10-Q 1 c289-20140503x10q.htm 10-Q 913926f88e9f4dc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________

FORM 10-Q

 

(Mark One)

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

For the period ended May 3, 2014

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

________________________

Picture 3

 

 

 

RADIOSHACK CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware

75-1047710

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

Mail Stop CF3-201, 300 RadioShack Circle, Fort Worth, Texas

76102

(Address of principal executive offices)

(Zip Code)

 

(Registrant's telephone number, including area code) (817) 415-3011

 

________________________

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

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

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

 

 

 

 

Large accelerated filer [ ]

Accelerated filer [ X ]

Non-accelerated filer [ ]

Smaller reporting company [ ]

 

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

The number of shares outstanding of the issuer's Common Stock, $1 par value, on May 31, 2014, was 100,615,442.

1


 

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

Page

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

28 

 

Item 4.

Controls and Procedures

29 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

29 

 

Item 6.

Exhibits

29 

 

 

Signatures

30 

 

 

Index to Exhibits

31 

 

 

2


 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RADIOSHACK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

13 Weeks Ended

 

Three Months Ended

 

Transition Period Ended

   

 

May 3,

 

April 30,

 

February 1,

(In millions, except per share amounts)

 

2014

 

2013

 

2014

Net sales and operating revenues

 

$

736.7 

 

 

$

848.4 

 

 

$

227.0 

 

Cost of products sold (includes depreciation amounts of $2.5 million,

 

 

 

 

 

 

 

 

 

 

 

 

$2.3 million, and $0.8 million, respectively)

 

 

468.0 

 

 

 

507.5 

 

 

 

139.2 

 

Gross profit

 

 

268.7 

 

 

 

340.9 

 

 

 

87.8 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

335.9 

 

 

 

333.7 

 

 

 

115.9 

 

Depreciation and amortization

 

 

13.0 

 

 

 

16.1 

 

 

 

4.3 

 

Impairment of long-lived assets

 

 

0.8 

 

 

 

1.4 

 

 

 

0.5 

 

Total operating expenses

 

 

349.7 

 

 

 

351.2 

 

 

 

120.7 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(81.0)

 

 

 

(10.3)

 

 

 

(32.9)

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

0.7 

 

 

 

0.4 

 

 

 

0.1 

 

Interest expense

 

 

(16.6)

 

 

 

(14.7)

 

 

 

(6.0)

 

Other loss

 

 

--

 

 

 

(0.3)

 

 

 

--

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations before income taxes

 

 

(96.9)

 

 

 

(24.9)

 

 

 

(38.8)

 

Income tax expense (benefit)

 

 

1.4 

 

 

 

(1.6)

 

 

 

(1.1)

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

 

(98.3)

 

 

 

(23.3)

 

 

 

(37.7)

 

Discontinued operations, net of income taxes

 

 

--

 

 

 

(4.7)

 

 

 

--

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(98.3)

 

 

$

(28.0)

 

 

$

(37.7)

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share from continuing operations

 

$

(0.97)

 

 

$

(0.23)

 

 

$

(0.37)

 

Loss per share from discontinued operations

 

 

--

 

 

 

(0.05)

 

 

 

--

 

Net loss per share

 

$

(0.97)

 

 

$

(0.28)

 

 

$

(0.37)

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

101.3 

 

 

 

100.5 

 

 

 

101.1 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$

(97.7)

 

 

$

(23.7)

 

 

$

(38.4)

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

RADIOSHACK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 3,

 

February 1,

 

December 31,

(In millions, except share amounts)

 

2014

 

2014

 

2013

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

61.8 

 

 

$

109.6 

 

 

$

179.8 

 

Accounts and notes receivable, net

 

 

163.0 

 

 

 

154.1 

 

 

 

211.9 

 

Inventories

 

 

791.7 

 

 

 

807.8 

 

 

 

802.3 

 

Other current assets

 

 

58.2 

 

 

 

80.1 

 

 

 

139.0 

 

Total current assets

 

 

1,074.7 

 

 

 

1,151.6 

 

 

 

1,333.0 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

180.6 

 

 

 

186.3 

 

 

 

187.2 

 

Other assets, net

 

 

70.8 

 

 

 

72.7 

 

 

 

71.0 

 

Total assets

 

$

1,326.1 

 

 

$

1,410.6 

 

 

$

1,591.2 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

1.1 

 

 

$

1.1 

 

 

$

1.1 

 

Accounts payable

 

 

242.4 

 

 

 

234.7 

 

 

 

376.4 

 

Accrued expenses and other current liabilities

 

