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Article by DailyStocks_admin    (09-01-08 02:59 AM)

The Daily Magic Formula Stock for 08/29/2008 is RadioShack Corp. According to the Magic Formula Investing Web Site, the ebit yield is 21% and the EBIT ROIC is 25-50 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

GENERAL
RadioShack Corporation was incorporated in Delaware in 1967. We primarily engage in the retail sale of consumer electronics goods and services through our RadioShack store chain and non-RadioShack branded kiosk operations. Our strategy is to provide cost-effective solutions to meet the routine electronics needs and distinct electronics wants of our customers. Throughout this report, the terms “our,” “we,” “us” and “RadioShack” refer to RadioShack Corporation, including its subsidiaries.

Our day-to-day focus is concentrated in four major areas:



Provide our customers a positive in-store experience


Grow gross profit dollars by increasing the overall value of each ticket


Control costs continuously throughout the organization


Utilize the funds generated from operations appropriately and invest only in projects that have an adequate return or are operationally necessary

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”) elsewhere in this Annual Report on Form 10-K. For information regarding the net sales and operating revenues and operating income for each of our business segments for fiscal years ended December 31, 2007, 2006 and 2005, please see Note 28 – “Segment Reporting” in the Notes to Consolidated Financial Statements.

RADIOSHACK COMPANY-OPERATED STORES
At December 31, 2007, we operated 4,447 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 major shopping malls and strip centers, as well as individual storefronts. Each location carries a broad assortment of both private label and third-party branded consumer electronics products. Our product lines include wireless telephones and communication devices such as scanners and two-way radios; flat panel televisions, residential telephones, DVD players, computers and direct-to-home (“DTH”) satellite systems; home entertainment, wireless, imaging and computer accessories; general and special purpose batteries; wire, cable and connectivity products; and digital cameras, radio-controlled cars and other toys, satellite radios and memory players. We also provide consumers access to third-party services such as wireless telephone and DTH satellite activation, satellite radio service, prepaid wireless airtime and extended service plans.

KIOSKS
At December 31, 2007, we operated 739 kiosks located throughout the United States. These kiosks are primarily inside SAM’S CLUB locations, as well as stand-alone Sprint Nextel kiosks in shopping malls. These locations, which are not RadioShack-branded, offer primarily wireless handsets and their associated accessories. We also provide consumers access to third-party wireless telephone services.

OTHER
In addition to the reportable segments discussed above, we have other sales channels and support operations described as follows:

Dealer Outlets: At December 31, 2007, we had a network of 1,484 RadioShack dealer outlets, including 36 located outside of North America. These outlets provide private label and third-party branded 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 of the United States are not material.

RadioShack.com: Products and information are available through our commercial Web site www.radioshack.com . Online customers can purchase, return or exchange various products available through this Web site. Additionally, certain products ordered online may be picked up, exchanged or returned at RadioShack stores.

RadioShack Service Centers: We maintain a service and support network to service the consumer electronics and personal computer retail industry in the U.S. We are a vendor-authorized service provider for many top tier manufacturers, such as Hewlett-Packard, LG Electronics, Motorola, Nokia, RCA/Thomson, and Sony, among others. In addition, we perform repairs for third-party extended service plan providers. At December 31, 2007, we had eight RadioShack service centers in the U.S. and one in Puerto Rico that repair certain name-brand and private label products sold through our various sales channels.

International Operations: As of January 31, 2007, we had closed all of our locations in Canada. As of December 31, 2007, there were 176 RadioShack-branded stores and 17 dealers in Mexico. These RadioShack-branded stores and dealer outlets are overseen by a joint venture in which we are a minority owner with Grupo Gigante, S.A. de C.V. Our revenues from foreign customers are not material, and we do not have a material amount of long-lived assets located outside of the United States. We do not consolidate the operations of the Mexican joint venture in our consolidated financial statements.

Support Operations:
Our retail stores, along with our kiosks and dealer outlets, are supported by an established infrastructure. Below are the major components of this support structure.

Distribution Centers - At December 31, 2007, we had five distribution centers shipping over 800 thousand cartons each month, on average, to our retail stores and dealer outlets. One of these distribution centers also serves as a fulfillment center for our online customers. Additionally, we have a distribution center that ships fixtures to our company-operated stores. During the first half of 2008, we will close our distribution center in Columbus, Ohio.

RadioShack Technology Services (“RSTS”) - Our management information system architecture 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 store has its own server to support the point-of-sale (“POS”) system. The majority of our company-operated stores communicate through a broadband network, which provides efficient access to customer support data. This design also allows store management to track 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 branded and private label business.

Consumer Electronics Manufacturing - We operate two manufacturing facilities in the United States and one overseas manufacturing operation in China. These three manufacturing facilities employed approximately 1,900 employees as of December 31, 2007. We manufacture a variety of products, primarily sold through our retail outlets, including telephony, antennas, wire and cable products, and a variety of “hard-to-find” parts and accessories for consumer electronics products.

SEASONALITY
As with most other specialty retailers, our net sales and operating revenues, operating income and cash flows are greater during the winter holiday season 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 Flow and Liquidity” under MD&A. Also, refer to Note 27 – “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 have a material adverse impact on our business. Our private label manufactured products are sold primarily under the RadioShack trademark and under the Accurian or Gigaware trademark. We also own various patents and patent applications relating to consumer electronics products.

We do not own any material patents or trademarks associated with our kiosk operations.

