a03ac897ce8f485

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 August 2, 2014

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

For the transition period from ___________ to ___________

Commission File Number: 1-5571

________________________

RADIOSHACK CORPORATION

(Exact name of registrant as specified in its charter)


Delaware	75-1047710
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Mail Stop CF3-201, 300 RadioShack Circle, Fort Worth, Texas	76102
(Address of principal executive offices)	(Zip Code)

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

________________________

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

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

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


Large accelerated filer [ ]	Accelerated filer [ X ]	Non-accelerated filer [ ]	Smaller reporting company [ ]

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

The number of shares outstanding of the issuer's Common Stock, $1 par value, on August 31, 2014, was 100,687,856.

TABLE OF CONTENTS


		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	31

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 6.	Exhibits	31
	Signatures	31
	Index to Exhibits	31

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		26 Weeks Ended		Six Months Ended
	August 2,		July 31,		August 2,		July 31,
(In millions, except per share amounts)	2014		2013		2014		2013
Net sales and operating revenues	$	673.8	$	861.4	$	1,410.5	$	1,709.8
Cost of products sold (includes depreciation amounts of $2.4 million,
$2.1 million, $4.9 million, and $4.4 million, respectively)		436.2		559.9		904.2		1,067.4
Gross profit		237.6		301.5		506.3		642.4

Operating expenses:
Selling, general and administrative		323.6		334.4		659.5		668.1
Depreciation and amortization		12.8		15.4		25.8		31.5
Impairment of long-lived assets and goodwill		20.6		2.8		21.4		4.2
Total operating expenses		357.0		352.6		706.7		703.8

Operating loss		(119.4)		(51.1)		(200.4)		(61.4)

Interest income		0.3		0.3		1.0		0.7
Interest expense		(16.9)		(14.0)		(33.5)		(28.7)
Other loss		—		—		—		(0.3)

Loss from continuing operations before income taxes		(136.0)		(64.8)		(232.9)		(89.7)
Income tax expense (benefit)		1.4		(13.4)		2.8		(15.0)

Loss from continuing operations		(137.4)		(51.4)		(235.7)		(74.7)
Discontinued operations, net of income taxes		—		(0.8)		—		(5.5)

Net loss	$	(137.4)	$	(52.2)	$	(235.7)	$	(80.2)

Basic and diluted net loss per share:
Loss per share from continuing operations	$	(1.35)	$	(0.51)	$	(2.31)	$	(0.74)
Loss per share from discontinued operations		—		--		—		(0.05)
Net loss per share	$	(1.35)	$	(0.51)	$	(2.31)	$	(0.79)

Shares used in computing net loss per share:

Basic and diluted		101.9		100.7		101.9		100.7

Comprehensive loss	$	(137.5)	$	(56.2)	$	(235.2)	$	(79.9)

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

RADIOSHACK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (unaudited)



	August 2,		February 1,		December 31,
(In millions, except share amounts)	2014		2014		2013
Assets
Current assets:
Cash and cash equivalents	$	30.5	$	109.6	$	179.8
Accounts and notes receivable, net		159.7		154.1		211.9
Inventories		673.4		807.8		802.3
Other current assets		66.3		80.1		139.0
Total current assets		929.9		1,151.6		1,333.0

Property, plant and equipment, net		172.2		186.3		187.2
Other assets, net		47.1		72.7		71.0
Total assets	$	1,149.2	$	1,410.6	$	1,591.2

Liabilities and Stockholders’ (Deficit) Equity
Current liabilities:
Current maturities of long-term debt	$	1.1	$	1.1	$	1.1
Accounts payable		153.3		234.7		376.4
Accrued expenses and other current liabilities		216.3		206.4		207.1
Total current liabilities		370.7		442.2		584.6

Long-term debt, excluding current maturities		656.9		613.0		613.0
Other non-current liabilities		184.6		186.7		187.2
Total liabilities		1,212.2		1,241.9		1,384.8

Commitments and contingencies (See Note 9)

Stockholders’ (deficit) 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		116.8		122.9		123.6
Retained earnings		687.3		923.0		960.6
Treasury stock, at cost; 45,352,000, 45,686,000,
and 45,735,000 shares, respectively		(1,006.8)		(1,016.4)		(1,017.7)
Accumulated other comprehensive loss		(6.3)		(6.8)		(6.1)
Total stockholders’ (deficit) equity		(63.0)		168.7		206.4
Total liabilities and stockholders’ (deficit) equity	$	1,149.2	$	1,410.6	$	1,591.2

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

RADIOSHACK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (unaudited)



