UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 No. 1-5571
TANDY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-1047710
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1800 One Tandy Center, Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(817) 390-3700
N/A
(Former name, former address and former fiscal year,
if changed since last report.)
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
-- --
The number of shares outstanding of the issuer's Common
Stock, $1 par value, on April 30, 1996 was 60,612,333.
Index to Exhibits is on Sequential Page No. 15.
Total pages 20.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TANDY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
<CAPTIONS>
Three Months Ended
March 31,
------------------------------
(In thousands, except per share amounts) 1996 1995
---------------------------------------- ------------ ------------
Net sales and operating revenues $ 1,446,929 $ 1,226,622
Cost of products sold 955,262 780,043
------------ ------------
Gross profit 491,667 446,579
------------ ------------
Expenses:
Selling, general and administrative 413,927 373,710
Depreciation and amortization 25,351 22,302
Impairment of long-lived assets 26,033 --
Interest income (3,810) (23,402)
Interest expense 7,130 10,660
------------ ------------
468,631 383,270
------------ ------------
Income before income taxes 23,036 63,309
Provision for income taxes 8,556 24,374
------------ ------------
Net income 14,480 38,935
Preferred dividends 1,605 1,667
------------ ------------
Net income available to common shareholders $ 12,875 $ 37,268
============ ============
Net income available per average common
and common equivalent share $ 0.21 $ 0.55
============ ============
Average common and common
equivalent shares outstanding 61,367 68,174
============ ============
Dividends declared per common share $ 0.20 $ 0.18
============ ============
The accompanying notes are an integral part of these financial statements.
TANDY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
<CAPTIONS>
March 31, December 31, March 31,
(In thousands, except share amounts) 1996 1995 1995
------------------------------------ ----------- ----------- -----------
Assets
Current assets:
Cash and short-term investments $ 105,381 $ 143,498 $ 233,718
Accounts and notes receivable, less
allowance for doubtful accounts 279,500 320,588 396,050
Inventories, at lower of cost or market 1,558,918 1,511,984 1,324,293
Other current assets 67,775 72,175 76,541
----------- ----------- -----------
Total current assets 2,011,574 2,048,245 2,030,602
Property, plant and equipment, at cost,
less accumulated depreciation 589,170 577,720 506,715
Other assets, net of accumulated amortization 84,741 96,098 171,364
----------- ----------- -----------
$ 2,685,485 $ 2,722,063 $ 2,708,681
=========== =========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt, including current
maturities of long-term debt $ 229,237 $ 189,861 $ 239,302
Accounts payable 436,426 365,131 349,256
Accrued expenses 228,639 321,939 237,340
Income taxes payable 66,622 82,978 24,851
----------- ----------- -----------
Total current liabilities 960,924 959,909 850,749
----------- ----------- -----------
Long-term debt and capital leases,
excluding current maturities 140,719 140,813 155,350
Other non-current liabilities 19,635 20,006 19,874
----------- ----------- -----------
Total other liabilities 160,354 160,819 175,224
----------- ----------- -----------
Stockholders' Equity
Preferred stock, no par value, 1,000,000
shares authorized
Series A junior participating, 100,000
shares authorized and none issued -- -- --
Series B convertible, 100,000 shares
authorized and issued 100,000 100,000 100,000
Common stock, $1 par value, 250,000,000
shares authorized with 85,645,000
shares issued 85,645 85,645 85,645
Additional paid-in-capital 102,640 102,819 93,638
Retained earnings 2,333,260 2,332,120 2,198,024
Foreign currency translation effects (1,939) (1,094) 1,880
Common stock in treasury, at cost,
24,864,000, 23,918,000 and 19,611,000
shares, respectively (1,002,540) (963,301) (735,641)
Unearned deferred compensation
related to TESOP (52,859) (54,854) (60,838)
----------- ----------- -----------
Total stockholders' equity 1,564,207 1,601,335 1,682,708
Commitments and contingent liabilities
----------- ----------- -----------
$ 2,685,485 $ 2,722,063 $ 2,708,681
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
TANDY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<CAPTIONS>
Three Months Ended
March 31,
------------------------------
(In thousands) 1996 1995
-------------- ------------ ------------
Cash flows from operating activities:
Net income $ 14,480 $ 38,935
Adjustments to reconcile net income to net cash
provided by operating activities:
Impairment of long-lived assets 26,033 --
Depreciation and amortization 25,351 22,302
Provision for credit losses and bad debts 266 11,466
Other items (31) 703
Changes in operating assets and liabilities:
Sale of credit card portfolios -- 342,822
Receivables 44,324 18,327
Inventories (46,934) 167,925
Other current assets (2,404) 661
Accounts payable, accrued expenses and
income taxes (37,467) (335,275)
------------ ------------
Net cash provided by operating activities 23,618 267,866
------------ ------------
Investing activities:
Additions to property, plant and equipment (44,609) (43,336)
Proceeds from sale of property, plant and
equipment 875 2,326
Other investing activities (2,878) 170
------------ ------------
Net cash used by investing activities (46,612) (40,840)
------------ ------------
Financing activities:
Purchase of treasury stock (57,175 (212,078)
Sale of treasury stock to employee
stock purchase program 15,007 15,863
Proceeds from exercise of stock options 1,651 9,623
Dividends paid, net of taxes (13,534) (24,507)
Changes in short-term borrowings, net 39,625 61,463
Additions to long-term borrowings -- 1,706
Repayments of long-term borrowings (697) (51,011)
------------ ------------
Net cash used by financing activities (15,123) (198,941)
------------ ------------
Increase (decrease) in cash and short-term
investments (38,117) 28,085
Cash and short-term investments,
beginning of period 143,498 205,633
------------ ------------
Cash and short-term investments, end of period $ 105,381 $ 233,718
============ ============
The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1-BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to
Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to
the consolidated financial statements and management's
discussion and analysis of results of operations and
financial condition included in Tandy Corporation's ("Tandy"
or the "Company") Form 10-K for the year ended December 31,
1995.