SUPPLIERS AND BRANDED RELATIONSHIPS
Our business strategy depends, in part, upon our ability to offer private label and third-party branded 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 raw materials and private label merchandise. We do not expect a lack of availability of raw materials or any single private label product to have a material impact on our operations overall or on any of our operating segments. We have formed vendor and third-party service provider relationships with well-recognized companies such as Sprint Nextel, AT&T, Apple Computer, EchoStar Satellite Corporation (DISH Network), Hewlett-Packard Company and Sirius Satellite Radio Inc. (“Sirius.”) In the aggregate, these relationships have or are expected to have a significant impact on both our operations and financial strategy. Certain of these relationships are important to our business; the loss of or disruption in supply from these relationships could have a material adverse effect on our net sales and operating revenues. Additionally, we have been limited from time to time by various vendors and suppliers strictly on an economic basis where demand has exceeded supply.

ORDER BACKLOG
We have no material backlog of orders in any of our operating segments for the products or services that 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 product cycles.

In the consumer electronics retailing business, competitive factors include price, product availability, quality and features, consumer services, manufacturing and distribution capability, brand reputation and the number of competitors. We compete in the sale of our products and services with several retail formats, including consumer electronics retailers such as Circuit City and Best Buy. Department and specialty retail stores, such as Sears and The Home Depot, compete in more select product categories. AT&T, Sprint Nextel, and other wireless providers compete directly with us in the wireless telephone category through their own retail and online presence. Mass merchandisers such as Wal-Mart and Target, and other alternative channels of distribution such as mail order and e-commerce retailers, compete with us on a more widespread basis. Numerous domestic and foreign companies also manufacture products similar to ours for other retailers, which are sold under nationally-recognized brand names or private labels.

Management believes we have two primary factors differentiating us from our competition. First, we have an extensive physical retail presence with convenient locations throughout the United States. Second, our specially trained sales staff is capable of providing cost-effective solutions for our customers’ routine electronics needs and distinct electronics wants, assisting with the selection of appropriate products and accessories and, when applicable, assisting customers with service activation.

We cannot give assurance that we will compete successfully in the future, given the highly competitive nature of the consumer electronics retail business. Also, in light of the ever-changing nature of the consumer electronics retail industry, we would be adversely affected if our competitors were able to offer their products at significantly lower prices. Additionally, we would be adversely affected if our competitors were able to introduce innovative or technologically superior products not yet available to us, or if we were unable to obtain certain products in a timely manner or for an extended period of time. Furthermore, our business would be adversely affected if we failed to offer value-added solutions or if our competitors were to enhance their ability to provide these value-added solutions.

EMPLOYEES
As of December 31, 2007, we had approximately 35,800 employees, including 1,900 temporary seasonal employees. Our 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.

CEO BACKGROUND

Frank J. Belatti
Age 60
Director since 1998

Mr. Belatti has served as Managing Partner of Equicorp Partners, LLC (an advisory services and investment banking firm) since January 2006. Mr. Belatti has also served as Chairman of AFC Enterprises, Inc. (the parent company of Popeyes Chicken & Biscuits) since November 1992. Mr. Belatti previously served as Chief Executive Officer of AFC Enterprises, Inc. from November 1992 to September 2005.

Mr. Belatti is currently the chair of the Corporate Governance Committee and is a member of the Executive Committee.

Julian C. Day
Age 55
Director since 2006


Mr. Day was appointed Chief Executive Officer and Chairman of the Board of RadioShack in July 2006. Prior to his appointment, Mr. Day was a private investor. Mr. Day became the President and Chief Operating Officer of Kmart Corporation (a mass merchandising company) in March 2002 and served as Chief Executive Officer of Kmart from January 2003 to October 2004. Following the merger of Kmart and Sears, Roebuck and Co. (a broadline retailer), Mr. Day served as a Director of Sears Holding Corporation (the parent company of Sears, Roebuck and Co. and Kmart Corporation) until April 2006.
Mr. Day is currently the chair of the Executive Committee.

Robert S. Falcone
Age 61
Director since 2003


Mr. Falcone is President and Chief Executive Officer of Nautilus, Inc. (a fitness equipment company). From July 2005 to August 2007 he was President and Chief Executive Officer of GCR Custom Research, LLC (a custom market research firm). From January 2005 to July 2006, Mr. Falcone was President and Chief Executive Officer of Catalyst Acquisition Group (a private equity buyout firm). From April 2003 through November 2004, Mr. Falcone was Executive Vice President and Chief Financial Officer of BearingPoint, Inc. (a consulting, systems integration and managed service firm). From March 2002 to March 2003, Mr. Falcone was a financial consultant to early stage enterprises, and he was Senior Vice President and Chief Financial Officer of 800.com (an Internet retailer of consumer electronics) from January 2000 to March 2002. He is a director of Nautilus, Inc.
Mr. Falcone is currently a member of the Audit and Compliance Committee.

Daniel R. Feehan
Age 57
Director since 2003

Mr. Feehan has been Chief Executive Officer and President of Cash America International, Inc. (a provider of specialty financial services to individuals) since February 2000. He is a director of Cash America International, Inc. and AZZ Incorporated.
Mr. Feehan is currently a member of the Executive Committee. He has also been designated the presiding director of the board (please refer to the discussion on page 18 for additional information).

Richard J. Hernandez
Age 64
Director since 2001

Mr. Hernandez retired as President of McKesson Corporate Solutions, McKesson Corporation (a provider of supply, information and care management products and services for the healthcare industry) in January 2005. From January 2000 to December 2004, Mr. Hernandez was the President of McKesson Corporate Solutions, McKesson Corporation.
Mr. Hernandez is currently a member of the Management Development and Compensation Committee.

H. Eugene Lockhart
Age 58
Director since 2003

Mr. Lockhart has been a Partner of Diamond Castle Holdings (a buyout and private equity firm) since joining the firm in May 2005. From January 2003 to May 2005, Mr. Lockhart was a Venture Partner with Oak Investment Partners (a venture capital firm). From 2000 to 2003, he was Chairman of The New Power Company (a provider of energy and related services). Previously, Mr. Lockhart was the CEO of MasterCard International Incorporated (a credit card company). He is a director of IMS Health Inc., Asset Acceptance Capital Corp. and Huron Consulting Group Inc.
Mr. Lockhart is currently the chair of the Audit and Compliance Committee and a member of the Corporate Governance Committee and the Executive Committee.

