UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended June 30, 2001
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________to ___________________
Commission file number 1-10062
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InterTAN, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 75-2130875
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3300 Highway #7, Suite 904
Toronto, Ontario, Canada L4K 4M3
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 905-760-9701
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value $1.00 per share* New York Stock Exchange
(*Includes related preferred stock purchase
rights)
Securities registered pursuant of Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X )
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 17, 2001 was $208,963,683 based on the New York Stock
Exchange closing price on such date.
As of September 17, 2001 there were 27,105,536 shares of the registrant's Common
Stock outstanding.
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Documents Incorporated by Reference
Portions of the definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders are incorporated by reference into Part III. With the exception of
those portions that are incorporated by reference in this Annual Report on Form
10-K, the definitive 2001 Proxy Statement is not to be deemed incorporated into
or filed as part of this Report.
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InterTAN, Inc.
Form 10-K for the Year Ended June 30, 2001
Table of Contents
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Part I Page No.
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Item 1. Business
Description of Business 4
Employees 5
Products and Distribution 5
Management Information Systems 6
Suppliers 6
Geographic/Segment Analysis 7
Strategic Alliances 9
Merchandise, License, Amending and Advertising Agreements 10
Seasonality 11
Competition 11
Backlog of Orders 11
Factors That Could Affect Future Performance 11
Item 2. Properties 14
Item 3 Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Part II
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Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 38
Item 8. Financial Statements
Report of Independent Accountants 41
Consolidated Statements of Operations 42
Consolidated Balance Sheets 43
Consolidated Statements of Stockholders' Equity 44
Consolidated Statements of Cash Flows 46
Notes to Consolidated Financial Statements 47
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 68
Part III
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Item 10. Directors and Executive Officers of the Registrant 68
Item 11. Executive Compensation 68
Item 12. Security Ownership of Certain Beneficial Owners and Management 68
Item 13. Certain Relationships and Related Transactions 68
Part IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 69
Signatures 79
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PART I
Item 1 BUSINESS
Description of Business
InterTAN, Inc. ("InterTAN" or the "Company") was incorporated in the State of
Delaware in June 1986 in order to receive from RadioShack Corporation
("RadioShack U.S.A."), formerly named Tandy Corporation, the assets and
businesses of its foreign retail operations, conducted in Canada under the
"RadioShack" trade name and in Australia, the United Kingdom and Europe under
the "Tandy" trade name. Following the transfer of assets, on January 16, 1987
RadioShack U.S.A. distributed shares of InterTAN common stock to the RadioShack
U.S.A. stockholders in a tax-free distribution on the basis of one InterTAN
share for every ten RadioShack U.S.A. shares held. Thus RadioShack U.S.A.
effected a spin-off and divestiture of these foreign retail operations and its
then ownership interest in InterTAN and its operations, thereby constituting
InterTAN as an independent public corporation. The company's operations in
continental Europe were closed during fiscal years 1993 and 1994. During fiscal
year 1999, the Company sold its subsidiary in the United Kingdom. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Loss on Sale of United Kingdom Subsidiary." The Company sold its
subsidiary in Australia during fiscal year 2001. See "See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Gain
on Sale of Australian Subsidiary."
InterTAN is now engaged principally in the sale of consumer electronics products
and services through company-operated retail stores and dealer outlets in
Canada. The Company also operates wireless telecommunications stores (the
"Rogers AT&T Stores") on behalf of and under contract with Rogers Wireless Inc.
See "Geographic Analysis." InterTAN's ongoing retail operations are conducted
through its wholly-owned subsidiary, InterTAN Canada Ltd. ("InterTAN Canada" or
"RadioShack Canada"), a British Columbia corporation which operates in Canada
under the trade name "RadioShack." As used herein, "InterTAN" or "Company"
sometimes collectively refers to InterTAN and InterTAN Canada, according to the
context.
As at June 30, 2001, InterTAN's company-operated retail stores and dealers in
Canada totalled 833, consisting of 473 company-operated stores and 360 dealers.
In addition, at June 30, 2001, the Company operated 55 Rogers AT&T Stores in
Canada.
The format for InterTAN's company-operated stores in Canada typically
incorporates the concept of small, strategically located stores in malls and
shopping centers, each providing the customer with convenience and readily
available products and services to meet a wide range of consumer electronic
needs. InterTAN emphasizes product knowledge and customer service. Recent
research has confirmed that the Company's sales associates are noted for their
helpfulness and product knowledge and that customers look to the Company's
stores to find the answers to their technology questions. During fiscal year
2001, the Company successfully installed an E-learning system that has further
built on this strength. Later during the year, a group of regional trainers was
introduced to augment field management and to further differentiate the service
offering.
The "dealers" included in the above totals are independent retail businesses
which operate under their own trade names but are permitted, under dealer
agreements, to purchase any of the products sold by company-operated stores. The
dealer agreements contain a sub-license permitting such dealer to designate its
consumer electronics department or business as a "RadioShack Dealer." InterTAN's
dealer network enables the Company to penetrate smaller markets that do not have
a population base large enough to support a company-operated store.
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InterTAN also provides after-sale service for all the products it sells during
warranty periods and beyond. The Company also offers out-of-warranty repair
service to customers for a wide range of nationally branded electronic products
as well as being an authorized repair center for in-warranty repairs for many
nationally branded products. The Company's service centers provide repair
capability within a satisfactory turnaround period. The Company also offers
extended warranty plans to its customers. Under these plans, the Company will
either repair or replace defective product, depending on the nature of the
contract, for a specified number of years beyond the normal warranty period.
An E-commerce site, RadioShack.ca, offering customers the opportunity to
purchase over 100,000 products through the Internet was introduced in Canada in
September, 1999. See " Geographic/Segment Analysis - Canada".
Employees
As at June 30, 2001 InterTAN employed approximately 2840 persons. Approximately
103 of InterTAN Canada's employees, who are engaged in warehousing and
distribution operations, are represented by unions. The Company considers its
relationships with its employees to be good.
Products and Distribution
InterTAN's strategy focuses on a product plan dedicated to profitable sales
growth by improving gross profit dollars while at the same time increasing
sales. Fundamental to this plan is a product offering which includes both
national brands and private label goods, emphasis on strategically selected core
categories which yield attractive margins, and in which management believes the
Company has a strong position in all of its markets, and managing the percentage
of lower margin product in the overall sales mix. This strategy has been
complemented by the introduction of certain service initiatives designed not
only to produce revenue in their own right, but also to increase traffic in the
Company's stores. Many of these service initiatives include after sale
compensation that serve to improve gross margins.
InterTAN's stores carry a broad range of brand name and private label, quality
consumer electronic products. The selection of products offered for sale is
comprehensive, ranging from, among other things, small parts and accessories to
large ticket items such as computers and stereo systems. Types of product
include: telecommunications products and services, direct-to-home satellite,
personal electronics, computers and related services, batteries, parts and
accessories, communications products, audio/video gear, and game gear. It is
management's view that the range of products offered by InterTAN, in particular
its parts and accessories, is broader than that typically offered by others in
the retail consumer electronics industry and many of its products are
exclusively carried by InterTAN within Canada. Many products sold through the
Company's retail outlets are sold by many other retail stores, including
department stores, consumer electronics chains and computer outlets.
Historically, InterTAN was for the most part a private label retailer. While
brand name products were included in the product assortment, they were selected
primarily to complement the Company's own private label lines as extensions or
to offer consumers a choice against which they could compare the relative
capability and value of InterTAN's private label products. In recent years, this
strategy has undergone a re-evaluation. The pace at which new high-tech, digital
products are being introduced into the market place has been increasingly rapid.
Had the Company continued its private label strategy, many opportunities would
have been missed because of the time involved in bringing private label
offerings of these products to market. In addition, the increasing brand
consciousness of consumers was essentially inconsistent with a focused, private
label strategy. From a merchandising point of view, increasingly shorter product
life cycles conflicted with the large minimum order
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requirements needed to sustain a broadly-based private label offering. In
today's rapidly changing world in consumer electronics, product must be
purchased on a just-in-time basis in order to minimize the risk of obsolescence.
As part of its efforts to meet its customers demands, the Company now offers a
wide range of nationally and internationally branded product including, among
others, Panasonic, Compaq, Epson, Sony, Lexmark, Sharp, StarChoice, Express Vu,
JVC, TDK, Fuji and Sanyo (the lack of a (R), TM or SM is not intended regarding
all of the names referred to herein above, to indicate a lack of registration
therefore). While this strategy, in combination with others, has resulted in a
significant increase in gross profit dollars, the strategy has also put pressure
on the gross margin percentage as branded goods generally carry margins below
those of the Company's historical private label offerings. However, this
pressure is partially mitigated by the fact that branded product can often be
acquired under more favorable payment and delivery terms, provides advertising
support, reduces warranty exposure and reduces inventory risks. The result of
this strategy and others has been collectively to improve the Company's
operating margins.
While the Company's merchandising strategy has changed radically, it intends to
continue to aggressively support many of its private label lines. Management
believes that its private label products offer value to the consumer and also
produce above average gross margins for the Company. For these reasons, certain
end products will continue to be offered in areas where the Company has built
credibility with consumers. In addition, the Company's extensive assortment of
accessories and batteries will continue to be primarily house-branded. As part
of this strategy, the Company works closely with RadioShack U.S.A.'s purchasing
and export agent, RadioShack International Procurement Limited Partnership
("RIPLP") in an effort to leverage RadioShack U.S.A.'s sourcing capabilities to
negotiate favorable prices with Far East vendors. See "Suppliers" and
"Merchandise, License and Advertising Agreements".
Many of the Company's private label products are similar, and in many instances
identical, to those sold through RadioShack U.S.A.'s retail stores in the United
States. Certain of these products carry the trade-marks RadioShack and Optimus,
among others, which are used under license from RadioShack U.S.A. See
"Merchandise, License and Advertising Agreements - License Agreements." Other
products carry the Company's trademarked brands.
Management Information Systems
The Company's information systems are used to process inventory, accounting,
payroll, communications and other operating information for all aspects of the
Company's operations. In addition, each of the Company's stores has one or more
computers that serve as point-of-sale terminals and are linked to operational
headquarters. This information network, referred to as POS, provides detailed
sales and margin information on a daily basis, updates InterTAN's customer
database and provides improved financial controls, as well as acting as a
monitor of individual store performance. The POS systems are also linked
directly to a system used to automatically replenish a store's stock as
inventory is sold. Refinements are made on a continuing basis to the Company's
information systems in order to increase the efficiency of store inventories,
inventory flow, advertising and consumer information, E-Commerce, and to enhance
opportunities for employee learning.
Suppliers
During fiscal year 2001, InterTAN Canada acquired approximately 13% of its
inventory pursuant to a merchandise agreement with RadioShack U.S.A. and
acquired the balance from numerous other manufacturers. InterTAN uses RIPLP as
its exclusive purchasing agent and exporter in the Far East. See "Merchandise,
License and Advertising Agreements - Merchandise Agreement."
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Under its merchandise arrangements with RadioShack U.S.A., InterTAN may purchase
any private label products which RadioShack U.S.A. has available for sale in the
United States in its then current catalog, or those products which may otherwise
be reasonably available from RadioShack U.S.A. or through RIPLP. Through its
ongoing relationship with RadioShack U.S.A., InterTAN is able to take advantage
of RadioShack U.S.A.'s sourcing strength to obtain selected products which
management believes generate gross margins which are higher than industry
averages and which offer enhanced customer value. The Company also uses this
relationship to offer its customers a broad and deep range of parts and
accessories. RadioShack U.S.A has agreed that it will not cancel these
merchandise arrangements in the event of a change of control, except at the
request of the acquirer. While the Company from time to time enters into
exclusivity arrangements with certain suppliers (see "Business - Strategic
Alliances"), with the exception of Rogers AT&T, InterTAN is not materially
dependent on any one supplier other than RadioShack U.S.A. See "Merchandise,
License and Advertising Agreements." A loss or disruption of supply from Rogers
AT&T could have a material adverse effect on RadioShack Canada's business until
such time as an alliance could be concluded with one of Canada's three other
major cellular carriers.
Geographic/Segment Analysis
InterTAN is organized along geographic lines. The Company's segments include its
Canadian retail operations and its Corporate Headquarters. The Company's
Australian and United Kingdom subsidiaries were also segments through April 2001
and January 1999, respectively. InterTAN closed all company-operated outlets in
continental Europe during fiscal years 1993 and 1994 and sold its United Kingdom
and Australian subsidiaries during fiscal years 1999 and 2001, respectively.
InterTAN has broader market coverage than most of its competitors due to the
large number of stores. Market coverage is further enhanced by the Company's
dealer network.
A table included in Note 17 to the Consolidated Financial Statements and which
appears on page 65 of this Annual Report on Form 10-K shows net sales,
depreciation and amortization, operating income (loss), identifiable assets and
capital expenditures of the Company by segment / geographic area for the three
years ended June 30, 2001. This table is incorporated herein by reference.
Corporate Headquarters
The Company's Corporate Headquarters is currently located in rented office
facilities in Concord, Ontario, Canada, having been relocated from the United
States to Canada during fiscal year 1999. This group consists of the Company's
Executive Officers and support staff, including investor relations. Following
the sale of its Australian subsidiary, the Company plans a reorganization to
consolidate and streamline its ongoing operations. See "Restructuring."
Canada
As at June 30, 2001, InterTAN Canada operated a total of 473 RadioShack stores
in Canada. In addition, a network of dealers accounted for a further 360 retail
locations. InterTAN Canada uses a form of contract management program in a small
number of its company-operated stores. See "Notes to Consolidated Financial
Statements - Note 1." The Company also operated 55 Rogers AT&T Stores at June
30, 2001. See "Strategic Alliances - Rogers AT&T Stores."
The average size of a RadioShack Canada store is approximately 1,800 square
feet. During fiscal year 2001 the Company operated 32 "Concept Stores." These
stores have a larger footprint than the Company's regular stores (2,500-4,500
square feet). These stores are located in both enclosed shopping centers and
power center strip plazas and represent either a new store or the relocation and
reformatting of an existing store. In addition to the
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Company's full product assortment, the Concept Stores carry a significantly
expanded range of accessory and end products. These stores have been successful
in generating additional sales of high-ticket digital products. Late in fiscal
year 2001, the range of higher margin accessory products in the Concept Stores
was expanded dramatically. This action has already had a positive effect on the
Concept Stores' gross margin percentage. Expansion of the accessory range will
continue during fiscal year 2002. Once management is satisfied with the product
mix, additional Concept Stores will be targeted. The Company also operates a few
express stores in Canada. These express stores feature a targeted range of
merchandise in a more compact floor plan and were established in high traffic
areas that did not have a company-operated store or which could support a second
location. A clearance center is also in operation in Canada.
The Company also operates an e-commerce site, RadioShack.ca and a call center.
Both the e-commerce site and the call center provide information to and take
orders from customers. RadioShack.ca allows customers the convenience of
shopping for a wide variety of electronics and other products from their
desktop. Customer's have the option of having product delivered to their door or
taking delivery at their nearest RadioShack store. The Company has closely
weaved its on-line presence with its physical stores by introducing browse and
order stations intended to maximize product access by its customers and sales
associates. RadioShack.ca has also proven to be an effective way of promoting
the Company's brand and displaying product available in its stores.
In September 2001, the Company introduced a store-in-store arrangement with the
Brick, Canada's premier furniture and entertainment retailer. See "Strategic
Alliances - The Brick Warehouse".
The consumer electronics industry in Canada is highly competitive. Based on
publicly available material, InterTAN believes that the largest retailer in
Canada in fiscal year 2001 (other than department stores) which had a product
line similar to, or competitive with, products offered for sale by InterTAN
Canada was Future Shop which operated through approximately 88 locations. In
August 2001, it was announced that Future Shop had been acquired by Best Buy Co.
Inc., a U.S.-based big box retailer. InterTAN's other main competitors in Canada
are department stores, computer and business product specialty retailers,
general retailers and other consumer electronics retailers. While there can be
no assurance as to the extent to which competition may affect future sales
growth and profit potential, management believes that InterTAN Canada's range of
products and service orientation differentiate the Company from other consumer
electronics retailers in Canada, or similar big box entrants into the
marketplace. The Company has also established a market position in important
growth categories, including wireless and other digital products, and
direct-to-home satellite systems. The Company also distinguishes itself from its
competitors through its "Power-Up" philosophy, which espouses that most products
be readily and effectively displayed and that employees be well versed on
appropriate product knowledge to enable them to provide hands on interactive
demonstrations.
The Company is the market leader in Canada in the number of retail locations and
offers the broadest geographic coverage. InterTAN Canada also maintains a strong
presence in secondary retail markets through its dealer network.
Restructuring
Following the sale of its Australian subsidiary, the Company announced a
restructuring plan that essentially provides for the full integration of its
Corporate Headquarters and RadioShack Canada. Under this plan, essentially all
corporate support functions will be merged with like functions at RadioShack
Canada. The restructuring plan also involves Executive Officer retirements and
new appointments as well as a reduction in the size of the Company's Board of
Directors.
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Strategic Alliances
InterTAN has the largest number of sales outlets among consumer electronics
retailers in Canada. The Company has over 30 years of retail experience. Recent
research has confirmed that consumers rank RadioShack Canada first among its
competitors for its knowledgeable and friendly sales associates. Management
believes that there are opportunities to leverage on this strength by forming
strategic alliances with other businesses that are also leaders in their
respective fields.
Rogers AT&T Stores
The Company has entered into an alliance with Rogers Wireless Inc. ("Rogers") to
operate telecommunications stores on that company's behalf. These stores were
all remodelled during fiscal year 2001 and trade under the banner "Rogers AT&T".
At June 30, 2001 the Company operated 55 Rogers AT&T stores in major malls
across Canada. Since that time two additional locations have been opened. These
stores predominantly carry Rogers AT&T cellular communications products and
accessories. Additionally, most of RadioShack Canada's 473 company-operated
stores exclusively feature Rogers AT&T wireless communications products and
services. Rogers funded the construction of sections in those stores for the
exclusive offering of Rogers AT&T cellular products (including digital), paging
and other services. These fixtures were also upgraded and replaced during fiscal
year 2001. This relationship aligns the Company's consumer electronics retail
expertise with Rogers AT&T technological strength.
Panasonic
During fiscal year 1999, the Company tested a store-in-store concept with
Panasonic. This test was carried out in 20 of the Company's stores and featured
Panasonic displays, funded by Panasonic, with a deeper than typical product
assortment. This test was highly successful and was expanded to a total of 200
Canadian stores in time for the 1999 holiday season. The stores with these
fixtures consistently out perform the Company's other stores in the audio/video
category. Subsequently, the respective companies agreed to extend this fixture
to an additional 200 stores for a total of 400 stores and additional
installations continue as an integral part of the Company's store expansion
program.
High Speed Internet Access
The Company has formed alliances with the majority of Canada's providers of high
speed Internet access. These alliances make Internet connectivity, through
either high-speed cable modem or DSL, available in the Company's stores. The
Company will continue to refine its Internet strategy as technological advances
and market opportunities dictate.
Microsoft
The Company has entered into an agreement with Microsoft Canada Co. which has
enabled InterTAN to offer an expanded product line to both on-line and offline
customers through Internet-enabled, in-store kiosks in the Company's stores.
This expanded offering was made possible through the use of a Microsoft
e-commerce solution. As part of this alliance, Microsoft hardware and software
is available in in-store departments in the Company's Canadian stores.
The Brick Warehouse
In September 2001, the Company announced an alliance with The Brick Warehouse
(the "Brick"), Canada's premier furniture and entertainment retailer. Under this
arrangement, RadioShack Canada stores will appear as a store-within-a store in,
initially, eight Brick Superstore test locations. The agreement provides, under
certain terms and conditions, for expansion opportunities to most or all of the
Brick's 63 superstore locations. These stores will occupy about 1,000 square
feet and will be operated by the Brick. The agreement also features reciprocal
advertising and marketing of each party's locations and product offerings.
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AOL Canada
In July 2001, the Company and AOL Canada Inc. ("AOL Canada") announced a
three-year strategic marketing alliance to provide preferred status for in-store
promotion of AOL Canada products and services to RadioShack Canada shoppers
nationwide. AOL Canada members will have convenient access to RadioShack
products at Keyword: RadioShack or by visiting Shop@AOL Canada, where RadioShack
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Canada will receive prominent placement as an anchor tenant in key online
shopping categories. Under the agreement, AOL Canada will receive a high profile
retail presence in all 473 RadioShack Canada company-owned stores. RadioShack
and AOL Canada will be able to offer consumers everything they need for home
connectivity, including access to the Internet via AOL Canada through narrowband
technology and developing broadband technologies as they become widely
available. Rollout of this program began during August 2001. Both companies will
also engage in cross-promotional advertising and marketing activities.
Merchandise, License and Advertising Agreements
Merchandising Agreement
The Company and RadioShack U.S.A. are parties to a Merchandise Agreement that
requires the Company to use RIPLP as its exclusive purchasing agent for products
from the Far East during the term thereof. Under the Merchandising Agreement,
the Company must pay RIPLP commissions of approximately 4% of purchases as well
as an annual purchasing agent/exporter fee. For fiscal year 2002 and future
periods this fee was set at $532,500 and will increase pro-rata if sales exceed
$400,000,000 and will be reduced by certain credits the Company earns by
purchasing products through RIPLP. This Merchandise Agreement expires June 30,
2010.
License Agreement
The Company has a License Agreement with RadioShack U.S.A. that permits InterTAN
to use the "RadioShack" trade name in Canada. The expiry date of the License
Agreements is June 30, 2010. Either party may terminate the License Agreement by
providing five years' prior written notice. Each of the license agreements also
provides for a license to use certain of RadioShack U.S.A.'s trademarks. In
addition, InterTAN has the right to sub-license to its dealers. In consideration
for these rights, the Company is obliged to pay a sales-based royalty of up to
1% of consolidated sales. As discussed below, RadioShack U.S.A.'s rights to
revoke both the Merchandise Agreement and the License Agreement in the event of
a change in control of InterTAN or a breach of the terms of these agreements
have been varied by the Amending Agreement.
Amending Agreement
In April 2001, the Company entered into an additional agreement with RadioShack
U.S.A. (the "Amending Agreement"). The Amending Agreement provides that should
there be a change in control of the Company and the acquirer 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 U.S.A. In consideration
therefore, RadioShack agreed that it would terminate the existing License and
Merchandise Agreements as a result of such change in control only at the request
of the acquirer. RadioShack U.S.A. further agrees that it will cooperate with
the Company and the acquirer 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.
The rights to use the trade names licensed by RadioShack U.S.A. are currently an
integral part of InterTAN's marketing strategy. Should the license be lost,
management believes the Company can migrate to an appropriate and credible
alternative brand within a reasonable period of time and can continue to source
merchandise in the Far East.
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Advertising Agreement
Pursuant to an advertising agreement with RadioShack U.S.A., the Company is
entitled to the limited use of certain marketing materials, research and marks
developed by or for RadioShack U.S.A. since January 1, 1994, including the
services marks "You've got questions. We've got answers." and "The Repair Shop
at RadioShack". The right to use any marks covered by the agreement are vested
in the Company by being added to the license agreements described above. The fee
paid to RadioShack U.S.A. under this agreement for calendar year 2000 was
$125,000. This agreement is currently under review.