 

212.1 

 

 

 

206.4 

 

 

 

207.1 

 

Total current liabilities

 

 

455.6 

 

 

 

442.2 

 

 

 

584.6 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, excluding current maturities

 

 

613.4 

 

 

 

613.0 

 

 

 

613.0 

 

Other non-current liabilities

 

 

184.5 

 

 

 

186.7 

 

 

 

187.2 

 

Total liabilities

 

 

1,253.5 

 

 

 

1,241.9 

 

 

 

1,384.8 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (See Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, no par value, 1,000,000 shares authorized:

 

 

 

 

 

 

 

 

 

 

 

 

Series A junior participating, 300,000 shares designated and none issued

 

 

--

 

 

 

--

 

 

 

--

 

Common stock, $1 par value, 650,000,000 shares authorized;

 

 

 

 

 

 

 

 

 

 

 

 

146,033,000 shares issued

 

 

146.0 

 

 

 

146.0 

 

 

 

146.0 

 

Additional paid-in capital

 

 

117.0 

 

 

 

122.9 

 

 

 

123.6 

 

Retained earnings

 

 

824.7 

 

 

 

923.0 

 

 

 

960.6 

 

Treasury stock, at cost; 45,428,000, 45,686,000,

 

 

 

 

 

 

 

 

 

 

 

 

and 45,735,000 shares, respectively

 

 

(1,008.9)

 

 

 

(1,016.4)

 

 

 

(1,017.7)

 

Accumulated other comprehensive loss

 

 

(6.2)

 

 

 

(6.8)

 

 

 

(6.1)

 

Total stockholders’ equity

 

 

72.6 

 

 

 

168.7 

 

 

 

206.4 

 

Total liabilities and stockholders’ equity

 

$

1,326.1 

 

 

$

1,410.6 

 

 

$

1,591.2 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

RADIOSHACK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

13 Weeks Ended

 

Three Months Ended

 

Transition Period Ended

   

 

May 3,

 

April 30,

 

February 1,

(In millions)

 

2014

 

2013

 

2014

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(98.3)

 

 

$

(28.0)

 

 

$

(37.7)

 

Adjustments to reconcile net loss to net cash

 

 

 

 

 

 

 

 

 

 

 

 

(used in) provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

15.5 

 

 

 

19.2 

 

 

 

5.1 

 

Deferred income taxes

 

 

--

 

 

 

(0.1)

 

 

 

--

 

Amortization of discounts on long-term debt

 

 

0.5 

 

 

 

3.2 

 

 

 

0.2 

 

Impairment of long-lived assets

 

 

0.8 

 

 

 

1.4 

 

 

 

0.5 

 

Stock-based compensation

 

 

1.9 

 

 

 

2.4 

 

 

 

0.5 

 

Provision for credit losses and bad debts

 

 

0.5 

 

 

 

--

 

 

 

--

 

Other non-cash items

 

 

2.5 

 

 

 

0.7 

 

 

 

0.2 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts and notes receivable

 

 

(8.4)

 

 

 

96.3 

 

 

 

57.7 

 

Inventories

 

 

16.6 

 

 

 

(14.7)

 

 

 

(6.0)

 

Other current assets

 

 

18.7 

 

 

 

1.3 

 

 

 

2.2 

 

Accounts payable

 

 

7.4 

 

 

 

17.6 

 

 

 

(141.2)

 

Accrued expenses and other

 

 

6.1 

 

 

 

(14.8)

 

 

 

(3.1)

 

Net change in liability for unrecognized tax benefits and accrued interest

 

 

0.8 

 

 

 

(2.2)

 

 

 

0.4 

 

Other

 

 

(2.4)

 

 

 

(5.4)

 

 

 

(0.6)

 

Net cash (used in) provided by operating activities

 

 

(37.8)

 

 

 

76.9 

 

 

 

(121.8)

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(12.9)

 

 

 

(5.2)

 

 

 

(5.3)

 

Proceeds from sale of property, plant and equipment

 

 

--

 

 

 

6.3 

 

 

 

--

 

Changes in restricted cash

 

 

2.9 

 

 

 

(5.6)

 

 

 

56.9 

 

Other investing activities

 

 

--

 

 

 

0.1 

 

 

 

--

 

Net cash (used in) provided by investing activities

 

 

(10.0)

 

 

 

(4.4)

 

 

 

51.6 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Principal amount of long-term debt repayments

 

 

--

 

 

 

(70.5)

 

 

 

--

 

Changes in cash overdrafts

 

 

--

 

 

 

(2.6)

 

 

