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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________to ___________________
Commission file number 1-10062
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InterTAN, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 75-2130875
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3300 Highway #7, Suite 904
Toronto, Ontario, Canada L4K 4M3
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 905-760-9701
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value $1.00 per share* New York Stock Exchange
(*Includes related preferred stock purchase rights)
Securities registered pursuant of Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 18, 2000 was $371,021,657 based on the New York Stock
Exchange closing price on such date.
As of September 18, 2000 there were 27,610,194 shares of the registrant's Common
Stock outstanding.
Documents Incorporated by Reference
Portions of the definitive Proxy Statement for the 2000 Annual Meeting of
Stockholders are incorporated by reference into Part III. With the exception of
those portions which are incorporated by reference in this Annual Report on Form
10-K, the definitive 2000 Proxy Statement is not to be deemed incorporated into
or filed as part of this Report.
InterTAN, Inc.
Form 10-K for the Year Ended June 30, 2000
Table of Contents
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Part I Page No.
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Item 1. Business
Description of Business 4
Employees 5
Products and Distribution 5
Management Information Systems 6
Suppliers 7
Geographic/Segment Analysis 7
Strategic Alliances 9
Merchandise, License and Advertising Agreements 11
Seasonality 11
Competition 11
Backlog of Orders 11
Factors That Could Affect Future Performance 12
Item 2. Properties 15
Item 3 Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 16
Part II
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Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 35
Item 8. Financial Statements
Report of Independent Accountants 39
Consolidated Statements of Operations 40
Consolidated Balance Sheets 41
Consolidated Statements of Stockholders'
Equity 42
Consolidated Statements of Cash Flows 44
Notes to Consolidated Financial Statements 45
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 65
Part III
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Item 10. Directors and Executive Officers of the Registrant 65
Item 11. Executive Compensation 65
Item 12. Security Ownership of Certain Beneficial Owners and Management 65
Item 13. Certain Relationships and Related Transactions 65
Part IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 66
Signatures 76
PART I
Item 1 BUSINESS
Description of Business
InterTAN, Inc. ("InterTAN" or the "Company") was incorporated in the State of
Delaware in June 1986 in order to receive from RadioShack Corporation
("RadioShack U.S.A."), formerly named Tandy Corporation, the assets and
businesses of its foreign retail operations, conducted in Canada under the
"RadioShack" trade name and in Australia, the United Kingdom and Europe under
the "Tandy" trade name. Following the transfer of assets, on January 16, 1987
RadioShack U.S.A. distributed shares of InterTAN common stock to the RadioShack
U.S.A. stockholders in a tax-free distribution on the basis of one InterTAN
share for every ten RadioShack U.S.A. shares held. Thus RadioShack U.S.A.
effected a spin-off and divestiture of these foreign retail operations and its
then ownership interest in InterTAN and its operations, thereby constituting
InterTAN as an independent public corporation. The company's operations in
continental Europe were closed during fiscal years 1993 and 1994. During fiscal
year 1999, the Company sold its subsidiary in the United Kingdom. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Loss on Sale of United Kingdom Subsidiary and Other Restructuring
Charges".
InterTAN is engaged principally in the sale of consumer electronics products and
services through company-operated retail stores and dealer outlets in Canada and
Australia. In Canada, the Company also operates cellular telecommunications
stores (the "Rogers AT&T Stores") on behalf of Rogers Cantel Inc. See
"Geographic Analysis - Canada". InterTAN's ongoing retail operations are
conducted through two wholly-owned subsidiaries: InterTAN Australia Ltd.
("InterTAN Australia"), a New South Wales corporation which operates in
Australia under the trade name "Tandy" and InterTAN Canada Ltd. ("InterTAN
Canada"), a British Columbia corporation which operates in Canada under the
trade name "RadioShack.". As used herein, "InterTAN" or "Company" sometimes
collectively refers to InterTAN, InterTAN Australia and InterTAN Canada,
according to the context.
As at June 30, 2000, InterTAN's company-operated retail stores and dealers
totalled 1,143 consisting of 463 company-operated and 350 dealer stores in
Canada, and 220 company-operated and 110 dealer stores in Australia. In
addition, at June 30, 2000, the Company operated 51 Rogers AT&T Stores in
Canada.
The format for InterTAN's company-operated stores typically incorporates the
concept of small, strategically located stores in malls and shopping centers in
Canada and malls, shopping centers and street locations in Australia, each
providing the customer with convenience and readily available products and
services to meet a wide range of consumer electronic needs. InterTAN emphasizes
product knowledge and customer service. The Company believes that its sales
associates are noted for their helpfulness and product knowledge and that
customers look to the Company's stores to find the answers to their technology
questions. The Company is in the process of installing an E-learning system to
further build on this strength.
The "dealers" included in the above totals are independent retail businesses
which operate under their own trade names but are permitted, under dealer
agreements, to purchase any of the products sold by company-operated stores.
The dealer agreements contain a sub-license permitting such dealer to designate
its consumer electronics department or business as a:"RadioShack Dealer" or a
"Tandy Dealer", as applicable. InterTAN's dealer network enables the Company to
penetrate smaller markets which do not have a population base large enough to
support a company-operated store.
4
InterTAN also provides after-sale service for all the products it sells during
warranty periods and beyond. The Company has adopted RadioShack USA's "Repair
Shop at RadioShack" program in each of its markets. Under this program, the
Company offers out-of-warranty repair service to customers for a wide range of
nationally branded electronic products. The Company's service centers provide
repair capability within a satisfactory turnaround period. The Company also
offers extended warranty plans to its customers. Under these plans, the Company
will either repair or replace defective product, depending on the nature of the
contract, for a specified number of years beyond the normal warranty period.
An E-commerce site, RadioShack.ca, offering customers the opportunity to
purchase over 100,000 products through the Internet was introduced in Canada in
September, 1999. See " Geographic/Segment Analysis - Canada". Introduction of
this concept into the Australian market will likely occur during fiscal year
2001.
Employees
As at June 30, 2000 InterTAN employed approximately 3,425 persons. The managers
and sales associates in the Company's contract managed stores in Australia are
not considered to be employees of the Company and are, therefore, not included
in this total. See "Geographic/Segment Analysis - Australia". Approximately 97
of InterTAN Canada's employees, who are engaged in InterTAN Canada's warehousing
and distribution operations, are represented by unions. Approximately 37 of
InterTAN Australia's employees are represented by two separate unions.
Approximately 31 of those individuals are employed in warehousing operations.
The Company considers its relationships with its employees to be good.
Products and Distribution
InterTAN's strategy focuses on a product plan dedicated to profitable sales
growth by improving gross profit dollars while at the same time increasing
sales. Fundamental to this plan is a product offering which includes both
national brands and private label goods, emphasis on strategically selected core
categories which yield attractive margins, and in which management believes the
Company has a strong position in all of its markets, and managing the percentage
of lower margin product in the overall sales mix. This strategy has been
complemented by the introduction of certain service initiatives designed not
only to produce revenue in their own right, but also to increase traffic in the
Company's stores. Many of these service initiatives include residual revenues
which serve to improve gross margins.
InterTAN's stores carry a broad range of brand name and private label, quality
consumer electronic products. The selection of products offered for sale is
comprehensive, ranging from, among other things, small parts and accessories to
large ticket items such as computers and stereo systems. Types of product
include: telecommunications products and services, personal electronics,
computers and related services, batteries, parts and accessories, communications
products and audio/video gear. The product line in InterTAN stores varies from
country to country due to, among other things, product availability, local laws,
regulations, varying electronic and telecommunications standards and consumer
preferences. It is management's view that the range of products offered by
InterTAN, in particular its parts and accessories, is broader than that
typically offered by others in the retail consumer electronics industry. Many
products sold through the Company's retail outlets are sold by many other retail
stores, including department stores, consumer electronics chains and computer
outlets.
Historically, InterTAN was for the most part a private label retailer. While
brand name products were included in the product assortment, they were selected
primarily to complement the Company's own private label lines as extensions or
to offer consumers a choice against which they could compare the relative
capability and value of InterTAN's private label products. Over the last two
years, this strategy has undergone a re-evaluation. The pace at which new high-
tech, digital products are being introduced into the market place has been
torrid. Had
5
the Company continued its private label strategy, many opportunities would have
been missed because of the time involved in bringing private label offerings of
these products to market. In addition, the increasing brand consciousness of
consumers was essentially inconsistent with a focussed, private label strategy.
From a merchandising point of view, increasingly shorter product life cycles
conflicted with the large minimum order requirements needed to sustain a
broadly-based private label offering. In today's rapidly changing world in
consumer electronics, product must be purchased on a just-in-time basis in order
to minimize the risk of obsolescence.
As part of its efforts to meet its customers demands, the Company now offers a
wide range of nationally and internationally branded product including, among
others, Panasonic, Compaq, Sony, Lexmark, Sharp, StarChoice, Express Vu, Kodak,
JVC, NEC/Packard Bell, Optus, Telstra and Sanyo (the lack of a (R), TM or SM is
not intended regarding all of the names referred to herein above, to indicate a
lack of registration therefore). While this strategy, in combination with
others, has resulted in a significant increase in gross profit dollars, the
strategy has also put pressure on the gross margin percentage as branded goods
generally carry margins below those of the Company's historical private label
offerings. However, this pressure is partially mitigated by the fact that
branded product can often be acquired under more favorable terms, provides
advertising support, reduces warranty exposure and reduces inventory risks. The
result of this strategy and others has been collectively to improve the
Company's operating margins.
While the Company's merchandising strategy has changed radically, it by no means
intends to completely abandon its private label lines. Management believes that
its private label products offer value to the consumer and also produce above
average margins for the Company. For these reasons, certain end products will
continue to be offered in areas where the Company has built credibility with
consumers. In addition, the Company's extensive assortment of accessories and
batteries will continue to be primarily house-branded. As part of this
strategy, the Company works closely with RadioShack U.S.A.'s purchasing and
export agent, A&A International, Inc. ("A&A") in an effort to leverage
RadioShack U.S.A.'s sourcing capabilities to negotiate favorable prices with Far
East vendors. See "Suppliers" and "Merchandise, License and Advertising
Agreements".
The Company's private label products are similar, and in many instances
identical, to those sold through RadioShack U.S.A.'s retail stores in the United
States. Certain of these products carry the trade-marks RadioShack and Optimum,
among others, which are used under license from RadioShack U.S.A. See
"Merchandise, License and Advertising Agreements - License Agreements." Other
products carry the Company's trademarked brands, include Techcessories.
Management Information Systems
The Company's information systems are used to process inventory, accounting,
payroll, communications and other operating information for all aspects of the
Company's operations. In addition, each of the Company's stores has one or more
computers which serve as point-of-sale terminals and are linked to that
particular country's operational headquarters. This information network,
referred to as EPOS, provides detailed sales and margin information on a daily
basis, updates InterTAN's customer database and provides improved financial
controls, as well as acting as a monitor of individual store performance. The
EPOS systems are also linked directly to a system used to automatically
replenish a store's stock as inventory is sold. During the past two years and
on a continuing basis, significant refinements have been made to the Company's
information systems in order to increase the efficiency of inventory flow,
advertising and consumer information, E-Commerce, and to enhance opportunities
for employee learning. A new enterprise management system is also being
installed in the Australian subsidiary.
6
Suppliers
During fiscal year 2000, InterTAN Canada and InterTAN Australia acquired
approximately 16% of their inventory pursuant to a merchandise agreement with
RadioShack U.S.A. and acquired the balance from numerous other manufacturers
located in the United States and in the countries in which InterTAN has
operations. InterTAN uses A&A as its exclusive purchasing agent and exporter in
the Far East. See "Merchandise, License and Advertising Agreements -
Merchandise Agreement."
InterTAN purchased approximately $46,000,000 of products through RadioShack
U.S.A. in fiscal year 2000. Under its merchandise arrangements with RadioShack
U.S.A., InterTAN may purchase any private label products which RadioShack U.S.A.
has available for sale in the United States in its then current catalog, or
those products which may otherwise be reasonably available from RadioShack
U.S.A. or through A&A. Through its ongoing relationship with RadioShack U.S.A.,
InterTAN is able to take advantage of RadioShack U.S.A.'s sourcing strength to
obtain selected products which management believes generate gross margins which
are higher than industry averages and which offer enhanced customer value. The
Company also uses this relationship to offer its customers a broad and deep
range of parts and accessories. While the Company from time to time enters into
exclusivity arrangements with certain suppliers (see "Business - Strategic
Alliances"), with the exception of Rogers AT&T, InterTAN is not materially
dependent on any one supplier other than RadioShack U.S.A. See "Merchandise,
License and Advertising Agreements." A loss or disruption of supply from Rogers
AT&T could have a material adverse effect on RadioShack Canada's business until
such time as an alliance could be concluded with one of Canada's three other
major cellular carriers.
Geographic/Segment Analysis
InterTAN is organized along geographic lines. The Company's segments include
its Canadian and Australian retail operations and its Corporate Headquarters.
InterTAN closed all company-operated outlets in continental Europe during fiscal
years 1993 and 1994 and sold its United Kingdom subsidiary during fiscal year
1999. InterTAN has broader market coverage than most of its competitors due to
the large number of stores in each country in which it operates. Market
coverage is further enhanced by the Company's dealer networks.
During fiscal year 1999, the Company's Corporate Headquarters was relocated from
the United States to Canada.
A table appears in Note 16 to the Consolidated Financial Statements which
appears on page 62 of this Annual Report on Form 10-K which shows net sales,
depreciation and amortization, operating profit (loss), identifiable assets and
capital expenditures of the Company by segment / geographic area for the three
years ended June 30, 2000. This table is incorporated herein by reference.
Canada
As at June 30, 2000, InterTAN Canada operated a total of 463 RadioShack stores
in Canada. In addition, a network of dealers accounted for a further 350 retail
locations. InterTAN Canada uses a form of contract management program, similar
to that used in Australia, in a small number of its company-operated stores.
See "Geographic Analysis - Australia". The Company also operated 51 Rogers AT&T
Stores at June 30, 2000. See "Strategic Alliances - Canada - Rogers AT&T
Stores."
The average size of a RadioShack Canada store is approximately 1,800 square
feet. During fiscal year 2000 the Company opened 21 "new concept" stores.
These stores have a larger footprint than the Company's regular stores (2,500-
4,000 square feet). These stores are located in both enclosed shopping centers
and power center strip plazas and represent either a new store or the relocation
and reformatting of an existing store. In addition
7
to the Company's full product assortment, the new concept stores carry a
significantly expanded range of audio/video products. The Company also operates
a few express stores in Canada. These express stores feature a targeted range of
merchandise in a more compact floor plan and were established in high traffic
areas that did not have a company-operated store or which could support a second
location. A clearance center is also in operation in Canada.
During fiscal year 2000, the Company also launched its e-commerce site,
RadioShack.ca. This virtual store allows customers the convenience of shopping
for a wide variety of electronics and other products from their desktop.
Customer's have the option of having product delivered to their door or taking
delivery at their nearest RadioShack store. The Company's alliance with
Chapters Online not only gives the Company's products more exposure to
consumers, but also expands the product offering. The Company intends to
closely weave its on-line presence with its physical stores by introducing
browse and order stations intended to maximize product access by its customers
and sales associates. See "Strategic Alliances - Canada - Chapters Online".
The consumer electronics industry in Canada is highly competitive. Based on
publicly available material, InterTAN believes that the largest retailer in
Canada in fiscal year 2000 (other than department stores) which had a product
line similar to, or competitive with, products offered for sale by InterTAN
Canada was Future Shop which operated through approximately 83 locations.
InterTAN's other main competitors in Canada are department stores, computer and
business product specialty retailers, general retailers and other consumer
electronics retailers. While there can be no assurance as to the extent to
which competition may affect future sales growth and profit potential,
management believes that InterTAN Canada's range of products and service
orientation differentiate the Company from other consumer electronics retailers
in Canada, or similar big box entrants into the marketplace. The Company has
also established a market position in important growth categories, including
wireless and other digital products, and direct-to-home satellite systems. The
Company also distinguishes itself from its competitors through its "Power-Up"
philosophy, which espouses that most product on display be either plugged in or
loaded with batteries so that hands on demonstrations can be given to customers.
InterTAN Canada's RadioShack stores are very similar to those operated by
RadioShack U.S.A. in the United States. Because of its geographic proximity to
the United States, InterTAN Canada enjoys the benefit of name recognition, and
advertising in general, as many of RadioShack U.S.A.'s advertising programs
penetrate the border through media such as cable television and print media.
The Company is the market leader in Canada in the number of retail locations and
offers the broadest geographic coverage. InterTAN Canada also maintains a
strong presence in secondary retail markets through its dealer network.
Australia
As at June 30, 2000, InterTAN Australia had 220 company-operated stores and 110
dealer stores. Of the 220 company-operated retail stores, 144 were operated
under "contract management" arrangements. Under the contract management
arrangement, the store manager is not employed by InterTAN Australia. InterTAN
Australia supplies the store inventory. The store manager is generally obliged
to build up a cash deposit to InterTAN Australia amounting to up to 50% of the
average stock value at the store. The gross profit attained by the store is
split between InterTAN Australia and the contract manager, who is responsible
for paying normal operating expenses such as labor and utility costs out of
his/her share of the gross profits. Out of its share of the gross profits,
InterTAN Australia is responsible for all occupancy related payments under the
relevant stores lease and other fixed operating expenses. InterTAN Australia is
committed to providing warranty and service back-up, including advertising and
training. Management believes that the contract management program is
successful in improving margins and reducing costs by better aligning Company
and contract managers' profit goals.
8
The Company's stores in Australia are generally smaller than their Canadian
counterparts and average approximately 1,400 square feet. The Company is
actively experimenting with larger formats in Australia. These new stores offer
an expanded product range. A sound room is available to demonstrate audio
products and home theatre. Four of these stores were opened in fiscal year
2000. Early in fiscal year 2000, the Company completed the design of its "Next
Generation" Tandy Australia store. These stores feature a fresh new look,
enhanced lighting and an enhanced graphic display of product from key branded
vendors including Compaq, Panasonic and Sony. Eleven of these Next Generation
stores were installed in fiscal year 2000 and the Company expects to remodel
and/or relocate approximately 50-60 additional stores during fiscal year 2001.
A clearance center was opened early in fiscal year 2001 and express stores,
similar to those in Canada, are under consideration. The Company anticipates
that an e-commerce site will be operational in Australia by the end of fiscal
year 2001.
Management believes that InterTAN's primary competitors in Australia are Dick
Smith and Harvey Norman which, based on recently available public information,
have approximately 130 and 80 stores, respectively. Dick Smith also operates
through a dealer network of approximately 80 stores. Other competitors in
Australia include department stores and big box chains specializing in business-
related products. Competition in Australia also includes independently owned
electronics retailers organized into large buying groups, such as Betta and
Retravision, each having several hundred members.
As in Canada, the Company differentiates itself from the competition through its
market coverage, product assortment, level of customer service, its market
position in important new growth categories and through its "Power-Up" program.
Strategic Alliances
InterTAN has the largest number of sales outlets among consumer electronics
retailers in both Canada and Australia. The Company has over 25 years of retail
experience in each of its markets and is known for its knowledgeable and
friendly sales associates. Management believes that there are opportunities to
leverage on this strength by forming strategic alliances with other businesses
which are also leaders in their respective fields.
Canada
Rogers AT&T Stores
The Company has entered into an alliance with Rogers Cantel Inc. ("Cantel") to
operate telecommunications stores on that company's behalf. These stores, which
originally traded under the "Cantel" banner, have recently been remodelled and
now trade under the banner "Rogers AT&T". At June 20, 2000 the Company operated
51 Rogers AT&T stores in major malls across Canada. These stores predominantly
carry Rogers AT&T cellular communications products and accessories.
Additionally, most of RadioShack Canada's 463 company-operated stores
exclusively feature Rogers AT&T wireless communications products and services.
Cantel funded the fixturing of "Special" sections in those stores for the
exclusive offering of Rogers AT&T cellular products (including digital), paging
and other services. This relationship aligns the Company's consumer electronics
retail expertise with Rogers AT&T technological strength.
Panasonic
During fiscal year 1999, the Company tested a store-in-store concept with
Panasonic. This test was carried out in 20 of the Company's stores and featured
Panasonic displays, funded by Panasonic, with a deeper than typical product
assortment. This test was highly successful and was expanded to a total of 200
Canadian stores in time for the 1999 holiday season. The stores with these
fixtures consistently out perform the Company's other stores
9
in the audio/video category. Subsequently, the respective companies have agreed
to extend this fixture to an additional 200 stores for a total of 400 stores.
Cable Modem Service
The Company has formed alliances with five of Canada's premier cable providers,
Rogers Communications, Cogeco Cable Systems Inc., Le Groupe Videotron Ltee.,
Videon CableSystems Inc. and Shaw Communications Inc. These alliances will make
internet connectivity through high speed cable modem available in the Company's
stores. The Company will continue to refine its Internet strategy as
technological advances and market opportunities dictate.
Microsoft / AT&T
The Company has entered into an agreement with Microsoft Canada Co. and AT&T
Canada which will enable InterTAN to offer an expanded product line to both on-
line and offline customers by placing Internet-enabled, in-store kiosks in the
Company's stores. This expanded offering was made possible by the replacement
of RadioShack.ca's existing technology with a Microsoft e-commerce solution. As
part of this alliance, Microsoft hardware and software as well at AT&T Canada's
broadband Internet service will be available in in-store departments in the
Company's Canadian stores.
Australia
Cellular
The Company has entered into an arrangement with Cable and Wireless Optus
("Optus") to offer its cellular products in Tandy's 220 company-operated stores.
As a part of this arrangement, the Company receives training programs, marketing
support and a share of future air time revenues. Optus also funded the
construction of display cabinets for its cellular products in most of the
Company's Australian stores. In addition, new products and end services
released by Optus such as SMS (Short Messaging Service), WAP (Wireless
Application Protocol), and GPRS (General Packet Radio Service) will be available
to the Company's customers.
The Company has recently re-evaluated its single carrier philosophy in the
Australian market. In order to present a more varied choice to consumers and to
take full advantage of all available technological innovations, the Company has
entered into agreements with Vodafone to sell both its contract and pre-paid
products. The Company has also formed an alliance with Hutchinson
Telecommunication (Australia) Limited to sell that company's innovative new
product, Orange One.
Internet connections
The Company is in the process of initiating high speed cable modem and DSL
solutions with Optus and Telstra.
Compaq, Sony, Kodak and Panasonic
Similar in concept to its Canadian alliance with Panasonic, the Company has
formed a relationship in Australia with Compaq, Sony, Kodak and Panasonic. Under
these alliances, the Company will feature a significant product assortment
highlighted by enhanced graphical store-in-store representations for these key
brands.
The Company will continue to pursue additional alliance opportunities, to the
extent practical, in other areas of its business in both Canada and Australia.
10
Merchandise, License and Advertising Agreements
Merchandising Agreement
The Company and RadioShack U.S.A. are parties to a Merchandise Agreement which
requires the Company to use A&A as its exclusive purchasing agent for products
from the Far East during the term thereof. Consequently, the Company must pay
A&A an annual purchasing agent/exporter fee. For fiscal year 2000 and future
periods this fee was set at $710,000 and will increase pro-rata if sales exceed
$400,000,000 and will be reduced by certain credits the Company earns by
purchasing products from A&A. This agreement expires June 30, 2010.
License Agreements
The Company has license agreements with RadioShack U.S.A. which permit InterTAN
to use the "RadioShack" trade name in Canada and the "Tandy" trade name in
Australia and New Zealand. The expiry date of these license agreements is June
30, 2010. The license agreements may be terminated with five years' prior
written notice by either party. Each of the license agreements also provides
for a license to use certain of RadioShack U.S.A.'s trademarks. In addition,
InterTAN has the right to sub-license to its dealers. In consideration for
these rights, the Company is obliged to pay a sales-based royalty of up to 1% of
consolidated sales. Both the Merchandise Agreement and the license agreements
may be revoked by RadioShack U.S.A. in the event of a change in control of
InterTAN or a breach of the terms of these agreements.