NOTE 2-IMPAIRMENT OF ASSETS
In March 1995, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards
("FAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("FAS
121"), which is effective for fiscal years beginning after
December 15, 1995. Effective January 1, 1996, the Company
adopted FAS 121 which requires that long-lived assets
(primarily property, plant and equipment and goodwill) held
and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the net book
value of the asset may not be recoverable. An impairment
loss is recognized if the sum of the expected future cash
flows (undiscounted and before interest) from the use of the
asset is less than the net book value of the asset. The
amount of the impairment loss will be measured as the
difference between the net book value of the assets and the
estimated fair value of the related assets.
Upon adoption in the first quarter of 1996, the Company
recorded an initial pre-tax impairment loss of approximately
$26,033,000 to conform with this statement, primarily as a
result of grouping assets at their lowest level of cash flows
to determine impairment as required by this statement. This
charge provided for the writedown of certain intangibles,
adjustment to market valuation of foreign real estate and the
revaluation of selected retail fixed assets. Whenever events
or changes in circumstances occur, the Company will review
assets for impairment, and if it is indicated that the
carrying amount of an asset may not be recoverable, the
appropriate adjustment will be recorded.
NOTE 3-SHARE REPURCHASE PROGRAM
On December 18, 1995, the Company announced that its Board of
Directors had authorized management to purchase up to
5,000,000 shares of its common stock in addition to shares
required for employee plans. These purchases are in addition
to the share repurchase program which began in August 1994
and concluded in December 1995, under which the Company
repurchased 12,500,000 shares. Purchases will be made from
time to time in the open market, and it is expected that
funding of the program will come from operating cash flow and
existing bank facilities. During the quarter ended March 31,
1996, the Company repurchased approximately 1,000,000 shares
under the program. No purchases were made during 1995 under
this new program.
NOTE 4-CONTINGENCY
The IRS Dallas field office is reviewing the Company's
1987-1989 tax returns and has referred certain issues to the
IRS National office. The resolution of this matter, which
raises questions about the private letter rulings issued by
the IRS regarding the spin-off of InterTAN and certain other
tax matters, could result in additional taxes and interest to
the Company. Although aggregate additional taxes involved in
these transactions could potentially range from $0 to $27
million, based on the advice of the Company's independent tax
advisors, the Company believes it would prevail if any tax
litigation had to be instituted. Any ultimate tax assessment
would also involve interest expense. In any event, the
Company believes the ultimate resolution would have no
material impact on the Company's financial condition.
The Company is a defendant in a consolidated action titled
O'Sullivan Industries Holdings, Inc. Securities Litigation,
----------------------------------------------------------
which was commenced in 1994 and is currently pending before
the United States District Court for the Western District of
Missouri. The plaintiffs sought damages in an unspecified
amount alleging that the initial public offering prospectus
of O'Sullivan, which was formerly a subsidiary of the
Company, as well as certain press releases and other
materials, contained material misrepresentations and
omissions. The parties have entered into a Memorandum of
Understanding which the Court has preliminarily approved.
The Court has set a hearing regarding the settlement of this
litigation for July 2, 1996. The complete resolution of the
matter is dependent upon the satisfaction of several
conditions set forth in said Memorandum of Understanding.
There can be no assurance that Court approval will be
obtained. Under the terms of the Memorandum of
Understanding, the Company's contributions to the proposed
settlement will not have a material adverse affect on its
results of operations or financial condition. Tandy believes
that the lawsuit is totally without merit and in the event
this matter is not resolved, the Company intends to resume
its vigorous defense of this lawsuit.
NOTE 5-HEDGING AND DERIVATIVE ACTIVITY
The Company enters into interest rate swap agreements to
manage its interest rate exposure by effectively trading
floating interest rates for fixed interest rates. As the
Company has used the swaps to hedge certain obligations with
floating rates, the difference between the floating and fixed
interest rate amounts, based on these swap agreements, is
recorded as income or expense. Through March 31, 1996, the
Company has entered into five swaps with regard to notional
amounts totaling $90,000,000. The swap agreements all expire
during the third quarter of 1999. Prior to 1995 the Company
was not a party to any interest rate swaps. The Board of
Directors has authorized management to enter into interest
rate swaps up to notional amounts not exceeding $250,000,000.
At March 31, 1996, the Company would have to pay
approximately $4,686,000 to terminate the interest rate swaps
in place. This amount was obtained from the counterparties
and represents the estimated fair value of the swap
agreements; the amount is not recognized in the consolidated
financial statements. The Company has no intention of
terminating the interest rate swap agreements at this time.
At March 31, 1996, the weighted average interest rate of the
floating rate obligations being hedged was 5.9%, and the
weighted average interest rate of the fixed rate obligations
imposed by the swap agreements was 7.7%. The interest rate
swap agreements have been entered into with major financial
institutions which are expected to fully perform under the
terms of the swap agreements.
NOTE 6-RELATIONS WITH INTERTAN
Summarized in the tables below are the amounts recognized by
the Company at March 31, 1996 and 1995, and for the periods
ended March 31, 1996 and 1995, in relation to its agreements
with InterTAN Inc. ("InterTAN"). The Company purchased the
notes at a discount, and InterTAN has an obligation to pay
the gross amount of the notes.