Seasonality
Like other retailers, InterTAN's business is seasonal, with sales peaking in the
November - December holiday selling season. Cash flow requirements are also
seasonal since inventories build prior to the holiday selling seasons.
Significant inventory growth begins to build in late summer and peaks in mid
November.
Competition
InterTAN is a specialty consumer electronics retailer. Other retail stores,
including department and discount stores, consumer electronics chains, cellular
specialists and computer outlets, sell products substantially similar to many of
those sold through InterTAN's retail outlets. See "Geographic Analysis -
Canada". Certain of these competitors have greater resources, financial or
otherwise, than InterTAN.
Backlog of Orders
The Company has no material backlog of orders for the products it sells.
Factors That Could Affect Future Performance
This report contains certain forward-looking statements about the business and
financial condition of InterTAN, including various statements contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below. The forward-looking statements are reasonably based on
assumptions regarding future events that are subject to important risk factors.
Accordingly, actual results may vary significantly from those expressed in the
forward-looking statements, and the inclusion of such statements should not be
regarded as a representation by the Company or any other person that the
anticipated results expressed therein will be achieved. The following
information sets forth certain factors that could cause the actual results to
differ materially from those contained in the forward-looking statements.
Reliance on RadioShack U.S.A. Relationship
RadioShack U.S.A., including certain of its affiliates, is one of the Company's
principal suppliers and is the licensor of the Company's principal trade names
and marks. Maintaining its contractual relationships, particularly the supply
and license arrangements, with RadioShack U.S.A. is currently an integral part
of the Company's strategy. The loss of such relationships with RadioShack U.S.A.
would require the Company to transition to a new, appropriate and credible
brand. See "Business - Suppliers", "- Merchandise, License, Amending and
Advertising Agreements" and Note 5 to the Consolidated Financial Statements
which is incorporated herein by reference.
Quarterly Variations; Seasonality
The Company's quarterly results of operations may fluctuate significantly as the
result of the timing of the opening of, and the amount of net sales contributed
by, new stores and the timing of costs associated with the selection, leasing,
construction and opening of new stores, as well as seasonal factors, product
introductions and changes in product mix. In addition, sales can be affected as
a result of store closures. The Company's business is seasonal,
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with sales and earnings being relatively lower during the fiscal quarters other
than the second fiscal quarter which includes the holiday selling season.
Adverse business and economic conditions during this period may adversely affect
results of operations. In addition, excluding the effects of new store openings,
the Company's inventories and related short-term financing needs are seasonal,
with the greatest requirements occurring during its second fiscal quarter. The
Company's financial results for a particular quarter may not be indicative of
results for an entire year and the Company's revenues and/or expenses will vary
from quarter to quarter. The Company's operating results may also be affected by
changes in global economic conditions in the markets where its stores are
located, as well as by weather and other natural conditions. See "Business -
Seasonality" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations " which is incorporated herein by reference.
Competition
The retailing industry in which the Company operates is highly competitive.
Products substantially similar to those sold through the Company's retail
outlets are sold by many other retail stores, including department and discount
stores, consumer electronics chains, cellular specialists and computer outlets.
The nature and extent of competition differs from store to store and also from
product line to product line. Certain of the Company's competitors are larger,
have a higher degree of market recognition and have greater resources, financial
or otherwise, than the Company.
The Company believes that the major competitive factors in its businesses
include customer service, store location and number of stores, product
availability and selection, price, technical support, and marketing and sales
capabilities. The Company's utilization of trained personnel and the ability to
use national and local advertising media are important to the Company's ability
to compete in its businesses. Given the highly competitive nature of the retail
industry, no assurances can be given that the Company will continue to compete
successfully with respect to the above-referenced factors. See "Business -
Geographic/Segment Analysis."
Product Supply
The Company's merchandise strategy places emphasis on private label products in
certain product categories. These products are typically sourced for the Company
in the Far East and manufactured to the Company's order and specification.
Consequently, private label products require larger minimum order quantities and
longer lead times than nationally branded product which is generally available
locally on reasonably short notice. There can be no assurance that the Company
will be able to arrange for the production of private label goods to the level
required to meet its merchandising and profit objectives. Delays in the timing
of arrival of goods from the Far East could also have an adverse impact on the
Company's business, particularly delays during the holiday selling season. See
"Business - Products and Distribution" and "- Suppliers"
Dependence on Product Development
The Company's operating results are, and will continue to be, subject in part to
the introduction and acceptance of new products in the consumer electronics
industry. Fluctuations in consumer demand, which could be caused by lack of
successful product development, delays in product introductions, product related
difficulties or lack of consumer acceptance, could adversely affect the growth
rate of sales of products and services and could adversely affect the Company's
operating results. The Company's operating results are also affected by its
ability to anticipate and quickly respond to the changes taking place in its
markets as consumers' needs, interests and preferences alter with time. There
can be no assurance that the Company will be successful in this regard. See
"Business - Products and Distribution" and " - Strategic Alliances."
12
Offering Additional Products and Services
The Company's strategy, particularly through certain of its strategic alliances,
includes offering direct-to-home satellite and additional communications
products and services, which may include, among others, paging, cable
television, home security monitoring and communication, cellular phone service,
local and long-distance phone service, and Internet access. Entry into new
markets entails risks associated with the state of development of the market,
intense competition from companies already operating in those markets, potential
competition from companies that may have greater financial resources and
experience than the Company, regulatory changes, and increased selling and
marketing expenses. There can be no assurance that the Company's products or
services will receive market acceptance in a timely manner, or at all, or that
prices and demand in new markets will be at a level sufficient to provide
profitable operations. See "Business - Products and Distribution" and
"-Strategic Alliances."
Reliance on Store Locations
The Company's success is dependent in part upon its ability to open and operate
new stores on a profitable basis and to increase sales at existing stores. The
Company's performance is also dependent to a significant degree upon its ability
to hire, train and integrate qualified employees into its operations. The
Company plans to open approximately 30 new outlets in Canada in fiscal year
2002. There can be no assurances that the Company will be able to locate and
obtain favorable store sites to meet its goals, attract and retain competent
personnel, open new stores on a timely and cost-efficient basis or operate the
new and existing stores on a profitable basis. The Company plans to open new
stores in existing markets, which may result in the diversion of sales from
existing stores and thus some reduction in comparable store sales. See
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Net Sales and Operating Revenues."
Management Information Systems
The Company's success is dependent to a significant degree upon the accuracy and
proper utilization of its management information systems. For example, the
Company's ability to manage its inventories, accounts receivable, accounts
payable and to price its products appropriately, depends upon the quality and
utilization of the information generated by its management information systems.
In addition, the success of the Company's operations is dependent to a
significant degree upon its management information systems. The failure of the
Company's management information systems to adapt to business needs resulting
from, among other things, expansion of its store base and the further
development of its various businesses, could have a material adverse effect on
the Company. See "Business - Management Information Systems."
Volatility of Stock Price
The price of the Common Stock may be subject to significant fluctuations in
response to the Company's operating results, developments in the consumer
electronics industry, general market movements, economic conditions, and other
factors. For example, announcements of fluctuations in the Company's, its
vendors' or its competitors' operating results, and market conditions for growth
stocks or retail industry stocks in general, could have a significant impact on
the price of the Common Stock. In addition, the U.S. stock market in recent
years has experienced price and volume fluctuations in general that may have
been unrelated or disproportionate to the operating performance of individual
companies. These fluctuations, as well as general economic and market
conditions, may adversely affect the market price of the Common Stock and the
ability of the Company to access the capital markets, if necessary, to finance
its future operations. See "Market for the Registrant's Common Equity and
Related Stockholder Matters" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
which is incorporated herein by reference.
Currency Fluctuation and Global Economic Risks
The Company's financial results are reported in U.S. Dollars. Due to the
structure of the Company's operations, possible periodic fluctuation of the
Canadian dollar against the U.S. dollar will have an impact on the Company's
financial results. RadioShack Canada conducts business in Canadian currency;
accordingly, depreciation in the
13
value of Canada's currency against the U.S. dollar would reduce earnings as
reported by the Company in its financial statements. RadioShack Canada purchased
approximately 13% of its inventory through RadioShack U.S.A. in fiscal 2001.
These purchases were all made in U.S. dollars and the products purchased were
sold in Canada in Canadian dollars. Accordingly, exchange rate fluctuations
could have an effect on the Company's gross margins. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations" which is incorporated herein by reference.
Currency exchange rates may fluctuate significantly over short periods of time.
Such rates generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates, and other complex
factors, as seen from an international perspective. Currency exchange rates also
can be affected unpredictably by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad.
Furthermore, due to the nature of the Company's operations, the operating
results of the Company may, from time to time, be generally affected by global
economic and political conditions as well as such conditions in Canada.
Item 2 PROPERTIES
InterTAN owns a 402,000 square-foot building (owned by InterTAN Canada)
containing office and warehouse space in Barrie, Ontario, Canada, where the
headquarters of InterTAN Canada is located.
InterTAN's head office is currently located in a leased 5,600 square-foot
facility near Toronto, Ontario, Canada. With the exception of a retail store
being located in the property in Barrie discussed above, InterTAN's retailing
operations are primarily conducted in leased facilities. The average store size
is between 1,200 and 1,800 square feet.
Additional information on the Company's properties is found in "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and in
the "Notes to Consolidated Financial Statements" and is incorporated herein by
reference. The following items are discussed further in the referenced pages of
this Form 10-K.
Pages
-----
Rent Expense 29
Retail Square Feet 16
Sales Outlets 22
Item 3 LEGAL PROCEEDINGS
With the exception of the matters discussed in Note 11 of the "Notes to
Consolidated Financial Statements" on page 56 of this Form 10-K, such Note being
incorporated herein by reference, there are no material pending legal
proceedings, other than ordinary routine litigation incidental to InterTAN's
business, to which InterTAN or any of its subsidiaries is a party or to which
any of their property is subject.
14
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
Item 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS.
The principal United States market in which InterTAN's common stock trades is
the New York Stock Exchange. The common stock also trades in Canada on the
Toronto Stock Exchange.
The high and low closing prices in U.S. dollars of InterTAN's common stock on
the New York Stock Exchange for each full quarterly period within the two most
recent fiscal years is as set out below:
(U.S. dollars, restated for 3 for 2 stock split)
Quarter ended High Low
----------------------------------------------------
June 2001 $ 14.45 $ 12.01
March 2001 13.56 8.13
December 2000 12.81 8.00
September 2000 15.31 10.81
June 2000 14.00 10.38
March 2000 17.79 8.94
December 1999 19.21 12.67
September 1999 14.59 11.00
As of August 31, 2001 there were approximately 10,600 record shareholders of
InterTAN's common stock. This number excludes shareholders holding stock under
nominee security position listing.
InterTAN has never declared cash dividends. Based upon InterTAN's long-term
growth opportunities, in the opinion of management, the stockholders are best
served by reinvesting all profits.
15
Item 6 SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
(In thousands, in U.S. dollars, except percent, per share data,
number of sales outlets and number of employees)
Year ended June 30
2001 /2/ 2000 1999 /3/ 1998 1997
------------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS:
------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 468,756 /1/ $ 484,218 /1/ $ 500,050 /1/ $ 541,374 /1/ $ 519,318 /1/
Gross profit percent 40.1 42.0 43.8 43.1 44.8
Operating income (loss) 41,417 44,005 3,014 2,360 /4/ (3,801)/6/
Net income (loss) 23,527 25,120 (24,645) (12,773) (16,609)
Basic net income (loss)
per average common share 0.84 0.85 (1.17) (0.70) (0.97)
Diluted net income (loss)
per average common share 0.82 0.82 (1.17) (0.70) (0.97)
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR END:
------------------------------------------------------------------------------------------------------------------------------------
Total assets 215,530 208,076 198,315 223,547 254,307
Net working capital 128,562 104,462 96,966 103,701 138,532
Long-term debt - - - 38,706 57,558
Stockholders' equity 144,309 118,776 110,760 85,990 106,234
------------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION AT YEAR END:
------------------------------------------------------------------------------------------------------------------------------------
Market capitalization 393,725 337,303 397,104 67,048 43,783
Number of sales outlets 833 /5/ 1,143 1,127 /5/ 1,517 /5/ 1,683 /5/
Retail square feet
(company-operated stores) 887 1,131 1,071 1,354 1,479
Number of employees 2,840 3,435 3,155 4,105 4,366
/1/ The Company's subsidiaries in Australia and the United Kingdom were sold
during fiscal years 2001 and 1999, respectively. If sales in those subsidiaries
were excluded from fiscal years 2001, 2000, 1999, 1998 and 1997, sales in those
years would have been $382,353,000, $364,163,000, $297,314,000, $270,675,000 and
$251,907,000, respectively, representing the sales of the Company's Canadian
subsidiary.
/2/ Fiscal year 2001 includes the sales and operating results of the Company's
former subsidiary in Australia for the first 10 months of the year as well as a
gain on the disposal of this subsidiary of $4,101,000 and related income taxes
of $581,000. Eliminating the results of this subsidiary would reduce operating
income and net income by $4,087,000 and $3,248,000 respectively.
/3/ Fiscal year 1999 includes the sales and operating results of the Company's
former subsidiary in the United Kingdom for the first six months of the year as
well as a loss on the disposal of this subsidiary of $35,088,000. Eliminating
the results of this subsidiary would increase operating income and reduce the
net loss by $31,723,000 and $32,641,000, respectively.
/4/ Fiscal year 1998 includes a provision for business restructuring in the
United Kingdom of $12,712,000. In addition, related inventory writedowns of
$2,325,000 were charged directly to gross profit.
/5/ In fiscal year 2001, the decline in the number of sales units is
attributable to the sale of the Company's former subsidiary in Australia. In
fiscal year 1999, the decline in the number of sales outlets is due to the
disposal of
16
the Company's former subsidiary in the United Kingdom. In fiscal 1998, the
decline was due primarily to the closure of stores under a restructuring plan in
the United Kingdom and the planned reduction in the number of low volume dealers
in all countries. The latter also affected the number of outlets in fiscal 1997.
/6/ Fiscal year 1997 includes an asset impairment charge of $10,042,000 in the
United Kingdom.
17
Item 7 MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ("MD&A").
Introductory Note Regarding Forward-looking Information
Certain statements contained in MD&A including statements regarding the
Company's ability to grow sales by increasing the dealer base in Canada, the
impact on future sales of new products and services and enhancements to existing
products and services, the Company's ability to increase income by increasing
gross profit dollars and leveraging on expenses, the adequacy of the indemnity
obtained from the purchaser of the Company's former subsidiary in the United
Kingdom, the results of an audit of the Company's former subsidiary in Australia
and possible payments under indemnities provided to the purchaser of InterTAN
Australia Ltd., changes in the gross margin percentage, the level of future
interest income and expense, the outcome of various tax issues in Canada, the
United States and Australia, including estimates of future tax payments,
forecasted capital expenditures for fiscal year 2002, estimates of cash required
to fund the repurchase of common stock, and the Company's ability to meet its
liquidity needs constitute forward-looking statements that involve risks and
uncertainties. Important factors that could cause actual results to differ
materially from those indicated in the forward-looking statements include, but
are not limited to international economic conditions, interest and foreign
exchange rate fluctuations, actions of United States and foreign taxing
authorities, including computations of balances owing, changes in consumer
demand and preferences, consumer confidence, 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, the value of the Company's common stock and the general condition
of the stock market, real estate market fluctuations and other risks indicated
in InterTAN's previously filed periodic reports with the Securities and Exchange
Commission. These risks and uncertainties are beyond the ability of the Company
to control, and in many cases the Company cannot predict the risks and
uncertainties that could cause its actual results to differ materially from
those indicated by the forward-looking statements.
Results of Operations
InterTAN is engaged in the sale of consumer electronics products primarily
through company-operated retail stores and dealer outlets in Canada. The
Company's retail operations are conducted through a wholly-owned subsidiary,
InterTAN Canada Ltd., which operates under the trade name "RadioShack". The
Company previously also had retail and dealer outlets in both Australia and the
United Kingdom. Operations in these countries were carried out through two
wholly-owned subsidiaries, InterTAN Australia Ltd. and InterTAN UK Ltd. These
subsidiaries were sold effective April, 2001 and January, 1999. See "Gain on
Sale of Australian Subsidiary" and "Loss on Sale of United Kingdom Subsidiary".
Operations in Australia and the United Kingdom were conducted under the trade
name "Tandy". The "RadioShack" and "Tandy" 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 Wireless Inc. ("Rogers") to
operate telecommunications stores ("Rogers AT&T" stores) on its behalf. At June
30, 2001, 55 Rogers AT&T stores were in operation.
All references to "Canada" or "RadioShack Canada", "Australia" or "Tandy
Australia", the "United Kingdom" or "Tandy U.K." or "Corporate Headquarters"
refer to the Company's reportable segments, unless otherwise noted. The
RadioShack Canada segment includes the results of the Rogers AT&T stores
described above.
18
Stock Split
On November 30, 1999, the Company's Board of Directors announced a three-for-two
stock split of InterTAN's common stock for stockholders of record at the close
of business on December 16, 1999, payable on January 13, 2000. All references
made to the number of shares of common stock issued or outstanding, per share
prices and basic and diluted net income per common share amounts in the
consolidated financial statements and the accompanying notes and MD&A have been
adjusted to reflect the split on a retroactive basis. Previously awarded stock
options, restrictive stock awards and certain other agreements payable in the
Company's common stock have also been adjusted or amended to reflect the split,
on a retroactive basis.
Overview
There were a number of special factors and charges in fiscal years 2001 and 1999
that significantly impacted the Company's results of operations and affected the
comparability of the reported results with other periods. As previously
discussed, effective April 30, 2001, the Company sold its subsidiary in
Australia and recorded a gain on disposal of $4,101,000. In addition, the
Company settled substantially all of its remaining tax issues with the Canadian
and United States tax authorities and recorded a charge of $700,000 in
conjunction with such settlement.
In January 1999 the Company sold its under-performing subsidiary, InterTAN UK
Limited, and recorded a loss of $35,088,000. Also in fiscal year 1999, the
Company settled one of its long-standing disputes with the Canadian tax
authorities and recorded a related tax charge of $8,039,000. See "Gain on Sale
of Australian Subsidiary" and "Loss on Sale of United Kingdom Subsidiary" and
"Income Taxes."
The tables below reflect the Company's sales, operating income, net income
(loss), and net income (loss) per share for fiscal years 2001, 2000 and 1999,
adjusted to eliminate the following: sales and results of InterTAN UK Limited
for 1999 and InterTAN Australia Ltd. for all three years; the gain on the sale
of InterTAN Australia Ltd. and the loss on sale of InterTAN UK Limited; and the
special tax charges relating to the disputes settled with the Canadian and U.S.
tax authorities.
19
Year ended June 30
(U.S. dollars in thousands, exept per share data) 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------
Net sales and operating revenues as reported
$ 468,756 $ 484,218 $ 500,050
Less sales of former Australian
and United Kingdom subsidiaries (86,403) (120,055) (202,736)
-----------------------------------------------------------
Net sales and operating revenues as adjusted
$ 382,353 $ 364,163 $ 297,314
===========================================================
Operating income
$ 41,417 $ 44,005 $ 3,014
(Gain) loss on sale of former Australian
and United Kingdom subsidiaries (4,101) - 35,088
Operating (income) loss of former Australian
and United Kingdom subsidiaries 14 (6,777) 10,504)
-----------------------------------------------------------
Operating income as adjusted
$ 37,330 $ 37,228 $ 27,598
===========================================================
Net income (loss) as reported
$ 23,527 $ 25,120 $ (24,645)
(Gain) loss on sale of former Australian
and United Kingdom subsidiaries (4,101) - 35,088
Net (income) loss of former Australian
and United Kingdom subsidiaries 272 (4,784) (7,974)
Income taxes on sale of Australian subsidiary
and other tax adjustments 1,281 - 8,039
-----------------------------------------------------------
Net income as adjusted
$ 20,979 $ 20,336 $ 10,508
===========================================================
Basic net income (loss) per average common share
as reported
$ 0.84 $ 0.85 $ (1.17)
===========================================================
Diluted net income (loss) per average common share
as reported $ 0.82 $ 0.82 $ (1.17)
===========================================================
Basic net income per average common share as adjusted $ 0.75 $ 0.69 $ 0.50
===========================================================
Diluted net income per average common share as adjusted $ 0.73 $ 0.67 $ 0.46
===========================================================
20
Segment Reporting Disclosures
The Company's business is managed along geographic lines. All references to
"Canada", "Australia", "Corporate Headquarters" and "the United Kingdom" refer
to the Company's reportable segments, unless otherwise noted. Transactions
between operating segments are not common and are not material to the segment
information.
Summarized in the table below are the net sales and operating revenues,
operating income (loss), and assets for the Company's reportable segments for
the fiscal years ended June 30, 2001, 2000, and 1999:
Year Ended June 30
(U.S. dollars in thousands) 2001 2000 1999
---------------------------------------------------------------------------------------------------------------
Net sales and operating revenues:
Canada $ 382,353 $ 364,163 $ 297,314
Australia 86,403 /1/ 120,055 105,595
United Kingdom - - 97,141 /3/
---------------------------------------------------------------------------------------------------------------
$ 468,756 $ 484,218 $ 500,050
================================================================================================================
Operating income (loss):
Canada 41,503 /2/ 42,526 $ 34,046
Australia 4,087 /1/ 6,778 7,139
United Kingdom - - (31,723) /3/
Corporate Headquarters (4,173) (5,299) (6,448)
-----------------------------------------------------------------------------------------------------------------
Operating income 41,417 44,005 3,014
Foreign currency transaction gains (losses) (353) (209) 331
Interest income 1,737 2,418 1,535
Interest expense (873) (587) (4,815)
----------------------------------------------------------------------------------------------------------------
Income before income taxes $ 41,928 $ 45,627 $ 65
===============================================================================================================
Assets:
Canada $ 163,016 $ 155,071 $ 136,703
Australia - /1/ 50,245 53,787
Corporate Headquarters 52,514 2,760 7,825
-----------------------------------------------------------------------------------------------------------------
$ 215,530 $ 208,076 $ 198,315
==================================================================================================================
/1/The Company sold its Australian subsidiary as of April 30, 2001 and
recognized a gain of $4,101,000. Accordingly, the Company's 2001 operating
results in Australia reflect only ten months of operation and the gain on sale.
/2/The effects of a weaker Canadian dollar yielded an unfavourable comparison of
operating income, measured in US dollars, in Canada for fiscal year 2001 with
the prior year. Measured in Canadian dollars, operating income in Canada
increased by 50 basis points.
/3/The Company sold its United Kingdom subsidiary in January 1999 and recognized
a loss of $35,088,000. Accordingly, the Company's 1999 operating results in the
United Kingdom reflect only six months of operation and the loss on sale.
