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Radio Shack Integrated Cash Flow Model_DCF

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Radio Shack Integrated Cash Flow Model_DCF

  1. 1. RADIO SHACK FINANCIAL MODEL Model Assumptions HISTORICAL FINANCIAL STATEMENTS PROJECTED FINANCIAL STATEMENTS ($ in millions) Fiscal Year Ending December 31, Fiscal Year Ending December 31, 2003A 2004A 2005A 2006P 2007P 2008P 2009P 2010P Income statement drivers/assumptions Net sales growth rate 4.1% 5.0% 4.5% 4.5% 4.5% 4.5% 4.5% Cost of products sold as % of net sales 50.2% 49.7% 53.3% 51.1% 51.1% 51.1% 51.1% 51.1% SG&A as % of net sales 37.4% 36.7% 37.4% 37.2% 37.2% 37.2% 37.2% 37.2% Depreciation and amortization as % of sales 2.0% 2.1% 2.4% 2.2% 2.2% 2.2% 2.2% 2.2% Other income $12.0 $2.0 $10.2 $8.1 $8.1 $8.1 $8.1 $8.1 Tax rate 36.9% 37.8% 16.0% 37.3% 37.3% 37.3% 37.3% 37.3% Balance sheet drivers/assumptions Days of accounts and notes receivable 17.9 21.9 21.9 21.9 21.9 21.9 21.9 Days of inventory 150.1 128.4 128.4 128.4 128.4 128.4 128.4 Other current assets as % of net sales 1.9% 2.5% 2.2% 2.2% 2.2% 2.2% 2.2% Days of accounts payable 66.1 65.3 65.3 65.3 65.3 65.3 65.3 Accrued expenses and other current liabilities as % of sales 7.1% 7.5% 7.3% 7.3% 7.3% 7.3% 7.3% Cash flow drivers/assumptions Additions to property, plant & equipment as % of sales 4.1% 4.7% 3.4% 4.1% 4.1% 4.1% 4.1% 4.1% Other investing activities $6.0 $4.2 $16.0 $8.7 $8.7 $8.7 $8.7 $8.7 Purchases of treasury stock $286.2 $251.1 $625.8 $387.7 $387.7 $387.7 $387.7 $387.7 Sale of treasury stock to employee benefit plans $35.8 $35.4 $30.1 $33.8 $33.8 $33.8 $33.8 $33.8 Proceeds from exercise of stock options $15.7 $50.4 $17.4 $27.8 $27.8 $27.8 $27.8 $27.8 Payments of dividends as % of net income 13.7% 11.8% 12.6% 12.7% 12.7% 12.7% 12.7% 12.7% Debt and interest drivers/assumptions Short-term (revolver) interest rate 5.0% 5.0% 5.0% 5.0% 5.0% Long-term debt blended interest rate 7.0% 7.0% 7.0% 7.0% 7.0% Long-term debt maturities $0.0 $150.0 $5.0 $0.0 $0.0 Interest earned on cash 2.4% 2.1% 1.8% 2.1% 2.1% 2.1% 2.1% 2.1%
  2. 2. RADIO SHACK FINANCIAL MODEL Model HISTORICAL FINANCIAL STATEMENTS PROJECTED FINANCIAL STATEMENTS ($ in millions) Fiscal Year Ending December 31, Fiscal Year Ending December 31, 2003A 2004A 2005A 2006P 2007P 2008P 2009P 2010P Income Statement Net sales $4,649.3 $4,841.2 $5,081.7 $5,312.8 $5,554.4 $5,807.0 $6,071.1 $6,347.2 Cost of products sold 2,333.6 2,406.7 2,706.3 2,712.4 2,835.7 2,964.7 3,099.5 3,240.5 Gross profit 2,315.7 2,434.5 2,375.4 2,600.4 2,718.7 2,842.3 2,971.6 3,106.7 Operating expenses Selling, general and administrative 1,740.0 1,774.8 1,901.7 1,974.7 2,064.5 2,158.4 2,256.6 2,359.2 Depreciation and amortization 92.0 101.4 123.8 115.3 120.5 126.0 131.7 137.7 Total operating expenses 1,832.0 1,876.2 2,025.5 2,090.0 2,185.1 2,284.4 2,388.3 2,496.9 Operating income 483.7 558.3 349.9 510.4 533.6 557.9 583.3 609.8 Interest income 12.8 11.4 5.9 2.5 0.2 0.0 0.0 0.0 Interest expense (35.7) (29.6) (44.5) (35.7) (37.4) (44.8) (53.9) (62.9) Other income, net 12.0 2.0 10.2 8.1 8.1 8.1 8.1 8.1 Income before income taxes 472.8 542.1 321.5 485.3 504.4 521.1 537.4 554.9 Provision for income taxes 174.3 204.9 51.6 181.2 188.3 194.5 200.6 207.2 Income before cumulative effect of change in accounting principle 298.5 337.2 269.9 304.1 