Jack L. Messman
Age 68
Director since 1993

Mr. Messman has been a private equity investor and a consultant since June 2006. From July 2001 to June 2006, Mr. Messman served as President, Chief Executive Officer and Chairman of the Board of Novell, Inc. (a provider of information solutions through various software platforms). Mr. Messman served as President and Chief Executive Officer of Cambridge Technology Partners, Inc. (now a subsidiary of Novell, Inc.) from July 1999 to June 2001. He is a director of Safeguard Scientifics, Inc., Timminco Limited, and AMG Advanced Metallurgical Group, N.V.
Mr. Messman is currently a member of the Audit and Compliance Committee.

Thomas G. Plaskett
Age 64
Director since 1986

Mr. Plaskett has served as Chairman of Fox Run Capital Associates (a private consulting firm) since 1999, and is a corporate director and a business consultant. He is Chairman of the Board of Novell, Inc. and of Platinum Research Organization, Inc. and a director of Alcon, Inc.
Mr. Plaskett is currently a member of the Audit and Compliance Committee.

Edwina D. Woodbury
Age 56
Director since 1998

Ms. Woodbury has been President and Chief Executive Officer of The Chapel Hill Press, Inc. (a publishing services company) since July 1999 and was a Consultant from January 1999 through June 1999. From February 1998 through December 1998, Ms. Woodbury was Executive Vice President—Business Process Redesign of Avon Products, Inc. (a direct seller of beauty and related products). She served as Senior Vice President, Chief Financial and Administrative Officer of Avon Products, Inc. from November 1993 to February 1998. She is a director of R. H. Donnelley Corp.
Ms. Woodbury is currently the chair of the Management Development and Compensation Committee and a member of the Corporate Governance Committee and the Executive Committee.

MANAGEMENT DISCUSSION FROM LATEST 10K

OVERVIEW
Highlights related to the year ended December 31, 2007, include:



Net sales and operating revenues decreased $525.8 million to $4,251.7 million, compared to the corresponding prior year period. Comparable store sales decreased 8.2%. This decline was primarily due to a sales decrease in our wireless and personal electronics platforms.



Gross margin increased 300 basis points to 47.6% compared to the corresponding prior year period. This increase was primarily due to improved inventory management and a shift in our product mix.



SG&A expense decreased $272.2 million to $1,538.5 million, compared to the corresponding prior year period. As a percentage of net sales and operating revenues, SG&A declined 170 basis points to 36.2%. A significant portion of this improvement was attributable to decreased compensation as a result of reductions in our corporate and store personnel in 2006 and better management of store labor hours. Other factors leading to the decline of SG&A included a decrase in professional fees driven by reduced legal costs related to our defense of certain class action lawsuits during 2006, as well as a reduction in the use of consultants. The SG&A improvement also resulted from $44.6 million in severance and other restructuring charges recognized in 2006, and a $14.3 million reduction of accrued vacation in 2007 in connection with the modification of our employee vacation policy during 2007.



Operating income increased $225.0 million to $381.9 million, and net income increased $163.4 million to $236.8 million, compared to the corresponding prior year period. The results for the year ended December 31, 2006, included pre-tax impairment charges of $44.3 million. Net income per diluated share was $1.74 for the year ended December 31, 2007, compared to $0.54 for the corresponding prior year period.

2006 RESTRUCTURING REVIEW
Due to negative trends that developed in our business during calendar year 2005, we announced a restructuring program on February 17, 2006, that contained four key components:



Update our inventory


Focus on our top-performing RadioShack company-operated stores, while closing 400 to 700 RadioShack company-operated stores, and aggressively
relocate other RadioShack company-operated stores


Consolidate our distribution centers


Reduce our overhead costs

Through December 31, 2006, we conducted a liquidation of certain inventory during the summer and fall of 2006, and replaced underperforming merchandise with new faster-moving merchandise. During the summer of 2006, we also focused on our top-performing stores and completed the closure of 481 underperforming stores, reducing the number of retail employees in connection with these closures. Additionally, we consolidated our distribution centers in the fall of 2006. Management also reduced our cost structure; including our advertising spend rate and our workforce within our corporate headquarters. A number of other cost reductions were implemented. As of December 31, 2006, we considered our restructuring program to be substantially complete.

The 2006 restructuring affects comparability in certain areas of this MD&A discussion and is discussed where necessary.

See “Financial Impact of Restructuring Program” below for a discussion of the financial impact of our 2006 restructuring program.

RESULTS OF OPERATIONS

NET SALES AND OPERATING REVENUES

Consolidated net sales decreas ed 11.0% or $525. 8 million to $4,25 1 . 7 million for the year ended December 31, 2007 , from $4,777.5 million in the corresponding prior year period. This decrease was primarily due to a comparable store sales decline of 8.2% for the year ended December 31, 2007, in addition to the closure of 481 company-operated stores during June and July 2006 as part of our 2006 restructuring. Approximately 290 of the 481 stores were closed in July 2006, with a majority of the remainder closed in the last half of June 2006. The decrease in comparable store sales was primarily caused by a decline in our wireless and personal electronics platform sales.

2007 COMPARED WITH 2006

RadioShack Company-Operated Stores

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 RadioShack segment.

Excluding the effects of the 2006 store closures, sales in our wireless platform (includes postpaid and prepaid wireless handsets, commissions, residual income and communication devices such as scanners and GPS) decreased 13.7% for the year ended December 31, 2007, when compared to the corresponding prior year period. This decrease was primarily driven by a decline in postpaid wireless sales for our two main wireless carriers. We believe that these sales declines were the result of increased wireless competition, a challenging wireless industry environment, and a shift to prepaid handsets and corresponding service plans. This decrease, however, was partially offset by increased sales of GPS products, particularly in the fourth quarter of 2007, and prepaid wireless handset sales. Including the effects of the 2006 store closures, wireless platform sales for the year ended December 31, 2007, decreased 15 .7% .