The rights to use the trade names licensed by RadioShack U.S.A. are currently,
and in varying degrees (depending on the country of business), an integral part
of InterTAN's marketing strategy. The loss of the licenses would have a
material adverse impact on the business of InterTAN.
Advertising Agreement
Pursuant to an advertising agreement with RadioShack U.S.A., the Company is
entitled to the limited use of certain marketing materials, research and marks
developed by or for RadioShack U.S.A. since January 1, 1994, including the
services marks "You've got questions. We've got answers." and "The Repair Shop
at RadioShack". The right to use any marks covered by the agreement are vested
in the Company by being added to the license agreements described above. The
fee paid to RadioShack U.S.A. under this agreement for calendar year 2000 has
been set at $125,000.
Seasonality
Like other retailers, InterTAN's business is seasonal, with sales peaking in the
November - December holiday selling season. Cash flow requirements are also
seasonal since inventories build prior to the holiday selling seasons.
Significant inventory growth for all operations typically begins to build in
late summer and peaks in mid November.
Competition
InterTAN is a specialty consumer electronics retailer. Products substantially
similar to many of those sold through InterTAN's retail outlets are sold by any
other retail stores, including department and discount stores, consumer
electronics chains and computer outlets. See "Geographic Analysis." Some of
these competitors have greater resources, financial or otherwise, than InterTAN.
Backlog of Orders
The Company has no material backlog of orders for the products it sells.
Factors That Could Affect Future Performance
11
This report contains certain forward-looking statements about the business and
financial condition of InterTAN, including various statements contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below. The forward-looking statements are reasonably based on
assumptions regarding future events which are subject to important risk factors.
Accordingly, actual results may vary significantly from those expressed in the
forward-looking statements, and the inclusion of such statements should not be
regarded as a representation by the Company or any other person that the
anticipated results expressed therein will be achieved. The following
information sets forth certain factors that could cause the actual results to
differ materially from those contained in the forward-looking statements.
Reliance on RadioShack U.S.A. Relationship
RadioShack U.S.A., including certain of its affiliates, is one of the Company's
principal suppliers and is the licensor of the Company's principal trade names
and marks. Maintaining its contractual relationships, particularly the supply
and license arrangements, with RadioShack U.S.A. is critical to the Company.
The loss of such relationships with RadioShack U.S.A. would have a material
adverse effect on the Company. See "Business - Suppliers", "- Merchandise,
License and Advertising Agreements" and Note 6 to the Consolidated Financial
Statements which is incorporated herein by reference.
Quarterly Variations; Seasonality
The Company's quarterly results of operations may fluctuate significantly as the
result of the timing of the opening of, and the amount of net sales contributed
by, new stores and the timing of costs associated with the selection, leasing,
construction and opening of new stores, as well as seasonal factors, product
introductions and changes in product mix. In addition, sales can be affected as
a result of store closures. The Company's business is seasonal, with sales and
earnings being relatively lower during the fiscal quarters other than the second
fiscal quarter which includes the holiday selling season. Adverse business and
economic conditions during this period may adversely affect results of
operations. In addition, excluding the effects of new store openings, the
Company's inventories and related short-term financing needs are seasonal, with
the greatest requirements occurring during its second fiscal quarter. The
Company's financial results for a particular quarter may not be indicative of
results for an entire year and the Company's revenues and/or expenses will vary
from quarter to quarter. The Company's operating results may also be affected
by changes in global economic conditions in the markets where its stores are
located, as well as by weather and other natural conditions. See "Business -
Seasonality" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations " which is incorporated herein by reference.
Competition
The retailing industry in which the Company operates is highly competitive.
Products substantially similar to those sold through the Company's retail
outlets are sold by many other retail stores, including department and discount
stores, consumer electronics chains, cellular specialists and computer outlets.
The nature and extent of competition differs from store to store and also from
product line to product line. Certain of the Company's competitors are larger,
have a higher degree of market recognition and have greater resources, financial
or otherwise, than the Company.
The Company believes that the major competitive factors in its businesses
include customer service, store location and number of stores, product
availability and selection, price, technical support, and marketing and sales
capabilities. The Company's utilization of trained personnel and the ability to
use national and local advertising media in each country in which it operates
are important to the Company's ability to compete in its businesses. Given the
highly competitive nature of the retail industry, no assurances can be given
that the Company will continue to compete successfully with respect to the
above-referenced factors. See "Business - Geographic/Segment Analysis."
12
Product Supply
The Company's merchandise strategy places emphasis on private label products in
certain product categories. These products are typically sourced for the
Company in the Far East and manufactured to the Company's order and
specification. Consequently, private label products require larger minimum
order quantities and longer lead times than nationally branded product which is
generally available locally on reasonably short notice. There can be no
assurance that the Company will be able to arrange for the production of private
label goods to the level required to meet its merchandising and profit
objectives. The private label goods being sourced by the Company in the Far
East are also typically purchased by RadioShack U.S.A. and are, therefore,
manufactured to North American standards. These products are, with minor, and
in many cases, no modifications, suitable for sale in Canada. However, the
Company's Australian operation requires products using voltage and other
specifications which differ from North American standards. There can be no
assurance that vendors will agree to manufacture products to these
specifications in quantities that are affordable to the Company. Delays in the
timing of arrival of goods from the Far East could also have an adverse impact
on the Company's business, particularly delays during the holiday selling
season. See "Business - Products and Distribution" and "- Suppliers"
Dependence on Product Development
The Company's operating results are, and will continue to be, subject in part to
the introduction and acceptance of new products in the consumer electronics
industry. Fluctuations in consumer demand, which could be caused by lack of
successful product development, delays in product introductions, product related
difficulties or lack of consumer acceptance, could adversely affect the growth
rate of sales of products and services and could adversely affect the Company's
operating results. The Company's operating results are also affected by its
ability to anticipate and quickly respond to the changes taking place in its
markets as consumers' needs, interests and preferences alter with time. There
can be no assurance that the Company will be successful in this regard. See
"Business - Products and Distribution" and " - Strategic Alliances."
Offering Additional Products and Services
The Company's strategy, particularly through certain of its strategic alliances,
includes offering direct-to-home satellite and additional communications
products and services, which may include, among others, paging, cable
television, home security monitoring and communication, cellular phone service,
local and long-distance phone service, and Internet access. Entry into new
markets entails risks associated with the state of development of the market,
intense competition from companies already operating in those markets, potential
competition from companies that may have greater financial resources and
experience than the Company, regulatory changes, and increased selling and
marketing expenses. There can be no assurance that the Company's products or
services will receive market acceptance in a timely manner, or at all, or that
prices and demand in new markets will be at a level sufficient to provide
profitable operations. See "Business - Products and Distribution" and "-
Strategic Alliances."
Reliance on Store Locations
The Company's success is dependent in part upon its ability to open and operate
new stores on a profitable basis and to increase sales at existing stores. The
Company's performance is also dependent to a significant degree upon its ability
to hire, train and integrate qualified employees into its operations. The
Company plans to open approximately 25 new stores in Canada and Australia in
fiscal year 2001. There can be no assurances that the Company will be able to
locate and obtain favorable store sites to meet its goals, attract and retain
competent personnel, open new stores on a timely and cost-efficient basis or
operate the new and existing stores on a profitable basis. The Company plans to
open new stores in existing markets, which may result in the diversion of sales
from existing stores and thus some reduction in comparable store sales. See
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Net Sales and Operating Revenues."
Need for Additional Financing
13
The Company requires substantial capital to fund its inventory purchases and
store openings and renovations. The Company's ability to grow sales and the
future of its operations may be affected by the availability of financing and
the terms thereof. There can be no assurance that the Company will have access
to the financing necessary to meet its sales growth plans or that such financing
will be available to the Company on favorable terms. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" which is incorporated herein by reference.
Possible Income Tax Reassessments
The Company has been in discussion with Revenue Canada regarding several issues
for a number of years. While many of these issues have been settled, certain
others remain outstanding. The Company has also filed a protest to certain
claims asserted by the Internal Revenue Service following an audit of the
Company's United States income tax returns for the 1990 to 1994 fiscal years.
Depending on the level of reassessments which may be received, the Company may
need to seek additional financing to pay such reassessments or post deposits
necessary to pursue its rights of appeal. There can be no assurance that such
additional financing would be available. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Income Taxes" and "-
Liquidity and Capital Resources" which is incorporated herein by reference.
Management Information Systems
The Company's success is dependent to a significant degree upon the accuracy and
proper utilization of its management information systems. For example, the
Company's ability to manage its inventories, accounts receivable, accounts
payable and to price its products appropriately, depends upon the quality and
utilization of the information generated by its management information systems.
In addition, the success of the Company's operations is dependent to a
significant degree upon its management information systems. The failure of the
Company's management information systems to adapt to business needs resulting
from, among other things, expansion of its store base and the further
development of its various businesses, could have a material adverse effect on
the Company. See "Business - Management Information Systems."
Volatility of Stock Price
The price of the Common Stock may be subject to significant fluctuations in
response to the Company's operating results, developments in the consumer
electronics industry, general market movements, economic conditions, and other
factors. For example, announcements of fluctuations in the Company's, its
vendors' or its competitors' operating results, and market conditions for growth
stocks or retail industry stocks in general, could have a significant impact on
the price of the Common Stock. In addition, the U.S. stock market in recent
years has experienced price and volume fluctuations in general that may have
been unrelated or disproportionate to the operating performance of individual
companies. These fluctuations, as well as general economic and market
conditions, may adversely affect the market price of the Common Stock and the
ability of the Company to access the capital markets, if necessary, to finance
its future operations. See "Market for the Registrant's Common Equity and
Related Stockholder Matters" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
which is incorporated herein by reference.
Currency Fluctuation and Global Economic Risks
The Company's financial results are reported in U.S. Dollars. Due to the
structure of the Company's operations, possible periodic fluctuation of local
currencies against the U.S. dollar will have an impact on the Company's
financial results. The Company's subsidiaries conduct business in foreign
currencies; accordingly, depreciation in the value of those currencies against
the U.S. dollar reduces earnings as reported by the Company in its financial
statements. The Company's Canadian and Australian subsidiaries purchased
approximately 16% of their inventory through RadioShack U.S.A. in fiscal 2000.
These purchases were all made in U.S. dollars and the products purchased were
sold in Canada and Australia in local currencies. Accordingly, exchange rate
fluctuations could have
14
an effect on the Company's gross margins. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations" which is incorporated herein by reference.
Currency exchange rates may fluctuate significantly over short periods of time.
Such rates generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates, and other complex
factors, as seen from an international perspective. Currency exchange rates
also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments in the United States or abroad.
Furthermore, due to the nature of the Company's operations, the operating
results of the Company may, from time to time, be generally affected by global
economic and political conditions and such conditions in each particular country
in which the Company operates.
Item 2 PROPERTIES
InterTAN owns two facilities consisting of a 402,000 square-foot building (owned
by InterTAN Canada) containing office and warehouse space in Barrie, Ontario,
Canada, where the headquarters of InterTAN Canada are located, and two buildings
aggregating 152,000 square-feet (owned by InterTAN Australia) containing office
and warehouse space in Mount Druitt, New South Wales, Australia, where the
headquarters of InterTAN Australia are located.
InterTAN's head office is located in a leased 5,600 square-foot facility near
Toronto, Ontario, Canada. With the exception of a retail store being located in
each of InterTAN's company-owned properties discussed above, InterTAN's
retailing operations are primarily conducted in leased facilities. The average
store size is between 1,200 and 1,800 square feet.
Additional information on the Company's properties is found in "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and in
the "Notes to Consolidated Financial Statements" and is incorporated herein by
reference. The following items are discussed further in the referenced pages of
this Form 10-K.
Pages
-----
Rent Expense 28
Retail Square Feet 17
Sales Outlets 22
Item 3 LEGAL PROCEEDINGS
With the exception of the matters discussed in Notes 4 and 10 of the "Notes to
Consolidated Financial Statements" on page 50 and 53, respectively, of this Form
10-K, such Notes being incorporated herein by reference, there are no material
pending legal proceedings, other than ordinary routine litigation incidental to
InterTAN's business, to which InterTAN or any of its subsidiaries is a party or
to which any of their property is subject.
15
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
Item 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY RELATED
STOCKHOLDERS MATTERS.
The principal United States market in which InterTAN's common stock trades is
the New York Stock Exchange. The common stock also trades in Canada on the
Toronto Stock Exchange.
The high and low closing prices in U.S. dollars of InterTAN's common stock on
the New York Stock Exchange for each full quarterly period within the two most
recent fiscal years is as set out below:
(restated for 3 for 2 stock split)
Quarter ended High Low
- -------------------------------------------------------------------------------
June 2000 $ 14.00 $ 10.38
March 2000 17.79 8.94
December 1999 19.21 12.67
September 1999 14.59 11.00
June 1999 13.33 6.17
March 1999 6.83 4.04
December 1998 4.46 2.38
September 1998 4.00 2.38
As of August 31, 2000 there were approximately 10,400 record shareholders of
InterTAN's common stock. This number excludes shareholders holding stock under
nominee security position listing.
InterTAN has never declared cash dividends. Based upon InterTAN's long-term
growth opportunities, in the opinion of management, the stockholders are best
served by reinvesting all profits.
16
Item 6 SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
(In thousands, in U.S. dollars, except percent, per share data,
number of sales outlets and number of employees) Year ended June 30
2000 1999/2/ 1998
- -------------------------------------------------------------------------------------------------------------
OPERATING RESULTS:
- -------------------------------------------------------------------------------------------------------------
Net sales $ 484,218/1/ $ 500,050 $541,374
Gross profit percent 42.0 43.8 43.1
Operating income (loss) 44,005 3,014 2,360/3/
Net income (loss) 25,120 (24,645) (12,773)
Basic net income (loss)
per average common share 0.85 (1.17) (0.70)
Diluted net income (loss)
per average common share 0.82 (1.17) (0.70)
- -------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR END:
- -------------------------------------------------------------------------------------------------------------
Total assets 208,076 198,315 223,547
Net working capital 104,462 96,966 103,701
Long-term debt - - 38,706
Stockholders' equity 118,776 110,760 85,990
- -------------------------------------------------------------------------------------------------------------
OTHER INFORMATION AT YEAR END:
- -------------------------------------------------------------------------------------------------------------
Market capitalization 337,323 397,104 67,048
Number of sales outlets 1,143 1,127/4/ 1,517/4/
Retail square feet
(company-operated stores) 1,131 1,071 1,354
Number of employees 3,435 3,155 4,105
1997 1996
- --------------------------------------------------------------------------------------
OPERATING RESULTS:
- --------------------------------------------------------------------------------------
Net sales $519,318 $ 506,445
Gross profit percent 44.8 44.3
Operating income (loss) (3,801)/5/ 11,629
Net income (loss) (16,609) (2,241)
Basic net income (loss)
per average common share (0.97) (0.14)
Diluted net income (loss)
per average common share (0.97) (0.14)
- --------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR END:
- --------------------------------------------------------------------------------------
Total assets 254,307 261,633
Net working capital 138,532 145,471
Long-term debt 57,558 64,730
Stockholders' equity 106,234 119,512
- --------------------------------------------------------------------------------------
OTHER INFORMATION AT YEAR END:
- --------------------------------------------------------------------------------------
Market capitalization 43,783 64,242
Number of sales outlets 1,683/4/ 1,780
Retail square feet
(company-operated stores) 1,479 1,424
Number of employees 4,366 4,343
/1/ Fiscal year 2000 was the first full year following the sale of the Company's
former subsidiary in the United Kingdom. If sales in that subsidiary were
excluded from fiscal years 1999, 1998, 1997 and 1996, sales in those years would
have been $402,909,000, $368,846,000, $354,535,000 and $343,309,000,
respectively.
/2/ Fiscal year 1999 includes the sales and operating results of the Company's
former subsidiary in the United Kingdom for the first six months of the year as
well as a loss on the disposal of this subsidiary of $35,088,000. Eliminating
the result of this subsidiary would increase operating income and reduce the net
loss by $31,723,000 and $32,641,000 respectively.
/3/ Fiscal year 1998 includes a provision for business restructuring in the
United Kingdom of $12,712,000. In addition, related inventory writedowns of
$2,325,000 were charged directly to gross profit.
/4/ In fiscal year 1999, the decline in the number of sales outlets is due to
the disposal of the Company's former subsidiary in the United Kingdom. In fiscal
1998, the decline was due primarily to the closure of stores under a
restructuring plan in the United Kingdom and the planned reduction in the number
of low volume dealers in all countries. The latter also affected the number of
outlets in fiscal 1997.
/5/ Fiscal year 1997 includes an asset impairment charge of $10,042,000 in the
United Kingdom.
17
Item 7 MANAGEMENT 'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ("MD&A").
Introductory Note Regarding Forward-Looking Information
Certain statements contained in MD&A including statements regarding the adequacy
of the indemnity obtained from the purchaser of the Company's former subsidiary
in the United Kingdom, the Company's prospects for continued sales growth in
direct to home satellite, audio / video and Family Radio Service in Canada, the
impact on future sales of expanding the cellular offering in Australia, changes
in the gross margin percentage, the Company's ability to increase residual
income streams, the impact of the goods and services tax on product pricing in
Australia, the level of future interest income, future effective tax rates, the
Company's ability to arrange a new revolving credit facility in Canada and the
Company's ability to meet its liquidity needs are forward looking statements
about the business, financial condition and prospects of InterTAN, Inc. (the
"Company" or "InterTAN"). The actual results of the Company could differ
materially from those indicated by the forward-looking statements because of
various risks and uncertainties including, but not limited to, international
economic conditions, interest and foreign exchange rate fluctuations, various
tax issues, including possible reassessments, changes in product demand,
competitive products and pricing, availability of products, inventory risks due
to shifts in market conditions, dependence on manufacturers' product
development, the regulatory and trade environment, real estate market
fluctuations and other risks indicated in the Company's previous filings with
the Securities and Exchange Commission. These risks and uncertainties are
beyond the ability of the Company to control, and in many cases the Company
cannot predict the risks and uncertainties that could cause its actual results
to differ materially from those indicated by the forward-looking statements.
Results of Operations
InterTAN is engaged in the sale of consumer electronics products primarily
through company-operated retail stores and dealer outlets in Canada and
Australia. The Company's retail operations are conducted through two wholly-
owned subsidiaries: InterTAN Australia Ltd., which operates in Australia under
the trade name "Tandy"; and InterTAN Canada Ltd., which operates in Canada under
the trade name "RadioShack". The Company previously also had retail and dealer
outlets in the United Kingdom. These operations were conducted through a
wholly-owned subsidiary, InterTAN U.K. Limited, which operated under the trade
name "Tandy". Effective January, 1999, the Company's subsidiary in the United
Kingdom was sold. See "Loss on Sale of United Kingdom Subsidiary and Other
Restructuring Charges". All of these trade names are used under license from
RadioShack Corporation ("RadioShack U.S.A."). In addition, the Company has
entered into an agreement in Canada with Rogers Cantel Inc. ("Cantel") to
operate telecommunications stores ("Rogers AT&T" stores) on its behalf. At June
30, 2000, 51 Rogers AT&T stores were in operation.
All references to "Canada" or "RadioShack Canada", "Australia" or "Tandy
Australia", the "United Kingdom" or "Tandy U.K." or "Corporate Headquarters"
refer to the Company's reportable segments, unless otherwise noted. The
RadioShack Canada segment includes the results of the Rogers AT&T stores
described above.
Stock Split
On November 30, 1999, the Company's Board of Directors announced a three-for-two
stock split of InterTAN's common stock for stockholders of record at the close
of business on December 16, 1999, payable on January 13, 2000. All references
made to the number of shares of common stock issued or outstanding, per share
prices and basic and diluted net income per common share amounts in the
consolidated financial statements and the accompanying notes and MD&A have been
adjusted to reflect the split on a retroactive basis. Previously
18
awarded stock options, restrictive stock awards and certain other agreements
payable in the Company's common stock have also been adjusted or amended to
reflect the split, on a retroactive basis.
Overview
Fiscal year 2000 was the first year in which the Company fully benefited from
the sale of its under-performing subsidiary in the United Kingdom. Sales were
strong in fiscal year 2000, with both Canada and Australia posting double-digit
comparable-store sales gains in all four quarters. Importantly, this sales
improvement was sustained to the operating income line which showed an
improvement, on a comparable basis, of approximately 27%.
There were a number of special factors and charges in fiscal years 1999 and 1998
that significantly impacted the Company's results of operations and affected the
comparability of the reported results with other periods. As previously
discussed, in January 1999 the Company sold its under-performing subsidiary,
InterTAN U.K. Limited, and recorded a loss of $35,088,000. See "Loss on Sale of
Former United Kingdom Subsidiary and Other Restructuring Charges." Also in
fiscal year 1999, the Company settled one of its long-standing disputes with the
Canadian tax authorities and recorded a related tax charge of $8,039,000. See
"Income Taxes."
In fiscal year 1998, the Company announced its plan to close 69 stores in the
United Kingdom and recorded a charge of $12,712,000 plus another $2,325,000 in
related inventory writedowns. See "Loss on Sale of Former United Kingdom
Subsidiary and Other Restructuring Charges."
The tables below reflect the Company's sales, operating income, net income
(loss), and net income (loss) per share for fiscal years 2000, 1999 and 1998,
adjusted to eliminate the following: sales and results of InterTAN UK Limited,
including the charge relating to the closure of 69 stores in fiscal 1998; the
loss on sale of InterTAN UK Limited; and the special tax charge relating to the
dispute settled with the Canadian tax authorities.
19
Year ended June 30
(in thousand, in U.S. dollars, expect per share data) 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Net sales and operating revenues as reported $ 484,218 $ 500,050 $ 541,374
Less sales of former United Kingdom subsidiary - (97,141) (172,528)
--------- --------- ---------
Net sales and operating revenues as adjusted $ 484,218 $ 402,909 $ 368,846
========= ========= =========
Operating income $ 44,005 $ 3,014 $ 2,360
Loss on sale of former United Kingdom subsidiary
and other restruturing charges - 35,088 12,712
Operating (income) loss of former United Kingdom
subsididary before restructuring charges - (3,365) 9,092/1/
--------- --------- ---------
Operating income as adjusted $ 44,005 $ 34,737 $ 24,164
========= ========= =========
Net income (loss) as reported $ 25,120 $ (24,645) $ (12,773)
Loss on sale of former United Kingdom subsidiary and
other restructuring charges - 35,088 12,712
Net (income) loss of former United Kingdom subsidiary
before restructuring charges - (2,447) 10,036/1/
Special provision for income taxes - 8,039 -
--------- --------- ---------
Net income as adjusted $ 25,120 $ 16,035 $ 9,975
========= ========= =========
Basic net income (loss) per average common share
as reported $ 0.85 $ (1.17) $ (0.70)
Diluted net income (loss) per average common share
as reported $ 0.82 $ (1.17) $ (0.70)
========= ========= =========
Basic net income per average common share as adjusted $ 0.85 $ 0.76 $ 0.55
========= ========= =========
Diluted net income per average common share as adjusted $ 0.82 $ 0.64 $ 0.45
========= ========= =========
/1/ Includes inventory writedowns of $2,325,000 associated with the
restructuring charge.
20
Segment Reporting Disclosures
The Company's business is managed along geographic lines. All references to
"Canada", "Australia", "Corporate Headquarters" and "the United Kingdom" refer
to the Company's reportable segments, unless otherwise noted. Transactions
between operating segments are not common and are not material to the segment
information.
