical products) decreased 9.4% in 2013. This sales decrease was primarily driven by decreased sales of laptop computers, batteries, internet telephone devices, home entertainment accessories, digital music players, headphones, and GPS devices. These sales decreases were partially offset by increased sales of portable speakers and sales of Apple Lightning compatible cables and adaptors. Comparable store sales in this platform decreased 8.5% in 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 Mexican subsidiary and our www.radioshack.com website, sales to commercial customers, and sales to other third parties through our global sourcing operations. Each of these business activities accounted for less than 5% of our consolidated net sales and operating revenues in 2013. Other sales decreased $35.4 million, or 9.4%, when compared with last year. This sales decrease was driven primarily by sales decreases to our independent dealers and at radioshack.com.
 
21
 
Gross Profit
Consolidated gross profit and gross margin are as follows:
                       
 
Year Ended December 31,
(In millions)
2013
  
2012
  
2011
Gross profit
$
 1,172.2 
    
$
 1,470.4 
    
$
 1,722.4 
  
Gross profit decrease
  
 (20.3)
%
    
 (14.6)
%
    
 (8.9)
%
                       
Gross margin rate
  
 34.1 
%
    
 38.4 
%
    
 42.7 
%

Gross profit decreased by $298.2 million, or 20.3%, to $1,172.2 million when compared with last year. This decrease was primarily driven by our decreased revenue and our decreased gross margin rate. Gross margin rate decreased by 4.3 percentage points from last year to 34.1%. The decrease in our consolidated gross margin rate was a result of: a change in sales mix towards higher-priced and lower gross margin rate smartphones; inventory valuation losses associated with our transition to an improved merchandise assortment; more aggressive sales promotions such as aggressive discounts, clearance events, and customer coupons; and inventory write downs related to our proposed store closure program.
 
Selling, General and Administrative Expense
Our consolidated SG&A expense decreased 0.9%, or $12.4 million, in 2013. SG&A as a percentage of net sales and operating revenues increased 3.9 percentage points when compared with 2012. This percentage point increase was a result of our decrease in net sales and operating revenues in 2013. 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,
   
2013
  
2012
  
2011
       
% of
      
% of
      
% of
(In millions)
  
Dollars
  
Revenues
  
Dollars
  
Revenues
  
Dollars
  
Revenues
Compensation
  
$
 594.6 
      
 17.3 
%
  
$
 618.1 
      
 16.1 
%
  
$
 621.0 
      
 15.4 
%
Rent and occupancy
    
 249.1 
      
 7.3 
      
 252.3 
      
 6.6 
      
 261.5 
      
 6.5 
  
Advertising
    
 176.2 
      
 5.1 
      
 175.8 
      
 4.6 
      
 203.1 
      
 5.0 
  
Other
    
 387.5 
      
 11.3 
      
 373.6 
      
 9.8 
      
 389.1 
      
 9.7 
  
   
$
 1,407.4 
      
 41.0 
%
  
$
 1,419.8 
      
 37.1 
%
  
$
 1,474.7 
      
 36.6 
%

The decrease in SG&A expense was driven by the fact that we operated fewer stores in 2013 than in 2012, and by $8.5 million in severance costs recognized in 2012 in connection with the departure of our Chief Executive Officer combined with the termination of employment of certain corporate headquarters support staff. The increase in Other SG&A was driven by increased professional fees and increased self-insurance costs related to workers compensation and theft losses. This increase was partially offset 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.
 
Depreciation and Amortization
The table below provides a summary of our total depreciation and amortization by segment.
                       
 
Year Ended December 31,
(In millions)
2013
  
2012
  
2011
U.S. RadioShack company-operated stores
$
 29.9 
    
$
 31.8 
    
$
 37.9 
  
Other
  
 4.4 
      
 3.8 
      
 4.0 
  
Unallocated
  
 36.1 
      
 38.7 
      
 36.2 
  
Total depreciation and amortization from continuing operations
$
 70.4 
    
$
 74.3 
    
$
 78.1 
  

The table below provides an analysis of total depreciation and amortization.
                       