Excluding the effects of the 2006 store closures, sales in our accessory platform (includes home entertainment, wireless, music and computer accessories; media storage; power adapters; digital imaging products and headphones) decreased 2 . 3 % for the year ended December 31, 2007, when compared to the corresponding prior year period. This decrease was primarily the result of declines in wireless and home entertainment accessory sales, but partially offset by increases in media storage and imaging accessories sales. Including the effects of the 2006 store closures, accessory platform sales for the year ended December 31, 2007, decreased 5.7% .

Excluding the effects of the 2006 store closures, sales in our personal electronics platform (includes digital cameras, digital music players, toys, satellite radios, camcorders, general radios, and wellness products) decreased 11.7% for the year ended December 31, 2007, when compared to the corresponding prior year period. This decrease was driven primarily by sales declines in satellite radios and digital music players, but was partially offset by increased sales of video gaming products. Including the effects of the 2006 store closures, personal electronics platform sales for the year ended December 31, 2007, decreased 13.7% .

Excluding the effects of the 2006 store closures, sales in our modern home platform (includes residential telephones, home audio and video end-products, direct-to-home (“DTH”) satellite systems, and computers) decreased 5.7 %, for the year ended December 31, 2007, when compared to the corresponding prior year period. This decrease was the result of sales declines in residential telephones, and DVD players and recorders, offset by increased sales of laptop computers, PC peripherals, and flash drives. Including the effects of the 2006 store closures, modern home platform sales for the year ended December 31, 2007, decreased 8.3 % .

Excluding the effects of the 2006 store closures, sales in our power platform (includes general and special purpose batteries and battery chargers) decreased 5.6 % for the year ended December 31, 2007, when compared to the corresponding prior year period. This sales decline was the result of decreased sales of general purpose and special purpose telephone batteries. Including the effects of the 2006 store closures, power platform sales for the year ended December 31, 2007, decreased 8 .6% .

Excluding the effects of the 2006 store closures, sales in our technical platform (includes wire and cable, connectivity products, components and tools, as well as hobby and robotic products) decreased 2.2% for the year ended December 31, 2007, when compared to the corresponding prior year period. This sales decline was due primarily to a decrease in sales of robotic kits, metal detectors and tools, partially offset by an increase in audio cable sales. Including the effects of the 2006 store closures, technical platform sales for the year ended December 31, 2007, decreased 6 .9% .

Excluding the effects of the 2006 store closures, sales in our service platform (includes prepaid wireless airtime, extended service plans and bill payment revenue) decreased 2 . 6 % for the year ended December 31, 2007, when compared to the corresponding prior year period. Prepaid airtime sales increased for the year ended December 31, 2007; however, this gain was more than offset by decreases in bill payment revenue. Including the effects of the 2006 store closures, service platform sales for the year ended December 31, 2007, decreased 4 . 9 % .

Other revenue (includes RS company-operated store repair revenue and other revenue) decreased $4.0 million or 22.9% for the year ended December 31, 2007, compared to the prior year, due in part to the 2006 store closures and to a decline in store repair revenue.

Kiosks

Kiosk sales consist primarily of handset sales, postpaid and prepaid commission revenue and related wireless accessory sales. Kiosk sales decreased 12.8% or $43.5 million for the year ended December 31, 2007, when compared to the corresponding prior year period. While this decrease is partially attributable to fewer kiosk locations compared to the prior year, we believe that this sales decline was primarily the result of increased wireless competition, a challenging wireless industry environment, and a customer shift to prepaid handsets which are generally priced lower than postpaid handsets.

Other Sales

Other sales include sales to our independent dealers, outside sales through our service centers, sales generated by our www.radioshack.com Web site, sales to our Mexican joint venture, sales to commercial customers, outside sales of our global sourcing operations and manufacturing facilities and, in 2006, sales of our now closed Canadian company-operated stores. Other sales were down $40.2 million or 11.3 % for the year ended December 31, 2007, respectively, when compared to the corresponding prior year period. This sales decrease was primarily due to the sale or closure of five service centers late in the second quarter of 2006, fewer dealer outlets in 2007, and a decline in product sales to the remaining dealers.

GROSS PROFIT

Consolidated gross profit and gross margin for the year ended December 31, 2007, were $2,025.8 million and 47.6%, respectively, compared with $2,129.4 million and 44.6% in the corresponding prior year period, resulting in a 4.9% decrease in gross profit dollars and a 300 basis point increase in our gross margin.

The decrease in gross profit for the year ended December 31, 2007, was the result of a decline in net sales and operating revenues primarily due to a comparable store sales decrease and store closures associated with our 2006 restructuring. Our 2007 gross margin increased primarily due to an improvement in our inventory management and a shift in product mix. In addition, refunds of $14.0 million and $5.2 million for federal telecommunications excise taxes were recorded in the first and fourth quarters of 2007, respectively. A portion of these refunds totaling $18.8 million was recorded as a reduction to cost of products sold, which accounted for a 44 basis point increase in our gross margin. See Note 12 – “Federal Excise Tax” for a discussion of the impact of the federal telecommunications excise tax.

SELLING, GENERAL AND ADMINISTRATIVE (“SG&A”) EXPENSE

Our consolidated SG&A expense decreased 15.0% or $272.2 million for the year ended December 31, 2007, when compared to the corresponding prior year period. This represents a 170 basis point decrease as a percentage of net sales and operating revenues compared to the corresponding prior year period.