Summarized in the table below are the net sales and operating revenues,
operating income (loss), and assets for the Company's reportable segments for
the fiscal year ended June 30, 2000, 1999, and 1998:
Year Ended June 30
(in thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Net Sales and operating revenues:
Canada $ 364,163 $ 297,314 $ 270,675
Australia 120,055 105,595 98,171
United Kingdom - 97,141/1/ 172,528
--------- --------- ---------
$ 484,218 $ 500,050 $ 541,374
========= ========= =========
Operating income (loss):
Canada $ 42,526 $ 34,046 $ 23,233
Australia 6,778 7,139 5,710
United Kingdom - (31,723)/1/ (21,804)
Corporate Headquarters (5,299) (6,448) (4,779)
--------- --------- ---------
Operating income 44,005 3,014 2,360
Foreign currency transaction (gains) losses 209 (331) (761)
Interest income (2,418) (1,535) (1,172)
Interest expense 587 4,815 6,636
--------- --------- ---------
Income (loss) before income tax $ 45,627 $ 65 $ (2,343)
========= ========= =========
Assets:
Canada $ 155,071 $ 136,703 $ 111,496
Australia 50,245 53,787 45,675
United Kingdom - - 64,246
Corporate Headquarters 2,760 7,825 2,130
--------- --------- ---------
$ 208,076 $ 198,315 $ 223,547
========= ========= =========
/1/The Company sold its United Kingdom subsidiary in January 1999 and recognized
a loss of $35,088,000. Accordingly, the Company's 1999 operating results in the
United Kingdom reflect only six months of operation and the loss on sale.
/2/Reflects a charge of $12,712,000 associated with the closure of 69
unprofitable stores.
21
Sales Outlets
The geographic distribution of the Company's sales outlets is summarized in the
following table:
Year ended June 30
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Canada
Company-operated 463 * 451 * 456 *
Dealer 350 330 340
- ----------------------------------------------------------------------------------------------------------------------------
813 781 796
============================================================================================================================
Australia
Company-operated 220 222 217
Dealer 110 124 125
- ----------------------------------------------------------------------------------------------------------------------------
330 346 342
============================================================================================================================
United Kingdom
Company-operated - - 271
Dealer - - 108
- ----------------------------------------------------------------------------------------------------------------------------
- - 379
============================================================================================================================
Total
Company-operated 683 673 944
Dealer 460 454 573
- ----------------------------------------------------------------------------------------------------------------------------
1,143 1,127 1,517
============================================================================================================================
*In addition, the Company operated 51, 45 and 54 stores on behalf of Cantel
during fiscal years 2000, 1999 and 1998, respectively.
The dealers included in the preceding table are independent retail businesses
which operate under their own trade names but are permitted, under dealer
agreements, to purchase any of the products sold by InterTAN company stores.
The dealer agreements contain a license permitting the dealer to designate the
consumer electronics department of the dealer's business as a "RadioShack
Dealer" or a "Tandy Dealer", as applicable. Sales to dealers accounted for
approximately 11% of sales in Canada and Australia during fiscal years 2000 and
1999. In fiscal year 1998, dealers sales accounted for approximately 8% of
consolidated sales. The decrease in the number of dealers in Australia, in
fiscal year 2000 was primarily attributable to a program designed to eliminate
dealers that were not purchasing product in sufficient quantities to make them
profitable to the Company. The Company intends to continue to explore
opportunities to expand its dealer base in both countries to produce profitable
sales from communities too small to support company-operated stores.
The Company has entered into an agreement in Canada with Cantel to operate
Rogers AT&T telecommunications stores on its behalf. At June 30, 2000, 51
stores were in operation. Under the terms of this agreement, Cantel leases the
stores and is responsible for fixed costs, including rent and realty taxes. The
Company recognizes revenue from the sale of product from these locations and
also receives an activation commission from Cantel. The level of commission
received is usually lower than for identical product sold from the Company's own
stores. Since these locations are not company-owned, they are not included in
the above table.
22
InterTAN's business is seasonal; sales peak in the November-December holiday
selling season. The Company's cash flow requirements are also seasonal since
inventories build prior to the holiday selling season. Significant inventory
growth for all operations typically begins to build in late summer and peaks in
November.
Profit and loss accounts, including sales, are translated from local currency
values to U.S. dollars at the monthly average exchange rates. The impact of
fluctuations of local country currencies against the U.S. dollar can be
significant. During fiscal year 2000, both the Canadian and Australian dollars
were stronger on average against the U.S. dollar than they were in fiscal year
1999. As a result, the same local currency amounts translate into more U.S.
dollars as compared with the prior year. For example, if local currency sales
in Canada in fiscal year 2000 were equal to those in fiscal year 1999, the
fiscal year 2000 income statement would reflect a 2.9% increase in sales when
reported in U.S. dollars.
The following table outlines the percentage change in the weighted average
exchange rates of the currencies of Canada, Australia and the United Kingdom
relative to the U.S. dollar as compared to the prior year.
Year ended June 30
(percentage change) 2000 1999 1998
=============================================================================================
Canada 2.9 (6.5) (3.7)
Australia 0.2 (7.4) (13.5)
United Kingdom - 1.1/1/ 1.7
=============================================================================================
/1/Represents the weighted average exchange rate for the first six months of
fiscal year 1999 compared to the same period in the prior year.
Net Sales and Operating Revenues
When the sales of the Company's former subsidiary in the United Kingdom are
removed from last year's sales, the combined sales of the Canadian and
Australian segments showed an increase in sales in U.S. dollars of $81,309,000
or 20.2%. This sales comparison was affected by foreign currency fluctuations,
primarily a stronger Canadian dollar. The increase, measured at the same
exchange rates, was 17.6% and comparable-store sales increased by 14.4%. The
effect of new stores on this growth was not significant, as the number of
company-operated stores grew by only 1.5%. The year over year sales comparison
benefited from strong dealer sales, in particular in Canada where dealer sales
increased in local currency by 32.8%, and from increases in revenue streams such
as volume based bonuses and residuals, which are not credited to individual
stores.
23
The following table illustrates the total percentage sales increase (decrease)
by segment area as measured in U.S. dollars and local currencies.
U.S. dollars
Year ended June 30
(Percentage Change) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Canada 22.5 9.8 7.5
Australia 13.7 7.6 (4.3)
United Kingdom - (43.7)/1/ 4.7
===================================================================================================================================
Local Currencies
Year Ended June 30
2000 1999 1998
===================================================================================================================================
Canada 19.0 17.5 11.6
Australia 13.5 16.1 10.4
United Kingdom - (44.3)/1/ 3.0
===================================================================================================================================
/1/Results for the United Kingdom segment for fiscal year 1999 only include
sales for the first six months of the year.
The following table illustrates the percentage change in comparative company-
operated store sales, measured at comparable exchange rates/1/.
Year ended June 30
(Percentage Change) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Canada 15.4 18.3 9.2
Australia 11.5 14.3 8.1
United Kingdom - 13.3/2/ 8.9
- ---------------------------------------------------------------------------------------------------------------------------
Consolidated 14.4 16.3/2/ 8.9
===========================================================================================================================
/1/Derived from the accumulation of each store's monthly sales in local currency
for those months in which it was open both in the current and preceding year.
/2/Includes results for the United Kingdom only for the first six months of the
year.
Sales in both countries were strong throughout the year, with each country
posting a double-digit comparable store sales gain in all four quarters of the
year. Combined comparable-store sales in Canada and Australia increased by
17.2% and 8.9% in fiscal years 1999 and 1998, respectively.
In Canada, the sales growth was broadly based, with gains being achieved in most
major core categories. Sales of direct-to-home satellite systems increased by
over 100%, as the Company has become a destination of choice for consumers who
wish to buy this popular product. Penetration of this product in the market
place is low and management expects that further sales gains will be achieved in
fiscal year 2001. Wireless products continue to be popular with consumers and
the Company increased revenues in this category by over 30%. Growth in these
two categories - satellite and wireless - is important, as they both have the
potential to produce after sale income
24
streams in the form of residuals or sales-based volume bonuses. The audio /
video category also performed well with a sales increase of over 20%. The strong
performance in this category is demonstrative of the success of the company's
store-in-store Panasonic fixture. Tests consistently show that stores with this
fixture outperform other stores. During fiscal year 2000, this fixture was
rolled out to 200 company-operated stores. Further growth in this category is
expected during fiscal year 2001 as the Panasonic fixture will be rolled out to
an additional 200 stores. Sales of computer accessories and software increased
by over 45% as the Company offered a broader and deeper assortment of these
products. Although introduced in the Canadian market too late in the year to
have a meaningful impact on sales in the communications category, sales of the
newly-approved Family Radio Service ("FRS") were very strong in May and June.
Management expects FRS to significantly improve the communications category in
fiscal year 2001.
Sales growth in Australia was more narrowly focused, with gains concentrated in
a few key categories. Fiscal year 2000 saw the roll out of a new strategy for
personal computers, with a wider range of models available in more of the
Company's stores. This strategy was successful in producing a sales gain in
that category of over 100%. Sales of CPU's and monitors were also used to drive
the sale of computer accessories, which grew by over 40%. Merchandise
assortment enhancements in the video category began to drive significant sales
and profit increases during Q4, and that trend is continuing into Q1 of Fiscal
2001. Fiscal year 2000 was a difficult year for cellular in Australia. As the
analog system was eliminated at the end of calendar year 1999, many of the late
adopters to digital were infrequent users who opted to purchase the cheaper and
less profitable prepaid models. Competition intensified in the distribution
channel, putting pressure on both pricing and margins. In response to these
market forces, management has decided to expand its cellular product offering in
Australia by adding two new carriers - Orange and Vodafone - to its existing
partnership with Optus. While sales of prepaid models will continue to be
significant, management believes that this new strategy, involving innovative
new CDMA based services unlike any offered in North America currently, as well
as the rollout of a GPRS/WAP network will increase sales of higher-yield
contract phones.
Sales growth in Canada was also broadly-based in fiscal year 1999. Sales growth
was most evident in the wireless and computer categories, reflecting not only
the emphasis placed on these categories, but also strong consumer demand. In
wireless, the performance of the Rogers AT&T stores was a major contributor to
growth, with those stores producing an overall sales gain of over 25%, despite a
reduction in the store count of over 15%. Direct-to-home satellite also played
an important part in Canada's sales growth for the year. The Company's focus on
the telephone and battery categories continued to deliver strongly on the sales
line.
The growth in sales in Australia in fiscal year 1999 was also broadly-based,
with increases experienced in almost all product categories. Sales of computers
were particularly strong. In the wireless category, introduction of the prepaid
cellular telephone into the Australian market resulted in sales growth, both of
handsets and related airtime cards. Sales of subscriber-based digital cellular
were also strong, as the government planned to substantially shut down the
analog system at the end of 1999. Sales gains in batteries and telephones also
contributed to overall sales growth in Australia.
Sales in the United Kingdom segment for the first six months of fiscal year 1999
decreased by 5.5% compared to the same period in fiscal year 1998. This
reduction was more than attributable to the closure of 69 unprofitable stores in
the third quarter of fiscal year 1998. Comparable-stores sales increased by
13.3%. However, unlike Canada and Australia, sales growth in the United Kingdom
was narrowly focused, with only wireless communications showing meaningful
improvement. The Company's subsidiary in the United Kingdom was sold in January
1999. See "Sale of United Kingdom Subsidiary and Other Restructuring Charges".
Comparative stores sales increased during fiscal year 1998 as a whole by 8.9%,
with increases being experienced in all four quarters. The Company's strategy
for building sales throughout fiscal year 1998 was to actively pursue
25
the growth opportunities presented by certain key categories with high consumer
demand and which fit the Company's market niche. Targeted product categories
included cellular, telephones and accessories, in particular cordless models,
computers, personal electronics and, in Canada, direct-to-home satellite
systems. The success of this strategy was particularly evident in Canada and
Australia during the second half of the year where these promotional efforts
produced gains in a wide range of product categories. Sales efforts also
continued to focus on the important parts and accessories category in all three
of the Company's markets.
Gross Profit
The Canadian and Australian segments combined to produce an increase in gross
profit, measured in U.S. dollars, of 13.5%. Measured at the same exchange
rates, gross profit in Canada and Australia increased by 11.1%.
The following analysis summarizes the components of the change in the gross
profit from the prior year:
Change in
(in thousands) Gross Profit
- ---------------------------------------------------------------------------------------------------------------------------
Higher sales in Canada and Australia $ 32,232
Lower gross margin percentage in Canada and Australia (11,973)
Foreign currency rate effects 3,841
- --------------------------------------------------------------------------------------------------------------------------
24,100
Effect of Sale of United Kingdom subsidiary (40,063)
- --------------------------------------------------------------------------------------------------------------------------
$ (15,963)
==========================================================================================================================
The following table illustrates gross profit as a percentage of sales, by
segment area:
Year ended June 30
(As a percentage of sales) 2000 1999 1998
============================================================================================================
Canada 41.9 43.9 44.1
Australia 42.1 46.0 47.2
United Kingdom - 41.2/1/ 39.2
- ------------------------------------------------------------------------------------------------------------
Consolidated 42.0 43.8 43.1
============================================================================================================
/1/Represents the gross margin percentage in the United Kingdom for the first
six months of fiscal year 1999.
The combined gross margin percentages for Canada and Australia for fiscal years
2000, 1999 and 1998 were 42.0%, 44.5% and 44.9%, respectively.
In Canada and Australia, the gross margin percentages in fiscal years 2000, 1999
and 1998 all come under pressure as management pursued a planned strategy of
transforming the Company from a niche retailer of primarily private label end
products and, parts and accessories into a dynamic retailer of state of the art,
high tech and primarily branded products. This strategy impacted the gross
margin percentage in three ways:
26
. Management has embarked on a strategy specifically designed to evaluate
product opportunities and assortments based on its belief that shareholder
value is best served by placing the pursuit of incremental gross profit
dollars and improvements in operating margin as paramount in importance.
Accordingly, the Company has developed and implemented strategic alliances
with key national and international brands.
. Margins within product categories declined as nationally branded product
replaced higher margin private label goods.
. Overall margins declined as sales of certain popular products, including
computers, wireless and, in Canada, home satellite, increased at a rate
disproportionate to the overall increase in sales. These products generally
carry margins that are below the Company's average.
The impact of the third of these factors was particularly noticeable in
Australia during fiscal year 2000, as the percentage of computers and related
accessories in the overall sales mix increased by almost 50%. A shift in the
wireless business in Australia away from more profitable contract plans to
prepaid airtime models was also a factor. During fiscal year 1998, a writedown
of inventories in connection with the store closure program had a negative
effect on margins in the United Kingdom.
It has been, and will continue to be, management's policy to pursue
opportunities for profitable sales growth - i.e., growth which will yield
increases in gross profit dollars that exceed incremental selling, general and
administrative expenses. Management believes that a modest reduction in the
gross margin percentage will continue into fiscal year 2001 as customers
continue to demand the latest in digital technology. These are typically lower
margin, but nevertheless profitable, products. In addition, while these
products initially carry below Company average margins, many offer opportunities
to generate after-sale revenues in the form of residuals, and sale-based
bonuses. Management believes these future revenue streams will partially
mitigate the margin decline. In addition, many of these products present
opportunities to sell related, and more profitable, parts and accessories.
Goods and Services Tax - Australia
Effective July 1, 2000, Australia moved from a wholesale-based sales tax system
to a goods and services tax or GST - a system much like a European value added
tax.
Under the present system, the tax is included in the retailer's cost. The rate
ranges from 0% to 22%, depending on the class of goods. Management estimates
that the weighted average tax included in the Company's inventory in Australia
to be about 18%. The retailer recovers this tax by factoring it into the
selling prices. It is important to note that the wholesale tax is a tax on the
retailer not the consumer. The consumer ultimately pays through a higher retail
price.
This wholesale-based tax was replaced by the GST effective July 1, 2000. Under
the GST, instead of the retailer paying a tax on cost, the consumer will now pay
a tax on the selling price of the goods. The rate will be 10% and, with one or
two exceptions, will apply to all goods and services. For the retailer, this
means a reduction in cost of goods sold, since it no longer pays the sales tax.
However, it will also mean lower revenues, as the government has mandated that
this tax saving must be passed on to the consumer - i.e., the retailer cannot
increase gross profit dollars as a result of the change.
The following is a brief summary of how this tax change will affect InterTAN in
Australia:
27
. Reported sales will decline, as the old sales tax is removed from the selling
price. Management estimates that reported sales in the Company's stores will
be reduced by about 10%. The Company will, however, report comparable-stores
sales on a consistent basis by making a corresponding adjustment to the prior
years' sales on a pro-forma basis.
. Cost of goods sold will also decline, as the old sales tax is excluded from
cost.
. Management estimates that the gross margin percentage will increase by about 4
percentage points, as the tax is excluded from both sales and cost of goods.
. Importantly, the impact on gross profit dollars and operating income will be
neutral.
. Management estimates that the carrying value of inventories will decline by
about 10%.
. There will also be a short-term cash flow benefit, as sales tax currently in
inventory will be refunded over a period of months.
Generally speaking, whether or not the consumer will pay more or less for a
particular item on a tax-included basis will depend primarily on the gross
margin associated with the product. The all-in price of low-ticket, high-margin
items such as parts and accessories will go up, while the price for higher-
ticket, lower margin goods such as branded telephones, televisions and digital
cameras will fall. With the Company's current sales mix, management projects
that prices will be slightly lower, on average, across the product range.
Selling, General and Administrative Expenses
The following table provides a breakdown of selling, general and administrative
expense ("SG&A") by major category:
SG&A Expense by Category
2000 1999 1998
(in thousands) Dollars % of Sales Dollars % of Sales Dollars % of Sales
- -------------------------------------------------------------------------------------------------------------------------------
Payroll $ 68,543 14.2 $ 76,397 15.3 $ 87,622 16.2
Advertising 19,489 4.0 20,753 4.2 24,770 4.6
Rent 25,773 5.3 31,457 6.3 42,028 7.8
Taxes (other than income tax) 9,266 1.9 12,283 2.5 17,775 3.3
Telephone and utlities 4,418 0.9 5,220 1.0 6,855 1.3
Other 25,847 5.4 28,858 5.7 32,408 5.9
- -------------------------------------------------------------------------------------------------------------------------------
$ 153,336 31.7 $ 174,968 35.0 $ 211,458 39.1
===============================================================================================================================
The reduction in SG&A expenses during fiscal year 2000 is more than explained by
the sale of the United Kingdom subsidiary, which had the effect of reducing SG&A
expense by $35,873,000. In U.S. dollars, SG&A expense in Canada, Australia and
Corporate Headquarters increased by $14,241,000. Measured at the same exchange
rates, SG&A expense in these three segments increased by 8.2%. This compares to
increases of 17.6% and 11.1% in sales and gross profit dollars, respectively.
28
The following is a breakdown of the increases in S&A expense in Canada,
Australia and at Corporate Headquarters during fiscal year 2000:
Increase, Measured Increase,
at the Same Foreign Currency Measured in
(in thousands) Exchange Rates Effects U.S. Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
Payroll $ 4,904 $ 1,150 $ 6,054
Advertising 1,907 380 2,287
Rent 1,989 368 2,357
Taxes (other than income taxes) 826 217 1,043
Telephone and utilities 319 71 390
Other 1,698 412 2,110
- -----------------------------------------------------------------------------------------------------------------------------------
$ 11,643 $ 2,598 $ 14,241
===================================================================================================================================
Payroll increased in both Canada and Australia in support of higher sales and
included increases in commissions, bonuses and other performance-based
compensation. These increases were partially offset by a reduction in
compensation costs at Corporate Headquarters, where expenses in the prior year
included costs related to management transition and the relocation of that
office to Canada. Rent has increased partially as a result of a net increase in
the store count and in part as a result of routine rent reviews. Advertising
exposures increased as the Company has increased its media presence, both in
terms of flyers and newspaper inserts, and television.
The following table illustrates SG&A expenses as a percentage of sales, by
geographic segment area:
(As a percentage of sales) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
Canada 29.0 31.0 33.8
Australia 35.5 38.3 40.5
United Kingdom - 36.9/1/ 43.7
- -----------------------------------------------------------------------------------------------------------------
/1/Based on sales and SG&A expenses for the first six months of fiscal year
1999.
The sale of the former United Kingdom subsidiary also more than explained the
reduction in SG&A expense during fiscal year 1999. When the effects of United
Kingdom SG&A expenses are eliminated, Canada, Australia and Corporate
Headquarters posted an increase in S&A expense, measured at the same exchange
rates, of 9.3%, substantially less than the increase in sales and gross profit
dollars. As was the case in fiscal year 2000, payroll increased in support of
stronger sales and rents increased, primarily as a result of on-going rent
reviews. SG&A expenses also increased as a result of the scheduled increase in
the royalty payable to RadioShack U.S.A. from 0.75% to its maximum rate of 1.0%.
Foreign exchange rate effects more than explained the apparent reduction in SG&A
spending during fiscal year 1998. Measured at the same exchange rates, SG&A
expenses increased by approximately 0.8%. Spending increased in Canada and
Australia, primarily on sales-driven expenditures such as payroll. Increases in
the overall store count in both countries and the completion of the roll out of
the Rogers AT&T program in Canada also accounted for increases in rent. The
scheduled increase in the royalty payable to Tandy as well as higher sales
contributed to the increase, with increases being experienced in all three
countries.
29
Depreciation and Amortization
Depreciation and amortization decreased in fiscal year 2000 by $375,000. This
reduction is more than explained by the sale of the former United Kingdom
subsidiary. Depreciation expense in Canada and Australia increased reflecting
additional investment in stores, including remodelling and fixture enhancements.
Depreciation and amortization decreased by $1,043,000 during fiscal year 1999,
primarily as a result of the sale of the United Kingdom subsidiary and foreign
currency effects. In fiscal year 1998, depreciation and amortization decreased
by $2,250,000. This reduction primarily resulted from lower depreciation in the
United Kingdom following an asset impairment charge recorded in fiscal year 1997
to writedown the store assets in that country to their estimated fair value.
Loss on Sale of United Kingdom Subsidiary and Other Restructuring Charges
During fiscal year 1999, the Company's Board of Directors approved a plan to
sell the Company's investment in InterTAN U.K. Limited for proceeds of
$2,582,000, net of estimated selling costs and the Company recorded a loss of
$35,088,000. The sale included all assets, liabilities and other obligations of
the United Kingdom subsidiary, including approximately $11,600,000 of bank debt
outstanding under InterTAN U.K. Limited's portion of the Company's syndicated
loan agreement which was repaid by the purchaser at closing. See Segment
Reporting Disclosures, for revenue and operating income (loss) associated with
InterTAN U.K. Limited.
In addition, the purchaser assumed the rights to claim tax loss carryforwards
and other deferred tax deductions having a potential tax benefit of
approximately $30,000,000. To the extent the purchaser is able to utilize all
or a portion of these loss carryforwards and other deferred tax deductions, the
Company is entitled to cash payments equal to 30% of the tax savings realized by
the purchaser (a maximum of approximately $9,000,000). The Company will
recognize such proceeds, if any, as received. No such proceeds have been
received to date.
Also under the terms of the sale agreement, the Company has indemnified the
purchaser for certain contingencies, primarily relating to working capital
adjustments. In addition, the Company remains contingently liable as guarantor
of certain leases of InterTAN U.K. Limited. At June 30, 2000, the lease
obligation assumed by the purchaser and guaranteed by the Company was
approximately $25,000,000 and the average remaining life of such leases was
approximately 6 years. If the purchaser were to default on the lease
obligations, management believes the Company could reduce the exposure through
assignment, subletting and other means. The Company has obtained an indemnity
from the purchaser for an amount equal to management's best estimate of the
Company's exposure, if any, under these guarantees. The amount of this indemnity
declines over time as the Company's risk diminishes. At June 30, 2000, the
amount of this indemnity was approximately $7,600,000. Costs, if any, resulting
from these contingencies will be recorded as incurred, or become probable and
estimable.