21
Sales Outlets
The geographic distribution of the Company's sales outlets is summarized in the
following table:
Year ended June 30
2001 2000 1999
-----------------------------------------------------------
Canada
Company-operated 473/1/ 463/1/ 451/1/
Dealer 360 350 330
------------------------------------------------------------
833 813 781
------------------------------------------------------------
Australia /2/
Company-operated - 220 222
Dealer - 110 124
------------------------------------------------------------
- 330 346
------------------------------------------------------------
Total
Company-operated 473 683 673
Dealer 360 460 454
------------------------------------------------------------
833 1,143 1,127
------------------------------------------------------------
/1/In addition, the Company operated 55, 51 and 45 Rogers AT&T stores during
fiscal years 2001, 2000 and 1999, respectively.
/2/The Company's Australian subsidiary was sold effective April, 2001. At April
30, 2001, InterTAN Australia Ltd. had 223 company-operated stores and 103
dealers.
The dealers included in the preceding table are independent retail businesses
which operate under their own trade names but are permitted, under dealer
agreements, to purchase any of the products sold by InterTAN company stores. The
dealer agreements contain a license permitting the dealer to designate the
consumer electronics department of the dealer's business as a "RadioShack
Dealer" or a "Tandy Dealer", as applicable. Sales to dealers accounted for
approximately 12% of sales in Canada and Australia during fiscal year 2001 and
11% of sales during fiscal years 2000 and 1999. The decrease in the number of
dealers in Australia in fiscal year 2000 was primarily attributable to a program
designed to eliminate dealers that were not purchasing product in sufficient
quantities to make them profitable to the Company. The Company intends to
continue to explore opportunities to expand its dealer base in Canada to produce
profitable sales from communities too small to support company-operated stores.
The Company has entered into an agreement in Canada with Rogers to operate
Rogers AT&T telecommunications stores on its behalf. At June 30, 2001, 55 stores
were in operation. Under the terms of this agreement, Rogers leases the stores
and is responsible for fixed costs, including rent and realty taxes. The Company
recognizes revenue from the sale of product from these locations and also
receives an activation commission from Rogers. The level of commission received
is usually lower than for identical product sold from the Company's own stores.
This agreement was scheduled to expire on December 31, 2001. In July, 2001, the
Company and Rogers announced that the agreement had been renegotiated and
extended to December 2006. Since the Rogers AT&T stores are not company-owned,
they are not included in the above table.
InterTAN's business is seasonal; sales peak in the November - December holiday
selling season. The Company's cash flow requirements are also seasonal since
inventories build prior to the holiday selling season. Significant inventory
growth for all operations typically begins to build in late summer and peaks in
November.
22
Profit and loss accounts, including sales, are translated from local currency
values into U.S. dollars at the monthly average exchange rates. The impact of
fluctuations of local country currencies against the U.S. dollar can be
significant. During fiscal year 2001, both the Canadian and Australian dollars
were weaker on average against the U.S. dollar than they were in fiscal year
2000. As a result, the same local currency amounts translate into fewer U.S.
dollars as compared with the prior year. For example, if local currency sales in
Canada in fiscal year 2001 were equal to those in fiscal year 2000, the fiscal
year 2001 income statement would reflect a 3% decrease in sales when reported in
U.S. dollars.
The following table outlines the percentage change in the weighted average
exchange rates of the currencies of Canada, Australia and the United Kingdom
relative to the U.S. dollar as compared to the prior year.
Year ended June 30
(percentage change) 2001 2000 1999
----------------------------------------------------------------
Canada (3.0) 2.9 (6.5)
Australia (13.7)/1/ 0.2 (7.4)
United Kingdom - - 1.1/2/
----------------------------------------------------------------
/1/Represents the weighted average exchange rate for the first ten months of
fiscal year 2001 compared to the same period in the prior year.
/2/Represents the weighted average exchange rate for the first six months of
fiscal year 1999 compared to the same period in the prior year.
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 sales tax system, the tax was included in the
retailer's cost. The rates ranged from nil percent to 22%, depending on the
class of the 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 now pays a
tax at the point of sale on the selling price on the goods. The rate is 10% and,
with one or two exceptions, applies to all goods and services. For the retailer,
this means a reduction in cost of all goods sold, since it no longer pays the
sales tax. However, it also means 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 first ten months
of fiscal year 2000, its sales and cost of products sold would have been
approximately $8 million 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 have all been affected.
Management has adjusted the actual percentages used for comparative purposes to
what they would have been had there been no wholesale tax in the prior year
periods. These adjusted
23
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.
Net Sales and Operating Revenues
Consolidated sales for fiscal year 2001 in U.S. dollars were $468,756,000
compared to $484,218,000 during fiscal year 2000. However, comparisons with the
prior year were complicated by three significant factors:
. This year's sales include results for Australia for only ten months.
. Weaker currencies in both countries, particularly in Australia.
. Last year's sales in Australia included the former wholesale sales tax. See
"Goods and Services Tax - Australia".
When the effects of all three factors are eliminated, consolidated sales,
measured at the same exchange rates, increased by 8.4% over the prior year, with
comparable store sales increasing by 7.5%.
The following table illustrates the total percentage sales increase (decrease)
by segment area as measured in U.S. dollars and local currencies.
U.S. dollars
Year ended June 30
(percentage change) 2001 2000 1999
----------------------------------------------------------------
Canada 5.0 22.5 9.8
Australia (21.7)/1/ 13.7 7.6
United Kingdom - - (43.7)/2/
------------------------------------------------------------------
Local Currencies
Year ended June 30
2001 2000 1999
------------------------------------------------------------------
Canada 8.3 19.0 17.5
Australia (9.3)/1/ 13.5 16.1
United Kingdom - - (44.3)/2/
------------------------------------------------------------------
/1/Results for the Australia segment for fiscal year 2001 only include sales for
the first ten months of the year. When fiscal year 2000 sales are adjusted to
exclude May and June, 2000, fiscal year 2001 sales increases of 2.4% and 8.4% in
U.S. dollars and local currency, respectively, result.
/2/Results for the United Kingdom segment for fiscal year 1999 only include
sales for the first six months of the year. When sales for the prior period are
adjusted to exclude sales for the January - June period, sales losses of 4.5%
and 5.5% in U.S. dollars and local currency, respectively, result.
24
The following table illustrates the percentage change in comparative
company-operated store sales, measured in local currencies/1/.
Year ended June 30
(percentage change) 2001 2000 1999
-----------------------------------------------------------
Canada 6.9 15.4 18.3
Australia 9.6/2/ 11.5 14.3
United Kingdom - - 13.3/3/
-----------------------------------------------------------
Consolidated 7.5/2/ 14.4 16.3/3/
-----------------------------------------------------------
/1/Derived from the accumulation of each store's monthly sales in local currency
for those months in which it was open both in the current and preceding year.
/2/Includes results for Australia only for the first ten months of the year.
/3/Includes results for the United Kingdom only for the first six months of the
year.
Sales growth in Canada during fiscal year 2001 was broadly based, with
double-digit gains occurring in almost one-half of the Company's major product
categories. Sales of Family Radio Service ("FRS") products grew significantly,
with an increase in the traditional communications category of over 40%. This
product was first introduced late in fiscal year 2000 and is ideally suited to
the Company's stores and customer base. The broader and deeper assortment of
computer accessories introduced in fiscal year 2000 continued to pay dividends
in fiscal year 2001, with a sales increase of over 30%. Management expects that
a further broadening of this category as well as other accessories will yield
benefits in fiscal year 2002. The final roll out of the Company's Panasonic
store-in-store fixture to a further 200 stores was completed during fiscal year
2001, contributing to a sales gain in the audio/video category of over 17%. Unit
sales of direct-to-home satellite increased by over 20%. Management believes
that expanded programming and enhanced hardware capabilities announced by the
carriers will offer opportunities for further growth in this category. Sales of
cellular handsets grew by about 13%. Management believes the introduction of new
hardware with improved capability and functionality, together with the renewal
of the Company's alliance with Rogers, will enable the Company to further grow
this product category. While sales of CPUs increased by over 20%, much of this
increased activity was of a promotional, clearance nature, at the expense of
gross margins.
In Australia, sales growth during fiscal year 2001 was focused on a more narrow
range of product categories. Sales of computer accessories increased by over 30%
reflecting a much broader product assortment. However, sales of CPUs and
monitors declined by 2%, as the PC market was weak in Australia for a
significant part of the fiscal year. The significantly weakened Australian
dollar made many of the newer innovative machines with accessories such as CD-RW
a very high-ticket item and unaffordable to many customers. 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, was virtually non-existent in
Australia, despite managements multiple attempts to encourage infrastructure
providers. The addition of two new carriers to the Company's cellular line-up,
together with increased focus by our sales management and associates,
contributed to significant growth in that category in both prepaid and
contracted phones. Importantly, unit sales of contracted phones, which bring in
a stream of residual income, increased by over 40%. Sales of audio/video
products increased by 14% in response to a product offering with a more branded
focus.
There are a number of factors which should be considered in evaluating the
overall sales performance in Australia during fiscal year 2001.
25
. The overall retail economy was weak and showed negative growth for part of
the year.
. The introduction of a new warehouse and distribution system may have caused
short-term disruption to the replenishment of the Company's stores leading up
to the holiday selling season.
. The negative influence on consumer confidence of concerns created by the
steep decline in the value of the Australian dollar.
. Reductions in consumer purchasing power in the post-Olympic period, as many
Australians used a disproportionate share of discretionary income to
purchase expensive Olympic tickets and related items.
. Uncertainty and morale difficulties attendant to the strategic review process
and the necessary involvement of local management in the sales process.
All of these factors may have contributed to the disappointing sales results in
Australia, including sales declines in many of the Company's traditionally
strong categories, including personal electronics, parts and accessories,
batteries, regular telephones, and toys.
Sales growth in Canada during fiscal year 2000 was broadly based, with gains
being achieved in most major core categories. Sales of direct-to-home satellite
systems increased by over 100%, as the Company became a destination of choice
for consumers who wish to buy this popular product. Wireless products continue
to be popular with consumers and the Company increased revenues in this category
by over 30%. The audio/video category also performed well with a sales increase
of over 20%, reflecting in part the rollout of the proven store-in-store
Panasonic fixture to 200 company-operated stores. Sales of computer accessories
and software increased by over 45% as the Company offered a broader and deeper
assortment of these products. Although introduced in the Canadian market too
late in the year to have a meaningful impact on sales in the communications
category, sales of the newly approved FRS products were very strong in May and
June.
Sales growth in Australia was more narrowly focused, with gains concentrated in
a few key categories. Fiscal year 2000 saw the roll out of a new strategy for
personal computers, with a wider range of models available in more of the
Company's stores. This strategy was successful in producing a sales gain in that
category of over 100%. Sales of CPUs and monitors were also used to drive the
sale of computer accessories, which grew by over 40%. Fiscal year 2000 was a
difficult year for cellular in Australia. As the analog system was eliminated at
the end of calendar year 1999, many of the late adopters to digital were
infrequent users who opted to purchase the cheaper and less profitable prepaid
models. Competition intensified in the distribution channel, putting pressure on
both pricing and margins.
Sales growth in Canada was also broadly-based in fiscal year 1999. Sales growth
was most evident in the wireless and computer categories, reflecting not only
the emphasis placed on these categories, but also strong consumer demand. In
wireless, the performance of the Rogers AT&T stores was a major contributor to
growth, with those stores producing an overall sales gain of over 25%, despite a
reduction in the store count of over 15%. Direct-to-home satellite also played
an important part in Canada's sales growth for the year. The Company's focus on
the telephone and battery categories continued to deliver strongly on the sales
line.
The growth in sales in Australia in fiscal year 1999 was also broadly-based,
with increases experienced in almost all product categories. Sales of computers
were particularly strong. In the wireless category, introduction of the prepaid
cellular telephone into the Australian market resulted in sales growth, both of
handsets and related airtime cards. Sales of subscriber-based digital cellular
were also strong, as the government planned to substantially shut down the
analog system at the end of 1999. Sales gains in batteries and telephones also
contributed to overall sales growth in Australia.
Sales in the United Kingdom segment for the first six months of fiscal year 1999
decreased in local currency by 5.5% compared to the same period in fiscal year
1998. This reduction was more than attributable to the closure
26
of 69 unprofitable stores in the third quarter of fiscal year 1998.
Comparable-stores sales increased by 13.3%. However, unlike Canada and
Australia, sales growth in the United Kingdom was narrowly focused, with only
wireless communications showing meaningful improvement. The Company's subsidiary
in the United Kingdom was sold in January 1999. See "Loss on Sale of United
Kingdom Subsidiary ".
Gross Profit
Gross profit dollars for fiscal year 2001 were $15,416,000 lower than during
fiscal year 2000. Of this reduction, $7,217,000 is explained by the sale of the
Company's Australian subsidiary. Included in last year's gross profit were a
full twelve months of operation, compared with ten months this year. The balance
is more than explained by the effects of weaker foreign currencies. When the
effects of the Australian sale and weaker currencies are eliminated, gross
profit dollars increased by 1.7%. The increase in gross profit in Canada,
measured at the same exchange rate was 3.9%.
The following summarizes the components of the change in gross profit from the
prior year:
Change in
(U.S. dollars in thousands) Gross Profit
-------------------------------------------------------------------
Increase in sales $ 15,488
Reduction in the gross margin percentage (12,431)
Foreign currency rate effects (11,256)
------------------------------------------------------------------
(8,199)
Effect of sale of Australian subsidiary (7,217)
------------------------------------------------------------------
$ (15,416)
==================================================================
The following table illustrates gross profit as a percentage of sales, by
segment:
Year ended June 30
(as a percentage of sales) 2001 2000 1999
-------------------------------------------------------------------
Canada 40.2 41.9 43.9
Australia 39.4/1/ 45.8/2/ 50.0/2/
United Kingdom - - 41.2/3/
-------------------------------------------------------------------
Consolidated 40.1 42.8/2/ 44.6/2/
===================================================================
/1/Represents the gross margin percentage in Australia for the first ten months
of fiscal year 2001.
/2/Gross margins for fiscal years 2000 and 1999 have been adjusted to exclude
the effects of the former wholesale sales tax in Australia. The combined gross
margin percentage for Canada and Australia for 1999, was 45.4%.
/3/Represents the gross margin percentage in the United Kingdom for the first
six months of fiscal year 1999.
The reduction in the gross margin percentage in Canada during fiscal year 2001
was 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. Promotional activity to
reduce higher than expected post-holiday season inventory placed pressure on
margins in the second half of the year. While demands in the marketplace will
continue to place pressure on margins, management believes that inventories are
now of high quality and
27
appropriate quantity and the need for extra heavy promotional discounting should
be substantially alleviated. Management has 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 Company's traditional and highly profitable range
of accessories. See "Net Sales and Operating Revenues". The Company introduced a
new store-specific micro-assortment replenishment program during fiscal year
2001. The inherent algorithms in this system should also contribute positively
to margin performance. The goal of this program is to get the right inventory,
in the right stores, in appropriate quantities, to capitalize on sales
opportunities within each given market, and should contribute to reduced
obsolescence and inventory shrink.
In Australia, the effects of the shift in the sales mix towards lower margin,
primarily branded and digital products was greater than in Canada because this
change in merchandising strategy was in an earlier stage in the rollout process
than in Canada. Another factor contributing to the gross margin decline in
Australia during fiscal year 2001 was a change in the wireless offering. While
the new pricing structure with the carriers preserved gross profit dollars, it
did reduce the gross margin percentage significantly. Other contributing factors
to the margin decline in Australia included the following:
. An advertising plan during the holiday selling season which focused on
television and emphasized lower margin percentage, higher margin dollar
wireless and computer products. Advertising funds were diverted from print
media, which can portray the Company's assortment of higher margin products
and accessories more effectively.
. The bundling of accessories with wireless handsets to meet the competitive
environment.
. More aggressive price positioning on selected products.
. Soft sales in many traditional higher margin products including parts and
accessories, batteries, toys and communications products.
. A weak Australian dollar, which forced up costs on imported goods. A soft
consumer market and the post GST pricing regulations made it difficult to
pass many of these increases to the customer.
In Canada and Australia, the gross margin percentages in fiscal years 2000 and
1999 all came under pressure as management pursued a planned strategy of
transforming the Company from a niche retailer of primarily private label end
products and, parts and accessories into a dynamic retailer of state of the art,
high tech and primarily branded products. This strategy impacted the gross
margin percentage in four ways:
. Gross profit dollars rose significantly during each period.
. Management embarked on a strategy specifically designed to place the pursuit
of incremental gross profit dollars and improvements in operating margin as
paramount in importance. Accordingly, the Company developed and implemented
strategic alliances with key national and international brands.
. Margins within product categories declined as nationally branded product
replaced higher margin private label goods.
. Overall margins declined as sales of certain popular products, including
computers, wireless and, in Canada, home satellite, increased at a rate
disproportionate to the overall increase in sales. These products generally
carry margins that are below the Company's average.
The impact of the third of these factors was particularly noticeable in
Australia during fiscal year 2000, as the percentage of computers and related
accessories in the overall sales mix increased by almost 50%. A shift in the
wireless business in Australia away from more profitable contract plans to
prepaid airtime models was also a factor.
It has been, and will continue to be, management's policy to pursue
opportunities for profitable sales growth, i.e., growth which will yield
increases in gross profit dollars that exceed incremental selling, general and
28
administrative expenses. Management believes that a modest reduction in the
gross margin percentage in the Canadian segment may continue into fiscal year
2002 as customers continue to demand the latest in digital technology. Consumer
reaction to planned marketing campaigns for computers equipped with Intel
Pentium 4 technology and Microsoft Windows XP may influence the gross margin
percentage. The stronger the results of these campaigns, the greater management
expects gross profit dollars to grow, with attendant pressure on consolidated
gross margin percentages. However, management believes the incremental gross
profit dollars generated by these newly-introduced products will exceed direct
selling expenses, thereby increasing operating income. Digital products
typically offer lower margins, but are nevertheless profitable products. In
addition, while these products initially carry below company average margins,
many offer opportunities to generate after-sale compensation in the form of
residuals, and sale-based bonuses. During fiscal year 2001, after-sale
compensation streams generated approximately $8,300,000 in revenue, about 1.8%
of total revenue and improved the gross margin percentage by 1.1 percentage
points. Management believes these future revenue streams will partially mitigate
the margin decline. In addition, many of these products present opportunities to
sell related, and more profitable, parts and accessories.
Selling, General and Administrative Expenses
The following table provides a breakdown of selling, general and administrative
expense ("SG&A") by major category:
SG&A Expenses by Category
2001 2000/1/ 1999/1/
(U.S. dollars in thousands, Dollars % of Sales Dollars % of Sales Dollars % of Sales
except percents)
-----------------------------------------------------------------------------------------------------------------
Payroll $ 64,314 13.7 $ 68,543 14.4 $ 76,397 15.7
Advertising 17,201 3.7 19,489 4.1 20,753 4.3
Rent 25,025 5.3 25,773 5.4 31,457 6.5
Taxes (other than income tax) 9,022 1.9 9,266 2.0 12,283 2.5
Telephone and utlities 4,243 0.9 4,418 0.9 5,220 1.1
Other 24,463 5.3 25,847 5.5 28,858 5.9
-----------------------------------------------------------------------------------------------------------------
$ 144,268 30.8 $ 153,336 32.3 $174,968 36.0
-----------------------------------------------------------------------------------------------------------------
/1/Percentages for fiscal year 2000 and 1999 have been adjusted to remove the
effects of the former wholesale sales tax in Australia.
During fiscal year 2001, foreign currency effects and the effects of the sale of
the Australian subsidiary more than offset the increase in SG&A expenditures,
measured at the same exchange rates. Consequently, SG&A expenses declined during
the year by $9,068,000. However, when these two factors are eliminated, SG&A
expenses, measured at the same exchange rates, increased by 4.5%.
29
The following is an analysis of the net decline in SG&A expenses:
(U.S. dollars in thousands)
---------------------------------------------------------------------------
Increase in spending, measured at the same exchange rates $ 6,155
Foreign currency effects (8,754)
--------------------------------------------------------------------------
(2,599)
Effects of sale of the Australian subsidiary (6,469)
--------------------------------------------------------------------------
$ (9,068)
==========================================================================
Payroll increased in both Canada and Australia in support of higher sales.
Payroll also increased in Australia to strengthen the management group and also
as a result of a charge of $556,000 following the acceleration of the stock
options held by senior employees on the sale of that subsidiary. These increases
were partially offset by reductions at Corporate Headquarters, including a
reduction in the accrual for executive bonuses. In addition there was no expense
related to performance-based restricted stock awards as the Company did not meet
its operating target. Rent increased in both Canada and Australia as a result of
both an increase in the number of stores and regular increases on lease
renewals. Net advertising expense declined in both countries due to an increase
in vendor advertising support. A further reduction in advertising spending arose
in Canada, as a decision was made to cut electronic advertising following the
holiday selling season and to use tactical print media as needed.
Following the completion of a strategic review to explore opportunities to
enhance shareholder value, which lead to the sale of InterTAN's Australian
subsidiary, the Company announced a restructuring plan which will, among other
things, result in the consolidation of the Corporate Headquarters with
RadioShack Canada and improved operating efficiencies in the Canadian
subsidiary. Management anticipates that this action will reduce certain SG&A
expenses during fiscal year 2002.
The following table illustrates SG&A expenses as a percentage of sales, by
geographic segment area:
(as a percentage of sales) 2001 2000 1999
----------------------------------------------------------------------
Canada 28.0 29.0 31.0
Australia 37.5/1/ 38.7/2/ 41.6/2/
United Kingdom - - 36.9/3/
----------------------------------------------------------------------
/1/Based on sales and expenses for the first ten months of fiscal year 2001.
/2/Fiscal years 2000 and 1999 percentages have been adjusted based on expenses
and sales, as adjusted to eliminate the effects of the wholesale sales tax.
/3/Based on sales and SG&A expenses for the first six months of fiscal year
1999.
The reduction in SG&A expenses during fiscal year 2000 is more than explained by
the sale of the United Kingdom subsidiary, which had the effect of reducing SG&A
expenses by $35,873,000. In U.S. dollars, SG&A expenses in Canada, Australia and
Corporate Headquarters increased by $14,241,000. Measured at the same exchange
rates, SG&A expenses in these three segments increased by 8.2%. This compares to
increases of 17.6% and 11.1% in sales and gross profit dollars, respectively.
Payroll increased in both Canada and Australia in support of higher sales and
included increases in commissions, bonuses and other performance-based
compensation. These increases were partially offset by a reduction in
compensation costs at Corporate Headquarters, where expenses in the prior year
included costs related to management transition and the relocation of that
office to Canada. Rent has increased partially as a result of a net increase in
the store count
30
and in part as a result of routine rent review. Advertising exposures increased
as the Company increased its media presence, both in terms of flyers and
newspaper inserts, and television.
The sale of the former United Kingdom subsidiary also more than explained the
reduction in SG&A expenses during fiscal year 1999. When the effects of United
Kingdom SG&A expenses are eliminated, Canada, Australia and Corporate
Headquarters posted an increase in SG&A expenses, measured at the same exchange
rates, of 9.3%, substantially less than the increase in sales and gross profit
dollars. As was the case in fiscal year 2000, payroll increased in support of
stronger sales and rents increased, primarily as a result of ongoing rent
reviews. SG&A expenses also increased as a result of the scheduled increase in
the royalty payable to RadioShack U.S.A. from 0.75% to its maximum rate of 1.0%.