Payroll and commissions expense decreased in dollars and as a percentage of net sales and operating revenues. This decrease was primarily driven by a reduction in our corporate support staff, a reduction of store personnel from store closures in 2006, and better management of store labor hours. Additionally, compensation included an $8.5 million charge recorded in the first quarter of 2007 associated with the reduction of approximately 280 corporate support employees, while the year ended December 31, 2006, included employee separation charges of approximately $16.1 million connected with the 2006 restructuring. Furthermore, our accrued vacation was reduced $14.3 million during the year ended December 31, 2007, in connection with the modification of our employee vacation policy during 2007.

Rent expense decreased in dollars, but increased as a percent of net sales and operating revenues. The rent decrease was primarily driven by store closures from our 2006 restructuring.

Advertising expense decreased in dollars, but increased as a percent of net sales and operating revenues. This decrease was primarily due to a change in our media strategy, as we changed the mix of media used in our advertising program from television to more radio and newspaper usage, as well as reduced sponsorship programs.

Professional fees decreased in both dollars and as a percent of net sales and operating revenues. The decrease relates to a decline in our use of consultants and lower fees incurred as a result of our defense of certain class action lawsuits during 2006, as well as prior year recognition of $5.1 million of the $8.8 million charge to establish a legal reserve for the settlement of these lawsuits. See Note 13 – “Litigation” in the Notes to Consolidated Financial Statements for a discussion of these lawsuits.
MANAGEMENT DISCUSSION FOR LATEST QUARTER

RESULTS OF OPERATIONS

Overview

Highlights related to the three months ended March 31, 2008, include:



Net sales and operating revenues decreased $43.3 million to $949.0 million, compared to the first quarter of 2007. Comparable store sales decreased 4.0%. This decline was primarily due to a sales decrease in our modern home, postpaid wireless and wireless accessory sales.



Gross margin decreased 250 basis points to 47.4% from the first quarter of 2007. This decrease was due to aggressive pricing required to respond to a more competitive market environment, a shift in our product mix, and a $14.0 million refund (140 basis point benefit to gross margin) of federal telecommunications excise taxes recorded in the first quarter of 2007.



Selling, general and administrative (“SG&A”) expense decreased $31.2 million to $362.4 million, compared to the first quarter of 2007. As a percentage of net sales and operating revenues, SG&A declined 150 basis points to 38.2%. This improvement was attributable primarily to decreased compensation as a result of reductions in our corporate and store personnel, better management of store labor hours, and an $8.5 million charge recorded for employee separation charges in the first quarter of 2007.



As a result of the factors above, operating income decreased $10.4 million to $64.2 million, compared to the first quarter of 2007.



Net income decreased $3.7 million to $38.8 million, compared to the first quarter of 2007. Net income per diluted share for the three months ended March 31, 2008 and 2007, was $0.30 and $0.31, respectively.



EBITDA decreased $14.6 million to $89.2 million, compared to the corresponding prior year period.


EBITDA, a non-GAAP financial measure, is defined as earnings before interest, taxes, depreciation and amortization. The comparable financial measure to EBITDA under GAAP is net income. EBITDA is used by management to evaluate the operating performance of our business for comparable periods. EBITDA should not be used by investors or others as the sole basis for formulating investment decisions as it excludes a number of important items. We compensate for this limitation by using GAAP financial measures as well in managing our business. In the view of management, EBITDA is an important indicator of operating performance because EBITDA excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs. The following table is a reconciliation of EBITDA to net income.

CONF CALL

Martin Moad

Thank you and good morning. Welcome to RadioShack's 2007 Year-end and Fourth Quarter Earnings Call. Today, we will hear from RadioShack executive management followed by a Q&A session.

By way of reminder, the comments we'll make today are subject to the SEC’s Safe Harbor provisions. During our commentary and the question-and-answer session, we will make forward-looking statements. These forward-looking statements involve risk and uncertainties and are indicated by words such as anticipate, expect, believe, goal, will, intend, likely and other similar words and phrases. We can give no assurances regarding the achievement of these forward looking statements. The actual outcomes may be significantly different.

Additionally, we expect that these forward-looking statements will change in the normal course of our business and management specifically disclaims any obligation to update forward-looking statements that we may make on today’s call. You are encouraged to read our 10-K and 10-Q filings with the SEC for a more complete discussion of the major risks and uncertainties that affect our business. RadioShack filed with the SEC today, it’s form 10-K for the year-ended December 31st, 2007 and I would encourage you to review this document as it goes into more explanation describing our 2007 results.

And now I will turn it over to our Chairman and Chief Executive Officer, Julian Day. Julian?

Julian Day

Alright. Thanks Martin. Good morning everyone. First off, I want to personally welcome each one of you to our Earnings Call here this morning. So I am going to begin by introducing the members of the senior leadership team who are with me on this call. Jim Gooch, our EVP and Chief Financial Officer, is going to kick things off by taking you through our financial results, both for the quarter and for the year.

I also want to introduce two newcomers to our team: Bryan Bevin, EVP for Retail Operations, and Peter Whitsett, our EVP and Chief Merchant, who are also sitting with me and will be joining us on this call.

Both of them have joined the senior leadership team recently and both have perspectives on the future development potential for our business that I have asked each of them to share with you on the call.

Before I go ahead and hand over to Jim, though, I thought I might take the opportunity briefly to report back to you on our progress against the goals we set ourselves for 2007. Same goals we talked about on the same call a year ago. The first initiative we set ourselves was to improve the in-store experience for our customers. I would say we made some real progress in this area. This was as a result primarily of the reorganization in our field management organization, and as a result of continued focus on the in-stocks and quality of inventory.

We won the Real People number one Customer Service Award for consumer electronics at the end of last year, which served I think to confirm our place at the highest level of customer service-oriented retailers in the U.S. Nonetheless, I do believe, and I think both Bryan and Peter believe, there’s considerably more progress we can make in this area and I'll ask both of them to share their initial thoughts with you in a few minutes.