In January 1998 a plan to close 69 consistently under-performing stores in the
United Kingdom was approved. In connection with this restructuring plan, a
provision of $12,712,000 was recorded during the third quarter of fiscal year
1998, reflecting lease disposal costs, severance costs and other closure costs,
including fixture removal and contract termination costs.
Foreign Currency Transaction (Gains)/Losses
A foreign currency transaction loss of $209,000 occurred during fiscal year
2000. Foreign currency transaction gains of $331,000 and $761,000 occurred
during fiscal year 1999 and 1998, respectively. These gains and losses resulted
from a variety of factors, including the effect of fluctuating foreign currency
values on certain inter-company debt and trade payables denominated in
currencies other than the functional currency of the debtor. In fiscal years
1999 and 1998, the Company's major exposure to foreign currency risks was the
Canadian dollar
30
denominated subordinated convertible debentures (the "Debentures") that were
designated as a hedge against the Company's net investment in its Canadian
subsidiary. Foreign exchange gains and losses on the Debentures for fiscal years
1998 and 1999 are included in other comprehensive income. As at June 30, 1999,
all of the Debentures had been converted to the Company's common stock.
Interest Income and Expense
Interest income was $2,418,000, $1,535,000 and $1,172,000 during fiscal years
2000, 1999 and 1998, respectively. The increases in interest income are
reflective of the Company's continuing improved cash position and, to a lesser
extent, higher rates in fiscal year 2000. Management does not expect
significant improvement in interest income during fiscal year 2001 as much of
the Company's cash resources have been directed to the stock re-purchase
program. Interest expense during fiscal year 2000 declined by $4,228,000. This
reduction reflects the conversion of the Debentures as well as reduced borrowing
costs following the sale of the former United Kingdom subsidiary. These two
factors also contributed to a reduction in the interest expense of $1,821,000
during fiscal year 1999. Another factor contributing to the fiscal year 1999
reduction was the repayment of a note payable to RadioShack U.S.A. in December,
1997. Interest expense in fiscal year 1998 declined by $1,398,000, reflecting
the effects of scheduled repayments of the note payable to RadioShack U.S.A. as
well as the early retirement of that debt.
Income Taxes
Historically, the Company's high effective income tax rate has been attributable
to a number of factors, including:
. losses in the Untied Kingdom and interest expense on the Debentures for which
no tax benefit was available;
. certain Corporate Headquarters expenditures which cannot be deducted by the
operating subsidiaries.
With the sale of the United Kingdom subsidiary and the repayment of the
Debentures, management expects that the effective tax rate for fiscal year 2000
will be more representative of future rates.
The provision for taxes in fiscal years 2000, 1999 and 1998 includes a provision
for Canadian and Australian taxes on the profits of the Company earned in those
countries. The fiscal year 1999 provision also included a charge of $8,039,000
related to the settlement of a dispute with the Canadian tax authorities
relating to the 1990 to 1993 taxation years which is discussed more fully below.
The Company was advised that following an audit of the income tax returns of the
Company's Canadian subsidiary for the 1990 to 1993 taxation years, Revenue
Canada was challenging certain interest deductions relating to the Canadian
subsidiary's former operations in continental Europe and was proposing to tax
certain foreign exchange gains related to such operations. The Company
previously estimated that it could potentially have an additional liability of
up to $21,000,000 relating to these issues. In March 1999, the Company and
Revenue Canada agreed to a resolution of this matter which will result in a
liability to the Company of approximately $14,000,000 resulting in a charge of
$8,039,000, reflecting a settlement which exceeded management's expectations,
but was substantially less than the maximum exposure of $21,000,000.
An audit of the income tax returns of the Canadian subsidiary for the 1987 to
1989 taxation years was completed during fiscal year 1994, resulting in
additional tax being levied against the Canadian subsidiary. The Company has
appealed these reassessments and, pending the outcome of these matters, the
Company, by Canadian law, was required to pay a portion of the tax in dispute.
The tax levied by Revenue Canada in reassessing those years was offset by
refunds arising from the carryback of losses incurred in subsequent years.
Depending on the ultimate resolution of these issues, the Company could
potentially have an additional liability in the range of $0 to
31
$12,000,000. The Company believes it has meritorious arguments in defense of the
issues raised by Revenue Canada and it is in the process of vigorously defending
its position. It is management's determination that no additional provision need
be recorded for these reassessments. It is not practical for management to make
any reasonable determination of when this remaining outstanding Canadian tax
issue will ultimately be resolved. An audit of the Company's Canadian
subsidiary's income tax returns by Revenue Canada for the 1995 - 1996 taxation
years is in process.
Audits of the Company's United States income tax returns for the 1990-1994 years
by the Internal Revenue Service (the "IRS") were completed during 1999. The
Company has been advised that the IRS alleges that the Company owes additional
taxes in respect of those years. The issues involved related primarily to the
Company's former operations in continental Europe and the United Kingdom. The
Company disagrees with the IRS's position on these issues and believes it has
meritorious arguments in its defense. The Company has filed a protest rebutting
the assertions made by the IRS and is in the process of vigorously defending its
position. Management believes that it has a provision recorded sufficient to
pay the estimated liability resulting from the issues in dispute; however, the
amount ultimately paid could differ from management's estimate.
Earnings per Share
Basic earnings per share ("EPS") is calculated by dividing the net income or
loss by the weighted average number of shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted.
With the conversion of the Debentures during fiscal year 1999, the Company's
only remaining dilutive instruments are the options to purchase common stock
held by the Company's directors and employees. At June 30, 2000, the Company's
directors and employees held options to purchase 1,998,705 common shares at
prices ranging from $2.48 to $14.75 per share. All but 1,875 of such options
were included in the computation of diluted earning's per common share for
fiscal year 2000. These options were excluded because the option exercise price
was greater than the average market price of the common stock during the third
and fourth quarters. The dilutive effect of the various options held by the
company's directors and employees in future periods will depend on the average
market price of the Company's common stock during such periods. For
illustrative purposes, using a market price of $14 as an average would result in
approximately 1,036,000 shares being included in weighted average common shares
outstanding.
Liquidity and Capital Resources
Operating activities generated $22,347,000 in cash during fiscal year 2000. Net
income, adjusted for non-cash items, generated $33,641,000 in cash. Increased
inventory levels in support of higher sales consumed $14,429,000 in cash;
however, the effects of this increase were partially offset by an increase in
accounts payable. Accounts receivable increased by $1,739,000, reflecting the
fact that a greater portion of the Company's revenue comes from vendors in the
form of wireless activation income, residuals and volume rebates. The payment
of income taxes, consumed $8,865,000 in cash, primarily because the final
payment of fiscal year 1999 taxes exceeded instalments paid during the year. In
addition, the Canadian subsidiary has not yet been fully reassessed by the
Canadian tax authorities for the settlement agreed to in fiscal year 1999. See
"Income Taxes". Management estimates that the final amount of this reassessment
will be approximately $13,000,000.
32
Operating activities generated $25,901,000 in cash during fiscal year 1999. Net
income, adjusted for non-cash items, generated $14,136,000 in cash. Increased
inventory levels consumed $11,050,000 in cash. Increased sales, in particular
of wireless products, as well as increased vendor advertising support also
contributed to an increase in accounts receivable of $7,096,000. The deferral
of tax instalments preserved $17,829,000 in cash as final fiscal 1999 tax
payments are not due until after year-end. Operating activities generated
$27,706,000 in cash during fiscal year 1998. Net income, adjusted for non-cash
items, produced $8,219,000 in cash. A reduction in inventory levels contributed
a further $11,879,000 in cash. The deferral of income tax instalments conserved
a further $9,361,000 in cash during fiscal year 1998.
Investing activities consumed $9,256,000 in cash during fiscal year 2000,
primarily related to capital expenditures in the Canadian and Australian
segments. The level of expenditures is higher than in fiscal years 1999 and
1998 as the Company accelerated the pace at which stores are remodelled or
refitted to a new format in both Canada and Australia and invested in additional
information systems, in particular in Australia.
Investing activities consumed $17,140,000 in cash during fiscal year 1999.
Capital expenditures, primarily on store fixtures and office equipment, required
$7,310,000 in cash. In addition, the sale of the Company's former subsidiary in
the United Kingdom consumed $10,971,000 in cash, representing the cash balances
of that company at the time of sale less the net proceeds of disposition.
However, the subsidiary also had approximately $11,600,000 of short-term bank
debt which was assumed and repaid by the purchaser. Investing activities
consumed $4,520,000 in cash during fiscal year 1998. This cash outflow result
for the most part from additions to property and equipment, primarily relating
to opening new stores, renovating existing stores and upgrading information
systems.
Cash flows from financing activities consumed $15,019,000 in cash during fiscal
year 2000. In November, 1999, the Company's Board of Directors announced a
share repurchase program under which management was authorized to purchase up to
1,500,000 shares of the Company's common stock over a period of three years. As
a result of unanticipated market conditions, the repurchase program was
accelerated, and by March 31, 2000, all 1,500,000 shares had been acquired. In
April, 2000, the Company announced that the Board of Directors had authorized a
further program for the repurchase of up to 1,500,000 additional shares. By
June 30, 2000, 285,200 shares had been acquired under this program. The
repurchase of common stock under these plans and other arrangements consumed
$18,700,000 in cash. This cash outflow was partially offset by proceeds from
issuance of common stock to employee plans and from the exercise of stock
options.
Cash flow from financing activities generated $5,084,000 in cash during fiscal
year 1999. Short-term bank borrowings in the United Kingdom prior to its sale
resulted in a cash inflow of $2,448,000. Proceeds from the issuance of stock
under the Company's stock purchase plan and from the exercise of stock options
by employees generated $1,890,000 and $746,000, respectively in additional cash.
During fiscal year 1998, financing activities consumed $23,176,000 in cash.
Repayment in full of loans from RadioShack U.S.A. comprised the major component
of the cash outflow. A decrease in the level of short-term borrowings in the
United Kingdom was also a contributing factor. The effect of these reductions
in cash resources was partially offset by the proceeds from the issuance of
common stock to employee plans.
The Company's principal sources of liquidity are its cash and short-term
investments, its cash flow from operations and its banking facilities.
In December, 1997, the Company entered into a three-year revolving credit
facility with a syndicate of three lenders (the "Syndicated Loan Agreement") in
an amount not to exceed $75,000,000 in the aggregate. With the sale of InterTAN
U.K. Limited in January, 1999, the facility has been reduced to C$67,000,000
(approximately $45,000,000 at June 30, 2000 exchange rates). The amount of
credit actually available at any particular time is
33
dependent on a variety of factors, including the level of eligible inventories
and accounts receivable in InterTAN Canada Ltd. (the "Borrower"). The amount of
available credit is then reduced by the amount of trade accounts payable of the
Borrower then outstanding as well as certain other reserves.
The Syndicated Loan Agreement is used primarily to provide letters of credit in
support of purchase orders and, from time to time, to finance inventory
purchases. At June 30, 2000, there were no borrowings against the Syndicated
Loan Agreement and $281,000 was committed in support of letters of credit.
There was $31,066,000 of credit available for use at June 30, 2000. The
Company's Merchandise Agreement with RadioShack U.S.A. permits the Company to
support purchase orders with a surety bond or bonds as well as letters of
credit. The Company has entered into an agreement with a major insurer to
provide surety bond coverage (the "Bond") in an amount not to exceed
$18,000,000. This bond will be reduced to $12,000,000 during fiscal year 2001.
Use of the Bond will give the Company greater flexibility in placing orders with
Far Eastern suppliers by releasing a portion of the credit available under the
Syndicated Loan Agreement for other purposes. The Company is currently in
negotiations with several potential lenders to replace the Syndicated Loan
Agreement which expires at the end of calendar year 2000. Management is
confident that it will be successful in establishing a new credit line under
terms at least as favorable as those contained in the Syndicated Loan Agreement.
The Company's Australian subsidiaries have entered into a credit agreement with
an Australian bank (the "Australian Facility"). This agreement established a
credit facility in the amount of A$12,000,000 (approximately $7,162,000 at June
30, 2000 exchange rates). The Australian Facility has no fixed term and may be
terminated at any time upon five days prior written notice by the lender. All
or any part of the facility may be used to provide letters of credit in support
of purchase orders. A maximum amount of A$5,000,000 (approximately $2,984,000
at June 30, 2000 exchange rates) may be used in support of short-term
borrowings. At June 30, 2000, there were no borrowings outstanding against the
Australian Facility, nor was any amount committed in support of letters of
credit.
The Company's primary uses of liquidity during fiscal year 2001 will include the
funding of capital expenditures, the build-up of inventories for the 2000
holiday selling season, funding the repurchase of common stock, and payments in
settlement of tax reassessments. The Company anticipates that capital additions
will approximate $14,000,000 during fiscal year 2001, mainly related to store
expansion, remodelling and upgrading. In addition, management expects to
receive additional reassessments of approximately $13,000,000 during fiscal year
2001 relating to the settlement of its dispute with Revenue Canada in respect of
the 1990-1993 taxation years. See "Income Taxes". The timing of further
payments, if any, flowing from the other outstanding tax issues cannot be
reasonably determined at this time. Management believes that short-term
borrowings under the Syndicated Loan Agreement to finance the payment of these
reassessments and the seasonal build-up of inventories will begin in September,
peak at $25,000,000 to $30,000,000 in November and that such borrowings will be
repaid by the end of December. While additional purchases under the stock
repurchase program will depend on market conditions, management estimates that
this program could require between $14,000,0000 and $18,000,000 in cash during
fiscal year 2001.
Management believes that the Company's cash and short-term investments on hand
and its cash flow from operations combined with its banking facilities and the
Bond will provide the Company with sufficient liquidity to meet its planned
requirements through fiscal year 2001, including the tax reassessments relating
to the 1990-1994 taxation years.
Year 2000 Issues
34
Management recognized that many of the Company's critical systems and those of
its key vendors and service partners required modification in order to be ready
for the Year 2000.
The Company organized Year 2000 transition teams in both Canada and Australia to
address the myriad of issues and challenges presented by the Y2K. Internal
systems and hardware were modified or replaced and all material vendors, service
providers and other stakeholders were contacted and monitored to ensure there
would be no material interruptions in supply. An outside consultant was engaged
to assess the Company's state of readiness for the Y2K transition.
Necessary modifications and testing was completed to all critical systems in
both Canada and Australia prior to the year 2000. To date the Company has
experienced only a few minor systems issues and these were resolved with little
or no disruption to the business. There have been no supply chain interruptions
and the Company's store, warehouse and central units have been fully
operational. Product returns as a result of Y2K have been minimal. The Company
does not expect any further activity or disruptions as a result of the Year 2000
transition.
The Company's Year 2000 compliance costs were approximately $550,000, including
approximately $225,000 paid to third-party consultants.
In management's opinion, the Company took adequate action to address Year 2000
issues and the financial impact of the Year 2000 issue was not material to the
Company's consolidated financial position, results of operations or cash flows.
Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of market risks arising primarily from the
impact of changes in interest rates on its short-term credit facilities and from
the impact of foreign currency fluctuations as they relate to its investment,
debt and activities in Canada and Australia.
Foreign currency fluctuations
The Company's activities are carried on in foreign jurisdictions in Canada and
Australia. The Company is exposed to foreign currency risks in three broad
areas:
. Its inventory purchases,
. Translation of its financial results, and
. Its net investment in foreign jurisdictions.
During fiscal year 2000, the Company's operating subsidiaries in Canada and
Australia purchased approximately 16% of their inventories in the Far East.
These purchases are made in U.S. dollars and, under the terms of its agreement
with its suppliers, payment must be made at the time of shipment. Accordingly,
there is risk that the value of the Canadian and Australian dollars, as the case
may be, could fluctuate relative to the U.S. dollar from the time the goods are
ordered until shipment is made.
Management monitors the foreign exchange risk associated with its U.S. dollar
open orders on a regular basis by reviewing the amount of such open orders,
exchange rates, including forecasts from major financial institutions, local
news and other economic factors, all on a country specific basis. Based on this
input, management decides
35
whether or not to lock in the cost of a portion of those orders in advance of
delivery by purchasing forward exchange rate contracts to be settled on or near
the estimated date of inventory delivery.
The table below shows the amount of open orders and forward exchange contracts
on hand at June 30, 2000 and the financial impact which would result if the
functional currency of the purchasing entities were to decline in value by 10%
relative to the U.S. dollar from June 30, 2000 to the date of delivery.
(in thousands) June 30, 2000 June 30, 1999
Open orders $ 23,398 $ 31,778
- -------------------------------------------------------------------------------------------------------------
Impact of a 10% decline in local currency values $ 2,340 $ 3,178
- -------------------------------------------------------------------------------------------------------------
Foreign exchange contracts on hand $ 2,000 $ 2,077
- -------------------------------------------------------------------------------------------------------------
Impact of a 10% decline in local currency values $ (200) $ (208)
- -------------------------------------------------------------------------------------------------------------
Net impact of a 10% decline in local currency values $ 2,140 $ 2,970
- -------------------------------------------------------------------------------------------------------------
The incremental cost of such a decline in currency values, if incurred, would be
reflected in higher cost of sales in future periods. In these circumstances,
management would take product pricing action, where appropriate.
Translation of financial results
The functional currencies of the Company's operating entities in Canada and
Australia are the respective local currencies. However, the reporting currency
of the Company on a consolidated basis is the U.S. dollar. Consequently,
fluctuations in the value of the Canadian and Australia dollars have a direct
effect on reported consolidated results. It is not possible for management to
effectively hedge against the possible impact of this risk.
The following table shows the combined sales and operating income (loss) for
fiscal years 2000 and 1999 (excluding the effects of the Company's former
subsidiary in the United Kingdom) and the effect that a 10% decline in local
currency values would have had on those results (in thousands):
36
Year ended June 30, 2000
========================================================================================================
Effect of a
10% Decline
in Currency
(U.S. dollars, in thousands) As reported Values
- --------------------------------------------------------------------------------------------------------
Sales
Canada $364,163 $(36,416)
Australia 120,055 (12,006)
- --------------------------------------------------------------------------------------------------------
$484,218 $(48,422)
========================================================================================================
Operating Income
Canada $ 42,526 $ (4,253)
Australia 6,778 (678)
Corporate Expenses (5,299) 91/1/
- --------------------------------------------------------------------------------------------------------
$ 44,005 $ (4,840)
========================================================================================================
Year ended June 30, 1999
===============================================================================
Effect of a
10% Decline
in Currency
(U.S. dollars, in thousands) As Reported Values
- -------------------------------------------------------------------------------
Sales
Canada $297,314 $(29,731)
Australia 105,595 (10,560)
- -------------------------------------------------------------------------------
$402,909 $(40,291)
===============================================================================
Operating Income
Canada $ 34,046 $ (3,405)
Australia 7,139 (714)
Corporate Expenses (6,448) -
- -------------------------------------------------------------------------------
$ 34,737 $ (4,119)
===============================================================================
/1/Approximately $910,000 of the Company's corporate expenses are paid in
Canadian dollars.
Net Investment in foreign jurisdictions
The Company's net investments in Canada and Australia are recorded in U.S.
dollars at the respective period-end rates. Changes in these rates will have a
direct effect on the carrying value of these investments. The cumulative effect
of such currency fluctuations is recorded in stockholders' equity in accumulated
other comprehensive loss. The Company's convertible subordinated debenture was
denominated in U.S. dollars and was recorded in the books of the parent. This
instrument was designated as a partial hedge against the risk associated with
the Company's investment in its Canadian subsidiary. With the conversion of
this instrument during fiscal year 1999, this hedge no longer exists. The
Company currently has no plans to hedge its investment in either Canada or
Australia.
The following table shows the Company's net investment in each of its operating
entities and its expressed in U.S. dollars at June 30, 2000. The table also
shows the effect on those amounts if each local currency were to lose 10% of its
value against the U.S. dollar (in thousands):
June 30, 2000 June 30, 1999
===================================================================================================================================
Effect of a 10% Effect of a 10%
Decline in Decline in
Currency Currency
Net Investment Values Net Investment Values
- -----------------------------------------------------------------------------------------------------------------------------------
Canada $ 86,824 $ (8,682) $ 69,514 $ (6,951)
- -----------------------------------------------------------------------------------------------------------------------------------
Australia 31,339 (3,134) 35,066 (3,507)
- -----------------------------------------------------------------------------------------------------------------------------------
$118,163 $(11,816) $104,580 $(10,458)
===================================================================================================================================
37
Short-term interest rates
The Company's credit facilities include syndicated banking facilities in Canada
and a separate facility in Australia. These banking arrangements, which are
used primarily to finance inventory purchases, provide for interest on any
short-term borrowings at rates determined with reference to the local "prime" or
"base rates". These rates are, therefore, subject to change for a variety of
reasons which are beyond the Company's control. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" which is incorporated herein by reference.
Neither the Company nor its Canadian and Australian subsidiaries incurred any
borrowings during fiscal year 2000.
It has not been the Company's policy to hedge against the risk presented by
possible fluctuations in short-term interest rates.
