SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM 10-Q
- --------------------------------------------------------------------------------
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 31, 1999 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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2130875
- ---------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3300 Highway #7,Suite 904
Concord, Ontario Canada L4K 4M3
- ---------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (905) 760-9701
----------------------
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 ____
-----
At January 31, 2000, 30,358,739 shares of the registrant's common stock, par
value $1.00 per share, were outstanding.
1
TABLE OF CONTENTS
PART I
Page
Introductory note regarding forward-looking information 3
ITEM 1 - Financial Statements and Supplementary Data
Consolidated Statements of Operations 4
Consolidated Balance Sheets 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II
ITEM 1 - Legal Proceedings 25
ITEM 4 - Submission of Matters to a Vote of Security Holders 25
ITEM 6 - Exhibits and Reports on Form 8-K 25
OTHER
Signatures 28
2
INTRODUCTORY NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain matters discussed herein, including comments about the growth in gross
profit dollars and after sale compensation, the transition toward nationally
branded product, the roll out of new concept stores and other strategic
initiatives, the level of corporate expenses, and the introduction of new
products 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, developing and maintaining alliances with strategic
vendors, inventory risks due to shifts in market conditions, dependence on
manufacturers' product development, the regulatory and trade environment, real
estate market fluctuations and the availability of suitable store locations,
certain aspects of Year 2000 compliance 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.
3
ITEM 1 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements Of Operations (Unaudited)
InterTAN, Inc.
- --------------------------------------------------------------------------------
(In thousands, except per share data)
Three months ended Six months ended
December 31 December 31
----------------------------------- -----------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
Net sales and operating revenues........... $169,167 $198,379 $277,170 $320,223
Other income............................... 54 50 149 129
--------------- --------------- --------------- ---------------
169,221 198,429 277,319 320,352
--------------- --------------- --------------- ---------------
Operating costs and expenses:
Cost of products sold................... 98,983 112,633 162,723 181,509
Selling, general and administrative
expenses.............................. 46,348 60,307 81,555 108,154
Depreciation and amortization........... 1,520 1,830 2,891 3,620
Initial costs of disposition of
United Kingdom subsidiary............. - 376 - 376
--------------- --------------- --------------- ---------------
146,851 175,146 247,169 293,659
--------------- --------------- --------------- ---------------
Operating income........................... 22,370 23,283 30,150 26,693
Foreign currency transaction
(gains) losses........................ 114 (43) 165 (455)
Interest income............................ (328) (253) (813) (538)
Interest expense........................... 145 1,886 285 3,284
--------------- --------------- --------------- ---------------
Income before income taxes................. 22,439 21,693 30,513 24,402
Provision for income taxes................. 10,079 7,929 13,766 10,933
--------------- --------------- --------------- ---------------
Net income................................. $ 12,360 $ 13,764 $ 16,747 $ 13,469
=============== =============== =============== ===============
Basic net income per
average common share.................. $0.41 $0.72 $0.56 $0.71
Diluted net income per
average common share.................. $0.39 $0.51 $0.54 $0.53
Average common shares outstanding.......... 30,107 19,124 29,982 18,954
Average common shares outstanding
assuming dilution..................... 31,317 29,192 31,169 29,055
The accompanying notes are an integral part of these consolidated financial
statements
4
Consolidated Balance Sheets (Unaudited)
InterTAN, Inc.
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(In thousands, except share data)
December 31 June 30 December 31
1999 1999 1998
-----------------------------------------------------
Assets
Current Assets:
Cash and short-term investments $ 69,323 $ 47,403 $ 48,817
Accounts receivable, less allowance for doubtful
accounts 21,484 9,841 16,370
Inventories 125,511 111,934 158,779
Other current assets 3,590 3,567 8,426
Deferred income taxes 1,253 1,247 365
---------------------------------------------------
Total current assets 221,161 173,992 232,757
Property and equipment, less accumulated
depreciation and amortization
22,130 20,123 26,253
Other assets 271 276 551
Deferred income taxes 4,002 3,924 -
---------------------------------------------------
Total Assets $ 247,564 $ 198,315 $ 259,561
===================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term bank borrowings $ - $ - $ 11,617
Accounts payable 35,376 15,883 33,987
Accrued expenses 27,596 17,369 40,838
Income taxes payable 35,705 39,286 21,889
Deferred service contract revenue - current portion 5,218 4,488 3,967
---------------------------------------------------
Total current liabilities 103,895 77,026 112,298
9% convertible subordinated debentures - - 36,894
Deferred service contract revenue - non-current
portion 4,861 4,008 3,625
Other liabilities 6,881 6,521 7,088
---------------------------------------------------
115,637 87,555 159,905
---------------------------------------------------
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, 30,231,619, 29,782,803 and
19,273,460 issued 30,231 29,783 19,274
Additional paid-in capital 143,994 141,126 110,966
Retained earnings (deficit) (18,148) (34,895) 3,221
Accumulated other comprehensive loss (24,079) (25,254) (33,805)
Common stock in treasury, at cost, 4,611,
0 and 0 shares, respectively (71) - -
-----------------------------------------------------
Total stockholders' equity 131,927 110,760 99,656
-----------------------------------------------------
Commitments and contingent liabilities
(see Notes 5 and 8)
Total Liabilities and Stockholders' Equity $ 247,564 $ 198,315 $ 259,561
=====================================================
The accompanying notes are an integral part of these consolidated financial statements
5
Consolidated Statements of Cash Flows (Unaudited)
InterTAN, Inc.
