Radioshack Generated Sales of Over $5 Billion in 2005 Mainly Through Its 4,972 Company Operated-Stores, 777 Kiosks, and 1,686 Dealer Outlets Located Across the US

April 24th, 2006

Matthieu Cocq Franck Legoux Patrick de Loe Genki Oka Alexander Zorn

1 TABLE OF CONTENT EXECUTIVE SUMMARY ...... 5 PART I. INDUSTRY ANALYSIS...... 7 I. INDUSTRY OVERVIEW...... 7 II. CONSUMER ELECTRONICS MARKET...... 7 A. Market Size & Growth...... 7 B. Product and Service Description...... 8 1. Products ...... 8 2. Services...... 11 3. Third-party retailing (wireless contracts)...... 11 III. CUSTOMER...... 12 A. Household Penetration ...... 12 B. Segmentation...... 13 1. Tech-Savvy Segment ...... 13 2. Influencers...... 13 3. New Segment...... 13 IV. COMPETITIVE LANDSCAPE ...... 14 A. Market Shares ...... 14 B. Positioning...... 16 V. SPECIALTY RETAILER SITUATION ...... 17 A. Strengths and Weaknesses ...... 17 B. Recent Turnaround and M&A...... 17 1. Circuit City and Highlands Capital...... 17 2. CompUSA...... 18 VI. INDUSTRY TRENDS...... 19 A. Innovation ...... 19 B. Focus on Technical Services...... 20 C. Customer Centricity ...... 21 1. New Concept Stores...... 22 2. Decentralization ...... 22 3. Sales Force Compensation...... 23 D. Private label and direct sourcing...... 23 PART II. COMPANY ANALYSIS ...... 24 I. BUSINESS OVERVIEW...... 24 A. Business Segment ...... 24

2 B. Distribution Channel ...... 25 C. Service and Support Network ...... 25 D. Regional focus...... 26 E. Non-core units ...... 26 F. Infrastructure...... 26 II. FINANCIAL PERFORMANCE ANALYSIS...... 27 A. Seasonality ...... 27 B. Top-line performance...... 28 C. Profitability...... 29 III. PEER COMPARISON...... 30 IV. CAPITAL STRUCTURE ...... 31 A. Description of the Capital Structure...... 31 B. Assessment of the Capital Structure and Sourcing Availability ...... 33 C. Historical Analysis ...... 35 D. Credit Ratings ...... 36 V. STOCK PRICE ...... 38 VI. MANAGEMENT AND BOARD OF DIRECTORS ...... 41 A. Board of Directors...... 41 B. Executive Management...... 41 VII. RECENT DEVELOPMENTS...... 43 A. New product launch (April 18, 2006) ...... 43 B. Stock hits 52-week low (April 17, 2006) ...... 43 C. Executive Chairman to retire (April 14, 2006) ...... 43 VIII. KEY ISSUES LEADING TO STATUS QUO ...... 44 A. Shift of competitive landscape...... 44 B. Lack of mid to high-end customer base ...... 44 C. Difficulties in its main business of Wireless...... 44 D. Declining trend in high margin business...... 45 E. Dependency on kiosk ...... 45 F. Poor service quality at store level...... 46 G. Unattractive assortment...... 46

3 PART III. LIQUIDATION AND GOING CONCERN VALUE...... 47 I. LIQUIDATION...... 47 II. GOING CONCERN...... 48 A. Forecasts...... 48 B. Valuation ...... 50 PART IV. COMPANY’S TURNAROUND PLAN...... 52 I. DESCRIPTION OF THE ANNOUNCED PLAN...... 52 II. KEY MESSAGE...... 53 II. FINANCIAL PROJECTIONS ...... 53 III. VALUATION AND ASSESSMENT...... 57 PART V. PROPOSED TURNAROUND PLAN ...... 60 I. STRATEGY ...... 60 II. IMPLEMENTATION ...... 60 III. FREE CASH FLOW AND VALUATION...... 63 PART VI. EXHIBITS...... 65

4 EXECUTIVE SUMMARY

A leading electronic retailer, RadioShack generated sales of over $5 billion in 2005 mainly through its 4,972 company operated-stores, 777 kiosks, and 1,686 dealer outlets located across the US. Its most important divisions, which account for a total of 83% of sales, are wireless products (34% of sales), accessories for home entertainment (21%), personal electronics such as digital cameras and MP3 (15%), and modern home products (13%). Wireless and personal electronics platform sales have been the growth drivers over recent years with 2003-2005 CAGR of 14% and 10% respectively. RadioShack enjoys the highest gross profit margin of its peers.

Starting at the end of 1999, amid intensifying competition for other electronic retailers, RadioShack started to show disappointing results, mainly driven by very slow sales growth and even decreasing sales and increasing COGS and SG&A. Its stock price dropped from a peak of $74 at the end of 1999 to a current price of $181 and its competitors followed suit.

While most of its competitors have recently recovered, RadioShack’s problems have been growing and the stock price has kept falling. Its main problems are very slow sales growth (7 year CAGR of 0.9% while three of its competitors are recording double digit growths) and high SG&A expense at 37.4% of sales (while the average of the six competitors is 28%). It has also a very slow moving inventory at 130.1 days. The CEO resigned in February 2006 after being in office for less than one year and the firm has not yet found a successor. In the meantime Chief Operating Officer Claire Babrowski assumes the role of acting CEO.

RadioShack however does not have any liquidity problems and its capital structure and credit ratios are healthy. It has a low 2.5x debt to 2005 EBITDA ratio2 and its EBITDA coverage ratio stands at 11.8x. Even though these ratios would warrant a low A or high BBB rating, the firm has just been downgraded to BBB- by S&P amid disappointing 2006 Q1 results. Its current low rating reflects concerns about the company’s future operational performance amid the recent leadership crisis. We do not expect any liquidity or debt repayment shortage and our worst-case scenario analysis shows that the firm would generate enough free cash flow to service its interests, repay its debt and finance its working capital. The firm also has an unused $730M credit facilities and access to unused commercial paper facilities which provide another cushion.

1 Stock price adjusted for stock splits and dividends. 2 Including capitalized operating leases.

5 Facing competitive and operational challenges but not financial distress, we assessed various scenarios for the company to stop and reverse the decline in stock price and credit ratings. First, we established as a minimum value threshold the liquidation value of RadioShack. In liquidation, gross proceeds would range from $885m to $1,367m depending on a low or high recovery rate estimate. Unsecured creditors would recover between 3% and 93% of their claim, and equity holders would not get anything. As a going concern, however, and assuming that the operations would not be improved (‘as is scenario”), we estimated that RadioShack’s enterprise value should be worth $2,281m, or $12.9 a share.

On February 17, 2006, the firm announced a turnaround plan consisting mainly of the following programs of change: replacing slow moving inventory with higher turn inventory, closing between 400 and 700 underperforming stores, adding 200 kiosks, closing two distribution centers, and reducing SG&A costs. Based on these changes, we estimate that the enterprise value should be worth $2,802m or $16.8 a share. This suggests a considerable improvement relative to the ‘as is scenario’ and brings estimated share price close to the current market value of around $18 per share.

Based on our industry and company analysis, the current turnaround plan does not reach far enough to fix RadioShack’s underlying performance problems and neglects additional value potential. The plan can be improved and we recommend additional programs of change: improving assortment and setting more ambitious goals for inventory turns and sales growth, reducing A/R, increasing internet sales, and putting the expansion of kiosks on hold. This more ambitious plan could create an enterprise value of $3,907m, or $25 a share.

6 PART I. INDUSTRY ANALYSIS

I. INDUSTRY OVERVIEW

As of December 2005, the consumer electronics industry employed approximately 1.9m people or 1.4% of the US's non-farm workforce.

Encompassing employment across the entire value chain, this is distributed as follows:

- retail (574,000)

- manufacturing (212,000)

- transportation (38,000)

- use (1,073,000)

In 2005, the industry added 30,000 jobs to realize a 1.5% industry employment increase. Since 1990, industry employment has increased by more than 19%. While general retail productivity increased 52% in the ten years, CE-related retail productivity increased an extraordinary 309%. Over the same ten year period, CE-related manufacturing jumped more than 126%, while general US manufacturing productivity increased 49%.

II. CONSUMER ELECTRONICS MARKET

A. Market Size & Growth

After breaking the $100bn cap in 2002, the US CE market has reached $123bn in 2005. After slugging growth in the early 2000, the market has entered a new growth phase in 2004 and 2005, growing at around 9%. In the future, the market is not expected to exceed a double digit growth

7 rate. The recent dynamism of the market is not likely to match the dynamism of the 90s when the market grew in the mid-teens (16.7 % in 1995 and 13.4% in 2000).

2000 2001 2002 2003 2004 2005 2006 2007 2008 Sales 96.9 95.5 101.4 103.0 112.9 122.9 131.8 143.5 158.4 Growth 13.4% (1.4%) 6.2% 1.6% 9.6% 8.9% 7.2% 8.9% 10.4%

B. Product and Service Description

1. Products 3

Home audio was the sales growth leader, as sales jumped 28.1% to $7.27bn, much of the growth coming from MP3 players. Indeed sales of all other major product areas declined, e.g. audio rack systems. The outlook for 2006 is more of the same, with MP3 sales providing all the growth as sales are seen rising 6% to $7.7bn.

Wireless and high-tech posted a 17.8% rise to $22.4bn. Phones provided most of the increase, but the industry also benefited from higher sales of car video and navigation gear.

3 CEA 2005 report (Consumer Electronic Association)

8 In 2006, mobile products should enjoy double-digit gain, with sales up 12.4% to $25.1bn.

In video, strong demand for direct-view and flat digital TVs, along with TV/DVD combos, provided most of the market strength for a 7.4% sales rise to $22.6bn. This growth was held back by the drop in the sales of analog color and VCRs. In 2006, digital TVs should lead the video sales pace with sales to come in at $25.2bn, up a solid 11.6%.

Home Information had estimated sales of just over $45.0bn, up 7.8%, as high demand for digital cameras and computer peripherals offset poor performances for most other products. In 2006, continued sluggishness should result in a slight sales decline to $44.8bn. The year-end arrival launch of Microsoft’s Xbox 360 helped sales of electronic games achieve a 10.7% sales increase to $11.6bn. With new Sony and Nintendo entries joining the fray in 2006, forecasts anticipates a 22.8% sales increase to $14.3bn.

Other categories

- Blank media sales were up 16.8% to $6.4bn and should rise 6.9%to $6.8bn in 2006, with memory devices supplying the growth

- Accessories and battery sales rose 11.8% to $8.4bn and are looked to for a 7.3% increase to $9.1bn this year

9 - Home security sales of $2.3bn rose 4.7%, and are targeted for a 2006 increase of 5% to $2.4bn

Of those seven categories, audio and wireless accounted for most of the growth in 2005 while home information and Video lagged behind.

Hereunder are the prospects of each of that product segment for 2006:

Product Segmentation

2005 35%

06) 30% 2006 25% 20%

15% 10%

Growth(05 % 5%

Audio Wireless Blank Acces Video Home Home sories Security = $50bn & Tech Media Info

10 2. Services

Technical services and warranties are also important to shoppers buying complex electronic.

Technical services: Technical assistance is no longer dominated by specialty and high-end retailers. Today most major retailers provide installation services.

Warranty: Warranties have long been a “must-have” element in the consumer electronic market. However warranties are receiving bad press as consumers are advised against purchasing extended warranties for most CE products (with the possible exception of flat-panel TVs), citing their low repairment rates, the comparable cost, and the 40%-80% profits retailers make.

3. Third-party retailing (wireless contracts)

Some retailers contract long-term agreements (5 to 10 years) with mobile operators, through which they sell distribution and marketing services.

Source: The Telephia U.S. Device Report, 2005

Those retailers acquire customers for service providers. Through those distribution and marketing agreements, retailers usually receive a share of monthly service fees and new customer activations from its wireless and satellite service partners.

11 III. CUSTOMER

A. Household Penetration

According to a recent Consumer Electronics Association (CEA) survey4, the average US household owns an average of 25 CE products and spends $1,250 annually on the category. “US households spend heavily on consumer electronics because they recognize the tremendous value these products deliver,” CEA's president. “Few industries provide products where prices consistently fall while features and performance consistently rise.”

The survey cites the ongoing transition from analog products to digital products as a continued growth factor in the industry. The average US home now has 3.1 television sets, up from an average of 2.4 sets last year. Digital HDTV represent roughly 13% of households, flat-panel TVs about 10%, digital video recorders is almost 10%, and DVD player penetration rates are on the verge of eclipsing VCRs. Even better is the penetration of digital camera in the US, as shown in the following graph.

4 The survey surveyed a random national sample of 869 head-of-household adults.

12 Because of product complexity and choices, the emphasis on design integration, the greater role of women in the decision-making process and digital rights management issues, we see a shift in consumer needs.

B. Segmentation

1. Tech-Savvy Segment

CE retailers have built their success on a key customer; the young male with a strong interest in technology. Most retailers believe that this customer spends more money than the average buyer and is obsessed with whatever is new and cool.

2. Influencers

According to a new survey 5, the top five most influential information sources for consumers buying electronics were: in-store salespeople (49%), in-store-demonstrations (36%), family and friends (33%), newspapers (25%) and the Internet (21%). Magazines, TV and radio were at the bottom of the list with less than 5% respectively.

3. New Segment

Instead of going after the customer most retailers coveted in the past, i.e. the young male video gamer - CE retailers are starting to appeal to different types of customers than they did even 5 or 10 years ago. For one thing, the industry has recognized that women are a driving force behind technology purchases and those traditional marketing strategies don't necessarily appeal to them. According to CEA, women now head 33m households, up from 21m in 1980. In the past 30 years, men's median income went up just 0.6%, while women's income has soared 63%. For the first time in 2005, women are expected to outspend men in the $123bn market.