 

--

 

Net cash used in financing activities

 

 

--

 

 

 

(73.1)

 

 

 

--

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(47.8)

 

 

 

(0.6)

 

 

 

(70.2)

 

Cash and cash equivalents, beginning of period

 

 

109.6 

 

 

 

403.2 

 

 

 

179.8 

 

Cash and cash equivalents, end of period

 

$

61.8 

 

 

$

402.6 

 

 

$

109.6 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

5


 

RADIOSHACK CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1 – BASIS OF PRESENTATION

In November 2013, our Board of Directors approved a change in our fiscal year end from December 31 to the Saturday nearest January 31 of each year. The change, which aligns our reporting cycle with the National Retail Federation 4-5-4 fiscal calendar and is expected to provide for more consistent quarter-to-quarter comparisons, is effective for our 2015 fiscal year.    Our 2015 fiscal year began on February 2, 2014, and will end January 31, 2015, resulting in a transition period, that began January 1, 2014, and ended February 1, 2014, our 2014 fiscal year.  This Form 10-Q includes the unaudited results for the 13 weeks ended May 3, 2014, the three months ended April 30, 2013 and the transition period ended February 1, 2014.  We have also included selected unaudited results for the period from January 1, 2013 through January 31, 2013 for comparative purposes in Note 10.  The audited results for the transition period ended February 1, 2014, will be included separately in the Company’s Annual Report on Form 10-K for the fiscal year ending January 31, 2015.  Prior period information has been recast to the month end dates that most closely align with the new fiscal calendar.  The prior period financial statements have not been recast on a 4-5-4 calendar basis, because it was not practicable to do so.

Throughout this report, the terms “our,” “we,” “us,” “Company,” and “RadioShack” refer to RadioShack Corporation, including its subsidiaries. We prepared the accompanying unaudited condensed consolidated financial statements, which include the accounts of RadioShack Corporation and all majority-owned domestic and foreign subsidiaries, in accordance with the rules of the Securities and Exchange Commission. Accordingly, we did not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In management’s opinion, all adjustments of a normal recurring nature considered necessary for a fair statement are included. However, our operating results for the 13 weeks ended May 3, 2014, and three months April 30, 2013, do not necessarily indicate the results you might expect for the full year. For further information, refer to our consolidated financial statements and management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2013.   We have reclassified certain prior period amounts to conform to the current period presentation.

LIQUIDITY

We have experienced losses for the past two years that continued into the first quarter of fiscal 2015, primarily attributed to a prolonged downturn in our business, which continues to impact our overall liquidity. In response to our liquidity needs and to continue execution of our strategic turnaround plan, we entered into the 2018 Credit Agreement in December 2013. We believe that this will provide the financial flexibility to improve operating results and provide sufficient liquidity to meet our obligations for the next 12 months.

During fiscal 2015, we will continue our efforts to execute our strategic turnaround plan, which is designed to improve our operating results and control costs through operational efficiency.  We have made investments in marketing to reposition our brand and are implementing plans to improve our product assortment through new categories, brands, products, private brand innovation, handset installment plans related to our mobility business and strategic partnering.  In addition to these initiatives to improve operating results, we are controlling costs through operational efficiencies such as optimizing our labor costs, centralizing our merchandise sourcing decisions, implementing new technologies which we believe will create efficiencies for our store associates and support our mobility business, closing under-performing stores and store rent reductions.  We will be tightly managing our cash and monitoring our liquidity position and have implemented a number of initiatives to conserve our liquidity position.

Our ability to maintain sufficient liquidity for the next 12 months to fund our operations and execute our strategic turnaround plan is contingent on improving the current trend in our operating results.  This plan anticipates that sales and gross margins will improve over the next 12 months in the mobility and retail areas of our business due to the initiatives detailed above.  There are risks due to consumer acceptance of our efforts to reposition the brand, revamp the product assortment and reinvigorate our store experience as well as the competitive nature of the consumer electronics industry.  If the current trend in our operating results continues or further declines, we will be required to borrow additional amounts under our 2018 Credit Agreement, make further reductions in capital expenditures and make additional reductions in our operating cost structure, including in our employee headcount, marketing and rent.  Other actions to improve liquidity could include seeking to raise additional capital, reducing inventory levels, selling nonproductive assets or selling one or more subsidiaries.  Some of the actions we may elect to take if trends do not improve may require lender consent under our 2018 Credit Agreement.   

Many of the aspects of the strategic turnaround plan and initiatives to conserve our liquidity position 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 initiatives to conserve our liquidity position to be unsuccessful which could have a material adverse effect on our operating results, financial condition and liquidity.  