	26 Weeks Ended		Six Months Ended
	August 2,		July 31,
(In millions)	2014		2013
Cash flows from operating activities:
Net loss	$	(235.7)	$	(80.2)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization		30.7		36.7
Deferred income taxes		—		(0.4)
Amortization of discounts on long-term debt		0.9		5.9
Impairment of long-lived assets and goodwill		21.4		4.2
Stock-based compensation		4.5		4.9
Provision for credit losses and bad debts		0.5		0.1
Other non-cash items		5.6		2.0
Changes in assets and liabilities:
Accounts and notes receivable		(5.2)		138.3
Inventories		134.6		153.0
Other current assets		10.7		1.6
Accounts payable		(109.8)		(92.1)
Accrued expenses and other		10.2		(15.9)
Income taxes		—		0.4
Net change in liability for unrecognized tax benefits and accrued interest		1.9		(16.5)
Other		4.7		(6.1)
Net cash (used in) provided by operating activities		(125.0)		135.9

Cash flows from investing activities:
Additions to property, plant and equipment		(28.3)		(16.6)
Proceeds from sale of property, plant and equipment		—		6.5
Changes in restricted cash		2.9		(5.6)
Net cash used in investing activities		(25.4)		(15.7)

Cash flows from financing activities:
Repayment of principal on convertible debt		—		(72.5)
Proceeds from issuance of long-term debt		136.5		—
Repayments of long-term debt		(93.5)		—
Changes in cash overdrafts		28.3		(11.0)
Net cash provided by (used in) financing activities		71.3		(83.5)

Net (decrease) increase in cash and cash equivalents		(79.1)		36.7
Cash and cash equivalents, beginning of period		109.6		403.2
Cash and cash equivalents, end of period	$	30.5	$	439.9

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

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 and 26 weeks ended August 2, 2014, and the three and six months ended July 31, 2013. 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 impractical.

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 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 and 26 weeks ended August 2, 2014, and the three and six months ended July 31, 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 to accelerate into the second quarter of fiscal 2015, primarily attributed to a prolonged downturn in our business. Our ability to generate cash from operations depends in large part on the level of demand for our products and services. We continue to face an uncertain business environment and face a number of fundamental challenges in our mobility business due to consumer interest in handsets available in the market today, aggressive price competition on these products and intense wireless carrier marketing activities. Our retail business also faces the challenge of revamping our product assortment to anticipate and meet our customers’ needs and wants to produce profitable operating margins. We believe these challenging market conditions will continue for the third quarter and possibly the balance of the year.

Given our negative cash flows from operations and in order to meet our expected cash needs for the next twelve months and over the longer term, we will be required to obtain additional liquidity sources, consolidate our store base and possibly restructure our debt and other obligations. We are exploring alternatives and are engaged in discussions with third parties as well as our key financial stakeholders, including our existing lenders, bondholders, shareholders and landlords, in an effort to create a long-term solution. Alternatives include the sale of the company, partnership through a recapitalization and investment agreement, as well as both in and out-of-court restructuring. We presently anticipate announcing a recapitalization alternative, in the near term, which may be our most likely course of action, but we are continuing to evaluate all of our alternatives to restructure existing debt terms and other arrangements to provide additional liquidity. There can be no assurance that we will be able to successfully implement a long-term solution.

If acceptable terms of a sale or partnership or out-of court restructuring cannot be accomplished, we may not have enough cash and working capital to fund our operations beyond the very near term, which raises substantial doubt about our ability to continue as a going concern. As a result, we may be required to seek to implement an in-court proceeding under Chapter 11 of the United States Bankruptcy Code (“Bankruptcy Code”). If we commence a voluntary Chapter 11 bankruptcy case, we will attempt to arrange a “pre-packaged” or “pre-arranged” bankruptcy filing. In a “pre-packaged bankruptcy”, we would make arrangements with new and existing creditors for additional liquidity facilities and the restructuring of our existing debt terms, before presenting these arrangements to the bankruptcy court for approval. In the absence of a “pre-packaged” bankruptcy, we would consider a “pre-arranged” bankruptcy filing, in which we would reach agreement on the material terms of a plan of reorganization with key creditors prior to the commencement of the bankruptcy case. An in-court restructuring proceeding would cause a default on our debt with our current lenders.

We anticipate that in the near term we will seek to pursue one of the alternatives described above which may include a restructuring of existing debt terms and other arrangements to provide additional liquidity. As part of the various alternatives, we may begin a program to close a number of underperforming stores and other measures to make reductions in our cost structure. However, the actual number of store closures could vary considerably depending on the specific restructuring

alternative implemented. Absent an agreed upon restructuring plan, the store closure program would require consent from our lenders.