316.1 326.6 336.8 347.8 Cumulative effect of change in accounting principle 0.0 0.0 (2.9) 0.0 0.0 0.0 0.0 0.0 Net income $298.5 $337.2 $267.0 $304.1 $316.1 $326.6 $336.8 $347.8 Balance Sheet Assets Current Assets: Cash and cash equivalents $437.9 $224.0 $15.7 $0.0 $0.0 $0.0 $0.0 Accounts and notes receivable 241.0 309.4 323.5 338.2 353.6 369.6 386.4 Inventories 1,003.7 964.9 967.1 1,011.0 1,057.0 1,105.1 1,155.4 Other current assets 92.5 129.0 118.2 123.6 129.2 135.1 141.2 Total current assets 1,775.1 1,627.3 1,424.5 1,472.8 1,539.8 1,609.8 1,683.0 Property plant and equipment, net 652.0 476.2 576.5 681.5 791.1 905.8 1,025.7 Other assets, net 89.6 101.6 110.3 119.1 127.8 136.5 145.3 Total assets $2,516.7 $2,205.1 $2,111.3 $2,273.3 $2,458.7 $2,652.1 $2,853.9 Liabilities and Stockholders' Equity Current liabilities:
  3. 3. Short-term debt $55.6 $40.9 $0.0 $322.1 $511.7 $693.5 $872.2 Accounts payable 442.2 490.9 492.0 514.4 537.8 562.2 587.8 Accrued expenses and other current liabilities 342.1 379.5 386.1 403.6 422.0 441.2 461.3 Income taxes payable 117.5 75.0 75.0 75.0 75.0 75.0 75.0 Total current liabilities 957.4 986.3 953.1 1,315.2 1,546.5 1,772.0 1,996.3 Long-term debt 506.9 494.9 494.9 344.9 339.9 339.9 339.9 Other non-current liabilities 130.3 135.1 135.1 135.1 135.1 135.1 135.1 Total liabilities 1,594.6 1,616.3 1,583.1 1,795.2 2,021.5 2,247.0 2,471.3 Stockholders' equity: Series A Preferred 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Series B Preferred 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Common stock 191.0 191.0 191.0 191.0 191.0 191.0 191.0 Additional paid-in capital 82.7 88.2 88.2 88.2 88.2 88.2 88.2 Retained earnings 1,508.1 1,741.4 2,007.0 2,282.9 2,568.1 2,862.2 3,165.8 Treasury stock (859.4) (1,431.6) (1,757.7) (2,083.8) (2,409.9) (2,736.0) (3,062.1) Unearned compensation 0.0 (0.5) (0.5) (0.5) (0.5) (0.5) (0.5) Accumulated other comprehensive income (0.3) 0.3 0.3 0.3 0.3 0.3 0.3 Total stockholders' equity 922.1 588.8 528.3 478.1 437.2 405.2 382.7 Total liabilties and stockholders' equity $2,516.7 $2,205.1 $2,111.3 $2,273.3 $2,458.7 $2,652.1 $2,853.9 Check $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Cash Flow Cash flow from operating activities: Net income $298.5 $337.2 $267.0 $304.1 $316.1 $326.6 $336.8 $347.8 Depreciation and amortization 92.0 101.4 123.8 115.3 120.5 126.0 131.7 137.7 Cumulative effect of change in accounting principle 0.0 0.0 4.7 0.0 0.0 0.0 0.0 0.0 Deferred income taxes and other items 51.7 50.2 (76.9) 0.0 0.0 0.0 0.0 0.0 Provision for credit losses and bad debts 0.4 (0.3) 0.1 0.0 0.0 0.0 0.0 0.0 Changing in operating assets and liabilities: Accounts and note receivable 17.2 (53.0) (68.2) (14.1) (14.7) (15.4) (16.1) (16.8) Inventories 202.3 (234.2) 38.8 (2.2) (44.0) (46.0) (48.1) (50.3) Other current assets (5.2) (7.5) 28.5 10.8 (5.4) (5.6) (5.9) (6.1) Accounts payable, accrued expenses and income taxes payable and other (5.0) 158.7 45.1 7.7 39.9 41.7 43.6 45.6 Net cash provided by operating activities 651.9 352.5 362.9 421.7 412.5 427.4 442.1 457.9 Cash flow from investing activities: Additions to property, plant and equipment (189.6) (229.4) (170.7) (215.6) (225.4) (235.7) (246.4) (257.6) Proceeds from sale of property, plant and equipment 2.0 2.5 226.0 0.0 0.0 0.0 0.0 0.0