<CAPTIONS>
Balance at March 31,
-----------------------------
(In thousands) 1996 1995
-------------- ------------- -------------
Gross amount of notes $ 41,424 $ 48,361
Discount 11,164 15,246
------------- -------------
Net amount of notes $ 30,260 $ 33,115
============= =============
Current portion of notes $ 14,615 $ 4,256
Non-current portion of notes 15,645 28,859
Other current receivables 2,438 2,879
------------- -------------
$ 32,698 $ 35,994
============= =============
<CAPTIONS>
Three Months Ended
March 31,
-----------------------------
(In thousands) 1996 1995
-------------- ------------- -------------
Sales and commission income $ 1,796 $ 2,349
============= =============
Interest income $ 928 $ 999
Accretion of discount 997 1,097
------------- -------------
$ 1,925 $ 2,096
============= =============
Royalty income $ 275 --
============= =============
Through April 1996 InterTAN has met all of its payment
obligations to Tandy. Published income before taxes for the
nine months ended March 31, 1996 approximated $10,393,000
compared to $10,944,000 for the nine months ended March 31,
1995. The reduction in InterTAN's earnings per fully diluted
share from $0.89 in the nine months ended March 31, 1995 to
$0.34 in the current nine months is primarily attributable to
a tax credit taken in fiscal 1995, and to a lesser extent, an
economic downtrend in its primary market of Canada. Nothing
has come to the attention of management which would indicate
that InterTAN would not be able to meet its payment
obligations pursuant to these debt agreements. See the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 for further information.
Canadian tax authorities are reviewing InterTAN's Canadian
subsidiary's 1987-89 tax returns. The Company cannot
determine whether the ultimate resolution of that review will
have an effect on InterTAN's ability to meet its obligations
to Tandy, but at present, nothing has come to the attention
of the Company which would lead it to believe that the
ultimate resolution of this review would impair InterTAN's
ability to meet its obligations to Tandy.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
With the exception of historical information, the matters
discussed herein are forward-looking statements that involve
risks and uncertainties including, but not limited to,
economic conditions, interest rate fluctuations, product
demand, competitive products and pricing, availability of
products, inventory risks due to shifts in market demand, the
regulatory and trade environment, real estate market
fluctuations and other risks indicated in filings with the
Securities and Exchange Commission.
Net Sales and Operating Revenues
Net sales and operating revenues for the periods ended March
31 were:
<CAPTIONS>
Three Months Ended
March 31, %Increase
-----------------------------
(In thousands) 1996 1995 (Decrease)
-------------- ------------ ------------ ----------
RadioShack $ 708,565 $ 663,069 (1) 6.9%
Incredible Universe 220,253 133,753 64.7
Computer City 499,657 378,563 32.0
------------ ------------
1,428,475 1,175,385 21.5
Tandy Name Brand (closed) -- 28,350 --
Other sales 18,454 22,887 (19.4)
------------ ------------
$ 1,446,929 $ 1,226,622 18.0%
============ ============
(1) Restated to include the remaining 73 Tandy Name Brand retail units.
Continuing retail operations had a 21.5% sales gain for the
three-month period ended March 31, 1996. Tandy Corporation's
overall comparable store sales gains for U.S. and Canadian
operations approximated 2.3% for the quarter. This increase
includes the January results which were negatively impacted
by adverse weather conditions.
RadioShack comparable store sales gains for the three-month
period were 5.2%, with February and March gains of 8.1% and
8.9%, respectively. Digital satellite systems and cellular
phone sales were strong during the quarter. The parts and
accessories categories received major advertising and sales
associate emphasis this quarter, and the division's overall
gain was led by batteries, telephone add-ons and stereo
accessories, all of which had double digit increases. At
March 31, 1996, RadioShack had 4,840 company-owned stores,
including 91 in the Specialty Retail Group. The division has
had a net increase of nine stores since December 31, 1995,
and it is anticipated that approximately 100-120
RadioShack(SM) stores will be added during 1996.
Computer City recorded flat comparable store sales results
for the quarter with sales gains of 7.0% and 4.7% for
February and March, respectively. The sales gains were due
to increased traffic and sale of accessories and computer
upgrade components. During the first quarter of 1996,
Computer City initiated a commission-based compensation plan
for its sales associates. This new program, in addition to a
renewed focus on the in-stock position, contributed to the
increased sales. These two new programs plus a focus on
corporate sales should help achieve sales increases in the
future. Twenty-eight stores have been added to the Computer
City chain since March 31, 1995, including two stores which
were added in the first quarter of 1996. As of March 31,
1996, there were 101 stores open, and Computer City plans to
add approximately 13 more stores during the remainder of
1996.
Same-store sales for the quarter at Incredible Universe
decreased 5.5%. This decrease was the result of sales
decreases in categories such as appliances and video. Sales
increased in the home office category during the March
quarter compared to the prior year. Incredible Universe
management is focusing on numerous major points to improve
business. Currently under evaluation are incentive-based
compensation plans, expansion of product offering in the
computer department and development of leased areas within
the store for other retail formats. Steps are being taken to
enhance merchandising and marketing strategies and to
decrease overhead costs. Management may rationalize the use
of its assets and, as the Incredible Universe chain matures,
management will gain more information with which to make
decisions. Since March 31, 1995, Incredible Universe has
added nine stores, including one which was added in the first
quarter of 1996. Incredible Universe operated eighteen
stores as of March 31, 1996 and plans to open one additional
store during the third quarter of 1996.
RETAIL OUTLETS
<CAPTIONS>
March 31, December 31, September 30, June 30, March 31, December 31,
1996 1995 1995 1995 1995 1994
-----------------------------------------------------------------------------------------------------
RadioShack
Company owned (1) 4,840 4,831 4,787 4,709 4,671 4,598
Dealer/Franchise 1,954 2,005 2,017 2,017 2,015 2,005
Computer City 101 99 86 78 73 69
Incredible Universe 18 17 14 10 9 9
Tandy Name Brand n/a n/a n/a n/a n/a 306
------ ------ ------ ------ ----- -----
Total Number of Stores 6,913 6,952 6,904 6,814 6,768 6,987
====== ====== ====== ====== ----- -----
(1) At January 1, 1995, the Specialty Retail Group of the RadioShack
division included 73 Tandy Name Brand units.