There can be no assurance that any of these efforts will be successful. Each of the foregoing alternatives may have materially adverse effects on our business and on the market price of our securities. In the event the restructuring alternatives described above are not achievable, we would likely be required to liquidate under Chapter 7 of the Bankruptcy Code.

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.

In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ("ASU 2014-12"). ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2014-12.

In August 2014, the FABS issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016. Earlier adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2014-15.

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 and 26 weeks ended August 2, 2014, compared with $0.6 million and $46.6 million for the three and six months ended July 31, 2013. The income (loss) before income taxes for these discontinued operations was zero for the 13 weeks and 26 weeks ended August 2, 2014, compared with losses of $0.6 million and $5.2 million for the three and six months ended July 31, 2013.

NOTE 4 – IMPAIRMENT AND RESTRUCTURING

Impairment. As discussed in Note 1 – “Basis of Presentation – Liquidity,” we have experienced losses for the past two years that continued into the second quarter of fiscal 2015, primarily attributed to a prolonged downturn in our business, which continues to impact our overall liquidity. Also, during the 13 weeks ended August 2, 2014, we were notified by the New York Stock Exchange (“NYSE”) that the average closing price of our common stock had fallen below $1.00 per share over a period

of 30 consecutive trading days, which is the minimum average share price for continued listing on the NYSE. See Note 9 – “Commitments and Contingencies” for further discussion. Together, we believe these circumstances are triggering events and require an evaluation of our long-lived assets.

We evaluated our goodwill balance, with the goodwill assigned to our Mexican subsidiary being the primary component.

In step 1 of the two-step impairment test, we compared the carrying amount, including assigned goodwill, to the fair value of our Mexican subsidiary. We estimated fair value by equally weighting the results from the income approach and market approach. The significant assumptions employed in determining fair value included, but were not limited to, projected financial information, growth rates, terminal value, discount rates, and multiples from publicly traded companies that are comparable to our Mexican subsidiary. Due to the less than anticipated operating results of the U.S. operations, we prepared a multi-year projection based upon updated assumptions, which included a reduction in planned expansion. The result of these assumptions was a significant reduction in sales and gross profits in our multi-year projection which was the primary factor determining that the fair value of our Mexican subsidiary was less than the carrying amount. As a result, step 2 of the two-step impairment test was required in order to measure the amount of goodwill impairment, if any.

In step 2, the fair value measured in step 1 of our Mexican subsidiary was allocated to its assets and liabilities to determine the implied fair value of the goodwill, if any. We calculated the implied fair value of our Mexican subsidiary’s goodwill to be zero compared to its carrying value of $12.3 million, resulting in an impairment charge of $12.3 million. The impairment charges were recorded in the 13 weeks ended August 2, 2014, in the “Impairment of long-lived assets and goodwill” line within our Condensed Consolidated Statements of Comprehensive Income.

Restructuring. As described in Note 1 – “Basis of Presentation”, in order to meet our expected cash needs for the next twelve months and over the longer term, we will be required to obtain additional liquidity sources, consolidate our store base and possibly restructure our debt and other obligations. We are exploring alternatives and are engaged in discussions with third parties as well as our key financial stakeholders, including our existing lenders, bondholders, shareholders and landlords in an effort to create a long-term solution. Alternatives include the sale of the company, partnership through a recapitalization and investment agreement, as well as both in and out-of-court restructuring. There can be no assurance that we will be able to successfully implement a long-term solution.

We presently anticipate announcing a recapitalization alternative, in the near term, which may be our most likely course of action and have estimated the restructuring costs under this alternative. There is no assurance this alternative will be achieved and other alternatives could result in materially higher restructuring costs. Estimated store closure costs of $5.7 million relate to the impairment of store leasehold improvements and fixtures. In step 1 of the impairment test, we compared the carrying amount of the underperforming stores to their projected undiscounted future cash flows. The result of step 1 indicated that the undiscounted future cash flows were insufficient to cover the carrying value of the stores leasehold improvements and fixtures and therefore, step 2 of the impairment test was required. In step 2, we first evaluated the appraised fair value of the stores leasehold improvements and fixtures. In our evaluation, the value of the leasehold improvements and fixtures during the liquidation time frame was considered insignificant and given the cash flows of the stores were insufficient to cover the carrying value of the stores leasehold improvements and fixtures, the stores were considered impaired. These charges have been recorded in the “Impairment of long-lived assets and goodwill” line within our Condensed Consolidated Statements of Comprehensive Income.