Depreciation and Amortization
Depreciation and amortization expense increased during fiscal year 2001 by
$354,000. This increase resulted from an increase in capital spending, primarily
in Canada, which was partially offset by the effects of the sale of the
Australian subsidiary. Capital spending in Canada was primarily on new stores
and remodeling and relocating existing stores, and on information systems.
Depreciation and amortization decreased in fiscal year 2000 by $375,000. This
reduction is more than explained by the sale of the former United Kingdom
subsidiary. Depreciation expense in Canada and Australia increased reflecting
additional investment in stores, including remodeling and fixture enhancements.
Depreciation and amortization decreased by $1,043,000 during fiscal year 1999,
primarily as a result of the sale of the United Kingdom subsidiary and foreign
currency effects.
Gain on Sale of Australian Subsidiary
On April 30, 2001, the Company sold its operating Australian subsidiary,
InterTAN Australia Ltd. and recorded a gain of $4,101,000. The proceeds, net of
selling costs, were approximately $48,000,000 and are subject to adjustment
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
downwards by the excess of the net assets as at December 31, 2000 over the net
assets as at April 30, 2001. Based on preliminary audit results, management
estimates that the price will be adjusted downwards by approximately $2,000,000.
This price adjustment has been taken into consideration in determining the gain
on disposal as described above.
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,
other than 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 was 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. The
maximum exposure with respect to this matter is approximately A$300,000
(approximately $150,000).
Management estimates that United States federal tax and Australian withholding
tax on the sale will be approximately $600,000. United States tax on the gain on
sale was minimal because of the utilization of loss carryforwards for which the
deferred tax asset had a full valuation allowance. Management believes there are
authoritative arguments in support of the position that this transaction is
exempt from Australian capital gains
31
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 $7,000,000.
Loss on Sale of United Kingdom Subsidiary
During fiscal year 1999, the Company's Board of Directors approved a plan to
sell the Company's investment in InterTAN U.K. Limited for proceeds of
$2,582,000, net of estimated selling costs and the Company recorded a loss of
$35,088,000. The sale included all assets, liabilities and other obligations of
the United Kingdom subsidiary, including approximately $11,600,000 of bank debt
outstanding under InterTAN U.K. Limited's portion of the Company's syndicated
loan agreement, which was repaid by the purchaser at closing. See Segment
Reporting Disclosures, for revenue and operating income (loss) associated with
InterTAN U.K. Limited.
In addition, the purchaser assumed the rights to claim tax loss carryforwards
and other deferred tax deductions having a potential tax benefit of
approximately $28,000,000. To the extent the purchaser is able to utilize all or
a portion of these loss carryforwards and other deferred tax deductions, the
Company is entitled to cash payments equal to 30% of the tax savings realized by
the purchaser (a maximum of approximately $8,400,000). The Company will
recognize such proceeds, if any, as received. No amounts have been received to
date.
Under the terms of the sale agreement, the Company remains contingently liable
as guarantor of certain leases of InterTAN U.K. Limited. At June 30, 2001, the
remaining lease obligation assumed by the purchaser and guaranteed by the
Company was approximately $19,000,000 and the average remaining life of such
leases was approximately five years. If the purchaser were to default on the
lease obligations, management believes the Company could reduce the exposure
through assignment, subletting and other means. The Company has obtained an
indemnity from the purchaser for an amount equal to management's best estimate
of the Company's exposure under these guarantees. The amount of this indemnity
declines over time as the Company's risk diminishes. At June 30, 2001, the
amount of this indemnity was approximately $7,100,000. Costs, if any, resulting
from these contingencies will be recorded as incurred, or become probable and
estimable.
Foreign Currency Transaction (Gains) Losses
Foreign currency transaction losses of $353,000 and $209,000 occurred during
fiscal years 2001 and 2000, respectively. A foreign currency transaction gain of
$331,000 occurred during fiscal year 1999. These gains and losses resulted from
a variety of factors, including the effect of fluctuating foreign currency
values on certain intercompany debt and trade payables denominated in currencies
other than the functional currency of the debtor. In fiscal year 1999, the
Company's major exposure to foreign currency risks was the Canadian dollar
denominated subordinated convertible debentures (the "Debentures") that were
designated as a hedge against the Company's net investment in its Canadian
subsidiary. Foreign exchange gains and losses on the Debentures for fiscal year
1999 are included in other comprehensive income. As at June 30, 1999, all of the
Debentures had been converted into the Company's common stock.
Interest Income and Expense
Interest income was $1,737,000, $2,418,000, and $1,535,000 during fiscal years
2001, 2000, and 1999, respectively. The reduction in interest income during
fiscal year 2001 resulted from a reduction in the Company's cash resources as a
result of the stock repurchase program completed during the first quarter. The
effects of this decline in cash on interest income were partially offset by
proceeds received in the sale of the
32
Australian subsidiary during the fourth quarter. Declining interest rates were
also a factor in the reduction in interest income. Management anticipates a
further reduction in interest income during fiscal year 2002 as a result of the
recently announced additional stock repurchase program, the payment of income
taxes following the settlement of outstanding issues with the Canadian and
United States authorities, the effects of the sale of the Australian subsidiary
and further interest rate reductions. See "Liquidity and Capital Resources".
The increases in interest income during fiscal years 2000 and 1999 were
reflective of the Company's improved cash position during these years and, to a
lesser extent, higher interest rates in fiscal year 2000.
Interest expense during fiscal year 2001 increased by $286,000. This increase
resulted from third party borrowings to finance the build up of inventories for
the holiday selling season. Management believes that such borrowings will be
significantly reduced during fiscal year 2002, with an attendant reduction in
interest expense.
Interest expense during fiscal year 2000 declined by $4,228,000. This reduction
reflected the conversion of the Debentures as well as reduced borrowing costs
following the sale of the former United Kingdom subsidiary. These two factors
also contributed to a reduction in the interest expense of $1,821,000 during
fiscal year 1999. Another factor contributing to the fiscal year 1999 reduction
was the repayment of a note payable to RadioShack U.S.A.
Income Taxes
The provision for income taxes in fiscal years 2001, 2000 and 1999 includes
provisions for Canadian and Australian taxes on profits earned in those
countries, although no provision for Australian taxes was made during fiscal
year 2001, because the Australian subsidiary had a pre-tax loss through the date
of its sale. As discussed more fully below, the fiscal year 2001 provision
included a special charge of $700,000 related to the settlement of outstanding
issues with the Canadian and United States authorities as well as a provision of
$581,000 relating to the sale of the Australian subsidiary. See "Gain on Sale of
Australian Subsidiary". During fiscal year 1999, a special charge of $8,039,000
had been taken with respect to the settlement of some older issues with the
Canadian tax authorities. When these special tax charges are removed from the
provision for taxes and the gain (loss) on the disposal of the Australian and
United Kingdom subsidiaries are removed from income, effective tax rates for
fiscal years 2001, 2000 and 1999 of 45.3%, 44.9% and 47.4% result. The fiscal
year 1999 rate was higher as a result of interest paid on the Debentures for
which no tax deduction was available.
During fiscal year 1999, the Company reached an agreement with the Canadian tax
authorities relating to the settlement of a dispute regarding the 1990 to 1993
taxation years resulting in a charge of $8,039,000. While the amount in dispute
has been agreed and a settlement agreement has been executed, the Company has
not yet been fully reassessed and, accordingly, this amount has not been paid.
Management estimates the remaining payment relating to these issues to be
approximately $11,000,000.
Late in fiscal year 2001, the Company reached an agreement with both the
Canadian and United States tax authorities, settling substantially all of its
remaining outstanding tax issues and recorded an additional provision of
$700,000. Although agreement in principle has been reached on these issues,
final statements summarizing amounts owing have not been received from either
government. Because of the age of these issues and the terms of the settlements,
there are complex interest computations to be made. Accordingly, it is not
practical for management to determine with precision the exact liability
associated with these matters. Management estimates that the liability to settle
all outstanding tax issues, including the matter described immediately above, is
in the range of $23 million to $26 million. Management further believes that it
has a provision recorded sufficient to pay the estimated liability resulting
from these issues; however, the amount ultimately paid could differ from
management's estimate.
33
The Company has one remaining issue in dispute with the Internal Revenue Service
("IRS") in the United States. The Company disagrees with the position of the IRS
on this issue and, on the advice of legal counsel, believes it has meritorious
arguments in its defence and is in the process of vigorously defending its
position. It is management's determination that no additional provision need be
recorded for this matter. However, should the IRS prevail in its position, the
Company could potentially have an additional maximum liability $1,700,000.
Earnings per Share
Basic earnings per share ("EPS") is calculated by dividing the net income or
loss by the weighted average number of shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted.
With the conversion of the Debentures during fiscal year 1999, the Company's
only remaining dilutive instruments are the options to purchase common stock
held by the Company's directors and employees. At June 30, 2001, the Company's
directors and employees held options to purchase 1,532,445 common shares at
prices ranging from $2.48 to $14.75 per share. During quarters one through four
of fiscal year 2001, all but 750; 248,402; 248,402 and 750 of such options were
included in the computation of diluted earnings per common share. These options
were excluded because the option exercise price was greater than the average
market price of the common stock during the particular quarter. The dilutive
effect of the various options held by the Company's directors and employees in
future periods will depend on the average market price of the Company's common
stock during such periods.
New Accounting Standards
In December, 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance in the recognition, presentation and
disclosure of revenue in financial statements. The Company adopted SAB 101
effective March 1, 2001. The adoption of SAB 101 did not have a material effect
on the Company's consolidated financial statements.
Effective July 1, 2000, the Company adopted FAS 133, "Accounting for Derivative
Instruments and Hedging Activities". This new accounting standard provides new
rules for accounting for derivative instruments. With the exception of
occasional transactions to hedge U.S. dollar denominated purchase commitments,
the Company is not engaged in the extensive use of derivative instruments. Upon
adoption, FAS 133 did not have a material effect on the Company's financial
statements.
Liquidity and Capital Resources
Cash flow from operating activities generated $18,821,000 in cash during fiscal
year 2001. Net income, adjusted for non-cash items, generated $27,190,000 in
cash, while working capital requirements consumed $8,369,000 in cash. Accounts
receivable increased as a result of increases in amounts due from vendors under
various commission and rebate arrangements. Income tax payments also exceeded
the current year's provision as a result of the partial payment of one of the
disputes settled with the Canadian tax authorities and changing instalment
requirements.
Operating activities generated $22,347,000 in cash during fiscal year 2000. Net
income, adjusted for non-cash items, generated $33,641,000 in cash. Increased
inventory levels in support of higher sales consumed $14,429,000 in cash;
however, the effects of this increase were partially offset by an increase in
accounts
34
payable. Accounts receivable increased by $1,739,000, reflecting the fact that a
greater portion of the Company's revenue comes from vendors in the form of
wireless activation income, residuals and volume rebates. The payment of income
taxes, consumed $8,865,000 in cash, primarily because the final payment of
fiscal year 1999 taxes exceeded instalments paid during the year. Operating
activities generated $25,901,000 in cash during fiscal year 1999. Net income,
adjusted for non-cash items, generated $14,136,000 in cash. Increased inventory
levels consumed $11,050,000 in cash. Increased sales, in particular of wireless
products, as well as increased vendor advertising support also contributed to an
increase in accounts receivable of $7,096,000. The deferral of tax instalments
preserved $17,829,000 in cash as final fiscal 1999 tax payments were not due
until after year-end.
Investing activities generated $36,608,000 in cash during fiscal year 2001. The
sale of the Company's Australian subsidiary generated $47,735,000 in cash while
investments in property and equipment, primarily in Canada, consumed $12,891,000
in cash. Canadian capital spending related primarily to new stores, the
relocation or refitting of existing stores and improvement of the Company's
information systems.
Investing activities consumed $9,256,000 in cash during fiscal year 2000,
primarily related to capital expenditures in the Canadian and Australian
segments. The level of expenditures was higher than in fiscal year 1999, as the
Company accelerated the pace at which stores are remodeled or refitted to a new
format in both Canada and Australia and invested in additional information
systems, in particular in Australia. Investing activities consumed $17,140,000
in cash during fiscal year 1999. Capital expenditures, primarily on store
fixtures and office equipment, required $7,310,000 in cash. In addition, the
sale of the Company's former subsidiary in the United Kingdom consumed
$10,971,000 in cash, representing the cash balances of that company at the time
of sale less the net proceeds of disposition. However, the subsidiary also had
approximately $11,600,000 of short-term bank debt, which was assumed and repaid
by the purchaser.
Cash flows from financing activities consumed $12,546,000 in cash during fiscal
year 2001. During fiscal year 2000, the Company's Board of Directors announced
two share repurchase programs under which management was authorized, in the
aggregate, to purchase up to 3,000,000 shares of the Company's common stock.
These programs were completed during fiscal year 2001, with 1,214,800 shares
acquired at an aggregate cost of $15,529,000. The effects of this cash outflow
were partially offset by proceeds from the issuance of common stock to employee
plans and from the exercise of stock options by employees.
Cash flows from financing activities consumed $15,019,000 in cash during fiscal
year 2000, mainly as a result of repurchases of common stock at an aggregate
cost of $18,700,000. This cash outflow was partially offset by proceeds from the
issuance of common stock to employee plans and from the exercise of stock
options. Cash flow from financing activities generated $5,084,000 in cash during
fiscal year 1999. Short-term bank borrowings in the United Kingdom prior to its
sale resulted in a cash inflow of $2,448,000. Proceeds from the issuance of
stock under the Company's stock purchase plan and from the exercise of stock
options by employees generated $1,890,000 and $746,000, respectively, in
additional cash.
The Company's principal sources of liquidity are its cash and short-term
investments, its cash flow from operations and its banking facilities.
In December, 1997, the Company entered into a three-year revolving credit
facility, currently in an amount not to exceed C$67,000,000 (approximately
$44,200,000 at June 30, 2001 exchange rates). This facility was to have matured
on December 22, 2000, but was extended to March 22, 2001 and, subsequently to
May 4, 2001.
On May 4, 2001, InterTAN Canada Ltd. and InterTAN, Inc. entered into a new two-
year revolving credit facility (the "Revolving Loan Agreement") with the
previous lender in an amount not to exceed C$75,000,000
35
(approximately $49,500,000 at June 30, 2001 exchange rates). The Revolving Loan
Agreement matures March 22, 2003. 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 $25,000 at June 30, 2001 exchange rates) was payable on
closing. A further payment of C$37,500 is required on March 22, 2002. Borrowing
rates under the facility range from prime to prime plus 0.75% based on the
Company's quarterly performance against predetermined 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 collateralized 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 June 30, 2001, there were no borrowings
against the Revolving Loan Agreement, nor was any amount committed in support of
letters of credit. There was C$49,038,663 ($32,375,000 at June 30, 2001 exchange
rates) of credit available for use at June 30, 2001 under this facility.
Under the terms of the Company's Merchandise Agreement with RadioShack U.S.A.,
purchase orders with Far Eastern suppliers must be supported, based on a formula
set out in the Merchandise Agreement, by letters of credit issued by banks on
behalf of InterTAN, by a surety bond, or backed by cash deposits. The Company
has secured surety bond coverage from a major insurer (the "Bond") in an amount
not to exceed $12,000,000. The amount of the Bond may be reduced to $10,000,000
during fiscal year 2002. Use of the Bond gives 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 subsidiary had entered into a credit agreement with an
Australian bank. This agreement established a credit facility in the amount of
A$12,000,000 (approximately $6,100,000 at June 30, 2001 exchange rates). This
facility was cancelled on the closing of the sale of InterTAN Australia Ltd.
The Company's primary uses of liquidity during fiscal year 2002 will include the
funding of capital expenditures, the build up of inventories for the 2001
holiday selling season, funding the repurchase of common stock and payments in
settlement of tax issues. Management estimates that capital expenditures in
Canada during fiscal 2002 will approximate $14,000,000. These expenditures
relate primarily to investments in store assets, including new stores,
renovating and relocating existing stores and store fixtures and equipment,
improvements to the Company's distribution center and enhancements to management
information systems. In August 2001, the Company's Board of Directors announced
a share repurchase plan under which management was authorized, from time to time
and subject to regulatory approval, to repurchase up to 2,800,000 of the
Company's shares, approximately 10% of the shares outstanding at June 30, 2001.
While purchases under this program will depend on market conditions, management
estimates that the program could require between $22,000,000 and $34,000,000 in
cash during fiscal 2002. Late in fiscal year 2001, the Company reached
agreements with both the Canadian and United States tax authorities, settling
certain outstanding tax issues. See "Income Tax". Management estimates that
during fiscal year 2002 payments flowing from these settlements, together with
other matters previously agreed, will be approximately $23,000,000 to
$26,000,000. Depending on the timing of the tax reassessments and the stock
repurchase plan described above, some bank borrowings may be required to finance
the seasonal build up of inventories.
Management believes that the Company's cash and short-term investments on hand
and its cash flow from operations combined with its banking facilities and the
Bond will provide the Company with sufficient liquidity to meet its planned
requirements through fiscal year 2002.
36
Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of market risks arising primarily from the
impact of changes in interest rates on its short-term credit facilities and from
the impact of foreign currency fluctuations as they relate to its investment,
debt and activities in Canada.
Foreign currency fluctuations
The Company's activities are carried on in Canada and, previously, Australia.
The Company is exposed to foreign currency risks in three broad areas:
. Its inventory purchases.
. Translation of its financial results.
. Its net investment in Canada.
During fiscal year 2001, RadioShack Canada purchased approximately 13% of its
inventories in the Far East. These purchases are made in U.S. dollars and, under
the terms of its agreement with its suppliers, payment must be made at the time
of shipment. Accordingly, there is risk that the value of the Canadian dollar
could fluctuate relative to the U.S. dollar from the time the goods are ordered
until shipment is made.
Management monitors the foreign exchange risk associated with its U.S. dollar
open orders on a regular basis by reviewing the amount of such open orders,
exchange rates, including forecasts from major financial institutions, local
news and other economic factors. Based on this input, management decides whether
or not to lock in the cost of a portion of those orders in advance of delivery
by purchasing U.S. dollars or forward exchange rate contracts to be settled on
or near the estimated date of inventory delivery.
The table below shows the amount of open orders at June 30, 2001 and 2000, and
foreign exchange contracts and U.S. dollars on hand at June 30, 2001 and 2000
and which had been designated as a hedge against such open orders, and the
financial impact which would result if the local currencies were to decline in
value by 10% relative to the U.S. dollar from June 30, 2001 and 2000 to the date
of delivery. Open orders at June 30, 2000, include orders of the Company's
former subsidiary in Australia.
(U.S. dollars in thousands) June 30, 2001 June 30, 2000
-------------------------------------------------------------------------------------------
Open orders $ 12,247 $ 23,398
------------------------------------------------------------------------------------------
Impact of a 10% decline in local currency values $ 1,225 $ 2,340
------------------------------------------------------------------------------------------
Foreign exchange contracts and U.S. dollars on hand $ 10,425 $ 2,000
------------------------------------------------------------------------------------------
Impact of a 10% decline in local currency values $ (1,043) $ (200)
------------------------------------------------------------------------------------------
Net impact of a 10% decline in local currency values $ 182 $ 2,140
------------------------------------------------------------------------------------------
The incremental cost of such a decline in currency values, if incurred, would be
reflected in higher cost of sales in future periods. In these circumstances,
management would take product-pricing action, where appropriate.
38
Translation of financial results
The functional currencies of the Company's operating entities in Canada and
Australia are the respective local currencies. However, the reporting currency
of the Company on a consolidated basis is the U.S. dollar. Consequently,
fluctuations in the value of the Canadian and Australia dollars have a direct
effect on reported consolidated results. It is not possible for management to
effectively hedge against the possible impact of this risk.
The following table shows the combined sales and operating income (loss) for
fiscal years 2001 and 2000 of RadioShack Canada and the Company's Corporate
Headquarters and the effect that a 10% decline in local currency values would
have had on those results. The effects of the Company's former subsidiary in
Australia, including the gain on its disposal, have been excluded.
Year ended June 30, 2001 Year ended June 30, 2000
===================================================================================================
Effect of a Effect of a
10% Decline 10% Decline
in Currency in Currency
(U.S. dollars, in thousands) As Reported Values As Reported Values
---------------------------------------------------------------------------------------------------
Sales
Canada $ 382,353 $ (38,235) $ 364,163 $ (36,416)
---------------------------------------------------------------------------------------------------
$ 382,353 $ (38,235) $ 364,163 $ (36,416)
===================================================================================================
Operating Income
Canada $ 41,503 $ (4,150) $ 42,526 $ (4,253)
Corporate Expenses (4,173) 77/1/ (5,299) 91/1/
---------------------------------------------------------------------------------------------------
$ 37,330 $ (4,073) $ 37,227 $ (4,162)
===================================================================================================
/1/ Approximately $772,000 and $910,000 of the Company's corporate expenses were
paid in Canadian dollars, during fiscal years 2001 and 2000, respectively.
Net investment in foreign jurisdictions
The Company's net investment in Canada is recorded in U.S. dollars at the
respective period-end rates. Changes in these rates will have a direct effect on
the carrying value of this investment. The cumulative effect of such currency
fluctuations is recorded in stockholders' equity in accumulated other
comprehensive income (loss). The Company currently has no plans to hedge its
investment in Canada.
The following table shows the Company's net investment in Canada and is
expressed in U.S. dollars at June 30, 2001 and 2000. The table also shows the
effect on this amount if the Canadian dollar were to lose 10% of its value
against the U.S. dollar:
June 30, 2001 June 30, 2000
================================================================================
Effect of a 10% Effect of a 10%
Decline in Decline in
Currency Currency
Net Investment Values Net Investment Values
--------------------------------------------------------------------------------
Canada $ 97,395 $ (9,740) $ 86,824 $ (8,682)
================================================================================
39
Short-term interest rates
The Company's credit facilities include a syndicated banking facility in Canada
and, previously, a separate facility in Australia. These banking arrangements,
which are used primarily to finance inventory purchases, provide for interest on
any short-term borrowings at rates determined with reference to the local
"prime" or "base rates". These rates are, therefore, subject to change for a
variety of reasons that are beyond the Company's control. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" which is incorporated herein by reference.
In fiscal year 2001, the Company borrowed under its Canadian facility during the
months of October, November and December. Borrowings during those months
averaged approximately $22,000,000 and interest paid on such advances was
approximately $421,000. Interest on these Canadian borrowings was payable at the
Canadian prime rate plus 1%. Had the Canadian prime rate been 10% higher,
management estimates that interest expense for the year would have increased by
approximately $42,000. The Company's Australian subsidiary did not borrow during
fiscal year 2001. Neither the Canadian nor the Australian subsidiary incurred
any borrowings during fiscal year 2000.
It has not been the Company's policy to hedge against the risk presented by
possible fluctuations in short-term interest rates.