Gross Profit
Gross profit as a percent of net sales was 34.0% during the
three months ended March 31, 1996 as compared to 36.4% during
the corresponding 1995 period. This trend toward lower gross
margins is expected to continue as Computer City(R) and
Incredible Universe(R) stores contribute a larger proportion
of sales, because they operate on lower margins. In the
first quarter of 1996, Computer City and Incredible Universe
accounted for approximately 49.8% of consolidated sales,
compared to 41.8% in the first quarter of 1995. RadioShack's
gross margin remained relatively stable in comparison with
the prior year period. Computer City's gross margin
increased slightly as compared to the first quarter of 1995,
while gross margin at Incredible Universe decreased due to an
increase in the relative percentage of lower margin computer
sales the chain is experiencing and, to a lesser extent, the
Atlanta store opening in March 1996.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses as a
percent of sales and operating revenues for the first quarter
of 1996 declined 1.9 percentage points in comparison with the
first quarter of 1995. Most expense categories, including
advertising, rent, payroll and utilities, were lower as a
percent of sales as compared with the same prior year period.
The lower rent and payroll costs as a percent of sales
reflect the lower relative costs associated with the
Company's newer retail formats. As a result of Computer City
and Incredible Universe expansion into new markets,
consolidated advertising costs increased $4,823,000, or
10.4%, during the three months in comparison with the prior
year period. Payroll expenses increased $23,985,000, or
15.2%, in the first quarter of 1996, in comparison with the
prior year period, because of the Company's retail store
expansions. As a result of the Company selling the private
label credit card portfolios at the end of the first quarter
in 1995, bad debt expense decreased significantly in the
first quarter of 1996 as compared to that of the prior year.
The Company expects SG&A expenses as a percent of sales to
continue to decrease over the remainder of the fiscal year as
Computer City and Incredible Universe, which operate at lower
relative costs than consolidated Tandy Corporation, become
more significant portions of the Company's total business.
Impairment of Assets
In March 1995, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards
("FAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("FAS
121"), which is effective for fiscal years beginning after
December 15, 1995. Effective January 1, 1996, the Company
adopted FAS 121 which requires that long-lived assets
(primarily property, plant and equipment and goodwill) held
and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the net book
value of the asset may not be recoverable. An impairment
loss is recognized if the sum of the expected future cash
flows (undiscounted and before interest) from the use of the
asset is less than the net book value of the asset. The
amount of the impairment loss will be measured as the
difference between the net book value of the assets and the
estimated fair value of the related assets.
Upon adoption in the first quarter of 1996, the Company
recorded an initial pre-tax impairment loss of approximately
$26,033,000 to conform with this statement, primarily as a
result of grouping assets at their lowest level of cash flows
to determine impairment as required by this statement. This
charge provided for the writedown of certain intangibles,
adjustment to market valuation of foreign real estate and the
revaluation of selected retail fixed assets. The Company
does not anticipate a regular quarterly writedown in
subsequent quarters related to FAS 121; however, whenever
events or changes in circumstances occur, the Company will
review assets for impairment, and if it is indicated that the
carrying amount of an asset may not be recoverable, the
appropriate adjustment will be recorded.
Accounting for Stock-Based Compensation
In October 1995, the FASB issued FAS No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"), which is effective for
fiscal years beginning after December 15, 1995. Effective
January 1, 1996, the Company adopted FAS 123 which
establishes financial accounting and reporting standards for
stock-based employee compensation plans. The pronouncement
defines a fair value based method of accounting for an
employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting
for all of their employee stock option compensation plans.
However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value
based method of accounting as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"). Entities electing to remain with
the accounting in APB 25 must make pro forma disclosures of
net income and earnings per share as if the fair value based
method of accounting defined in FAS 123 had been applied.
The Company will continue to account for stock-based employee
compensation plans under the intrinsic method pursuant to APB
25 and will make the disclosures in its footnotes as required
by FAS 123. No stock options were issued for stock-based
employee compensation plans in the first quarter of 1996.
Net Interest Income
Interest income for the quarter ending March 31, 1996
decreased $19,592,000 from $23,402,000 in the first quarter
of 1995. This decrease is due to the sale of the Company's
credit card portfolios in the first quarter of 1995 and
increased utilization of cash for the ongoing share
repurchase program and capital expenditures related to new
stores. Interest expense decreased $3,530,000 for the
quarter ending March 31, 1996 in comparison with the same
prior year period.
Provision for Income Taxes
Provision for income taxes for each quarterly period is based
on the estimate of the annual effective tax rate for the
fiscal year as evaluated at the end of each quarter. The
effective tax rates for the first quarters of 1996 and 1995
were 37.1% and 38.5%, respectively. The decrease is due
primarily to the favorable resolution of a foreign tax issue.
The IRS Dallas field office is reviewing the Company's
1987-1989 tax returns and has referred certain issues to the
IRS National office. The resolution of this matter, which
raises questions about the private letter rulings issued by
the IRS regarding the spin-off of InterTAN and certain other
tax matters, could result in additional taxes and interest to
the Company. Although aggregate additional taxes involved in
these transactions could potentially range from $0 to $27
million, based on the advice of the Company's independent tax
advisors, the Company believes it would prevail if any tax
litigation was instituted. Any ultimate tax assessment would
also involve interest expense. In any event, the Company
believes the ultimate resolution would have no material
impact on the Company's financial condition.
Earnings Per Share
Net income per average common and common equivalent share is
computed by dividing net income less the Series B convertible
stock dividends by the weighted average common and common
equivalent shares outstanding during the period. As the
Preferred Equity Redemption Convertible Stock ("PERCS")
mandatorily converted into common stock, they were considered
outstanding common stock and the dividends have not been
deducted from net income for purposes of calculating net
income per average common and common equivalent share. The
prior year quarter weighted average share calculation
included approximately 11,816,000 common shares relating to
the conversion of the PERCS into common stock on March 10,
1995. Fully diluted earnings available per common and common
equivalent share are not presented since dilution is less
than 3%.