 
Year Ended December 31,
(In millions)
2013
  
2012
  
2011
Depreciation and amortization expense
$
 61.4 
    
$
 65.9 
    
$
 70.6 
  
Depreciation and amortization included in cost of products sold
  
 9.0 
      
 8.4 
      
 7.5 
  
Total depreciation and amortization from continuing operations
$
 70.4 
    
$
 74.3 
    
$
 78.1 
  

The decreasing trend in depreciation expense from 2011 to 2013 was driven by lower capital expenditures in 2012 and 2013, combined with increased long-lived asset impairments during these periods.
 
Impairment of Long-Lived Assets and Goodwill
Impairment of long-lived assets and goodwill was $47.4 million in 2013 compared with $9.7 million in 2012.
 
U.S. RadioShack Company-Operated Stores: Impairments for long-lived assets held and used in certain stores were $23.3 million in 2013, compared with $9.7 million in 2012. The 2012 amounts included a goodwill impairment charge of $3.0 related to our U.S. RadioShack company-operated stores reporting unit. The remaining increases were primarily driven by increases in the number of stores that were evaluated for impairment during the periods 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.
 
22
 
Net Interest Expense
Consolidated net interest expense, which is interest expense net of interest income, was $50.1 million in 2013, compared with $52.6 million in 2012.
 
In 2013 and 2012, 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 decreased $2.2 million in 2013. This decrease was driven by the decreased average amount of long-term debt outstanding during 2013. Non-cash interest expense was $7.3 million in 2013 compared with $16.3 million in 2012.
 
Interest income increased $0.3 million in 2013. This increase was driven by $1.0 million of interest income received in 2013 related to a federal excise tax refund, which was partially offset by decreased interest income due to our decreased average amount of cash and cash equivalents in 2013.
 
Income Tax Expense
Our effective tax rate for 2013 was a positive 3.2%, compared with a negative 41.7% for 2012. The 2013 effective tax rate was affected by the recognition of previously unrecognized tax benefits and the reversal of interest accrued thereon in the amount of $21.0 million, primarily related to the effective settlement of certain federal and state income tax matters. This income tax benefit was partially offset by state and foreign income taxes recognized in certain jurisdictions, interest accrued with respect to our unrecognized tax benefits, and a valuation allowance established against the net deferred tax assets of our foreign subsidiary, RadioShack de Mexico. 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 2013 income tax expense and valuation allowance.
 
2012 COMPARED WITH 2011
 
Net Sales and Operating Revenues
Net sales and operating revenues decreased $200.8 million, or 5.0%, to $3,831.3 million in 2012 when compared with 2011. This decrease was primarily driven by a 4.5% decrease in comparable store sales.
 
U.S. RadioShack Company-Operated Stores Segment
 
Sales in our U.S. RadioShack company-operated stores segment decreased $206.8 million or 5.6% in 2012.
 
Sales in our mobility platform decreased 0.6% in 2012. This decrease in sales was primarily driven by decreased sales in our postpaid wireless business. This decrease was substantially offset by increased sales of wireless accessories, tablet devices and tablet accessories.
 
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 retail platform decreased 11.3% in 2012. This sales decrease was driven by sales declines in laptop computers, cameras, music players, GPS devices, home entertainment accessories, televisions, and personal computer accessories. The decrease in sales for many of these categories has been driven by the migration of the capabilities of these products into smartphones. These sales decreases were partially offset by increased sales of headphones.
 
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 increased slightly in 2012, when compared with 2011. 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 of 2012 related to the opening of our first franchised stores in Southeast Asia.
 
Gross Profit
Consolidated gross profit and gross margin for 2012 were $1,470.4 million and 38.4%, respectively, compared with $1,722.4 million and 42.7%, respectively, in 2011, resulting in a 14.6% decrease in gross profit dollars and a 4.3 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.
 