We also set ourselves the goal of increasing gross profit dollars. In this year-over-year we were not successful, partially because we operated with almost 500 fewer stores in 2007 versus 2006. Aggregate gross profit for the year dropped approximately $100 million for the year in spite of an improvement in gross margin rates for the whole enterprise of approximately 300 basis points.

As I mentioned a second ago, we took actions to improve the quality of our inventory during the year, which also has the effect of costing us the gross margin money. Though, the most important factor influencing our dollar gross margin was our top-line sales, which were not as strong as we expected.

Jim will talk about this in a little more detail in couple of minutes. But suffice to say, for now our sales of Sprint handsets plans and related accessories, while in line with Sprint's reported results, were very disappointing to us throughout the year and were a major contributor to our sales and margin shortfall. On the upside, Bryan and Peter will also be offering some comments on sales opportunities which faced us for 2008 with which we intend to capitalize.

Okay, our third goal was to aggressively manage all expenses. In this area we did achieve a high degree of success, reducing aggregate operating expenses by over 250 basis points for 2007 compared to 2006.

We believe we were able to reduce operating costs in our business while at the same time improving our ability to execute. Cost control is going to remain a key element of our approach over the next year, though we expect that earnings improvements in 2008 are more likely to come from sales and margin improvements than from continued large scale cost-reduction.

Lastly, as to capital allocation, I would say that while we clearly did a better job of allocating capital to high return projects in our company, I would also say that we didn't find enough opportunities to invest incremental capital at a high rate of return last year. In retrospect, this was primarily because a large part of the year was given over to operational restructuring of one kind or another, and investment opportunities, notoriously difficult to identify, in an environment in which the business model for the company as a whole is in state of change and improvement.

We believe, and I think the financial results for our company confirm this, that we now have a robust economic model in place for our company. This is going to allow us to allocate more capital to the business in high-return areas in support of our goal to increase the profitable throughput for our business model in 2008.

So, with that as an overall introduction, I'd like now to hand over to Jim for the detailed financial results, followed by Peter and Bryan who have some exciting thoughts to share with you on development opportunities for our business. So Jim, over to you.

Jim Gooch

Thank you Julian and good morning everybody. My plan today would be to focus a majority of my comments on the fourth quarter. Even though, unlike the first three quarters, many of the improvements that we see in the fourth quarter are up against improvements that Julian and I put into place when we joined the company in 2006. However, this is given that most of the relative trends and drivers of those fourth quarter improvements are still consistent with what we saw during the first three quarters.

As we released this morning, our fourth quarter 2007 earnings per share were $0.77. This compares to a reported $0.62 last year or $0.15 improvement. Looking at the full year we have earnings per share of $1.74, which means a very healthy $1.20 increase versus the reported $0.54 from last year. But I would say this is where we recognize that there is clearly a room for improvement and there is clearly more work to be done.

When you look at the challenging, not only the macroeconomic environment, but the highly competitive environment that we operated on there, especially over the past several months, I would say that overall we're very pleased to be able to deliver a very healthy increase in profitability, that you see not only in the fourth quarter but throughout the year.

As far as the drivers of this increase, they were fairly consistent in the fourth quarter with what you saw in the first three quarter's. Specifically improved gross margin rate, reduction in SG&A expense, reduction in net interest expense and all of that favorability was partially offset by soft top line sales number.

Let's talk for a couple of minutes on the gross profit dollars. As Julian mentioned, our gross profit dollars were down with the decline in comp store sales and to a lesser extent fewer overall stores. That was partially offset by our continued improvement in our gross margin rate. Where for the fourth quarter you saw our gross margin rate at 44.8%, and that’s a 90 basis point improvement versus prior year, keeping in mind that that prior year number was a very healthy increase versus 2005. And so from a gross margin rate, it was a very nice two-year increase.

We've continued to focus. I think our gross margin rate is not a result of significant category assortment changes; it's more a result of some of our specific operating improvements, a couple of those being inventory management and also a more effective promotional spend.

On the inventory management side, that has helped us to achieve a couple of outcomes. First, more productive markdown management, and what I'm talking about is, as we transition product, not only seasonal product but also line or assortment changes, it's allowed us to reduce and have more productive markdown spending.

That’s also helped us with our end of life or discontinued merchandize, where at the end of 2007 we see an over 40% reduction in our discontinued end of life merchandize. So, as a result of both of those, where you see us exiting the year, exiting the fourth quarter, it's not only with less overall inventory, but very importantly a much higher quality of inventory.

So what does this mean from a gross margin rate perspective? When you look at our individual skews, at our individual categories, it's an improvement across the board on many of our gross margin rates. Now these individual category gross margin rates are being partially offset by an unfavorable sales mix, and I'll get a little bit into that as we talk about our sales.

For the fourth quarter, our comp store sales were down 6.7%, total sales were $1.364 billion, that's down $94 million versus prior year. One comment I'll make on that is even within some of the competitive environment and some of the macroeconomic conditions I talked about, it's a slight improvement versus our year-to-date trend. For the year, we see comp store sales at negative 8.2%, and sales of $4.252 billion, which is down $526 million.

Dragging the sales number, our largest issue has continued to be in the fourth quarter as it was to the first three quarters, and that's our postpaid wireless business. We also did a lesser extent saw-soft performance in our satellite radio business. Fourth quarter saw a soft performance in our MP3 that was not consistent with the first three quarters.

And then we made a conscious decision on our large screen flat television sets to reduce not only the assortment, but also the store count that you see the expanded assortment, and so that had a negative impact in the fourth quarter on our top line sales. But when we looked at that, those were unproductive and unprofitable sales.