Cash Flow and Financial Condition
Cash flow from operating activities generated less cash in
the three-month period ended March 31, 1996 as compared with
the same period of the prior year. This change relates
primarily to the sale of the credit card portfolios in 1995
and a modest increase in inventories in 1996.
Cash used by investing activities for the three-month period
ended March 31, 1996 includes property, plant and equipment
additions related to additional fixtures required for new
RadioShack stores and the Company's expansion of its Computer
City and Incredible Universe store formats. Management
anticipates that capital expenditure requirements will
approximate $110,000,000 to $120,000,000 for the remainder of
1996, primarily to support retail expansion, refurbishments
and other capital expenditures such as updated POS and
information systems.
Cash used for financing activities for the three-month period
ended March 31, 1996 includes the repurchase of common stock
under the new share repurchase program, authorized on
December 18, 1995. Repayments of long-term borrowings in
1995 included the $45,000,000 of 8.69% senior notes and
medium-term notes of $6,000,000. The Company believes that
its cash flow from operations, cash on hand and availability
under its existing debt facilities are adequate to fund the
planned expansion of its store formats and share repurchase
program. In addition, most of the Company's new store
expansion is being funded through operating leases.
Cash and short-term investments at March 31, 1996 were
$105,381,000 as compared to $143,498,000 at December 31, 1995
and $233,718,000 at March 31, 1995. Total debt as a
percentage of total capitalization was 19.1% at March 31,
1996, compared to 17.1% at December 31, 1995 and 19.0% at
March 31, 1995. Long-term debt as a percentage of total
capitalization was 7.3% at March 31, 1996 compared to 7.3% at
December 31, 1995 and 7.5% at March 31, 1995. The
debt-to-capitalization ratios could increase as Tandy
continues to repurchase shares under the existing
authorization and fund new store openings and other capital
expenditures such as updating its POS and other information
systems.
On December 18, 1995, the Company announced that its Board of
Directors had authorized management to purchase up to
5,000,000 shares of its common stock in addition to shares
required for employee plans. These purchases are in addition
to the share repurchase program which began in August 1994
and concluded in December 1995, under which the Company
repurchased 12,500,000 shares. Purchases will be made from
time to time in the open market, and it is expected that
funding of the program will come from operating cash flow and
existing bank facilities. During the quarter ended March 31,
1996, the Company repurchased approximately 1,000,000 shares
under the program. No purchases were made during calendar
1995 under this new program.
Inventory
Compared to March 31, 1995, total inventories at March 31,
1996 increased $234,625,000 or 17.7%. The increase in total
inventory levels included additional inventory to support new
RadioShack, Computer City and Incredible Universe stores.
Inventory is primarily comprised of finished goods.
Changes in Stockholders' Equity
<CAPTIONS>
Outstanding
(In thousands) Common Shares Dollars
-------------- ------------- -----------
Balance at December 31, 1995 61,727 $ 1,601,335
Foreign currency translation
adjustments, net of deferred taxes -- (845)
Sale of treasury stock to employee plans 372 15,007
Purchase of treasury stock (1,399) (56,335)
Exercise of stock options 54 1,651
Restricted stock awards 27 1,099
Repurchase of preferred stock -- (840)
Preferred stock dividends, net of tax -- (1,043)
TESOP deferred compensation earned -- 1,995
Common stock dividends -- (12,297)
Net income -- 14,480
-------- -----------
Balance at March 31, 1996 60,781 $ 1,564,207
======== ===========
InterTAN Update
Summarized in the tables below are the amounts recognized by
the Company at March 31, 1996 and 1995, and for the periods
ended March 31, 1996 and 1995, in relation to its agreements
with InterTAN Inc. ("InterTAN"). The Company purchased the
notes at a discount, and InterTAN has an obligation to pay
the gross amount of the notes.
<CAPTIONS>
Balance at March 31,
-----------------------------
(In thousands) 1996 1995
-------------- ------------- -------------
Gross amount of notes $ 41,424 $ 48,361
Discount 11,164 15,246
------------- -------------
Net amount of notes $ 30,260 $ 33,115
============= =============
Current portion of notes $ 14,615 $ 4,256
Non-current portion of notes 15,645 28,859
Other current receivables 2,438 2,879
------------- -------------
$ 32,698 $ 35,994
============= =============
<CAPTIONS>
Three Months Ended
March 31,
-----------------------------
(In thousands) 1996 1995
-------------- ------------- -------------
Sales and commission income $ 1,796 $ 2,349
============= =============
Interest income $ 928 $ 999
Accretion of discount 997 1,097
------------- -------------
$ 1,925 $ 2,096
============= =============
Royalty income $ 275 --
============= =============
Through April 1996 InterTAN has met all of its payment
obligations to Tandy. Published income before taxes for the
nine months ended March 31, 1996 approximated $10,393,000
compared to $10,944,000 for the nine months ended March 31,
1995. The reduction in InterTAN's earnings per fully diluted
share from $0.89 in the nine months ended March 31, 1995 to
$0.34 in the current nine months is primarily attributable to
a tax credit taken in fiscal 1995, and to a lesser extent, an
economic downtrend in its primary market of Canada. Nothing
has come to the attention of management which would indicate
that InterTAN would not be able to meet its payment
obligations pursuant to these debt agreements. See the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 for further information.
Canadian tax authorities are reviewing InterTAN's Canadian
subsidiary's 1987-89 tax returns. The Company cannot
determine whether the ultimate resolution of that review will
have an effect on InterTAN's ability to meet its obligations
to Tandy, but at present, nothing has come to the attention
of the Company which would lead it to believe that the
ultimate resolution of this review would impair InterTAN's
ability to meet its obligations to Tandy.
