Fitch Affirms 'BBB+' Rating on RadioShack; Outlook Stable.

NEW YORK -- Fitch Ratings has affirmed the ratings on RadioShack Corporation's (RadioShack) bank credit facility and medium term notes at 'BBB+' and commercial paper program at 'F2'. Approximately $520 million of debt is affected. The Rating Outlook is Stable.

The ratings reflect RadioShack's strong cash flow generation and the productivity of the retail stores, as well as its strengthened operating performance. Also considered is the company's reliance on its wireless communications department, its continued share repurchase program and the challenging retail environment.

RadioShack continues to benefit from its small square foot but highly productive store format as its business model is less sensitive to the economic drivers of the larger consumer electronics retailers and its store format is not dependent upon music or movies to drive revenues. Since 2002, RadioShack's revenues have increased and operating profitability has strengthened due to better merchandise offerings, as well as supply chain, vendor, and strategic pricing initiatives. For the 12 months ended June 30, 2004, revenues grew 2.7% to $4.7 billion from $4.57 billion in fiscal 2002, and the EBITDA margin increased to 13.2% from 11.1%, over the same period. In addition, cash flow generation has been strong, benefiting from improved operating results and working capital efficiencies. The improved operating performance, combined with a modest decline in debt balances, has resulted in improved credit measures. Adjusted leverage, measured as total adjusted debt/EBITDAR was 3.0 times (x) for the 12 months ended June 30, 2004, down from 3.4x in 2002, and EBITDAR coverage of interest and rents was 3.1x, up from 2.6x over the same period.

Nonetheless, the company's market remains competitive and its reliance on the wireless communications business remains a concern. During 2003, wireless communications accounted for 35% of sales, up from 27% in 2001. In addition, while the wireless business continues to post strong growth, increasing 21% in the first six months of 2004, the growth of other departments remains weak, with departments representing more than 50% of revenues declining over the same period.

Revenues should benefit from the company's store resets, strengthened merchandise mix, including new product categories, and normalized inventory levels. Further improvement in operating margins is expected from continued supply chain and store productivity enhancements. While free cash flow generation is expected to decline in 2004 due to lower benefits from working capital and higher capital expenditure needs due to the construction of a new corporate headquarters, over the longer term, Fitch expects that internally generated cash flow will be sufficient to meet cash requirements, including share repurchases and that credit measures will remain stable. However, of importance will be the growth of nonwireless departments given their weakened performance over the past 12 months.