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SECURITIES AND EXCHANGE COMMISSION
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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 March 31, 2001 or
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to __________
Commission file number 1-10062
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InterTAN, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 75-2130875
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3300 Highway #7,Suite 904
Concord, Ontario Canada L4K 4M3
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (905) 760-9701
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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 April 30, 2001, 28,002,049 shares of the registrant's common stock, par value
$1.00 per share, were outstanding.
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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 21
ITEM 4 - Submission of Matters to a Vote of Security Holders 22
ITEM 6 - Exhibits and Reports on Form 8-K 22
OTHER
Signatures 24
2
INTRODUCTORY NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain information disclosed in this Form 10Q are forward-looking statements
including, among others, statements regarding:
. estimates of the net proceeds, net gain and income taxes payable
arising from the sale of InterTAN Australia;
. management's assessment of the outcome of its various outstanding
issues with the Canadian and United States tax authorities;
. estimates of exposure to remaining leases in the United Kingdom;
. the Company's ability to continue to grow its wireless, personal
computer, home satellite and parts and accessories business;
. the Company's ability to leverage on increases in gross profit
dollars;
. the benefits of the Company's micro-assortment program;
. the ability to sustain growth in after-the-sale revenue;
. the adequacy of the company's liquidity; and
. estimates of future effective tax rates
Important factors that could cause actual results to differ materially from
those in the forward looking statement include, but are not limited to,
international economic conditions, interest and foreign exchange rate
fluctuations, various tax issues, including possible reassessments, changes in
product demand, the Company's ability to develop and maintain relationships with
strategic vendors, competitive products and pricing, availability of products,
inventory risks due to shifts in market conditions, dependence on manufacturers'
product development, the regulatory and trade environment, real estate market
fluctuations, and other risks indicated in previous filings with the Securities
and Exchange Commission, such as InterTAN's previously filed periodic reports,
including its Form 10-K for the 2000 fiscal year.
3
ITEM 1 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements Of Operations
InterTAN, Inc.
- -----------------------------------------------------------------------------------------------------------------------
(U.S. Dollars in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
March 31 March 31
----------------------------------- -----------------------------------
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Net sales and operating revenues $103,526 $104,604 $387,527 $381,777
Other income 18 69 109 218
--------------- --------------- --------------- ---------------
103,544 104,673 387,636 381,995
--------------- --------------- --------------- ---------------
Operating costs and expenses:
Cost of products sold 60,646 59,817 232,747 222,542
Selling, general and administrative
expenses 34,848 37,297 115,763 118,853
Depreciation and amortization 1,661 1,552 4,882 4,443
--------------- --------------- --------------- ---------------
97,155 98,666 353,392 345,838
--------------- --------------- --------------- ---------------
Operating income 6,389 6,007 34,244 36,157
Foreign currency transaction losses (16) (127) (268) (291)
Interest income 288 862 917 1,674
Interest expense (80) (129) (731) (414)
--------------- --------------- --------------- ---------------
Income before income taxes 6,581 6,613 34,162 37,126
Provision for income taxes 3,176 2,985 15,268 16,750
--------------- --------------- --------------- ---------------
Net income $ 3,405 $ 3,628 $ 18,894 $ 20,376
=============== =============== =============== ===============
Basic net income per
average common share $ 0.12 $ 0.12 $ 0.68 $ 0.68
Diluted net income per
average common share $ 0.12 $ 0.12 $ 0.66 $ 0.66
Average common shares outstanding 27,939 29,737 27,905 29,898
Average common shares outstanding
assuming dilution 28,559 30,647 28,637 30,728
The accompanying notes are an integral part of these consolidated financial
statements.
4
Consolidated Balance Sheets
InterTAN, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
(U.S. dollars in thousands, except share data)
(Unaudited)
March 31 June 30 March 31
2001 2000 2000
------------------ --------------- -------------------
Assets
Current Assets:
Cash and short-term investments $ 38,662 $ 44,750 $ 49,450
Accounts receivable, less allowance for doubtful
Accounts 14,883 12,803 12,570
Inventories 105,894 121,894 115,343
Other current assets 1,229 1,235 1,912
Deferred income taxes 2,135 2,295 1,215
-------------- ------------- --------------
Total current assets 162,803 182,977 180,490
Property and equipment, less accumulated
depreciation and amortization 24,393 22,587 21,925
Other assets 24 29 259
Deferred income taxes 2,331 2,483 3,988
-------------- ------------- --------------
Total Assets $ 189,551 $ 208,076 $ 206,662
============== ============= ==============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 19,951 $ 26,174 $ 21,912
Accrued expenses 14,736 16,821 17,484
Income taxes payable 24,592 30,137 32,326
Deferred service contract revenue - current portion 6,060 5,383 5,347
-------------- ------------- --------------
Total current liabilities 65,339 78,515 77,069
Deferred service contract revenue - non-current portion 5,193 4,735 4,772
Other liabilities 5,038 6,050 6,380
-------------- ------------- --------------
75,570 89,300 88,221
-------------- ------------- --------------
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, 31,078,496, 30,498,135 and
30,408,449 issued 31,078 30,498 30,408
Common stock in treasury, at cost, 3,102,178
1,789,815 and 1,504,611 shares (35,403) (18,700) (15,468)
Additional paid-in capital 149,771 146,214 145,138
Retained earnings (deficit) 9,119 (9,775) (14,519)
Accumulated other comprehensive loss (40,584) (29,461) (27,118)
-------------- ------------- --------------
Total stockholders' equity 113,981 118,776 118,441
-------------- ------------- --------------
Commitments and contingent liabilities
(see Notes 3, 7 and 8)
Total Liabilities and Stockholders' Equity $ 189,551 $ 208,076 $ 206,662
============== ============= ==============
The accompanying notes are an integral part of these consolidated financial
statements.
5
Consolidated Statements of Cash Flows
InterTAN, Inc.