Preferred Equity Redemption Convertible Stock and PERCS are
trademarks of Morgan Stanley & Co., Incorporated, in
connection with their investment banking services. All other
trademarks identified herein are owned or used by Tandy
Corporation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is a defendant in a consolidated action titled
O'Sullivan Industries Holdings, Inc. Securities Litigation,
----------------------------------------------------------
which was commenced in 1994 and is currently pending before
the United States District Court for the Western District of
Missouri. The plaintiffs sought damages in an unspecified
amount alleging that the initial public offering prospectus
of O'Sullivan, which was formerly a subsidiary of the
Company, as well as certain press releases and other
materials, contained material misrepresentations and
omissions. The parties have entered into a Memorandum of
Understanding which the Court has preliminarily approved. The
Court has set a hearing regarding the settlement of this
litigation for July 2, 1996. The complete resolution of the
matter is dependent upon the satisfaction of several
conditions set forth in said Memorandum of Understanding.
There can be no assurance that Court approval will be
obtained. Under the terms of the Memorandum of Understanding,
the Company's contributions to the proposed settlement will
not have a material adverse affect on its results of
operations or financial condition. Tandy believes that the
lawsuit is totally without merit and in the event this matter
is not resolved, the Company intends to resume its vigorous
defense of this lawsuit.
Tandy has various claims, lawsuits, disputes with third
parties, investigations and pending actions involving
allegations of negligence, product defects, discrimination,
infringement of intellectual property rights, securities
matters, tax deficiencies, violations of permits or licenses,
and breach of contract and other matters against the Company
and its subsidiaries incident to the operation of its
business. The liability, if any, associated with these
matters was not determinable at March 31, 1996. While certain
of these matters involve substantial amounts, and although
occasional adverse settlements or resolutions might occur and
negatively impact earnings in the year of settlement, it is
the opinion of management that their ultimate resolution will
not have a materially adverse effect on Tandy's financial
position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits Required by Item 601 of Regulation S-K.
A list of the exhibits required by Item 601 of
Regulation S-K and filed as part of this report is
set forth in the Index to Exhibits on page 15, which
immediately precedes such exhibits.
b) Reports on Form 8-K.
There were no Form 8-K reports filed during the
quarter ended March 31, 1996.
SIGNATURES
Pursuant to the requirements 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.
Tandy Corporation
(Registrant)
Date: May 13, 1996 By /s/ Richard L. Ramsey
----------------------
Richard L. Ramsey
Vice President and Controller
(Authorized Officer)
Date: May 13, 1996 /s/ Dwain H. Hughes
-------------------------
Dwain H. Hughes
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
TANDY CORPORATION
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page No.
2a Agreement for Purchase and Sale of Assets dated
as of June 30, 1993 between AST Research, Inc.,
as Purchaser and Tandy Corporation, TE Electronics
Inc., and GRiD Systems Corporation, as Sellers
(without exhibits) (filed as Exhibit 2 to
Tandy's July 13, 1993 Form 8-K filed on July
27, 1993, Accession No. 0000096289-93-000004
and incorporated herein by reference).
2b Amended and Restated Stock Exchange Agreement
dated February 1, 1994 by and among O'Sullivan
Industries Holdings, Inc., and TE Electronics
Inc. (filed as Exhibit 2b to Tandy's Form 10-K
filed on March 30, 1994, Accession No.
0000096289-94-000029 and incorporated herein
by reference).
2c U.S. Purchase Agreement dated January 26,
1994 by and among O'Sullivan Industries Holdings,
Inc., TE Electronics Inc. and the U.S.
Underwriters which included Merrill Lynch & Co.,
Wheat First Butcher & Singer, The Chicago
Dearborn Company and Rauscher Pierce Refsnes,
Inc. (filed as Exhibit 2c to Tandy's Form 10-K
filed on March 30, 1994, Accession No.
0000096289-94-000029 and incorporated herein by
reference).
2d International Purchase Agreement dated January
26, 1994 by and among O'Sullivan Industries
Holdings, Inc., TE Electronics Inc. and the U.S.
Underwriters which included Merrill Lynch
International Limited and UBS Limited (filed
as Exhibit 2d to Tandy's Form 10-K filed
on March 30, 1994, Accession No. 0000096289-
94-000029 and incorporated herein by reference).
2e Acquisition Agreement dated January 18, 1995
between Hurley State Bank, as purchaser and
Tandy Credit Corporation as seller (without
exhibits) (filed as Exhibit (c) to Tandy's
January 18, 1995 Form 8-K filed on February 2,
1995, Accession No. 0000096289-95-000008
and incorporated herein by reference).
2e(i) Amendment No. 1 to Acquisition Agreement dated
January 18, 1995 between Tandy Credit Corporation,
Tandy National Bank and Hurley State Bank
(filed as Exhibit 2 to Tandy's March 30, 1995
Form 8-K filed on April 12, 1995, Accession
No.0000096289-95-000012 and incorporated
herein by reference).
2f Agreement Plan of Merger dated March 30, 1995
by and among Tandy Corporation, Tandy Credit
Corporation, Hurley State Bank and Hurley
Receivables Corporation (filed as Exhibit 3
to Tandy's March 30, 1995 Form 8-K filed on
April 12, 1995, Accession No. 0000096289-
95-000012 and incorporated herein by reference).
3a(i) Restated Certificate of Incorporation of Tandy
dated December 10, 1982 (filed as Exhibit 4A
to Tandy's 1993 Form S-8 for the Tandy Corporation
Incentive Stock Plan, Reg. No. 33-51603, filed on
November 12, 1993, Accession No. 0000096289-93-
000017 and incorporated herein by reference).