38
Item 8 FINANCIAL STATEMENTS
Report of Independent Accountants
To the Board of Directors and Stockholders of InterTAN, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of InterTAN,
Inc. and its subsidiaries at June 30, 2000, and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2000, in conformity with generally accepted accounting principles in
the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
Toronto, Canada
August 14, 2000
39
Consolidated Statements of Operations
Year ended June 30
(In thousands, in U.S. dollars, except per share data) 2000 1999 1998
==============================================================================================================================
Net sales and operating revenues $ 484,218 $ 500,050 $ 541,374
Other income 125 266 511
- ------------------------------------------------------------------------------------------------------------------------------
484,343 500,316 541,885
Operating costs and expenses:
Cost of products sold 280,999 280,868 307,934
Selling, general and administrative expenses 153,336 174,968 211,458
Depreciation and amortization 6,003 6,378 7,421
Loss on disposal of United Kingdom subsidiary
and other restructuring charges - 35,088 12,712
- ------------------------------------------------------------------------------------------------------------------------------
440,338 497,302 539,525
- ------------------------------------------------------------------------------------------------------------------------------
Operating income 44,005 3,014 2,360
Foreign currency transaction (gains) losses 209 (331) (761)
Interest income (2,418) (1,535) (1,172)
Interest expense 587 4,815 6,636
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 45,627 65 (2,343)
Income taxes 20,507 24,710 10,430
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 25,120 $ (24,645) $ (12,773)
==============================================================================================================================
Basic net income (loss) per average common share $ 0.85 $ (1.17) $ (0.70)
Diluted net income (loss) per average common share $ 0.82 $ (1.17) $ (0.70)
- ------------------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 29,658 21,026 18,207
Average common shares outstanding assuming dilution 30,501 21,026 18,207
==============================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
40
Consolidated Balance Sheets June 30 June 30
(In thousands, in U.S. dollars, except share amounts) 2000 1999
==============================================================================================================================
Assets
Current Assets
Cash and short-term investments $ 44,750 $ 47,403
Accounts receivable, less allowance for doubtful accounts 12,803 11,418
Inventories 121,894 111,934
Other current assets 1,235 1,990
Deferred income taxes 2,295 1,247
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 182,977 173,992
Property and equipment, less accumulated
depreciation and amortization 22,587 20,123
Other assets 29 276
Deferred income taxes 2,483 3,924
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 208,076 $ 198,315
==============================================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 26,174 $ 15,883
Accrued expenses 16,821 17,369
Income taxes payable 30,137 39,286
Deferred service contract revenue - current portion 5,383 4,488
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 78,515 77,026
Deferred service contract revenue - non current portion 4,735 4,008
Other liabilities 6,050 6,521
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 89,300 87,555
==============================================================================================================================
Stockholders' Equity
Preferred stock, no par value, 1,000,000 shares authorized,
none issued or outstanding - -
Common stock, $1 par value, 40,000,000 shares authorized,
30,498,135 and 29,782,803, respectively, issued 30,498 29,783
Additional paid-in capital 146,214 141,126
Common stock in treasury, at cost, 1,789,815 and 0 shares,
respectively (18,700) -
Deficit (9,775) (34,895)
Accumulated other comprehensive loss (29,461) (25,254)
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 118,776 110,760
==============================================================================================================================
Commitments and contingencies (See notes 4, 10 and 11)
Total Liabilities and Stockholders' Equity $ 208,076 $ 198,315
==============================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
41
Consolidated Statements of Stockholders' Equity
Common Stock Treasury Stock
(In thousands, in U.S. dollars) Shares Amount Shares Amount
===========================================================================================================================
Balance at June 30, 1997 17,810 $ 17,810 $
Comprehensive loss:
Net loss
Foreign currency translation adjustments
Comprehensive loss
Issuance of common stock to employee plans 901 901
Retirement of warrants held by
RadioShack Corporation
- ---------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 18,711 18,711
Comprehensive loss:
Net loss
Foreign currency translation adjustments
Comprehensive loss
Issuance of common stock to employee plans 792 792
Issuance of common stock under
stock option plans 153 153
Conversion of subordinated debentures
to common stock 10,119 10,119
Stock-based compensation 8 8
- ---------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 29,783 29,783
Comprehensive income:
Net income
Foreign currency translation adjustments
Comprehensive income
Issuance of common stock to employee plans 264 264
Issuance of common stock under
stock option plans 451 451
Stock-based compensation
Purchase of treasury stock (1,790) (18,700)
===========================================================================================================================
Balance at June 30, 2000 30,498 $ 30,498 (1,790) $ (18,700)
===========================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
42
Consolidated Statements of Stockholders' Equity - continued
Additional Retained
Paid-in Earnings Comprehensive
(In thousands, in U.S. dollars) Capital (Deficit) Income (Loss)
- -----------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 $ 108,413 $ 2,523
Comprehensive loss:
Net loss (12,773) $ (12,773)
Foreign currency translation adjustments (9,702)
------------------------
Comprehensive loss $ (22,475)
------------------------
Issuance of common stock to employee plans 2,228
Retirement of warrants held by
RadioShack Corporation (898)
- -----------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 109,743 (10,250)
Comprehensive loss:
Net loss (24,645) $ (24,645)
Foreign currency translation adjustments 6,960
------------------------
------------------------
Comprehensive loss $ (17,685)
------------------------
Issuance of common stock to employee plans 2,428
Issuance of common stock under
stock option plans 593
Conversion of subordinated debentures
to common stock 28,155
Stock-based compensation 207
- -----------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 141,126 (34,895)
Comprehensive Income
Net income 25,120 $ 25,120
Foreign currency translation adjustments (4,207)
------------------------
------------------------
Comprehensive income $ 20,913
========================
Issuance of common stock to employee plans 3,140
Issuance of common stock under
stock option plans 1,352
Stock-based compensation 596
Purchase of treasury stock
- -----------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 $ 146,214 $ (9,775)
- -----------------------------------------------------------------------------------------------------------
Accumulated
Other
Comprehensive
(In thousands, in U.S. dollars) Loss Total
- ------------------------------------------------------------------------------------
Balance at June 30, 1997 $ (22,512) $ 106,234
Comprehensive loss:
Net loss (12,773)
Foreign currency translation adjustments (9,702) (9,702)
Comprehensive loss
Issuance of common stock to employee plans 3,129
Retirement of warrants held by
RadioShack Corporation (898)
- ------------------------------------------------------------------------------------
Balance at June 30, 1998 (32,214) 85,990
Comprehensive loss:
Net loss (24,645)
Foreign currency translation adjustments 6,960 6,960
Comprehensive loss
Issuance of common stock to employee plans 3,220
Issuance of common stock under
stock option plans 746
Conversion of subordinated debentures
to common stock 38,274
Stock-based compensation 215
- ------------------------------------------------------------------------------------
Balance at June 30, 1999 (25,254) 110,760
Comprehensive Income
Net income 25,120
Foreign currency translation adjustments (4,207) (4,207)
Comprehensive income
Issuance of common stock to employee plans 3,404
Issuance of common stock under
stock option plans 1,803
Stock-based compensation 596
Purchase of treasury stock (18,700)
- ------------------------------------------------------------------------------------
Balance at June 30, 2000 $ (29,461) $ 118,776
- ------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
43
Consolidated Statements of Cash Flows
Year ended June 30
(in thousands, in U.S. dollars) 2000 1999 1998
=============================================================================================================================
Cash flows from operating activities:
Net income (loss) $ 25,120 $ (24,645) $(12,773)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 6,003 6,378 7,421
Deferred income taxes 336 (4,822) 166
Foreign currency transaction gains, unrealized - - (1,653)
Net loss on disposition of United Kingdom
subsidiary and other restructuring charges - 35,088 12,712
Stock based compensation 2,123 1,418 1,291
Other 59 719 1,055
Cash provided by (used in) assets and liabilities:
Accounts receivable (1,739) (7,096) 450
Inventories (14,429) (11,050) 11,879
Other current assets 371 (903) (617)
Accounts payable 11,101 10,875 (2,231)
Accrued expenses 645 124 291
Income taxes payable (8,865) 17,829 9,361
Deferred service contract revenue 1,622 1,986 354
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 22,347 25,901 27,706
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (9,691) (7,310) (7,165)
Proceeds from sales of property and equipment 140 167 97
Effect of sale of United Kingdom subsidiary on cash - (10,971) -
Other investing activities 295 974 2,548
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,256) (17,140) (4,520)
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Changes in short-term borrowings, net - 2,448 (661)
Proceeds from issuance of common stock to employee plans 1,923 1,890 1,838
Proceeds from exercise of stock options 1,803 746 -
Principal repayments on long-term borrowings - - (24,353)
Purchase of treasury stock (18,700) - -
Cash paid for fractional shares on stock split (45) - -
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (15,019) 5,084 (23,176)
- -----------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (725) 747 (1,925)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and short-term investments (2,653) 14,592 (1,915)
Cash and short-term investments, beginning of year 47,403 32,811 34,726
- -----------------------------------------------------------------------------------------------------------------------------
Cash and short-term investments, end of year $ 44,750 $ 47,403 $ 32,811
=============================================================================================================================
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 356 $ 4,568 $ 5,547
Income taxes $ 28,799 $ 12,356 $ 715
=============================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
44
Note 1 Description of Business and Summary of Significant Accounting Policies
Description of Business and Principles of Consolidation
InterTAN, Inc. (the "Company" or InterTAN") is engaged in the sale of consumer
electronics products primarily through company-operated retail stores and dealer
outlets in Canada and Australia. The Company's retail operations are conducted
through two wholly-owned subsidiaries: InterTAN Australia Ltd., which operates
in Australia under the trade name "Tandy"; and InterTAN Canada Ltd., which
operates in Canada under the trade name "RadioShack". The Company previously
also had retail and dealer outlets in the United Kingdom. These operations were
conducted through a wholly-owned subsidiary, InterTAN U.K. Limited, which
operated under the "Tandy" name. Effective January 1999, the Company's
subsidiary in the United Kingdom was sold. See Note 4 to the consolidated
financial statements. All of these trade names are used under license from
RadioShack Corporation ("RadioShack U.S.A."). In addition, the Company has
entered into an agreement in Canada with Rogers Cantel Inc. ("Cantel") to
operate telecommunications stores ("Rogers AT&T stores") on its behalf. At June
30, 2000, 51 Rogers AT&T stores were in operation. The consolidated financial
statements include the accounts of the Company and its subsidiaries. All
material intercompany transactions, balances and profits have been eliminated.
The Company's fiscal year ends June 30.
Cash and Short-Term Investments
Cash in stores, deposits in banks and short-term investments with original
maturities of three months or less are considered as cash and cash equivalents.
Cash equivalents are carried at cost, which approximates fair market value.
Accounts Receivable and Allowance for Doubtful Accounts
An allowance for doubtful accounts is provided when accounts are determined to
be uncollectible. Concentrations of credit risk with respect to customer
receivables are limited due to the large number of customers comprising the
Company's customer base and their location in many different geographic areas of
the countries. However, the Company does have some concentration of credit risk
in the wireless telephone and direct-to-home satellite services industries due
to increased sales and outstanding balances as of June 30, 2000 from these
service providers.
Inventories
Inventories are comprised primarily of finished merchandise and are stated at
the lower of cost, based on the average cost method, or market value.
Capitalized Software Costs
The American Institute of Certified Public Accountants has issued Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). This statement requires that the
direct costs of certain internally developed software be capitalized and
amortized over a reasonable period. The Company adopted SOP 98-1 in the first
quarter of fiscal year 2000; such adoption did not have a material effect on the
Company's consolidated financial statements.
Property and Equipment
Property and equipment are recorded at cost and depreciated over the estimated
useful lives of the assets using the straight-line method. Estimated useful
lives range from 33 to 40 years for buildings and 3 to 8 years for equipment,
furniture and fixtures. Leasehold improvements are amortized over the life of
the lease or the useful life of the asset, whichever is shorter.
Maintenance and repairs are charged to expense as incurred. Renewals and
betterments, which materially prolong the useful lives of the assets, are
capitalized. The cost and related accumulated depreciation of property
45
and equipment retired or sold are removed from the accounts, and gains or losses
are recognized in the consolidated statement of operations.
The Company reviews all long-lived assets (i.e., property and equipment) for
impairment whenever events or changes in circumstances indicate that the net
book value of the assets may not be recoverable. An impairment loss would be
recognized if the sum of the expected future cash flows (undiscounted and before
interest) from the use of the assets is less than the net book value of the
assets. The amount of the impairment loss would generally be measured as the
difference between the net book value of the assets and their estimated fair
value.
Net Sales and Operating Revenues
Net sales and operating revenues include items related to normal business
operations, including service contract revenue and residual income. Retail
sales are recorded on the accrual basis. Service contract revenue, net of
direct selling expenses, is recognized over the life of the contract. Residual
income is recognized based on the contractual percentage of each customer's
monthly bill.
Translation of Foreign Currencies
The local currencies of the Company's foreign entities are the functional
currencies of those entities. For reporting purposes, assets and liabilities
are translated into U.S. dollars using the exchange rates in effect at the
balance sheet date, income and expense items are translated using monthly
average exchange rates. The effects of exchange rate changes on net assets
located outside the United States are recorded in equity as part of "accumulated
other comprehensive loss". Gains and losses from foreign currency transactions
are included in the operations of each period.
Comprehensive Income (Loss)
Comprehensive income is defined as the change in stockholders' equity during a
period except those changes resulting from investments by owners and
distributions to owners. For the Company, the components of comprehensive income
(loss) include net income or loss and the effects of exchange rate changes on
net assets located outside the United States (foreign currency translation
adjustments). For fiscal years 2000, 1999 and 1998, foreign currency
translation gains (losses) were $(4,207,000), $6,960,000 and $(9,702,000),
respectively. The fiscal year 1999 amount included an adjustment of $4,087,000
related to the reclassification of accumulated foreign currency translation
losses to net loss on the sale of the United Kingdom subsidiary.
Contract Management
At June 30, 2000, the Company had 683 company-operated stores, of which 174,
primarily located in Australia, were operated under "contract management"
arrangements. Under the typical contract management arrangement, the store
manager is not employed by the Company, but is under contract to operate the
store on its behalf. The Company selects and supplies the store location
(including lease payments and other fixed location charges) and also supplies
leasehold improvements, fixtures and store inventory. The Company is also
committed to provide supporting services, including advertising and training.
The contract manager is responsible for the labor and overhead necessary to
operate the store. The contract manager is also required to provide a cash
deposit. In return for the service of operating the store, the contract manager
receives compensation equal to approximately one-half of the store's gross
profit.
The revenue, as well as the expenses paid by the Company, related to contract
management stores are included in the consolidated statements of operations.
The contract manager's compensation is included in selling, general and
administrative expenses. Contract manager's deposits are included in the "Other
liabilities" section of the consolidated balance sheets and amounted to
$4,675,000 and $4,982,000 at June 30, 2000 and June 30, 1999, respectively.
46
Capitalized Financing Costs
Costs incurred in connection with the issuance of debt and renewal fees are
capitalized and are amortized over the term of the respective debt. Amortization
of these costs, which include underwriting, bank, legal and accounting fees, for
fiscal years 2000, 1999 and 1998 was $251,000, $770,000 and $781,000,
respectively. Unamortized balances at June 30, 2000 and June 30, 1999 were
$90,000 and $298,000, respectively.
Advertising Costs
Advertising costs are recorded net of vendor contributions and are expensed the
first time the related advertising occurs. During fiscal years 2000, 1999 and
1998, advertising expense was $19,489,000, $20,753,000 and $24,770,000,
respectively.
Income Taxes
Income taxes are accounted for using the asset and liability method. The asset
and liability approach requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
the book amounts and tax basis of assets and liabilities. However, deferred tax
assets are only recognized to the extent that it is more likely than not that
the Company will realize the benefits of that deferred tax asset.
InterTAN generally considers the earnings of its foreign subsidiaries to be
permanently reinvested for use in those operations and, consequently, deferred
federal income taxes, net of applicable foreign tax credits, are not provided on
the undistributed earnings of foreign subsidiaries which are to be so
reinvested. If the earnings of those subsidiaries as of June 30, 2000 were
remitted to the parent, approximately $108,000,000, subject to adjustment for
deemed foreign taxes paid, would be included in the taxable income of the
parent. By operations of tax statutes currently in effect, the Company would
incur certain U.S. income taxes, including alternative minimum tax. Such
remittances may also be subject to certain foreign withholding taxes (presently
rates range from 0% to 15%) for which there would likely be no U.S. tax relief.
Forward Exchange Contracts
Gains and losses on contracts entered into to hedge open inventory purchase
orders are included in the cost of the merchandise purchased. Gains and losses
on contracts intended to mitigate the effects of exchange rate fluctuations on
payables and debt denominated in currencies other than the functional currency
of the debtor are included in income in the periods the exchange rates change.
In June, 1998, the Financial Accounting Standards Board (the "FASB") issued
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). This new accounting standard will require
that derivative instruments be measured at fair value and recognized in the
balance sheet as either assets or liabilities, as the case may be. The
treatment of changes in the fair value of a derivative (i.e., gains and losses)
will depend on its intended use and designation. Gains and losses on
derivatives designated as hedges against the cash flow effect of a forecasted
transaction will initially be reported as a component of comprehensive income
and, subsequently, reclassified into earnings when the forecasted transaction
affects earnings. Gains and losses on derivatives designated as hedges against
the foreign exchange exposure of a net investment in a foreign operation will
form part of the cumulative translation adjustment. Gains and losses on all
other forms of derivatives will be recognized in earnings in the period of
change.
The Company will adopt FAS 133 effective July 1, 2000. Upon adoption, FAS 133
is not expected to have a material effect on the Company's financial statements.
47
Earnings per Share
Basic earnings per share ("EPS") is calculated by dividing the net income or
loss by the weighted average number of shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted.
The following table reconciles the numerator and denominator used in the basic
and diluted earnings (loss) per share calculations for the years ended June 30,
2000, 1999 and 1998:
(In thousands, except for 2000 1999
----------------------------------- ------------------------------------
per share data) Income (loss) Shares Per Share Income (loss) Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------------------------------- ------------------------------------
Net income (loss) $25,120 $ (24,645)
=========== ==========
Basic EPS
Income available to
common stockholders $25,120 29,658 $ 0.85 $ (24,645) 21,026 $ (1.17)
========= =========
Effect of Dilutive Securities
9% convertible debentures - - - 1 - 1
Stock options - 843 - 1 - 1
----------- -----------
Diluted EPS
Income available to common
stockholders including
assumed conversions $25,120 30,501 $ 0.82 $ (24,645) 21,026 $ (1.17)
=========== =========== ========= ========== ========== =========
(In thousands, except for 1998
------------------------------------
per share data) Income (loss) Shares Per Share
(Numerator) (Denominator) Amount
------------------------------------
Net income (loss) $ (12,773)
===========
Basic EPS
Income available to
common stockholders $ (12,773) 18,207 $ (0.70)
=========
Effect of Dilutive Securities
9% convertible debentures - 1 - 1
Stock options - 1 - 1
----------- -----------
Diluted EPS
Income available to common
stockholders including
assumed conversions $ (12,773) 18,207 $ (0.70)
=========== =========== =========
/1/ The effects of stock options and the 9% subordinated convertible debenture
during fiscal years 1999 and 1998 were anti-dilutive during such periods.
At June 30, 2000, the Company's directors and employees held options to purchase
1,998,705 common shares at prices ranging from $2.48 to $14.75 per share. All
but 1,875 of such options were included in the computation of diluted earnings
per common share for fiscal year 2000. These options were excluded because the
option exercise price was greater than the average market price of the common
stock during the third and fourth quarters. The dilutive effect of the various
options held by the Company's directors and employees in future periods will
depend on the average market price of the Company's common stock during such
periods.
Accounting for Stock-Based Compensation
The Company measures the expense associated with its stock-based compensation
using the intrinsic value method. Application of this method generally results
in compensation expense equal to the quoted price of the shares granted under
option less the amount, if any, the director or employee is required to pay for
the underlying shares. See Note 14.
New Accounting Standards
In December, 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance in the recognition, presentation and
disclosure of revenue in financial statements. The Company is required to adopt
SAB 101 in the fourth quarter of fiscal year 2001. The Company is currently
analyzing the provisions of SAB 101 and the SEC interpretations, which have yet
to be finalized and published, as they relate to the Company's revenue
recognition policies. The impact of the adoption of SAB 101, if any, has not
yet been determined.
48
In March, 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - an interpretation of APB
Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No.
25 and among other issues clarifies the following: the definition of an
employee for purposes of applying APB Opinion No. 25, the criteria for
determining whether a plan qualifies as a noncompensatory plan, the accounting
consequence of various modifications to the terms of previously fixed stock
options or awards, and the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occurred after either December
15, 1998 or January 12, 2000. The Company does not anticipate that FIN 44 will
have a material impact on its results of operations and financial position.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and related revenues and
expenses, and disclosure of gain and loss contingencies at the date of the
financial statements. Actual results could differ from those estimates.
Note 2 Treasury Stock Repurchase Program
In November, 1999, the Company's Board of Directors announced a share repurchase
program under which management was authorized to purchase up to 1,500,000 of the
Company's common stock over a period of three years. As a result of
unanticipated market conditions, the repurchase program was accelerated, and by
March 31, 2000, all 1,500,000 shares had been acquired at an aggregate cost of
$15,468,000. In April, 2000, the Company announced that the Board of Directors
had authorized a further program for the repurchase of up to 1,500,000
additional shares. By June 30, 2000, 285,200 shares had been acquired under
this program at an aggregate cost of $3,165,000. Additional purchases of common
shares under the new program are dependent on market conditions. Both programs
were undertaken as a result of management's view of the economic value of the
Company's common stock. During the year, the Company also acquired certain
other treasury stock in connection with the exercise of stock options by
employees.
Note 3 Stock Split
On November 30, 1999, the Company's Board of Directors announced a three-for-two
stock split of InterTAN's common stock for stockholders of record at the close
of business on December 16, 1999, payable on January 13, 2000. This resulted in
the issuance of 10,075,447 shares of common stock, including 1,537 shares held
in treasury. A corresponding decrease of $10,075,447 was made to additional
paid-in-capital. Payments aggregating approximately $45,000 were also made in
satisfaction of 2,639 fractional shares. This amount was also charged to
additional paid-in capital. All references made to the number of shares of
common stock issued or outstanding, per share prices and basic and diluted net
income (loss) per common share amounts in the consolidated financial statements
and the accompanying notes have been adjusted to reflect the split on a
retroactive basis. Previously awarded stock options, restrictive stock awards
and certain other agreements payable in the Company's common stock have been
adjusted or amended to reflect the split on a retroactive basis.
49
Note 4 Loss on Sale of United Kingdom Subsidiary and Other Restructuring
Charges
During fiscal year 1999, the Company's Board of Directors approved a plan to
sell the Company's investment in InterTAN U.K. Limited for proceeds of
$2,582,000, net of estimated selling costs, and the Company recorded a loss of
$35,088,000. The sale included all assets, liabilities and other obligations of
the United Kingdom subsidiary, including approximately $11,600,000 of bank debt
outstanding under InterTAN U.K. Limited's portion of the Company's syndicated
loan agreement, which was repaid by the purchaser on closing. See Note 16,
"Segment Reporting Disclosures", for revenue and operating income (loss)
associated with InterTAN U.K. Limited.
In addition, the purchaser assumed the rights to claim tax loss carryforwards
and other deferred tax deductions having a potential tax benefit of
approximately $30,000,000. To the extent the purchaser is able to utilize all
or a portion of these loss carryforwards and other deferred tax deductions, the
Company is entitled to cash payments equal to 30% of the tax savings realized by
the purchaser (a maximum of approximately $9,000,000). The Company will
recognize such proceeds, if any, as received. No amounts have been received to
date.
Also under the terms of the sale agreement, the Company has indemnified the
purchaser for certain contingencies primarily relating to working capital
adjustments. In addition, the Company remains contingently liable as guarantor
of certain leases of InterTAN U.K. Limited. At June 30, 2000 the remaining
lease obligation assumed by the purchaser and guaranteed by the Company was
approximately $25,000,000 and the average remaining life of such leases was
approximately 6 years. If the purchaser were to default on the lease
obligations, management believes the Company could reduce the exposure through
assignment, subletting and other means. The Company has obtained an indemnity
from the purchaser for an amount equal to management's best estimate of the
Company's potential exposure under these guarantees. The amount of this
indemnity declines over time, as the Company's risk diminishes. At June 30,
2000, the amount of this indemnity was approximately $7,600,000.
In January 1998, a plan to close 69 consistently under-performing stores in the
United Kingdom was approved. In connection with this restructuring plan, a
provision of $12,712,000 was recorded during the third quarter of fiscal year
1998, reflecting lease disposal costs, severance costs and other closure costs,
including fixture removal and contract termination costs. The following is a
summary of the activity within this reserve during fiscal year 1999:
Balance, Foreign Adjustment Balance,
(in thousands) June 30 Currency on Disposal of June 30
1998 Paid Rate Effects InterTAN U.K. 1999
----------------------------------------------------------------------------------------------------------------
Lease disposal costs $ 8,639 $ (2,995) $ (33) $ (5,611) $ -
Severance costs 250 (105) (1) (144) -
Other exit costs 527 (268) (2) (257) -
----------------------------------------------------------------------------------------------------------------
$ 9,416 $ (3,368) $ (36) $ (6,012) $ -
----------------------------------------------------------------------------------------------------------------
Note 5 Bank Debt
50
In December, 1997, InterTAN Canada Ltd., InterTAN, Inc. and InterTAN U.K.
Limited entered into a three-year revolving facility with a syndicate of lenders
(the "Syndicated Loan Agreement") in an amount not to exceed $75,000,000 in the
aggregate. With the sale of InterTAN U.K. Limited in January, 1999, the
facility was reduced to C$67,000,000 (approximately $45,000,000 at June 30, 2000
exchange rates). The amount of credit actually available at any particular time
is dependent on a variety of factors including the level of eligible inventories
and accounts receivable of InterTAN Canada Ltd. The amount of available credit
is then reduced by the amount of trade accounts payable then outstanding as well
as certain other reserves. The interest rate under the credit facility is the
Canadian prime rate. Letters of credit are charged at the rate of 1.5% per
annum. In addition, a standby fee is payable on the unused portion of the
credit facility. The amount of this fee is subject to certain thresholds, and
ranges from 0.375% to 0.50% of the unused credit line. The Syndicated Loan
Agreement is collateralized by a first priority lien over all of the assets of
InterTAN Canada Ltd. and is guaranteed by InterTAN, Inc. This facility is used
primarily to provide letters of credit in support of purchase orders, to finance
inventory purchases and for general corporate purposes. At June 30, 2000, the
maximum borrowing base under the Syndicated Loan Agreement was $31,347,000 of
which $281,000 was committed in support of letters of credit. There were no
loans outstanding against the facility at June 30, 2000. Approximately
$31,066,000 was available for use at June 30, 2000. The Company is currently in
discussion with a number of potential lenders to replace the Syndicated Loan
Agreement when it expires at the end of December, 2000.