23
 
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. 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.
 
Selling, General and Administrative Expense
Our consolidated SG&A expense decreased 3.7%, or $54.9 million, in 2012. SG&A as a percentage of net sales and operating revenues increased by 0.5 percentage points when compared with 2011.
 
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 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
Total depreciation and amortization from continuing operations for 2012 declined $3.8 million or 4.9%.
 
Impairment of Long-Lived Assets and Goodwill
Impairment of long-lived assets and goodwill was $9.7 million in 2012 compared with $3.1 million in 2011.
 
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.
 
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 41.7%, compared with a positive 37.6% for 2011. The 2012 effective tax rate was affected by a valuation allowance in the amount of $62.7 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.
 
24
 
 
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 1.0 percentage points.
 
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
None.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Cash Flow Overview
 
Operating Activities: Cash provided by operating activities in 2013 was $35.8 million, compared with cash used in operating activities of $43.0 million in 2012. Our cash flows from operating activities are comprised of net loss plus non-cash adjustments to net loss and the net changes in assets and liabilities. The amounts of cash provided by net loss plus non-cash adjustments to net loss were negative $250.6 million and $59.9 million in 2013 and 2012, respectively. The increase in net loss plus non-cash adjustments was primarily driven by our increased net loss in 2013.
 
The amount of cash provided by the net changes in assets and liabilities was $286.4 million in 2013, compared with cash used by the net changes in assets and liabilities of $102.9 million in 2012. The increase in cash provided by the net changes in assets and liabilities in 2013 was primarily driven by cash provided by our decreased accounts receivable and inventory balances at December 31, 2013. The decrease in our accounts receivable balance in 2013 was driven by the decrease in our postpaid wireless business and the collection of a tax refund in 2013. The decrease in our inventory balance in 2013 was primarily due to the discontinuation of our Target Mobile segment and reduced inventories at our Mexican subsidiary.
 
Investing Activities: The amounts of cash used in investing activities were $78.2 million and $94.2 million in 2013 and 2012, respectively. This decrease was driven by decreased capital expenditures in 2013, which were partially offset by an increase in our restricted cash balance. For further discussion of our restricted cash, see “Cash Requirements” later in this MD&A. Capital expenditures were $42.3 million in 2013 compared with $67.8 million in 2012. This decrease was a result of our efforts to focus our capital spending on our U.S. stores to high-impact, cost-efficient initiatives, as well as reduced capital spending at our Mexican subsidiary related to fewer new store openings in 2013. Capital expenditures primarily related to our U.S. RadioShack company-operated stores and information system projects in 2013 and 2012.
 
Financing Activities: Net cash used in financing activities was $313.5 million in 2013 compared with net cash provided by financing activities of $81.2 million in 2012. Our net cash used in financing activities in 2013 was due to the repayment of $461.9 million of long-term debt. This was partially offset by $256.7 million in proceeds from the issuance of long-term debt. Additionally, our changes in cash overdrafts resulted in a $108.3 million use of cash.
 
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.
 
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 negative $6.5 million in 2013, negative $135.7 million in 2012, and $86.2 million in 2011. The increase in free cash flow for 2013 was attributable to cash provided by the net changes in our assets and liabilities 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” in the executive summary of 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 provided by operating activities was $35.8 million in 2013, compared with net cash used in operating activities of $43.0 million in 2012 and cash provided by operating activities of $217.9 million in 2011. We do not intend for the presentation of free cash flow, a non-GAAP financial measure, to be considered in isolation or as a substitute for measures prepared in accordance with GAAP, nor do we intend to imply that free cash flow represents cash flow available for discretionary expenditures.
 
The following table is a reconciliation of cash flows from operating activities to free cash flow.
                       