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(In thousands) Six months ended
December 31
-----------------------------------
1999 1998
-----------------------------------
Cash flows from operating activities:
Net income $ 16,747 $ 13,469
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 2,891 3,620
Foreign currency transaction gains, unrealized - (326)
Other 1,140 1,086
Cash provided by (used in) current assets and liabilities:
Accounts receivable (11,216) (8,133)
Inventories (12,446) (13,643)
Other current assets (173) (2,257)
Accounts payable 18,816 10,289
Accrued expenses 11,343 10,688
Income taxes payable (4,188) 1,805
-----------------------------------
Net cash provided by operating activities 22,914 16,598
-----------------------------------
Cash flows from investing activities:
Additions to property and equipment (4,819) (4,440)
Proceeds from sales of property and equipment 38 73
Other investing activities 410 1,373
-----------------------------------
Net cash used in investing activities (4,371) (2,994)
-----------------------------------
Cash flows from financing activities:
Changes in short-term bank borrowings, net - 2,512
Proceeds from issuance of common stock to
employee plans 942 916
Proceeds from exercise of stock options 1,310 -
-----------------------------------
Net cash provided by financing activities 2,252 3,428
-----------------------------------
Effect of exchange rate changes on cash 1,125 (1,026)
-----------------------------------
Net increase in cash and short-term investments 21,920 16,006
Cash and short-term investments, beginning of period 47,403 32,811
-----------------------------------
Cash and short-term investments, end of period $ 69,323 $ 48,817
===================================
The accompanying notes are an integral part of these consolidated financial statements.
6
Notes to Consolidated Financial Statements
Note 1 Basis of Financial Statements
The accompanying unaudited financial statements have been prepared in accordance
with Rule 10-01 of Regulation S-X, "Interim Financial Statements", and do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial statements have
been prepared in conformity with accounting principles and practices (including
consolidation practices) as reflected in InterTAN, Inc.'s ("InterTAN" or the
"Company") Annual Report on Form 10-K for the fiscal year ended June 30, 1999,
and, in the opinion of the Company, include all adjustments necessary for a fair
presentation of the Company's financial position as of December 31, 1999 and
1998 and the results of its operations for the three and six months ended
December 31, 1999 and 1998 and its cash flows for the six months ended December
31, 1999 and 1998. Such adjustments are of a normal and recurring nature.
Operating results for the three and six months ended December 31, 1999 are not
necessarily indicative of the results that can be expected for the fiscal year
ended June 30, 2000. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1999.
Note 2 Sale of United Kingdom Subsidiary
In January, 1999, the Company completed the sale of 100% of the stock of its
United Kingdom subsidiary InterTAN U.K. Ltd., recognizing an aggregate loss of
$35,088,000. InterTAN U.K. Ltd.'s results of operations through December 31,
1998 are included in the accompanying Consolidated Financial Statements.
Below is a summary of net sales and operating revenues, operating income and net
income for the three and six months ended December 31, 1999 and 1998,
respectively:
(In thousands)
Three months ended Six months ended
December 31 December 31
1999 1998 1999 1998
------------ -------------- ------------- ------------
Net sales and
operating revenues $ - $63,716 $ - $97,141
Operating income $ - $ 5,393 $ - $ 2,989
Net income $ - $ 4,724 $ - $ 2,071
Note 3 Stock Split
On November 29, 1999, the Company's board of directors declared 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 of common stock, including 1,537 shares held in
treasury. A corresponding decrease of $10,075,447 was made to additional
7
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 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.
Note 4 Net Income per average Common Share
Basic earnings per share ("EPS") is calculated by dividing the net income or
loss for a period by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution which would occur
if securities or other contracts to issue common stock were exercised or
converted.
Basic and diluted net income per average common share and a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation is set out below:
8
(In thousands, except Three months ended
for per
share data)
December 31, 1999 December 31, 1998
------------------------------------------------------- --------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------- -------------- -------------- ------------- -------------- --------------
Net Income $12,360 $13,764
============== =============
Basic EPS
Income available to
common stockholders $12,360 30,107 $0.41 $13,764 19,124 $0.72
============== ==============
Effect of Dilutive
Securities
9% convertible debentures - - 978(1) 10,055
Stock options - 1,210 - 13
-------------- -------------- ------------- --------------
Diluted EPS
Income available to
common
stockholders including
assumed conversions $12,360 31,317 $0.39 $14,742 29,192 $0.51
============== ============== ============== ============= ============== ==============
(In thousands, except Six months ended
for per
share data)
December 31, 1999 December 31, 1998
------------------------------------------------------- ----------------------------------------------
Income Shares Per Share Income Shares Per Share Amount
(Numerator) (Denominator) Amount (Numerator) (Denominator)
-------------- -------------- ------------- ------------- ---------------- ---------------
Net Income $16,747 $13,469
============== =============
Basic EPS
Income available to
common stockholders $16,747 29,982 $0.56 $13,469 18,954 $0.71
============= ===============
Effect of Dilutive
Securities
9% convertible debentures - - 1,863(1) 10,091(2)
Stock options - 1,187 - 10
-------------- -------------- ------------- ----------------
Diluted EPS
Income available to
common
stockholders including
assumed conversions $16,747 31,169 $0.54 $15,332 29,055(2) $0.53(2)
============== ============== ============= ============= ================ ===============
(1) The adjustments relating to the 9% convertible debentures include interest
expense, and amortization of financing costs.
(2) The adjustment to the average number of shares outstanding for purposes of
computing diluted net income per average common share and the computed diluted
net income per average common share for the six-month period ended December 31,
1998 has been restated to correct an error in the share adjustment. The share
adjustment (in thousands) as originally reported was 5,028. The diluted net
income per average common share and the average common shares outstanding
assuming dilution (in thousands) as originally reported for the six months ended
December 31, 1998 were $0.64 and 23,988, respectively.
During the three and six-month periods ended December 31, 1998, the Company's
potentially dilutive instruments included its 9% convertible subordinated
debentures (the "Debentures"). Under the terms of their issuance, the Debentures
were convertible into common stock at the rate of approximately Cdn $5.61 per
share, equivalent to approximately 10,055,000 shares in the aggregate at
December 31, 1998. During the fourth quarter of fiscal year 1999, the Company
served notice of redemption on all remaining Debenture holders and all such
Debenture holders
9
exercised their right of conversion. Also, at December 31, 1999 and 1998, the
Company's directors and employees held options to purchase 1,870,358 and
1,936,500 common shares, respectively, at prices ranging from $2.3333 to $14.75
and $2.3333 to $5.4583, respectively. During the three months ended December 31,
1999, all of such options were considered in calculating diluted EPS. However,
based on the price of the Company's common stock at the time, only 30,000 of
such options were considered in calculating diluted EPS for the three months
ended December 31, 1998. The dilutive effect of these options in future periods
will depend on the average price of the Company's common stock during such
periods.