- -------------------------------------------------------------------------------------------------------------------------
(U.S. dollars in thousands)
(Unaudited) Nine months ended
December 31
-----------------------------------
2001 2000
-------------- ---------------
Cash flows from operating activities:
Net income $ 18,894 $ 20,376
Adjustments to reconcile net income to
cash used in operating activities:
Depreciation and amortization 4,882 4,443
Stock based compensation 950 1,460
Other 2 149
Cash provided by (used in) current assets and liabilities:
Accounts receivable (3,454) (1,693)
Inventories 4,951 (5,526)
Other current assets (147) 225
Accounts payable (4,033) 6,361
Accrued expenses 224 438
Deferred service contract revenue 1,135 1,623
Income taxes payable (3,789) (7,311)
----------- -----------
Net cash provided by operating activities 19,615 20,545
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (9,799) (6,798)
Proceeds from sales of property and equipment 384 114
Other investing activities 110 321
----------- -----------
Net cash used in investing activities (9,305) (6,363)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock to
employee plans 1,448 1,437
Proceeds from exercise of stock options 410 1,776
Purchase of treasury stock (15,373) (15,468)
Cash paid for fractional shares - (45)
----------- -----------
Net cash used in financing activities (13,515) (12,300)
----------- -----------
Effect of exchange rate changes on cash (2,883) 165
----------- -----------
Net increase (decrease) in cash and short-term investments (6,088) 2,047
Cash and short-term investments, beginning of period 44,750 47,403
----------- -----------
Cash and short-term investments, end of period $ 38,662 $ 49,450
=========== ===========
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, 2000,
and, in the opinion of the Company, include all adjustments necessary for a fair
presentation of the Company's financial position as of March 31, 2001 and 2000
and the results of its operations for the three and nine months ended March 31,
2001 and 2000 and its cash flows for the nine months ended March 31, 2001 and
2000. Such adjustments are of a normal and recurring nature. Operating results
for the three and nine months ended March 31, 2000 are not necessarily
indicative of the results that can be expected for the fiscal year ending June
30, 2001. 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, 2000.
Note 2 New Accounting Standards
Effective July 1, 2000, the Company adopted Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
This new accounting standard requires that derivative instruments be measured at
fair value and recognized in the balance sheet as either assets or liabilities,
as the case may be. The treatment of changes in the fair value of a derivative
(i.e., gains and losses) will depend on its intended use and designation. Gains
and losses on derivatives designated as hedges against the cash flow effect of a
forecasted transaction will initially be reported as a component of
comprehensive income and, subsequently, reclassified into earnings when the
forecasted transaction affects earnings. Gains and losses on derivatives
designated as hedges against the foreign exchange exposure of a net investment
in a foreign operation will form part of the cumulative translation adjustment.
Gains and losses on all other forms of derivatives will be recognized in
earnings in the period of change. Upon adoption, FAS 133 did not have a
material effect on the Company's financial statements.
In December, 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance in the recognition, presentation and
disclosure of revenue in financial statements. The Company is required to adopt
SAB 101 in the fourth quarter of fiscal year 2001. The adoption of SAB 101is
not expected to have a material affect on the Company's consolidated financial
statements.
Note 3 Sale of InterTAN Australia Ltd.
On April 30, 2001, the Company sold its operating Australian subsidiary,
InterTAN Australia Ltd., to Woolworths Limited, one of Australia's largest
retailers. Subject to adjustment, the proceeds, before selling costs, were
A$114,000,000 (approximately $55,000,000). The selling price will be adjusted,
based on the results of an audit of the balance sheet of InterTAN Australia Ltd.
as at April 30, 2001 (the "Completion Accounts"). The price will be adjusted
upwards or downwards depending on the relationship between the net assets as at
April 30, 2001 and December 31, 2000. Based on results through March 31 and
preliminary results for the month of April, management estimates that the price
will be adjusted downwards by approximately $500,000 to $1,000,000. In addition
to legal, accounting and other expenses, selling costs will include investment
banking fees of $1,000,000 and a fee to RadioShack Corporation of $6,000,000 to
induce that company to enter into new license and merchandise agreements with
InterTAN Australia Ltd. contemporaneously with closing.
Under the terms of the sale agreement, the Company has indemnified the purchaser
against any inaccuracies in the Completion Accounts. Claims made on any matter,
including taxes, during the first nine months following closing may not exceed
A$8,000,000 (approximately $4,000,000). Layered on top of this indemnity is a
second two-year indemnity covering tax matters only. This second indemnity has
a limit of A$4,000,000 (approximately $2,000,000). While management believes
that adequate provision will be made in the Completion Accounts for necessary
accruals, reserves and allowances, such balances are based on estimates and the
actual results could differ from those estimates, subjecting the Company to the
indemnification provisions. In addition, the Company has indemnified the
purchaser against termination costs with respect to certain employees and from
certain potential
7
claims arising from the introduction of the Goods and Services Tax in Australia.
The maximum exposure with respect to these matters is approximately A$300,000
(approximately $150,000).
Subject to the price adjustments and indemnities described above, management
estimates that the gain on the sale of InterTAN Australia Ltd., before income
taxes, will be approximately $2,000,000 to $4,000,000 and will be recorded in
the fourth quarter. Management estimates that United States federal tax on the
sale will be approximately $300,000 to $800,000. Management believes there are
authoritative arguments in support of the position that this transaction is
exempt from Australian tax by virtue of the tax treaty between the United States
and Australia, and, accordingly, no Australian tax will be recorded with respect
to the sale. However, there can be no assurance that the Australian tax
authorities will not challenge this position. If Australian tax were to apply
to the gain on sale, the Company would have an additional liability of
approximately $6,000,000 to $8,000,000.
Note 4 Treasury Stock Repurchase Program
During fiscal year 2000, the Company's Board of Directors announced two separate
share repurchase programs under which management was authorized to purchase up
to a combined aggregate of 3,000,000 of the Company's common stock. By June 30,
2000, 1,785,200 shares had been acquired under this program at an aggregate cost
of $18,633,000. During the first quarter of fiscal year 2001, the remaining
1,214,800 shares were acquired at an aggregate cost of $15,529,000. Under the
two programs combined, a total of 3,000,000 shares have been acquired at an
aggregate cost of $34,162,000. The Company also acquired certain other
treasury stock in connection with the exercise of stock options by employees.