5 Yahoo! and ConsumerEdge

13 Retailers believe that women want to understand how a technology product works and fits into their homes before they purchase it. Focusing on education and a more personal sales approach, companies such as Studio D schedules classes and one-on-ones focused mostly on the digital camera, in hopes of creating an experiential environment around preserving memories.

Other retailers such as Eq-life want to cash in on the needs of aging baby boomers for health products and services, such as pedometers, massages or personal defibrillators.

IV. COMPETITIVE LANDSCAPE

A. Market Shares

We have seen a radical change in the competitive landscape over the last ten years.

Mega retailers take control: Best Buy, Wal-Mart, and Circuit City which accounted for less than 25% of the market in 1997 have now grown to 48% of the market.

Specialty Retailers demise: In 2002, Target leapfrogged RadioShack to claim #5 through its successful formula of low price, and proprietary designer brands.

New entrants: Direct sellers - like Dell - made a breakthrough in the market. In 2002, Apple posted a 471% sales surge, doubling store count to 51 units with $383m in volume sales. Direct sales during 2003 increased to $747m, up 95% from its 2002 figures.

14 Graph: Total US Market Share 6

Market Shares 2005

Best Buy 21%

Others 40%

Wal-Mart Radioshack Circuit City 16% Dell 4% Target 9% 5% 5%

6 Best Buy 2005 Annual Report

15 B. Positioning

Retailers differentiate by store size, assortment and service quality.

Category Players Assortments Size (sq. foot) Price Service Hard Discounter Best Buy Very large ~ 150,000 EDLP 7 High Mass Merchants Wal-Mart Limited 35,000 EDLP Low Specialty Retailer CC, RS Large 2,000 to 4,000 Medium High Direct Sellers Dell Limited - Medium Low Mom & Pa - Very limited ~ 1,000 High Medium

The specialty retailer category includes the following companies;

Business Summary Markets branded consumer electronics, personal computers and entertainment Circuit City software through retail stores. Operates both superstores and mall-based express stores Retail distribution of electronics games as well as PC entertainment software Electronic titles, video game hardware systems, related products and toys, trading cards Boutique and accessories Retailer of mid to high-end audio and video consumer electronics products. Tweeter Also provides television and projectors Ultimate Consumer electronics retailer providing home entertainment products such as Electronics audio, video, television and mobile electronic products Retailer of consumer electronics and home appliances, offering a broad Rex Stores selection of brand name products and product categories. Products include big screen and standard-sized television, video and audio equipment

7 Every Day Low Price

16 V. SPECIALTY RETAILER SITUATION

A. Strengths and Weaknesses

A recent survey 8 showed that while the general public acknowledges that specialty retailers have knowledgeable salespeople and offer top-quality products, they also perceive these stores to have highly priced products. This was believed to be true among 51% of people answering the survey. Other impressions of specialty retailers were; inconvenient store location (30%) and unawareness of store location (25%).

But those who do shop in specialty retailers give the stores uniformly high marks for their sales staffs, past experience, variety of products and the quality of in-store demos. According to the survey, those consumers surveyed gave specialty, high-end CE stores either a “good” (50%) or “excellent” (27%) rating on their most recent visit.

The study urges specialty retailers to become more service oriented, emphasize design and lifestyle concerns of consumers, and become “solution oriented” and “brand preferred.”

B. Recent Turnaround and M&A

Specialty retailers weakening operations are threatened by activist investors, who put pressure on the management to turnaround operations.

1. Circuit City and Highlands Capital

Circuit City rejected an unsolicited $3.3bn buyout bid made in February 2005 by Boston hedge fund Highlands Capital. The board announced that a buyout would not be in the best interests of the shareholders and expressed confidence in management's efforts to revitalize the CE chain.

8 Survey conducted by the Consumer Electronics Association (CEA)

17 In March 2005, four weeks following Highland's bid, a series of dramatic changes occurred: shutting 19 underperforming stores, promoting a new president, accepting the resignation of COO, hiring former Best Buy supply chain/inventory management and strengthening its online sales ties with Amazon.com. In May 2005, Circuit City unveiled a new business plan designed to return the company to a growth track and regain market share through a renewed focus on core home entertainment products, particularly flat-panel TV. A multi-channel market approach that more fully integrates its retail stores, e-commerce site and a new direct-mail catalog.

2. CompUSA

In August 2005, CompUSA closed 17 Good Guys stores in seven markets and converted eight additional locations into mega-stores. In September, CompUSA announced it would pull the plug on Good Guys. CompUSA immediately closed six freestanding Good Guys stores and five hybrid CompUSA/Good Guys mega-stores, and will shut the remaining 35 Good Guys stores and three dedicated distribution centers within the next 60 days following liquidation sales.

18 VI. INDUSTRY TRENDS

A. Innovation

It is expected that in the future, demand for CE products would be driven by technological innovation, especially for digital products and services offering convenient, affordable means of accessing information and communicating with other people. The use of the internet to deliver music and video should bring both opportunities and challenges to CE companies.

From analog to digital: On the contrary, some older entertainment technologies or appliances (e.g. analog color and VCRs) should likely fade in popularity as newer, more attractive alternatives emerge9.

Moving Online: The internet now drives 25% of all retail sales 10. Favored products for Internet shopping include computers, books, CDs, electronics, and toys.

Even if shoppers don't buy via the internet, more than 66% research products online. This has produced a much more knowledgeable customer base, which represents an enormous change in customer behavior and a challenge for the sales staff. In the case of CE products, 55% of respondents reported researching on the Web before heading off to the store. 27% of respondents

9 Screen Digest 10 From Surviving Retailing's New Age By Love Goel, 20 March 2006

19 researched for less than an hour, while 24% spent between one and three hours online and 4% spent more than three hours conducting research 11.

It is also known that retailers lose 20%-25% of potential sales because they run out of a product or don't have the style, color, or brand on-hand. With the advent of Internet, traditional retailers are being forced to become more innovative online by raising customer experience bar.

Online retail sales are expected to grow from $172bn in 2005 to $329bn in 2010 according to Forrester Research. The increase represents a 14% annual growth rate over the next five years, and CE is one of several categories that are seen outpacing that growth rate.

This online leadership should be long-lived as shoppers give online retailers higher satisfaction ratings than their storefront competitors 12. Amazon.com and J&R.com were singled out for offering the best prices and widest product selection, and Crutchfield for its high overall satisfaction rating and the best product information online.

Beyond the growing number of online purchases, online customers are highly valuable. Indeed online shoppers13 reported better customer loyalty than those who make CE purchases in person, with 52% claiming store brand loyalty. By comparison, only 37% of brick-and-mortar shoppers were deemed loyal in their CE purchasing behavior. Consumers who buy some of their CE products online spend 67% more each year than those who do not make any CE purchases online.

B. Focus on Technical Services

As innovation increases, customers ask for more and better service to help them understand and use their high-tech products. Thus the market has recently cashed in on consumers’ desire to protect their PCs from nasty viruses and to create wireless home networks. Similarly, when consumer demand for flat-screen TVs exploded, the need for techies to help with installations

11 Survey by CMO Council and The Consumer Edge Research Group on buyers at Best-Buy, CompUSA, and Circuit City retail stores

12 Survey conducted in spring 2005 poll of 18,700 Consumer Reports readers. The survey queried consumers who had purchased TVs, digital cameras, DVD/DVR players, camcorders, PDAs or audio equipment

13 Survey conduced by Consumer Electronics Association

20 soared. That put pressure on CE players to recruit in order to serve customers at their home, in the store, over the phone or online.

Services are specific to each customer segments. Although small businesses are the primary target of the industry because they require total solutions rather than technology, consumers also need help getting the best use out of their products. As one executive puts it: “Even an MP3 player has an installation piece”. In October 2002, Best Buy bought Geek Squad, a startup specialized in repairing and installing PCs. Though it had just $3m in revenues and 50 employees, Best Buy wanted to cope with the growing complexity of digital devices. There are now 717 Geek Squad "precincts" inside U.S. Best Buy stores and 13 stand-alone Geek Squad stores. Geek Squad's prices are preset and determined by the type of service provided. It also has appointment times, not the four- or eight-hour windows for house calls that are common for some services.

Having added almost 10,000 technicians to its ranks in 2005, the Geek Squad totals over 12,000. In fiscal 2007, analysts predict that Geek Squad should earn $280m in operating profits on just over $1bn in sales, i.e. over 65% of Best Buy service revenues. The computer-support service should lift Best Buy's gross margins by half a percentage point during the next three to five years, and it will be key in reaching the goal of a 7% operating margin by 2007.

C. Customer Centricity

"Customer-centric" is hardly a new concept to US retailers, just vastly under-utilized. Americans have dramatically changed the way they shop, consume media, communicate and access information but most merchandisers have barely altered the way they acquire, communicate, inform, sell to and serve customers.

1. New Concept Stores

Although websites have become the preferred channel for many technology shoppers, traditional retailers are still making money on consumers who want to see the product physically before buying it.

In several concept stores located in the Midwest, Best Buy is gathering data about consumer behavior in retail outlets that are quite different from the "big box" stores normally associated with America's largest consumer electronics retailers. The new stores include expanded interactive gaming areas called Test Drive, personal shopping assistants for one-on-one service and guidance. With names like Eq-life, Studio D and Escape, those stores are helping specialty retailers understand how to improve the shopping experience of a new class of technology buyers. The idea behind stores like Studio D and Eq-life is to find out how to keep people coming back to retail by offering an experience that can't be duplicated online. The goal is to convert and build around 350 stores by February 2005.

Likewise Circuit City is currently testing “strategically differentiated” pilot stores in Boston and southeast Florida that are more customers focused, and it has hired a consultancy firm to help “rethink” the in-store experience.

2. Decentralization

In June 2005, Best Buy launched the tailored assortments initiative under which assortments are edited on the store level to suit the demographics of individual markets. The plan gives individual stores control between 10 to 30% of the products they sell. The tailored assortments will allow individual stores to better meet the needs of their customers, while empowering employees by driving key decision-making locally.

22 3. Sales Force Compensation

Best Buy’s innovation came in 1989, when Best Buy stopped paying commissions to its sales staff and instead put them on salary. Among manufacturers like Toshiba and Hitachi that depended on salespeople to push premium-priced items, the move was considered highly negative. But customers liked the no-pressure atmosphere in Best Buy stores, and overall revenues grew at a 25%-a-year clip, enabling Best Buy to far outpace its rivals.

D. Private label and direct sourcing

CE industry has been a global industry for many decades 14 with lots of opportunities to build new brands. Today retailers put a great emphasis on having the right mix of name brand and private label products giving choice to the consumer. As customers get savvier, they no longer buy by brand only but by quality. There will always be a place for name brands but consumers realize that sometimes they're all made in the same place, so there's a lot of acceptance across the board.

14 RadioShack started sourcing in Japan in 1954.

23 PART II. COMPANY ANALYSIS

I. BUSINESS OVERVIEW

RadioShack was established in Delaware in 1967. It engages in consumer electronic sales through its retail stores and also through non-branded kiosk operations. Principal activity is through the ‘RadioShack’ branded store chain but also provides private label and third party branded products and services to smaller communities through its dealer or franchise outlets. Employs 47,000 people around the world including the 9,800 temporary employees hired for the holiday season. The employees are not members of labor unions.

A. Business Segment

(USD in millions) 2005 % 03-05 Industry Products Sales Total CAGR CAGR Wireless $1,745 34% 14.3% 12.5% Handsets, 2-way radio, scanners For home entertainment, wireless, Accessory $1,040 21% 0.8% 7.5% imaging Personal electronics $747 15% 10.1% 6.0% Digital camera, MP3, satellite radios Residential telephone, audio, Modern home $673 13% -8.8% 0.0% computer Power $302 6% -1.6% 0.0% Batteries, chargers Prepaid wireless, bill payment Service $259 5% 6.6% n/a revenue Technical $205 4% -2.6% n/a Connectivity product, wire, cable Others $111 2% 0.8% n/a Repair and other revenue TOTAL $5,082 4.5%

Sales increased 5.0% to $5,082m from previous year driven by wireless platform sales and personal electronics platform sales. The two divisions have been the growth drivers over recent

24 years with 2003-2005 CAGR of 14% and 10% respectively. Comparable store sales were up by 1% and the net addition of 178 kiosks mainly contributed to the wireless platform sales.

B. Distribution Channel

(USD in millions) # of stores Location Sales Ave. size Company-operated stores 4,972 Shopping malls, storefronts $ 4,481 2,489 sqft Kiosks 777 Sam’s Club, Sprint Nextel $ 263 90 sqft Dealer outlets 1,686 Individual storefront $ 338 n/a RadioShack.com n/a www.radioshack.com n/a 138 stores, Primarily in Canada and International n/a 54 dealer Mexico

As of December 31, 2005 the company operated 4,972 company-operated stores under the RadioShack brand name located throughout the US, Puerto Rico, and the Virgin Islands. Each carry a broad range of private labels and third-party branded consumer electronics products. The kiosks are non-branded stores in Sam’s Club and stand-alone kiosks for Sprint Nextel located in major shopping malls. Kiosks are located throughout the US and focus on wireless products and accessories. The dealer network focuses primarily on smaller communities compared to the company-operated stores and also provides other retail operations besides RadioShack products. Certain products are also available on line and customers can return or exchange purchased items at nearby RadioShack stores.

The international operation consists of 9 company-operated stores and 16 dealer outlets in Canada and also 129 RadioShack-branded stores and 38 dealers in Mexico managed through a joint venture with Grupo Gigante SA.

C. Service and Support Network

Owns 7 service centers in the US and 1 in Puerto Rico which services the consumer electronic and personal computer retail industry. RadioShack is a vendor-authorized service providers

25 for companies indicated on the right, performing repairs and extending services.