Note 5 Comprehensive Income
Comprehensive income is defined as the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. For the Company, comprehensive income
includes net income and the net change in foreign currency translation effects.
The comprehensive income for the three months ended December 31, 1999 and 1998
was $14,030,000 and $14,210,000, respectively. For the six months ended
December 31, 1999 and 1998, the comprehensive income was $17,922,000 and
$11,878,000, respectively.
Note 6 Income Taxes
The provisions for domestic and foreign income taxes for the three-month periods
ended December 31, 1999 and 1998 were $10,079,000 and $7,929,000, respectively.
For the six-month period ended December 31, 1999, an income tax provision of
$13,766,000 was recorded, compared with $10,933,000 in the first six months of
the prior year. 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 currently payable in the United Kingdom for either the
three or six-month periods ended December 31, 1998, nor had any benefit been
recognized for the accumulated losses in that country.
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") have been in process for some time.
The Company has recently 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 and is in the process
of
10
vigorously defending its position. Management believes that it has a provision
recorded sufficient to pay any liability resulting from the issues in dispute;
however, the amount ultimately paid could differ from management's estimate.
Note 7 Bank Debt
In November, 1999, the Company replaced its previous revolving credit facility
with a new facility with Bank of America Canada (the "Revolving Credit
Facility"). The Revolving Credit Facility is denominated in Canadian dollars in
an amount not to exceed C$67,000,000 (approximately $46,400,000 at December 31,
1999 rates of exchange). 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. 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
facility is the Canadian prime rate, London Inter Bank Offered Rate plus 1.5% or
Bankers Acceptance Rate plus 1.5%, as elected by the Company at the time of
borrowing. 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 Revolving Credit Facility is
collateralized by a first priority lien over all of the assets of InterTAN
Canada and is guaranteed by InterTAN, Inc. Borrowings under the Revolving Credit
Facility by InterTAN Canada Ltd. may be directed to InterTAN, Inc. Subject to
certain financial covenants, the payment of dividends and the repurchase of
common stock by the Company is permitted. There were no loans outstanding
against the facility at December 31, 1999. Approximately $31,040,000 was
available for use at December 31, 1999.
Note 8 Non-employee Stock Options
In June, 1999, the Company proposed 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"). This plan received
shareholder approval at the Company's annual meeting of stockholders on November
9, 1999. 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 will be 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.
Under this plan, the Company will recognize aggregate compensation expense of
$910,000 of which approximately $256,000 was recognized during the second
quarter of fiscal year 2000. The balance will be amortized ratably over the
remainder of the vesting period.
Note 9 Commitments and Contingencies
In connection with the sale of its United Kingdom subsidiary, the Company has
indemnified the purchaser for certain contingencies primarily relating to real
estate matters associated with store leases and working capital adjustments. In
addition, the Company remains contingently liable as guarantor of certain leases
of the United Kingdom subsidiary. At the time of the sale, the lease obligation
assumed by the purchaser and guaranteed by the Company was approximately
$32,000,000 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
approximately $13,000,000 which is
11
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. Apart from this matter and the issues discussed in Note 5,
there are no material pending proceedings or claims, other than routine matters
incidental to the Company's business, to which the Company or any of its
subsidiaries is a party, or to which any of its property is subject.
Note 10 Segment Reporting
The Company is managed along geographic lines. All references in these notes to
"Canada", "Australia", "United Kingdom" and "Corporate Headquarters" refer to
the Company's reportable segments, unless otherwise noted. The Company's United
Kingdom subsidiary was sold in the third quarter of fiscal year 1999.
Transactions between segments are not common and are not material to the segment
information. The table below summarizes net sales and operating revenues,
operating income and identifiable assets for the Company's segments.
Consolidated operating income is reconciled to the Company's income before
income taxes (in thousands):
Net Sales and Operating Revenues and
Operating Income by Segment:
Three months ended Six months ended
December 31 December 31
1999 1998 1999 1998
Net sales and operating
revenues
Canada $131,236 $102,585 $210,858 $168,507
Australia 37,931 32,078 66,312 54,575
United Kingdom(1) - 63,716 - 97,141
------------ ------------ ------------ ------------
$169,167 $198,379 $277,170 $320,223
============ ============ ============ ============
Operating Income
Canada $ 20,589 $ 16,109 $ 28,193 $ 22,410
Australia 3,514 3,324 4,806 4,328
United Kingdom(1) - 5,393 - 2,989
------------- ------------- ------------- ---------
24,103 24,826 32,999 29,727
General
corporate expenses 1,733 1,543 2,849 3,034
------------- ------------- ------------- ---------
Operating income 22,370 23,283 30,150 26,693
Foreign currency
transaction (gains) losses 114 (43) 165 (455)
Interest Income (328) (253) (813) (538)
Interest Expense 145 1,886 285 3,284
------------- ------------- ------------- ---------
$22,439 $ 21,693 $ 30,513 $ 24,402
============= ============= ============= =========
Identifiable Assets by Segment
December 31 June 30 December 31
1999 1999 1998
Canada $177,928 $136,703 $125,068
Australia 59,052 53,787 51,933
United
Kingdom(1) - - 79,554
Corporate 10,584 7,825 3,006
------------- ------------- -------------
$247,564 $198,315 $259,561
============= ============= =============
(1) The Company's United Kingdom subsidiary was sold during the third quarter of
fiscal year 1999.
12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 names "Tandy" and "Tandy Electronics"; 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. All of these trade names are used
under license from Tandy Corporation ("Tandy"). In addition, the Company has
entered into an agreement in Canada with Rogers Cantel Inc. ("Cantel") to
operate telecommunications stores on its behalf, currently trading under the
banner Rogers AT&T (the "Rogers AT&T stores"). At December 31, 1999, 50 Rogers
AT&T stores were in operation.
