SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
FORM 10-Q
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(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 31, 2001 or
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[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to ________
Commission file number 1-10062
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InterTAN, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 75-2130875
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
279 Bayview Drive
Barrie, Ontario Canada L4M 4W5
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (705) 728-6242
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
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At January 31, 2002, 24,585,081 shares of the registrant's common stock, par
value $1.00 per share, were outstanding.
1
PART I
Page
Introductory note regarding forward-looking information 3
ITEM 1 - Financial Statements and Supplementary Data
Consolidated Statements of Operations 4
Consolidated Balance Sheets 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II
ITEM 1 - Legal Proceedings 23
ITEM 4 - Submission of Matters to a Vote of Security Holders 23
ITEM 6 - Exhibits and Reports on Form 8-K 23
OTHER
Signatures 26
2
Introductory Note Regarding Forward-Looking Information
Certain statements in this Report on form 10-Q constitute forward-looking
statements that involve risks and uncertainties. The forward-looking statements
include statements regarding:
. The resolution of the Company's dispute with the purchaser of its former
subsidiary in Australia.
. The outcome of various Australian, Canadian and United States income tax
issues.
. The benefits of extending the Company's expanded range of digital cameras
to a wider range of its stores.
. The impact on sales and profits of the Company's strategy to selectively
expand the video game business.
. The Company's ability to establish a more reliable source of supply for
computers with Pentium 4 technology and position itself more aggressively
in that marketplace.
. The Company's ability to expand its retail square footage through both new
stores and expanding the size of certain existing stores.
. The benefits of the Company's investment in additional human resources in
sales areas of responsibility.
. The impact on selling, general and administrative expenses of the
restructuring program completed during the second quarter.
. Future levels of interest income and expense.
. The ability of the Company's inventory management program to positively
impact obsolescence risk and improve cash flow.
. The adequacy of the Company's liquidity.
. The adequacy of the indemnity obtained from the purchaser of the Company's
former subsidiary in the United Kingdom.
. Possible payments under indemnities provided to the purchaser of InterTAN
Australia Ltd.
. Forecasted capital expenditures for fiscal year 2002.
. Estimates of cash required to fund the repurchase of common stock.
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 political, military and 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 preference.
. 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, including its Form 10-K for the
2001 fiscal year.
These risks and uncertainties are beyond the ability of the Company to control,
and in many cases the Company cannot predict the risks and uncertainties that
could cause its actual results to differ materially from those indicated by the
forward-looking statements.
3
ITEM 1 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Operations
(U.S. dollars in thousands, except per share data)
(Unaudited)
Three months ended Six months ended
December 31 December 31
2001 2000 2001 2000
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Net sales and operating revenues $ 135,831 $ 164,050 $ 226,196 $ 284,001
Other income (loss) (13) 32 (2) 91
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135,818 164,082 226,194 284,092
Operating costs and expenses:
Cost of products sold 82,894 99,899 137,756 172,101
Selling, general and administrative expenses 32,715 44,036 60,401 80,915
Depreciation and amortization 1,395 1,629 2,760 3,221
Restructuring charge - - 3,213 -
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117,004 145,564 204,130 256,237
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Operating income 18,814 18,518 22,064 27,855
Foreign currency transaction gains (losses) 156 (126) 295 (252)
Interest income 309 195 1,035 629
Interest expense (96) (527) (200) (651)
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Income before income taxes 19,183 18,060 23,194 27,581
Income taxes 8,325 7,896 10,480 12,092
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Net income $ 10,858 $ 10,164 $ 12,714 $ 15,489
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Basic net income per average common share $ 0.42 $ 0.37 $ 0.48 $ 0.56
Diluted net income per average common share $ 0.42 $ 0.36 $ 0.47 $ 0.54
- -----------------------------------------------------------------------------------------------------------------
Average common shares outstanding 25,651 27,744 26,744 27,888
Average common shares outstanding assuming dilution 26,097 28,403 27,203 28,676
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The accompanying notes are an integral part of these consolidated financial
statements.