Estimated employee severance costs of $8.6 million relate to the elimination of full-time and part-time positions, primarily at the stores, field management and consolidation of facilities in China. These expenses are included in the “Selling, general and administrative” line within our Condensed Consolidated Statements of Comprehensive Income. Inventory reserves of $2.7 million are based on the estimated liquidation value of the inventory on hand during the liquidation phase of the restructuring plan. These expenses have been recorded in the “Cost of products sold” line within our Condensed Consolidated Statements of Comprehensive Income. In addition to these expenses, we estimate future lease termination costs upon exiting stores to be in the range of $15 million to $25 million.

NOTE 5 – INDEBTEDNESS AND BORROWING FACILITIES

Debt consists of the following:



	August 2,		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
2018 Credit Facility		43.0		—		—
Other		1.2		1.2		1.4
		669.2		626.2		626.4
Unamortized debt discounts		(11.2)		(12.1)		(12.3)
		658.0		614.1		614.1
Less current portion of:
Other		1.1		1.1		1.1
Total long-term debt	$	656.9	$	613.0	$	613.0

As of August 2, 2014, we had $152.0 million of availability under our 2018 Credit Facility.

NOTE 6 – NET LOSS PER SHARE

Basic net loss per share is computed based on the weighted average number of common shares outstanding for each period presented. Diluted net loss per share reflects the potential dilution that would have occurred if securities or other contracts to issue common stock were exercised, converted, or resulted in the issuance of common stock that would have then shared in our earnings.

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



	13 Weeks Ended		Three Months Ended		26 Weeks Ended		Six Months Ended
	August 2,		July 31,		August 2,		July 31,
(In millions)	2014		2013		2014		2013

Numerator:
Loss from continuing operations	$	(137.4)	$	(51.4)	$	(235.7)	$	(74.7)
Discontinued operations, net of taxes		—		(0.8)		—		(5.5)
Net loss	$	(137.4)	$	(52.2)	$	(235.7)	$	(80.2)

Denominator:
Weighted-average common shares outstanding		101.9		100.7		101.9		100.7
Dilutive effect of stock-based awards		—		—		—		—
Weighted-average shares for diluted net loss per share		101.9		100.7		101.9		100.7

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		26 Weeks Ended		Six Months Ended
	August 2,		July 31,		August 2,		July 31,
(In millions)	2014		2013		2014		2013

Employee stock options (1) (2)		7.9		8.5		7.9		8.5
Warrants to purchase common stock (3)		—		15.8		—		15.8

(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 both the 13 weeks and 26 weeks ended August 2, 2014, 7.9 million employee stock options were excluded for this reason, compared with 5.3 million for both the three and six months ended July 31, 2013.

(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 and 26 weeks ended August 2, 2014, no employee stock options were excluded from these periods for this reason. For the three and six months ended July 31, 2013, 3.2 million employee stock options were excluded from these periods for this reason.

(3)

These common stock equivalents were excluded because the exercise price ($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 7 – 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 August 2, 2014
Long-lived assets held and used	$	1.0		—		—	$	1.0

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

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 August 2, 2014, and February 1, 2014, long-lived assets held and used in certain locations of our U.S. RadioShack company-operated stores segment with a total carrying value of $9.3 million and $1.1 million, were written down to their fair value of $1.0 million and $0.6 million, resulting in impairment charges of $8.3 million, which included $5.7 million related to restructuring and $0.5 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. The estimated fair values of our 6.75% unsecured notes due in 2019 (“2019 Notes”) as of August 2, 2014, February 1, 2014, and December 31, 2013, our secured term loans as of August 2, 2014, and for our 2018 Credit Facility as of August 2, 2014, are determined using quoted market prices, when available. If quoted market prices are not available, the fair value is estimated using indicated market prices. The estimated fair values use both observable and unobservable inputs in a cash flow model. The unobservable inputs reflect assumptions regarding expected spreads and discount rates. Observable inputs consist of 1-month and 3-month LIBOR rates. 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 their Level 3 classification.

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 August 2, 2014
2019 Notes	$	323.5	$	133.3	$	—	$	133.3	$	—
Secured term loans	$	290.4	$	278.8	$	—	$	—	$	278.8
2018 Credit Facility	$	43.0	$	41.0	$	—	$	—	$	41.0
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	$	323.3	$	197.9	$	—	$	197.9	$	—
Secured term loans	$	289.4	$	289.4	$	—	$	—	$	289.4
Other	$	1.4	$	1.4	$	—	$	—	$	1.4

NOTE 8 – 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 26 weeks ended August 2, 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 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 $116.5 million, $116.6 million and $119.1 million at August 2, 2014, February 1, 2014, and December 31, 2013, respectively. At August 2, 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.