As indicated above, in January 1999, the Company sold its United Kingdom
subsidiary. The table below, reflects the results of the Company's operations
for the three and six-month periods ended December 31, 1999 compared with the
reported results of operations for the same period a year ago as well as those
same results of operations, adjusted to remove the results of the United Kingdom
subsidiary:
13
InterTAN, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - In thousands)
Three months ended Six months ended
December 31 December 31
1999 1998 1999 1998
As As As As
Reported Adjusted Reported Adjusted
---------------- ------------- ------------- -------------- --------------- ---------------
Net sales and operating $169,167 $198,379 $134,663 $277,170 $320,223 $223,082
revenues
Other income 54 50 34 149 129 98
---------------- --------------- ----------- -------------- --------------- ---------------
169,221 198,429 134,697 277,319 320,352 223,180
Operating costs and
expenses:
Cost of products sold 98,983 112,633 74,855 162,723 181,509 124,431
Selling, general and
administrative expenses 46,348 60,307 40,587 81,555 108,154 72,281
Depreciation and
amortization 1,520 1,830 1,365 2,891 3,620 2,764
Initial costs of
disposition of
United Kingdom subsidiary - 376 - - 376 -
---------------- ---------------- ---------- -------------- --------------- ---------------
146,851 175,146 116,807 247,169 293,659 199,476
---------------- ---------------- ---------- -------------- --------------- ---------------
Operating income 22,370 23,283 17,890 30,150 26,693 23,704
Foreign currency
transaction (gains)
losses 114 (43 (65) 165 (455) (446)
Interest income (328) (253 (184) (813) (538) (427)
Interest expense 145 1,886 1,170 285 3,284 2,246
---------------- ---------------- ---------- -------------- --------------- ---------------
Income before income taxes 22,439 21,693 16,969 30,513 24,402 22,331
Provision for income taxes 10,079 7,929 7,929 13,766 10,933 10,933
---------------- ---------------- ---------- -------------- --------------- ---------------
Net income $ 12,360 $ 13,764 $ 9,040 $ 16,747 $ 13,469 $ 11,398
================ ================ ========== ============== =============== ===============
Basic net income per
average common share $0.41 $0.72 $0.47 $0.56 $0.71 $0.60
Diluted net income per
average common share $0.39 $0.51 $0.34 $0.54 $0.53 $0.46
Foreign Exchange Effects
Profit and loss accounts, including sales, are translated from local currency
values to U.S. dollars at monthly average exchange rates. During the second
quarter of fiscal year 2000, the U.S. dollar was weaker against the Canadian and
Australian dollars relative to the comparable values during the second quarter
of the prior year. 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 Australia in the second quarter of fiscal year 2000 were the
same as those in the second quarter of the prior year, the current fiscal year
income statement would reflect an 3.3% increase in sales when reported in U.S.
dollars.
The following table outlines, for the three-month period ending December 31,
1999, the percentage change in the weighted average exchange rates of the
currencies of Canada and Australia as compared to the same three-month period in
the prior year:
14
___________________________________
Canada 4.8%
Australia 3.3%
___________________________________
Sales Outlets
The geographic distribution of the Company's sales outlets is summarized in the
following table:
Dec 31 Sept 30 June 30 Mar 31 Dec 31
1999 1999 1999 1999 1998
Canada
Company-operated 459 (1) 450 (1) 450 (1) 449 (1) 452 (1)
Dealer 343 338 330 332 332
- -------------------------------------------------------------------------------------------
802 788 780 781 784
- -------------------------------------------------------------------------------------------
Australia
Company-operated 222 222 222 225 222
Dealer 124 124 124 126 125
- -------------------------------------------------------------------------------------------
346 346 346 351 347
- -------------------------------------------------------------------------------------------
United Kingdom (2)
Company-operated - - - - 269
Dealer - - - - 108
- -------------------------------------------------------------------------------------------
- - - - 377
- -------------------------------------------------------------------------------------------
Total
Company-operated 681 672 672 674 943
Dealer 467 462 454 458 565
- -------------------------------------------------------------------------------------------
1,148 1,134 1,126 1,132 1,508
- -------------------------------------------------------------------------------------------
(1) At December 31, 1999, September 30, 1999, June 30, 1999, March 31, 1999 and
December 31, 1998 the Company operated 50, 45, 45, 45 and 46 stores,
respectively, on behalf of Rogers AT&T. Also at the same dates the company
operated 3, 1, 1, 7 and 7 store-in-store formats in certain locations of
the Hudson's Bay Company. Since all of these locations are not company-
owned, they are not included in the above table.
(2) The Company's subsidiary in the United Kingdom was sold during the third
quarter of fiscal year 1999.
15
Net Sales and Operating Revenues
While net sales and operating revenues ("sales") declined in U.S. dollars during
the second quarter of fiscal year 2000 by $29,212,000 over the same period a
year ago, this reduction was more than attributable to the sale of the Company's
former subsidiary in the United Kingdom. When the sales of that entity are
removed from the prior-year period, the combined sales of the Canadian and
Australian segments showed an increase of $34,504,000 or 25.6%. This sales
comparison was affected by foreign currency fluctuations. The increase,
measured at the same exchange rates, was 20.3%.
The table which follows shows, by geographic segment, the percentage changes in
net sales for the quarter and six months ended December 31, 1999, compared to
the corresponding period in the prior year. Changes are presented in both U.S.
dollars and local currencies to show the effects of exchange rate fluctuations.