D. Regional focus

NYC 10% RadioShack identifies 40 dominant marketing areas LA 8% Chicago which are primarily located in the metropolitan cities. 5% Phila The top 10 cities amount to approximately 46% of the 4% Others Dallas 54% 4% company’s regional focus. DC 3% Houston 3% Boston Atlanta SF 3% 3% E. Non-core units 3%

RadioShack has defined its non-core units as Mexico, Canada, kiosk, and internet sales. The company operates approximately 200 stores in Mexico and Canada, having recently entered Ontario and Alberta. Management remains committed to its strategy to open 200 additional wireless kiosks in 2006 and also to strengthen its internet sales which currently represent about 1% of total sales.

F. Infrastructure

26 II. FINANCIAL PERFORMANCE ANALYSIS

A. Seasonality

The consumer electronics retail sector is a seasonal business. The cash flow is proportionally greater in the year-end season due to the holiday season. It has become a common practice to build-up inventory before the anticipated increased sales volume, requiring significant working capital. The business is especially vulnerable to severe weather events and natural disasters if they were to occur in the fourth quarter.

The annual cash requirements for pre-seasonal inventory buildup range between $200m and $400m. This is typically funded by cash on hand and cash generated from net sales and operating revenues. $224 million cash on hand as of December 31, 2005 will become the resource of the funding needs in 2006. The below chart indicates the COGS peaking out in the 4th quarter but then decreasing after the season.

COGS Trend

(mm) $1,000

$800

$600

$400 Annual cash requierment $200

$0 03/31/04 06/30/04 09/30/04 12/31/04 03/31/05 06/30/05 09/30/05 12/31/05

1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05

27 B. Top-line performance

Sales are flat with a 7 year CAGR of 0.9% while we see a gradually increase from 2002. Gross profit margins have been averaging 49% over recent years until a drop last year to 47% which was mainly caused by write-offs of inventory.

Sales and Gross Margin

$6,000 Sales CAGR: 0.9% (7 yrs) 60.0%

$5,000 50.0%

$4,000 40.0%

$3,000 30.0% Sales GPM

$2,000 20.0%

$1,000 10.0%

$0 0.0% 1998 1999 2000 2001 2002 2003 2004 2005

Sales Gross margin

Recent sales have been driven by the personal electronics business which have low-margin, non- wireless products, including MP3 players, satellite radio, and digital imaging.

We have looked at year over year sales by division for the recent quarter in order to grasp the recent performance of the business. The wireless category increased 6.7% driven by kiosk sales while sales from core RadioShack stores declined as average selling prices dropped. Accessories rose 2.5% due to strong sales of MP3 accessories which was offset by weakening sales in wired, wireless, and home entertainment accessories. Modern home business declined 3.3% resulting from weaker sales of home audio and satellite TV products. Power business decreased 3.1% seeing a decline in specialty and general purpose batteries. Service sales increased 22.8% resulting from higher prepaid wireless sales while technical sales remained flat with no major changes in any product categories.

28 C. Profitability

Operating profit margins have declined sharply in 2005 from 11.5% to 6.9%. In addition to the dip in gross profit margins in 2005, SG&A has increased consistently over the past 7 years and reached 37.4% of sales in 2005. This most recent increase is mainly driven by the rapid expansion of kiosks, increased staffing and a new compensation structure. Payroll, rent, and advertising are the main SG&A expense amounting to 72% of total.

SG&A Expense and OPM

Breakdown of SG&A 40% Credit card Others 35% Professional fees 2% 9% 2005 SG&A as % of sales: fees 30% 2% 37.4% Insurance 25% 4% Payroll Utilities 42% 20% 4% 2005 OPM: Other taxes 15% 6.9% 7%

10% Advertising 14% Rent 5% 16%

0% 1998 1999 2000 2001 2002 2003 2004 2005

SG&A(% of Sales) OPM

The further expected decline in gross profit margins has made the company take measures such as skipping bonuses for top executives. The chairman, former chief executive and several top executives have not received bonuses after missing the company’s financial goals.

29 III. PEER COMPARISON In order to understand the key performance measures of RadioShack, we have benchmarked the company with its peers introduced in the specialty retailer category (Circuit City, Electronic Boutique, Tweeter, Ultimate Electronics, and Rex Stores) and Best Buy. Upon comparing RadioShack with its peers, we have been able to identify 2 strengths in terms of key operating measures. RadioShack has an extremely high gross profit margin within the industry and this contributes to the operating income margin despite the high SG&A cost. However this advantage is at risk in the near term as we see a decline in high margin categories. Another strength is the A/P DOH around 62.2 days. We expect A/P level to remain in-line with historical figures given RadioShack’s broad range of private label brands. At the same time, RadioShack seem to have numerous weaknesses beginning with the low level of growth in recent years. The most recent 3 year CAGR is 3.5% while 3 of its competitors recorded double digit growth rates. SG&A expense is also high at 37.4% while the average of the six competitors is 28.3%. But the most troubling issues are in relation with its receivables and inventory. Both A/R DOH at 22.2 days and inventory DOH at 130.1 days reflect its poor working capital management.

Benchmarking

(USD in mm) Weakness Strength Electronic Ultimate Best Buy Circuit City Boutique Tweeter Electronic Rex Stores Radioshack Sales $27,433 $10,472 $1,989 $795 $713 $391 $5,082 CAGR (3 year) 15.7% 3.0% 23.1% 0.0% 13.7% -5.6% 3.5%

Gross profit margin 23.7% 24.5% 27.1% 39.4% 32.2% 27.9% 46.7%

SG&A (% Sales) 18.3% 23.3% 21.2% 45.4% 35.3% 26.4% 37.4%

Operating income $1,464 $129 $79 -$47 -$22 $6 $350 Operating profit margin 5.3% 1.2% 4.0% -5.9% -3.1% 1.5% 6.9%

Net income $984 $62 $52 -$74 -$16 $28 $267 Net income margin 4.7% 0.8% 3.6% -15.4% -3.3% 9.8% 9.9%

A/R DOH 5.0 6.0 3.2 12.9 22.7 6.7 22.2

Inventory DOH 49.7 67.4 73.4 84.5 86.0 160.7 130.1

A/P DOH 49.2 44.4 57.6 26.5 26.7 42.5 66.2

ROE 0.22 0.03 0.15 -0.90 -0.08 0.13 0.45 ROA 0.10 0.02 0.07 -0.26 -0.05 0.09 0.12 Current Ratio 1.39 2.13 1.52 1.33 2.46 2.46 1.65

30 IV. CAPITAL STRUCTURE

A. Description of the Capital Structure15

The following table reflects the capital structure of RadioShack as of FYE 2005.

DEBT

Name Rate Face Terms Maturity Excess Cash (above 1% of Sales) 173.2

Domestic Revolving Credit Facility 0.0 $730 available Foreign Lines of Credit 4.82% 1.1 $9.4 available Letters of credit and banker's acceptance lines of credit 10.2 $173.4 available Short-Term Debt 8.3

Notes Payable 7.38% 350.0 Unsecured 5/15/2011 Notes Payable 6.95% 150.0 Unsecured 9/1/2007 Medium-Term Note 6.42% 5.0 Unsecured Jan. 2008 Financing Obligations 32.3 Notes Payables 6.1 Capital Lease Obligations 0.3 Unamortized debt issuance costs (3.5) Fair value of interest rate swaps (7.6) Total on-Balance Sheet Debt $552.2

Capitalized Operating Leases $758.6

Total Indebtedness $1,310.8

Net Debt $1,137.6

EQUITY Sharesoutstanding 135.2 Stock Price 18.0 Equity Value 2,434.2

ENTREPRISE VALUE - BASED ON MARKET VALUES Equity 2,434.2 Net Debt 1,310.8 Enterprise Value $3,745.0

Long-Term Notes: The firm has a $300m debt shelf registration statement which became effective in August 1997. In August 1997, it issued $150m of 10-year unsecured long-term notes under this shelf registration. The interest rate on the notes is 6.95% per annum with interest payable on September 1 and March 1 of each year. These notes are due September 1, 2007.

On May 11, 2001, RadioShack issued $350m of 10-year 7.375% notes in a private offering to initial purchasers who in turn offered the notes to qualified institutional buyers under SEC Rule

15 The following description is taken from the company’s 10-K for FY 2005.

31 144A. The annual interest rate on the notes is 7.375% per annum with interest payable on November 15 and May 15 of each year. The notes mature on May 15, 2011. In August 2001, under the terms of an exchange offering filed with the SEC, it exchanged substantially all of these notes for a similar amount of publicly registered notes. The net effect of this exchange was that no additional debt was issued, and substantially all of the notes became registered with the SEC.

During the third quarter of 2001, RadioShack entered into an interest rate swap agreement with an underlying notional amount of $111m and a maturity in September 2007. In June and August 2003, it entered into interest rate swap agreements with underlying notional amounts of debt of $100m and $50m, respectively, and both with maturities in May 2011.

These swaps effectively convert a portion of the long-term fixed rate debt to a variable rate. It entered into these agreements to balance the fixed versus floating rate debt portfolio to continue to take advantage of short-term interest rates. Under these agreements, the firm has contracted to pay a variable rate of LIBOR plus a markup and to receive a fixed rate of 6.95% for the swap entered into in 2001 and 7.375% for the swaps entered into in 2003. The firm has designated these agreements as fair value hedging instruments. It recorded an amount in other assets, net, of $7.6m and $5.4m (their fair value) at December 31, 2005 and 2004, respectively, for the swap agreements and adjusted the fair value of the related debt by the same amount. Fair value was computed based on the market’s current anticipation of quarterly LIBOR rate levels from the present until the swaps’ maturity.

Medium-Term Notes: RadioShack also issued, in various amounts and on various dates from December 1997 through September 1999, medium-term notes totaling $150m under the shelf registration described above. At December 31, 2005, $5m of these notes remained outstanding. The interest rate at December 31, 2005, for the outstanding $5m in medium-term notes was 6.42%. These notes have a maturity in January 2008. As of December 31, 2005, there was no availability under this shelf registration.

Short-Term Borrowing Facilities include:

• Domestic seasonal bank credit lines and bank money market lines: $730m available, no loan outstanding at FYE 2005. On August 8, 2005, RadioShack added a $175m short-term credit facility maturing on December 30, 2005, and a $175m 364-day revolving credit facility

32 maturing in August 2006. In the second quarter of 2004, it replaced its existing $300m 364- day revolving credit facility with a new five-year credit facility maturing in June 2009. The terms of these credit facilities are substantially similar to the previously existing credit facilities. These credit facilities are in addition to our existing $300m five-year credit facility, which expires in June 2007. On December 20, 2005, the firm reduced its credit facilities to $730m, after receiving the proceeds from the sale-leaseback of its corporate campus. Both $300m facilities remain in place and the $175m facility expiring in August 2006 was reduced to $130m. These credit facilities support the commercial paper program and gave RadioShack $730m in commercial paper availability at December 31, 2005. As of December 31, 2005, there were no outstanding borrowings under these credit facilities. The outstanding debt and bank syndicated credit facilities have customary covenants, and the firm was in compliance with these covenants as of December 31, 2005.

• Short-term foreign credit lines: $9.4m available, $1.1m outstanding at FYE 2005.

• Letters of credit and banker's acceptance lines of credit: $173m available at FYE 2005, $10m of Letters of Credit outstanding at FYE 2005.

• Commercial Paper Credit facilities: The firm has access to short-term debt instruments, such as commercial paper issuances, available to supplement its short-term financing needs. The commercial paper program, when utilized, has a typical maturity of 90 days or less. The amount of commercial paper that can be outstanding is limited to a maximum of the unused portion of the $730m revolving credit facilities described in more detail above. As of March 3, 2006, RadioShack had no commercial paper outstanding.

B. Assessment of the Capital Structure and Sourcing Availability

The following table summarizes the key credit ratios:

33 RATIOS 2005 Interest Expense $44.5

2005 EBIT $349.9 Debt To EBIT 3.7x Coverage Ratio 7.9x

2005 EBITDA $524.0 Debt To EBITDA 2.5x Coverage Ratio 11.8x

Debt / Capital (market values) 35.0%

RadioShack is not highly leveraged and its capital structure and indebtedness are healthy. As of FYE 2005, the firm had a total on-balance sheet debt of $552m and total off-balance sheet debt (capitalized operating leases) of $759m, for a total indebtedness of $1,311m. This represents a low 3.7x 2005 EBIT or 2.5x 2005 EBITDA. The coverage ratio is also very healthy at 7.9x (based on EBIT) or 11.8x (based on EBITDA), the highest of its peers (see below).

Based on a current stock price of close to $18, the equity is worth $2.4bn. Hence total net debt to capital (based on market prices) equals 35%.

In addition to its cash on hand, the firm has important sourcing available. Borrowings are available under its commercial paper program, which is backed by the $730m bank credit facilities, currently unused. The amount available of $730m represents 15% of total operating expenses for 2005 Furthermore, RadioShack can utilize these facilities in the event the commercial paper market becomes unavailable to it. The availability of the commercial paper market is heavily dependent on our commercial paper debt ratings.

As of FY 2005, management believed that its present ability to borrow was greater than the established credit lines and long-term debt in place. However, if market conditions change and sales were to dramatically decline, or it could not control operating costs, its cash flows and liquidity could be reduced. Additionally, if a scenario as described above occurred, it could cause the rating agencies to lower its credit ratings, thereby increasing the firm’s borrowing costs, or even causing a reduction in or elimination of our access to debt and/or equity markets.

34 C. Historical Analysis

Over the past 5 years, total debt has steadily declined and the coverage ratio has remained fairly stable, as the charts below can show:

RadioShack Total Debt and Net Debt

$800

$700

$600

$500

$400 Total Debt Net Debt $300

$200

$100

$0 2001 2002 2003 2004 2005 -$100

Debt to EBIT and Coverage Ratio

14x

12x

10x

8x Total Debt / EBIT Coverage Ratio (EBIT) 6x

0x 2001 2002 2003 2004 2005

35 D. Credit Ratings

RadioShack is currently rated BBB- by S&P and a brief description of the evolution of the rating is useful to understand what could cause a further downgrade to below investment grade territories, hence causing borrowing costs to surge and disturbing the performance.

