CHICAGO, May 3 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has
upgraded the ratings of Tandy Corporation (TAN). Tandy's bank credit facility
has been upgraded to 'A' (Single-A) from 'A-' (Single-A-Minus), its
medium-term notes to 'A' (Single-A) from 'A-' (Single-A-Minus) and the
company's commercial paper rating has improved to 'D-1' (D-One) from 'D-1-'
(D-One-Minus). Approximately $584 million of debt is impacted. The Rating
Outlook for Tandy is Stable.
Tandy's revised ratings are supported by the company's solid operating
performance and steady financial profile. Debt protection measures continued
to strengthen in 1999 aided by higher operating margins and a reduction in
off-balance-sheet leverage -- a direct result of lower leases related to the
sale of its Computer City division in August 1998. Fixed-charge coverage
improved to 5.5 times in comparison to 1998's figure of 3.5 times.
Tandy's -- soon to be renamed RadioShack -- productive business model includes
partnering with strong consumer brands developing a 'store within a store'
inside each of its retail formats. The company has developed alliances with
well-known consumer brands including Compaq, RCA, Sprint and Microsoft.
Management anticipates the rollout of RCA and Microsoft in June and August
2000, respectively.
A growing component of RadioShack's cash flow is the residual income
earned from sales of Sprint long distance, cellular telephony service, PCS
service, satellites and prepaid wireless airtime. Residuals represent a
portion of the continuing service revenue paid by the consumer over the
lifetime of the subscription. RadioShack reported approximately $63 million in
residual revenues during 1999, and expects residuals to grow to $92-$102
million in the year 2000. Important to operating income, residual income
generates a 100 percent gross margin rate.
For the foreseeable future, cash flow from operations is expected to
be sufficient to meet net stock repurchases in an annual range of $300 million
and capital requirements, including the plan to update the existing store
base. However, DCR notes that the rating is based upon maintaining leverage at
current levels, thus significant share repurchases via long-term borrowings
are not anticipated. Moreover, with the possibility of updating its existing
store base, RadioShack would likely scale back share repurchases in order to
fund increased capital spending. Any prospective new business investments
will likely be related to enhancing the RadioShack concept.
Tandy, via its network of RadioShack stores, is a leading retailer of
consumer electronics products and services and sells its products via roughly
5,000 company owned outlets and 2,000 dealer stores throughout the United
States.
For additional research on Tandy visit DCR's web site at
http://www.dcrco.com (Quick Search: Tandy).
SOURCE Duff & Phelps Credit Rating Co.
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Related links:
http://www.dcrco.com
CONTACT:
Sheila M. McNeely, 312-368-3185,
mcneely@dcrco.com; or Jenifer Casalvieri, 212-908-0239,
casalvieri@dcrco.com, both of DCR
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