The change in comparative - stores sales, measured at the same exchange rates,
is also shown:
Net Sales
---------
Percentage Increase (Decrease)
------------------------------
Three Months Ended Six Months Ended
December 31, 1999 December 31, 1999
Local Comparative Local Comparative
Currency US$ Store Currency US$ Store
--------- ------------ ----------- ------------ ------- -----------
Canada 22.1 % 27.9 % 17.5 % 20.7 % 25.1 % 17.3 %
Australia 14.5 % 18.2 % 11.2 % 15.3 % 21.5 % 11.8 %
------------------------------- ---------------------------
Combined 20.3 % 25.6 % 15.9 % 19.3 % 24.2 % 15.8 %
=============================== ===========================
Including United
Kingdom /1/ (16.5) % (14.7) % 15.9 % (15.1)% (13.4)% 15.8 %
=============================== ===========================
/1/ The Company's United Kingdom subsidiary was sold during the
third quarter of fiscal year 1999.
As has been the case for several quarters, consumers continue to demand products
displaying the latest in technological advances, and, in particular, digital
products. This consumer demand was reflected in the sales performance in both
of InterTAN's countries and was particularly evident in cellular, computers and
related accessories, and, in Canada, direct-to-home satellite.
Sales in Canada for the three-month period ending December 31, 1999 increased by
22.1% in local currency over the same quarter a year ago, with comparable-store
sales increasing by 17.5% during the same period. A strong performance by the
dealer division accounted for the majority of the difference in these two
results. The direct-to-home satellite market continues to provide significant
revenue growth opportunities in Canada, as the Company's stores have become a
destination of choice for those products. Better value for the consumer and
strong promotion by the carriers helped drive a sales gain of over 190% in this
important product category, with unit sales three times the level achieved in
the same quarter last year. Wireless/PCS was also a significant component of
the strong Canadian sales performance, with sales in that category increasing by
38% over the prior year quarter. Importantly, handset sales exceeded the level
necessary to earn a substantial volume rebate from the Company's cellular
16
partner, Rogers AT&T. The expansion of the Company's Panasonic Wall store-in-
store concept from 20 to 200 stores was completed during the quarter and was a
major factor in building sales in the audio/video and personal electronics
categories. The Company and Panasonic have recently announced that this concept
will be further expanded to an additional 200 stores for a total of 400 stores
during the latter part of fiscal year 2000 and early part of fiscal year 2001.
Double-digit sales gains were also achieved in Canada in telephones and
computers and related accessories.
Sales of computers and related accessories continue to be an important factor in
sales growth in Australia, with sales in that category increasing during the
three-month period ending December 31, 1999 by almost 50% over the same quarter
last year. Sales in the cellular category increased by 26% over the prior year
quarter, adding further momentum to overall sales growth during the second
fiscal quarter. The sales performance in this category benefited from strong
promotional activity in conjunction with the Company's wireless partner in
Australia, Cable and Wireless Optus, and from the phase out of the analog
system. Sales of prepaid models and related airtime models were particularly
strong. Going forward, management believes that new spectrum allocation of GSM
frequencies, a new CDMA network combined with the increased utilization of short
messaging services and rate plans will present opportunities for continued
growth in the cellular category. The audio/video category also performed well,
with a sales increase of almost 20% over the same quarter last year. This
product category benefited from the addition of new products to the range
including DVD, TV/VCR combos and an assortment of Kodak products. Management
also believes that there are further opportunities for future growth in
Australia, as many of the new initiatives, concepts and strategic alliances that
have been key factors in driving growth in Canada are only in their earliest
stages of roll out in Australia.
Gross Profit
Gross profit for the second quarter of fiscal year 2000 declined by $15,562,000
from the same quarter last year. This reduction was more than attributable to
the sale of the United Kingdom subsidiary, as the Canadian and Australian
segments combined to produce an increase in gross profit, measured in U.S.
dollars of $10,369,000, or 17.3%. Measured at the same exchange rates, gross
profit increased by 12.4%.
The following analysis summarizes the components of the change in gross profit
from the comparable prior year quarter (in thousands):
- -------------------------------------------------------------------------------
Higher sales in Canada and Australia $12,684
Lower gross margin percentage in Canada and Australia ( 4,941)
Foreign currency rate effects 2,632
- -------------------------------------------------------------------------------
10,375
Effect of sale of United Kingdom subsidiary (25,937)
- -------------------------------------------------------------------------------
Reduction in gross profit $(15,562)
- -------------------------------------------------------------------------------
17
The following table illustrates gross profit as a percentage of sales, by
segment area, for the three and six-month periods ended December 31, 1999 and
1998:
Three months ended Six months ended December 31
December 31
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------
Canada 41.2% 43.8% 40.9% 43.7%
Australia 42.7% 46.3% 42.5% 46.0%
- -----------------------------------------------------------------------------------------------------
Combined 41.5% 44.4% 41.3% 44.2%
United Kingdom 1 - 40.7% - 41.2%
- -----------------------------------------------------------------------------------------------------
Consolidated 41.5% 43.2% 41.3% 43.3%
=====================================================================================================
(1) The Company's United Kingdom subsidiary was sold during the third quarter of
fiscal year 1999.
There were a variety of factors that contributed to the reduction in the gross
margin percentages in Canada and Australia.
In Canada, the reduction was more than explained by a shift in the sales mix of
10 percentage points away from higher margin private label products towards
lower margin national brands. The significant sales gains in direct-to-home
satellite, wireless/PCS and computers continues to be a major factor in this
trend. Additionally, sales of certain seasonable items, including toys, fell
short of expectations. The effects of this product mix related margin reduction
in Canada were partially offset by an increase in the cellular volume rebate and
an increase in the level of residual income from direct-to-home satellite and
cellular.
A shift in the sales mix towards national brands was also a factor in the
reduction in the gross margin percentage in Australia. The fact that the two
largest sales gains came from cellular and computers was a significant component
contributing to a 3 percentage point swing in that mix. In additional, the
cellular margin declined during the quarter. Management believes that the last
analog subscribers to convert to digital were not heavy users and opted to
convert to low-cost prepaid models and purchased airtime cards, all at lower
than traditional margins. Clearance activity, reflecting an orderly transition
to the successful Canadian product mix, also contributed to the margin decline
in Australia.