6


 

NOTE 2 – NEW ACCOUNTING STANDARDS

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  Under ASU 2014-08, only disposals representing a strategic shift in operations should be presented as discontinued operations.  Those strategic shifts should have a major effect on the organization’s operations and financial results.  Additionally, ASU 2014-08 requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations.  ASU 2014-08 is effective for fiscal and interim periods beginning on or after December 15, 2014.  We are currently evaluating the impact of the adoption of ASU 2014-08.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides guidance that companies will recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the payment to which a company expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  The effective date will be the first quarter of fiscal year 2018 using one of two retrospective application methods.  We have not determined the potential effects on the consolidated financial statements.

NOTE 3 – DISCONTINUED OPERATIONS

We account for closed retail locations as discontinued operations when the cash flows of a retail location have been eliminated from our ongoing operations and we do not have any significant continuing involvement in its operations. In reaching the determination as to whether the cash flows of a retail location have been eliminated from our ongoing operations, we consider whether it is likely that customers will migrate to our other retail locations in the same geographic market.

We ceased operating all of our Target Mobile centers prior to March 31, 2013. See Note 1 – “Description of Business – Discontinued Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2013, for further information.

Net sales and operating revenues related to these discontinued operations were zero for the 13 weeks ended May 3, 2014, and for the transition period ended February 1, 2014, compared with $46.0 million for the three months ended April 30, 2013, and $25.6 million for the month ended January 31, 2013. The income (loss) before income taxes for these discontinued operations was zero for the 13 weeks ended May 3, 2014, and for the transition period ended February 1, 2014, compared with losses of $4.6 million for the three months ended April 30, 2013 and $2.6 million for the month ended January 31, 2013.

NOTE 4 – INDEBTEDNESS AND BORROWING FACILITIES

Long-Term Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 3,

 

February 1,

 

December 31,

(In millions)

 

2014

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Term loan due in December 2018

 

$

250.0 

 

 

$

250.0 

 

 

$

250.0 

 

Credit facility term loan due in December 2018

 

 

50.0 

 

 

 

50.0 

 

 

 

50.0 

 

6.75% unsecured notes due in May 2019

 

 

325.0 

 

 

 

325.0 

 

 

 

325.0 

 

Other

 

 

1.2 

 

 

 

1.2 

 

 

 

1.4 

 

 

 

 

626.2 

 

 

 

626.2 

 

 

 

626.4 

 

Unamortized debt discounts

 

 

(11.7)

 

 

 

(12.1)

 

 

 

(12.3)

 

 

 

 

614.5 

 

 

 

614.1 

 

 

 

614.1 

 

Less current portion of:

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

1.1 

 

 

 

1.1 

 

 

 

1.1 

 

Total long-term debt

 

$

613.4 

 

 

$

613.0 

 

 

$

613.0 

 

 

Subsequent to May 3, 2014, we had outstanding borrowings of $35.0 million under our 2018 Credit Facility. We expect to further utilize our 2018 Credit Facility during the remainder of the year.

 

 

NOTE 5 – NET LOSS PER SHARE

Basic net loss per share is computed based on the weighted average number of common shares outstanding for each period presented. Diluted net loss per share reflects the potential dilution that would have occurred if securities or other contracts to

7


 

issue common stock were exercised, converted, or resulted in the issuance of common stock that would have then shared in our earnings.

The following table reconciles the numerator and denominator used in the basic and diluted net loss per share calculations for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

13 Weeks Ended

 

Three Months Ended

 

Transition Period Ended

   

 

May 3,

 

April 30,

 

February 1,

(In millions)

 

2014

 

2013

 

2014

   

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(98.3)

 

 

$

(23.3)

 

 

$

(37.7)

 

Discontinued operations, net of taxes

 

 

--

 

 

 

(4.7)

 

 

 

--

 

Net loss

 

$

(98.3)

 

 

$

(28.0)

 

 

$

(37.7)

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

101.3 

 

 

 

100.5 

 

 

 

101.1 

 

Dilutive effect of stock-based awards

 

 

--

 

 

 

--

 

 

 

--

 

Weighted-average shares for diluted net loss per share

 

 

101.3 

 

 

 

100.5 

 

 

 

101.1 

 

 

The following table includes common stock equivalents that were not included in the calculation of diluted net loss per share for the periods presented. These securities could be dilutive in future periods.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

13 Weeks Ended

 

Three Months Ended

 

Transition Period Ended

   

 

May 3,

 

April 30,

 

February 1,

(In millions)