The Company's Australian subsidiaries, have entered into a credit agreement with
an Australian bank (the "Australian Facility"). This agreement established a
credit facility in the amount of A$12,000,000 (approximately $7,162,000 at June
30, 2000 exchange rates). The Australian Facility has no fixed term and may be
terminated at any time upon five days' prior written notice by the lender. All
or any part of the facility may be used to provide letters of credit in support
of purchase orders. A maximum amount of A$5,000,000 (approximately $2,984,000 at
June 30, 2000 exchange rates) may be used in support of short-term borrowings.
The Australian Facility is collateralized by a floating charge over all of the
assets of InterTAN Australia Ltd. At June 30, 2000, there were no borrowings
outstanding against the Australian Facility, nor was any amount committed in
support of letters of credit. The terms of the Australian Facility limit the
Australian subsidiary with respect to certain distributions to InterTAN, Inc.
Note 6 Merchandise and License Agreements with RadioShack U.S.A.
The Company and RadioShack U.S.A. have entered into a Merchandise Agreement and
a series of license agreements. These agreements permit InterTAN to use, in
designated countries, the "Tandy" and "RadioShack" trade names until June 30,
2010. The license agreements may be terminated with five years' prior written
notice by either party. In the event a change in control of InterTAN, Inc. or
any of its subsidiaries occurs, RadioShack U.S.A. may revoke the Merchandise
Agreement and the license agreements. In consideration for these rights, the
Company was obliged to pay a royalty of 0.25% of consolidated sales beginning in
fiscal year 1996. This royalty increases by 0.25 percentage points each fiscal
year until it reached a maximum of up to 1.0% in fiscal 1999. During fiscal
years 2000, 1999 and 1998, the Company paid RadioShack U.S.A. royalties
totalling $4,561,000, $4,798,000 and $3,929,000, respectively. The Company is
obliged to use RadioShack U.S.A.'s export unit, A & A International, Inc. ("A &
A"), as its exclusive exporter of products from the Far East through the term of
the Merchandise Agreement. In such connection, the Company must pay a purchasing
agent/exporter fee to A & A calculated by adding 0.2% of consolidated sales in
excess of $400,000,000 to the base amount of $710,000 and deducting from this
certain credits the Company earns by purchasing products from RadioShack U.S.A.
and A & A. The Company paid RadioShack U.S.A. fees totalling $671,000, $816,000
and $885,000 in respect of fiscal years 2000, 1999 and 1998, respectively, under
this arrangement. During fiscal years 2000 and 1999, the Company's Canadian and
Australian subsidiaries purchased approximately 16% and 22%, respectively, of
their
51
merchandise from RadioShack U.S.A. and A &A. During fiscal year 1998, the
Company (including its former United Kingdom subsidiary) purchased approximately
30% of its merchandise from A & A and RadioShack U.S.A. The Company's purchase
orders with RadioShack U.S.A. are supported, based on a formula agreed with
RadioShack U.S.A., by letters of credit issued by banks on behalf of InterTAN or
backed by cash deposits. In September, 1997, the Merchandise Agreement was
amended to permit the Company to support purchase orders with a surety bond or
bonds as well as letters of credit. The Company has secured surety bond coverage
from a major insurer in an amount not to exceed $18,000,000, which will reduce
to $12,000,000 during fiscal year 2001.
Note 7 9% Subordinated Convertible Debentures
During fiscal year 1994, the Company closed a private placement of C$60,000,000
of 9% subordinated convertible debentures (the "Debentures") maturing August 30,
2000. The Debentures were convertible at any time at a conversion price of
C$5.61 per share. On April 16, 1999, the Company served notice on all remaining
Debenture holders calling for the redemption of all issued and outstanding
Debentures on June 8, 1999. All remaining Debenture holders exercised their
right of conversion and, as a result, approximately 6,009,000 additional shares
were issued. Approximately 4,110,000 shares had previously been issued as a
result of Debenture conversions between July 31, 1998 and April 16, 1999.
Note 8 Property and Equipment
Property and equipment at June 30, 2000 and 1999 are summarized as follows:
(in thousands) 2000 1999
------------------------------------------------------------------------------------------
Land $ 938 $ 1,019
Buildings 7,837 8,173
Equipment, furniture and fixtures 33,279 29,955
Leasehold improvements 21,856 21,179
------------------------------------------------------------------------------------------
63,910 60,326
Less accumulated depreciation
and amortization 41,323 40,203
------------------------------------------------------------------------------------------
Property and equipment, net $ 22,587 $ 20,123
------------------------------------------------------------------------------------------
52
Note 9 Accrued Expenses
Accrued expenses at June 30, 2000 and 1999 are summarized as follows:
(in thousands) 2000 1999
-----------------------------------------------------------------------
Payroll and bonuses $ 7,651 $ 8,267
Other 9,170 9,102
-----------------------------------------------------------------------
$ 16,821 $ 17,369
-----------------------------------------------------------------------
Note 10 Income Taxes
The components of the provisions for domestic and foreign income taxes are shown
below:
Year ended June 30
(in thousands) 2000 1999 1998
------------------------------------------------------------------------------------------
Current (benefit) expense:
United States $ - $ 94 $ 111
Foreign 20,146 29,438 10,153
------------------------------------------------------------------------------------------
20,146 29,532 10,264
Deferred (benefit) expense:
United States - - -
Foreign 361 (4,822) 166
------------------------------------------------------------------------------------------
Total income tax expense $ 20,507 $ 24,710 $ 10,430
------------------------------------------------------------------------------------------
The Company's income tax expense primarily represents Canadian and Australian
income tax on the profits earned by its subsidiaries in those countries. No tax
was accrued or payable in the United Kingdom during fiscal years 1999 or 1998.
53
Components of the difference between income tax expense and the amount
calculated by applying the U.S. statutory rate of 35% to income before income
taxes are as follows:
(in thousands) Year ended June 30
2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Components of pre-tax income (loss):
United States $ (1,934) $ (27,871) $ (2,223)
Foreign 47,561 27,936 (120)
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 45,627 65 (2,343)
Statutory U.S. tax rate 35% 35% 35%
Federal income tax expense (benefit) at statutory rate 15,969 23 (820)
Foreign tax rate differentials 1,767 1,723 1,463
Provincial income taxes, less foreign federal income
tax benefit 2,097 1,718 1,441
Book losses for which no tax benefit was recognized 677 12,988 8,883
Charges for income tax dispute settlement - 8,039 -
Adjustment to valuation allowance for deferred tax assets - - (666)
Other, net (3) 219 129
- --------------------------------------------------------------------------------------------------------------------------
Total income tax expense $ 20,507 $ 24,710 $ 10,430
- --------------------------------------------------------------------------------------------------------------------------
Deferred tax assets are comprised of the following at June 30:
(in thousands) 2000 1999
---------------------------------------------------------------------------------------------------
Depreciation $ 605 $ 942
Deferred service contracts 4,157 2,982
Loss carryforwards 28,413 7,495
Other 502 1,643
---------------------------------------------------------------------------------------------------
33,677 13,062
Valuation allowance (28,899) (7,891)
---------------------------------------------------------------------------------------------------
Deferred tax asset $4,778 $ 5,171
---------------------------------------------------------------------------------------------------
The net deferred tax asset is classified as follows:
Current $2,295 $ 1,247
Deferred 2,483 3,924
---------------------------------------------------------------------------------------------------
$4,778 $ 5,171
---------------------------------------------------------------------------------------------------
54
In 1999, in connection with the sale of the Company's United Kingdom subsidiary,
the Company wrote off approximately $36,000,000 of deferred tax assets and a
like amount of valuation allowance. The purchaser has agreed to make cash
payments to the Company equal to 30% of tax savings, if any, resulting from the
use of these deferred tax assets (a maximum of $9,000,000). See Note 4.
The Company regularly assesses the future benefit which might be derived from
the Company's deferred tax assets. In assessing the future benefit which might
be derived from these deferred tax assets, the Company considers its recent
operating history and financial condition. During fiscal year 1998, management
reviewed the realization of its deferred tax assets in Australia. Based on the
continued improvements in the operating performance of the Australian
subsidiary, management concluded that the valuation allowance should be reduced
by $666,000 and the Company recognized a deferred benefit of that amount.
In the United States, the Company has net operating loss carryforwards for tax
purposes of approximately $64,000,000. These loss carryforwards will expire
between 2012 and 2020. In Canada, the Company has a net capital loss
carryforward from the sale of the United Kingdom subsidiary of approximately
$14,000,000. This loss may be carried forward indefinitely, but may only be
applied against capital gains.
During fiscal year 1999, the Company reached an agreement with the Canadian tax
authorities relating to the settlement of a dispute regarding the 1990 to 1993
taxation years resulting in a charge of $8,039,000. While the amount in dispute
has been agreed and a settlement agreement has been executed, the Company has
not yet been fully reassessed and, accordingly, this amount has not been paid.
Management estimates the remaining payment relating to these issues to be
approximately $13,000,000.
An audit of the income tax returns of the Canadian subsidiary for the 1987 to
1989 taxation years was completed during fiscal year 1994, resulting in
additional tax being levied against the Canadian subsidiary. The Company has
appealed these reassessments and, pending the outcome of these matters, the
Company, by Canadian law, was required to pay a portion of the tax in dispute.
The tax levied by Revenue Canada in reassessing those years was offset by
refunds arising from the carryback of losses incurred in subsequent years.
Depending on the ultimate resolution of these issues, the Company could
potentially have an additional liability in the range of $0 to $12,000,000. The
Company believes it has meritorious arguments in defense of the issues raised by
Revenue Canada and it is in the process of vigorously defending its position.
It is management's determination that no additional provision need be recorded
for these reassessments. It is not practical for management to make any
reasonable determination of when this remaining outstanding Canadian tax issue
will ultimately be resolved. An audit of the Company's Canadian subsidiary's
income tax returns by Revenue Canada for the 1995-1996 taxation years is in
process.
Audits of the Company's United States income tax returns for the 1990-1994 years
by the Internal Revenue Service (the "IRS") were completed during 1999. The
Company has been advised that the IRS alleges that the Company owes additional
taxes in respect of those years. The issues involved relate primarily to the
Company's former operations in continental Europe and the United Kingdom. The
Company disagrees with the IRS's position on these issues and believes it has
meritorious arguments in its defense. The Company has filed a protest rebutting
the assertions made by the IRS and is in the process of vigorously defending its
position. Management believes that it has a provision recorded sufficient to
pay the estimated liability resulting from the issues in dispute; however, the
amount ultimately paid could differ from management's estimate.
55
Note 11 Commitments and Contingencies
The Company leases virtually all of its retail space under operating leases with
terms ranging from one to fifteen years. Leases are normally based on a minimum
rental plus a percentage of store sales in excess of a stipulated base. The
remainder of InterTAN's store leases generally provide for fixed monthly rent
adjusted periodically using inflation indices and rent reviews.
In the years 2000, 1999 and 1998, minimum rents, including immaterial contingent
rents and sublease rental income, were $20,172,000, $25,460,000 and $38,297,000,
respectively. Future minimum rent commitments at June 30, 2000 for all long-
term non cancellable leases (net of immaterial sublease rent income) are as
follows:
(in thousands)
-------------------------------
2001 $14,127
2002 11,402
2003 8,010
2004 5,389
2005 2,937
2006 and thereafter 8,762
-------------------------------
Apart from the matters described in Notes 4 and 10, there are no material
pending legal proceedings or claims other than routine litigation incidental to
the Company's business to which the Company or any of its subsidiaries is a
party or to which any of their property is subject.
Note 12 Financial Instruments
Other than debt instruments, management believes that the book value of the
Company's financial instruments recorded on the balance sheet approximates their
estimated fair value based on their nature and generally short maturity; such
instruments include cash and short-term investments, and accounts receivable.
The Company had no long-term debt instruments outstanding at June 30, 2000 or
June 30, 1999.
The Company enters into foreign exchange contracts to hedge against exchange
rate fluctuations on certain debts, payables and open inventory purchase orders
denominated in currencies other than the functional currency of the issuing
entity. All foreign exchange contracts are written with major international
financial institutions. Except for the opportunity cost of future currency
values being more favorable than anticipated, the Company's risk in those
transactions is limited to the cost of replacing the contracts at current market
rates in the event of non-performance by the counterparties. The Company
believes its risk of counterparty non-performance is remote, and any losses
incurred would not be material. At June 30, 2000 and 1999, the Company had
approximately $2,000,000 and $2,077,000, respectively, of foreign exchange
contracts outstanding with a market value of approximately $0 and $41,000,
respectively. Maturity on these contracts outstanding at June 30, 2000 was less
than 30 days from fiscal year-end.
Note 13 Employee Benefit Plans
56
The Company's Stock Purchase Program is available to most employees. Each
participant may contribute from 1% to 10% of annual compensation. The Company
matches from 40% to 80% of the employee's contribution depending on the length
of the employee's participation in the program. Shares are provided to the plan
either by periodic purchases on the open market or by the Company issuing new
shares.
Under the InterTAN Canada Ltd. Employee Savings Plan (the "Savings Plan"), a
participating employee may contribute 5% of annual compensation into the plan.
The Company matches 80% of the employee's contribution. The Savings Plan is
available to most Canadian employees who have been employed at least two years.
An employee may also elect to contribute an additional 5% of annual compensation
to the plan, which is not matched by the employer. The Company's contributions
are fully vested at the end of each calendar quarter. An Administrative
Committee appointed by the Company's Board of Directors directs the investment
of the plan's assets, a significant portion of which are invested in InterTAN,
Inc. common stock.
The InterTAN, Inc. 401(k) Plan was available to all U.S. employees who had
completed at least two months service with the Company. This Plan is in
liquidation following the relocation of the Company's Corporate Headquarters to
Canada.
The aggregate cost of these plans, included in other selling, general and
administration expense, totalled $1,498,000, $1,591,000 and $1,640,000 in 2000,
1999 and 1998, respectively.
Note 14 Stock Option Plans
In 1986 and 1996, the Company adopted employee stock option plans (the "1986
Stock Option Plan" and the "1996 Stock Option Plan") under which the
Organization and Compensation Committee of the Board of Directors may grant
options to key management employees to purchase up to an aggregate of 1,200,000
and 2,250,000 shares, respectively, of the Company's common stock. Incentive
options granted under these plans are exercisable on a cumulative basis equal to
one-third for each year outstanding; unless otherwise specified by the
Committee, nonstatutory options issued under the plans are exercisable on a
cumulative basis equal to 20% for each year outstanding. Upon death or
disability of an optionee, all options then held become immediately exercisable
for one year, and upon retirement, at age 50 or older, the Committee may
accelerate the dates at which the outstanding options may be exercised. Options
under these plans generally expire ten years after the date of grant. The
exercise price of the options granted is determined by the Committee, but cannot
be less than 100% of the market price of the common stock at the date of grant.
At June 30, 2000, options to purchase 379,712 shares were outstanding under the
1986 Stock Option Plan. While options outstanding under this plan will remain
in force until they are exercised, cancelled or expire, no further options may
be granted. At June 30, 2000, options to purchase 1,221,493 shares were
outstanding under the 1996 Stock Option Plan and 731,771 options were available
for future grant. During fiscal year 1999, in connection with certain employee
retirements and terminations, the Company accelerated the vesting and extended
the exercise period associated with approximately 594,000 stock options and
recorded compensation expense of $187,000.
In 1991, the Company adopted the Non-Employee Director Stock Option Plan (the
"1991 Director Plan") under which each non-employee director was granted an
option, exercisable immediately, to purchase 37,500 shares of the Company's
common stock. Upon election, all new non-employee directors are granted an
option to purchase 37,500 shares of the Company's common stock. Options granted
under the 1991 Director Plan are exercisable at a price equal to 100% of the
market price of the common stock at the date of grant. The options generally
57
expire ten years after the date of grant unless the optionee ceases to be a non-
employee director, in which case the options expire one year after the date of
cessation. Common stock issued under the 1991 Director Plan cannot exceed
300,000 shares. At June 30, 2000, options to purchase 187,500 shares were
outstanding under the 1991 Director Plan and 37,500 options were available for
future grant.
In June, 1999, the Company adopted a plan which would grant additional options
to purchase common stock to each non-employee director (such options are
collectively referred to as "the 1999 Director Plan"). Under the 1999 Director
Plan, each non-employee director was granted an option to purchase 30,000 shares
of the Company's common stock at an exercise price of $10.50 per share. Options
granted under this plan are exercisable on a cumulative basis equal to one-
fourth per year on the date fixed for the Company's annual meeting of
stockholders, commencing with the 1999 meeting which was held in November, 1999.
At June 30, 2000 there were 210,000 options outstanding under the 1999 Director
Plan. These options will expire on the earlier of ten years from the date of
grant and the date on which the optionee ceases to be a non-employee director.
Under this plan, the Company will recognize total compensation expense of
$910,000. Of this amount, $370,000 was recognized during fiscal year 2000. The
balance will be recognized rateably over the remaining term of the plan.
In June, 1999, the Company granted a total of 56,250 shares of restricted stock
awards to two executive officers and the managing directors of the Company's
Canadian and Australian subsidiaries. On the date of grant, the market value of
these restricted stock awards totalled $590,625. These shares vest equally over
a three-year period provided the Company's consolidated operating income in a
particular year increases by at least 15%. If operating income growth for a
particular year is less than 15% but more than 10%, then one-fifth of the annual
amount will vest for each percentage point of growth over 10%. If operating
income growth for a year is less than 10%, the restricted stock for that year
will not vest. However, if cumulative compounded annual consolidated operating
income grows by 15% per annum over the three-year period, then any restricted
stock not previously vested will vest in its entirety. Compensation expense of
$220,000 relating to these restricted stock awards was recorded during fiscal
year 2000. Additional compensation expense relating to these restricted stock
awards will be recognized when it becomes probable that vesting will occur for a
particular year.
The Company has also established an incentive stock award plan for approximately
700 store managers. Under this plan, managers achieving certain profit
improvement targets in their respective stores during fiscal years 2000 and 2001
would each receive up to 150 shares of Company stock. Compensation expense of
$239,000 relating to this plan was recognized during fiscal year 2000.
Additional compensation expense relating to this plan will be recognized in
fiscal year 2001 when it becomes probable that the gross profit improvement
targets will be achieved.
A summary of transactions relating to the stock plans is summarized in the
following tables:
58
Summary of Stock Option Transactions
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 1,985,024 $ 5.13 1,521,749 $ 4.33 1,178,250 $ 4.63
Granted 470,875 $ 11.09 736,500 $ 6.49 415,500 $ 3.54
Exercised (449,549) $ 4.14 (155,226) $ 4.95 - -
Forfeited (7,645) $ 7.32 (117,999) $ 3.74 (72,001) $ 4.63
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,998,705 $ 6.74 1,985,024 $ 5.13 1,521,749 $ 4.33
- -------------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 1,089,080 $ 5.18 1,157,270 $ 4.36 878,244 $ 4.64
- -------------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of
options granted during the year $ 7.11 $ 4.05 $ 2.20
- -------------------------------------------------------------------------------------------------------------------------------
Fixed Price Stock Options
Options Weighted Weighted Options Weighted
Outstanding Average Average Exercisable Average
Range of Exercise at Remaining Exercise at Exercise
Prices June 30, 2000 Life (years) Price June 30, 2000 Price
- -----------------------------------------------------------------------------------------------------------------
$2.48 37,500 7.00 $ 2.48 37,500 $ 2.48
$3.54 - $3.96 555,197 7.68 $ 3.67 267,443 $ 3.68
$4.00 - $5.46 636,216 2.86 $ 4.69 631,220 $ 4.69
$10.44 - $14.75 769,792 9.36 $ 10.86 152,917 $ 10.50
- -----------------------------------------------------------------------------------------------------------------
1,998,705 6.78 $ 6.74 1,089,080 $ 5.18
- -----------------------------------------------------------------------------------------------------------------
59
As discussed in Note 1, the Company measures the expense associated with stock-
based compensation using the intrinsic value method. Accordingly, because the
exercise price of the stock options granted is equal to the market price of the
common stock on the date of grant, except for the 1999 Director Plan as noted
above, no compensation expense has been recognized upon the grant of stock
options during fiscal years 2000, 1999, or 1998. Had the Company adopted the
fair value method of recognizing stock-based compensation, the estimated fair
value of the options granted would have been amortized to compensation expense
over the vesting period. Pro forma information is presented below as if the
Company had adopted the fair value method.
2000 1999 1998
(In thousands, except As Pro As Pro As Pro
per share amounts) Reported Forma Reported Forma Reported Forma
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 25,120 $ 23,109 $ (24,645) $ (25,538) $ (12,773) $ (13,513)
Basic net income (loss)
per average common share $ 0.85 $ 0.78 $ (1.17) $ (1.21) $ (0.70) $ (0.74)
Diluted net income (loss) per
average common share $ 0.82 $ 0.76 $ (1.17) $ (1.21) $ (0.70) $ (0.74)
For purposes of the pro forma information above, the fair value of each option
granted for each year was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions for fiscal years 2000, 1999 and
1998, respectively: expected volatility of 56.6%, 55.1% and 54.1%; risk free
interest rates of 6.3%, 5.2% and 5.9%; and expected lives of seven years for all
three years and expected dividend yields of 0% for all three years.
The above pro forma information is not indicative of future amounts as the pro
forma amounts do not include the impact of stock options granted prior to fiscal
year 1996 and additional awards are anticipated in the future.
Note 15 Preferred Stock Purchase Rights
Effective September 20, 1999, the Board of Directors adopted a shareholder
rights plan. Pursuant to the terms of this new plan, the Company declared a
dividend of one right ("Right") on each share of Common Stock of the Company.
Each Right entitles the holder to purchase one one-hundredth of a share of
Series A Junior Participating Preferred Stock, no par value per share, of the
Company at an exercise price of $56.67. The Rights are not currently
exercisable and will become exercisable 10 days after a person or group acquires
beneficial ownership of 15% or more of the company's outstanding Common Stock or
announces a tender offer or exchange offer the consummation of which would
result in beneficial ownership by a person or group of 15% or more of the
outstanding Common Stock. The Rights are subject to redemption by the Company
for $0.01 per Right at any time prior to the tenth day after the first public
announcement of the acquisition by a person or group of beneficial ownership of
15% or more of the Company's Common Stock. In addition, the Board of Directors
is authorized to amend the Rights plan at any time before the Rights become
exercisable.
If a person or group acquires beneficial ownership of 15% or more of the
Company's Common Stock and the Rights are then exercisable, each Right will
entitle its holder (other than such person or members of such group) to
purchase, at the Right's then current exercise price, a number of the Company's
shares of Common Stock
60
having a market value of twice such price. In addition, if InterTAN is acquired
in a merger or other business combination transaction after a person has
acquired beneficial ownership of 15% or more of the Company's Common Stock and
the Rights are then exercisable, each Right will entitle its holder to purchase,
at the Right's then current exercise price, a number of the acquiring company's
shares of common stock having a market value of twice such price. Following the
acquisition by a person or group of beneficial ownership of 15% or more of the
Company's Common Stock and prior to an acquisition of beneficial ownership of
50% or more of the Company's Common Stock, the Board of Directors may exchange
the Rights (other than Rights owned by such person or group, which will have
become null and non-transferrable), in whole or in part, at an exchange ratio of
one share of Common Stock (or one one-hundredth of a share of Preferred Stock)
per Right. The Rights under this plan will expire on September 20, 2009.
Note 16 Segment Reporting Disclosures
The Company's business is managed along geographic lines. All references in
these notes to "Canada", "Australia", "Corporate Headquarters" and "the United
Kingdom" refer to the Company's reportable segments, unless otherwise noted.