 
Year Ended December 31,
(In millions)
2013
  
2012
  
2011
Net cash provided by (used in) operating activities
$
 35.8 
    
$
 (43.0)
    
$
 217.9 
  
Less:
                      
Additions to property, plant and equipment
  
 42.3 
      
 67.8 
      
 82.1 
  
Dividends paid
  
 --
      
 24.9 
      
 49.6 
  
Free cash flow
$
 (6.5)
    
$
 (135.7)
    
$
 86.2 
  

 
25
 
SOURCES OF LIQUIDITY
As of December 31, 2013, we had $179.8 million in cash and cash equivalents, compared with $535.7 million as of December 31, 2012. The table below lists our credit commitments from various financial institutions at December 31, 2013.
 
   
Commitment Expiration per Period
   
Total Amounts
  
Less Than
          
Over
(In millions)
  
Committed
  
1 Year
  
1-3 Years
  
3-5 Years
  
5 Years
Lines of credit (1)
  
$
 535.0 
    
$
 --
    
$
 --
    
$
 535.0 
    
$
 --
  
Total commercial commitments
  
$
 535.0 
    
$
 --
    
$
 --
    
$
 535.0 
    
$
 --
  
 
(1)
At December 31, 2013 our maximum availability for revolving borrowings was $429.5 million. No revolving borrowings have been made under the facility, and letters of credit totaling $55.0 million had been issued as of December 31, 2013, resulting in $374.5 million of availability for revolving borrowings.

2018 Credit Facility: In December 2013, we entered into a five-year, $585 million asset-based credit agreement (“2018 Credit Agreement”) with a group of lenders with General Electric Capital Corporation as administrative and collateral agent. The 2018 Credit Agreement consists of a $535 million asset-based revolving credit line (“2018 Credit Facility”) and a $50 million asset-based term loan (“2018 Credit Agreement Term Loan”). The 2018 Credit Agreement expires in December 2018. The 2018 Credit Agreement may be used for general corporate purposes and the issuance of letters of credit.
 
Obligations under the 2018 Credit Agreement are guaranteed by all of our wholly-owned domestic subsidiaries except Tandy Life Insurance Company. The 2018 Credit Agreement is secured by a lien on substantially all of our assets, including a first priority lien on current assets, and a second priority lien on fixed assets, intellectual property, and the equity interests of our direct and indirect subsidiaries.
 
Revolving borrowings under the 2018 Credit Facility bear interest at our choice of a bank’s prime rate plus 1.0% to 1.5% or LIBOR plus 2.0% to 2.5%. The applicable rates in these ranges are based on the aggregate average unused availability under the facility. The 2018 Credit Facility also contains a $150 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 range from 2.0% to 2.5%. We pay commitment fees to the lenders at an annual rate of 0.5% of the unused amount of the facility.
 
The availability of credit under the 2018 Credit Facility is limited at any time to the lesser of $535 million and the amount of the revolving borrowing base at such time, in each case, less the principal amount of loans and letters of credit then-outstanding under the 2018 Credit Facility. The revolving borrowing base is based on percentages of eligible accounts receivable and eligible inventory and is subject to certain reserves. In addition, the revolving borrowing base is reduced by a minimum availability block equal to approximately 10% of the revolving borrowing base. The borrowing capacity is reduced by $35 million if the revolving borrowing base is less than $150 million.
 
If at any time the outstanding revolving borrowings and term loans under the 2018 Credit Facility exceed the revolving borrowing base, we will be required to repay an amount equal to such excess. If we or any of our subsidiaries that are guarantors of our obligations under the 2018 Credit Agreement sell assets on which the lenders under the 2018 Credit Agreement have a first priority lien (other than sales of inventory in the ordinary course of business), we must use the net proceeds from the sale to repay amounts outstanding under the 2018 Credit Agreement.
 
As of December 31, 2013, our maximum availability for revolving borrowings under the 2018 Credit Facility was $429.5 million. As of December 31, 2013, no revolving borrowings had been made under the facility, and letters of credit totaling $55.0 million had been issued, resulting in $374.5 million of remaining availability for revolving borrowings under the 2018 Credit Facility.
 