On august 8, 2005, Standard & Poor's Ratings Services downgraded RadioShack’s rating from A- to BBB+. The rating action follows the announcement that RadioShack's board had authorized an overnight repurchase of 20 million shares valued at about $500m. The firm intended to fund this through a combination of existing cash balances, a sale-leaseback of its headquarters building, and internally generated cash. The downgrade thus reflected the expected decline in credit- protection measures due to the partly debt-financed shareholder-return initiative, as well as a somewhat more aggressive financial policy. The transactions resulted in deterioration in credit protection measures to levels more consistent with the BBB+ rating. Senior unsecured debt was also rated BBB+ and short-term borrowing A-2.

In its latest credit report dated March 7, 2006, S&P stated that the rating (BBB+) reflected the satisfactory cash flow and profitability of the RadioShack store network and still moderate leverage for the rating. This was mitigated by the company’s exposure to short consumer electronic product cycles, management’s use of share buybacks to boost shareholders returns, and disappointing earnings in 2005. The latter had resulted in the company reassessing its store base. S&P also mentioned as one reason for the current rating is the fact that the firm’s CEO has resigned and COO Claire Babrowski has been appointed acting CEO. The rating agency also said that in 2005, previously strong credit measures declined to levels still in line with the credit rating. Regarding short-term credit factors (rating of A-2), S&P said that the company was expected to have adequate internal liquidity and access to external sources of liquidity, adding that the business was mature and generates good free cash flows.

Very recently, on April 21, 2006, the corporate rating was revised to BBB- from BBB+, following the announcement of the earnings for the first quarter of 2006. The ratings of the senior unsecured debt were also revised to BBB- on April, 21, 2006. The short-term rating was lowered to 'A-3' from 'A-2'. The outlook is stable. S&P explained that the downgrade reflected a significant weakening of operating results, and its expectation that RadioShack may fail to show the timely recovery in performance and in credit ratios. S&P also said that RadioShack is

36 encountering business disruptions due to the termination of its Verizon Wireless agreement, a slower-than-expected ramp-up of its Cingular wireless business, as well as slowing demand for higher-margin merchandise, and increased promotional activity. The company's 2006 first-quarter EBITDA fell 38% from a year earlier. The ratings on RadioShack reflect the still satisfactory, although deteriorating, profitability of the RadioShack store network. This is mitigated by the company's exposure to short consumer electronic product cycles, management's use of share buybacks to boost shareholder returns, and disappointing earnings over the past five quarters.

Under the definition provided by S&P, “an obligor rated 'BBB' has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments”.

The following table summarizes are the debt ratings from the three credit agencies:

S&P Moody's Fitch Senior Unsecured Debt BBB- Baa2 BBB Commercial Paper A-3 P-2 F2 Outloook Stable Negative Negative

The following is an extract from S&P Corporate Ratings Criteria Book 2006 showing the average ratios over three years of companies in one specific credit rating:

A BBB BB EBIT Coverage ration 8.0x 4.7x 2.5x EBITDA Coverage Ratio 10.2x 6.5x 3.5x Debt / EBITDA 1.6x 2.2x 3.5x Free Operating Cash Flow / Debt 25.0x 17.3x 8.3x

This table shows that RadioShack, based on the current coverage ratio, should be rated A, and based on the debt / EBITDA ratio, a BBB company. Its ratios are far from being those of a BB company.

37 V. STOCK PRICE

The following charts show the evolution of RadioShack’s stock price from 1982 and from 1999.

RadioShack Stock Price since 1982

0 1/4/1982 1/4/1983 1/4/1984 1/4/1985 1/4/1986 1/4/1987 1/4/1988 1/4/1989 1/4/1990 1/4/1991 1/4/1992 1/4/1993 1/4/1994 1/4/1995 1/4/1996 1/4/1997 1/4/1998 1/4/1999 1/4/2000 1/4/2001 1/4/2002 1/4/2003 1/4/2004 1/4/2005 1/4/2006

RadioShack Stock Price since 1999

0 1/4/1999 5/4/1999 9/4/1999 1/4/2000 5/4/2000 9/4/2000 1/4/2001 5/4/2001 9/4/2001 1/4/2002 5/4/2002 9/4/2002 1/4/2003 5/4/2003 9/4/2003 1/4/2004 5/4/2004 9/4/2004 1/4/2005 5/4/2005 9/4/2005 1/4/2006

38 RadioShack’s stock price peaked at $75 on December 9, 1999 and then dropped. The stock now trades at $1816. With 135 million shares outstanding, the firm lost approximately $7.7bn of market capitalization in less than 6 years.

The first big drop happened on December 17, 1999 when the stock dropped from $63 a share to $50 in one day, or 20%. This drop happened when the firm announced that sales for the first half of December were “slightly below” the company’s 8-10% goal. No further details were provided at the time of the announcement but news reports said that the company wasn't able to stock enough low-priced computers or digital portable phones to meet demand, sending shoppers elsewhere for the hot holiday items.

The stock price then soared in March 2000 but fell again on November 9, 2000 from $60 to $52, or a 13.7% drop in one day. Since then, the stock has kept dropping and has never regained its losses. The reasons for the stock price drop on November 9, 2000 was because competitor Best Buy warned that day that profits for the second half of fiscal year 2001 (ending March 3) would fall substantially below analysts' estimates. The company cited margin pressure resulting from promotional price cuts as the primary culprit.

The business press cited as the main reasons the stock price continued to fall were retail sales of electronics becoming more competitive, and subject to profit fluctuations, due to consumer habits. When spending drops, electronics are among the first to get hit. Of course, the recession that following in 2001 did not help the stock price.

The following chart shows that the stock price of competitors Best Buy and Circuit City took a similar decline in 2000/01, highlighting the industry specific than the company specific nature of the challenges facing RadioShack. The stock price development since 2003, however, shows that Best Buy and Circuit City have recovered considerably from their lows. RadioShack matched that recovery for some time but then started declining against the trend in early 2005.

16 Historical stock price is adjusted for stock splits and dividends.

39 RadioShack vs. Best-Buy and Circuit City

$80

$70

$60

$50 RadioShack $40 Best Buy Circuit City $30

$20

$10

$0 1/4/1999 7/4/1999 1/4/2000 7/4/2000 1/4/2001 7/4/2001 1/4/2002 7/4/2002 1/4/2003 7/4/2003 1/4/2004 7/4/2004 1/4/2005 7/4/2005 1/4/2006

40 VI. MANAGEMENT AND BOARD OF DIRECTORS

A. Board of Directors

As of March 15, 2006, there are twelve directors on RadioShack’s board (including Leonard Roberts, Executive Chairman of the Board). Most of the directors are executives at other companies. Their industry backgrounds include the fast-food industry, non-resource consumer lending, media, software and financial services. While this covers a wide range of aspects relevant to RadioShack’s business, none of the Directors seems to have high level experience in the retail or consumer electronics business. The composition of the Board of Directors has been fairly stable for the past few years. The last major change of members occurred around 2002, when three of the current Directors joined the Board to take the seats of three previous Directors.

B. Executive Management

The current executive officers have entered office over the course of 2005 or 2006. All of them but the executive Chairman entered the company from outside. As Exhibit I shows, they combine senior management experience from companies such as McDonald’s Corporation, Coors Brewing Company and Gateway, Inc. In their previous positions, they gathered experience in managing retail outlets and operations as well as financial and human resource management.

Claire Babrowski has assumed the role of acting CEO in February 2006 after David Edmondson “resigned by mutual agreement after he admitted he inflated his educational background”17 in his resume. Edmondson had succeeded Leonard Roberts, now Executive Chairman of the Board, in the role of CEO in a planned succession in March 2005. In the current management team, Edmondson and Roberts were the only executives who had served with the previous team, too. Together they had been responsible for taking RadioShack away from forays into superstores to the small store and store-within-a-store format, from large consumer electronic items, such as television sets, to wireless products and for focusing the company on high-margin products.

17 Associated Press Newswires, “RadioShack sets acting chief's salary at $725,000”, 31 March 2006

As sales of wireless and high-margin products have been weak, the new management team will have to readjust its retail channel and assortment strategy once again. Replacing the positions of Chief Organizational Enabling / Chief Information Officer and Chief Communications Officer with Executive VPs of Retail Operation and Merchandising / Marketing in the executive board stands for this shift in emphasis. Exhibit II shows the break between the current and the previous management team from 2005 to 2006.

RadioShack’s Board of Directors has initiated an outside search for a new CEO, with Claire Babrowski being one candidate. Claire Babrowski joined RadioShack on July 5, 2005 as its chief operating officer and executive vice president “to oversee the company's U.S. and Canadian operations, including merchandising, advertising, retail services and real estate. She had resigned from McDonald's in December after more than 30 years at the fast-food chain, soon after the appointment of James A. Skinner as that company's chief executive. Babrowski had been considered a possible chief executive candidate.”18 Her most recent position at McDonald's was head of restaurant operations. Indeed, “several analysts who track RadioShack have long been impressed with Babrowski” and consider her "a welcome change”19.

18 Associated Press Newswires, “RadioShack hires McDonald's exec as COO”, 29 June 2005

19 Associated Press Newswires, “Departing RadioShack CEO to get more than $1 million”, 21 February 2006

VII. RECENT DEVELOPMENTS

A. New product launch (April 18, 2006)

RadioShack has rolled out WiLife’s LukWerks digital Video Surveillance Camera System to approximately 2,500 stores nationwide. RadioShack is the first retailer to offer this new line of products targeting home and small business owners. The product meets the growing interest across the country allowing people to remotely monitor the security of their homes and businesses, families and even pets.

B. Stock hits 52-week low (April 17, 2006)

Analysts have revisited their recommendation saying Wall Street is underestimating the impact of the end in Verizon services. The lost Verizon residual revenue is calculated to be detrimental while Cingular commissions are not expected to contribute significantly to profits for alt least the next few quarters. Gross margin is expected to remain below its traditional high 40s range.

C. Executive Chairman to retire (April 14, 2006)

Executive chairman Len Roberts has announced that he will not stand for re-election to the board of directors and will be retiring as of May 18.

VIII. KEY ISSUES LEADING TO STATUS QUO

A. Shift of competitive landscape

RadioShack had maintained its edge by positioning itself as the most convenience consumer electronic retail store in the neighborhood, with coverage of virtually all of the US. However the competitive landscape has shifted from specialty retailers to mass retailers not specifically focusing on consumer electronics. The Wal-Mart and Targets of the world has succeeded in changing customer perspective and offering consumer electronics for daily usage while shopping for grocery.

B. Lack of mid to high-end customer base

RadioShack’s long-lasting strategy of focusing on high-margin products such as private labels have been successful with short-term profitability but has lost mid to high end customers to Best Buy and Circuit City which offers a wider range of products in the growth sectors such as flat panel TVs. The customer segment of technically savvy people or the early adapters who are willing to pay a premium have been driven to competitors while a low-income customer base remained loyal to RadioShack.

C. Difficulties in its main business of Wireless

The wireless business which comprises 40% of total sales remains challenged, both due to the market gradually maturing and RadioShack’s initiative to change carriers from Verizon to Cingular. The transition significantly affected the gross margin after a one-time inventory write- down and increased promotions. The collective full year impact to 2005 net income from identifiable transition related to RadioShack’s termination of its Verizon wireless agreement was $19 million (Inventory write-off and labor).

RadioShack underperforms its competitors by more than 10% especially due to the fact that customers are unaware of Cingular’s presence at RadioShack stores. Even after efforts of increasing awareness, there is a concern for RadioShack’s ability to efficiently replace the lost Verizon residual revenues. Management is believed to have also underestimated Verizon’s stronghold, particularly in the large cities of the Northeast region. We are skeptical about RadioShack’s excitement to Motorola L6 offered by Cingular. The precedent hit products such as the RAZR and SLVR may make it difficult for L6 to succeed. Now that most people have cell phones and there are so many places to buy them, it is becoming a matter of saturation. Also despite the fact that the switch to Cingular resulted from the expiration of a five year contract with Verizon, the transition has not be well executed from a customer service standpoint. One of our group members have called multiple stores to ask for advice about a Verizon contract expiring and in all of the cases, given the directions or address to the nearest Verizon store. A better implementation is crucially at the store level as consumers have lumped Sprint and Verizon for years.

D. Declining trend in high margin business

RadioShack’s high-margin business is the parts, batteries, and accessories (PB&A) business. This category is expected to face further pressure due to shifts in customer preferences and demand for the items. Management has tried to counter this trend by allocating more store space and increasing visibility of PB&A category items.

E. Dependency on kiosk

The quick win attraction of the kiosk business has driven management to focus on rapid expansion. With low initial capex, wireless kiosks were viewed as growth drivers rather than revamping the existing RadioShack stores. However kiosks require at least 2-3 people to operate while an average RadioShack store has 4-6 employees. The high SG&A cost with the expansion have impacted profitability and the business has lost money for 2005. Saturation of the wireless market is also of consideration since there is increasing dependency on the kiosk business.

F. Poor service quality at store level

Higher penetration was the agenda for management while overlooking the importance of maintaining high quality of customer service. The lack of after care in relation to the wireless transition from Verizon to Cingular is a recent issue, but there has been many publicized critiques regarding RadioShack’s poor service of stores not having products in stock and the employee’s depth of product knowledge. At least three out of the five group members can recall a bad buying experience at RadioShack.

G. Unattractive assortment

We believe the most important element in the retail industry to be the assortment. All other operational aspects must align with a carefully thought out product mix. RadioShack’s focused too much on selling high profit margin SKUs, such as private label products, and put them on too much shelf space. The company paid too little attention to the appeal of its assortment to customers. As a consequence, out-dated leather wireless accessories occupy wall space simply due to its high margins despite the low turns. Also in order to efficiently manage inventory control and to present a coherent image, the assortment is determined in a centralized manner. RadioShack’s assortments have not succeeded in driving customer traffic.