8
Note 5 Net Income per average Common Share
Basic earnings per share ("EPS") is calculated by dividing the net income 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:
(U.S. dollars in Three months ended
thousands, except for
per share data)
March 31, 2001 March 31, 2000
Income Shares Per Share Income Shares Per
(Numerator) (Denominator) Amount (Numerator) (Denominator) Share Amount
----------- ------------- ------ ----------- ------------- ------------
Net income $3,405 $3,628
====== ======
Basic EPS
Income available to
common stockholders $3,405 27,939 $0.12 $3,628 29,737 $0.12
===== =====
Effect of Dilutive
Securities
Stock options - 620 - 910
------ ----- ------ -----
Diluted EPS
Income available to
common stockholders
including assumed
conversions $3,405 28,559 $0.12 $3,628 30,647 $0.12
====== ====== ===== ====== ====== =====
(U.S. dollars in Nine months ended
thousands, except for
per share data)
March 31, 2001 March 31, 2000
Income Shares Per Share Income Shares Per
(Numerator) (Denominator) Amount (Numerator) (Denominator) Share Amount
----------- ------------- ------ ----------- ------------- ------------
Net income $18,894 $20,376
======= =======
Basic EPS
Income available to
common stockholders $18,894 27,905 $0.68 $20,376 29,898 $0.68
===== =====
Effect of Dilutive
Securities
Stock options - 732 - 830
------ ----- ------- ------
Diluted EPS
Income available to
common stockholders
including assumed
conversions $18,894 28,637 $0.66 $20,376 30,728 $0.66
======= ====== ===== ======= ====== =====
At March 31, 2001, the Company's directors and employees held options to
purchase 1,635,500 shares of the Company's common stock at prices ranging from
$2.48 to $14.75. The dilutive effect of these options in future periods will
depend on the average price of the Company's common stock during such periods.
9
Note 6 Comprehensive Income (loss)
Comprehensive income (loss) 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 (loss) and the net change in foreign currency translation
effects. The comprehensive income (loss) for the three months ended March 31,
2001 and 2000 was $(4,890,000) and $589,000, respectively. For the nine months
ended March 31, 2001 and 2000, the comprehensive income was $7,771,000 and
$18,512,000, respectively.
Note 7 Income Taxes
The provisions for domestic and foreign income taxes for the three-month periods
ended March 31, 2001 and 2000 were $3,176,000 and $2,985,000, respectively. For
the nine-month period ended March 31, 2001, an income tax provision of
$15,268,000 was recorded, compared with $16,750,000 in the first nine 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. The reduction in the provisions during both periods of the current
year reflects the effects of higher profits in Canada, which were more than
offset by the effects of lower profits in Australia, reductions in the tax rates
in both jurisdictions and foreign currency effects.
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.
Following audits of the Company's United States income tax returns for the 1990-
1994 years by the Internal Revenue Service (the "IRS"), the Company was advised
that the IRS alleges that the Company owes additional taxes in respect of those
years. The issues involved relate primarily to the Company's former operations
in continental Europe and the United Kingdom. The Company disagrees with the
IRS's position on these issues and believes it has meritorious arguments in its
defense. The Company has filed a protest rebutting the assertions made by the
IRS and is in the process of vigorously defending its position. Management
believes that it has a provision recorded sufficient to pay the estimated
liability resulting from the issues in dispute; however, the amount ultimately
paid could differ from management's estimate.
Note 8 Commitments and Contingencies
In connection with the sale of its United Kingdom subsidiary during fiscal year
1999, the Company remains contingently liable as guarantor of certain leases of
InterTAN U.K. Limited. At March 31, 2001 the remaining lease obligation assumed
by the purchaser and guaranteed by the Company was approximately $20,000,000 and
the average remaining life of such leases was approximately 6 years. If the
purchaser were to default on the lease obligations, management believes the
Company could reduce the exposure through assignment, subletting and other
means. The Company has obtained an indemnity from the purchaser for an amount
equal to management's best estimate of the Company's potential exposure under
these guarantees. At March 31, 2001, the amount of this indemnity was
approximately $7,000,000. The amount of this indemnity declines over time as
the Company's risk diminishes. Apart from this matter and the issues discussed
in Notes 3 and 7, 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.
10
Note 9 Segment Reporting
The Company is managed along geographic lines. All references in these notes to
"Canada", "Australia", and "Corporate Headquarters" refer to the Company's
reportable segments, unless otherwise noted. 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 (loss) and
identifiable assets for the Company's segments. Consolidated operating income is
reconciled to the Company's income before income tax:
Net Sales and Operating Revenues and
Operating Income by Segment:
Three months ended Nine months ended
(U.S. dollars in thousands) March 31 March 31
-------- --------
2001 2000 2001 2000
---- ---- ---- ----
Net sales and operating
revenues
Canada $ 81,154 $ 77,358 $306,959 $288,219
Australia 22,372 27,246 80,568 93,558
----------- ------------- ------------- -------------
$103,526 $104,604 $387,527 $381,777
=========== ============= ============= =============
Operating income (loss)
Canada $ 7,832 $ 5,962 $ 36,200 $ 34,156
Australia (339) 1,282 1,569 6,088
----------- ------------- ------------- -------------
7,493 7,244 37,769 40,244
Corporate
Headquarters' expenses (1,104) (1,237) (3,525) (4,087)
----------- ------------- ------------- ------------
Operating income 6,389 6,007 34,244 36,157
Foreign currency
transaction losses (16) (127) (268) (291)
Interest income 288 862 917 1,674
Interest expense (80) (129) (731) (414)
----------- ------------- ------------- -------------
Net income before income $ 6,581 $ 6,613 $ 34,162 $ 37,126
taxes =========== ============= ============= ============
Identifiable Assets by Segment
March 31 June 30 March 31
2001 2000 2000
---- ---- ----
Canada $147,521 $155,071 $155,013
Australia 37,639 50,245 49,571
Corporate 4,391 2,760 2,078
Headquarters ------------ ------------ ------------
$189,551 $208,076 $206,662
============ ============ ============
Note 10 Merchandise and License Agreements with RadioShack Corporation
The Company and RadioShack Corporation have entered into a Merchandise Agreement
and a series of license agreements (the "License Agreements"). These agreements
permit InterTAN to use, in designated countries, the "Tandy" and "RadioShack"
trade names until June 30, 2010. The License Agreements may be terminated with
five years' prior written notice by either party. In the event of a change in
control of InterTAN, Inc. or any of its subsidiaries occurs, RadioShack U.S.A.
may revoke the Merchandise Agreement and the License Agreements.
In April, 2001, the Company and Radio Corporation entered into an additional
agreement with RadioShack Corporation (the "Amending Agreement"). Under the
terms of the Amending Agreement, RadioShack Corporation agrees to enter into new
license and merchandise agreements with InterTAN Australia Ltd. following the
sale of that company in consideration of a payment by the Company of $6,000,000.