 

2014

 

2013

 

2014

   

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options (1) (2)

 

 

9.3 

 

 

 

10.1 

 

 

 

7.1 

 

Warrants to purchase common stock (3)

 

 

--

 

 

 

15.8 

 

 

 

4.5 

 

 

(1)

Certain employee stock options were excluded from weighted-average shares for diluted net loss per share because the exercise prices exceeded the average market price of our common stock during the period and the effect of their inclusion would be antidilutive. For the 13 weeks ended May 3, 2014, 7.2 million employee stock options were excluded for this reason, compared with 6.7 million for the three months ended April 30, 2013.  For the transition period ended February 1, 2014, 6.9 million employee stock options were excluded for this reason.

(2)

Certain employee stock options were excluded from weighted-average shares for diluted net loss per share because the effect of their inclusion would reduce our net loss per share and would be antidilutive. For the 13 weeks ended May 3, 2014, and three months ended April 30, 2013, 2.1 million and 3.4 million of employee stock options were excluded from both periods for this reason.  For the transition period ended February 1, 2014, 0.2 million employee stock options were excluded for this reason.

(3)

These common stock equivalents were excluded because the exercise prices ($35.88 per share for all periods) exceeded the average market price of our common stock during these periods and the effect of their inclusion would be antidilutive.  The warrants expired in March 2014.

 

NOTE 6 – FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

Basis of Fair Value Measurements

   

 

 

 

Quoted Prices

 

Significant

 

 

   

 

 

 

in Active

 

Other

 

Significant

   

 

Fair Value

 

Markets for

 

Observable

 

Unobservable

   

 

of Assets

 

Identical Items

 

Inputs

 

Inputs

(In millions)

 

(Liabilities)

 

(Level 1)

 

(Level 2)

 

(Level 3)

   

 

 

 

 

 

 

 

 

 

 

 

 

As of May 3, 2014

 

 

 

 

 

 

 

 

 

 

 

 

Long-lived assets held and used

 

$

0.4 

 

 

 

--

 

 

 

--

 

 

$

0.4 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of February 1, 2014

 

 

 

 

 

 

 

 

 

 

 

 

Long-lived assets held and used

 

$

0.6 

 

 

 

--

 

 

 

--

 

 

$

0.6 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

Long-lived assets held and used

 

$

9.6 

 

 

 

--

 

 

 

--

 

 

$

9.6 

 

8


 

 

 

The FASB’s accounting guidance utilizes a fair value hierarchy that prioritizes the inputs to the valuation techniques used to measure fair value into three broad levels:

·

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities

·

Level 2: Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active

·

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions

U.S. RadioShack Company-Operated Stores: At May 3, 2014, February 1, 2014, and December 31, 2013, long-lived assets held and used in certain locations of our U.S. RadioShack company-operated stores segment with a total carrying value of $1.2 million,  $1.1 million and $32.9 million, were written down to their fair value of $0.4 million, $0.6 million and $9.6 million, resulting in impairment charges of $0.8 million, $0.5 million and $23.3 million that were included in our operating results for the respective periods mentioned.

The inputs used to calculate the fair value of these long-lived assets included the projected cash flows and a risk-adjusted rate of return that we estimated would be used by a market participant in valuing these assets. The projected cash flows for a particular store are based on average historical cash flows for that store and are projected through the remainder of its lease. The risk-adjusted rates of return used to discount these cash flows range from 15% to 20%.

Fair Value of Financial Instruments: Financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and long-term debt. With the exception of long-term debt, the financial statement carrying amounts of these items approximate their fair values due to their short-term nature. As of May 3, 2014, February 1, 2014 and December 31, 2013, for our 6.75% unsecured notes due in 2019 (“2019 Notes”) and as May 3, 2014 for our secured term loans, the estimated fair values are determined using quoted market prices, when available.  If quoted market prices are not available, the fair value is estimated using indicated market prices. At February 1, 2014 and December 31, 2013, estimated fair values of our secured term loans approximate their carrying values due to the recentness of these borrowings and are classified as Level 3.