PART III. LIQUIDATION AND GOING CONCERN VALUE

I. LIQUIDATION

For liquidation purpose, assets were assessed as of December 31st, 2005, which is assumed to be a decent proxy of their book values as of April 24th, 2006.

Using a high and a low recovery rate estimate for each class of assets, total gross proceeds amounted between from $885m to $1,367m, or just above $1.1bn on average. This amount is reduced by the amount of the liquidation expenses (5% of total gross proceeds in our simulation). Any remaining cash is allocated to creditors and shareholders, respecting the absolute priority rule. In first position, we assumed that payroll and employee benefits were paid in full. Then as it is the rule in liquidation, trade creditors have second priority, i.e. have a claim on the tangible asset. Then comes unsecured lenders, other claimants and shareholders. Depending on the low/high recovery rates we assumed, unsecured creditors (note holders) would recover between 3% and 93% of their claim.

RADIOSHACK LIQUIDATION VALUE

DOH Estimated Recovery Rate Estimated Liquidation Value Assets ($000,000) Book (days) Low HighLowHigh Cash and cash equivalents $224 100% 100% $224 $224 Accounts and notes receivable, net 309.4 65 50% 80% 155 248 Inventories, net 964.9 130 40% 60% 386 579 Other current assets 129 3% 40% 452 Property, plant and equipment, net 476 30% 60% 143 286 Other assets, net $102 20% 50% 20 51

Liquidation Proceeds $932 $1,439

Liquidation expenses (5%) 47 72 Total Gross Proceeds $885 $1,367 Claims Priority Claim Low High

1 Employees, Salaries & Others $380 $380 $380 Recovery 100% 100% 2 Trade Creditors $491 $491 $491 Recovery 100% 100% 3 Usecured Creditors 536 $15 $496 Recovery 3% 93% 4 State, Federal IRS 75 $0 $0 Recovery 0% 0% 5 Other Liabilities 135 $0 $0 Recovery 0% 0% 6 Equity Holders 0 0 Recovery 0% 0% Total $1,616 $885 $1,367 Recovery 55% 85%

As for store leases, we did not include them in this analysis, since liquidation would free the company from the underlying obligations embedded in those real estate leases.

II. GOING CONCERN

A. Forecasts

The RadioShack “as is” scenario is based on 2005 operational performance metrics, from both a sale and cost perspectives, adjusted for one-time unfavorable events that occurred last year.

The following P&L ratios have been retained: (1) Sales growth: 4.4% vs. 5% in 2005 (adjusted for each segment based on historical growth) (2) Gross margin: 48% vs. 46.4% in 2005 (adjusted for an $62m inventory write-off) (3) SGA as % of Gross profit: 78% vs. 80.1% in 2005 (adjusted for the write-off) (4) Depreciation: See footnote20 (5) Tax rate: 38%, based on 2004 (reversal of tax contingency reserve in 2005)

The following Working Capital ratios have been retained: (1) Collection period: 20.2 days (average 2004-2005) (2) Net inventory days outstanding: 133.2 days vs. 130.1 in 2005 (adjusted for the inventory write-off) (3) Account payable days outstanding: 57.4 days vs. 66.2 in 2005 (adjusted for $65m addition to account payable due to wireless transition)

The following Cash Flow assumptions have been retained: (1) Capital expenditures: $137m vs. $170.7m in 2005 (adjusted with information given in item 7 in 2005 10-K and estimate of Kiosk-related Capex), and 3.4% of sales years after

20 7.3 years of remaining life for existing depreciable net PP&E (weighted average of ~half of useful life of each major fixed asset category given in note 4 of 2005 10-K) and 11 years for future capital expenditures (related only to equipment and leasehold improvement)

Projected Income Statement for RadioShack Dollars in Millions, except per share 2005 - 2011 Projected Year Ending Dec. 31, CAGR 2006 2007 2008 2009 2010 2011

Net sales and operating revenues 5,303.2 5,539.0 5,788.6 6,051.5 6,327.1 6,614.5 4.5% Cost of products sold 2,759.6 2,882.3 3,012.1 3,148.9 3,292.3 3,441.9 4.1% Gross profit 2,543.7 2,656.7 2,776.5 2,902.6 3,034.7 3,172.6 4.9%

Selling, general and administrative 1,984.6 2,072.8 2,166.2 2,264.6 2,367.8 2,475.3 Depreciation and amortization 129.9 128.2 129.2 130.9 129.0 132.5 Operating income 429.1 455.7 481.0 507.0 537.9 564.8 8.3%

Interest income (11.1) (13.4) (17.1) (24.4) (32.3) (33.7) Interest expense 36.8 31.4 26.0 25.9 25.9 12.9 Income before income taxes 403.5 437.6 472.1 505.6 544.4 585.6 10.5%

Provision for income taxes 153.3 166.3 179.4 192.1 206.9 222.5 Net income $250.2 $271.3 $292.7 $313.5 $337.5 $363.1 5.3%

Earnings Per Share $1.84 $2.00 $2.16 $2.31 $2.49 $2.68 6.8%

Projected Cash Flow Statement for RadioShack Dollars in Millions, except per share

Projected Year Ending Dec. 31, 2006 2007 2008 2009 2010 2011 Operating Activities Net income $250.2 $271.3 $292.7 $313.5 $337.5 $363.1 Depreciation and amortization 129.9 128.2 129.2 130.9 129.0 132.5 Change in Working Capital (75.2) (20.1) (21.6) (23.4) (23.7) (24.6) Change in Other Long-Term Assets & Liabilities 2.4 2.5 2.7 2.8 3.0 3.1 Cash Flow from Operating Activities: 307.2 382.1 403.0 423.8 445.9 474.1

Investing Activities Capital Expenditures (136.7) (186.1) (194.4) (203.3) (212.5) (222.2) Cash Flow from Investing Activities: (136.7) (186.1) (194.4) (203.3) (212.5) (222.2)

CASH FLOW AVAILABLE FOR FINANCING ACTIVITIES 170.5 196.0 208.5 220.5 233.3 251.9

Financing Activities Proceeds from / (Repayment of) Revolver 0.0 0.0 0.0 0.0 0.0 0.0 Change in Short-Term Debt, net (3.2) 0.0 0.0 0.0 0.0 0.0 Proceeds from Issuance of Long-Term Debt 0.0 0.0 0.0 0.0 0.0 0.0 (Repayment of) Long-Term Debt (37.7) (150.0) (5.0) 0.0 0.0 (351.0) (Payments of) Dividends (33.8) (33.8) (33.8) (33.8) (33.8) (33.8) Cash Flow from Financing Activities: (74.7) (183.8) (38.8) (33.8) (33.8) (384.8)

Net Change in Cash 95.9 12.2 169.8 186.8 199.6 (132.9) Beginning Cash Balance 224.0 319.9 332.1 501.9 688.6 888.2 Ending Cash Balance $319.9 $332.1 $501.9 $688.6 $888.2 $755.3

Given these forecasts, RadioShack should not be in need of using its $730m revolving credit facilities and should indeed been able: (1) to meet all its debt requirements, in years to come, inc. a $150m principal payment due in 2007

(2) to maintain a minimum cash balance of $200m at any point in time to support its operations

B. Valuation

As RadioShack reimburses its debt in the future, its capital structure will be highly affected: from a 47.6% debt to book capitalization, the company will reach an estimated 16.8% in five years from now (2010). In this context, the adjusted present value method seems a logical choice to value the company as of today.

Given RadioShack’s beta of 1.2, the 10-year Treasury bond yield at 5% and a 6% market premium, RadioShack’s expected return on equity is 12.2%.

Using RadioShack’s 2005 interest expense of $44.5m and a debt average of $549.2m, RadioShack’s return on debt is 8.1%.

Projected Free Cash Flow Statement for RadioShack Dollars in Millions, except per share

Projected Year Ending Dec. 31, 2006 2007 2008 2009 2010 2011 Unlevered Free Cash Flow Operating income $429.1 $455.7 $481.0 $507.0 $537.9 $564.8 Provision for income taxes on EBIT (163.1) (173.2) (182.8) (192.7) (204.4) (214.6) Depreciation and amortization 129.9 128.2 129.2 130.9 129.0 132.5 (Increase)/Decrease in Working Capital (75.2) (20.1) (21.6) (23.4) (23.7) (24.6) Change in Other Long-Term Assets and Liabilities 2.4 2.5 2.7 2.8 3.0 3.1 Capital Expenditures (136.7) (186.1) (194.4) (203.3) (212.5) (222.2) Additions to Definite Life Intangibles 0.0 0.0 0.0 0.0 0.0 0.0 Unlevered Free Cash Flow 186.4 207.2 214.0 221.4 229.3 239.0 Terminal Value 00002,747.0

Interest Tax Shield Interest Expense $36.8 $31.4 $26.0 $25.9 $25.9 $12.9 Interest Tax Shield 14.0 11.9 9.9 9.8 9.8 4.9 Terminal Value 000060.6

Valuation Present Value of Free Cash Flow $2,295.80 Present Value of Interest Tax Shield $85.87 Excess Cash $0.00 Enterprise Value $2,381.7

Debt Value 535.8 Equity Value $1,845.9

Shares Outstanding 135.0 Price per Share $13.7

A sensitivity analysis of the price per share, based on the terminal growth rate, gives us a range from $13.1 to $14.4 with a point estimate at $13.7 (below its current trading price of ~$18). The delta can be explained by the market expectations in RadioShack’s turnaround plan.

The valuation suggests that the going concern with an equity value of $1.8bn creates much more value for all constituencies than liquidation with an equity value of $0. The company should therefore continue its operations. Furthermore, RadioShack could increase its value by launching a program of change addressing the key issues it currently faces. In this context, the company’s management recently announced a turnaround plan.

PART IV. COMPANY’S TURNAROUND PLAN

I. DESCRIPTION OF THE ANNOUNCED PLAN

Management first announced a turnaround plan at its Annual Investor Meeting on February 17, 2006. Only four days later, David Edmondson resigned from his position as CEO and Claire Babrowski took over as acting CEO. She entered the executive team one year ago as COO and is responsible for the turnaround plan. Since the first announcement of the turnaround plan, management has shortened the time frame within which it wants to close 400 to 700 stores from 18-36 months to 18 months. The following table summarizes the components of the plan, the timing of their impact and their financial cost:

Component Description Timeline Impact Financial Cost Inventory Replace slow- 4th Quarter FY 2006: 35% $5-10MM asset write- moving inventory FY 2007: 65% offs by inventory with higher turns Locations Close 400-700 FY 2006: 400 FY 2006: 200 $55MM-90MM underperforming FY 2007: 300 FY 2007: 350 ($20MM asset write- stores FY 2008: 150 offs) Accelerate pace of n/a 15% - 40% sales n/a relocations increase Add 200 kiosks FY 2006: 200 FY 2006: 100 n/a FY 2007: 100 SG&A Identify potential TBD TBD TBD savings Close 2 distribution FY 2006 FY 2007 $4MM ($1MM asset centers write-offs) Source: 10K and Bear Sterns Presentation March 2006.

II. KEY MESSAGE

The objective of the turnaround plan is to (1) increase average core unit volume, (2) rationalize cost structure, and (3) grow profitable square footage.

To meet these objectives, RadioShack will close 400 to 700 stores which represent 6-10% of existing stores and 2 regional distribution centers (South Carolina and Mississippi) over the next 18 months. If employees at those stores are not transferred within the company, they are scheduled to receive severance pay. At the same time, it will relocate part of its existing stores and expand the wireless kiosks. The closure of the distribution centers would have no impact on the profitability since the shipments would be consolidated to other distribution centers and the safety stock inventories would be reduced. However the closures of stores are estimated to cost $55-90 million and an additional $5-10 million for inventory transition costs. The company aims to eliminate slow moving SKUs, freeing about 20% of the store to add new fast moving SKUs and expand its other product categories.

Company Projection of Retail Outlets

(stores) 6,000 5,000 4,000 3,000 2,000 1,000 0 2003 2004 2005 2006 2007 2008

Radioshack Kiosks Dealer outlets

II. FINANCIAL PROJECTIONS

We implemented these changes in our financial projections. Using information from the investor’s presentation21 and incorporating the significant change in the mix of retail outlet, we project the top line by breaking it up into its three channels (RadioShack, kiosks, Dealers) and differentiate RadioShack stores by top, medium and weak performers. The underlying sales

21 Bear Sterns Presentation March 2006 provides key financials for the average RadioShack store grouped by weakest 500, top 2500 and whole base.

drivers therefore are the number of stores and growth in average sales per store. Below information shows that we reduce the number of weakest stores from 500 to 200 in 2006 and to 0 in 2007. In addition we reduce the number of medium performers by 100 in both 2006 and 2007. We keep the number of stores constant thereafter. As indicated the number of kiosks increases by 200 annually from 2006 until 2010; while management indicates the increase for 2006 only, we interpret their communication in such a way that they will continue kiosk expansion thereafter. For growth in average store sales, we assume that RadioShack stores grow by 0.5% less than in 2005 due to lost sales in the transition from Verizon to Cingular. The boost in growth figures for the medium performers in 2007 and 2008 results from the assumption that up to 700 stores will experience a 25% sales increase as a result of closing a nearby location. We assume that these stores are impacted with a one year lag relative to the closures.