See Note 3. The Amending Agreement also provides that in the event the Company
subsequently consummates a transaction with a
11
third party that results in the occurrence of an event of default under the
License Agreement and such third party does not desire to use the "RadioShack"
trade name, trade or service marks in Canada, the Company shall pay the sum of
$22,500,000 to RadioShack Corporation. In consideration therefor, RadioShack
agrees that it will terminate the existing License and Merchandise Agreements as
a result of such event of default only at the request of such third party.
RadioShack Corporation further agrees that it will cooperate with the Company
and such third party in effecting a transition by allowing a reasonable
transition period for changing store signage and point-of-sale materials and the
sell-through of existing inventory and merchandise on order.
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 Canada Ltd., which operates in Canada under the
trade name "RadioShack" and InterTAN Australia Ltd., which operates in Australia
under the trade name "Tandy" (see section entitled "Sale of InterTAN Australia"
immediately below). These trade names are used under license from RadioShack
Corporation ("RadioShack U.S.A."). In addition, the Company has entered into an
agreement in Canada with Rogers Cantel Inc. ("Cantel") to operate
telecommunications stores ("Rogers AT&T stores") on its behalf. At March 31,
2001, 53 Rogers AT&T stores were in operation.
Sale of InterTAN Australia
On April 30, 2001, the Company sold its operating Australian subsidiary,
InterTAN Australia Ltd., to an affiliate of Woolworths Limited, one of
Australia's largest retailers. Subject to adjustment, the proceeds, before
selling costs, were A$114,000,000 (approximately $55,000,000). The selling
price will be adjusted, based on the results of an audit of the balance sheet of
InterTAN Australia Ltd. as at April 30, 2001 (the "Completion Accounts"). The
price will be adjusted upwards or downwards depending on the relationship
between the net assets as at April 30, 2001 and December 31, 2000. Based on
results through March 31 and preliminary results for the month of April,
management estimates that the price will be adjusted downwards by approximately
$500,000 to $1,500,000. In addition to legal, accounting and other expenses,
selling costs will include investment banking fees of $1,000,000 and a fee to
RadioShack Corporation of $6,000,000 to induce that company to enter into new
license and merchandise agreements with InterTAN Australia Ltd.
contemporaneously with closing.
Under the terms of the sale agreement, the Company has indemnified the purchaser
against any inaccuracies in the Completion Accounts. Claims made on any matter,
including taxes, during the first nine months following closing may not exceed
A$8,000,000 (approximately $4,000,000). Layered on top of this indemnity is a
second two-year indemnity covering tax matters only. This second indemnity has
a limit of A$4,000,000 (approximately $2,000,000). While management believes
that adequate provision will be made in the Completion Accounts for necessary
accruals, reserves and allowances, such balances are based on estimates and the
actual results could differ from those estimates, subjecting the Company to the
indemnification provisions. In addition, the Company has indemnified the
purchaser against termination costs with respect to certain employees and from
certain potential claims arising from the introduction of the Goods and Services
Tax in Australia. The maximum exposure with respect to these matters is
approximately A$300,000 (approximately $150,000).
Subject to the price adjustments and indemnities described above, management
estimates that the gain on the sale of InterTAN Australia Ltd., before income
taxes, will be approximately $2,000,000 to $4,000,000 and will be recorded in
the fourth quarter. Management estimates that United States federal tax on the
sale will be approximately $300,000 to $800,000. Management believes there are
authoritative arguments in support of the position that this transaction is
exempt from Australian tax by virtue of the tax treaty between the United States
and Australia, and, accordingly, no Australian tax will be recorded with respect
to the sale. However, there can be no assurance that the Australian tax
authorities will not challenge this position. If Australian tax were to apply
to the gain on sale, the Company would have an additional liability of
approximately $6,000,000 to $8,000,000.
A summary of the results of the Company's ongoing business, excluding the
Australian segment, for the three and nine months ended March 31, 2001 is set
out below:
13
(U.S. dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
------------------------ ------------------------
March 31 March 31
2001 2000 2001 2000
------- ------- -------- --------
Net sales and operating revenues $81,154 $77,358 $306,958 $288,219
======= ======= ======== ========
Operating income $ 6,727 $ 4,726 $ 32,676 $ 30,070
======= ======= ======== ========
Net income $ 3,633 $ 2,671 $ 17,854 $ 16,121
======= ======= ======== ========
Diluted net income per share $ 0.13 $ 0.09 $ 0.62 $ 0.52
Goods and Services Tax - Australia
Effective July 1, 2000, Australia moved from a wholesale-based sales tax system
to a goods and services tax or GST - a system much like a European value added
tax.
Under the former wholesale-based system, the tax was included in the retailer's
cost. The rates ranged from 0% to 22%, depending on the class of goods. The
retailer recovered this tax by factoring it into the selling prices. It is
important to note that the wholesale tax was a tax on the retailer not the
consumer. However, the consumer ultimately paid through a higher retail price.
This wholesale-based tax was replaced by the GST effective July 1, 2000. Under
the GST, instead of the retailer paying a tax on cost, the consumer will now pay
a tax at the point of sale on the selling price of the goods. The rate is 10%
and, with one or two exceptions, will apply to all goods and services. For the
retailer, this means a reduction in cost of goods sold, since it no longer pays
the sales tax. However, it will also mean lower revenues, as the government has
mandated that this tax saving must be passed on to the consumer - i.e., the
retailer cannot increase gross profit dollars as a result of the change.
Management estimates that had the GST been in place during the third quarter of
fiscal year 2000, its sales and cost of products sold would have been $2,076,000
lower than the amounts actually reported. Although gross profit dollars would
have remained the same, the sales comparison with the prior year, the gross
margin percentage, the selling, general and administrative percentage and the
operating margin percentage would all have been affected. Management has
adjusted the actual percentages used for comparative purposes for the third
quarter of fiscal year 2000 to what they would have been had there been no
wholesale tax last year. These adjusted amounts will be used in making
comparisons with the current fiscal quarter results, as management believes this
to be the most meaningful basis of comparison.
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 third
quarter of fiscal year 2001, the U.S. dollar was stronger against both the
Canadian dollar and the Australian dollar, relative to the comparable values
during the third quarter of the prior year. As a result, the same local
currency amounts translate into fewer U.S. dollar amounts as compared with the
prior year.