The 2018 Credit Agreement contains customary events of default, the occurrence of which could result in the acceleration of our obligation to repay the outstanding indebtedness under the agreement.
 
The 2018 Credit Agreement includes covenants that, subject to certain exceptions, limit our ability to:
 
·  
Incur additional debt, including guarantees;
 
·  
Make acquisitions, loans or investments;
 
·  
Pay dividends or repurchase our common stock;
 
·  
Create liens on our property;
 
·  
Change the nature of our business;
 
·  
Dispose of assets, including in connection with store closures;
 
·  
Amend or terminate certain material agreements;
 
·  
Engage in sale and leaseback transactions; and
 
·  
Consolidate or merge with or into other companies or sell all or substantially all our assets.
 
At December 31, 2013, we were in compliance with these covenants.
 
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. Any remaining amount of 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 2014 will be approximately $50 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 2014 capital expenditures. The funding required for capital expenditures will be from cash and cash equivalents, any cash generated from operating activities, and our 2018 Credit Facility.
 
26
 
Restricted Cash: Restricted cash totaled $66.0 million at December 31, 2013, and is included in other current assets in our Consolidated Balance Sheets. This cash is pledged as collateral for standby and trade letters of credit. We were required to pledge this cash as collateral in connection with the closing of our 2018 Credit Agreement. Subsequent to December 31, 2013, we have withdrawn this cash and have provided letters of credit issued under our 2018 Credit Facility for a portion of the withdrawn cash.
 
Seasonal Inventory Buildup: Our expected annual cash requirements for pre-seasonal inventory buildup from August to November range between $100 million and $150 million. The funding required for this buildup will be from cash and cash equivalents, any cash generated from operating activities, and our 2018 Credit Facility.
 
Operating Leases: We use operating leases, primarily for our retail locations and our corporate campus, to lower our capital requirements.

Contractual Obligations
The table below contains our known contractual commitments as of December 31, 2013.
                                         
   
Payments Due by Period
       
Less Than
          
More than
(In millions)
  
Total
  
1 Year
  
1-3 Years
  
3-5 Years
  
5 Years
Long-term debt obligations (1)
  
$
 626.4 
    
$
 1.1 
    
$
 0.3 
    
$
 300.0 
    
$
 325.0 
  
Interest obligations
    
 272.4 
      
 53.7 
      
 106.0 
      
 104.5 
      
 8.2 
  
Operating lease obligations (2)
    
 588.9 
      
 200.4 
      
 253.5 
      
 96.8 
      
 38.2 
  
Purchase obligations (3)
    
 260.5 
      
 255.2 
      
 5.3 
      
 --
      
 --
  
Other long-term liabilities reflected on the balance sheet (4)
    
 152.8 
      
 --
      
 21.7 
      
 7.7 
      
 123.4 
  
Total contractual commitments
  
$
 1,901.0 
    
$
 510.4 
    
$
 386.8 
    
$
 509.0 
    
$
 494.8 
  
 
(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 13 – “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 represent contractual obligations for which we could reasonably estimate the timing of cash payments. The remaining non-current liabilities reflected on our Consolidated Balance Sheet did not represent contractual obligations for future cash payments.

In 2013 we entered into a $50 million secured term loan and a $250 million secured term loan. Both of these loans are due in December 2018. In connection with these borrowings, we repaid $175 million aggregate principal amount of existing secured term loans. Additionally, we repaid the remaining $286.9 million of our 2.5% convertible notes in 2013. 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.
 
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. We did not pay any dividends during 2013. We do not currently intend to pay dividends in the foreseeable future.
 
The following table sets forth information about our capitalization on the dates indicated.
                               