Dollars in Millions, except per share Projected Year Ending Dec. 31, 2005 2006 2007 2008 2009 2010 2011

Sales Radioshack 4,480.8 4,430.8 4,379.9 4,422.5 4,519.1 4,618.0 4,719.0 Top Performers 2,825.0 2,881.5 2,953.5 3,027.4 3,103.1 3,180.6 3,260.2 Medium Performers 1,420.8 1,391.7 1,383.2 1,395.2 1,416.1 1,437.3 1,458.9 Weak Performers 235.0 157.6 43.1 0.0 0.0 0.0 0.0 Kiosks 262.7 326.2 440.6 561.6 682.0 813.1 904.7 Other 338.2 355.1 372.9 391.5 411.1 431.6 453.2 Total Sales 5,081.7 5,112.1 5,193.4 5,375.6 5,612.3 5,862.7 6,076.9 Growth in % 5.0% 0.6% 1.6% 3.5% 4.4% 4.5% 3.7%

Number of outlets Radioshack 4,972 4,572 4,272 4,272 4,272 4,272 4,272 Top Performers 2,500 2,500 2,500 2,500 2,500 2,500 2,500 Medium Performers 1,972 1,872 1,772 1,772 1,772 1,772 1,772 Weak Performers 500 20000000 Kiosks 777 977 1,177 1,377 1,577 1,777 1,777 Dealer outlets 1,711 1,711 1,711 1,711 1,711 1,711 1,711 Total Outlets 7,460 7,260 7,160 7,360 7,560 7,760 7,760

Average sales per location Radioshack 0.90 0.97 1.03 1.04 1.06 1.08 1.10 Top Performers 1.13 1.15 1.18 1.21 1.24 1.27 1.30 Medium Performers 0.72 0.72 0.76 0.79 0.80 0.81 0.82 Weak Performers 0.47 0.45 0.43 0.41 0.40 0.38 0.36 Kiosks 0.34 0.37 0.41 0.44 0.46 0.48 0.51

Growth of average sales per location Radioshack 1.7% 7.5% 5.8% 1.0% 2.2% 2.2% 2.2% Top Performers 2.5% 2.0% 2.5% 2.5% 2.5% 2.5% 2.5% Medium Performers 1.0% 0.5% 4.8% 3.7% 1.5% 1.5% 1.5% Weak Performers -3.7% -4.2% -4.2% -4.2% -4.2% -4.2% -4.2% Kiosks 259.1% 10.0% 10.0% 7.5% 5.0% 5.0% 5.0% Growth in Other sales 13.1% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

These measures imply that top-line growth rate will decline from 5.0% in 2005 to 0.6% in 2006, 1.6% in 2007 and recover to around 4% thereafter.

To assess the impact of these programs of change on gross margin and inventory turns we applied them to the 2005 figures and calculated pro-forma gross profit margins and inventory turns (Exhibit 3). We assume that 35% (approximates share of sales of fourth quarter) of the impact of the inventory program are realized in 2006, the remainder in 2007. The impact of store closures and kiosk openings are spread equally over two years, as indicated in the above table (impact of accelerated store relocations not included in this analysis due to insufficient data). We conclude that the adjusted gross margin would be 47.9% and 48.5% if the 2006 and 2007 impacts had been fully realized in 2005; this compares to 48% in 2005 (adjusted for the inventory write-off). These pro-forma gross margins serve as our assumptions for 2006, 2007 and thereafter. Inventory turns improve slightly to 2.95 compared to 2.7.

Out of SG&A, payroll and commissions as well as rent expenses are most significant. We project payroll and commissions based on the average number of employees per store and per kiosk and assume average pay to increase 4% annually. Rent projections are based on the estimated square footage leased and an annual increase by 2%. This approach does not differentiate salaries or rent by headquarters, manufacturing distribution centers or retail outlets. The remaining SG&A expenses seemed fairly stable in the past and we kept them at 15.3%.

Dollars in Millions, except per share Projected Year Ending Dec. 31, 2005 2006 2007 2008 2009 2010 2011

SG&A Increase Minimum rent 295.5 307.1 275.8 273.3 279.2 285.2 291.1 Minimum rent per MM Sq. Ft. 20.1 21.6 22.1 22.5 23.0 23.4 23.9 2% Real Estate Leased in MM Sq. Ft. 14.7 14.2 12.5 12.1 12.2 12.2 12.2 Average Store Size in Sq. Ft. Radioshack 2,489.0 2,489.0 2,489.0 2,489.0 2,489.0 2,489.0 2,489.0 Kiosks 90.0 90.0 90.0 90.0 90.0 90.0 90.0 Distribution Center 423.0 423.0 423.0 423.0 423.0 423.0 423.0

Payroll and Commissions 826.4 854.7 841.6 862.2 911.3 963.0 1,009.4 Payroll per Employee in '000 17.6 18.6 19.3 20.1 20.9 21.7 22.6 4% Employees 47,000 46,018 43,568 42,918 43,618 44,318 44,668 Employees per outlet (excl. dealers) 8.2 8.3 8.0 7.6 7.5 7.3 7.4 Employees per RadioShack 9.0 9.0 9.0 9.0 9.0 9.0 9.0 Employees per Kiosk 3.1 3.5 3.5 3.5 3.5 3.5 3.5

Other SG&A 779.8 784.5 796.9 824.9 861.2 899.6 932.5 Other SG&A in % of Revenue 15.3% 15.3% 15.3% 15.3% 15.3% 15.3% 15.3% 0%

Total SG&A 1,901.7 1,946.3 1,914.3 1,960.4 2,051.7 2,147.8 2,233.0 Other SG&A in % of Revenue 37.4% 38.1% 36.9% 36.5% 36.6% 36.6% 36.7%

Reorganization Expenses Inventory Write-dowm 10.0 0.0 Store closure 55.0 35.0 Distribution Center 4.0 0.0 Total 69.0 35.0 f

Adoption of FAS 123R stock option expensing ($13m), rent for sold-and-leased-back headquarters ($16m) and increased staffing of kiosks lead to an increase in SG&A relative to sales in 2006. This trend reverses in 2007 with the impact of the first full year of turnaround measures. SG&A levels out at around 36.7% of sales in the longer term. The above table also contains a summary of reorganization costs as indicated by management. We include the higher bound of management estimates and have introduced a line “reorganization expense” rather than incorporating the effect in COGS and SG&A.

These assumptions lead to the following projection for the income statement:

Projected Income Statement for RadioShack Dollars in Millions, except per share

Projected Year Ending Dec. 31, 2005 2006 2007 2008 2009 2010 2011 Net sales and operating revenues 5,081.7 5,112.1 5,193.4 5,375.6 5,612.3 5,862.7 6,076.9 Cost of products sold 2,706.3 2,661.1 2,676.7 2,770.6 2,892.6 3,021.7 3,132.1 Gross profit 2,375.4 2,451.0 2,516.7 2,605.0 2,719.7 2,841.0 2,944.9

Selling, general and administrative 1,901.7 1,946.3 1,914.3 1,960.4 2,051.7 2,147.8 2,233.0 Depreciation and amortization 123.8 130.8 129.1 128.3 127.9 123.4 123.8 Other (Reorganization Expense) 69.0 35.0 0.0 0.0 0.0 0.0 Operating income 349.9 304.9 438.2 516.3 540.1 569.8 588.0

Interest income (5.9) (10.0) (12.1) (18.1) (27.7) (37.8) (41.4) Interest expense 44.5 36.8 31.4 26.0 25.9 25.9 12.9 Other income, net (10.2) 0.0 0.0 0.0 0.0 0.0 0.0 Income before income taxes 321.5 278.1 418.9 508.4 542.0 581.7 616.5

Provision for income taxes 51.6 105.7 159.2 193.2 206.0 221.1 234.3 Income before Cum. Effect of Ch. In Acct. 269.9 172.4 259.7 315.2 336.0 360.7 382.2

Cum. Effect of Ch. In Acct. Princ., net of 1.8M 2.9 0.0 0.0 0.0 0.0 0.0 0.0 Net income $267.0 $172.4 $259.7 $315.2 $336.0 $360.7 $382.2

Diluted Weighted Average Shares in Millions 148.100 135.700 135.700 135.700 135.700 135.700 135.700

Earnings Per Share $1.80 $1.27 $1.91 $2.32 $2.48 $2.66 $2.82

Margins

Gross Margin 46.7% 47.9% 48.5% 48.5% 48.5% 48.5% 48.5% SGA % of Sales 37.4% 38.1% 36.9% 36.5% 36.6% 36.6% 36.7% EBIT Margin 6.9% 6.0% 8.4% 9.6% 9.6% 9.7% 9.7% Net Income Margin 5.3% 3.4% 5.0% 5.9% 6.0% 6.2% 6.3%

Relative to the going-concern scenario, profitability takes a hit in 2006. Subsequently, the turnaround pays off, and the company reaches EBIT-margins of 9.7% compared to 8.5% without taking action.

Free cash flow in 2006 is lower in the turnaround scenario primarily due to lower operating income and higher Capex. Adjusting for the management definition of free cash flow and subtracting expected dividend payments of around $40m, bring the 2006 projection close to management guidance of up to $100m.

Projected Free Cash Flow Statement for RadioShack Dollars in Millions, except per share

Projected Year Ending Dec. 31, 2006 2007 2008 2009 2010 2011 Free Cash Flow Operating income $304.9 $438.2 $516.3 $540.1 $569.8 $588.0 Provision for income taxes on EBIT (115.8) (166.5) (196.2) (205.2) (216.5) (223.4) Depreciation and amortization 130.8 129.1 128.3 127.9 123.4 123.8 (Increase)/Decrease in Working Capital (34.0) 25.5 (0.2) (18.1) (18.3) (15.5) Change in Other Long-Term Assets and Liabilities 1.8 (1.8) 1.0 2.7 2.8 2.5 Capital Expenditures (155.0) (169.3) (172.5) (177.3) (182.3) (185.9) Additions to Definite Life Intangibles 0.0 0.0 0.0 0.0 0.0 0.0 Free Cash Flow 132.5 255.3 276.7 270.0 279.0 289.5 93% 8% -2% 3% 4%

III. VALUATION AND ASSESSMENT

Based on these projections and the valuation approach used in the going-concern scenario, the enterprise value amounts to $2,802m suggesting a share price of $16.8. This puts us close to the current stock price.

The current turnaround plan is a step in the right direction in terms of improving the operational performance of RadioShack. Though initial signs of recoveries are expected in mid 2006, we believe the industry downturn and immediate issues such as wireless transition and CEO change will have a negative impact causing the declining trend to continue throughout 2006. Further financial deterioration seems to be inevitable including inventory write-offs upon closure of existing stores and restructuring costs.

Details regarding the execution have not been indicated. The spokesman for the company has also responded by mentioning that the business would be carried out as usual until May despite the announcement. Then the company plans to have some special sales activity and promotions to make customers aware of relocations. Morale is also expected to be low with the compounded

impact of the turnaround announcement along with the change in compensation plans causing a modest increase in an already high turnover rate.

We think that the plan should be much more ambitious in terms of improving inventory turnover and, hence, improving the assortment. In addition, it fails to provide a clear strategy or vision of what management wants RadioShack to be and how to position it in the market.

IV. MARKET REACTION TO THE PLAN

The turnaround plan was announced by ex-CEO Edmondson on February 17th 2006. On the following chart, we see that on the announcement of the turnaround plan, which coincided with the announcement of disappointing results and was followed by the departure of CEO Edmondson and the arrival of Mrs. Babrowski as acting CEO, the stock plunged, reducing market capitalization by over $350m. Within two days, the stock went from a high of $21.6 per share on Friday February 15th to a low of $19.0 on Tuesday February 21st, 2006.

Stock Price Reaction at Turnaround Plan Announcement

$25 Company announces falling $24 4th quarter profit and $23 turnaround plan $22 $21 $20 $19 $18 -$350M $17 $16 $15 2/7/2006 3/7/2006 4/4/2006 11/1/2005 1/10/2006 1/24/2006 2/21/2006 3/21/2006 11/15/2005 11/29/2005 12/13/2005 12/27/2005

This reaction was durable since the value of RadioShack continued to plummet in March and April. Therefore we conclude that the market was surprised by the falling 4th quarter profit and the need for a turnaround plan. Having to cope with a change in leadership while executing a turnaround plan made the markets wary of the likelihood of success. Since our APNV valuation

of the turnaround plan is slightly below the market valuation, we conclude that the market buys into the turnaround plan.

PART V. PROPOSED TURNAROUND PLAN

I. STRATEGY

For a broad customer base in the local neighborhood, RadioShack is to become the nearby consumer electronics store that offers convenience and service around essential and trendy small-to-medium-sized consumer electronic goods.

As criticized about the current management’s turnaround plan, it does not project a clear strategic goal. Despite the growing importance of mass retailers in the consumer electronics segment, we think there is a place for a specialty retailer with smaller store formats like RadioShack. RadioShack needs to leverage the unique coverage provided by it’s over 4,000 stores. It is conveniently located within reach for most neighborhoods and, hence, ideally positioned as the prime destination for staple electronics. However, customers will only perceive RadioShack in this way if it is a reliable supplier with good service characteristics. That means it must increase its service level: eliminate stock out, improve the relevance of the assortment and after-sale care. In addition to the relevance of consumer electronic essentials, RadioShack has to bring in more recent and trendy products, such as it did with the iPod or the latest WiLife’s LukWerks digital Video Surveillance Camera System. While we think that there is too much risk involved in going after the tech savvy and early adopting consumer, offering these products – as they gain traction – to the broader customer base of all income levels should be the goal. Having a combination of essential and small-to-medium sized consumer electronic goods offers high cross-selling potential in both directions.

II. IMPLEMENTATION

We think all actions considered in the management’s turnaround plan should be implemented with the exception of expanding the kiosk business. The store closure might reduce the service level and access in some neighborhoods, thus running counter to our above strategy statement. Location is, however, key in having successful retail stores. Even improved management and assortment will probably not

improve the performance of these stores sufficiently. Hence, we support the closure of weak performers and focus management attention on the high-performing stores instead. We recommend stopping the expansion of kiosks, which becomes the company’s primary driver in the management scenario. As suggested in our company analysis, the increased importance of kiosk business shifts the overall product mix to the wireless segment – a maturing segment with gross profit margins well below the company average. Indeed, up to now, it is unclear how profitable these kiosks will eventually be. We recommend that management puts the kiosk strategy on hold and focuses instead on its core stores.