Carrying amounts and the related estimated fair values of our long-term debt financial instruments are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Basis of Fair Value Measurements

   

 

 

 

 

 

Quoted Prices

 

Significant

 

 

   

 

 

 

 

 

in Active

 

Other

 

Significant

   

 

 

 

 

 

Markets for

 

Observable

 

Unobservable

   

 

Carrying

 

Fair Value

 

Identical Items

 

Inputs

 

Inputs

(In millions)

 

Amount

 

of Liabilities

 

(Level 1)

 

(Level 2)

 

(Level 3)

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of May 3, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019 Notes

 

$

323.4 

 

 

$

131.6 

 

 

 

--

 

 

$

131.6 

 

 

 

--

 

Secured term loans

 

$

289.9 

 

 

$

285.0 

 

 

 

--

 

 

 

--

 

 

$

285.0 

 

Other

 

$

1.1 

 

 

$

1.1 

 

 

 

--

 

 

 

--

 

 

$

1.1 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of February 1, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019 Notes

 

$

323.4 

 

 

$

195.0 

 

 

 

--

 

 

$

195.0 

 

 

 

--

 

Secured term loans

 

$

289.5 

 

 

$

289.5 

 

 

 

--

 

 

 

--

 

 

$

289.5 

 

Other

 

$

1.1 

 

 

$

1.1 

 

 

 

--

 

 

 

--

 

 

$

1.1 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019 Notes

 

$

323.0 

 

 

$

197.9 

 

 

 

--

 

 

$

197.9 

 

 

 

--

 

Secured term loans

 

$

289.4 

 

 

$

289.4 

 

 

 

--

 

 

 

--

 

 

$

289.4 

 

Other

 

$

1.4 

 

 

$

1.4 

 

 

 

--

 

 

 

--

 

 

$

1.4 

 

 

 

 

 

NOTE 7 – INCOME TAXES

We continue to provide a valuation allowance against all of our U.S. federal and state deferred tax assets. As a result, we did not record any U.S. federal or state income tax benefit related to our operating losses for the 13 weeks ended May 3, 2014 or the period ended  February 1, 2014.  We continue to provide a valuation allowance against all of the deferred tax assets of our Mexican subsidiary. We continue to recognize income tax expense or benefit related to our other foreign operations and

9


 

interest accrued on our liabilities for uncertain tax positions. In addition, we continue to recognize income tax expense in certain state jurisdictions.

The consolidated liability of gross unrecognized income tax benefits for uncertain tax positions (excluding interest) was $116.4 million, $116.6 million and $119.1 million at May 3, 2014, February 1, 2014, and December 31, 2013, respectively. At May 3, 2014, $92.1 million of this liability was related to a single uncertain tax position. We anticipate that this uncertain tax position will not be resolved within the next 12 months.

Liabilities for unrecognized income tax benefits for uncertain tax positions may result in cash payments to one or more tax authorities in future periods. Such payments would not affect our results of operations. It is reasonably possible that our liability for unrecognized tax benefits related to uncertain tax positions could be reduced over the next 12 months because of settlements or the expiration of the applicable statute of limitations.

The income tax benefit for transition period ended February 1, 2014 was $1.1 million.  The income tax benefit was primarily associated with the anticipated refund of state income taxes to correct an error related to a $1.6 million overpayment of prior year’s alternative minimum taxes partially offset by income tax expense related to uncertain tax positions.  The overpayment was not material to the transition period or any prior period.

Our federal and certain state net operating losses and federal general business credit carryforwards may be subject to limitations under Section 382 of the Internal Revenue Code if significant ownership changes occur. 

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Loss Contingencies: FASB Accounting Standards Codification Topic 450 - Contingencies (“ASC 450”) governs our disclosure and recognition of loss contingencies, including pending claims, lawsuits, disputes with third parties, investigations and other actions that are incidental to the operation of our business. ASC 450 uses the following defined terms to describe the likelihood of a future loss: probable – the future event or events are likely to occur, remote – the chance of the future event or events is slight and reasonably possible – the chance of the future event or events occurring is more than remote but less than likely. ASC 450 also contains certain requirements with respect to how we accrue for and disclose information concerning our loss contingencies. We accrue for a loss contingency when we conclude that the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. When the reasonable estimate of the loss is within a range of amounts and no amount in the range constitutes a better estimate than any other amount, we accrue for the amount at the low end of the range. We adjust our accruals from time to time as we receive additional information, but the loss we incur may be significantly greater than or less than the amount we have accrued. We disclose loss contingencies if there is at least a reasonable possibility that a loss has been incurred. No accrual or disclosure is required for losses that are remote.