 
December 31,
 
2013
  
2012
     
% of
      
% of
(Dollars in millions)
Dollars
  
Total
  
Dollars
  
Total
Short-term debt
$
 1.1 
      
 0.1 
%
  
$
 278.7 
      
 20.2 
%
Long-term debt
  
 613.0 
      
 74.7 
      
 499.0 
      
 36.3 
  
Total debt
  
 614.1 
      
 74.8 
      
 777.7 
      
 56.5 
  
Stockholders' equity
  
 206.4 
      
 25.2 
      
 598.7 
      
 43.5 
  
Total capitalization
$
 820.5 
      
 100.0 
%
  
$
 1,376.4 
      
 100.0 
%

 
Dividends: We paid a dividend of $0.125 per share in the first and second quarters of 2012 and an annual dividend of $0.50 per share in 2011.  Our dividend payments totaled $24.9 million and $49.6 million in 2012 and 2011, respectively, and were funded from cash on hand. On July 25, 2012, we announced that we were suspending our dividend.
 
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.
 
27
 
2008 Share Repurchase Program: 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.
 
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 $2.5 million in 2013.
 
28
 
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.
 
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, actuarial assumptions, 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, subject to annual limitations in the event of an “ownership change” under Section 382 of the Internal Revenue Code. 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.
 
29
 
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, 2013, would have affected net income by approximately $4.0 million. As of December 31, 2013, 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.
 
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 2013 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. Also, if the actual results or performance of our Mexican subsidiary are not consistent with our projections, estimates and assumptions, there could be additional goodwill impairment charges in future periods.
 
The total value of our goodwill at December 31, 2013, was $12.7 million. Of this amount, $12.2 million related to goodwill from the purchase of RadioShack de Mexico after an impairment charge of $23.7 million in the fourth quarter of 2013.
 
We did a multi-year projection based upon our normal annual planning process for the upcoming year during the fourth quarter of 2013. Due to the less than anticipated operating results of the Mexican subsidiary in the fourth quarter of 2013 and a review of operations in our normal planning process for the upcoming year, the projected operating results of our Mexican subsidiary for 2014 were reduced and the timing of a planned expansion was delayed to future years. The result of these actions was a significant reduction in sales and gross profits in our multi-year projection which was the primary factor in the calculation that determined the fair value of the goodwill of the Mexican subsidiary was less than the carrying amount in step 1 of the two-step impairment test.  In step 2, the fair value was allocated to assets and liabilities to determine the implied fair value of the goodwill. The result of this process calculated the implied fair value of the goodwill of the Mexican subsidiary to be less than the carrying value and an impairment charge was recorded.
 
30
 
 
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 binomial 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 2013 would have affected our net income by approximately $0.7 million.
 
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, 2013, 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 $124.4 million and our $300 million of term loans that bear interest at variable rates, in each case at December 31, 2013. A hypothetical 1% increase in short-term interest rates would result in a corresponding increase in annual net interest expense of approximately $1.3 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 virtually no corresponding change in annual net interest expense. 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 2013.
 
31
 
 
The Index to our Consolidated Financial Statements is found on page 35. Our Consolidated Financial Statements and Notes to Consolidated Financial Statements follow the index.
 
 
None.
 
 
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.
 
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 our principal executive officer and principal financial officer. Based upon that evaluation, management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
 
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 our principal executive officer and principal financial officer, an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2013, was conducted based upon criteria established in the “Internal Control – Integrated Framework (1992)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon that evaluation, management, including our principal executive officer and principal financial officer, 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 effectiveness of the Company’s internal control over financial reporting as of December 31, 2013, 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 25, 2014. 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 2014 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 2014 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 2014 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 2014 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 2014 Annual Meeting under the heading “Ownership of Securities.”
 
32
 
 
 
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 2014 Annual Meeting under the heading Corporate Governance - Director Independence and - Review and Approval of Transactions with Related Persons.
 
 
The information called for by this Item with respect to principal accounting fees and services is incorporated by reference from the Proxy Statement for the 2014 Annual Meeting under the headings Item 2 – Ratification of the Appointment of PricewaterhouseCoopers LLP as Independent Registered Public Accounting Firm for 2014 - Fees and Services of the Independent Registered Public Accounting Firm and - Policy for Pre-Approval of Audit, Audit-Related and Permissible Non-Audit Services of Independent Registered Public Accounting Firm.