Management expects many of these factors to continue and, therefore, expects
margins will continue to come under pressure, at least through the end of the
current fiscal year. This is particularly true in Australia. In Canada,
management expects this trend to mitigate. In addition, management believes
that "after activation compensation", including residuals and sales-based volume
rebates, will continue to be important contributors to help offset some of the
gross margin decline. Management anticipates that residuals will increase by
25% to 30% per annum for the next two to three fiscal years. While management
will continue to pursue opportunities for volume rebates from its cellular
partners and other strategic vendors, there can be no assurance that such
arrangements will continue or, if continued, that targeted sales levels will be
achieved.
Selling, General and Administrative Expenses
The following table provides a breakdown of selling, general and administrative
expense ("SG&A") by major category (in thousands):
18
Selling, General and Administrative Expenses
---------------------------------------------
(In thousands, except percents)
Three Months Ended Six Months Ended
December 31 December 31
1999 1998 1999 1998
---------------------------------------- -----------------------------------------
Amount Pct. Amount Pct. Amount Pct. Amount Pct.
---------------------------------------- -----------------------------------------
Advertising $ 6,936 4.1 $ 8,339 4.2 $ 11,247 4.1 $ 13,369 4.2
Rent 7,041 4.2 10,145 5.1 13,219 4.8 19,653 6.1
Payroll 20,557 12.2 25,934 13.1 36,178 13.1 46,017 14.4
Taxes
(other than
income taxes) 3,128 1.8 4,946 2.5 5,412 2.0 8,929 2.8
Telephone &
utilities 1,086 0.6 1,602 0.8 2,158 0.8 3,136 1.0
Other 7,600 4.5 9,341 4.7 13,341 4.6 17,050 5.3
----------------------------------------- -------------------------------------------
Total $ 46,348 27.4 $60,307 30.4 $ 81,555 29.4 $108,15433.8
========================================= ===========================================
The reduction in SG&A expense during second quarter of 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 $19,720,000. SG&A expense in Canada,
Australia and at Corporate Headquarters increased by $5,761,000. This
comparison is influenced by the effect of stronger currencies in both Canada and
Australia. Measured at the same exchange rates, SG&A expense in these three
segments increased by $4,071,000 or 10%. This compares to combined increases of
20.3% and 12.4% in sales and gross profit, respectively, all measured at the
same exchange rates.
The following is a breakdown of the same-exchange-rate increase in SG&A expense
in Canada, Australia and the Corporate Headquarters during the second quarter of
fiscal year 2000 over the same quarter in the prior year (in thousands):
Payroll $1,618
Advertising 601
Rent 740
Taxes (other than income taxes) 190
Telephone and utilities 69
Other 659
$ 3,877
Corporate expenses 194
------
$4,071
======
Payroll increased in both Canada and Australia in support of higher sales.
Advertising expense increased in both countries, as the Company enhanced its
promotional activities to generate greater revenues. The increase in gross
advertising spending was actually higher than indicated, as much of the increase
was funded by vendors. Rent increased in both Canada and Australia,
19
both as a consequence of new store openings/relocations and regular rent
reviews. Corporate expenses increased primarily as a result of a number of
special charges, including costs associated with the recently approved stock
option plan for non-employee directors, the renewal of the shareholder rights
plan and previously-announced performance-based restricted stock awards to
certain senior members of management.
The reduction in SG&A expense as a percentage of sales during both the three and
six-month periods ended December 31, 1999 was attributable both to the rate of
sales growth and, to a lesser extent, the sale of the Company's United Kingdom
subsidiary. The following table illustrates SG&A as a percentage of sales, by
geographic segment area:
Three months ended Six months ended
December 31 December 31
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------
Canada 24.6% 27.1% 26.5% 29.1%
Australia 32.6% 35.1% 34.4% 37.2%
- -----------------------------------------------------------------------------------------------------
Combined 27.4% 30.1% 29.4% 32.4%
United Kingdom (1) - 30.9% - 36.9%
- -----------------------------------------------------------------------------------------------------
Consolidated 27.4% 30.4% 29.4% 33.8%
=====================================================================================================
(1) The Company's United Kingdom subsidiary was sold during the third quarter of
fiscal year 1999.
Interest income and expense
Interest income increased during the three months ended December 31, 1999 by
$75,000 over the same quarter last year, reflecting the Company's stronger cash
position. During the same two periods, interest expense declined by $1,741,000.
Interest expense during the current quarter consisted entirely of amortization
of loan origination fees and standby charges, as the Company had no borrowings
during the quarter. This reduction in interest expense over the prior-year
quarter was attributable to the conversion of the Company's 9% subordinated
convertible debentures (the "Debentures") during the fourth quarter of fiscal
year 1999. The sale of the United Kingdom subsidiary was also a factor as it
continuously required cash infusions to fund its operations. For the same
reasons, management expects that reductions in interest expense will continue
over at least the next quarter.
Provision for Income Taxes
The provision for income taxes increased during the second quarter of fiscal
year 2000 by $2,150,000 over the same period a year ago, reflecting higher
profits in both the Canadian and Australian subsidiaries. The effective rate of
tax for the quarter was 44.9% compared with 36% for the same quarter last year.
This results from the fact that the profits of the former United Kingdom
subsidiary a year ago did not attract any income tax because of the loss
carryforward position of that company. When those profits are eliminated from
the prior period base, an effective rate of 46.7% is indicated. The reduction
from this level to the current year rate results from the elimination of
interest on the Debentures, for which no tax benefit was recognized.
20
Financial Condition
-------------------
Most balance sheet accounts are translated from their values in local currency
to U.S. dollars at the respective month end rates. The table below outlines the
percentage change, to December 31, 1999, in exchange rates as measured against
the U.S. dollar:
Foreign Exchange Rate Fluctuations
----------------------------------
% Increase % Increase (Decrease)
from December 31, 1998 from June 30, 1999
---------------------- ----------------------
Canada 6.0 2.0
Australia 7.1 (1.7)
Inventories
The reduction in inventories at December 31, 1999 from December 31, 1998 is more
than attributable to the sale of the United Kingdom subsidiary. During the same
period, measured at the same exchange rates, inventories in Canada and Australia
increased by approximately 8%, significantly less than the quarter-on-quarter
increases in sales and gross profit dollars. The increase in inventories from
June 30, 1999 to December 31, 1999 is in support of higher sales in both Canada
and Australia, including the effects of an expanded product assortment.