All of these categories were partially offset by strong performance in categories such as GPS, video gaming and within our accessories business, our media storage. So as you think about those categories that are driving strong sales performance, GPS, video gaming and media storage all of those have one characteristic, which is their gross margin rates being under our corporate average. So, that’s helping to drive that unfavorable margin mix between the categories that I referred to earlier.

Let me talk for a second about the postpaid wireless business, because this has continued to be our number one issue from top line sales, and let me help you quantify this. Within postpaid our largest shortfall continues to be the Sprint business. And in fact, if you look at that Sprint postpaid wireless business, and if you combine that with the related accessories business, that alone results in 80% of our overall sales decline.

Then furthermore, if you add to that the television and the large flat screen TV business that I referenced, these two categories alone make up 100% of our sales shortfall. So, said another way, all of the remaining categories for the fourth quarter traded flat last year. So within that flat performance, there were several categories that had very strong quarters, I'll mention a few of them.

Firstly in the GPS business: GPS continues to drive strong triple-digit growth. We've continued to look for ways to expand not only the assortment, but also the number of storage for carrying that expanded assortment.

Within the accessory category, the media storage continues to drive double-digit growth. And then our video gaming business, we did some initial testing with the video gaming in third and fourth quarter, which you will see from us in 2008 as expanded assortment in an expanded number of stores. Whereby by the end of 2008, you will see a core assortment in over 4000 of our stores and you'll see an expanded assortment in over half of our stores.

I think when you look at all four quarters, we obviously had a focus on improving our overall profitability and a big piece of that, as Julian mentioned, was on our operating expenses.

When you look at the fourth quarter, our operating expenses were down $49 million and that brings the annual total to a reduction of $329 million versus prior year. Even with that decrease that I referenced on comp store sales, our SG&A ratio to sales went from 31.6% in the fourth quarter 2006, down to 30.9% in the fourth quarter of 2007.

The reduction was really a result of our daily disciplined attacking our SG&A expense across every line item. The largest line item on our expense continues to be payroll. You see significant reductions there, not only from our headcount reductions at headquarters, but also out in the stores where we continue to look at our labor scheduling and our efficiencies and trying to maximize those efficiencies at store level.

From a net interest perspective, you saw our net interest decreased from $7.5 million to $3.1 million in 2007. That comes from not only an improvement in interest income, but a reduction in our interest expense.

On the interest income, as a result of our improved operating performance and our improved working capital management, we saw throughout the year a higher cash balance which helped to drive that higher interest income. From an interest expense during September of 2007, we repaid $150 million of bonds, which helped to drive that interest expense down for the fourth quarter.

I would like to spend a couple of minutes on the balance sheet and cash flow and then I will turn it over to Peter for his comments. I would say that throughout the year, you saw an improvement in our balance sheet quarter-by-quarter and the fourth quarter was no different.

As we previously discussed our inventory management, we continue to focus there, a couple of results there has been. I mentioned the higher quality of inventory, and you see the overall inventory being reduced by $47 million, at the same time, a slight increase in the accounts payable. With that reduction in end of life, that means a lower net interest amount, but also a much higher quality of inventory at the end of the year.

The only call-out on the liability side, as I mentioned, is if you see the short-term liability reduction being driven by the $150 million of repayment from the bonds in September.

The net result of all this improved operating performance and they improved working capital management. You see our cash increasing to $510 million from $472 million. So, on the surface, it was a $38 million improvement. But please note that that not only do you have the $150 million of bond repayment, but also $209 million of share repurchases during the year. So if you adjust for those two, it would have driven almost $400 million in increase in cash year-over-year.

And the final call-out I will make is, as a result of all these improvements, we are again able to operate this company through our peak inventory build, without the need for any borrowings under our credit facility.

So with that, that concludes all my prepared remarks on the financial statement and I will turn it over to Peter Whitsett, our EVP Chief Merchant.

Peter Whitsett

Thanks, Jim, and good morning. As Julian and Jim have mentioned, I have recently joined the organization and I am excited to share my comments about a few key opportunity areas mentioned this morning.

First, in the area of our in-store experience, as Julian mentioned, we implemented a field organization designed to get us closer to our customers and the associates who are serving and solving problems for our customers.

This organization has allowed us to begin to tailor our assortments and offerings to additional customer segments that were previously underserved. For example, we've recently implemented several state-specific programs related to the legislative change regarding the hands-free initiative. This initiative allows us to use local knowledge from our field organization to advise, and in part, direct the central support organization to deliver a superior experience for our customers.

We are also exploring other avenues to enhance the presentation of our brand. This may come in many forms, including our in-store signage, our product packaging, and customer product interaction within our stores, for example live display units.

Bryan will be addressing our visual merchandising opportunities in greater detail.

Next is our opportunity to grow our gross profit dollars. This list is by no means exhaustive but a framework and process for us to achieve higher levels of profitability.

First is pricing: This is not our initial price, but the realized value and profit from improvement in our average selling price or ASPs. Pricing improvements are focused on our two largest markdown areas; promotional and clearance transactions.

As we further develop our analytical capability around the value, service and pricing relationships, we would expect to continue to see improvements in this area. For example, our clearance markdowns will be implemented by store cluster, so that stores with low inventory and high weeks of supply will receive a different markdown depth, and potentially different markdown timing than stores with greater inventory or greater weeks of supply. This will allow us to improve both our sales and our profitability to an improved realized price.

Acquisition cost is our next focused initiative. A continued development of our global sourcing initiatives will lead to an expansion of our private label programs and a disciplined approach to negotiations using competitive auctions, accelerated line reviews, and strategic supplier partnerships.

My early assessment is that this is an area for improvement. We are currently evaluating provided capability and plan to roll out a formal process in the second quarter of this year.