3a(ii)Certificate of Amendment of Certificate of
Incorporation of Tandy Corporation dated
November 13, 1986 (filed as Exhibit 4A to Tandy's
1993 Form S-8 for the Tandy Corporation Incentive
Stock Plan, Reg. No. 33-51603, filed on November
12, 1993, Accession No.0000096289-93-000017 and
incorporated herein by reference).
3a(iii)Certificate of Amendment of Certificate of
Incorporation, amending and restating the
Certificate of Designation, Preferences and
Rights of Series A Junior Participating
Preferred Stock dated June 22, 1990 (filed as
Exhibit 4A to Tandy's 1993 Form S-8 for the
Tandy Corporation Incentive Stock Plan, Reg.
No. 33-51603, filed on November 12, 1993,
Accession No. 0000096289-93-000017 and
incorporated herein by reference).
3a(iv) Certificate of Designations of Series B TESOP
Convertible Preferred dated June 29, 1990
(filed as Exhibit 4A to Tandy's 1993 Form S-8
for the Tandy Corporation Incentive Stock Plan,
Reg. No. 33-51603, filed on November 12, 1993,
Accession No. 0000096289-93-000017 and
incorporated herein by reference).
3a(v) Certificate of Designation, Series C Conversion
Preferred Stock dated February 13, 1992 (filed
as Exhibit 4A to Tandy's 1993 Form S-8 for the
Tandy Corporation Incentive Stock Plan, Reg.
No. 33-51603, filed on November 12, 1993,
Accession No. 0000096289-93-000017 and
incorporated herein by reference).
3b Tandy Corporation Bylaws, restated
as of January 1, 1996 (filed as Exhibit 3b
to Tandy's Form 10-K filed on March 28, 1996,
Accession No.0000096289-96-000004 and
incorporated herein by reference).
4a Amended and restated Rights Agreement with
the First National Bank of Boston dated June
22, 1990 for Preferred Share Purchase Rights
(filed as Exhibit 4b to Tandy's Form 10-K filed
on March 30, 1994, Accession No. 0000096289-
94-000029 and incorporated herein by reference).
4b Revolving Credit Agreement between Tandy
Corporation and Texas Commerce Bank, individually
and as Agent for sixteen other banks, dated as
of May 27, 1994 (without exhibits) (filed as
Exhibit 4c to Tandy's Form 10Q filed on August
15, 1994, Accession No.0000096289-94-000039
and incorporated herein by reference).
4c First Amendment to the Revolving Credit Agreement
between Tandy Corporation and Texas Commerce Bank
as Agent for sixteen other banks, dated as of
May 26, 1995 (Facility A) (filed as Exhibit 4c
to Tandy's Form 10-K filed on March 28, 1996,
Accession No. 0000096289-96-000004 and
incorporated herein by reference).
4d First Amendment to the Revolving Credit Agreement
between Tandy Corporation and Texas Commerce Bank
as Agent for sixteen other banks, dated as of
May 26, 1995 (Facility B) (filed as Exhibit 4d
to Tandy's Form 10-K filed on March 28, 1996,
Accession No. 0000096289-96-000004 and
incorporated herein by reference).
10a* Salary Continuation Plan for Executive Employees of
Tandy Corporation and Subsidiaries including
amendment dated June 14, 1984 with respect to
participation by certain executive employees,
as restated October 4, 1990 (filed as Exhibit
10a to Tandy's Form 10-K filed on March 30,
1994, Accession No. 0000096289-94-000029
and incorporated herein by reference).
10b* Form of Executive Pay Plan Letters (filed as
Exhibit 10b to Tandy's Form 10-K filed on
March 28, 1996, Accession No. 0000096289-96-
000004 and incorporated herein by reference).
10c* Post Retirement Death Benefit Plan for Selected
Executive Employees of Tandy Corporation and
Subsidiaries as restated June 10, 1991 (filed
as Exhibit 10c to Tandy's Form 10-K filed on
March 30, 1994, Accession No.0000096289-94-
000029 and incorporated herein by reference).
10d* Tandy Corporation Officers Deferred Compensation
Plan as restated July 10, 1992 (filed as Exhibit
10d to Tandy's Form 10-K filed on March 30,
1994, Accession No.0000096289-94-000029 and
incorporated herein by reference).
10e* Special Compensation Plan No. 1 for Tandy
Corporation Executive Officers, adopted in
1993 (filed as Exhibit 10e to Tandy's Form
10-K filed on March 30, 1994, Accession No.
0000096289-94-000029 and incorporated
herein by reference).
10f* Special Compensation Plan No. 2 for Tandy
Corporation Executive Officers, adopted in
1993 (filed as Exhibit 10f to Tandy's Form
10-K filed on March 30, 1994, Accession No.
0000096289-94-000029 and incorporated
herein by reference).
10g* Special Compensation Plan for Directors of
Tandy Corporation dated November 13, 1986
(filed as Exhibit 10g to Tandy's Form 10-K
filed on March 30, 1994, Accession No.
0000096289-94-000029 and incorporated
herein by reference).
10h* Director Fee Resolution (filed as Exhibit 10h
to Tandy's Form 10-K filed on March 30, 1994,
Accession No. 0000096289-94-000029 and
incorporated herein by reference).
10i* Tandy Corporation 1985 Stock Option Plan as
restated effective August 1990 (filed as
Exhibit 10i to Tandy's Form 10-K filed on
March 30, 1994, Accession No.0000096289-94-
000029 and incorporated herein by reference).
10j* Tandy Corporation 1993 Incentive Stock Plan
as restated May 18, 1995 (filed as Exhibit
10j to Tandy's Form 10-Q filed on August 14,
1995, Accession No.0000096289-95-000016 and
incorporated herein by reference).
10k* Tandy Corporation Officers Life Insurance
Plan as amended and restated effective August
22, 1990 (filed as Exhibit 10k to Tandy's
Form 10-K filed on March 30, 1994, Accession
No. 0000096289-94-000029 and incorporated
herein by reference).