Accounts Receivable
The increase in accounts receivable at December 31, 1999 over December 31, 1998
is primarily attributable to increases in sales generally and, in particular,
sales of cellular, direct-to-home satellite and similar products involving
activation income and volume rebates from vendors. The effects of these
increases were partially offset by the impact of the sale of the United Kingdom
subsidiary. The increase from June 30, 1999 results from higher sales, the
granting of extended credit terms to dealers to finance purchases for the
Christmas selling season and the large volume of cellular and home satellite
sales over the holiday period.
Income Taxes Payable
The increase in income taxes payable from December 31, 1998 to December 31, 1999
results from increased profits in both the Canadian and Australian subsidiaries,
as well as a special provision recorded during the third quarter of fiscal year
1999 relating to the settlement of a dispute with the Canadian tax authorities
regarding the 1990 to 1993 taxation years. While the amount in dispute has been
agreed and a settlement agreement has been executed, the Company has not yet
been reassessed and, accordingly, this amount has not been paid. Management
estimates that payment relating to these issues, approximately $14,000,000 will
be made in the fourth quarter of fiscal year 2000.
The Company's remaining dispute with the Canadian tax authorities relates to the
1987 to 1989 taxation years. See Note 5 to the Company's Consolidated Financial
Statements, which is incorporated herein by reference. The Company believes it
has meritorious arguments in support of its position on the underlying issues
relating to this matter and, accordingly, no additional provision has been
recorded, pending the outcome of the appeal process. Depending on the ultimate
outcome of this matter, the Company could have an additional liability of $0 to
$12,000,000. It is not possible for management to make any reasonable
determination of when
21
any of these issues will ultimately be resolved. An audit of the Company's
Canadian subsidiary's income tax returns by Revenue Canada for the 1995 to 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") have been in process for some time.
The Company has recently 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 strongly disagrees with the IRS's position on these
issues and believes it has meritorious arguments in its defense and is in the
process of vigorously defending its position. Management believes that it has a
provision recorded sufficient to pay any liability resulting from the issues in
dispute; however, the amount ultimately paid could differ from management's
estimate.
Liquidity and Capital Resources
-------------------------------
Cash flows from operating activities during the six-month period ended December
31, 1999 generated $22,914,000 in cash, compared with $16,598,000 in cash during
the comparable period last year. This change was due in part to an increase in
net income, adjusted for non-cash items, during the first six months of fiscal
year 2000 of $2,929,000 compared to the first six months of fiscal year 1999.
The increase in cash flows from operating activities during the first six months
of fiscal year 2000 was also positively affected by changes in working capital
which increased cash flow by $3,387,000 over the comparable prior year period.
Cash flow from investing activities consumed $4,371,000 and $2,994,000 in cash
during the six months ended December 31, 1999, and 1998 respectively, primarily
as a result of routine additions to property and equipment.
During the six-month period ended December 31, 1999, cash flow from financing
activities in the form of proceeds from the issuance of stock to employee plans
and from the exercise of stock options, in the aggregate generated $2,252,000 in
cash. In the comparable prior-year period, financing activities generated
$3,428,000 in cash, primarily attributable to short-term borrowings to finance
the operations of the United Kingdom subsidiary and from the issuance of stock
to employee plans.
The Company's principal sources of liquidity during fiscal year 2000 will be its
cash and short-term investments, its cash flow from operations and its banking
facilities.
In November, 1999, the Company replaced is previous revolving credit facility
with a new facility with Bank of America Canada (the "Revolving Credit
Facility"). The Revolving Credit Facility is denominated in Canadian dollars in
an amount not to exceed C$67,000,000 (approximately $46,400,000 at December 31,
1999 rates of exchange). 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. 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
facility is the Canadian prime rate, London Inter Bank Offered Rate plus 1.5% or
Bankers Acceptance Rate plus 1.5%, as elected by the Company at the time of
borrowing. 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 Revolving Credit Facility is
collateralized by a first priority lien over all of the assets of
22
InterTAN Canada and is guaranteed by InterTAN, Inc. Borrowings under the
Revolving Credit Facility by InterTAN Canada Ltd. may be directed to InterTAN,
Inc. Subject to certain financial covenants, the payment of dividends and the
repurchase of common stock by the Company is permitted.
The Revolving Credit Facility is used primarily to provide letters of credit in
support of purchase orders and, from time to time, to finance inventory
purchases. At December 31, 1999, there were no borrowings against the Revolving
Credit Facility and $745,000 was committed in support of letters of credit.
There was $31,040,000 of credit available for use at December 31, 1999. The
Company's Merchandise Agreement with Tandy 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. Use of the
Bond gives the Company greater flexibility in placing orders with Far East
suppliers by releasing a portion of the credit available under the Revolving
Credit Facility for other purposes.
The Company's Australian subsidiaries, InterTAN Australia Ltd. and Technotron
Sales Corp. Pty, Ltd., 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 ($7,872,000 at December 31, 1999 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 ($3,280,000 at December 31, 1999 exchange rates)
may be used in support of short-term borrowings. At December 31, 1999, 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 the remainder of fiscal year 2000
will include the funding of capital expenditures, possible payments in
settlement of tax reassessments and the purchase of the Company's common stock
pursuant to the recently announced share repurchase program. The Company
anticipates that capital additions during the remainder of fiscal year 2000 will
approximate $9,000,000, mainly related to store expansion, remodeling and
upgrading. In addition, management expects to receive additional income tax
reassessments of approximately $14,000,000 during fiscal year 2000 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 other outstanding tax issues cannot be reasonably determine at this
time. In November, 1999, the Company announced a program to repurchase up to
1,500,000 shares of its common stock. The first purchase occurred during
February, 2000. Further purchase will likely occur during the remainder of
fiscal year 2000 as conditions warrant. It is not practical for management to
reasonably estimate the cash required to fund this program during the balance of
fiscal year 2000.