Brookler v. RadioShack Corporation: In April 2004, plaintiff Morry Brookler filed a putative class action in Los Angeles Superior Court claiming that we violated California's wage and hour laws relating to meal and rest periods. The meal period claim was originally certified as a class action in February 2006. We filed a Motion for Decertification in August 2007 which was denied. After a favorable decision by the California Court of Appeals in a similar case, Brinker Restaurant Corporation v. Superior Court, we filed a Second Motion for Decertification which was granted in October 2008. The plaintiff appealed this ruling and in August 2010, the California Court of Appeals reversed the trial court’s decertification order. In September 2010, we filed a Petition for Review with the California Supreme Court, which granted review and placed the case on hold pending a decision in the Brinker case. In April 2012, the California Supreme Court issued its decision in Brinker and in June 2012, remanded our case to the California Court of Appeals with instructions to vacate its prior order and reconsider its ruling in light of the Supreme Court’s decision in Brinker. In December 2012, the Court of Appeals affirmed the trial court’s decertification of the meal period class. In June 2013, the plaintiff filed a Motion to Amend his Complaint to assert rest and meal period as well as off-the-clock and Private Attorneys General Act claims and to add an additional class representative. In July 2013 the trial court granted the Motion to Amend and the plaintiffs filed a Second Amended Complaint. In August 2013 we removed the case to federal court. In September 2013 the plaintiffs filed a Motion to Remand the case back to state court, which was granted in October 2013. In November 2013 we filed a demurrer in state court to all causes of action in the Second Amended Complaint, which was granted without leave to amend in January 2014.  On February 4, 2014, plaintiffs filed a Petition for Writ of Mandate with the Court of Appeals seeking immediate relief from the trial court’s order. On February 11, 2014, the Court of Appeals notified the trial court and parties of its intent to issue a peremptory Writ of Mandate compelling the trial court to vacate its order granting the demurrer and issue a new order denying the demurrer. On February 21, 2014, the trial court reversed its prior decision and denied our demurrer. On February 26, 2014, the Court of Appeals determined that the trial court had not followed proper procedure and ordered it to vacate its February 21 order to allow us an opportunity to oppose the Appellate Court’s notice. In April 2014, after further briefing by the parties, the trial court again sustained our demurrer without leave to amend. It is expected that plaintiffs will appeal the trial court’s order. The outcome of this case is uncertain and the ultimate resolution of it could have a material adverse effect on our consolidated financial statements in the period in which the resolution is recorded.

Ordonez v. RadioShack Corporation: In May 2010, we were named as a defendant in a putative class action lawsuit in Los Angeles Superior Court alleging that we violated California’s wage and hour laws by not providing required meal periods and

10


 

rest breaks, failed to pay for all time worked, failed to pay overtime compensation, failed to pay minimum wage and failed to maintain required records. In September 2010, we removed the case to the U. S. District Court for the Central District of California.  In July 2012, plaintiff filed a Motion for Class Certification. In January 2013, the court denied, without prejudice, the Motion for Class Certification as to all claims. In February 2013, plaintiff filed a Motion for Reconsideration of the court’s denial of class certification only with regard to the rest period claim. In April 2013, the court ordered that plaintiff could conduct limited additional discovery and file a renewed Motion for Class Certification. Plaintiff filed the renewed motion in July 2013. A hearing on the motion was held in February 2014, at which time the court issued a tentative ruling granting plaintiff’s motion as to the rest period claim. However, following oral argument, the court issued an order requiring the parties to submit supplemental evidence and briefs.  In March 2014, the court issued another order requiring us to produce additional evidence by June 9, 2014. The outcome of this case is uncertain and the ultimate resolution of it could have a material adverse effect on our consolidated financial statements in the period in which the resolution is recorded.

FLSA Litigation: In April 2012, we were named as a defendant in a putative nationwide collective action under the Fair Labor Standards Act and putative statewide class actions under New York and Ohio state laws in the U. S. District Court for the Northern District of Ohio, claiming that our use of the “fluctuating workweek” method to calculate overtime for certain of our retail store managers violates federal and state laws because the store managers receive bonuses in addition to their fixed salaries. In June 2012, we filed a Motion to Dismiss the lawsuit. In March 2013, the court issued an opinion granting our motion in part, finding that plaintiffs were not entitled to seek overtime based upon our use of the “fluctuating workweek” method prior to April 5, 2011, the date of a U.S. Department of Labor Final Rule (“Final Rule”) addressing, among other things, proposed changes to the federal “fluctuating workweek” regulation finding that, based upon statements in the Final Rule, bonus payments were now incompatible with the “fluctuating workweek” method. The court also dismissed one of the named plaintiffs. Following the court’s decision, we filed a Motion to Certify Order for Interlocutory Appeal and Stay the Action, which the court granted in August 2013. Shortly thereafter we filed a Petition for Permission to Appeal with the U.S. Court of Appeals for the Sixth Circuit, which was granted. In April 2013, plaintiffs in Pennsylvania, New York and New Jersey filed similar lawsuits alleging violations of their respective state laws.  In June 2013, we filed Motions to Dismiss in the New York and New Jersey cases.  In November 2013, the court in the New York case granted our Motion to Dismiss. In December 2013, the plaintiff in the New York case filed a notice of appeal with the Second Circuit Court of Appeals. In April 2014, the plaintiff in the New Jersey case voluntarily dismissed the case and filed an opt in notice in the Ohio case. The opening briefs in the New York and Ohio appeals were filed in March and April of 2014, respectively. In September 2013, the court in the Pennsylvania case ordered the parties to file briefs addressing whether our use of the “fluctuating workweek” method violates Pennsylvania law. The plaintiff filed a Motion for Summary Judgment and we filed a Motion for Judgment on the Pleadings. These motions have been fully briefed and we are awaiting a decision by the court.