4
Consolidated Balance Sheets
(U.S. dollars in thousands, except share amounts)
(Unaudited)
December 31 June 30 December 31
2001 2001 2000
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Assets
Current Assets
Cash and short-term investments $ 70,739 $ 86,233 $ 20,207
Accounts receivable, less allowance for doubtful accounts 25,355 12,598 28,753
Inventories 86,789 90,394 137,161
Other current assets 1,819 1,151 950
Deferred income taxes 2,179 2,290 2,258
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Total current assets 186,881 192,666 189,329
Property and equipment, less accumulated depreciation and amortization 21,120 19,817 25,149
Other assets 16 16 24
Deferred income taxes 2,884 3,031 2,451
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Total Assets $ 210,901 $ 215,530 $ 216,953
==========================================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 25,348 $ 20,034 $ 28,042
Accrued expenses 23,253 13,650 26,800
Income taxes payable 24,832 24,913 27,130
Deferred service contract revenue - current portion 5,677 5,507 5,655
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Total current liabilities 79,110 64,104 87,627
Deferred service contract revenue - non current portion 5,167 4,599 5,052
Other liabilities 2,333 2,518 6,421
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Total liabilities 86,610 71,221 99,100
==========================================================================================================================
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,
31,706,175, 31,225,048 and 30,969,117, respectively, issued 31,706 31,225 30,969
Additional paid-in capital 154,967 151,744 148,862
Common stock in treasury, at cost, 6,680,768, 3,101,818
and 3,102,178 shares, respectively (66,949) (35,405) (35,403)
Retained earnings 26,466 13,752 5,714
Accumulated other comprehensive loss (21,899) (17,007) (32,289)
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Total stockholders' equity 124,291 144,309 117,853
==========================================================================================================================
Commitments and contingencies (See Notes 3, 8 and 9)
Total Liabilities and Stockholders' Equity $ 210,901 $ 215,530 $ 216,953
==========================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
5
Consolidated Statements of Cash Flows
Six months ended
(U.S. dollars in thousands) December 31
(Unaudited) 2001 2000
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Cash flows from operating activities:
Net income $ 12,714 $ 15,489
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization 2,760 3,221
Stock-based compensation 712 582
Other 14 46
Cash provided by (used in) assets and liabilities:
Accounts receivable (13,474) (16,211)
Inventories (725) (18,196)
Other current assets (733) 207
Accounts payable 6,374 2,580
Accrued expenses 10,223 10,720
Income taxes payable 1,113 (2,556)
Deferred service contract revenue 1,247 589
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Net cash provided by (used in) operating activities 20,225 (3,529)
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Cash flows from investing activities:
Additions to property and equipment (5,158) (6,757)
Proceeds from sales of property and equipment 105 171
Other investing activities (121) 627
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Net cash used in investing activities (5,174) (5,959)
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Cash flows from financing activities:
Proceeds from issuance of common stock to employee plans 792 972
Proceeds from exercise of stock options 2,023 234
Purchase of treasury stock (31,367) (15,373)
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Net cash used in financing activities (28,552) (14,167)
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Effect of exchange rate changes on cash (1,993) (888)
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Net decrease in cash and short-term investments (15,494) (24,543)
Cash and short-term investments, beginning of year 86,233 44,750
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Cash and short-term investments, end of year $ 70,739 $ 20,207
===============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
6
Notes to Consolidated Financial Statements
Note 1 Basis of Financial Statements
The accompanying unaudited financial statements have been prepared in accordance
with Rule 10-01 of Regulation S-X, "Interim Financial Statements", and do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial statements have been
prepared in conformity with accounting principles and practices (including
consolidation practices) as reflected in InterTAN, Inc.'s ("InterTAN" or the
"Company") Annual Report on Form 10-K for the fiscal year ended June 30, 2001,
and, in the opinion of the Company, include all adjustments necessary for a fair
presentation of the Company's financial position as of December 31, 2001 and
2000 and the results of its operations for the three and six months ended
December 31, 2001 and 2000 and its cash flows for the six months ended December
31, 2001 and 2000. Such adjustments are of a normal and recurring nature.
Operating results for the three and six months ended December 31, 2001 are not
necessarily indicative of the results that can be expected for the fiscal year
ending June 30, 2002. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2001.
Note 2 New Accounting Standards
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 adopted both of these new accounting standards in the first quarter of
fiscal year 2002. The adoption of FAS 141 and FAS 142 did not have a material
effect on the Company's financial statements.
Note 3 Disposal of Australian Subsidiary
During the fourth quarter of fiscal year 2001, the Company sold its former
subsidiary in Australia. The consolidated balance sheet as at December 31, 2000
and the consolidated statements of operations and cash flows for the three and
six months then ended include the results of the Australian subsidiary.