40
Item 8 FINANCIAL STATEMENTS
Report of Independent Accountants
To the Board of Directors and Stockholders of InterTAN, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of InterTAN,
Inc. and its subsidiaries at June 30, 2001, and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2001, in conformity with generally accepted accounting principles in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Toronto, Canada
August 13, 2001
41
Consolidated Statements of Operations
Year ended June 30
(In thousands, in U.S. dollars, except per share data) 2001 2000 1999
=================================================================================================================
Net sales and operating revenues $ 468,756 $ 484,218 $ 500,050
Other income 138 125 266
-----------------------------------------------------------------------------------------------------------------
468,894 484,343 500,316
Operating costs and expenses:
Cost of products sold 280,953 280,999 280,868
Selling, general and administrative expenses 144,268 153,336 174,968
Depreciation and amortization 6,357 6,003 6,378
(Gain) loss on disposal of subsidiary companies (4,101) - 35,088
-----------------------------------------------------------------------------------------------------------------
427,477 440,338 497,302
-----------------------------------------------------------------------------------------------------------------
Operating income 41,417 44,005 3,014
Foreign currency transaction gains (losses) (353) (209) 331
Interest income 1,737 2,418 1,535
Interest expense (873) (587) (4,815)
-----------------------------------------------------------------------------------------------------------------
Income before income taxes 41,928 45,627 65
Income taxes 18,401 20,507 24,710
-----------------------------------------------------------------------------------------------------------------
Net income (loss) $ 23,527 $ 25,120 $ (24,645)
=================================================================================================================
Basic net income (loss) per average common share $ 0.84 $ 0.85 $ (1.17)
Diluted net income (loss) per average common share $ 0.82 $ 0.82 $ (1.17)
-----------------------------------------------------------------------------------------------------------------
Average common shares outstanding 27,937 29,658 21,026
Average common shares outstanding assuming dilution 28,664 30,501 21,026
================================================================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
42
Consolidated Balance Sheets June 30 June 30
(In thousands, in U.S. dollars, except share amounts) 2001 2000
=============================================================================================================
Assets
Current Assets
Cash and short-term investments $ 86,233 $ 44,750
Accounts receivable, less allowance for doubtful accounts 12,598 12,803
Inventories 90,394 121,894
Other current assets 1,151 1,235
Deferred income taxes 2,290 2,295
-------------------------------------------------------------------------------------------------------------
Total current assets 192,666 182,977
Property and equipment, less accumulated depreciation and amortization 19,817 22,587
Other assets 16 29
Deferred income taxes 3,031 2,483
-------------------------------------------------------------------------------------------------------------
Total Assets $ 215,530 $ 208,076
=============================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 20,034 $ 26,174
Accrued expenses 13,650 16,821
Income taxes payable 24,913 30,137
Deferred service contract revenue - current portion 5,507 5,383
-------------------------------------------------------------------------------------------------------------
Total current liabilities 64,104 78,515
Deferred service contract revenue - non current portion 4,599 4,735
Other liabilities 2,518 6,050
-------------------------------------------------------------------------------------------------------------
Total liabilities 71,221 89,300
=============================================================================================================
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,
31,225,048 and 30,498,135, respectively, issued 31,225 30,498
Additional paid-in capital 151,744 146,214
Common stock in treasury, at cost, 3,101,818 and 1,789,815 shares,
respectively (35,405) (18,700)
Retained earnings (deficit) 13,752 (9,775)
Accumulated other comprehensive loss (17,007) (29,461)
-------------------------------------------------------------------------------------------------------------
Total stockholders' equity 144,309 118,776
=============================================================================================================
Commitments and contingencies (See notes 2, 3, 11 and 12)
Total Liabilities and Stockholders' Equity $ 215,530 $ 208,076
=============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
43
Consolidated Statements of Stockholders' Equity
Additional
Common Stock Paid-in Treasury Stock
(In thousands, in U.S. dollars) Shares Amount Capital Shares Amount
==================================================================================================================================
Balance at June 30, 1998 18,711 $ 18,711 $ 109,743 $
Comprehensive loss:
Net loss
Foreign currency translation adjustments
Comprehensive loss
Issuance of common stock to employee plans 792 792 2,428
Issuance of common stock under
stock option plans 153 153 593
Conversion of subordinated debentures
to common stock 10,119 10,119 28,155
Stock-based compensation 8 8 207
----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 29,783 29,783 141,126
Comprehensive income:
Net income
Foreign currency translation adjustments
Comprehensive income
Issuance of common stock to employee plans 264 264 3,140
Issuance of common stock under
stock option plans 451 451 1,352
Stock-based compensation 596
Purchase of treasury stock (1,790) (18,700)
----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 30,498 30,498 146,214 (1,790) (18,700)
Comprehensive income:
Net income
Foreign currency translation adjustments
Comprehensive income
Issuance of common stock to employee plans 281 281 3,079
Issuance of common stock under
stock option plans 446 446 1,858
Stock-based compensation 593 18 178
Purchase of treasury stock (1,330) (16,883)
==================================================================================================================================
Balance at June 30, 2001 31,225 $ 31,225 $ 151,744 (3,102) $ (35,405)
==================================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
44
Consolidated Statements of Stockholders' Equity - continued
Accumulated
Retained Other
Earnings Comprehensive Comprehensive
(In thousands, in U.S. dollars) (Deficit) Income (Loss) Loss Total
--------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 $ (10,250) $ (32,214) $ 85,990
Comprehensive loss:
Net loss (24,645) $ (24,645) (24,645)
Foreign currency translation adjustments 6,960 6,960 6,960
------------------
Comprehensive loss $ (17,685)
==================
Issuance of common stock to employee plans 3,220
Issuance of common stock under
stock option plans 746
Conversion of subordinated debentures
to common stock 38,274
Stock-based compensation 215
--------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 (34,895) (25,254) 110,760
Comprehensive Income
Net income 25,120 $ 25,120 25,120
Foreign currency translation adjustments (4,207) (4,207) (4,207)
------------------
Comprehensive income $ 20,913
==================
Issuance of common stock to employee plans 3,404
Issuance of common stock under
stock option plans 1,803
Stock-based compensation 596
Purchase of treasury stock (18,700)
--------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 (9,775) (29,461) 118,776
Comprehensive Income
Net income 23,527 $ 23,527 23,527
Foreign currency translation adjustments 12,454 12,454 12,454
------------------
Comprehensive income $ 35,981
==================
Issuance of common stock to employee plans 3,360
Issuance of common stock under
stock option plans 2,304
Stock-based compensation 771
Purchase of treasury stock (16,883)
==========================================================================================================================
Balance at June 30, 2001 $ 13,752 $ (17,007) $ 144,309
==========================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
45
Consolidated Statements of Cash Flows
Year ended June 30
(In thousands, in U.S. dollars) 2001 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 23,527 $ 25,120 $ (24,645)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 6,357 6,003 6,378
Deferred income taxes (801) 336 (4,822)
(Gain) loss on disposition of subsidiary companies (4,101) - 35,088
Stock-based compensation 2,097 2,123 1,418
Other 111 59 719
Cash provided by (used in) assets and liabilities:
Accounts receivable (1,954) (1,739) (7,096)
Inventories 203 (14,429) (11,050)
Other current assets (630) 371 (903)
Accounts payable (1,601) 11,101 10,875
Accrued expenses 346 645 124
Income taxes payable (4,721) (8,865) 17,829
Deferred service contract revenue (12) 1,622 1,986
--------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 18,821 22,347 25,901
--------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (12,891) (9,691) (7,310)
Proceeds from sales of property and equipment 435 140 167
Effect of sale of subsidiary companies on cash 47,735 - (10,971)
Other investing activities 1,329 295 974
--------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 36,608 (9,256) (17,140)
--------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Changes in short-term borrowings, net - - 2,448
Proceeds from issuance of common stock to employee plans 2,033 1,923 1,890
Proceeds from exercise of stock options 950 1,803 746
Purchase of treasury stock (15,529) (18,700) -
Cash paid for fractional shares on stock split - (45) -
--------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (12,546) (15,019) 5,084
--------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (1,400) (725) 747
--------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and short-term investments 41,483 (2,653) 14,592
Cash and short-term investments, beginning of year 44,750 47,403 32,811
--------------------------------------------------------------------------------------------------------------------------------
Cash and short-term investments, end of year $ 86,233 $ 44,750 $ 47,403
================================================================================================================================
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 752 $ 356 $ 4,568
Income taxes $ 23,858 $ 28,799 $ 12,356
================================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
46
Note 1 Description of Business and Summary of Significant Accounting Policies
Description of Business and Principles of Consolidation
InterTAN, Inc. (the "Company" or "InterTAN") is engaged in the sale of consumer
electronics products primarily through company-operated retail stores and dealer
outlets in Canada. The Company's retail operations are conducted through its
wholly-owned subsidiary, InterTAN Canada Ltd., which operates in Canada under
the trade name "RadioShack". The Company previously also had retail and dealer
outlets in both Australia and the United Kingdom. These operations were
conducted through two wholly-owned subsidiaries, InterTAN Australia Ltd. and
InterTAN U.K. Limited, each of which operated under the "Tandy" name. The
Australian and United Kingdom subsidiaries were sold effective April 2001 and
January 1999, respectively. See Notes 2 and 3 to the consolidated financial
statements. The "RadioShack" and "Tandy" 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 Wireless Inc. ("Rogers") to
operate telecommunications stores ("Rogers AT&T stores") on its behalf. At June
30, 2001, 55 Rogers AT&T stores were in operation. The consolidated financial
statements include the accounts of the Company, its Canadian subsidiary and its
former subsidiaries in Australia and the United Kingdom. All material
intercompany transactions, balances and profits have been eliminated. The
Company's fiscal year ends June 30.
Cash and Short-term Investments
Cash in stores, deposits in banks and short-term investments with original
maturities of three months or less are considered as cash and cash equivalents.
Cash equivalents are carried at cost, which approximates fair market value.
Accounts Receivable and Allowance for Doubtful Accounts
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Company's customer base and
their location in many different geographic areas of the countries. However, the
Company does have some concentration of credit risk in the wireless telephone
and direct-to-home satellite services industries due to increased sales and
outstanding balances as of June 30, 2001 from these service providers. An
allowance for doubtful accounts is provided when accounts are determined to be
uncollectible.
Inventories
Inventories are comprised primarily of finished merchandise and are stated at
the lower of cost, based on the average cost method, or market value.
Capitalized Software Costs
The direct costs of certain internally developed software are capitalized and
amortized over the estimated useful life of the software.
Property and Equipment
Property and equipment are recorded at cost and depreciated over the estimated
useful lives of the assets using the straight-line method. Estimated useful
lives are 40 years for buildings and range from three to eight years for
equipment, furniture and fixtures. Leasehold improvements are amortized over the
life of the lease or the useful life of the asset, whichever is shorter.
Maintenance and repairs are charged to expense as incurred. Renewals and
betterments, which materially prolong the useful lives of the assets, are
capitalized. The cost and related accumulated depreciation of property
47
and equipment retired or sold are removed from the accounts, and gains or losses
are recognized in the consolidated statement of operations.
The Company reviews all long-lived assets (i.e., property and equipment) for
impairment whenever events or changes in circumstances indicate that the net
book value of the assets may not be recoverable. An impairment loss would be
recognized if the sum of the expected future cash flows (undiscounted and before
interest) from the use of the assets is less than the net book value of the
assets. The amount of the impairment loss would generally be measured as the
difference between the net book value of the assets and their estimated fair
value.
Net Sales and Operating Revenues
Net sales and operating revenues include items related to normal business
operations, including service contract revenue, cellular and satellite
activation income, residual income, and sales-based volume rebates. Retail sales
are recorded at the time of the sale to the customer. Service contract revenue,
net of direct selling expenses, is recognized over the life of the contract.
Activation income is commission revenue which is recognized as income when the
product is sold, with an appropriate provision for contract cancellations.
Residual income is participation income from suppliers, based on the continued
use of products by customers. Residual income is recognized monthly, based on
the contractual percentage of each customer's monthly bill. Sales-based volume
rebates are additional commission revenue which is recognized when service
contract thresholds are achieved, either on a quarterly or on an annual basis.
Translation of Foreign Currencies
The local currencies of the Company's foreign entities are the functional
currencies of those entities. For reporting purposes, assets and liabilities are
translated into U.S. dollars using the exchange rates in effect at the balance
sheet date, income and expense items are translated using monthly average
exchange rates. The effects of exchange rate changes on net assets located
outside the United States are recorded in equity as part of "accumulated other
comprehensive loss". Gains and losses from foreign currency transactions are
included in the operations of each period.
Comprehensive Income (Loss)
Comprehensive income is defined as the change in stockholders' equity during a
period except those changes resulting from investments by owners and
distributions to owners. For the Company, the components of comprehensive income
(loss) include net income or loss and the effects of exchange rate changes on
net assets located outside the United States (foreign currency translation
adjustments). For fiscal years 2001, 2000 and 1999, foreign currency translation
gains (losses) were $12,454,000, $(4,207,000) and $6,960,000, respectively. The
fiscal year 2001 and 1999 amounts include adjustments of $18,225,000 and
$4,087,000 related to the reclassification of accumulated foreign currency
translation losses to net gain or loss on the sale of the Australian and United
Kingdom subsidiaries, respectively.
Contract Management
At June 30, 2001, the Company had 473 company-operated stores in Canada, of
which 34 were operated under "contract management" arrangements. Under the
typical contract management arrangement, the store manager is not employed by
the Company, but is under contract to operate the store on its behalf. The
Company selects and supplies the store location (including lease payments and
other fixed location charges) and also supplies leasehold improvements, fixtures
and store inventory. The Company is also committed to provide supporting
services, including advertising and training. The contract manager is
responsible for the labor and overhead necessary to operate the store. The
contract manager is also required to provide a cash deposit. In return for the
service of operating the store, the contract manager receives compensation equal
to approximately one-half of the store's gross profit. The contract manager
program was used much more extensively in the Company's former
subsidiary in Australia. At April 30, 2001, the effective date of sale of that
subsidiary, the Company had
48
223 company-operated stores in Australia, of which 148 were operated under
contract management arrangements.
The revenue, as well as the expenses paid by the Company, related to contract
management stores are included in the consolidated statements of operations. The
contract manager's compensation is included in selling, general and
administrative expenses. Contract manager's deposits are included in the "Other
liabilities" section of the consolidated balance sheets and amounted to $814,000
and $4,675,000 at June 30, 2001 and June 30, 2000, respectively.
Capitalized Financing Costs
Costs incurred in connection with the issuance of debt and renewal fees are
capitalized and are amortized over the term of the respective debt. Amortization
of these costs, which include underwriting, bank, legal and accounting fees, for
fiscal years 2001, 2000 and 1999 was $129,000, $251,000 and $770,000,
respectively. Unamortized balances at June 30, 2001 and June 30, 2000 were
$23,000 and $90,000, respectively.
Advertising Costs
Advertising costs are recorded net of vendor contributions and are expensed the
first time the related advertising occurs. During fiscal years 2001, 2000 and
1999, advertising expense was $17,203,000, $19,489,000 and $20,753,000,
respectively.
Income Taxes
Income taxes are accounted for using the asset and liability method. The asset
and liability approach requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
the book amounts and tax basis of assets and liabilities. However, deferred tax
assets are only recognized to the extent that it is more likely than not that
the Company will realize the benefits of that deferred tax asset.
InterTAN generally considers the earnings of its foreign subsidiaries to be
permanently reinvested for use in those operations and, consequently, deferred
federal income taxes, net of applicable foreign tax credits, are not provided on
the undistributed earnings of foreign subsidiaries which are to be so
reinvested. If the earnings of the Company's Canadian subsidiary as of June 30,
2001 were remitted to the parent, approximately $106,000,000, subject to
adjustment for deemed foreign taxes paid, would be included in the taxable
income of the parent. By operations of tax statutes currently in effect, the
Company would incur certain U.S. income taxes, including alternative minimum
tax. Such remittances would also be subject to Canadian withholding tax
(presently at a rate of 5%) for which there would likely be no U.S. tax relief.
Forward Exchange Contracts
Gains and losses on contracts entered into to hedge open inventory purchase
orders are included in the cost of the merchandise purchased. Gains and losses
on contracts intended to mitigate the effects of exchange rate fluctuations on
payables and debt denominated in currencies other than the functional currency
of the debtor are included in income in the periods the exchange rates change.
See "New Accounting Standards" for a discussion of the implications to the
Company of the adoption of Financial Accounting Standards No. 133 ("FAS 133").
Earnings per Share
Basic earnings per share ("EPS") is calculated by dividing the net income or
loss by the weighted average number of shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted.
49
The following table reconciles the numerator and denominator used in the basic
and diluted earnings (loss) per share calculations for the years ended June 30,
2001, 2000 and 1999:
(U.S.dollars in thousands, 2001 2000 1999
--------------------------------- ---------------------------------- --------------------------------
except for per share data) Income Per Income Per Income Per
(loss) Shares Share (loss) Share Shares (loss) Shares Shares
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------- ---------------------------------- --------------------------------
Net income (loss) $ 23,527 $ 25,120 $ (24,645)
======== ======== =========
Basic EPS
Income (loss) available
to common stockholders $ 23,527 27,937 $ 0.84 $ 25,120 29,658 $ 0.85 $ (24,645) 21,026 $(1.17)
======= ======== =========
Effect of Dilutive Securities
9% convertible
debentures - - - - - /1/ - /1/
Stock options - 727 - 843 - /1/ - /1/
-------- ------- -------- -------- --------- ------
Diluted EPS
Income (loss) available to
common stockholders
including assumed
conversions $ 23,527 28,664 $ 0.82 $ 25,120 30,501 $ 0.82 $ (24,645) 21,026 $(1.17)
======== ======= ======== ======== ======== ======== ========= ====== ======
/1/The effects of stock options and the 9% subordinated convertible debenture
were anti-dilutive during fiscal year 1999.
At June 30, 2001, the Company's directors and employees held options to purchase
1,532,445 common shares at prices ranging from $2.48 to $14.75 per share. During
quarters one through four of fiscal year 2001, all but 750; 248,402; 248,402 and
750 of such options were included in the computation of diluted earnings per
common share. These options were excluded because the option exercise price was
greater than the average market price of the common stock during the particular
quarter. The dilutive effect of the various options held by the Company's
directors and employees in future periods will depend on the average market
price of the Company's common stock during such periods.
Accounting for Stock-based Compensation
The Company measures the expense associated with its stock-based compensation
using the intrinsic value method. Application of this method generally results
in compensation expense equal to the quoted price of the shares granted under
the option less the amount, if any, the director or employee is required to pay
for the underlying shares. See Note 15.
New Accounting Standards
In December, 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance in the recognition, presentation and
disclosure of revenue in financial statements. The Company adopted SAB 101
effective March 1, 2001. The adoption of SAB 101 did not have a material effect
on the Company's consolidated financial statements.
Effective July 1, 2000, the Company adopted FAS 133, "Accounting for Derivative
Instruments and Hedging Activities". 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
50
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 March, 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of previously fixed stock options or awards, and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 was
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The
introduction of FIN 44 did not have a material impact on the Company's results
of operations and financial position.
In June, 2001, the FASB issued Financial Accounting Standards Nos. 141 and 142
("FAS 141" and "FAS 142"). FAS 141 provides for new rules to be used in
accounting for business combinations and is effective for business combinations
initiated after June 30, 2001. FAS 142 changes the accounting treatment of both
existing and newly-acquired goodwill. FAS 142 is effective for fiscal years
beginning after December 15, 2001. However, early adoption is permitted. The
Company intends to adopt both of these new accounting standards in the first
quarter of fiscal year 2002. Management does not believe that their adoption
will have a material effect on the Company's financial statements.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
related revenues and expenses, and disclosure of gain and loss contingencies at
the date of the financial statements. Actual results could differ from those
estimates.
Classification
Certain of the prior year's balances have been reclassified to conform with the
current year's presentation.
Note 2 Gain on Sale of Australian Subsidiary
On April 30, 2001, the Company sold its operating Australian subsidiary,
InterTAN Australia Ltd. and recorded a gain of $4,101,000. The proceeds, net of
selling costs, were approximately $48,000,000 and are subject to adjustment,
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
downwards by the excess of the net assets as at December 31, 2000 over the net
assets as at April 30, 2001. Based on preliminary audit results, management
estimates that the price will be adjusted downwards by approximately $2,000,000.
This price adjustment has been taken into consideration in determining the gain
on disposal as described above.
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,
other than 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
51
(approximately $2,000,000). While management believes that adequate provision
was 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 in Australia. The maximum
exposure with respect to this matter is approximately A$300,000 (approximately
$150,000).
Management estimates that United States federal tax and Australian withholding
tax on the sale will be approximately $600,000. Management believes there are
authoritative arguments in support of the position that this transaction is
exempt from Australian capital gains 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 $7,000,000.
Note 3 Loss on Sale of United Kingdom Subsidiary
During fiscal year 1999, the Company's Board of Directors approved a plan to
sell the Company's investment in InterTAN U.K. Limited for proceeds of
$2,582,000, net of estimated selling costs, and the Company recorded a loss of
$35,088,000. The sale included all assets, liabilities and other obligations of
the United Kingdom subsidiary, including approximately $11,600,000 of bank debt
outstanding under InterTAN U.K. Limited's portion of the Company's syndicated
loan agreement, which was repaid by the purchaser on closing. See Note 17,
"Segment Reporting Disclosures", for revenue and operating income (loss)
associated with InterTAN U.K. Limited.
In addition, the purchaser assumed the rights to claim tax loss carryforwards
and other deferred tax deductions having a potential tax benefit of
approximately $28,000,000. To the extent the purchaser is able to utilize all or
a portion of these loss carryforwards and other deferred tax deductions, the
Company is entitled to cash payments equal to 30% of the tax savings realized by
the purchaser (a maximum of approximately $8,400,000). The Company will
recognize such proceeds, if any, as received. No amounts have been received to
date.
Under the terms of the sale agreement, the Company remains contingently liable
as guarantor of certain leases of InterTAN U.K. Limited. At June 30, 2001, the
remaining lease obligation assumed by the purchaser and guaranteed by the
Company was approximately $19,000,000 and the average remaining life of such
leases was approximately five years. If the purchaser were to default on the
lease obligations, management believes the Company could reduce the exposure
through assignment, subletting and other means. The Company has obtained an
indemnity from the purchaser for an amount equal to management's best estimate
of the Company's potential exposure under these guarantees. The amount of this
indemnity declines over time, as the Company's risk diminishes. At June 30,
2001, the amount of this indemnity was approximately $7,100,000.
Note 4 Bank Debt
In December, 1997, the Company entered into a three-year revolving credit
facility, currently in an amount not to exceed C$67,000,000 (approximately
$44,200,000 at June 30, 2001 exchange rates). This facility was to have matured
on December 22, 2000, but was extended to March 22, 2001 and, subsequently to
May 4, 2001.