The sales projections, including the number of stores, are shown in Exhibit 4. In addition, we recommend the following measures to improve the performance of the company:

Improve the assortment. As mentioned above, this is key to any performance improvement. Better assortment will increase sales and inventory turns. Management has recognized the problem but is by far not ambitious enough, suggesting an improvement in inventory turns from 2.74 to 2.96. We set a target of 4.3 (85 days on hand) instead, to be reached by 2009 (Exhibit 5). Current inventory turns of 3.9 in the top 2,500 RadioShack stores as well similar turns at comparable companies make us optimistic that this target is achievable. In addition to higher thresholds in terms of inventory turns for products to be carried in stores and more focused product selection, reaching this target can be supported by decentralizing 10 to 30% of the assortment selection to store managers. Achieving this target will free up close to $320m over the projected time period. In addition, we think it is the source of higher sales growth. While we see an improvement of the top performing stores to 3% in the medium term, the medium performing stores will grow at 4% annually after the temporary sales boost from closure of nearby locations. In each year of inventory turn improvement we recognized a write-off of $30m (average of 2005 and 2006 inventory write-off) to get rid of outdated inventory (see Exhibit 6).

Reduce accounts receivable. To round off the planned improvement in working capital management, we recommend reducing the collection period from 22.2 to 15 days in 2007. This puts RadioShack more in line with comparable companies (Exhibit 5).

Increase internet sales. While radioshack.com was recently revamped, it is not yet an integral part of the company’s strategy. RadioShack has the entire infrastructure in place to push online-sales: a website, four distribution centers and retail outlets at which customers can return products they do not like. We assume that higher internet sales can be generated by shifting employees, i.e. it will not require additional employees or space. Hence, increasing internet sales to 6.3% of total sales by 2011 will reduce SG&A relative to sales by 1.5% compared to the management turnaround plan. In addition, the internet sales channel is an important pillar of our improved service concept. If an item is not on stock, the sales associate can initiate the online-order for the customer in the store with delivery to the customer directly or to the RadioShack store. The website radioshack.com should also be heavily advertised through direct mail, etc. in neighborhoods where locations are closed within the next 18 months. In addition to the next closest store, radioshack.com is a way of keeping these customers.

To be conservative, we did not change any other key cost component. We left the gross profit margin at the same level as in the management scenario, even though lower kiosk sales might have a beneficial impact on the gross profit margin. We did not assume any improvements to SG&A relative to sales other than the one described above following from higher internet sales, despite the high SG&A ratio compared to comparable companies and the potential cost savings alluded to by management.

These assumptions lead to the below projected income statement (see also Exhibits 7 and 8). While operating income in 2006 and sales in 2011 are similar to the management scenario, profitability will be much higher in our proposed scenario, reaching an EBIT-margin of 11.3% in 2011 (compared to 9.3%). Focusing on the core stores and increasing internet sales will yield higher profitability than growing the top line by expanding kiosks. In addition it will free up more cash, as a result of lower capital expenditure and better working capital management.

Projected Income Statement for RadioShack Dollars in Millions, except per share

Projected Year Ending Dec. 31, 2005 2006 2007 2008 2009 2010 2011 Net sales and operating revenues 5,081.7 5,097.7 5,160.0 5,321.5 5,568.1 5,824.7 6,108.5 Cost of products sold 2,706.3 2,653.7 2,659.5 2,742.7 2,869.8 3,002.1 3,148.3 Gross profit 2,375.4 2,444.1 2,500.5 2,578.8 2,698.3 2,822.6 2,960.1

Selling, general and administrative 1,901.7 1,937.4 1,888.3 1,915.9 1,992.3 2,071.6 2,156.6 Depreciation and amortization 123.8 129.9 126.1 122.5 119.4 112.5 110.7 Other (Reorganization Expense) 69.0 65.0 30.0 30.0 0.0 0.0 Operating income 349.9 307.7 421.1 510.4 556.6 638.5 692.8

Interest income (5.9) (10.5) (16.7) (29.5) (45.9) (61.7) (69.7) Interest expense 44.5 36.8 31.4 26.0 25.9 25.9 12.9 Other income, net (10.2) 0.0 0.0 0.0 0.0 0.0 0.0 Income before income taxes 321.5 281.4 406.4 513.9 576.6 674.3 749.6

Provision for income taxes 51.6 106.9 154.5 195.3 219.1 256.2 284.8 Income before Cum. Effect of Ch. In Acct. 269.9 174.5 252.0 318.6 357.5 418.1 464.7

Cum. Effect of Ch. In Acct. Princ., net of 1.8M 2.9 0.0 0.0 0.0 0.0 0.0 0.0 Net income $267.0 $174.5 $252.0 $318.6 $357.5 $418.1 $464.7 267.0 Diluted Weighted Average Shares in Millions 148.100 135.700 135.700 135.700 135.700 135.700 135.700

Earnings Per Share $1.80 $1.29 $1.86 $2.35 $2.63 $3.08 $3.42

Margins

Gross Margin 46.7% 47.9% 48.5% 48.5% 48.5% 48.5% 48.5% SGA % of Sales 37.4% 38.0% 36.6% 36.0% 35.8% 35.6% 35.3% EBIT Margin 6.9% 6.0% 8.2% 9.6% 10.0% 11.0% 11.3% Net Income Margin 5.3% 3.4% 4.9% 6.0% 6.4% 7.2% 7.6%

III. FREE CASH FLOW AND VALUATION

Based on the above projections, we achieve significantly higher free cash flows, driven by higher operating income, lower working capital and lower capital expenditure in kiosk expansion. The enterprise value increases to $3,839m, implying a stock price of $24.50. By adopting our plan, management would create value of over $1bn.

Projected Free Cash Flow Statement for RadioShack Dollars in Millions, except per share

Projected Year Ending Dec. 31, 2006 2007 2008 2009 2010 2011 Free Cash Flow Operating income $307.7 $421.1 $510.4 $556.6 $638.5 $692.8 Provision for income taxes on EBIT (116.9) (160.0) (193.9) (211.5) (242.6) (263.3) Depreciation and amortization 129.9 126.1 122.5 119.4 112.5 110.7 (Increase)/Decrease in Working Capital (31.8) 188.3 123.8 118.1 12.7 6.9 Change in Other Long-Term Assets and Liabilities 1.5 (2.4) 0.3 2.0 2.0 2.1 Capital Expenditures (136.7) (138.4) (142.7) (149.3) (156.2) (163.8) Additions to Definite Life Intangibles 0.0 0.0 0.0 0.0 0.0 0.0 Free Cash Flow 153.7 434.7 420.4 435.3 366.9 385.5 183%-3%4%-16%5% Interest Tax Shield Interest Expense $36.8 $31.4 $26.0 $25.9 $25.9 $12.9 Interest Tax Shield 14.0 11.9 9.9 9.8 9.8 4.9

Free Cash Flow $153.7 $434.7 $420.4 $435.3 $366.9 Terminal Value of FCF 4,431.2 FCF + Terminal Value $3,752.9 $153.7 $434.7 $420.4 $435.3 $4,798.1

Interest Tax Shield $14.0 $11.9 $9.9 $9.8 $9.8 Terminal value of ITS 60.6 ITS + Terminal Value $85.9 $14.0 $11.9 $9.9 $9.8 $70.4

Enterprise Value $3,838.8 Debt Value 535.8 Equity Value $3,303.0

Shares Outstanding 135.0 Price per Share $24.5

64 PART VI. EXHIBITS

EXHIBIT 1. Executive Officers and Their Current and Previous Positions, Ages, Length of Service with RadioShack and Background (as of March 3, 2006). Name Current Position Previous Position Age Years with Background (Date Appointed to Current Position) Company

Leonard H. Executive Chairman of the Board Chairman of the Board of 56 12 Roberts (May 2005) Directors and CEO since 1999

Claire H. Chief Operating Officer n/a 48 1 Senior level positions with McDonald’s Babrowski (June 2005) Corporation since 2000, most recently Senior President and Acting Chief Executive Executive Vice President and Chief Restaurant Officer (February 2006) Operations Officer from 2003 to 2004

David G. Chief Financial Officer (April 2005) n/a 44 1 Chief Financial Officer of Coors U.S. from 2002 to Barnes Executive Vice President 2004, and Vice President and Treasurer of Coors (March 2006) Brewing Company from 1999 to 2002

James R. Executive Vice President of Senior Vice President – Chief 47 1 Vice President – Human Resources of Coors Fredericks Administration (March 2006) Human Resources Officer since Brewing Worldwide and Vice President – Global March 2005 Rewards of Coors Brewing Company from September 2001 to March 2005

Joseph C. Executive Vice President of Retail President of Strategic Service 63 1 Senior Partner of Core Strategies (a marketing Formichelli Operations (March 2006) Solutions, Inc. (RadioShack's consulting firm) in 2001/02 and 2004/05. repair service group) from Executive Vice President, Operations of Gateway, January 2005. Inc. (a personal computer and consumer electronics retailer) from December 2002 to March 2004

James E. Executive Vice President of Senior Vice President – Chief 47 2 Co–founder and Chief Executive Officer of Hamilton Merchandising and Marketing Merchandising Officer from Identity Ventures (a high tech consulting company) (March 2006) January 2005 to March 2006. since 2001 Division Vice President of Global Sourcing from October 2003 to January 2005.

Source: 10-K for 2005

EXHIBIT 2. Composition of Executive Board as of March 3, 2006, Feb 18, 2005 and Feb 18, 2004 Position 2005 Years with 2004 Years with 2003 Years with In Position Since (as of March 3, 2006) Company (as of Feb 18, 2005) Company (as of Feb 18, 2004) Company

Executive Chairman of the Leonard H. Roberts 12 Leonard H. Roberts 11 Leonard H. Roberts 10 1999 Board

Chief Executive Officer Claire H. Babrowski 1 Leonard H. Roberts 11 Leonard H. Roberts 10 1999 (acting)

Chief Operating Officer Claire H. Babrowski 1 David J. Edmondson 10 David J. Edmondson 9 2000

Chief Financial Officer David G. Barnes 1 David P. Johnson 32 Michael D. Newman 3 2001

Executive Vice President of James R. Fredericks 1 Mark C. Hill 8 Mark C. Hill 7 1998 Administration

Executive Vice President of Joseph C. Formichelli 1 n/a n/a Retail Operations

Executive Vice President of James E. Hamilton 2 n/a n/a Merchandising and Marketing

Chief Organizational Enabling n/a Evelyn V. Follit 7 Evelyn V. Follit 6 2003 / 1998 Services and Chief Information Officer

Chief Communications Officer n/a Laura K. Moore 6 Laura K. Moore 5 2000 Source: 10-K for 2005, 2004 and 2004

EXHIBIT 3. Pro-Forma Inventory Turns and Gross Margins incl. the Impact of Management Turnaround Plan on 2005 figures.

Based on FY 2005 Pro-Forma Impact Pro-Forma Impact Non-Wireless Wireless Total Total of Programs of Change 2006 of Programs of Change 2006 Slow Inv. High Inv. Total (Reported) (Adjusted)* Inventory Store Closure New Kiosks Total Inventory Store Closure New Kiosks Total Accumulated # 400 200 700 400 Impact 35% 50% 50% 65% 50% 50% Inv. ($m) $90 $633 $723 $242 $965 $965 ($35) ($22) $3 $911 $103 ($76) $23 $961 Inv. Turns 0.6x 2.2x 2.0x 5.2x 2.8x 2.74x 2.5x 5.2x 2.95x 2.5x 5.2x 2.96x Floor Space (%) 20.0% 80.0% 100% Gross Profit (per Sq Ft) $50 $244 $205 COGS $54 $1,393 $1,447 $1,260 $2,706 $2,644 $68 ($54) $27 $2,685 $226 ($189) $118 $2,840 Sales $146 $3,190 $3,337 $1,745 $5,082 $5,082 $133 ($94) $37 $5,158 $518 ($329) $164 $5,511 Gross Margin 63.0% 56.4% 56.6% 27.8% 46.7% 48.0% 49.0% 42.6% 27.8% 47.9% 56.4% 42.6% 27.8% 48.5% Gross Profit $92 $1,798 $1,890 $486 $2,375 $2,437 $65 ($40) $10 $2,473 $292 ($140) $46 $2,671 Square Foot Total 9,210 9,210 9,210 Occupancy 1,842 7,368 9,210

* Adjusted for write-off of slow-moving inventory of $62m related to turnaround initiative

Weakest 500 Whole Base Top 2,500 # 500 4,972 2,500 Avg. Revenue (mil) $0.47 $0.87 $1.13 2005 comp sales -3.7% 1.0% 2.5% Avg. Inventory (K) $108 $146 $177 Inventory Turns 2.5x 2.7x 3.9x Sales $235 $4,326 $2,825 COGS $135 $1,960 $1,726 Gross Profit $100 $2,366 $1,099 Gross Margin 42.6% 54.7% 38.9%

NB: Data in blue font is provided by management in Bear Sterns presentation.