10l* First Restated Trust Agreement Tandy Employees
Supplemental Stock Program through Amendment
No. IV dated January 1, 1996 (filed as Exhibit
4d to Tandy's Form 10-K filed on March 28,
1996, Accession No.0000096289-96-000004 and
incorporated herein by reference).
10m* Forms of Termination Protection Agreements
for (i) Corporate Executives, (ii) Division
Executives, and (iii) Subsidiary Executives
(filed as Exhibit 10m to Tandy's Form 10-Q
filed on August 14, 1995, Accession No.
0000096289-95-000016 and incorporated herein
by reference).
10n* Tandy Corporation Termination Protection Plans
for Executive Employees of Tandy Corporation
and its Subsidiaries (i) the Level I and (ii)
Level II Plans (filed as Exhibit 10n filed on
August 14, 1995, Accession No. 0000096289-
95-000016 to and incorporated herein by reference).
10o* Forms of Bonus Guarantee Letter Agreements with
certain Executive Employees of Tandy Corporation
and its Subsidiaries (i) Formula, (ii)
Discretionary, and (iii) Pay Plan (filed as
Exhibit 10o to Tandy's Form 10-K filed on
March 30, 1994, Accession No.0000096289-94-
000029 and incorporated herein by reference).
10p* Form of Indemnity Agreement with Directors,
Corporate Officers and two Division Officers
of Tandy Corporation (filed as Exhibit 10p to
Tandy's Form 10-K filed on March 28, 1996,
Accession No. 0000096289-96-000004 and
incorporated herein by reference).
11 Statement of Computation of Earnings per Share 18
12 Statement of Computation of Ratios of Earnings
to Fixed Charges 20
27 Financial Data Schedule
_______________________
* Each of these exhibits is a "management contract or
compensatory plan, contract, or arrangement".
TANDY CORPORATION EXHIBIT 11
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<CAPTIONS>
Three Months Ended
March 31,
----------------------------
(In thousands, except per share amounts) 1996 1995
--------------------------------------- ---------- ----------
Primary Earnings Per Share
Reconciliation of net income per statements of income to
amounts used in computation of primary earnings per share:
Net income, as reported $ 14,480 $ 38,935
Less dividends on preferred stock:
Series B (1,605) (1,667)
---------- ----------
Net income available to common
shareholders for primary earnings per share $ 12,875 $ 37,268
========== ==========
Weighted average number of common shares outstanding 61,137 58,655
Weighted average number of $2.14 depositary shares,
representing Series C preferred stock, treated as
common stock due to mandatory conversion (b) -- 9,059
Weighted average number of common shares issuable
under stock option plans, net of assumed treasury stock
repurchases at average market prices 230 460
---------- ----------
Weighted average number of common and common
equivalent shares outstanding 61,367 68,174
========== ==========
Net income available per average
common and common equivalent share $ 0.21 $ 0.55
========== ==========
Fully Diluted Earnings Per Share (a)
Reconciliation of net income per statements of income to
amounts used in computation of fully diluted earnings per share:
Net income available to common shareholders $ 12,875 $ 37,268
Adjustments for assumed conversion of Series B preferred stock
to common stock as of the beginning of the period:
Plus dividends on Series B preferred stock (c) 1,667
Less additional contribution that would have been
required for the TESOP if Series B preferred stock
had been converted (c) (932)
---------- ----------
Net income available per common and
common equivalent share, as adjusted $ 12,875 $ 38,003
========== ==========
Reconciliation of weighted average number of shares outstanding
to amount used in computation of fully diluted earnings per share:
Weighted average number of shares outstanding 61,367 68,174
Adjusted to reflect assumed exercise of stock
options as of the beginning of the period 121 128
Adjustment to reflect assumed conversion of Series B preferred
stock to common stock as of the beginning of the period (c) 1,936
---------- ----------
Weighted average number of common and common
equivalent shares outstanding, as adjusted 61,488 70,238
========== ==========
Fully diluted net income available per average
common and common equivalent share $ 0.21 $ 0.54
========== ==========
(a) This calculation is submitted in accordance with Regulation S-K, Item 601(b)(11)
although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because
it results in dilution of less than 3%.
(b) The amount in 1995 represents the pro rata portion of the Series C preferred stock
outstanding prior to their conversion effective March 10, 1995.
(c) For the three months ended March 31, 1996, these items are anti-dilutive and thus
are omitted from the calculation.
EXHIBIT 12
TANDY CORPORATION
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
<CAPTIONS>
Three Months Ended
March 31,
----------------------------
(In thousands, except ratios) 1996 1995
----------------------------- ---------- ----------
Ratio of Earnings to Fixed Charges:
Net income $ 14,480 $ 38,935
Plus provision for income taxes 8,556 24,374
---------- ----------
Income before income taxes 23,036 63,309
---------- ----------
Fixed charges:
Interest expense and amortization of
debt discount 7,130 10,660
Amortization of issuance expense 63 69
Appropriate portion (33 1/3%) of rentals 19,795 17,748
---------- ----------
Total fixed charges 26,988 28,477
---------- ----------
Earnings before income taxes and
fixed charges $ 50,024 $ 91,786
========== ==========
Ratio of earnings to fixed charges 1.85 3.22
========== ==========
Ratio of Earnings to Fixed Charges and
Preferred Dividends:
Total fixed charges, as above $ 26,988 $ 28,477
Preferred dividends 1,605 6,491
---------- ----------
Total fixed charges and preferred dividends $ 28,593 $ 34,968
========== ==========
Earnings before income taxes, fixed
charges and preferred dividends $ 50,024 $ 91,786
========== ==========
Ratio of earnings to fixed charges and
preferred dividends 1.75 2.62
========== ==========