  4. 4. Proceeds from sale of installation subsidiary 4.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Purchase of kiosk business 0.0 (59.1) 0.0 0.0 0.0 0.0 0.0 0.0 Other investing activities (6.0) (4.2) (16.0) (8.7) (8.7) (8.7) (8.7) (8.7) Net cash provided by (used in) investing activities (188.9) (290.2) 39.3 (224.4) (234.2) (244.4) (255.1) (266.3) Cash flow from financing activities: Purchases of treasury stock (286.2) (251.1) (625.8) (387.7) (387.7) (387.7) (387.7) (387.7) Sale of treasury stock to employee benefit plans 35.8 35.4 30.1 33.8 33.8 33.8 33.8 33.8 Proceeds from exercise of stock options 15.7 50.4 17.4 27.8 27.8 27.8 27.8 27.8 Payments of dividends (40.8) (39.7) (33.7) (38.6) (40.1) (41.4) (42.7) (44.1) Changes in short-term borrowings, net 20.7 (14.0) (4.0) (40.9) 322.1 189.6 181.8 178.7 Repayments of long-term borrowings (20.0) (40.1) (0.1) 0.0 (150.0) (5.0) 0.0 0.0 Net cash used in financing activities (274.8) (259.1) (616.1) (405.6) (194.1) (183.0) (187.0) (191.6) Net (decrease)/increase in cash and cash equivalents 188.2 (196.8) (213.9) (208.3) (15.7) 0.0 0.0 0.0 Cash and cash equivalents, beginning of period 446.5 634.7 437.9 224.0 15.7 0.0 0.0 0.0 Cash and cash equivalents, end of period $634.7 $437.9 $224.0 $15.7 $0.0 $0.0 $0.0 $0.0 Cash flow before short-term debt (revolver) 56.6 (322.1) (189.6) (181.8) (178.7) Debt and Interest Schedule Short-term debt (Revolving Credit Facility) Beginning Balance $40.9 $0.0 $322.1 $511.7 $693.5 (Paydown) / Drawdown (40.9) 322.1 189.6 181.8 178.7 Ending Balance $0.0 $322.1 $511.7 $693.5 $872.2 Interest Rate 5.0% 5.0% 5.0% 5.0% 5.0% Interest Expense $1.0 $8.1 $20.8 $30.1 $39.1 Long-term debt Beginning Balance 494.9 494.9 344.9 339.9 339.9 (Paydown) / Drawdown 0.0 (150.0) (5.0) 0.0 0.0 Ending Balance 494.9 344.9 339.9 339.9 339.9 Interest Rate 7.0% 7.0% 7.0% 7.0% 7.0% Interest Expense $34.6 $29.4 $24.0 $23.8 $23.8 Total Interest Expense $35.7 $37.4 $44.8 $53.9 $62.9 Interest Earned on Cash 2.5 0.2 0.0 0.0 0.0
  5. 5. RADIO SHACK Model Discounted Cash Flow Analysis ($ in millions) Fiscal Year Ending December 31, 2006 2007 2008 2009 2010 Net sales $5,312.8 $5,554.4 $5,807.0 $6,071.1 $6,347.2 EBITDA 625.7 654.1 683.9 715.0 747.5 EBIT 510.4 533.6 557.9 583.3 609.8 Less: Taxes 204.2 213.4 223.2 233.3 243.9 Debt-free earnings 306.2 320.2 334.7 350.0 365.9 Less: capital expenditures (215.6) (225.4) (235.7) (246.4) (257.6) Less: (increase)/decrease in working capital 2.3 (24.1) (25.2) (26.4) (27.6) Plus: depreciation and amortization 115.3 120.5 126.0 131.7 137.7 Net debt-free cash flow $208.2 $191.1 $199.8 $208.9 $218.4 Discount period 1.00 2.00 3.00 4.00 5.00 Discount factor 0.89 0.80 0.71 0.64 0.57 Present value fo debt-free cash flow $185.9 $152.4 $142.2 $132.8 $123.9 Present value of enterprise 3,706.3 DCF Sensitivity analysis Terminal multiple 3,706.3 6.0x 6.5x 7.0x 7.5x 8.0x 10.0% $3,560.5 $3,792.6 $4,024.6 $4,256.7 $4,488.8 11.0% 3,417.7 3,639.5 3,861.3 4,083.1 4,304.9 12.0% 3,282.1 3,494.2 3,706.3 3,918.3 4,130.4 13.0% 3,153.4 3,356.2 3,559.1 3,761.9 3,964.8 14.0% 3,031.1 3,225.2 3,419.3 3,613.4 3,807.5 DiscountRate
  6. 6. Terminal Value DCF Assumptions Tax Rate 40.0% Discount rate 12.0% Terminal multiple 7.0x Valuation Date 12/31/2005 2010 EBITDA $747.5 Terminal multiple 7.0x Terminal value $5,232.5 Discount period 5.00 Discount factor 0.57 PV of terminal value $2,969.1

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