Exhibit 4. Proposed Turnaround Plan - Sales by Distribution Channel

Dollars in Millions, except per share Projected Year Ending Dec. 31, 2005 2006 2007 2008 2009 2010 2011

Sales Radioshack 4,480.8 4,430.8 4,410.9 4,487.0 4,635.9 4,789.9 4,949.0 Top Performers 2,825.0 2,881.5 2,967.9 3,057.0 3,148.7 3,243.2 3,340.4 Medium Performers 1,420.8 1,391.7 1,399.8 1,430.0 1,487.2 1,546.7 1,608.6 Weak Performers 235.0 157.6 43.1 0.0 0.0 0.0 0.0 Kiosks 262.7 289.0 317.9 341.7 358.8 376.7 395.6 Other 338.2 378.0 431.2 492.8 573.4 658.1 763.9 Internet Sales 50.8 76.2 114.3 160.1 224.1 291.3 378.7 Other Channels 287.4 301.8 316.8 332.7 349.3 366.8 385.1 Total Sales 5,081.7 5,097.7 5,160.0 5,321.5 5,568.1 5,824.7 6,108.5 Growth in % 5.0%0.3%1.2%3.1%4.6%4.6%4.9%

Number of outlets Radioshack 4,972 4,572 4,272 4,272 4,272 4,272 4,272 Top Performers 2,500 2,500 2,500 2,500 2,500 2,500 2,500 Medium Performers 1,972 1,872 1,772 1,772 1,772 1,772 1,772 Weak Performers 500 20000000 Kiosks 777 777 777 777 777 777 777 Dealer outlets 1,711 1,711 1,711 1,711 1,711 1,711 1,711 Total Outlets 7,460 7,060 6,760 6,760 6,760 6,760 6,760

Average sales per location Radioshack 0.90 0.97 1.03 1.05 1.09 1.12 1.16 Top Performers 1.13 1.15 1.19 1.22 1.26 1.30 1.34 Medium Performers 0.72 0.72 0.77 0.81 0.84 0.87 0.91 Weak Performers 0.47 0.45 0.43 0.41 0.40 0.38 0.36 Kiosks 0.34 0.37 0.41 0.44 0.46 0.48 0.51

Growth of average sales per location Radioshack 1.7% 7.5% 6.5% 1.7% 3.3% 3.3% 3.3% Top Performers 2.5% 2.0% 3.0% 3.0% 3.0% 3.0% 3.0% Medium Performers 1.0% 0.5% 6.1% 5.0% 4.0% 4.0% 4.0% Weak Performers -3.7% -4.2% -4.2% -4.2% -4.2% -4.2% -4.2% Kiosks 259.1% 10.0% 10.0% 7.5% 5.0% 5.0% 5.0% Growth in Internet Sales 50.0% 50.0% 40.0% 40.0% 30.0% 30.0% Growth in other channels 13.1% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Exhibit 5. Proposed Turnaround Plan – Working Capital Management Projected Working Capital Schedule for RadioShack Dollars in Millions, except per share

Historical Year Endin Projected Year Ending Dec. 31, 2004 2005 2006 2007 2008 2009 2010 2011

Net sales and operating revenues $4,841.2 $5,081.7 $5,097.7 $5,160.0 $5,321.5 $5,568.1 $5,824.7 $6,108.5 Cost of products sold 2,406.7 2,706.3 2,653.7 2,659.5 2,742.7 2,869.8 3,002.1 3,148.3 Provision for income taxes 542.1 321.5 281.4 406.4 513.9 576.6 674.3 749.6

Working Capital Balances Accounts and notes receivable, net $241.0 $309.4 $310.4 $212.1 $218.7 $228.8 $239.4 $251.0 Inventories, net 1,003.7 964.9 900.6 837.9 751.4 668.3 699.1 733.2 Other current assets 92.5 129.0 129.4 131.0 135.1 141.3 147.9 155.1 Total Non-Cash Current Assets: $1,337.2 $1,403.3 $1,340.4 $1,181.0 $1,105.2 $1,038.5 $1,086.4 $1,139.3

Accounts payable $442.2 $490.9 $417.6 $418.5 $431.6 $451.6 $472.5 $495.5 Accrued expenses and other current liabilities 342.1 379.5 372.1 372.9 384.6 402.4 421.0 441.5 Income taxes payable 117.5 75.0 61.0 88.1 111.4 125.0 146.2 162.5 Total Non-Debt Current Liabilities: $901.8 $945.4 $850.7 $879.6 $927.6 $979.1 $1,039.6 $1,099.4

NET WORKING CAPITAL / (DEFICIT) $435.4 $457.9 $489.7 $301.4 $177.6 $59.4 $46.8 $39.9

(Increase)/Decrease in Working Capital ($22.5) ($31.8) $188.3 $123.8 $118.1 $12.7 $6.9

Ratios and Assumptions Accounts and notes receivable, net (Collection perio 18.2 22.2 22.2 15.0 15.0 15.0 15.0 15.0 Inventories, net (Days outstanding) 152.2 130.1 123.9 115.0 100.0 85.0 85.0 85.0 Other current assets as % of Sales 1.9% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%

Accounts payable (Days outstanding) 67.1 66.2 57.4 57.4 57.4 57.4 57.4 57.4 Accrued expenses and other current liabilities as % o 14.2% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% Income taxes payable as % of Provision for incomes 21.7% 23.3% 21.7% 21.7% 21.7% 21.7% 21.7% 21.7%

Cash Flows by Individual Accounts Accounts and notes receivable, net ($68.4) ($1.0) $98.3 ($6.6) ($10.1) ($10.5) ($11.7) Inventories, net 38.8 64.3 62.7 86.5 83.1 (30.8) (34.1) Other current assets (36.5) (0.4) (1.6) (4.1) (6.3) (6.5) (7.2) Accounts payable 48.7 (73.3) 0.9 13.1 20.0 20.8 23.0 Accrued expenses and other current liabilities 37.4 (7.4) 0.8 11.7 17.8 18.5 20.5 Income taxes payable (42.5) (14.0) 27.1 23.3 13.6 21.2 16.3 (Increase)/Decrease in Working Capital ($22.5) ($31.8) $188.3 $123.8 $118.1 $12.7 $6.9

Exhibit 6. Proposed Turnaround Plan – Projected SG&A and Reorganization Expense Dollars in Millions, except per share Projected Year Ending Dec. 31, 2005 2006 2007 2008 2009 2010 2011

SG&A Increase Minimum rent 295.5 307.0 275.2 272.3 277.7 283.3 288.9 Minimum rent per MM Sq. Ft. 20.1 21.6 22.1 22.5 23.0 23.4 23.9 2% Real Estate Leased in MM Sq. Ft. 14.7 14.2 12.5 12.1 12.1 12.1 12.1 Average Store Size in Sq. Ft. Radioshack 2,489.0 2,489.0 2,489.0 2,489.0 2,489.0 2,489.0 2,489.0 Kiosks 90.0 90.0 90.0 90.0 90.0 90.0 90.0 Distribution Center 423.0 423.0 423.0 423.0 423.0 423.0 423.0

Payroll and Commissions 826.4 848.2 821.3 827.0 860.1 894.5 930.3 Payroll per Employee in '000 17.6 18.6 19.3 20.1 20.9 21.7 22.6 4% Employees 47,000 45,668 42,518 41,168 41,168 41,168 41,168 Employees per outlet (excl. dealers) 8.2 8.5 8.4 8.2 8.2 8.2 8.2 Employees per RadioShack 9.0 9.0 9.0 9.0 9.0 9.0 9.0 Employees per Kiosk 3.1 3.5 3.5 3.5 3.5 3.5 3.5

Other SG&A 779.8 782.3 791.8 816.6 854.4 893.8 937.4 Other SG&A in % of Revenue 15.3% 15.3% 15.3% 15.3% 15.3% 15.3% 15.3% 0%

Total SG&A 1,901.7 1,937.4 1,888.3 1,915.9 1,992.3 2,071.6 2,156.6 Other SG&A in % of Revenue 37.4% 38.0% 36.6% 36.0% 35.8% 35.6% 35.3%

Reorganization Expenses Inventory Write-dowm 10.0 30.0 30.0 30.0 0.0 0.0 Store closure 55.0 35.0 0.0 0.0 0.0 0.0 Distribution Center 4.0 0.0 0.0 0.0 0.0 0.0 Total 69.0 65.0 30.0 30.0 0.0 0.0

Exhibit 7. Proposed Turnaround Plan – Historical and Projected Income Statements. Projected Income Statement for RadioShack Dollars in Millions, except per share

Historical Year Ending Dec. 31, Projected Year Ending Dec. 31, 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Net sales and operating revenues 4,787.9 4,126.2 4,794.7 4,775.7 4,577.2 4,649.3 4,841.2 5,081.7 5,097.7 5,160.0 5,321.5 5,568.1 5,824.7 6,108.5 Cost of products sold 2,783.5 2,042.7 2,425.1 2,478.9 2,338.9 2,333.6 2,406.7 2,706.3 2,653.7 2,659.5 2,742.7 2,869.8 3,002.1 3,148.3 Gross profit 2,004.4 2,083.5 2,369.6 2,296.8 2,238.3 2,315.7 2,434.5 2,375.4 2,444.1 2,500.5 2,578.8 2,698.3 2,822.6 2,960.1

Selling, general and administrative 1,580.3 1,486.4 1,632.6 1,713.9 1,728.6 1,740.0 1,774.8 1,901.7 1,937.4 1,888.3 1,915.9 1,992.3 2,071.6 2,156.6 Depreciation and amortization 99.0 90.2 107.3 108.3 94.7 92.0 101.4 123.8 129.9 126.1 122.5 119.4 112.5 110.7 Other (Reorganization Expense) 190.8 9.6 0.0 115.3 (10.4) 69.0 65.0 30.0 30.0 0.0 0.0 Operating income 134.3 497.3 629.7 359.3 425.4 483.7 558.3 349.9 307.7 421.1 510.4 556.6 638.5 692.8

Interest income (10.8) (20.4) (17.8) (13.0) (9.0) (12.8) (11.4) (5.9) (10.5) (16.7) (29.5) (45.9) (61.7) (69.7) Interest expense 45.4 37.2 53.9 50.8 43.4 35.7 29.6 44.5 36.8 31.4 26.0 25.9 25.9 12.9 Other income, net 0.0 0.0 0.0 30.0 (33.9) (12.0) (2.0) (10.2) 0.0 0.00.00.00.00.0 Income before income taxes 99.7 480.5 593.6 291.5 424.9 472.8 542.1 321.5 281.4 406.4 513.9 576.6 674.3 749.6

Provision for income taxes 38.4 182.6 225.6 124.8 161.5 174.3 204.9 51.6 106.9 154.5 195.3 219.1 256.2 284.8 Income before Cum. Effect of Ch. In Acct. 61.3 297.9 368.0 166.7 263.4 298.5 337.2 269.9 174.5 252.0 318.6 357.5 418.1 464.7

Cum. Effect of Ch. In Acct. Princ., net of 1.8M 0.00.00.00.00.00.00.02.90.00.00.00.00.00.0 Net income $61.3 $297.9 $368.0 $166.7 $263.4 $298.5 $337.2 $267.0 $174.5 $252.0 $318.6 $357.5 $418.1 $464.7 337.2 267.0 Diluted Weighted Average Shares in Millions 167.700 161.000 148.100 135.700 135.700 135.700 135.700 135.700 135.700

Earnings Per Share $1.78 $2.09 $1.80 $1.29 $1.86 $2.35 $2.63 $3.08 $3.42

Margins

Gross Margin 41.9% 50.5% 49.4% 48.1% 48.9% 49.8% 50.3% 46.7% 47.9% 48.5% 48.5% 48.5% 48.5% 48.5% SGA % of Sales 33.0% 36.0% 34.1% 35.9% 37.8% 37.4% 36.7% 37.4% 38.0% 36.6% 36.0% 35.8% 35.6% 35.3% EBIT Margin 2.8% 12.1% 13.1% 7.5% 9.3% 10.4% 11.5% 6.9% 6.0% 8.2% 9.6% 10.0% 11.0% 11.3% Net Income Margin 1.3% 7.2% 7.7% 3.5% 5.8% 6.4% 7.0% 5.3% 3.4% 4.9% 6.0% 6.4% 7.2% 7.6%

Exhibit 8. Proposed Turnaround Plan – Historical and Projected Balance Sheets. Projected Balance Sheet for RadioShack Dollars in Millions, except per share

Historical Year Endin Projected Year Ending Dec. 31, 2004 2005 2006 2007 2008 2009 2010 2011

Cash and cash equivalents $437.9 $224.0 $286.7 $528.5 $912.3 $1,326.3 $1,681.7 $1,717.6 Accounts and notes receivable, net 241.0 309.4 310.4 212.1 218.7 228.8 239.4 251.0 Inventories, net 1,003.7 964.9 900.6 837.9 751.4 668.3 699.1 733.2 Other current assets 92.5 129.0 129.4 131.0 135.1 141.3 147.9 155.1 Total current assets: 1,775.1 1,627.3 1,627.1 1,709.5 2,017.5 2,364.8 2,768.0 2,856.9

Property, plant and equipment, net 652.0 476.2 487.4 504.1 528.7 563.0 606.7 659.7 Other assets, net 89.6 101.6 97.3 93.5 90.8 88.8 91.4 94.3 Total assets: $2,516.7 $2,205.1 $2,211.9 $2,307.1 $2,637.0 $3,016.7 $3,466.1 $3,611.0

Accounts payable 442.2 490.9 417.6 418.5 431.6 451.6 472.5 495.5 Accrued expenses and other current liabilities 342.1 379.5 372.1 372.9 384.6 402.4 421.0 441.5 Income taxes payable 117.5 75.0 61.0 88.1 111.4 125.0 146.2 162.5 Short-term debt, including current maturities of long-term 55.6 40.9 150.0 5.0 0.0 0.0 351.0 0.0 Total current liabilities: 957.4 986.3 1,000.7 884.6 927.6 979.1 1,390.6 1,099.4

Revolving Credit Facility 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Long-term debt, excluding current maturities 506.9 494.9 344.9 339.9 339.9 339.9 (11.1) (11.1) Other non-current liabilities 130.3 135.1 136.7 134.9 136.9 141.3 145.9 151.0 Total liabilities: 1,594.6 1,616.3 1,482.3 1,359.4 1,404.4 1,460.3 1,525.4 1,239.3

Total stockholders' equity: 922.1 588.8 729.5 947.8 1,232.6 1,556.4 1,940.7 2,371.7

Total liabilities and stockholders' equity: $2,516.7 $2,205.1 $2,211.9 $2,307.1 $2,637.0 $3,016.7 $3,466.1 $3,611.0