The outcome of these cases is uncertain and the ultimate resolution of them could have a material adverse effect on our consolidated financial statements in the period in which the resolution is recorded.

Additional Disclosure: For certain loss contingencies, we are currently able to estimate the reasonably possible loss or range of loss, including reasonably possible loss amounts in excess of our accruals and we estimate that the aggregate of these amounts could be up to $5.8 million. This amount reflects recent developments in case law that pertain to certain claims currently pending against the Company. Probable and reasonably possible losses that we are currently unable to estimate are not included in this amount. In future periods, we may recognize a loss for all, part, or none of this amount. 

We are currently unable to estimate the reasonably possible loss or range of loss in respect of certain loss contingencies. Some cases remain in an early stage, with few or no substantive legal decisions by the court defining the scope of the claims, the class (if any), or the potential damages. In addition, in some cases we are not able to estimate the amount of the loss, due to a significant unresolved question of law that is expected to have a significant impact on the probability or amount of loss when resolved. As these matters develop and we receive additional information, we may be able to estimate reasonably possible losses or range of loss for these matters.

Our evaluation of our loss contingencies involves subjective assessments, assumptions and judgments, and actual losses incurred in future periods may differ significantly from our estimates. Accordingly, although occasional adverse resolutions may occur and negatively affect our consolidated financial statements in the period of the resolution, we believe that the ultimate resolution of our loss contingencies for which we have not accrued losses will not materially adversely affect our financial condition.

 

NOTE 9 – SEGMENT REPORTING

The U.S. RadioShack company-operated stores segment consists solely of our 4,250 U.S. company-operated retail stores, all operating under the RadioShack brand name. We evaluate the performance of our segments based on operating income, which is defined as sales less cost of products sold and certain direct operating expenses, including labor, rent and occupancy costs. Asset balances by segment have not been included in the table below, as these are managed on a company-wide level and are not fully allocated to segments for management reporting purposes. Amounts in the other category reflect our business activities that are not separately reportable, which include sales to our independent dealers, sales generated by our Mexican subsidiary and our www.radioshack.com website, sales to commercial customers and sales to other third parties through our global sourcing operations.

11


 

Revenue by reportable segment is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

13 Weeks Ended

 

Three Months Ended

 

Transition Period Ended

 

 

May 3,

 

April 30,

 

February 1,

(In millions)

 

2014

 

2013

 

2014

U.S. RadioShack company-operated stores

 

$

674.1 

 

 

$

776.2 

 

 

$

203.3 

 

Other

 

 

62.6 

 

 

 

72.2 

 

 

 

23.7 

 

   

 

$

736.7 

 

 

$

848.4 

 

 

$

227.0 

 

 

Operating income (loss) by reportable segment and the reconciliation to loss from continuing operations before income taxes are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

13 Weeks Ended

 

Three Months Ended

 

Transition Period Ended

 

 

May 3,

 

April 30,

 

February 1,

(In millions)

 

2014

 

2013

 

2014

U.S. RadioShack company-operated stores

 

$

19.6 

 

 

$

67.6 

 

 

$

6.1 

 

Other

 

 

(0.4)

 

 

 

6.4 

 

 

 

0.2 

 

   

 

 

19.2 

 

 

 

74.0 

 

 

 

6.3 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated (1)

 

 

(100.2)

 

 

 

(84.3)

 

 

 

(39.2)

 

Operating loss

 

 

(81.0)

 

 

 

(10.3)

 

 

 

(32.9)

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

0.7 

 

 

 

0.4 

 

 

 

0.1 

 

Interest expense

 

 

(16.6)

 

 

 

(14.7)

 

 

 

(6.0)

 

Other loss

 

 

--

 

 

 

(0.3)