On May 4, 2001, InterTAN Canada Ltd. and InterTAN, Inc. entered into a new
two-year revolving credit facility (the "Revolving Loan Agreement") with the
previous lender in an amount not to exceed C$75,000,000
52
(approximately $49,500,000 at June 30, 2001 exchange rates). The Revolving Loan
Agreement matures March 22, 2003. 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 $25,000 at June 30, 2001 exchange rates) was payable on
closing. A further payment of C$37,500 is required on March 22, 2002. Borrowing
rates under the facility range from prime to prime plus 0.75% based on the
Company's quarterly performance against predetermined 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 collateralized 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 June 30, 2001, there were no borrowings
against the Revolving Loan Agreement, nor was any amount committed in support of
letters of credit. There was C$49,038,663 ($32,375,000 at June 30, 2001 exchange
rates) of credit available for use at June 30, 2001 under this facility.
The Company's Australian subsidiary had entered into a credit agreement with an
Australian bank. This agreement established a credit facility in the amount of
A$12,000,000 (approximately $6,100,000 at June 30, 2001 exchange rates). This
facility was cancelled on the closing of the sale of InterTAN Australia Ltd.
Note 5 Merchandise and License Agreements with RadioShack U.S.A.
The Company and RadioShack U.S.A. have entered into a Merchandise Agreement and
a License Agreement. These agreements permit InterTAN to use the "RadioShack"
trade name in Canada until June 30, 2010. Prior to the sale of its Australian
subsidiary, the Company also had the right to use the "Tandy" trade name in
Australia. The License Agreement may be terminated with five years' prior
written notice by either party. In the event a change in control of InterTAN,
Inc. or any of its subsidiaries occurs, RadioShack U.S.A. may revoke the
Merchandise Agreement and the License Agreement. In April, 2001, the Company
entered into an additional agreement with RadioShack U.S.A. (the "Amending
Agreement"). Under the terms of the Amending Agreement, RadioShack U.S.A. agreed
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. The Amending Agreement also provides that in the event
the Company subsequently consummates a transaction with a 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 U.S.A. In consideration therefor, RadioShack agreed 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 U.S.A.
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.
In consideration for the rights granted under the License Agreement, the Company
is obliged to pay a royalty of 1.0% of consolidated sales. During fiscal years
2001, 2000 and 1999, the Company paid RadioShack U.S.A. royalties totalling
$4,505,000, $4,561,000 and $4,798,000, respectively. Pursuant to the terms of
the Merchandise Agreement, the Company is obliged to use RadioShack U.S.A.'s
export unit, RadioShack International Procurement Limited Partnership ("RIPLP"),
as its exclusive exporter of products from the Far East through the term of the
Merchandise Agreement. In such connection, the Company must pay a purchasing
agent/exporter fee to RIPLP calculated by adding 0.2% of consolidated sales in
excess of $400,000,000 to the
53
base amount of $532,500 ($710,000 prior to the sale of InterTAN Australia Ltd.)
and deducting from this certain credits the Company earns by purchasing products
from RadioShack U.S.A. and RIPLP. The Company paid RadioShack U.S.A. fees
totalling $554,000, $671,000 and $816,000 in respect of fiscal years 2001, 2000
and 1999, respectively, under this arrangement. During fiscal years 2001, 2000
and 1999, the Company's Canadian and Australian subsidiaries purchased
approximately 14%, 16% and 22%, respectively, of their merchandise from
RadioShack U.S.A. and RIPLP. The Company's purchase orders with RIPLP must be
supported, based on a formula set out in the Merchandise Agreement, by letters
of credit issued by banks on behalf of InterTAN, by a surety bond, or backed by
cash deposits. The Company has secured surety bond coverage from a major insurer
in an amount not to exceed $12,000,000. The amount of the bond may be reduced to
$10,000,000 during fiscal year 2002.
Note 6 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 shares 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.
During fiscal year 2001, 18,750 treasury shares were issued to two executive
officers, the managing director of the Company's Canadian subsidiary and a
former managing director of the Company's Australian subsidiary. These shares
had been earned under the Company's restricted stock award program during fiscal
year 2000. See Note 15.
In August 2001, the Company's Board of Directors announced a new share
repurchase plan under which management was authorized, from time to time and
subject to regulatory approval, to repurchase up to 2,800,000 of the Company's
shares, approximately 10% of the shares outstanding at June 30, 2001.
Note 7 Stock Split
On November 30, 1999, the Company's Board of Directors announced a three-for-two
stock split of InterTAN's common stock for stockholders of record at the close
of business on December 16, 1999, payable on January 13, 2000. This resulted in
the issuance of 10,075,447 shares of common stock, including 1,537 shares held
in treasury. All references made to the number of shares of common stock issued
or outstanding, per share prices and basic and diluted net income (loss) per
common share amounts in the consolidated financial statements and the
accompanying notes have been adjusted to reflect the split on a retroactive
basis. Previously awarded stock options, restrictive stock awards and certain
other agreements payable in the Company's common stock have been adjusted or
amended to reflect the split on a retroactive basis.
Note 8 9% Subordinated Convertible Debentures
During fiscal year 1994, the Company closed a private placement of C$60,000,000
of 9% subordinated convertible debentures (the "Debentures") maturing August 30,
2000. The Debentures were convertible at any time at a conversion price of
C$5.61 per share. On April 16, 1999, the Company served notice on all remaining
Debenture holders calling for the redemption of all issued and outstanding
Debentures on June 8, 1999. All remaining Debenture holders exercised their
right of conversion and, as a result, approximately 6,009,000
54
additional shares were issued. Approximately 4,110,000 shares had previously
been issued as a result of Debenture conversions between July 31, 1998 and April
16, 1999.
Note 9 Property and Equipment
Property and equipment at June 30, 2001 and 2000 are summarized as follows:
(U.S. dollars in thousands) 2001 2000
----------------------------------------------------------
Land $ 260 $ 938
Buildings 4,922 7,837
Equipment, furniture and fixtures 21,557 33,279
Leasehold improvements 18,720 21,856
----------------------------------------------------------
45,459 63,910
Less accumulated depreciation
and amortization 25,642 41,323
----------------------------------------------------------
Property and equipment, net $19,817 $22,587
==========================================================
Note 10 Accrued Expenses
Accrued expenses at June 30, 2001 and 2000 are summarized as follows:
(U.S. dollars in thousands) 2001 2000
-----------------------------------------------------------------
Payroll and bonuses $ 4,861 $ 7,677
Other 8,789 9,144
-----------------------------------------------------------------
Accrued Expenses $ 13,650 $ 16,821
=================================================================
55
Note 11 Income Taxes
The components of the provisions for domestic and foreign income taxes are shown
below:
Year ended June 30
(U.S. dollars in thousands) 2001 2000 1999
---------------------------------------------------------------
Current expense:
United States $ 1,119 $ - $ 94
Foreign 18,083 20,146 29,438
---------------------------------------------------------------
19,202 20,146 29,532
Deferred (benefit) expense:
United States - - -
Foreign (801) 361 (4,822)
---------------------------------------------------------------
Total income tax expense $18,401 $20,507 $24,710
===============================================================
The Company's income tax expense primarily represents Canadian and Australian
income tax on the profits earned by its subsidiaries in those countries. As
discussed more fully below, the fiscal year 2001 provision included a special
charge of $700,000 related to the settlement of outstanding issues with the
Canadian and United States authorities as well as a provision of $581,000
relating to the sale of the Australian subsidiary. United States tax on the gain
on sale was minimal because of the utilization of loss carryforwards for which
the deferred tax asset had a full valuation allowance. No tax was accrued or
payable in the United Kingdom during fiscal year 1999.
Components of the difference between income tax expense and the amount
calculated by applying the U.S. statutory rate of 35% to income before income
taxes are as follows:
56
(U.S. dollars in thousands, except percents) Year ended June 30
2001 2000 1999
-----------------------------------------------------------------------------------------------
Components of pre-tax income (loss):
United States $ 4,401 $ (1,934) $ (27,871)
Foreign 37,527 47,561 27,936
-----------------------------------------------------------------------------------------------
Income before income taxes 41,928 45,627 65
Statutory U.S. tax rate 35% 35% 35%
-----------------------------------------------------------------------------------------------
Federal income tax expense at statutory rate 14,675 15,969 23
Foreign tax rate differentials 1,365 1,767 1,723
Provincial income taxes, less foreign federal income
tax benefit 1,686 2,097 1,718
Book losses for which no tax benefit was recognized - 677 12,988
Income tax dispute settlements 700 - 8,039
Adjustment to valuation allowance for deferred tax assets (7,988) - -
Reduction in Canadian statutory rates 1,799 - -
Utilization of available loss carryforwards 6,122 - -
Other, net 42 (3) 219
-----------------------------------------------------------------------------------------------
Total income tax expense $ 18,401 $ 20,507 $ 24,710
-----------------------------------------------------------------------------------------------
Deferred tax assets are comprised of the following at June 30:
(U.S. dollars in thousands) 2001 2000
-----------------------------------------------------------
Depreciation $ 1,222 $ 605
Deferred service contracts 4,030 4,157
Loss carryforwards 22,978 28,413
Other 2,550 502
-----------------------------------------------------------
30,780 33,677
Valuation allowance (25,459) (28,899)
-----------------------------------------------------------
Deferred tax asset $ 5,321 $ 4,778
===========================================================
The net deferred tax asset is
classified as follows:
Current $ 2,290 $ 2,295
Long-term 3,031 2,483
-----------------------------------------------------------
Deferred tax asset $ 5,321 $ 4,778
===========================================================
The Company regularly assesses the future tax benefit which might be derived
from the Company's deferred tax assets. In assessing the future benefit which
might be derived from these deferred tax assets, the Company considers its
recent operating history and financial condition.
57
In the United States, the Company has net operating loss carryforwards for tax
purposes of approximately $52,000,000. These loss carryforwards will expire
between 2012 and 2020. In Canada, the Company has a net capital loss
carryforward from the sale of its Australian and United Kingdom subsidiaries of
approximately $14,500,000. These losses may be carried forward indefinitely, but
may only be applied against capital gains.
During fiscal year 1999, the Company reached an agreement with the Canadian tax
authorities relating to the settlement of a dispute regarding the 1990 to 1993
taxation years resulting in a charge of $8,039,000. While the amount in dispute
has been agreed and a settlement agreement has been executed, the Company has
not yet been fully reassessed and, accordingly, this amount has not been paid.
Management estimates the remaining payment relating to these issues to be
approximately $11,000,000.
Late in fiscal year 2001, the Company reached an agreement with both the
Canadian and United States tax authorities, settling substantially all of its
remaining outstanding tax issues and recorded an additional provision of
$700,000. Although agreement in principle has been reached on these issues,
final statements summarizing amounts owing have not been received from either
government. Because of the age of these issues and the terms of the settlements,
there are complex interest computations to be made. Accordingly, it is not
practical for management to determine with precision the exact liability
associated with these matters. Management estimates that the liability to settle
all outstanding tax issues, including the matter described immediately above, is
in the range of $23 million to $26 million. Management further believes that it
has a provision recorded sufficient to pay the estimated liability resulting
from these issues; however, the amount ultimately paid could differ from
management's estimate.
The Company has one remaining issue in dispute with the Internal Revenue Service
("IRS") in the United States. The Company disagrees with the position of the IRS
on this issue and, on the advice of legal counsel, believes it has meritorious
arguments in its defence and is in the process of vigorously defending its
position. It is management's determination that no additional provision need be
recorded for this matter. However, should the IRS prevail in its position, the
Company could potentially have an additional maximum liability $1,700,000.
Note 12 Commitments and Contingencies
The Company leases virtually all of its retail space under operating leases with
terms ranging from one to fifteen years. Leases are normally based on a minimum
rental plus a percentage of store sales in excess of a stipulated base. The
remainder of InterTAN's store leases generally provide for fixed monthly rent
adjusted periodically using inflation indices and rent reviews. The Company also
leases its Corporate Headquarters premises and its automobile fleet in Canada.
The Corporate Headquarters lease has a ten-year term and the Canadian automobile
leases have terms of up to 50 months.
In the years 2001, 2000 and 1999, minimum rents, including immaterial contingent
rents and sublease rental income, were $20,293,000, $20,172,000 and $25,460,000,
respectively. Future minimum rent commitments at June 30, 2001 for all long-term
non-cancellable leases (net of immaterial sublease rent income) are as follows:
(U.S. dollars in thousands)
--------------------------------------------------
2002 $ 9,905
2003 8,360
2004 7,194
2005 6,150
2006 5,429
2007 and thereafter 20,899
==================================================
58
Apart from the matters described in Notes 2, 3, and 11, there are no material
pending legal proceedings or claims other than routine litigation incidental to
the Company's business to which the Company or any of its subsidiaries is a
party or to which any of their property is subject.
Note 13 Financial Instruments
Other than debt instruments, management believes that the book value of the
Company's financial instruments recorded on the balance sheet approximates their
estimated fair value based on their nature and generally short maturity; such
instruments include cash and short-term investments, and accounts receivable.
The Company had no long-term debt instruments outstanding at June 30, 2001 or
June 30, 2000.
The Company enters into foreign exchange contracts to hedge against exchange
rate fluctuations on certain debts, payables and open inventory purchase orders
denominated in currencies other than the functional currency of the issuing
entity. All foreign exchange contracts are written with major international
financial institutions. Except for the opportunity cost of future currency
values being more favorable than anticipated, the Company's risk in those
transactions is limited to the cost of replacing the contracts at current market
rates in the event of non-performance by the counterparties. The Company
believes its risk of counterparty non-performance is remote, and any losses
incurred would not be material. At June 30, 2001 and 2000, the Company had
approximately $1,000,000 and $2,000,000, respectively, of foreign exchange
contracts outstanding with a market value of approximately nil and nil,
respectively. Maturity on these contracts outstanding at June 30, 2001 was less
than 30 days from fiscal year-end.
Note 14 Employee Benefit Plans
The Company's Stock Purchase Program is available to most employees. Each
participant may contribute from 1% to 10% of annual compensation. The Company
matches from 40% to 80% of the employee's contribution depending on the length
of the employee's participation in the program. Shares are provided to the plan
either by periodic purchases on the open market or by the Company issuing new
shares.
Under the InterTAN Canada Ltd. Employee Savings Plan (the "Savings Plan"), a
participating employee may contribute 5% of annual compensation into the plan.
The Company matches 80% of the employee's contribution. The Savings Plan is
available to most Canadian employees who have been employed at least two years.
An employee may also elect to contribute an additional 5% of annual compensation
to the plan, which is not matched by the employer. The Company's contributions
are fully vested at the end of each calendar quarter. An Administrative
Committee appointed by the Company's Board of Directors directs the investment
of the plan's assets, a significant portion of which are invested in InterTAN,
Inc. common stock.
The InterTAN, Inc. 401(k) Plan was available to all U.S. employees who had
completed at least two months service with the Company. This plan is in
liquidation following the relocation of the Company's Corporate Headquarters to
Canada.
The InterTAN, Inc. Group Registered Retirement Savings Plan is available to all
employees of Corporate Headquarters who have completed at least 60 days of
service. Eligible employees may contribute up to 4% of their salary to a maximum
of one-half of the maximum annual contribution allowable under Canadian law
(currently C$6,750 or approximately $4,500). The Company matches the employee's
contribution.
59
The aggregate cost of these plans, included in other selling, general and
administration expenses, totalled $1,382,000, $1,498,000 and $1,591,000 in 2001,
2000 and 1999, respectively.
Note 15 Stock Option Plans
In 1986 and 1996, the Company adopted employee stock option plans (the "1986
Stock Option Plan" and the "1996 Stock Option Plan") under which the
Organization and Compensation Committee of the Board of Directors may grant
options to key management employees to purchase up to an aggregate of 1,200,000
and 2,250,000 shares, respectively, of the Company's common stock. Incentive
options granted under these plans are exercisable on a cumulative basis equal to
one-third for each year outstanding; unless otherwise specified by the
Committee, non-statutory options issued under the plans are exercisable on a
cumulative basis equal to 20% for each year outstanding. Upon death or
disability of an optionee, all options then held become immediately exercisable
for one year, and upon retirement, at age 50 or older, the Committee may
accelerate the dates at which the outstanding options may be exercised. Options
under these plans generally expire ten years after the date of grant. The
exercise price of the options granted is determined by the Committee, but cannot
be less than 100% of the market price of the common stock at the date of grant.
At June 30, 2001, options to purchase 141,750 shares were outstanding under the
1986 Stock Option Plan. While options outstanding under this plan will remain in
force until they are exercised, cancelled or expire, no further options may be
granted. At June 30, 2001, options to purchase 993,195 shares were outstanding
under the 1996 Stock Option Plan and 752,209 options were available for future
grant. During fiscal year 2001, the Company accelerated the vesting of
approximately 138,000 options held by senior employees of InterTAN Australia
Ltd. and recorded compensation expense of $556,000. During fiscal year 1999, in
connection with certain employee retirements and terminations, the Company
accelerated the vesting and extended the exercise period associated with
approximately 594,000 stock options and recorded compensation expense of
$187,000.
In 1991, the Company adopted the Non-Employee Director Stock Option Plan (the
"1991 Director Plan") under which each non-employee director was granted an
option, exercisable immediately, to purchase 37,500 shares of the Company's
common stock. Upon election, all new non-employee directors are granted an
option to purchase 37,500 shares of the Company's common stock. Options granted
under the 1991 Director Plan are exercisable at a price equal to 100% of the
market price of the common stock at the date of grant. The options generally
expire ten years after the date of grant unless the optionee ceases to be a
non-employee director, in which case the options expire one year after the date
of cessation. Common stock issued under the 1991 Director Plan cannot exceed
300,000 shares. At June 30, 2001, options to purchase 187,500 shares were
outstanding under the 1991 Director Plan and 37,500 options were available for
future grant.
In June, 1999, the Company adopted a plan which would grant additional options
to purchase common stock to each non-employee director (such options are
collectively referred to as "the 1999 Director Plan"). Under the 1999 Director
Plan, each non-employee director was granted an option to purchase 30,000 shares
of the Company's common stock at an exercise price of $10.50 per share. Options
granted under this plan are exercisable on a cumulative basis equal to
one-fourth per year on the date fixed for the Company's annual meeting of
stockholders, commencing with the 1999 meeting which was held in November, 1999.
At June 30, 2001 there were 210,000 options outstanding under the 1999 Director
Plan. These options will expire on the earlier of ten years from the date of
grant and the date on which the optionee ceases to be a non-employee director.
Under this plan, the Company will recognize total compensation expense of
$910,000. Of this amount, $370,000 was recognized during fiscal year 2000. The
balance will be recognized rateably over the remaining term of the plan. During
fiscal year 2001, $227,000 of compensation expense was recognized.
60
In June, 1999, the Company granted a total of 56,250 shares of restricted stock
awards to two executive officers and the managing directors of the Company's
Canadian and Australian subsidiaries. On the date of grant, the market value of
these restricted stock awards totalled $590,625. These shares vest equally over
a three-year period provided the Company's consolidated operating income in a
particular year increases by at least 15%. If operating income growth for a
particular year is less than 15% but more than 10%, then one-fifth of the annual
amount will vest for each percentage point of growth over 10%. If operating
income growth for a year is less than 10%, the restricted stock for that year
will not vest. However, if cumulative compounded annual consolidated operating
income grows by 15% per annum over the three-year period, then any restricted
stock not previously vested will vest in its entirety. Compensation expense of
$220,000 relating to these restricted stock awards was recorded during fiscal
year 2000. Additional compensation expense relating to these restricted stock
awards will be recognized when it becomes probable that vesting will occur for a
particular year. No compensation expense was recognized during fiscal year 2001.
The Company has also established an incentive stock award plan for approximately
700 store managers. Under this plan, managers achieving certain profit
improvement targets in their respective stores during fiscal years 2000 and 2001
would each receive up to 150 shares of the Company's common stock. Compensation
expense of $100,000 and $239,000 relating to this plan was recognized during
fiscal years 2001 and 2000, respectively.
61
A summary of transactions relating to the stock plans is summarized in the
following tables:
Summary of Stock Option Transactions
2001 2000 1999
----------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
----------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 1,998,705 $ 6.74 1,985,024 $ 5.13 1,521,749 $ 4.33
Granted 33,498 $10.87 470,875 $11.09 736,500 $ 6.49
Exercised (445,824) $ 5.17 (449,549) $ 4.14 (155,226) $ 4.95
Forfeited (53,934) $ 8.78 (7,645) $ 7.32 (117,999) $ 3.74
----------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,532,445 $ 7.22 1,998,705 $ 6.74 1,985,024 $ 5.13
----------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 1,148,423 $ 6.46 1,089,080 $ 5.18 1,157,270 $ 4.36
----------------------------------------------------------------------------------------------------------------------
Weighted average fair value of options
granted during the year $ 6.73 $ 7.11 $ 4.05
======================================================================================================================
Fixed Price Stock Options
Options Weighted Weighted Options Weighted
Outstanding Average Average Exercisable Average
Range of Exercise at Remaining Exercise at Exercise
Prices June 30, 2001 Life (years) Price June 30, 2001 Price
-----------------------------------------------------------------------------------------------
$ 2.48 37,500 6.00 $ 2.48 37,500 $ 2.48
$ 3.54 - $ 3.96 464,044 6.06 $ 3.67 386,294 $ 3.67
$ 4.00 - $ 5.42 312,000 3.40 $ 4.64 309,500 $ 4.64
$ 8.50 5,000 0.08 $ 8.50 5,000 $ 8.50
$10.44 - $14.75 713,901 7.10 $10.89 410,129 $10.80
-----------------------------------------------------------------------------------------------
1,532,445 5.98 $ 7.22 1,148,423 $ 6.46
===============================================================================================
As discussed in Note 1, the Company measures the expense associated with
stock-based compensation using the intrinsic value method. Accordingly, because
the exercise price of the stock options granted is equal to the market price of
the common stock on the date of grant, except for the 1999 Director Plan as
noted above, no compensation expense has been recognized upon the grant of stock
options during fiscal years 2001, 2000 and 1999. Had the Company adopted the
fair value method of recognizing stock-based compensation, the estimated fair
value of the options granted would have been amortized to compensation expense
over the vesting period. Pro forma information is presented below as if the
Company had adopted the fair value method.
62
2001 2000 1999
(U.S. dollars in thousands, except As Pro As Pro As Pro
per share amounts) Reported Forma Reported Forma Reported Forma
---------------------------------------------------------------------------------------------------------------
Net income (loss) $23,527 $21,812 $25,120 $23,109 $(24,645) $(25,538)
Basic net income (loss)
per average common share $ 0.84 $ 0.78 $ 0.85 $ 0.78 $ (1.17) $ (1.21)
Diluted net income (loss) per
average common share $ 0.82 $ 0.76 $ 0.82 $ 0.76 $ (1.17) $ (1.21)
For purposes of the pro forma information above, the fair value of each option
granted for each year was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions for fiscal years 2001, 2000 and
1999, respectively: expected volatility of 54.1%, 56.6% and 55.1%; risk free
interest rates of 5.6%, 6.3% and 5.2%; and expected lives of seven years for all
three years and expected dividend yields of nil percent for all three years.
The above pro forma information is not indicative of future amounts as the pro
forma amounts do not include the impact of stock options granted prior to fiscal
year 1996 and additional awards are anticipated in the future.