The following table outlines, for the three-month and nine- months periods ended
March 31, 2001, the percentage change in the weighted average exchange rates of
the currencies of Canada and Australia as compared to the same three and nine-
month periods in the prior year:
14
Three Months Ended Nine Months Ended
March 31, 2001 March 31, 2001
-------------------------------------------------------------------------
Canada (4.9)% (2.8)%
Australia (15.9)% (14.9)%
-------------------------------------------------------------------------
For example, if local currency sales in Canada and Australia in the third
quarter of fiscal year 2001 were the same as those in the third quarter of the
prior year, the fiscal year 2001 income statement would reflect a decrease in
sales, when reported in U.S. dollars of 4.9% and 15.9 %, respectively.
Sales Outlets
The geographic distribution of the Company's sales outlets is summarized in the
following table:
March 31 Dec 31 Sept 30 June 30 March 31
2001 2000 2000 2000 2000
Canada
Company-operated 470 /(1)/ 469 /(1)/ 460 /(1)/ 463 /(1)/ 457 /(1)/
Dealer 360 362 360 350 346
- -------------------------------------------------------------------------------------------------------
830 831 820 813 803
=======================================================================================================
Australia
Company-operated 223 223 223 220 221
Dealer 105 105 106 110 111
- -------------------------------------------------------------------------------------------------------
328 328 329 330 332
=======================================================================================================
Total
Company-operated 693 692 683 683 681
Dealer 465 467 466 460 457
- -------------------------------------------------------------------------------------------------------
1,158 1,159 1,149 1,143 1,138
=======================================================================================================
/(1)/ At March 31, 2001, December 31, 2000, September 30, 2000, June 30, 2000
and March 31 2000, the Company operated 53, 52, 50, 51 and 51 stores, on behalf
of Rogers AT&T. Since all of these locations are not company-owned, they are not
included in the above table.
Net Sales and Operating Revenues
In U.S. dollars, sales for the fiscal year 2001 third quarter were $103,526,000.
Measured in local currencies, after last year's sales are adjusted to eliminate
the effects of the former wholesale tax in Australia, this represents an
increase of 9.3% over the prior year. Computed on the same basis, comparable-
store sales increased by 10.1%. The gain measured in U.S. dollars was adversely
affected by weaker currencies in both Canada and Australia. See "Foreign
Exchange Effects".
The table which follows shows, by geographic segment, the percentage changes in
net sales for the quarter ended March 31, 2001, 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. Last year's sales
in Australia have been adjusted to eliminate the effects of the former wholesale
sales tax. The change in comparative - stores sales, measured at the same
exchange rates, is also shown:
15
- -
Three months ended Nine months ended
March 31, 2001 March 31, 2000
Local U.S. Comparative Local U.S. Comparative
Currency Dollars Store Currency Dollars Store
--------------------------------- ----------------------------------------
Canada 10.3% 4.9% 10.7% 9.6% 6.5% 8.3%
Australia 5.7% (11.1)% 8.3% 9.8% (6.5)% 11.0%
---------------------------- -------------------------------------
Consolidated 9.3% 1.0% 10.1% 9.7% 3.5% 8.9%
============================ =====================================
In Canada, sales of home-office hardware and accessory lines contributed double-
digit growth. Some of this growth was the result of promotional activity to
transition out of certain lines as the company readied itself for the arrival of
significantly faster and more compelling models. Management believes that a
variety of factors, including the recently announced reductions in the pricing
of the P4 chip, the anticipated launch of Windows XP and increased adoption of
broadband internet access, will create more demand for PC's , as owners of older
machines upgrade to newer, substantially faster models. Sales of direct-to-home
satellite products, which had slipped during the second quarter, recovered well,
with unit sales up over 60%. Management believes factors such as the recent
launch of a new satellite which will expand program offerings and the government
approval of expansive new programming anticipated in September, will make
satellite television an even more attractive choice for consumers and will
continue to provide the Company with sales growth opportunities. Sales of the
Company's traditional accessories lines responded well to the increased space
given to them in its flyers, as double-digit growth was experienced in this
important category. The Company will continue to focus on its accessories
business. The increase in promotional activity will continue and, in addition,
the range will be expanded, with between 200 and 300 new SKU's added during the
next six months. The Company has also introduced an expanded selection of
accessories into its concept stores. If this test is successful in increasing
the gross margin percentage in these stores, then more concept store conversions
will be planned for fiscal year 2002. Sales of personal communications products
continued to perform extremely well, with a year on year sales increase of over
70%. An innovative offer of postpaid cellular which was launched in early
March, helped drive sales in the wireless category. Unit sales in both
RadioShack and Rogers AT&T stores were up over 20%. The Company will continue to
emphasize the sale of postpaid products, as these offer an after the sale
residual revenue stream that enhances margins.
In Australia, sales for the quarter, in local currency, increased by 5.7%, with
comparable-store sales increasing by 8.3%. These results must be viewed in the
context of an overall retail economy that is weak and in fact showed negative
growth for the last two reported quarters. It is encouraging that in this
challenging environment, the Company's wireless sales showed a strong double-
digit result. Importantly, unit sales of postpaid handsets, which offer an
after-sale residual, increased by almost 60%. Sales of batteries, parts and
accessories and audio/video showed mid single digit growth. While sales of
computer accessories showed strong double-digit growth, sales of PC's and
monitors were off sharply from last year. The PC market in Australia has been
difficult for some time. The significantly weakened Australian dollar has made
many of the newer innovative machines with accessories such as CD-RW a very
high-ticket item and unaffordable to many consumers. In addition, the roll out
of high speed internet access has been very slow in Australia. Accordingly the
demand for faster replacement machines which high speed internet access has
created in other markets is virtually non-existent in Australia. Sales of
telephones, prepaid airtime cards and toys also declined during the quarter.
While it is impossible to quantify, management believes that low morale among
the Company's staff caused by uncertainties surrounding the rumored sale of the
Australian business was also a contributing factor in a disappointing sales
performance during the quarter.
Gross Profit
Gross profit for the third quarter of fiscal year 2001 decreased by $1,907,000
from the same quarter last year, a decrease of 4.3%. This decline is more than
explained by the effects of the weakening of both the Canadian and Australian
dollars. Measured at the same exchange rates, gross profit dollars increased by
3.8%.