PART IV
 
 
Documents filed as part of this Annual Report on Form 10-K:
 
1)  
 The financial statements listed in the "Index to Consolidated Financial Statements" on page 35.
 
2)  
 None
 
3)  
 A list of the exhibits required by Item 601 of Regulation S-K to be filed as part of this report is set forth in the Index to Exhibits beginning on page 74, which immediately precedes such exhibits.
 
Certain instruments defining the rights of holders of our long-term debt are not filed as exhibits to this report because the total amount of securities authorized thereunder does not exceed ten percent of our total assets on a consolidated basis. We will furnish the SEC copies of such instruments upon request.

 
33
 

 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, RadioShack Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
     
   
RADIOSHACK CORPORATION
     
     
March 4, 2014
 By:
/s/ Joseph C. Magnacca
   
Joseph C. Magnacca
   
Chief Executive Officer
     

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of RadioShack Corporation and in the capacities indicated on March 4, 2014.
 
             
Signature
  
Title
        
             
/s/ Daniel R. Feehan
  
Non-Executive
    
Daniel R. Feehan
  
Chairman of the Board
    
         
/s/ Joseph C. Magnacca
  
Chief Executive Officer and Director
    
Joseph C. Magnacca
  
(principal executive officer)
    
         
/s/ John W. Feray
  
Executive Vice President – Chief Financial Officer
    
John W. Feray
  
(principal financial officer)
    
             
/s/ William R. Russum
  
Vice President and Controller
    
William R. Russum
  
(principal accounting officer)
    
             
/s/ Robert E. Abernathy
  
Director
        
Robert E. Abernathy
            
             
/s/ Frank J. Belatti
  
Director
        
Frank J. Belatti
            
             
/s/ Julie A. Dobson
  
Director
        
Julie A. Dobson
            
             
/s/ H. Eugene Lockhart
  
Director
        
H. Eugene Lockhart
            
             
/s/ Jack L. Messman
  
Director
        
Jack L. Messman
            
             
/s/ Edwina D. Woodbury
  
Director
        
Edwina D. Woodbury
            


 
34
 

RADIOSHACK CORPORATION
 
 
Page
Report of Independent Registered Public Accounting Firm
36
Consolidated Statements of Income for each of the three years in the
period ended December 31, 2013
 
37
Consolidated Statements of Comprehensive Income for each of the three years in the
period ended December 31, 2013
 
38
Consolidated Balance Sheets at December 31, 2013 and 2012
39
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 2013
 
40
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 2013
 
41
Notes to Consolidated Financial Statements
42 – 73

All financial statement schedules have been omitted because they are not applicable, not required, or the information is included in the consolidated financial statements or notes thereto.
 

 
35
 

 
To the Board of Directors and Stockholders of RadioShack Corporation:
 
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of RadioShack Corporation and its subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 

 
/s/ PricewaterhouseCoopers LLP
 
Fort Worth, Texas
 
March 4, 2014
 
 
 
36
 

RADIOSHACK CORPORATION AND SUBSIDIARIES
 
Consolidated Statements of Income
                                                 
                                                 
   
Year Ended December 31,
   
2013
  
2012
  
2011
       
% of
      
% of
      
% of
(In millions, except per share amounts)
  
Dollars
  
Revenues
  
Dollars
  
Revenues
  
Dollars
  
Revenues
Net sales and operating revenues
  
$
 3,434.3 
      
 100.0 
%
  
$
 3,831.3 
      
 100.0 
%
  
$
 4,032.1 
      
 100.0 
%
Cost of products sold (includes depreciation
                                                
amounts of $9.0 million, $8.4 million,
                                                
and $7.5 million, respectively)
    
 2,262.1 
      
 65.9 
      
 2,360.9