Management believes that the Company's cash and short-term investments on hand
and its cash flow from operations combined with the Revolving Credit Facility,
the Australian Facility and the Bond will provide the Company with sufficient
liquidity to meet its capital expenditure requirements, to fund any income tax
reassessments and to fund its share repurchase program.
23
Year 2000 Issues
----------------
The Company's critical systems include the following:
o Its store operating systems;
o Its so-called "back-end" merchandising and inventory systems, including
purchasing, receiving and warehousing, perpetual inventories and store
replenishment; and,
o Its primary accounting systems, including general ledger, accounts
receivable, accounts payable and payroll.
The Company employed a variety of internal and external resources to assess and
make changes necessitated by Year 2000 issues to its many different systems and
equipment. Many of these changes were contemplated in any event as upgrades or
replacement of outdated systems and hardware.
Necessary modifications and testing was competed to all critical systems in both
Canada and Australia prior to the year 2000. Contingency plans are in place to
address the possible failure of critical systems as well as many other systems
which, although not critical, nevertheless play an important role in the
Company's day to day business. In developing these plans, an attempt was made
to balance potential risk against contingent remedial cost. 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 stores, warehouse and central units have been
fully operational.
The Company has reviewed its obligations, if any, arising from the sale of
warranted product which may prove not to be Year 2000 compliant in one or more
aspects. While it is not possible at this time to reasonably estimate the range
of loss, if any, which could arise from such obligation, management does not
believe that issues involving non-compliant warranted product will be material.
Such issues, if any, will be dealt with on an individual basis.
The Company's current projection is that Year 2000 compliance costs will not
exceed $1,500,000.
In management's opinion, the Company took adequate action to address Year 2000
issues and does not expect the financial impact of the Year 2000 issue to be
material to the Company's consolidated financial position, results of operations
or cash flows.
24
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The various matters discussed in Notes 6 and 9 to the Company's
Consolidated Financial Statements on page 10 and 11 of this Form 10-Q
are incorporated herein by reference.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on November 9,
1999, the following persons were re-elected to the Board of Directors:
Clark A. Johnson
James T. Nichols
In such connection, Messrs. Johnson, and Nichols received 14,889,555,
14,888,713 votes, respectively, "For" election and 677,873 and 678,715
votes, respectively, were withheld.
In addition, stockholders voted on a proposal to approve a
recommendation that the Company enter into a Non-Employee Director Non-
Qualified Stock Option Agreement with each non-employee director. Such
proposal was approved with 14,212,994 votes cast in favor, 1,276,727
votes cast against and 77,707 votes abstaining.
In total, 15,567,428 shares were authorized to vote on both issues.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) 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).
25
3(b) Bylaws (Filed on 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, NA (filed as Exhibit 4 to the company's
Form 8-A filed on September 17, 1999 and incorporated
herein by reference)
*10(a) Amended & 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.
*10(b) Amended and Restated License Agreement between Tandy
Corporation and InterTAN Canada Ltd. dated as
of January 25, 1999.
*10(c) Amended and Restated License Agreement between Tandy
Corporation and InterTAN Australia Ltd.
dated as of January 25, 1999.
26
*10(d) Form of Agreement that evidences the InterTAN,
Inc. Plan for 1999 Non-Employee Director
Non-Qualified Stock Options.
*10(e) Fourth Amendment to Loan Agreement between InterTAN
Canada Ltd., Bank of America Canada,
Bankboston Retail Finance Inc. and Congress Financial
Corporation dated as of July 31, 1999.
*10(f) 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.
*10(g) Assignment and Assumption Agreement between Bank of America
Canada, Bankboston Retail Finance Inc.
and InterTAN Canada Ltd. dated October 28, 1999.
*10(h) Assignment and Assumption Agreement between Bank of America
Canada, Congress Financial Corporation
and InterTAN Canada Ltd. dated October 28, 1999.
*27 Article 5, Financial Data Schedule.
- ------------------------------
* Filed herewith
b) Reports on Form 8-K:
A report on Form 8-K was filed on December 6, 1999 to report that on
November 29, 1999 the Board of Directors authorized a three for two split
of the Company's common stock and a share repurchase plan under which up
to 1,500,000 shares of the Company's common stock (after the three for
two split) could be repurchased.
27
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.
InterTAN, Inc.
(Registrant)
Date: February 11, 2000 By: /s/ James G. Gingerich
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James G. Gingerich
Executive Vice-President and
Chief Financial Officer
(Authorized Officer)
By: /s/ Douglas C. Saunders
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Douglas C. Saunders
Vice President and Corporate Controller
(Principal Accounting Officer)
28
Index to Exhibits
InterTAN, Inc. Form 10-Q
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 on 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, NA (filed as
Exhibit 4 to the company's Form 8-A filed on September 17, 1999 and
incorporated herein by reference)
*10(a) Amended & 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.
*10(b) Amended and Restated License Agreement between Tandy Corporation
and InterTAN Canada Ltd. dated as of January 25, 1999.
*10(c) Amended and Restated License Agreement between Tandy Corporation
and InterTAN Australia Ltd. dated as of January 25, 1999.
*10(d) Form of Agreement that evidences the InterTAN, Inc. Plan for 1999 Non-
Employee Director Non-Qualified Stock Options.
*10(e) Fourth Amendment to Loan Agreement between InterTAN Canada Ltd.,
Bank of America Canada, Bankboston Retail Finance Inc. and Congress
Financial Corporation dated as of July 31, 1999.
*10(f) 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.
*10(g) Assignment and Assumption Agreement between Bank of America
Canada, Bankboston Retail Finance Inc. and InterTAN Canada Ltd. dated
October 28, 1999.
*10(h) Assignment and Assumption Agreement between Bank of America
Canada, Congress Financial Corporation and InterTAN Canada Ltd. dated
October 28, 1999.
*27 Article 5, Financial Data Schedule.
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* Filed herewith