Note 16 Preferred Stock Purchase Rights
Effective September 20, 1999, the Board of Directors adopted a shareholder
rights plan. Pursuant to the terms of this new plan, the Company declared a
dividend of one right ("Right") on each share of Common Stock of the Company.
Each Right entitles the holder to purchase one one-hundredth of a share of
Series A Junior Participating Preferred Stock, no par value per share, of the
Company at an exercise price of $56.67. The Rights are not currently exercisable
and will become exercisable ten days after a person or group acquires beneficial
ownership of 15% or more of the Company's outstanding common stock or announces
a tender offer or exchange offer the consummation of which would result in
beneficial ownership by a person or group of 15% or more of the outstanding
common stock. The Rights are subject to redemption by the Company for $0.01 per
Right at any time prior to the tenth day after the first public announcement of
the acquisition by a person or group of beneficial ownership of 15% or more of
the Company's common stock. In addition, the Board of Directors is authorized to
amend the Rights plan at any time before the Rights become exercisable.
If a person or group acquires beneficial ownership of 15% or more of the
Company's Common Stock and the Rights are then exercisable, each Right will
entitle its holder (other than such person or members of such group) to
purchase, at the Right's then current exercise price, a number of the Company's
shares of Common Stock having a market value of twice such price. In addition,
if InterTAN is acquired in a merger or other business combination transaction
after a person has acquired beneficial ownership of 15% or more of the Company's
Common Stock and the Rights are then exercisable, each Right will entitle its
holder to purchase, at the Right's then current exercise price, a number of the
acquiring company's shares of common stock having a market value of twice such
price. Following the acquisition by a person or group of beneficial ownership of
15% or more of the Company's Common Stock and prior to an acquisition of
beneficial ownership of 50% or more of the Company's Common Stock, the Board of
Directors may exchange the Rights (other than Rights owned by such person or
group, which will have become null and non-transferrable), in whole or in part,
at an exchange ratio of one share of Common Stock (or one one-hundredth of a
share of Preferred Stock) per Right. The Rights under this plan will expire on
September 20, 2009.
63
Note 17 Segment Reporting Disclosures
The Company's business is managed along geographic lines. All references in
these notes to "Canada", "Australia", "Corporate Headquarters" and "the United
Kingdom" refer to the Company's reportable segments, unless otherwise noted.
Transactions between operating segments are not common and are not material to
the segment information.
Summarized in the table below are the net sales and operating revenues,
depreciation and amortization, operating income (loss), assets and capital
expenditures for the Company's reportable segments for the fiscal years ended
June 30, 2001, 2000 and 1999:
64
Year Ended June 30
(US dollars, in thousands) 2001 2000 1999
---------------------------------------------------------------------------------------------------------
Net sales and operating revenues:
Canada $ 382,353 $ 364,163 $ 297,314
Australia 86,403/1/ 120,055 105,595
United Kingdom - - 97,141/2/
---------------------------------------------------------------------------------------------------------
$ 468,756 $ 484,218 $ 500,050
=========================================================================================================
Depreciation and amortization:
Canada $ 5,029 $ 4,468 $ 4,140
Australia 1,246/1/ 1,445 1,273
United Kingdom - - 855/2/
Corporate Headquarters 82 90 110
---------------------------------------------------------------------------------------------------------
$ 6,357 $ 6,003 $ 6,378
=========================================================================================================
Operating income (loss):
Canada $ 41,503 $ 42,526 $ 34,046
Australia 4,087/1/ 6,778 7,139
United Kingdom - - (31,723)/2/
Corporate Headquarters expenses (4,173) (5,299) (6,448)
---------------------------------------------------------------------------------------------------------
Operating income 41,417 44,005 3,014
Foreign currency transaction gains (losses) (353) (209) 331
Interest income 1,737 2,418 1,535
Interest expense (873) (587) (4,815)
---------------------------------------------------------------------------------------------------------
Income before income taxes $ 41,928 $ 45,627 $ 65
=========================================================================================================
Assets:
Canada $ 163,016 $ 155,071 $ 136,703
Australia -/1/ 50,245 53,787
Corporate Headquarters 52,514 2,760 7,825
---------------------------------------------------------------------------------------------------------
$ 215,530 $ 208,076 $ 198,315
=========================================================================================================
Capital expenditures:
Canada $ 10,258 $ 6,833 $ 3,475
Australia 2,626/1/ 2,821 1,564
Corporate Headquarters 7 37 45
---------------------------------------------------------------------------------------------------------
$ 12,891 $ 9,691 $ 5,084
=========================================================================================================
/1/ The Company sold its Australian subsidiary as of April 30, 2001 and
recognized a gain of $4,101,000. Accordingly, the Company's 2001 results in
Australia reflect only ten months of operation and the gain on sale.
/2/ The Company sold its United Kingdom subsidiary in January 1999 and
recognized a loss of $35,088,000. Accordingly, the Company's 1999 results in
the United Kingdom reflect only six months of operation and the loss on sale.
65
Note 18 Quarterly Data (Unaudited)
Quarter ended
September 30
(In thousands, in U.S. dollars, except per share data) 2000 1999
-------------------------------------------------------------------------------------------------------------
Net sales and operating revenues $ 119,951 $ 108,003
Other income (expense) 59 95
-------------------------------------------------------------------------------------------------------------
120,010 108,098
-------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Cost of products sold 72,202 63,740
Selling, general and administrative expenses 36,879 35,207
Depreciation and amortization 1,592 1,371
Gain on disposal of Australian subsidiary - -
-------------------------------------------------------------------------------------------------------------
110,673 100,318
-------------------------------------------------------------------------------------------------------------
Operating income 9,337 7,780
Foreign currency transaction (gains) losses (126) (51)
Interest income 434 484
Interest expense (124) (139)
-------------------------------------------------------------------------------------------------------------
Income before income taxes 9,521 8,074
Income taxes 4,196 3,687
-------------------------------------------------------------------------------------------------------------
Net income $ 5,325 $ 4,387
=============================================================================================================
Basic net income per average common share $ 0.19 $ 0.15
Diluted net income per average common share $ 0.18 $ 0.14
-------------------------------------------------------------------------------------------------------------
Average common shares outstanding 28,032 29,858
Average common shares outstanding assuming dilution 28,950 31,021
=============================================================================================================
66
Quarter ended Quarter ended Quarter ended
December 31 March 31 June 30
2000 1999 2001 2000 2001 2000
-------------------------------------------------------------------------------
$ 164,050 $ 169,167 $ 103,526 $ 104,604 $ 81,229 $ 102,444
32 54 18 69 29 (93)
-------------------------------------------------------------------------------
164,082 169,221 103,544 104,673 81,258 102,351
-------------------------------------------------------------------------------
99,899 98,983 60,646 59,817 48,206 58,459
44,036 46,348 34,848 37,297 28,505 34,484
1,629 1,520 1,661 1,552 1,475 1,560
-- -- -- -- (4,101) --
-------------------------------------------------------------------------------
145,564 146,851 97,155 98,666 74,085 94,503
-------------------------------------------------------------------------------
18,518 22,370 6,389 6,007 7,173 7,848
(126) (114) (16) (127) (85) 83
195 328 288 862 820 744
(527) (145) (80) (129) (142) (174)
-------------------------------------------------------------------------------
18,060 22,439 6,581 6,613 7,766 8,501
7,896 10,079 3,176 2,985 3,133 3,756
-------------------------------------------------------------------------------
$ 10,164 $ 12,360 $ 3,405 $ 3,628 $ 4,633 $ 4,745
===============================================================================
$ 0.37 $ 0.41 $ 0.12 $ 0.12 $ 0.17 $ 0.16
$ 0.36 $ 0.39 $ 0.12 $ 0.12 $ 0.16 $ 0.16
--------------------------------------------------------------------------------
27,744 30,107 27,939 29,737 28,033 28,936
28,403 31,317 28,559 30,647 28,742 29,817
===============================================================================
67
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no change in independent accountants and no disagreement with any
independent accountant on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure during the period
since the end of fiscal year 2000.
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by this Item with respect to directors and executive
officers has been omitted pursuant to General Instruction G(3) to Form 10-K.
This information is incorporated by reference from the 2001 definitive proxy
statement filed with the Securities and Exchange Commission pursuant to
Regulation 14A.
Item 11 EXECUTIVE COMPENSATION.
The information called for by this Item with respect to executive compensation
has been omitted pursuant to General Instruction G (3) to Form 10-K. The
information is incorporated herein by reference from the 2001 definitive proxy
statement filed with the Securities and Exchange Commission pursuant to
Regulation 14A.
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this Item with respect to security ownership of
certain beneficial owners and management has been omitted pursuant to General
Instruction G(3) to Form 10-K. This information is incorporated by reference
from the 2001 definitive proxy statement filed with the Securities and Exchange
Commission pursuant to Regulation 14A.
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There was no information called for by this Item with respect to certain
relationships and transactions with management and others.
68
PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND RESPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
(1) Financial Statement Schedules:
Financial Statement Schedule II is filed herewith.
All other financial statement schedules are omitted because
they are not applicable or the required information is
included in the Consolidated Financial Statements or
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
(2) Exhibits required by Item 601 of Regulation S-K:
Exhibit No. Description
----------- -----------
3(a) Restated Certificate of Incorporation (Filed as
Exhibit 3(a) to InterTAN's Registration Statement
on Form 10 and incorporated herein by reference).
3(a)(i) Certificate of Amendment of Restated Certificate
of Incorporation (Filed as Exhibit 3(a)(i) to
InterTAN's Annual Report on Form 10-K for fiscal
year ended June 30, 1995 and incorporated herein
by reference).
3(a)(ii) Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock.
(Filed as Exhibit 3(a)(i) to InterTAN's
Registration Statement on Form 10 and incorporated
herein by reference).
3(b) Bylaws (Filed as Exhibit 3(b) to InterTAN's
Registration Statement on Form 10 and incorporated
herein by reference).
3(b)(i) Amendments to Bylaws through August 3, 1990 (Filed
as Exhibit 3(b)(i) to InterTAN's Annual Report on
Form 10-K for fiscal year ended June 30, 1990 and
incorporated herein by reference).
3(b)(ii) Amendments to Bylaws through May 15, 1995 (Filed
as Exhibit 3(b)(ii) to InterTAN's Annual Report on
Form 10-K for fiscal year ended June 30, 1995 and
incorporated herein by reference).
3(b)(iii) Amended and Restated Bylaws (Filed as Exhibit 3(b)
(iii) 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)).
69
4(b) Amended and Restated Rights Agreement between InterTAN, Inc.
and The First National Bank of Boston (Filed as Exhibit 4(b)
to InterTAN's Report on Form 8-K dated September 25, 1989
and incorporated herein by reference).
4(c) Rights Agreement between InterTAN, Inc. and Bank Boston,
N.A. (filed as Exhibit 4 to InterTAN, Inc.'s Form 8-A filed
on September 17, 1999 and incorporated herein by reference).
10(a) InterTAN, Inc. Restated 1986 Stock Option Plan (as amended
as of February 22, 1994 and April 18, 1995) (Filed as
exhibit 10(a) to InterTAN's Annual Report on Form 10-K for
fiscal year ended June 30, 1995 and incorporated herein by
reference).
10(b) InterTAN, Inc. Restated 1991 Non-Employee Director.Stock
Option Plan (as amended through February 21, 1994) (Filed as
Exhibit 10(b) to InterTAN's Annual Report on Form 10-K for
fiscal year ended June 30, 1995 and incorporated herein by
reference).
10(c) Retirement Agreement dated March 3, 1997 between InterTAN,
Inc. and James Michael Wood (Filed as Exhibit 10(c) to
InterTAN's Quarterly Report on Form 10-Q for quarter ended
March 31, 1997 and incorporated herein by reference).
10(d) Employment Agreement between InterTAN, Inc. and James.T.
Nichols dated January 1, 1995 (Filed as Exhibit 10(ii)
to.InterTAN's Quarterly Report on Form 10-Q for
quarter.ended March 31, 1995 and incorporated herein by
reference).
10(d)(i) First Amendment to Employment Agreement dated July 1, 1998
between InterTAN, Inc. and James T. Nichols (Filed as
Exhibit10(a) to InterTAN's Quarterly Report on Form 10-Q for
quarter ended September 30, 1998 and incorporated herein by
reference).
10(d)(ii) Letter Agreement dated July 1, 1998 between InterTAN, Inc.
and James T. Nichols amending prior stock option agreements.
(Filed as Exhibit 10(b) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended September 30, 1998 and
incorporated herein by reference).
10(e) Employment Agreement dated June 10, 1999 between InterTAN,
Inc. and Brian E. Levy superceding prior Employment
Agreement dated November 29, 1997 between same parties
(Filed as Exhibit 10(e)(i) to InterTAN's Annual Report on
Form 10-K for fiscal year ended June 30, 1999 and
incorporated herein by reference).
10(e)(i) 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. (Filed as
Exhibit 10(a) to InterTAN's
70
Quarterly Report on Form 10-Q for the quarter ended March
31, 2001 and incorporated herein by reference).
10(f) Employment Agreement between InterTAN, Inc. and James G.
Gingerich dated March 1, 1995 (Filed as Exhibit 10(v) to
InterTAN's Quarterly Report on Form 10-Q for quarter ended
March 31, 1995 and incorporated herein by reference).
10(f)(i) Amendment to Employment Letter Agreement between InterTAN,
Inc. and James G. Gingerich dated February 15, 2000 (Filed
on Exhibit 10(b) to InterTAN's Quarterly Report on Form 10-Q
for quarter ended March 31, 2000 and incorporated herein by
reference).
10(f)(ii) 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. (Filed as Exhibit 10(b) to InterTAN's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2001 and
incorporated herein by reference).
10(g) Employment Agreement between InterTAN, Inc. and.Douglas C.
Saunders dated March 10, 1995 (Filed as.Exhibit 10(vi) to
InterTAN's Quarterly Report on Form.10-Q for quarter ended
March 31, 1995 and incorporated herein by reference).
10(g)(i) Amendment to Employment Letter Agreement between InterTAN,
Inc. and Douglas C. Saunders dated February 15, 2000 (Filed
as Exhibit 10(c) to InterTAN's Quarterly Report on Form 10-Q
for quarter ended March 31, 2000 and incorporated herein by
reference).
10(g)(ii) Letter from InterTAN, Inc. to Douglas C. Saunders dated
February 19, 2001 clarifying letter agreement dated February
15, 2000 between same parties. (Filed as Exhibit 10(c) to
InterTAN's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2001 and incorporated herein by reference).
10(h) Amended and Restated License Agreement between Tandy
Corporation and InterTAN Australia Ltd. dated as of January
25, 1999 (Filed as Exhibit 10(c) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended December 31, 1999 and
incorporated herein by reference).
10(h)(i) First Amendment to Amended and Restated License Agreement
(Australia and New Zealand) between RadioShack Corporation
(formerly Tandy Corporation) and InterTAN Australia Ltd.
dated as of June 1, 2000. (Filed as Exhibit 10(o)(vii) to
InterTAN's Annual Report on Form 10-K for fiscal year ended
June 30, 2000 and incorporated herein by reference).
10(h)(ii) Second Amendment to Amended and Restated License Agreement
(Australia and New Zealand) between RadioShack Corporation
and InterTAN Australia Ltd., dated as of November 9, 2000.
(Filed as Exhibit
71
10(c) to InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 2000 and incorporated herein by
reference).
10(i) Loan Agreement dated to be effective December 22, 1997
among InterTAN, Inc., InterTAN Canada Ltd., InterTAN U.K.
Limited, Bank of America Canada, Bank of America N.T. &
S.A. (London England Branch Office) and certain other
Lenders as identified therein (Filed as Exhibit 10(c) to
InterTAN's Quarterly Report on Form 10-Q for quarter ended
December 31, 1997 and incorporated herein by reference).
10(i)(i) Form of Rectification and Amendment No.1 to Loan Agreement
dated to be effective February 24, 1998 (Filed as Exhibit
10(a) to InterTAN's Quarterly Report on Form 10-Q for
quarter ended March 31, 1998 and incorporated
10(i)(ii) Second Amendment to Loan Agreement dated as of January,
1999 among InterTAN, Inc. InterTAN Canada Ltd., InterTAN
UK Ltd., Bank America Canada, Bank America National Trust
and Savings Association, Bankboston Retail Finance Inc.,
Congress Financial Corporation, Bank Boston, NA and
Burdale Financial Limited. (Filed as Exhibit 10(b) to
InterTAN's Quarterly Report on Form 10-Q for quarter ended
March 31, 1999 and incorporated herein by reference).
10(i)(iii) Third Amendment to Loan Agreement dated as of April, 1999
among InterTAN, Inc. InterTAN Canada Ltd., InterTAN UK
Ltd., Bank America Canada, Bank America National Trust and
Savings Association, Bankboston Retail Finance Inc. and
Congress Financial Corporation. (Filed as Exhibit
10(p)(iii) to InterTAN's Annual Report on Form 10-K for
fiscal year ended June 30, 1999 and incorporated herein by
reference).
10(i)(iv) Fourth Amendment to Loan Agreement between InterTAN Canada
Ltd., Bank of America Canada, Bankboston Retail Finance
Inc. and Congress Financial Corporation dated as of
October 1, 1999 (Filed as Exhibit 10(e) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended December
31, 1999 and incorporated herein by reference).
10(i)(v) Fifth Amendment to Loan Agreement between InterTAN Canada
Ltd., Bank of America Canada, Bankboston Retail Finance
Inc. and Congress Financial Corporation dated as of
October 1, 1999 (Filed as Exhibit 10(f) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended December
31, 1999 and incorporated herein by reference).
10(i)(vi) Assignment and Assumption Agreement between Bank of
America Canada, Bankboston Retail Finance Inc. and
InterTAN Canada Ltd. dated October 28, 1999 (Filed as
Exhibit 10(g) to InterTAN's Quarterly Report on Form 10-Q
for quarter ended December 31, 1999 and incorporated
herein by reference).
10(i)(vii) Assignment and Assumption Agreement between Bank of
America Canada, Congress Financial Corporation and
InterTAN Canada Ltd. dated October 28,
72
1999 (Filed as Exhibit 10(h) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended December 31, 1999 and
incorporated herein by reference).
10(i)(viii) Sixth Agreement to Loan Agreement between InterTAN Canada
Ltd., InterTAN, Inc. and Bank of America Canada dated as of
December 14, 2000. (Filed as Exhibit 10(d) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended December 31,
2000 and incorporated herein by reference).
10(i)(ix) Seventh Amendment to Loan Agreement between InterTAN Canada
Ltd., InterTAN, Inc. and Bank of America Canada dated as of
March 21, 2001. (Filed as Exhibit 10(e) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended March 31,
2001 and incorporated herein by reference).
10(i)(x) Eighth Amendment to Loan Agreement between InterTAN Canada
Ltd., InterTAN, Inc. and Bank of America Canada dated as of
May 4, 2001. (Filed as Exhibit 10(i) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended March 31,
2001 and incorporated herein by reference).
10(j) InterTAN, Inc. 1996 Stock Option Plan and Forms of Stock
Option Agreement (Filed as Exhibits 4.6 and 4.7,
respectively, to InterTAN's Registration Statement on Form
S-8, SEC file number 333-16105, filed on November 14, 1996
and incorporated herein by reference).
10(k) Employment Agreement between InterTAN, Inc. and Jeffrey A.
Losch dated February 23, 1999 (Filed as Exhibit 10(d) to
InterTAN's Quarterly Report on Form 10-Q for quarter ended
March 31, 1999 and incorporated herein by reference).
10(k)(i) Amendment to Employment Letter Agreement between InterTAN,
Inc. and Jeffrey A. Losch dated February 15, 2000 (Filed as
Exhibit 10(d) to InterTAN's Quarterly Report on Form 10-Q
for quarter ended March 31, 2000 and incorporated herein by
reference).
10(k)(ii) Letter from InterTAN, Inc. to Jeffrey A. Losch dated
February 19, 2001 clarifying letter agreement dated February
15, 2000 between same parties. (Filed as Exhibit 10(d) to
InterTAN's Quarterly Report on Form 10-Q for quarter ended
March 31, 1999 and incorporated herein by reference).
10(l) Deed of Indemnity between InterTAN, Inc., Tandy Corporation,
InterTAN Canada Ltd., The Carphone Warehouse Limited and
Worldwide Telecommunications Ltd. dated January 23, 1999.
(Filed as Exhibit No. 10.1 to InterTAN's Current Report on
Form 8-K dated January 25, 1999 and incorporated herein by
reference).
10(m) Tax Deed between InterTAN, Inc. and Beheer-En
Belggingsmaatschappij Antika B.V. dated January 23, 1999.
(Filed as Exhibit No. 10.2 to InterTAN's Current Report on
Form 8-K dated January 25, 1999 and incorporated herein by
reference)
73
10(n) Correspondence dated June 9, 1999 from InterTAN, Inc.
addressed to Brian E. Levy in respect of a grant of
restricted stock (Filed as Exhibit 10(x) to InterTAN's
Annual Report on Form 10-K for fiscal year ended June 30,
1999 and incorporated herein by reference).
10(n)(i) Restricted Stock Unit Agreement between InterTAN, Inc. and
Brian E. Levy made as of October 4, 2000. (Filed as Exhibit
10(a) to InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 2000 and incorporated herein by
reference).
10(o) Correspondence dated June 9, 1999 from InterTAN, Inc.
addressed to James G. Gingerich in respect of a grant of
restricted stock (Filed as Exhibit 10(y) to InterTAN's
Annual Report on Form 10-K for fiscal year ended June 30,
1999 and incorporated herein by reference).
10(o)(i) Restricted Stock Unit Agreement between InterTAN, Inc. and
James G. Gingerich made as of October 4, 2000. (Filed as
Exhibit 10(b) to InterTAN's Quarterly Report on Form 10-Q
for quarter ended December 31, 2000 and incorporated herein
by reference).
10(p) Form of Agreement that evidences the InterTAN, Inc. Plan for
1999 Non-Employee Director Non-Qualified Stock Options
(Filed as Exhibit 10(d) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended December 31, 1999 and
incorporated herein by reference).
10(q) Composite copy of Deferred Compensation Plan reflecting
amendments thereto authorized by Board of Directors of
InterTAN, Inc. on February 14, 2000 (Filed as Exhibit 10(a)
to InterTAN's Quarterly Report on Form 10-Q for quarter
ended March 31, 1999 and incorporated herein by reference).
10(q)(i) Plan Agreement in respect of Deferred Compensation Plan
between InterTAN, Inc. and Jeffrey A. Losch dated February
18, 2000 (Filed as Exhibit 10(e) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended March 31, 1999 and
incorporated herein by reference).
10(q)(ii) Addendum No. 1 to Deferred Compensation Plan Agreement
between Jeffrey A. Losch and InterTAN, Inc. dated September
13, 2000. (Filed as Exhibit 10(d) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended September 30, 2000 and
incorporated herein by reference).