16
The following analysis summarizes the components of the change in gross profit
from the comparable prior year quarter, with last year's sales adjusted to
exclude the wholesale sales tax:
(US dollars in thousands)
===================================================
Increase in sales $3,839
Lower gross margin percentage (2,250)
Foreign currency rate effects (3,496)
- ---------------------------------------------------
Decrease in gross profit $(1,907)
===================================================
The following table illustrates gross profit as a percentage of sales, by
segment area, with last years sales adjusted to exclude the effects of the
wholesale sales tax:
Three Months Ended Nine Months Ended
March 31 March 31
2001 2000 2001 2000
---- ---- ---- ----
Canada 41.6% 42.5% 39.9% 41.4%
Australia 40.9% 47.3% 40.0% 46.5%
-----------------------------------------------------------------------------------------------------------------
Consolidated 41.4% 43.7% 39.9% 42.5%
=================================================================================================================
The reduction in the gross margin percentage in Canada during the second quarter
was almost evenly split between the effects of a sales mix which continues to
shift towards newly introduced, primarily digital, products which carry margins
less than the Company's average, and clearance activity, primarily in the
computer category, as the Company made room for newer, faster models. While
demands in the market place will continue to drive sales towards a model which
places pressure on margins, management believes that the sales opportunities
available will provide an opportunity to grow gross profit dollars in a manner
which produces leverage on expenses. Management has also taken a number of
initiatives to reduce the pressure on the gross margin percentage. One of these
is the heavier promotion and expansion of the range of the Company's traditional
and highly profitable range of accessories. See "Net Sales and Operating
Revenues". The Company's new store-specific micro-assortment replenishment
algorithms should also contribute to margin performance. The goal of this
program is to get the right inventory in the right stores in appropriate
quantities and should contribute to reduced obsolescence and inventory shrink.
A primary contributing factor to the margin decline during the quarter in
Australia was the change in the wireless pricing formula introduced earlier in
the year. While the new pricing structure preserved gross profit dollars intact,
it reduced the gross margin percentage significantly. In addition, the weaker
Australian dollar forced up costs on imported goods. However, the soft consumer
market and the post-GST pricing regulations made it impractical to pass many of
these increases on to the consumer.
For the Company as a whole, after-sales compensation continues to be a key part
of management's strategy to mitigate the effects of declining gross margin
percentages. In the third quarter of the current fiscal year, after-sale
compensation; which includes both residuals and sales-based volume rebates,
totaled approximately $2 million, up over 100% over last year and representing
2% of total revenues.
17
Selling, General and Administrative Expenses
The following table provides a breakdown of selling, general and administrative
expense ("SG&A") by major category:
SG&A Expense by Category
(US Dollars in thousands, Three Months Ended Nine Months Ended
except percentages) March 31 March 31
2001 2000 2001 2000
------- ------- -------- --------
% of Sales % of Sales/(1)/ % of Sales % of Sales/(1)/
================================================================================================================================
Payroll $15,662 15.1 $16,486 16.1 $ 51,102 13.2 $ 52,664 14.1
Advertising 2,847 2.8 4,399 4.3 14,850 3.8 15,645 4.2
Rent 6,498 6.3 6,348 6.2 20,185 5.2 19,566 5.2
Taxes (other than income 2,479 2.4 2,393 2.3 6,873 1.8 7,804 2.1
taxes)
Telephone and utilities 1,158 1.1 1,161 1.1 3,307 0.9 3,319 0.9
Other 6,204 6.0 6,510 6.4 19,446 5.0 19,855 5.2
- ------------------------------------------------------------------------------------------------------------------------------
$34,848 33.7 $37,297 36.4 $115,763 29.9 $118,853 31.7
==============================================================================================================================
/1/ These percentages have been calculated on sales adjusted to exclude the
effects of the wholesale sales tax in Australia.
SG&A expense in U.S. dollars for the quarter decreased by $2,449,000 over the
comparable quarter last year. This comparison was influenced by the effects of
a weaker currencies in both Canada and Australia. Measured at the same exchange
rates, SG&A expense increased by $438,000 or 1.3%.
The following is a breakdown of the same-exchange-rate increase in SG&A expense
in Canada, Australia and Corporate Headquarters during the third quarter of
fiscal year 2001 over the same quarter in the prior year:
(US Dollars in thousands)
==========================================================
Payroll $ 485
Advertising (1,221)
Rent 743
Taxes (other than income taxes) 266
Telephone and utilities 84
Other 215
- ---------------------------------------------------------
572
Corporate expenses (134)
=========================================================
$ 438
=========================================================
Payroll increased in both Canada and Australia, primarily in support of higher
sales and, to a lesser extent, as a result of an increase in the store count.
Timing issues resulted in a reduction in advertising expense in Canada. The
reduction in corporate expenses primarily relates to a reduction in management
bonuses and special charges incurred last year in respect of the Company's
restricted stock award plan.
The following table illustrates SG&A as a percentage of sales, by geographic
segment area. Last year's percentages have been adjusted to exclude the effects
of the wholesale sales tax in Australia.
18
Three Months Ended Nine Months Ended
March 31 March 31
2001 2000 2001 2000
---- ---- ---- ----
Canada 30.4% 33.3% 26.9% 28.4%
Australia 40.7% 41.0% 36.7% 38.4%
------ ---- ----- ----
Consolidated 33.7% 36.4% 29.9% 31.7%
------ ---- ----- ----
Based on current projections of sales growth, management anticipates that the
Company will continue to obtain positive leverage in its major expense
categories.
Foreign Currency Transaction Gains / Losses
Foreign currency transaction losses were $16,000 during the third quarter of
fiscal year 2001 compared with losses of $127,000 for the comparable quarter
last year.
Interest Income and Expense
Interest income for the quarter declined by $574,000 from the prior year to
$288,000 for the three months ended March 31, 2001. This reduction results from
lower cash balances, primarily as a result of the Company's common stock re-
purchase program. See "Liquidity and Capital Resources". For the same period,
interest expense decreased from $129,000 to $80,000. Both the current and prior
year amounts consisted exclusively of loan amortization costs, as no borrowing
occurred during either quarter.