Transactions between operating segments are not common and are not material to
the segment information.
Summarized in the table below are the net sales and operating revenues,
depreciation and amortization, operating income (loss), assets and capital
expenditures for the Company's reportable segments for the fiscal years ended
June 30, 2000, 1999 and 1998.
61
Year Ended June 30
(in thousands) 2000 1999 1998
----------------------------------------------------------------------------------------------------
Net sales and operating revenues:
Canada $ 364,163 $ 297,314 $ 270,675
Australia 120,055 105,595 98,171
United Kingdom - 97,141 1 172,528
----------------------------------------------------------------------------------------------------
$ 484,218 $ 500,050 $ 541,374
====================================================================================================
Depreciation and amortization:
Canada $ 4,468 $ 4,140 $ 4,705
Australia 1,445 1,273 1,166
United Kingdom - 855 1 1,482
Corporate Headquarters 90 110 68
----------------------------------------------------------------------------------------------------
$ 6,003 $ 6,378 $ 7,421
====================================================================================================
Operating income (loss):
Canada $ 42,526 $ 34,046 $ 23,233
Australia 6,778 7,139 5,710
United Kingdom - (31,723) 1 (21,804)
Corporate Headquarters expenses (5,299) (6,448) (4,779)
----------------------------------------------------------------------------------------------------
Operating income 44,005 3,014 2,360
Foreign currency transaction (gains) losses 209 (331) (761)
Interest income (2,418) (1,535) (1,172)
Interest expense 587 4,815 6,636
----------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ 45,627 $ 65 $ (2,343)
----------------------------------------------------------------------------------------------------
Assets:
Canada $ 155,071 $ 136,703 $ 111,496
Australia 50,245 53,787 45,675
United Kingdom - - 1 64,246
Corporate Headquarters 2,760 7,825 2,130
----------------------------------------------------------------------------------------------------
$ 208,076 $ 198,315 $ 223,547
----------------------------------------------------------------------------------------------------
Capital expenditures:
Canada $ 6,833 $ 3,475 $ 3,370
Australia 2,821 1,564 1,636
United Kingdom - 2,226 1 1,983
Corporate Headquarters 37 45 176
----------------------------------------------------------------------------------------------------
$ 9,691 $ 7,310 $ 7,165
----------------------------------------------------------------------------------------------------
/1/ The Company sold its United Kingdom subsidiary in January 1999 and
recognized a loss of $35,088,000. Accordingly, the Company's 1999 operating
results in the United Kingdom reflect only six months of operation and the
loss on sale.
/2/ Reflects a charge of $12,712,000 associated with the closure of 69
unprofitable stores.
62
Note 17 Quarterly Data (Unaudited)
Quarter ended
September 30
(In thousands, in U.S. dollars, except per share data) 1999 1998
- --------------------------------------------------------------------------------------------------------------
Net sales and operating revenues $ 108,003 $ 121,844
Other income 95 79
- --------------------------------------------------------------------------------------------------------------
108,098 121,923
- --------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Cost of products sold 63,740 68,876
Selling, general and administrative expenses 35,207 47,847
Depreciation and amortization 1,371 1,790
Provision for business restructuring - -
- --------------------------------------------------------------------------------------------------------------
100,318 118,513
- --------------------------------------------------------------------------------------------------------------
Operating income (loss) 7,780 3,410
Foreign currency transaction (gains) losses 51 (412)
Interest income (484) (286)
Interest expense 139 1,399
- --------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 8,074 2,709
Income taxes 3,687 3,004
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ 4,387 $ (295)
==============================================================================================================
Basic net income (loss) per avarage common share $ 0.15 $ (0.01)
Diluted net income (loss) per average common share $ 0.14 $ (0.01)
- --------------------------------------------------------------------------------------------------------------
Average common shares outstanding 29,858 18,786
Average common shares outstanding assuming dilution 31,021 18,786
- --------------------------------------------------------------------------------------------------------------
/1/ Represents a loss on the disposal of the Company's former subsidiary in the
United Kingdom. (See Note 4).
63
Quarter ended Quarter ended Quarter ended
December 31 March 31 June 30
1999 1998 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------------
$ 169,167 $198,379 $ 104,604 $ 88,066 $ 102,444 $ 91,761
54 50 69 73 (93) 64
- -----------------------------------------------------------------------------------------------------------------
169,221 198,429 104,673 88,139 102,351 91,825
- -----------------------------------------------------------------------------------------------------------------
98,983 112,633 59,817 49,266 58,459 50,093
46,348 60,307 37,297 32,817 34,484 33,997
1,520 1,830 1,552 1,388 1,560 1,370
- 376 1 - 34,712 1 - -
- -----------------------------------------------------------------------------------------------------------------
146,851 175,146 98,666 118,183 # 94,503 85,460
- -----------------------------------------------------------------------------------------------------------------
22,370 23,283 6,007 (30,044) 7,848 6,365
114 (43) 127 80 (83) 44
(328) (253) (862) (475) (744) (521)
145 1,886 129 1,025 174 505
- -----------------------------------------------------------------------------------------------------------------
22,439 21,693 6,613 (30,674) 8,501 6,337
10,079 7,929 2,985 10,548 3,756 3,229
- -----------------------------------------------------------------------------------------------------------------
$ 12,360 $13,764 $ 3,628 $ (41,222) $ 4,745 $ 3,108
=================================================================================================================
$ 0.41 $ 0.72 $ 0.12 $ (2.08) $ 0.16 $ 0.12
$ 0.39 $ 0.51 $ 0.12 $ (2.08) $ 0.16 $ 0.11
- -----------------------------------------------------------------------------------------------------------------
30,107 19,124 29,737 19,785 28,936 26,388
31,317 29,192 30,647 19,785 29,817 30,641
- -----------------------------------------------------------------------------------------------------------------
64
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no change in independent accountants and no disagreement with any
independent accountant on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure during the period
since the end of fiscal year 1999.
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by this Item with respect to directors and executive
officers has been omitted pursuant to General Instruction G(3) to Form 10-K.
This information is incorporated by reference from the 2000 definitive proxy
statement filed with the Securities and Exchange Commission pursuant to
Regulation 14A.
Item 11 EXECUTIVE COMPENSATION.
The information called for by this Item with respect to executive compensation
has been omitted pursuant to General Instruction G (3) to Form 10-K. The
information is incorporated herein by reference from the 2000 definitive proxy
statement filed with the Securities and Exchange Commission pursuant to
Regulation 14A.
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this Item with respect to security ownership of
certain beneficial owners and management has been omitted pursuant to General
Instruction G(3) to Form 10-K. This information is incorporated by reference
from the 2000 definitive proxy statement filed with the Securities and Exchange
Commission pursuant to Regulation 14A.
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There was no information called for by this Item with respect to certain
relationships and transactions with management and others.
65
PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND RESPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
(1) Financial Statement Schedules:
Financial Statement Schedule II is filed herewith.
All other financial statement schedules are omitted because they
are not applicable or the required information is included in the
Consolidated Financial Statements or Management's Discussion and
Analysis of Financial Condition and Results of Operations.
(2) Exhibits required by Item 601 of Regulation S-K:
Exhibit No. Description
----------- -----------
3(a) Restated Certificate of Incorporation (Filed as
Exhibit 3(a) to InterTAN's Registration
Statement on Form 10 and incorporated herein by
reference).
3(a)(i) Certificate of Amendment of Restated Certificate
of Incorporation (Filed as Exhibit 3(a)(i) to
InterTAN's Annual Report on Form 10-K for fiscal
year ended June 30, 1995 and incorporated herein
by reference).
3(a)(ii) Certificate of Designation, Preferences and
Rights of Series A Junior Participating
Preferred Stock (Filed as Exhibit 3(a)(i) to
InterTAN's Registration Statement on Form 10 and
incorporated herein by reference).
3(b) Bylaws (Filed as Exhibit 3(b) to InterTAN's
Registration Statement on Form 10 and
incorporated herein by reference).
3(b)(i) Amendments to Bylaws through August 3, 1990
(Filed as Exhibit 3(b)(i) to InterTAN's Annual
Report on Form 10-K for fiscal year ended June
30, 1990 and incorporated herein by reference).
3(b)(ii) Amendments to Bylaws through May 15, 1995 (Filed
as Exhibit 3(b)(ii) to InterTAN's Annual Report
on Form 10-K for fiscal year ended June 30, 1995
and incorporated herein by reference).
3(b)(iii) Amended and Restated Bylaws (Filed as Exhibit
3(b)(iii)
66
to InterTAN's Annual Report on Form 10-K for
fiscal year ended June 30, 1996 and incorporated
herein by reference).
4(a) Articles Fifth and Tenth of the Restated
Certificate of Incorporation (included in
Exhibit 3(a)).
4(b) Amended and Restated Rights Agreement between
InterTAN, Inc. and The First National Bank of
Boston (Filed as Exhibit 4(b) to InterTAN's
Report on Form 8-K dated September 25, 1989 and
incorporated herein by reference).
4(c) Rights Agreement between InterTAN, Inc. and Bank
Boston, N.A. (filed as Exhibit 4 to InterTAN,
Inc.'s Form 8-A filed on September 17, 1999 and
incorporated herein by reference).
10(a) InterTAN, Inc. Restated 1986 Stock Option Plan
(as amended as of February 22, 1994 and April
18, 1995) (Filed as exhibit 10(a) to InterTAN's
Annual Report on Form 10-K for fiscal year ended
June 30, 1995 and incorporated herein by
reference).
10(b) InterTAN, Inc. Restated 1991 Non-Employee
Director Stock Option Plan (as amended through
February 21, 1994) (Filed as Exhibit 10(b) to
InterTAN's Annual Report on Form 10-K for fiscal
year ended June 30, 1995 and incorporated herein
by reference).
10(c) Retirement Agreement dated March 3, 1997 between
InterTAN, Inc. and James Michael Wood (Filed as
Exhibit 10(c) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended March 31, 1997 and
incorporated herein by reference).
10(d) Employment Agreement between InterTAN, Inc. and
James T. Nichols dated January 1, 1995 (Filed as
Exhibit 10(ii) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended March 31, 1995 and
incorporated herein by reference).
10(d)(i) First Amendment to Employment Agreement dated
July 1, 1998 between InterTAN, Inc. and James T.
Nichols (Filed as Exhibit10(a) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
September 30, 1998 and incorporated herein by
reference).
67
10(d)(ii) Letter Agreement dated July 1, 1998 between
InterTAN, Inc. and James T. Nichols amending
prior stock option agreements. (Filed as Exhibit
10(b) to InterTAN's Quarterly Report on Form 10-
Q for quarter ended September 30, 1998 and
incorporated herein by reference).
10(e) Employment Agreement dated November 29, 1997
between InterTAN, Inc. and Brian E. Levy (Filed
as Exhibit 10(a) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended December 31, 1997
and incorporated herein by reference).
10(e)(i) Employment Agreement dated June 10, 1999 between
InterTAN, Inc. and Brian E. Levy superceding
prior Employment Agreement dated November 29,
1997 between same parties (Filed as Exhibit
10(e)(i) to InterTAN's Annual Report on Form 10-
K for fiscal year ended June 30, 1999 and
incorporated herein by reference).
10(f) Employment Agreement between InterTAN, Inc. and
David S. Goldberg dated February 3, 1995 (Filed
as Exhibit 10(iii) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended March 31,
1995 and incorporated herein by reference).
10(f)(i) Confidential General Release and Separation
Agreement between InterTAN, Inc. and David S.
Goldberg dated March 1, 1999. (Filed as
Exhibit10(c) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended March 31, 1999 and
incorporated herein by reference).
10(g) Employment Agreement between InterTAN, Inc. and
John A. Capstick dated February 20, 1995 (Filed
as Exhibit 10(iv) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended March 31, 1995
and incorporated herein by reference).
10(g)(i) Letter dated December 6, 1995 extending term of
employment agreement for John A. Capstick (Filed
as Exhibit 10(b) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended December 31, 1995
and incorporated herein by reference).
10(h) Employment Agreement between InterTAN, Inc. and
James G. Gingerich dated March 1, 1995 (Filed as
Exhibit 10(v) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended March 31, 1995 and
incorporated herein by reference).
68
10(h)(i) Amendment to Employment Letter Agreement between
InterTAN, Inc. and James G. Gingerich dated
February 15, 2000 (Filed on Exhibit 10(b) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended March 31, 1999 and incorporated
herein by reference).
10(i) Employment Agreement between InterTAN, Inc. and
Douglas C. Saunders dated March 10, 1995 (Filed
as Exhibit 10(vi) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended March 31, 1995
and incorporated herein by reference).
10(i)(i) Amendment to Employment Letter Agreement between
InterTAN, Inc. and Douglas C. Saunders dated
February 15, 2000 (Filed as Exhibit 10(c) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended March 31, 1999 and incorporated
herein by reference).
10(j) Minutes of Settlement dated April 13, 1995
between InterTAN, Inc. and James B. Williams
(Filed as Exhibit 10(k) to InterTAN's Annual
Report on Form 10-K for fiscal year ended June
30, 1995 and incorporated herein by reference).
10(k) Retirement and Severance Agreement dated July
31, 1994 between InterTAN, Inc. and Louis G.
Neumann (Filed as Exhibit 10(l) to InterTAN's
Annual Report on Form 10-K for fiscal year ended
June 30, 1995 and incorporated herein by
reference).
10(l) Merchandise Agreement dated October 15, 1993
between InterTAN, Inc., InterTAN Canada Ltd.,
InterTAN U.K. Limited, InterTAN Australia Ltd.,
Technotron Sales Corp. Pty. Limited, Tandy
Corporation and A&A International, Inc. (Filed
as Exhibit 10(m) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended December 31, 1993
and incorporated herein by reference).
10(l)(i) First Amendment to Merchandise Agreement dated
November 1, 1993 (Filed as Exhibit 10(m)(i) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended March 31, 1994 and incorporated
herein by reference).
10(l)(ii) Second Amendment to Merchandise Agreement dated
October 2, 1995 (Filed as Exhibit 10 to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended September 30, 1995 and
incorporated herein by reference).
10(l)(iii) Third Amendment to Merchandise Agreement dated
February 1, 1996 (Filed as Exhibit 10(b) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended
69
March 31, 1996 and incorporated herein by
reference).
10(l)(iv) Fourth Amendment to Merchandise Agreement dated
July 1, 1996 (Filed as Exhibit 10(b) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended September 30, 1996 and
incorporated herein by reference).
10(l)(v) Fifth Amendment to Merchandise Agreement dated
September 2, 1997 (Filed as Exhibit 10(b) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended September 30, 1997 and
incorporated herein by reference).
10(l)(vi) Amended and Restated Merchandise Agreement by
and among InterTAN, Inc., InterTAN Canada Ltd.,
InterTAN Australia Ltd., Technotron Sales Corp.
Pty. Limited, Tandy Corporation and A&A
International, Inc. dated as of January 25, 1999
(Filed as Exhibit 10(a) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended December
31, 1999 and incorporated herein by reference).
10(m) License Agreement dated November 4, 1993 between
Tandy Corporation and InterTAN Australia Ltd.
(Filed as Exhibit 10(n) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended December
31, 1993 and incorporated herein by reference).
10(n) License Agreement dated November 4, 1993 between
Tandy Corporation and InterTAN U.K. Limited
(Filed as Exhibit 10(o) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended December
31, 1993 and incorporated herein by reference).
10(n)(i) First Amendment to License Agreement (United
Kingdom) between InterTAN U.K. Limited and Tandy
Corporation dated April 21, 1995 (Filed as
Exhibit 10(o)(i) to InterTAN's Annual Report on
Form 10-K for fiscal year ended June 30, 1995
and incorporated herein by reference).
10(o) License Agreement dated November 4, 1993 between
Tandy Corporation and InterTAN Canada Ltd.
(Filed as Exhibit 10(p) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended December
31, 1993 and incorporated herein by reference).
10(o)(i) First Amendment to License Agreement (Canada)
between InterTAN Canada Ltd. and Tandy
Corporation dated March 24, 1995 (Filed as
Exhibit 10(i) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended March 31, 1995 and
incorporated herein by reference).
70
10(o)(ii) Second Amendment to License Agreement (Canada),
Second Amendment to License Agreement (United
Kingdom), and First Amendment to License
Agreement (Australia and New Zealand), each
dated November 9, 1995 (Filed as Exhibit 10(a)
to InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 1995 and incorporated
herein by reference).
10(o)(iii) Third Amendment to License Agreement (Canada),
Third Amendment to License Agreement (United
Kingdom), and Second Amendment to License
Agreement (Australia and New Zealand), each
dated June 26, 1996 (Filed as Exhibit 10(p)(iii)
to InterTAN's Annual Report on Form 10-K for
fiscal year ended June 30, 1996 and incorporated
herein by reference).
10(o)(iv) Amended and Restated License Agreement (Canada)
between Tandy Corporation and InterTAN, Canada
Ltd., dated as of January 25, 1999 (Filed as
Exhibit 10(b) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended December 31, 1999
and incorporated herein by reference).
*10(o)(v) First Amendment to Amended and Restated License
Agreement (Canada) between RadioShack
Corporation (formerly Tandy Corporation) and
InterTAN Canada Ltd. dated as of June 1, 2000.
10(o)(vi) Amended and Restated License Agreement between
Tandy Corporation and InterTAN Australia Ltd.
dated as of January 25, 1999 (Filed as Exhibit
10(c) to InterTAN's Quarterly Report on Form 10-
Q for quarter ended December 31, 1999 and
incorporated herein by reference).
*10(o)(vii) First Amendment to Amended and Restated License
Agreement (Australia and New Zealand) between
RadioShack Corporation (formerly Tandy
Corporation) and InterTAN Australia Ltd. dated
as of June 1, 2000.
10(p) Loan Agreement dated to be effective December
22, 1997 among InterTAN, Inc., InterTAN Canada
Ltd., InterTAN U.K. Limited, Bank of America
Canada, Bank of America N.T. & S.A. (London
England Branch Office) and certain other Lenders
as identified therein (Filed as Exhibit 10(c) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 1997 and incorporated
herein by reference).
10(p)(i) Form of Rectification and Amendment No.1 to Loan
Agreement dated to be effective February 24,
1998 (Filed as Exhibit 10(a) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
March 31, 1998 and incorporated
71
10(p)(ii) Second Amendment to Loan Agreement dated as of
January,1999 among InterTAN, Inc. InterTAN
Canada Ltd., InterTAN UK Ltd., Bank America
Canada, Bank America National Trust and Savings
Association, Bankboston Retail Finance Inc.,
Congress Financial Corporation, Bank Boston, NA
and Burdale Financial Limited. (Filed as Exhibit
10(b) to InterTAN's Quarterly Report on Form 10-
Q for quarter ended March 31, 1999 and
incorporated herein by reference).
10(p)(iii) Third Amendment to Loan Agreement dated as of
April, 1999 among InterTAN, Inc. InterTAN Canada
Ltd., InterTAN UK Ltd., Bank America Canada,
Bank America National Trust and Savings
Association, Bankboston Retail Finance Inc. and
Congress Financial Corporation. (Filed as
Exhibit 10(p)(iii) to InterTAN's Annual Report
on Form 10-K for fiscal year ended June 30, 1999
and incorporated herein by reference).
10(p)(iv) Fourth Amendment to Loan Agreement between
InterTAN Canada Ltd., Bank of America Canada,
Bankboston Retail Finance Inc. and Congress
Financial Corporation dated as of October 1,
1999 (Filed as Exhibit 10(e) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
December 31, 1999 and incorporated herein by
reference).
10(p)(v) Fifth Amendment to Loan Agreement between
InterTAN Canada Ltd., Bank of America Canada,
Bankboston Retail Finance Inc. and Congress
Financial Corporation dated as of October 1,
1999 (Filed as Exhibit 10(f) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
December 31, 1999 and incorporated herein by
reference).
10(p)(vi) Assignment and Assumption Agreement between Bank
of America Canada, Bankboston Retail Finance
Inc. and InterTAN Canada Ltd. dated October 28,
1999 (Filed as Exhibit 10(g) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
December 31, 1999 and incorporated herein by
reference).
10(p)(vii) Assignment and Assumption Agreement between Bank
of America Canada, Congress Financial
Corporation and InterTAN Canada Ltd. dated
October 28, 1999 (Filed as Exhibit 10(h) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 1999 and incorporated
herein by reference).
10(q) Form of Omnibus Termination Agreement dated
December 30, 1997 between, among others,
InterTAN, Inc. and Tandy Corporation (Filed as
Exhibit 10(b) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended December 31, 1997
and incorporated herein by reference).
10(r) InterTAN Advertising Agreement and first
amendment thereto (Filed as Exhibit 10(s) to
InterTAN's Annual Report on Form 10-K for fiscal
year ended June 30, 1995 and incorporated herein
by reference).
72
10(r)(i) Second Amendment to InterTAN Advertising
Agreement dated to be effective as of January 1,
1996 (Filed as Exhibit 10(a) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
March 31, 1996 and incorporated herein by
reference).
10(r)(ii) Third Amendment to InterTAN Advertising
Agreement dated to be effective as of January 1,
1997 (Filed as Exhibit 10(b) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
March 31, 1997 and incorporated herein by
reference).
10(r)(iii) Amended and Restated InterTAN Advertising
Agreement among InterTAN, Inc., InterTAN Canada
Ltd., InterTAN Australia Ltd. and Tandy
corporation effective as of January 1, 1999.
(Filed as Exhibit 10(a) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended March 31,
1999 and incorporated herein by reference).
10(s) Master Sales Agreement (United Kingdom) dated to
be effective as of December 31, 1995, among
InterTAN, Inc., InterTAN U.K. Limited, and Tandy
Corporation (Filed as Exhibit 10(c) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 1995 and incorporated
herein by reference).
10(t) InterTAN, Inc. 1996 Stock Option Plan and Forms
of Stock Option Agreement (Filed as Exhibits 4.6
and 4.7, respectively, to InterTAN's
Registration Statement on Form S-8, SEC file
number 333-16105, filed on November 14, 1996 and
incorporated herein by reference).
10(u) Employment Agreement between InterTAN, Inc. and
Jeffrey A. Losch dated February 23, 1999 (Filed
as Exhibit 10(d) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended March 31, 1999
and incorporated herein by reference).
10(u)(i) Amendment to Employment Letter Agreement between
InterTAN, Inc. and Jeffrey A. Losch dated
February 15, 2000 (Filed as Exhibit 10(d) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended March 31, 1999 and incorporated
herein by reference).
10(v) Deed of Indemnity between InterTAN, Inc., Tandy
Corporation, InterTAN Canada Ltd., The Carphone
Warehouse Limited and Worldwide
Telecommunications Ltd. dated January 23, 1999.
(Filed as Exhibit No. 10.1 to InterTAN's Current
Report on Form 8-K dated January 25, 1999 and
incorporated herein by reference).
73
10(w) Tax Deed between InterTAN, Inc. and Beheer-En
Belggingsmaatschappij Antika B.V. dated January
23, 1999. (Filed as Exhibit No. 10.2 to
InterTAN's Current Report on Form 8-K dated
January 25, 1999 and Incorporated herein by
reference).
10(x) Correspondence dated June 9, 1999 from InterTAN,
Inc. addressed to Brian E. Levy in respect of a
grant of restricted stock (Filed as Exhibit
10(x) to InterTAN's Annual Report on Form 10-K
for fiscal year ended June 30, 1999 and
incorporated herein by reference).
10(y) Correspondence dated June 9, 1999 from InterTAN,
Inc. addressed to James G. Gingerich in respect
of a grant of restricted stock (Filed as Exhibit
10(y) to InterTAN's Annual Report on Form 10-K
for fiscal year ended June 30, 1999 and
incorporated herein by reference).