10(q)(iii) Addendum No. 1 to Deferred Compensation Plan Agreement
between Brian E. Levy and InterTAN, Inc. dated September 13,
2000. (Filed as Exhibit 10(a) to InterTAN's Quarterly Report
on Form 10-Q for quarter ended September 30, 2000 and
incorporated herein by reference).
10(q)(iv) Addendum No. 1 to Deferred Compensation Plan Agreement
between James G. Gingerich and InterTAN, Inc. dated
September 13, 2000. (Filed as Exhibit 10(b) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended September
30, 2000 and incorporated herein by reference).
74
10(q)(v) Addendum No. 1 to Deferred Compensation Plan Agreement
between Douglas C. Saunders and InterTAN, Inc. dated
September 13, 2000. (Filed as Exhibit 10(c) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended September
30, 2000 and incorporated herein by reference).
10(r) Form of Indemnification Agreement entered into between
InterTAN, Inc. and each individual director and executive
officer of InterTAN, Inc. dated as of June 7, 2000. (Filed
as Exhibit 10(cc) to InterTAN's Annual Report on Form 10-K
for fiscal year ended June 30, 2000 and incorporated herein
by reference).
10(s) Letter Agreement between InterTAN, Inc. and RadioShack
Corporation dated April 6, 2001. (Filed as Exhibit 10(f) to
InterTAN's Quarterly Report on Form 10-Q for quarter ended
March 31, 2001 and incorporated herein by reference).
10(t) 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. (Filed as Exhibit 10(g) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended March 31,
2001 and incorporated herein by reference).
10(u) Share Acquisition Agreement among InterTAN, Inc., InterTAN
Canada Ltd. and Dick Smith Electronics Holdings Pty. Ltd.
dated April 10, 2001. (Filed as Exhibit 10(h) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended March 31,
2001 and incorporated herein by reference).
*10(v) Second Amended and Restated License Agreement (Canada)
between RadioShack Corporation and InterTAN Canada Ltd.
dated as of May 1, 2001.
*10(w) Second Amended and Restated Merchandise Agreement among
InterTAN, Inc., InterTAN Canada Ltd., RadioShack Corporation
and RadioShack International Procurement Limited Partnership
dated as of May 1, 2001.
*10(x) Second Amended and Restated Advertising Agreement among
InterTAN, Inc., InterTAN Canada Ltd., TRS Quality, Inc. and
RadioShack Corporation dated as of May 1, 2001.
*10(y) Amended and Restated Mall Stores Operating and Marketing
Agreement among Rogers Wireless Inc., Rogers Wireless
Communications Inc., InterTAN Canada Ltd. and InterTAN, Inc.
dated as of June 21, 2001.
*21 Subsidiaries of InterTAN, Inc.
*23 Consent of Independent Accountants.
75
___________________
* Filed herewith
(b) Reports on Form 8K:
A report on Form 8K was filed on May 15, 2001 to report the
full details of the sale of the Company's former subsidiary in
Australia.
76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
InterTAN, Inc.
September 27, 2001 /s/ Brian E. Levy
-----------------------------------
Brian E. Levy,
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on the 27th day of September, 2001 by the following
persons on behalf of InterTAN, Inc. and in the capacities indicated.
Signature Title
--------- -----
/s/ James G, Gingerich Executive Vice President and
---------------------------
James G. Gingerich Chief Financial Officer
(Principal Financial Officer)
/s/ Douglas C. Saunders Vice President and
---------------------------
Douglas C. Saunders Corporate Controller
(Principal Accounting Officer)
/s/ Ron G. Stegall Director and
---------------------------
Ron. G. Stegall Chairman of the Board
/s/ William C. Bousquette Director
---------------------------
William C. Bousquette
/s/ John A. Capstick Director
---------------------------
John A. Capstick
/s/ Clark A. Johnson Director
---------------------------
Clark A. Johnson
/s/ John H. McDaniel Director
---------------------------
John H. McDaniel
/s/ W. Darcy McKeough Director
---------------------------
W. Darcy McKeough
/s/ James T. Nichols Director and
---------------------------
James T. Nichols Vice Chairman of the Board
/s/ Brian E. Levy Director and
---------------------------
Brian E. Levy President and Chief Executive Officer
77
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors of
InterTAN, Inc.
Our audits of the consolidated financial statements referred to in our report
dated August 13, 2001 appearing in the 2001 Annual Report to Shareholders of
InterTAN, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(1) of this Form
10-K. In our opinion, this financial statement schedule present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/PricewaterhouseCoopers LLP
Toronto, Canada
August 13, 2001
Schedule II
InterTAN, Inc.
Valuation and Qualifying Accounts and Reserves
(In thousands)
-------- ----------------------------
2001 2000 1999
-------- -------- --------
Allowance for Doubtful Accounts
Balance, beginning of year $ 205 $ 680 $ 1,228
Additions charged to profit and loss
-- 70 27
Accounts receivable charged off,
net of recoveries -- (545) (575)
Adjustment on disposal of Australian
subsidiary (164) -- --
-------- -------- --------
Balance, end of year $ 41 $ 205 $ 680
======== ======== ========
European Business Restructuring Reserve
Balance, beginning of year $ 201 $ 740 $ 881
Credited to cost and expense -- -- --
Payments and other dispositions, net (201) (539) (141)
-------- -------- --------
Balance, end of year $ -- $ 201 $ 740
======== ======== ========
United Kingdom Business Restructuring Reserve
Balance, beginning of year $ -- $ -- $ 9,416
Credited to cost and expense -- -- --
Payments and other dispositions, net -- -- (3,404)
Adjustment on disposal of United
Kingdom subsidary -- -- (6,012)
Balance, end of year $ -- $ -- $ --
======== ======== ========
Deferred Tax Valuation Allowance
Balance, beginning of year $ 28,899 $ 7,891 $ 43,250
Additions to valuation allowance 457 21,259 750
Adjustments to valuation allowance 3,636 (222) --
Utilization of deferred tax assets (7,388) -- (36,200)
Foreign exchange rate effects (145) (29) 91
-------- -------- --------
Balance, end of year $ 25,459 $ 28,899 $ 7,891
======== ======== ========
InterTAN, Inc.
Form 10-K
Year ended June 30, 2001
Index To Exhibits
Exhibit No. Description
----------- -----------
3(a) Restated Certificate of Incorporation (Filed as
Exhibit 3(a) to InterTAN's Registration Statement
on Form 10 and incorporated herein by reference).
3(a)(i) Certificate of Amendment of Restated Certificate of
Incorporation (Filed as Exhibit 3(a)(i) to
InterTAN's Annual Report on Form 10-K for fiscal
year ended June 30, 1995 and incorporated herein by
reference).
3(a)(ii) Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock.
(Filed as Exhibit 3(a)(i) to InterTAN's
Registration Statement on Form 10 and incorporated
herein by reference).
3(b) Bylaws (Filed as Exhibit 3(b) to InterTAN's
Registration Statement on Form 10 and incorporated
herein by reference).
3(b)(i) Amendments to Bylaws through August 3, 1990 (Filed
as Exhibit 3(b)(i) to InterTAN's Annual Report on
Form 10-K for fiscal year ended June 30, 1990 and
incorporated herein by reference).
3(b)(ii) Amendments to Bylaws through May 15, 1995 (Filed as
Exhibit 3(b)(ii) to InterTAN's Annual Report on
Form 10-K for fiscal year ended June 30, 1995 and
incorporated herein by reference).
3(b)(iii) Amended and Restated Bylaws (Filed as Exhibit
3(b)(iii) to InterTAN's Annual Report on Form 10-K
for fiscal year ended June 30, 1996 and
incorporated herein by reference).
4(a) Articles Fifth and Tenth of the Restated
Certificate of Incorporation (included in Exhibit
3(a)).
4(b) Amended and Restated Rights Agreement between
InterTAN, Inc. and The First National Bank of
Boston
(Filed as Exhibit 4(b) to InterTAN's Report on Form
8-K dated September 25, 1989 and incorporated
herein by reference).
4(c) Rights Agreement between InterTAN, Inc. and Bank
Boston, N.A. (filed as Exhibit 4 to InterTAN,
Inc.'s Form 8-A filed on September 17, 1999 and
incorporated herein by reference).
10(a) InterTAN, Inc. Restated 1986 Stock Option Plan (as
amended as of February 22, 1994 and April 18, 1995)
(Filed as exhibit 10(a) to InterTAN's Annual Report
on Form 10-K for fiscal year ended June 30, 1995
and incorporated herein by reference).
10(b) InterTAN, Inc. Restated 1991 Non-Employee
Director.Stock Option Plan (as amended through
February 21, 1994) (Filed as Exhibit 10(b) to
InterTAN's Annual Report on Form 10-K for fiscal
year ended June 30, 1995 and incorporated herein by
reference).
10(c) Retirement Agreement dated March 3, 1997 between
InterTAN, Inc. and James Michael Wood (Filed as
Exhibit 10(c) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended March 31, 1997 and
incorporated herein by reference).
10(d) Employment Agreement between InterTAN, Inc. and
James.T. Nichols dated January 1, 1995 (Filed as
Exhibit 10(ii) to.InterTAN's Quarterly Report on
Form 10-Q for quarter.ended March 31, 1995 and
incorporated herein by reference).
10(d)(i) First Amendment to Employment Agreement dated July
1,1998 between InterTAN, Inc. and James T. Nichols
(Filed as Exhibit10(a) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended September 30,
1998 and incorporated herein by reference).
10(d)(ii) Letter Agreement dated July 1, 1998 between
InterTAN, Inc. and James T. Nichols amending prior
stock option agreements. (Filed as Exhibit 10(b) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended September 30, 1998 and incorporated
herein by reference).
10(e) Employment Agreement dated June 10, 1999 between
InterTAN, Inc. and Brian E. Levy superceding prior
Employment Agreement dated November 29, 1997
between same parties (Filed as Exhibit 10(e)(i) to
InterTAN's Annual Report on Form 10-K for fiscal
year ended June 30, 1999 and incorporated herein
by reference).
10(e)(i) 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. (Filed as Exhibit 10(a) to
InterTAN's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001 and incorporated
herein by reference).
10(f) Employment Agreement between InterTAN, Inc. and
James G. Gingerich dated March 1, 1995 (Filed as
Exhibit 10(v) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended March 31, 1995 and
incorporated herein by reference).
10(f)(i) Amendment to Employment Letter Agreement between
InterTAN, Inc. and James G. Gingerich dated
February 15, 2000 (Filed on Exhibit 10(b) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended March 31, 2000 and incorporated
herein by reference).
10(f)(ii) 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. (Filed as Exhibit 10(b)
to InterTAN's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2001 and incorporated
herein by reference).
10(g) Employment Agreement between InterTAN, Inc.
and.Douglas C. Saunders dated March 10, 1995
(Filed as.Exhibit 10(vi) to InterTAN's Quarterly
Report on Form.10-Q for quarter ended March 31,
1995 and incorporated herein by reference).
10(g)(i) Amendment to Employment Letter Agreement between
InterTAN, Inc. and Douglas C. Saunders dated
February 15, 2000 (Filed as Exhibit 10(c) to
InterTAN's Quarterly Report on Form 10-Q for
quarter ended March 31, 2000 and incorporated
herein by reference).
10(g)(ii) Letter from InterTAN, Inc. to Douglas C. Saunders
dated February 19, 2001 clarifying letter
agreement dated February 15, 2000 between same
parties. (Filed as Exhibit 10(c) to InterTAN's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 2001 and incorporated herein by
reference).
10(h) Amended and Restated License Agreement between
Tandy Corporation and InterTAN Australia Ltd.
dated as of January 25, 1999 (Filed as Exhibit
10(c) to InterTAN's Quarterly Report on Form 10-Q
for quarter ended December 31, 1999 and
incorporated herein by reference).
10(h)(i) First Amendment to Amended and Restated License
Agreement (Australia and New Zealand) between
RadioShack Corporation (formerly Tandy
Corporation) and InterTAN Australia Ltd. dated as
of June 1, 2000. (Filed as Exhibit 10(o)(vii) to
InterTAN's Annual Report on Form 10-K for fiscal
year ended June 30, 2000 and incorporated herein
by reference).
10(h)(ii) Second Amendment to Amended and Restated License
Agreement (Australia and New Zealand) between
RadioShack Corporation and InterTAN Australia
Ltd., dated as of November 9, 2000. (Filed as
Exhibit 10(c) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended December 31, 2000 and
incorporated herein by reference).
10(i) Loan Agreement dated to be effective December 22,
1997 among InterTAN, Inc., InterTAN Canada Ltd.,
InterTAN U.K. Limited, Bank of America Canada,
Bank of America N.T. & S.A. (London England Branch
Office) and certain other Lenders as identified
therein (Filed as Exhibit 10(c) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
December 31, 1997 and incorporated herein by
reference).
10(i)(i) Form of Rectification and Amendment No.1 to Loan
Agreement dated to be effective February 24, 1998
(Filed as Exhibit 10(a) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended March 31,
1998 and incorporated
10(i)(ii) Second Amendment to Loan Agreement dated as of
January,1999 among InterTAN, Inc. InterTAN Canada
Ltd., InterTAN UK Ltd., Bank America Canada, Bank
America National Trust and Savings Association,
Bankboston Retail Finance Inc., Congress Financial
Corporation, Bank Boston, NA and Burdale Financial
Limited. (Filed as Exhibit 10(b) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
March 31, 1999 and incorporated herein by
reference).
10(i)(iii) Third Amendment to Loan Agreement dated as of
April, 1999 among InterTAN, Inc. InterTAN Canada
Ltd., InterTAN UK Ltd., Bank America Canada, Bank
America National Trust and Savings Association,
Bankboston Retail Finance Inc. and Congress
Financial Corporation. (Filed as Exhibit
10(p)(iii) to InterTAN's Annual Report on Form
10-K for fiscal year ended June 30, 1999 and
incorporated herein by reference).
10(i)(iv) Fourth Amendment to Loan Agreement between
InterTAN Canada Ltd., Bank of America Canada,
Bankboston Retail Finance Inc. and Congress
Financial Corporation dated as of October 1, 1999
(Filed as Exhibit 10(e) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended December 31,
1999 and incorporated herein by reference).
10(i)(v) Fifth Amendment to Loan Agreement between InterTAN
Canada Ltd., Bank of America Canada, Bankboston
Retail Finance Inc. and Congress Financial
Corporation dated as of October 1, 1999 (Filed as
Exhibit 10(f) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended December 31, 1999 and
incorporated herein by reference).
10(i)(vi) Assignment and Assumption Agreement between Bank
of America Canada, Bankboston Retail Finance Inc.
and InterTAN Canada Ltd. dated October 28, 1999
(Filed as Exhibit 10(g) to InterTAN's Quarterly
Report
on Form 10-Q for quarter ended December 31, 1999 and
incorporated herein by reference).
10(i)(vii) Assignment and Assumption Agreement between Bank of
America Canada, Congress Financial Corporation and
InterTAN Canada Ltd. dated October 28, 1999 (Filed as
Exhibit 10(h) to InterTAN's Quarterly Report on Form
10-Q for quarter ended December 31, 1999 and
incorporated herein by reference).
10(i)(viii) Sixth Agreement to Loan Agreement between InterTAN
Canada Ltd., InterTAN, Inc. and Bank of America Canada
dated as of December 14, 2000. (Filed as Exhibit 10(d)
to InterTAN's Quarterly Report on Form 10-Q for
quarter ended December 31, 2000 and incorporated
herein by reference).
10(i)(ix) Seventh Amendment to Loan Agreement between InterTAN
Canada Ltd., InterTAN, Inc. and Bank of America Canada
dated as of March 21, 2001. (Filed as Exhibit 10(e) to
InterTAN's Quarterly Report on Form 10-Q for quarter
ended March 31, 2001 and incorporated herein by
reference).
10(i)(x) Eighth Amendment to Loan Agreement between InterTAN
Canada Ltd., InterTAN, Inc. and Bank of America Canada
dated as of May 4, 2001. (Filed as Exhibit 10(i) to
InterTAN's Quarterly Report on Form 10-Q for quarter
ended March 31, 2001 and incorporated herein by
reference).
10(j) InterTAN, Inc. 1996 Stock Option Plan and Forms of
Stock Option Agreement (Filed as Exhibits 4.6 and 4.7,
respectively, to InterTAN's Registration Statement on
Form S-8, SEC file number 333-16105, filed on November
14, 1996 and incorporated herein by reference).
10(k) Employment Agreement between InterTAN, Inc. and
Jeffrey A. Losch dated February 23, 1999 (Filed as
Exhibit 10(d) to InterTAN's Quarterly Report on Form
10-Q for quarter ended March 31, 1999 and incorporated
herein by reference).
10(k)(i) Amendment to Employment Letter Agreement between
InterTAN, Inc. and Jeffrey A. Losch dated
February 15, 2000 (Filed as Exhibit 10(d) to
InterTAN's Quarterly Report on Form 10-Q for quarter
ended March 31, 2000 and incorporated herein by
reference).
10(k)(ii) Letter from InterTAN, Inc. to Jeffrey A. Losch dated
February 19, 2001 clarifying letter agreement dated
February 15, 2000 between same parties. (Filed as
Exhibit 10(d) to InterTAN's Quarterly Report on Form
10-Q for quarter ended March 31, 1999 and
incorporated herein by reference).
10(l) Deed of Indemnity between InterTAN, Inc., Tandy
Corporation, InterTAN Canada Ltd., The Carphone
Warehouse Limited and Worldwide Telecommunications
Ltd. dated January 23, 1999. (Filed as Exhibit No.
10.1 to InterTAN's Current Report on Form 8-K dated
January 25, 1999 and incorporated herein by
reference).
10(m) Tax Deed between InterTAN, Inc. and Beheer-En
Belggingsmaatschappij Antika B.V. dated January 23,
1999. (Filed as Exhibit No. 10.2 to InterTAN's
Current Report on Form 8-K dated January 25, 1999 and
incorporated herein by reference).
10(n) Correspondence dated June 9, 1999 from InterTAN, Inc.
addressed to Brian E. Levy in respect of a grant of
restricted stock (Filed as Exhibit 10(x) to
InterTAN's Annual Report on Form 10-K for fiscal year
ended June 30, 1999 and incorporated herein by
reference).
10(n)(i) Restricted Stock Unit Agreement between InterTAN,
Inc. and Brian E. Levy made as of October 4, 2000.
(Filed as Exhibit 10(a) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended December 31,
2000 and incorporated herein by reference).
10(o) Correspondence dated June 9, 1999 from InterTAN, Inc.
addressed to James G. Gingerich in respect of a grant
of restricted stock (Filed as Exhibit 10(y) to
InterTAN's Annual Report on Form 10-K for fiscal year
ended June 30, 1999 and incorporated herein by
reference).
10(o)(i) Restricted Stock Unit Agreement between InterTAN,
Inc. and James G. Gingerich made as of October 4,
2000. (Filed as Exhibit 10(b) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended December 31,
2000 and incorporated herein by reference).
10(p) Form of Agreement that evidences the InterTAN, Inc.
Plan for 1999 Non-Employee Director Non-Qualified
Stock Options (Filed as Exhibit 10(d) to InterTAN's
Quarterly Report on Form 10-Q for quarter ended
December 31, 1999 and incorporated herein by
reference).
10(q) Composite copy of Deferred Compensation Plan
reflecting amendments thereto authorized by Board of
Directors of InterTAN, Inc. on February 14, 2000
(Filed as Exhibit 10(a) to InterTAN's Quarterly
Report on Form 10-Q for quarter ended March 31, 1999
and incorporated herein by reference).
10(q)(i) Plan Agreement in respect of Deferred Compensation
Plan between InterTAN, Inc. and Jeffrey A. Losch
dated February 18, 2000 (Filed as Exhibit 10(e) to
InterTAN's Quarterly Report on Form 10-Q for quarter
ended March 31, 1999 and incorporated herein by
reference).
10(q)(ii) Addendum No. 1 to Deferred Compensation Plan
Agreement between Jeffrey A. Losch and InterTAN, Inc.
dated September 13, 2000. (Filed as Exhibit 10(d) to
InterTAN's Quarterly Report on Form 10-Q for quarter
ended September 30, 2000 and incorporated herein by
reference).
10(q)(iii) Addendum No. 1 to Deferred Compensation Plan
Agreement between Brian E. Levy and InterTAN, Inc.
dated September 13, 2000. (Filed as Exhibit 10(a) to
InterTAN's Quarterly Report on Form 10-Q for quarter
ended September 30, 2000 and incorporated herein by
reference).
10(q)(iv) Addendum No. 1 to Deferred Compensation Plan
Agreement between James G. Gingerich and InterTAN,
Inc. dated September 13, 2000. (Filed as Exhibit
10(b) to InterTAN's Quarterly Report on
Form 10-Q for quarter ended September 30, 2000 and
incorporated herein by reference).
10(q)(v) Addendum No. 1 to Deferred Compensation Plan
Agreement between Douglas C. Saunders and InterTAN,
Inc. dated September 13, 2000. (Filed as Exhibit
10(c) to InterTAN's Quarterly Report on Form 10-Q for
quarter ended September 30, 2000 and incorporated
herein by reference).
10(r) Form of Indemnification Agreement entered into
between InterTAN, Inc. and each individual director
and executive officer of InterTAN, Inc. dated as of
June 7, 2000. (Filed as Exhibit 10(cc) to InterTAN's
Annual Report on Form 10-K for fiscal year ended June
30, 2000 and incorporated herein by reference).
10(s) Letter Agreement between InterTAN, Inc. and
RadioShack Corporation dated April 6, 2001. (Filed as
Exhibit 10(f) to InterTAN's Quarterly Report on Form
10-Q for quarter ended March 31, 2001 and
incorporated herein by reference).
10(t) 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. (Filed as Exhibit 10(g)
to InterTAN's Quarterly Report on Form 10-Q for
quarter ended March 31, 2001 and incorporated herein
by reference).
10(u) Share Acquisition Agreement among InterTAN, Inc.,
InterTAN Canada Ltd. and Dick Smith Electronics
Holdings Pty. Ltd. dated April 10, 2001. (Filed as
Exhibit 10(h) to InterTAN's Quarterly Report on Form
10-Q for quarter ended March 31, 2001 and
incorporated herein by reference).
*10(v) Second Amended and Restated License Agreement
(Canada) between RadioShack Corporation and InterTAN
Canada Ltd. dated as of May 1, 2001.
*10(w) Second Amended and Restated Merchandise Agreement
among InterTAN, Inc., InterTAN Canada Ltd.,
RadioShack Corporation and RadioShack
International Procurement Limited Partnership dated
as of May 1, 2001.
*10(x) Second Amended and Restated Advertising Agreement
among InterTAN, Inc., InterTAN Canada Ltd., TRS
Quality, Inc. and RadioShack Corporation dated as of
May 1, 2001.
*10(y) Amended and Restated Mall Stores Operating and
Marketing Agreement among Rogers Wireless Inc.,
Rogers Wireless Communications Inc., InterTAN Canada
Ltd. and InterTAN, Inc. dated as of June 21, 2001.
*21 Subsidiaries of InterTAN, Inc.
*23 Consent of Independent Accountants.
___________________
* Filed herewith