Provision for Income Taxes
The provision for income taxes increased during the third quarter of fiscal year
2001 by $191,000 over the same period a year ago, reflecting higher profits in
Canada partially offset by the effects of a loss in Australia, foreign currency
rates and lower tax rates. The effective tax rate was 48.3% compared with 45.1%
last year. Ordinarily, the effect of an Australian rate that is significantly
lower than the Canadian rate helps offset the fact that not all of InterTAN's
corporate expenses can be allocated to the subsidiaries. That was not the case
this quarter, as Australia was in a loss position. In addition weaker
currencies in both Canada and Australia resulted in foreign currency losses at
corporate headquarters which could not be passed on to the operating
subsidiaries. Management anticipates that the effective rate for the fourth
quarter will approximate 44% to 45%.
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 March 31, 2001, in exchange rates as measured against the
U.S. dollar:
Foreign Exchange Rate Fluctuations
% Decrease % Decrease
from March 31, 2000 from June 30, 2000
-------------------- -------------------
Canada (8.0) (6.1)
Australia (20.1) (18.7)
Inventories
Inventories in U.S. dollars at March 31, 2001 were $105,894,000, down from
$115,343,000 and $121,894,000 at March 31 and June 30, 2000, respectively. The
decrease from March 31, 2000 is more than attributable to foreign currency
effects. Measured at the same exchange rates, inventories have increased by
3.4% from March a year ago. Importantly, significant improvement has been made
since December. Inventory levels are down substantially, both
19
in absolute terms and in terms of the increase over the prior year. For example,
Canadian inventories are down 16% since the end of December. Canada's March
inventory was up 8% in local currency, more in line with gross profit growth.
The reduction in inventories from June 30, 2000 results in part from foreign
currency effects and in part because of lower inventories in Australia, where
considerable effort has gone into clearing older lines as the Company moved
towards a more branded focus. Inventories in Canada at March 31, 2001 were flat
with June 30, 2000.
Income Taxes Payable
Income taxes payable at March 31, 2001 were $24,592,000 compared to $32,326,000
and $30,137,000 at March 31 and June 30, 2000, respectively. These reductions
result from foreign currency rate effects and from the payment of the final
balance of fiscal year 2000 taxes subsequent to year-end. During fiscal year
1999 the Company reached an agreement with the Canadian tax authorities relating
to the settlement of a dispute regarding the 1990 to 1993 taxation years. While
the amount in dispute has been agreed and a settlement agreement executed, the
Company has not yet been fully reassessed and, accordingly, this amount has not
been paid in full. Management estimates that payments relating to these issues
will approximate $12,000,000. It is not practical for management to reasonably
estimate when these payments will be made.
The Company's remaining dispute with the Canadian tax authorities relates to the
1987 to 1989 taxation years. See Note 7 to the Company's Consolidated Financial
Statements. 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 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") were completed during 1999. The
Company has been advised that the IRS alleges that the Company owes additional
taxes in respect of those years. The issues involved relate primarily to the
Company's former operations in continental Europe and the United Kingdom. The
Company disagrees with the IRS's position on these issues and believes it has
meritorious arguments in its defense. The Company has filed a protest rebutting
the assertions made by the IRS and is in the process of vigorously defending its
position. Management believes that it has a provision recorded sufficient to
pay the estimated liability resulting from the issues in dispute; however, the
amount ultimately paid could differ from management's estimate.
Liquidity and Capital Resources
Cash flow from operating activities during the nine-month period ended March 31,
2001 generated $19,615,000 in cash compared with $20,545,000 in cash during the
comparable prior year period. This decrease of $930,000 was more than
attributable to lower working capital requirements. Net income, adjusted for
non-cash items generated $1,700,000 less cash than in the same period a year
ago.
Cash flows from investing activities consumed $9,305,000 in cash during the
nine-month period ended March 31, 2001, compared with $6,363,000 in the same
period last year. This change results from planned increases in capital
spending, primarily on new stores, renovations of existing stores and store
fixtures.
Cash flows from financing activities consumed $13,515,000 during the nine-month
period ended March 31, 2001 while using $12,300,000 in cash in the comparable
prior year period. This change is explained primarily by the a reduction in
proceeds received on the exercise of stock options by employees
The Company's principal sources of liquidity are its cash and short-term
investments, its cash flow from operations and its banking facilities.
20
On May 4, 2001, InterTAN Canada Ltd. and InterTAN, Inc. entered into a new
revolving credit facility (the "Revolving Loan Agreement") with the previous
lender in an amount not to exceed C$75,000,000 (approximately $47,600,000 at
March 31, 2001 exchange rates). The Revolving Loan Agreement expires March 22,
2002 and may be extended for an additional one- year period at the Company's
option. The amount of credit actually available at any particular time is
dependent on a variety of factors, including the level of eligible inventories
and accounts receivable of InterTAN Canada Ltd.. The amount of available credit
is then reduced by the amount of trade accounts payable then outstanding as well
as certain other reserves. A loan origination fee of C$37,500 (approximately
$24,000 at March 31, 2001 exchange rates) was payable on closing. A further
payment of C$37,500 is required should the Company exercise its option to extend
the facility for an additional year. Borrowing rates under the facility range
from Prime to Prime plus 0.75% based on the Company's quarterly performance
against pre-determined EBITDA to fixed charge ratios. Using the same criteria,
the Company may borrow at Bankers' Acceptance and LIBOR rates plus from 0.75% to
2.0%. Letters of credit will be charged at rates ranging from 0.75% per annum to
2.0% per annum, using the same performance criteria. In addition, a standby fee
of 0.65% is payable on the unused portion of the credit facility. The Revolving
Loan Agreement is collaterized by a first priority lien over all of the assets
of InterTAN Canada Ltd. and is guaranteed by InterTAN, Inc. This facility will
be used primarily to finance seasonal inventory build up and, from time to time
to provide letters of credit in support of purchase orders.
At March 31, 2001, there were no borrowings against the Company's previous
Canadian credit facility, and C$65,000 ($41,000 at March 31, 2001 exchange
raters) was committed in support of letters of credit. There was C$38,364,000
($24,342,000 at March 31, 2001 exchange rates) of credit available for use at
March 31, 2001 under the former facility.
The Company's Merchandise Agreement with RadioShack U.S.A permits the Company to
support purchase orders with a surety bond or bonds as well as letters of
credit. The Company has entered into an agreement with a major insurer to
provide surety bond coverage (the "Bond") in an amount not to exceed
$12,000,000. Use of the Bond will give the Company greater flexibility in
placing orders with Far Eastern suppliers by releasing a portion of the credit
available under the Revolving Loan Agreement for other purposes.