Last here, I'd like to discuss is our commitment to growing and developing a more robust private label business. We have a strong heritage and competency in this area, as the company has consistently delivered high quality merchandise under the RadioShack, Gigaware, Presidian and Accurian brands. We believe there is significant potential in our private label business. As a result, we are actively increasing our Gigaware offering to include both the MP3 accessory category and the gaming accessory category. This change will allow us to offer more consistent and comprehensive brand presence within the store and online environments.

As I mentioned earlier, I am thrilled to have joined the team and look forward to updating you in the future. I'd now like to introduce to the call Mr. Bryan Bevin, our EVP of Store Operations. Bryan?

Bryan Bevin

Thanks, Peter, and good morning, everyone. Now clearly, many of you know that I recently joined the RadioShack Corporation, actually in the first week of January. I must say that I'm both excited and encouraged by the energy level that I've found in the business. As Julian said, I do believe that we have maybe a significant number of opportunities to take advantage of from an operational perspective. Now most of the opportunities that I'll talk of revolve around performance management, execution, and of course, operational discipline.

The first opportunity that I think you can take advantage of is around better performance management. We found couple of guys focused on key metrics and really improve the visibility of performance, pretty much at all levels in the field organization. And at the same time, we've intensified the focus around productivity down to a very local level. Linked to that, we've established very clear expectations around those metrics and performances and defined pretty much for every stakeholder what a clear picture of success looks like.

Now somewhat of an obvious statement, but a huge part of driving the business and realizing the potential will only be delivered if we appropriately support the front-end of the business in order to maximize the traffic flow that we currently enjoy, and bring more relevance to the RadioShack brand. In support of this effort, we've established a far more cohesive cross-functional review on a weekly basis, to identify blockages and barriers both nationally and at local levels, focused on market segments and demographic segments and then share those best practices and leverage them across the entire network.

I have to say, since the start of those cross-functional reviews, things like response time to issues relating to customer experience, supply chain issues, pricing and marketing opportunities has been reduced dramatically. We've now started to see some positive results as a consequence, so that I have to say -- should caution that we're still in the early days of that.

The next area of opportunity that's obvious to me is our conversion rate. We currently enjoy significant traffic-flow that was failing to convert to sales. And in many respects it's kind of a nice problem to have, because we are already seeing customers come through the door. But, we now need to do more to turn those visits into sales, gross profit dollars, and of course satisfied customers.

One initiative that we'll be putting into place to address this conversion is far more surgical scheduling and resource planning efforts. And in layman's terms, what that means is more appropriate staffing levels scheduled to cover peak trading times, again with the skills to turn those visits into sales. We'll also focus more discipline around stock positions or replenishment cycles, which will help significantly, especially when you look at self-select transaction times.

Linked to that, we intend to de-clutter the stores from a messaging standpoint. We will simplify the visual merchandizing from messaging assortment, adjacencies, and what we think we'll see is significant benefits in helping the customers more effectively self-navigate the store. And we think that will be particularly true around wireless accessories, parts and pieces and other peripheral products.

We also intend to simplify the store and our wireless world by bringing products and office to life through simpler graphics, clearer propositions, along with far more education and training for our employees; certainly around applications, services and content packages.

Now, many of the initiatives that I've described revolve around discipline and diligence, in addition to a far more cohesive approach for many of the functions around the business; not least of which is the commitment to the merchant group and the initiatives that Pete has already discussed.

Now, I am once again to tell you that I'm delighted to be part of the team, and I feel very positive about the possibilities that we have. Now I'd like to turn the call back over to Julian.

Julian Day

Okay. Thanks, Bryan. I appreciate it. So, in summary, I'm going to try and summarize here for just a minute. In summary, obviously I can tell you that overall we're very pleased with our earnings progress last year, culminating as you all know net income of $1.74 per share for the year. And for 2008, we plan to make more progress in each of the priority areas that I discussed earlier on in this call.

On improving our in-store experience, you just heard from Bryan and Peter on some of the major elements of our approach, which we are very confident in expecting that they will produce further benefits in 2008. We made many improvements last year, but I believe that in the stores under Bryan's leadership, we can confidently expect that the pace of the improvements will continue to quicken.

Second goal: Peter talked about this, in increasing gross profit dollars. As I noted earlier, the quality of our inventory is much more improved over last year, and we believe, therefore, that we are much better positioned for success here than last year, with the unknown and caveat obviously being the current state of the economy and how the economy turns out for the year.

Our third goal is to continue to aggressively manage all expenses. On the topic of cost-reduction, obviously we made a lot of progress over the last year. I noted elsewhere, and in contrast to last year, that I believe the bulk of our improvement opportunity in 2008 as a business lies in the areas of revenue and margin growth, driven largely by initiatives under the control of both Bryan and Peter. But I want you to know, we are still very focused on cost and we are going to continue to aggressively seek out costs controlling reduction opportunities in 2008.

An example of this, for instance, would be in our transport and distribution area, where we have recently done two things. One is we've recently negotiated substantial rate reductions in transportation. The second is that we recently took the decision to close our Columbus distribution center.

And just to give you a sense in Columbus alone, we expect to save approximately $4 million in costs annually, of which we will see about half of that, or $2 million in 2008.

Additionally, owing to the fact that we will have few inventories staging points, we expect to be able to reduce inventories as a result of this move by approximately $20 million.

The fourth goal is around capital allocation. I would say here, and said some of this earlier, that our increased confidence in the quality of our operations has led us to plan on allocating more capital to the maintenance and development of our business. This is going to take the form of an increased pace of maintenance in our portfolio of stores, and it is also going to reflect our current effort to refine and improve our cost store format to bring a more contemporary look and feel to our stores, and hence to our brand.

Last year we spent some $45 million in capital. Therefore, in 2008 we expect to roughly double that to between $80 million to $100 million, depending on timing during the year.

So I hope that introduction was helpful to you and what I will now do is hand the call back over to the operator who is going to invite a few questions from you.

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