10(z) Form of Agreement that evidences the InterTAN,
Inc. Plan for 1999 Non-Employee Director Non-
Qualified Stock Options (Filed as Exhibit 10(d)
to InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 1999 and incorporated
herein by reference).
10(aa) Composite copy of Deferred Compensation Plan
reflecting amendments thereto authorized by
Board of Directors of InterTAN, Inc. on February
14, 2000 (Filed as Exhibit 10(a) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
March 31, 1999 and incorporated herein by
reference).
10(bb) Plan Agreement in respect of Deferred
Compensation Plan between InterTAN, Inc. and
Jeffrey A. Losch dated February 18, 2000 (Filed
as Exhibit 10(e) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended March 31, 1999
and incorporated herein by reference).
*10(cc) Form of Indemnification Agreement entered into
between InterTAN, Inc. and each individual
director and executive officer of InterTAN, Inc.
dated as of June 7, 2000.
21 Subsidiaries of InterTAN, Inc. (Filed as Exhibit
21 to InterTAN's Annual Report on Form 10-K for
fiscal year ended June 30, 1999 and incorporated
herein by reference).
*23 Consent of Independent Accountants.
*27 Article 5 Financial Data Schedule.
99 Form of Multi-Option Switch Facility Agreement
between InterTAN Australia Ltd. and Westpac
Banking Corporation (Filed as Exhibit 99 to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 1996 and incorporated
herein by reference).
74
99(a)(i) Letter Agreement dated September 30, 1997
amending Multi-Option Switch Facility (Filed as
Exhibit 99 to InterTAN's Quarterly Report on
Form 10-Q for quarter ended September 30, 1997
and incorporated herein by reference).
99(a)(ii) Letter Agreement dated August 3, 1998 amending
Multi-Option Switch Facility (Filed as Exhibit
99 to InterTAN's Quarterly Report on Form 10-Q
for quarter ended September 30, 1998 and
incorporated herein by reference).
_________________
* Filed herewith
(b) Reports on Form 8K:
A report on Form 8K was filed on May 2, 2000 to report that at its
meeting of April 25, 2000 the Board of Directors authorized a further
share repurchase program under which up to an additional 1,500,000
shares of InterTAN, Inc.'s common stock could be repurchased by the
Company.
75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
InterTAN, Inc.
September 27, 2000 /s/ Brian E. Levy
-----------------
Brian E. Levy,
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on the 27th day of September, 2000 by the
following persons on behalf of InterTAN, Inc. and in the capacities indicated.
Signature Title
- --------- -----
/s/ James G. Gingerich Executive Vice President and
- ---------------------- Chief Financial Officer
James G. Gingerich (Principal Financial Officer)
/s/ Douglas C. Saunders Vice President and
- ----------------------- Corporate Controller
Douglas C. Saunders (Principal Accounting Officer)
/s/ Ron G. Stegall Director and
- ------------------ Chairman of the Board
Ron. G. Stegall
/s/ William C. Bousquette Director
- -------------------------
William C. Bousquette
/s/ John A. Capstick Director
- --------------------
John A. Capstick
/s/ Clark A. Johnson Director
- --------------------
Clark A. Johnson
/s/ John H. McDaniel Director
- --------------------
John H. McDaniel
/s/ W/ Darcy McKeough Director
- ---------------------
W. Darcy McKeough
/s/ James T. Nichols Director and
- -------------------- Vice Chairman of the Board
James T. Nichols
/s/ Brian E. Levy Director and
- ----------------- President and Chief Executive Officer
Brian E. Levy
76
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors of
InterTAN, Inc.
Our audits of the consolidated financial statements referred to in our report
dated August 14, 2000 appearing in the 2000 Annual Report to Shareholders of
InterTAN, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(1) of this Form
10-K. In our opinion, this financial statement schedule present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/PricewaterhouseCoopers LLP
Toronto, Canada
August 14, 2000
Schedule II
InterTAN, Inc.
Valuation and Qualifying Accounts and Reserves
-------- -------- --------
2000 1999 1998
(In thousands) -------- -------- --------
Allowance for Doubtful Accounts
Balance, beginning of year $ 680 $ 1,228 $ 1,539
Additions charged to profit and loss 70 27 23
Accounts receivable charged off,
net of recoveries (545) (575) (334)
-------- -------- --------
Balance, end of year $ 205 $ 680 $ 1,228
======== ======== ========
European Business Restructuring Reserve
Balance, beginning of year $ 740 $ 881 $ 1,449
Credited to cost and expense - - -
Payments and other dispositions, net (539) (141) (568)
-------- -------- --------
Balance, end of year $ 201 $ 740 $ 881
======== ======== ========
United Kingdom Business Restructuring Reserve
Balance, beginning of year $ - $ 9,416 $ -
Credited to cost and expense - - 12,712
Payments and other dispositions, net - (3,404) (3,296)
Adjustment on disposal of United
Kingdom subsidary - (6,012) -
-------- -------- --------
Balance, end of year $ - $ - $ 9,416
======== ======== ========
Deferred Tax Valuation Allowance
Balance, beginning of year $ 7,891 $ 43,250 $39,338
Additions to valuation allowance 21,259 750 7,865
Adjustments to valuation allowance (222) - (666)
Reduction in deferred tax assets - (36,200) (2,941)
Foreign exchange rate effects (29) 91 (346)
-------- -------- --------
Balance, end of year $28,899 $ 7,891 $43,250
======== ======== ========
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
----------- -----------
3(a) Restated Certificate of Incorporation (Filed as
Exhibit 3(a) to InterTAN's Registration
Statement on Form 10 and incorporated herein by
reference).
3(a)(i) Certificate of Amendment of Restated Certificate
of Incorporation (Filed as Exhibit 3(a)(i) to
InterTAN's Annual Report on Form 10-K for fiscal
year ended June 30, 1995 and incorporated herein
by reference).
3(a)(ii) Certificate of Designation, Preferences and
Rights of Series A Junior Participating
Preferred Stock (Filed as Exhibit 3(a)(i) to
InterTAN's Registration Statement on Form 10 and
incorporated herein by reference).
3(b) Bylaws (Filed as Exhibit 3(b) to InterTAN's
Registration Statement on Form 10 and
incorporated herein by reference).
3(b)(i) Amendments to Bylaws through August 3, 1990
(Filed as Exhibit 3(b)(i) to InterTAN's Annual
Report on Form 10-K for fiscal year ended June
30, 1990 and incorporated herein by reference).
3(b)(ii) Amendments to Bylaws through May 15, 1995 (Filed
as Exhibit 3(b)(ii) to InterTAN's Annual Report
on Form 10-K for fiscal year ended June 30, 1995
and incorporated herein by reference).
3(b)(iii) Amended and Restated Bylaws (Filed as Exhibit
3(b)(iii) to InterTAN's Annual Report on
Form 10-K for fiscal year ended June 30, 1996
and incorporated herein by reference).
4(a) Articles Fifth and Tenth of the Restated
Certificate of Incorporation (included in
Exhibit 3(a)).
4(b) Amended and Restated Rights Agreement between
InterTAN, Inc. and The First National Bank of
Boston (Filed as Exhibit 4(b) to InterTAN's
Report on Form 8-K dated September 25, 1989 and
incorporated herein by reference).
4(c) Rights Agreement between InterTAN, Inc. and Bank
Boston, N.A. (filed as Exhibit 4 to InterTAN,
Inc.'s Form 8-A filed on September 17, 1999 and
incorporated herein by reference).
10(a) InterTAN, Inc. Restated 1986 Stock Option Plan
(as amended as of February 22, 1994 and April
18, 1995) (Filed as exhibit 10(a) to InterTAN's
Annual Report on Form 10-K for fiscal year ended
June 30, 1995 and incorporated herein by
reference).
10(b) InterTAN, Inc. Restated 1991 Non-Employee
Director Stock Option Plan (as amended through
February 21, 1994) (Filed as Exhibit 10(b) to
InterTAN's Annual Report on Form 10-K for fiscal
year ended June 30, 1995 and incorporated herein
by reference).
10(c) Retirement Agreement dated March 3, 1997 between
InterTAN, Inc. and James Michael Wood (Filed as
Exhibit 10(c) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended March 31, 1997 and
incorporated herein by reference).
10(d) Employment Agreement between InterTAN, Inc. and
James T. Nichols dated January 1, 1995 (Filed as
Exhibit 10(ii) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended March 31, 1995 and
incorporated herein by reference).
10(d)(i) First Amendment to Employment Agreement dated
July 1, 1998 between InterTAN, Inc. and James T.
Nichols (Filed as Exhibit10(a) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
September 30, 1998 and incorporated herein by
reference).
10(d)(ii) Letter Agreement dated July 1, 1998 between
InterTAN, Inc. and James T. Nichols amending
prior stock option agreements. (Filed as Exhibit
10(b) to InterTAN's Quarterly Report on Form 10-
Q for quarter ended September 30, 1998 and
incorporated herein by reference).
10(e) Employment Agreement dated November 29, 1997
between InterTAN, Inc. and Brian E. Levy (Filed
as Exhibit 10(a) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended December 31, 1997
and incorporated herein by reference).
10(e)(i) Employment Agreement dated June 10, 1999 between
InterTAN, Inc. and Brian E. Levy superceding
prior Employment Agreement dated November 29,
1997 between same parties (Filed as Exhibit
10(e)(i) to InterTAN's Annual Report on Form 10-
K for fiscal year ended June 30, 1999 and
incorporated herein by reference).
10(f) Employment Agreement between InterTAN, Inc. and
David S. Goldberg dated February 3, 1995 (Filed
as Exhibit 10(iii) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended March 31,
1995 and incorporated herein by reference).
10(f)(i) Confidential General Release and Separation
Agreement between InterTAN, Inc. and David S.
Goldberg dated March 1, 1999. (Filed as
Exhibit10(c) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended March 31, 1999 and
incorporated herein by reference).
10(g) Employment Agreement between InterTAN, Inc. and
John A. Capstick dated February 20, 1995 (Filed
as Exhibit 10(iv) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended March 31, 1995
and incorporated herein by reference).
10(g)(i) Letter dated December 6, 1995 extending term of
employment agreement for John A. Capstick (Filed
as Exhibit 10(b) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended December 31, 1995
and incorporated herein by reference).
10(h) Employment Agreement between InterTAN, Inc. and
James G. Gingerich dated March 1, 1995 (Filed as
Exhibit 10(v) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended March 31, 1995 and
incorporated herein by reference).
10(h)(i) Amendment to Employment Letter Agreement between
InterTAN, Inc. and James G. Gingerich dated
February 15, 2000 (Filed on Exhibit 10(b) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended March 31, 1999 and incorporated
herein by reference).
10(i) Employment Agreement between InterTAN, Inc. and
Douglas C. Saunders dated March 10, 1995 (Filed
as Exhibit 10(vi) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended March 31, 1995
and incorporated herein by reference).
10(i)(i) Amendment to Employment Letter Agreement between
InterTAN, Inc. and Douglas C. Saunders dated
February 15, 2000 (Filed as Exhibit 10(c) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended March 31, 1999 and incorporated
herein by reference).
10(j) Minutes of Settlement dated April 13, 1995
between InterTAN, Inc. and James B. Williams
(Filed as Exhibit 10(k) to InterTAN's Annual
Report on Form 10-K for fiscal year ended June
30, 1995 and incorporated herein by reference).
10(k) Retirement and Severance Agreement dated July
31, 1994 between InterTAN, Inc. and Louis G.
Neumann (Filed as Exhibit 10(l) to InterTAN's
Annual Report on Form 10-K for fiscal year ended
June 30, 1995 and incorporated herein by
reference).
10(l) Merchandise Agreement dated October 15, 1993
between InterTAN, Inc., InterTAN Canada Ltd.,
InterTAN U.K. Limited, InterTAN Australia Ltd.,
Technotron Sales Corp. Pty. Limited, Tandy
Corporation and A&A International, Inc. (Filed
as Exhibit 10(m) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended December 31, 1993
and incorporated herein by reference).
10(l)(i) First Amendment to Merchandise Agreement dated
November 1, 1993 (Filed as Exhibit 10(m)(i) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended March 31, 1994 and incorporated
herein by reference).
10(l)(ii) Second Amendment to Merchandise Agreement dated
October 2, 1995 (Filed as Exhibit 10 to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended September 30, 1995 and
incorporated herein by reference).
10(l)(iii) Third Amendment to Merchandise Agreement dated
February 1, 1996 (Filed as Exhibit 10(b) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended March 31, 1996 and incorporated
herein by reference).
10(l)(iv) Fourth Amendment to Merchandise Agreement dated
July 1, 1996 (Filed as Exhibit 10(b) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended September 30, 1996 and
incorporated herein by reference).
10(l)(v) Fifth Amendment to Merchandise Agreement dated
September 2, 1997 (Filed as Exhibit 10(b) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended September 30, 1997 and
incorporated herein by reference).
10(l)(vi) Amended and Restated Merchandise Agreement by
and among InterTAN, Inc., InterTAN Canada Ltd.,
InterTAN Australia Ltd., Technotron Sales Corp.
Pty. Limited, Tandy Corporation and A&A
International, Inc. dated as of January 25, 1999
(Filed as Exhibit 10(a) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended December
31, 1999 and incorporated herein by reference).
10(m) License Agreement dated November 4, 1993 between
Tandy Corporation and InterTAN Australia Ltd.
(Filed as Exhibit 10(n) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended December
31, 1993 and incorporated herein by reference).
10(n) License Agreement dated November 4, 1993 between
Tandy Corporation and InterTAN U.K. Limited
(Filed as Exhibit 10(o) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended December
31, 1993 and incorporated herein by reference).
10(n)(i) First Amendment to License Agreement (United
Kingdom) between InterTAN U.K. Limited and Tandy
Corporation dated April 21, 1995 (Filed as
Exhibit 10(o)(i) to InterTAN's Annual Report on
Form 10-K for fiscal year ended June 30, 1995
and incorporated herein by reference).
10(o) License Agreement dated November 4, 1993 between
Tandy Corporation and InterTAN Canada Ltd.
(Filed as Exhibit 10(p) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended December
31, 1993 and incorporated herein by reference).
10(o)(i) First Amendment to License Agreement (Canada)
between InterTAN Canada Ltd. and Tandy
Corporation dated March 24, 1995 (Filed as
Exhibit 10(i) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended March 31, 1995 and
incorporated herein by reference).
10(o)(ii) Second Amendment to License Agreement (Canada),
Second Amendment to License Agreement (United
Kingdom), and First Amendment to License
Agreement (Australia and New Zealand), each
dated November 9, 1995 (Filed as Exhibit 10(a)
to InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 1995 and incorporated
herein by reference).
10(o)(iii) Third Amendment to License Agreement (Canada),
Third Amendment to License Agreement (United
Kingdom), and Second Amendment to License
Agreement (Australia and New Zealand), each
dated June 26, 1996 (Filed as Exhibit
10(p)(iii) to InterTAN's Annual Report on Form 10-K for
fiscal year ended June 30, 1996 and incorporated
herein by reference).
10(o)(iv) Amended and Restated License Agreement (Canada)
between Tandy Corporation and InterTAN, Canada
Ltd., dated as of January 25, 1999 (Filed as
Exhibit 10(b) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended December 31, 1999
and incorporated herein by reference).
*10(o)(v) First Amendment to Amended and Restated License
Agreement (Canada) between RadioShack
Corporation (formerly Tandy Corporation) and
InterTAN Canada Ltd. dated as of June 1, 2000.
10(o)(vi) Amended and Restated License Agreement between
Tandy Corporation and InterTAN Australia Ltd.
dated as of January 25, 1999 (Filed as Exhibit
10(c) to InterTAN's Quarterly Report on Form 10-
Q for quarter ended December 31, 1999 and
incorporated herein by reference).
*10(o)(vii) First Amendment to Amended and Restated License
Agreement (Australia and New Zealand) between
RadioShack Corporation (formerly Tandy
Corporation) and InterTAN Australia Ltd. dated
as of June 1, 2000.
10(p) Loan Agreement dated to be effective December
22, 1997 among InterTAN, Inc., InterTAN Canada
Ltd., InterTAN U.K. Limited, Bank of America
Canada, Bank of America N.T. & S.A. (London
England Branch Office) and certain other Lenders
as identified therein (Filed as Exhibit 10(c) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 1997 and incorporated
herein by reference).
10(p)(i) Form of Rectification and Amendment No.1 to Loan
Agreement dated to be effective February 24,
1998 (Filed as Exhibit 10(a) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
March 31, 1998 and incorporated herein by
reference).
10(p)(ii) Second Amendment to Loan Agreement dated as of
January,1999 among InterTAN, Inc. InterTAN
Canada Ltd., InterTAN UK Ltd., Bank America
Canada, Bank America National Trust and Savings
Association, Bankboston Retail Finance Inc.,
Congress Financial Corporation, Bank Boston, NA
and Burdale Financial Limited. (Filed as Exhibit
10(b) to InterTAN's Quarterly Report on Form 10-
Q for quarter ended March 31, 1999 and
incorporated herein by reference).
10(p)(iii) Third Amendment to Loan Agreement dated as of
April, 1999 among InterTAN, Inc. InterTAN Canada
Ltd., InterTAN UK Ltd., Bank America Canada,
Bank America National Trust and Savings
Association, Bankboston Retail Finance Inc. and
Congress Financial Corporation. (Filed as
Exhibit 10(p)(iii) to InterTAN's Annual Report
on Form 10-K for fiscal year ended June 30, 1999
and incorporated herein by reference).
10(p)(iv) Fourth Amendment to Loan Agreement between
InterTAN Canada Ltd., Bank of America Canada,
Bankboston Retail Finance Inc. and Congress
Financial Corporation dated as of October 1,
1999 (Filed as Exhibit 10(e) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
December 31, 1999 and incorporated herein by
reference).
10(p)(v) Fifth Amendment to Loan Agreement between
InterTAN Canada Ltd., Bank of America Canada,
Bankboston Retail Finance Inc. and Congress
Financial Corporation dated as of October 1,
1999 (Filed as Exhibit 10(f) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
December 31, 1999 and incorporated herein by
reference).
10(p)(vi) Assignment and Assumption Agreement between Bank
of America Canada, Bankboston Retail Finance
Inc. and InterTAN Canada Ltd. dated October 28,
1999 (Filed as Exhibit 10(g) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
December 31, 1999 and incorporated herein by
reference).
10(p)(vii) Assignment and Assumption Agreement between Bank
of America Canada, Congress Financial
Corporation and InterTAN Canada Ltd. dated
October 28, 1999 (Filed as Exhibit 10(h) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 1999 and incorporated
herein by reference).
10(q) Form of Omnibus Termination Agreement dated
December 30, 1997 between, among others,
InterTAN, Inc. and Tandy Corporation (Filed as
Exhibit 10(b) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended December 31, 1997
and incorporated herein by reference).
10(r) InterTAN Advertising Agreement and first
amendment thereto (Filed as Exhibit 10(s) to
InterTAN's Annual Report on Form 10-K for fiscal
year ended June 30, 1995 and incorporated herein
by reference).
10(r)(i) Second Amendment to InterTAN Advertising
Agreement dated to be effective as of January 1,
1996 (Filed as Exhibit 10(a) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
March 31, 1996 and incorporated herein by
reference).
10(r)(ii) Third Amendment to InterTAN Advertising
Agreement dated to be effective as of January 1,
1997 (Filed as Exhibit 10(b) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
March 31, 1997 and incorporated herein by
reference).
10(r)(iii) Amended and Restated InterTAN Advertising
Agreement among InterTAN, Inc., InterTAN Canada
Ltd., InterTAN Australia Ltd. and Tandy
corporation effective as of January 1, 1999.
(Filed as Exhibit 10(a) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended March 31,
1999 and incorporated herein by reference).
10(s) Master Sales Agreement (United Kingdom) dated to
be effective as of December 31, 1995, among
InterTAN, Inc., InterTAN U.K. Limited, and Tandy
Corporation (Filed as Exhibit 10(c) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 1995 and incorporated
herein by reference).
10(t) InterTAN, Inc. 1996 Stock Option Plan and Forms
of Stock Option Agreement (Filed as Exhibits 4.6
and 4.7, respectively, to InterTAN's
Registration Statement on Form S-8, SEC file
number 333-16105, filed on November 14, 1996 and
incorporated herein by reference).
10(u) Employment Agreement between InterTAN, Inc. and
Jeffrey A. Losch dated February 23, 1999 (Filed
as Exhibit 10(d) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended March 31, 1999
and incorporated herein by reference).
10(u)(i) Amendment to Employment Letter Agreement between
InterTAN, Inc. and Jeffrey A. Losch dated
February 15, 2000 (Filed as Exhibit 10(d) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended March 31, 1999 and incorporated
herein by reference).
10(v) Deed of Indemnity between InterTAN, Inc., Tandy
Corporation, InterTAN Canada Ltd., The Carphone
Warehouse Limited and Worldwide
Telecommunications Ltd. dated January 23, 1999.
(Filed as Exhibit No. 10.1 to InterTAN's Current
Report on Form 8-K dated January 25, 1999 and
incorporated herein by reference).
10(w) Tax Deed between InterTAN, Inc. and Beheer-En
Belggingsmaatschappij Antika B.V. dated January
23, 1999. (Filed as Exhibit No. 10.2 to
InterTAN's Current Report on Form 8-K dated
January 25, 1999 and Incorporated herein by
reference).
10(x) Correspondence dated June 9, 1999 from InterTAN,
Inc. addressed to Brian E. Levy in respect of a
grant of restricted stock (Filed as Exhibit
10(x) to InterTAN's Annual Report on Form 10-K
for fiscal year ended June 30, 1999 and
incorporated herein by reference).
10(y) Correspondence dated June 9, 1999 from InterTAN,
Inc. addressed to James G. Gingerich in respect
of a grant of restricted stock (Filed as Exhibit
10(y) to InterTAN's Annual Report on Form 10-K
for fiscal year ended June 30, 1999 and
incorporated herein by reference).
10(z) Form of Agreement that evidences the InterTAN,
Inc. Plan for 1999 Non-Employee Director Non-
Qualified Stock Options (Filed as Exhibit 10(d)
to InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 1999 and incorporated
herein by reference).
10(aa) Composite copy of Deferred Compensation Plan
reflecting amendments thereto authorized by
Board of Directors of InterTAN, Inc. on February
14, 2000 (Filed as Exhibit 10(a) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
March 31, 1999 and incorporated herein by
reference).
10(bb) Plan Agreement in respect of Deferred
Compensation Plan between InterTAN, Inc. and
Jeffrey A. Losch dated February 18, 2000 (Filed
as Exhibit 10(e) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended March 31, 1999
and incorporated herein by reference).
*10(cc) Form of Indemnification Agreement entered into
between InterTAN, Inc. and each individual
director and executive officer of InterTAN, Inc.
dated as of June 7, 2000.
21 Subsidiaries of InterTAN, Inc. (Filed as Exhibit
21 to InterTAN's Annual Report on Form 10-K for
fiscal year ended June 30, 1999 and incorporated
herein by reference).
*23 Consent of Independent Accountants.
*27 Article 5 Financial Data Schedule.
99 Form of Multi-Option Switch Facility Agreement
between InterTAN Australia Ltd. and Westpac
Banking Corporation (Filed as Exhibit 99 to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 1996 and incorporated
herein by reference).
99(a)(i) Letter Agreement dated September 30, 1997
amending Multi-Option Switch Facility (Filed as
Exhibit 99 to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended September 30, 1997 and
incorporated herein by reference).
99(a)(ii) Letter Agreement dated August 3, 1998 amending
Multi-Option Switch Facility (Filed as Exhibit
99 to InterTAN's Quarterly Report on Form 10-Q
for quarter ended September 30, 1998 and
incorporated herein by reference).
_________________
* Filed herewith