The Company's Australian subsidiaries have entered into a credit agreement with
an Australian bank (the "Australian Facility"). This agreement established a
credit facility in the amount of A$12,000,000 (approximately $5,824,000 at March
31, 2001 exchange rates). The Australian Facility has no fixed term and may be
terminated at any time upon five days prior written notice by the lender. All
or any part of the facility may be used to provide letters of credit in support
of purchase orders. A maximum amount of A$5,000,000 (approximately $2,427,000
at March 31, 2001 exchange rates) may be used in support of short-term
borrowings. At March 31, 2001, there were no borrowing outstanding against the
Australian Facility, nor was any amount committed in support of letters of
credit. This facility was cancelled April 30, 2001.
The Company's primary uses of liquidity in the near term will include the
funding of capital expenditures, the seasonal build-up of inventories for the
2001 holiday selling season and payments in settlement of tax reassessments.
The Company anticipates that capital additions will approximate $2,000,000
during the remainder of fiscal year 2001, mainly related to store expansion,
remodeling and upgrading. Management believes that the Company's seasonal
borrowing requirements will peak at $16,000,000 in November. In addition,
management expects that additional reassessments could be received during the
remainder of fiscal year 2001 and in fiscal year 2002 relating to the settlement
of its various disputes with the Canadian and United States tax authorities.
See "Income Taxes Payable". The amount and timing of further payments flowing
from these outstanding tax issues cannot be reasonably determined at this time.
Management believes that the Company's cash and short term investments on hand
and its cash flow from operations combined with its banking facilities will
provide the Company with sufficient liquidity to meet its planned requirements
at least through the 2001 holiday selling season, including any tax
reassessments.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The various matters discussed in Notes 7 and 8 to the Company's
Consolidated Financial Statements on page 10 of this Form 10-Q are
incorporated herein by reference.
21
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
three-month period ended March 31, 2001.
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).
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 Rport 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) 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)
22
*10(a) Letter Agreement between InterTAN, Inc. and Brian E. Levy dated
February 19, 2001 clarifying and amending employment letter dated June
10, 1999 between same parties.
*10(b) Letter Agreement between InterTAN, Inc. and James G. Gingerich dated
February 19, 2001 clarifying and amending letter agreement dated
February 15, 2000 between same parties.
*10(c) Letter from InterTAN, Inc. to Douglas C. Saunders dated February 19,
2001 clarifying letter agreement dated February 15, 2000 between same
parties.
*10(d) Letter from InterTAN, Inc. to Jeffrey A. Losch dated February 19, 2001
clarifying letter agreement dated February 15, 2000 between same
parties.
*10(e) Seventh Amendment to Loan Agreement between InterTAN Canada Ltd.,
InterTAN, Inc. and Bank of America Canada dated as of March 21, 2001.
*10(f) Letter Agreement between InterTAN, Inc. and RadioShack Corporation
dated April 6, 2001.
*10(g) Termination Agreement among InterTAN Australia Ltd., RadioShack
Corporation, InterTAN, Inc., InterTAN Canada Limited, RadioShack
International Procurement Limited Partnership and Technotron Sales
Corp. Pty. Limited dated April 10, 2001.
*10(h) Share Acquisition Agreement among InterTAN, Inc., InterTAN Canada Ltd.
and Dick Smith Electronics Holdings Pty. Ltd. dated April 10, 2001.
*10(i) Eighth Amendment to Loan Agreement between InterTAN Canada Ltd.,
InterTAN, Inc. and Bank of America Canada dated as of May 4, 2001.
*27 Article 5, Financial Data Schedule.
- -----------
* Filed herewith
b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the three-month period ended
March 31, 2001.
23
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: May 14, 2001 By: /s/ James G. Gingerich
----------------------
James G. Gingerich
Executive Vice-President and
Chief Financial Officer
(Authorized Officer)
By: /s/ Douglas C. Saunders
-----------------------
Douglas C. Saunders
Vice President and Corporate Controller
Principal Accounting Officer)
24
INTERTAN, INC.
FORM 10-Q
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
3(a) Restated Certificate of Incorporation (Filed as Exhibit 3(a) to
InterTAN's Registration Statement on Form 10 and incorporated herein
by reference).
3(a)(i) Certificate of Amendment of Restated Certificate of Incorporation
(Filed as Exhibit 3(a)(i) to InterTAN's Annual Report on Form 10-K for
fiscal year ended June 30, 1995 and incorporated herein by reference).
3(a)(ii) Certificate of Designation, Preferences and Rights of Series' A Junior
Participating Preferred Stock (Filed as Exhibit 3(a)(i) to InterTAN's
Registration Statement on Form 10 and incorporated herein by
reference).
3(b) Bylaws (Filed 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 Rport 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) 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)
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*10(a) Letter Agreement between InterTAN, Inc. and Brian E. Levy dated
February 19, 2001 clarifying and amending employment letter dated June
10, 1999 between same parties.
*10(b) Letter Agreement between InterTAN, Inc. and James G. Gingerich dated
February 19, 2001 clarifying and amending letter agreement dated
February 15, 2000 between same parties.
*10(c) Letter from InterTAN, Inc. to Douglas C. Saunders dated February 19,
2001 clarifying letter agreement dated February 15, 2000 between same
parties.
*10(d) Letter from InterTAN, Inc. to Jeffrey A. Losch dated February 19, 2001
clarifying letter agreement dated February 15, 2000 between same
parties.
*10(e) Seventh Amendment to Loan Agreement between InterTAN Canada Ltd.,
InterTAN, Inc. and Bank of America Canada dated as of March 21, 2001.
*10(f) Letter Agreement between InterTAN, Inc. and RadioShack Corporation
dated April 6, 2001.
*10(g) Termination Agreement among InterTAN Australia Ltd., RadioShack
Corporation, InterTAN, Inc., InterTAN Canada Limited, RadioShack
International Procurement Limited Partnership and Technotron Sales
Corp. Pty. Limited dated April 10, 2001.
*10(h) Share Acquisition Agreement among InterTAN, Inc., InterTAN Canada Ltd.
and Dick Smith Electronics Holdings Pty. Ltd. dated April 10, 2001.
*10(i) Eighth Amendment to Loan Agreement between InterTAN Canada Ltd.,
InterTAN, Inc. and Bank of America Canada dated as of May 4, 2001.
*27 Article 5, Financial Data Schedule.
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* Filed herewith
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