The gain on disposal reported in the fourth quarter of fiscal year 2001 was
based on management's calculation of certain adjustments to be paid following
completion of the sale. The purchaser has advised the Company that it disagrees
with management's calculation of those adjustments. Management believes that its
calculation of the adjustments is appropriate and that there are strong
arguments against the position adopted by the purchaser and is in the process of
vigorously defending its position. Should the purchaser prevail in this dispute,
the Company would have an additional liability of approximately $2,000,000.
Under the terms of the sale agreement, during the nine-month period following
the sale, which period ended January 31, 2002, the Company indemnified the
purchaser against any inaccuracies in the financial statements of the former
Australian subsidiary as of the date of sale. Except as relating to the matter
described above, no claims were made under this indemnity within the prescribed
time period. Layered on top of this indemnity is a two-year indemnity covering
tax matters only and which expires April 30, 2003. This indemnity has a limit of
A$4,000,000 (approximately $2,000,000). To date, no claims have been made under
this tax indemnity. In addition, the Company indemnified the purchaser against
termination costs with respect to certain employees. One claim has been received
under this indemnity for an amount of approximately $60,000. The time for making
additional claims under this indemnity has now expired.
7
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 was 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 4 Restructuring Charge
During the first quarter of fiscal year 2002, the Company recorded a
restructuring charge of $3,213,000. Approximately $500,000 of this charge
related to the write-off of costs incurred in connection with the study of
various alternatives to enhance shareholder value. This study began during
fiscal year 2001 and was concluded during the first quarter of fiscal year 2002.
The remainder represented the cost of restructuring the Company's Board of
Directors and streamlining the Company's Corporate Office and integrating it
with InterTAN's operating subsidiary, InterTAN Canada Ltd.
The following is a summary of activity within this reserve during fiscal year
2001:
Balance Balance
June 30 Provision December 31
(U.S. dollars in thousands) 2001 Recorded Paid 2001
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Professional fees and related expenses $ - $ 510 $ 510 $ -
Retirement, severance and other
compensation costs - 2,659 531 2,128
Other charges - 44 44 -
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$ - $ 3,213 $ 1,085 $ 2,128
========================================================================================
Note 5 Treasury Stock Repurchase Program
By June 30, 2001, the Company had completed two previously announced share
repurchase programs. Under the two programs combined, a total of 3,000,000
shares were acquired at an aggregate cost of $34,162,000. During the first
quarter of fiscal year 2002, the Company's Board of Directors announced a third
share repurchase program under which management was authorized to purchase up to
2,800,000 shares of the Company's common stock. By September 30, 2001, 1,894,100
shares had been acquired at an aggregate cost of $15,496,000. During early
October, the remaining 905,900 shares were purchased for a total additional
consideration of $7,650,000. The average cost of all shares acquired under this
plan was $8.27 per share, including commissions. On October 25, 2001, the
Company's Board of Directors announced a fourth share repurchase program. Under
this program, management is authorized, subject to appropriate market
conditions, to repurchase up to 2,600,000 shares of the Company's common stock,
approximately 10% of shares then outstanding. By December 31, 2001, 764,700
shares had been acquired under this plan at an aggregate cost of $8,221,000,
approximately $10.75 per share, including commissions.
Note 6 Net Income per average Common share
Basic earnings per share ("EPS") is calculated by dividing the net income or
loss for a period by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that would occur if
securities or other contracts to issue common stock were exercised or converted.
8
Basic and diluted net income per average common share and a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation is set out below:
Three months ended December 31
--------------------------------------------------------------------------------
(U.S.dollars in thousands, 2001 2000
--------------------------------------------------------------------------------
except for per share data) Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------------------------------- --------------------------------------
Net income $ 10,858 $ 10,164
========== ===========
Basic EPS
Income available to
common stockholders $ 10,858 25,651 $ 0.42 $ 10,164 27,744 $ 0.37
======== =========
Effect of Dilutive Securities
Stock options - 446 - 659
---------- ----------- ----------- ----------
Diluted EPS
Income available to
common stockholders including
assumed conversions $10,858 26,097 $ 0.42 $ 10,164 28,403 $ 0.36
========== =========== ======== =========== ========== =========
Six months ended December 31
--------------------------------------------------------------------------------
(U.S.dollars in thousands, 2001 2000
--------------------------------------------------------------------------------
except for per share data) Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------------------------------------------------
Net income $ 12,714 $ 15,489
========== ===========
Basic EPS
Income available to
common stockholders $ 12,714 26,744 $ 0.48 $ 15,489 27,888 $ 0.56
======== =========
Effect of Dilutive Securities
Stock options - 459 - 788
---------- ---------- ----------- ----------
Diluted EPS
Income available to
common stockholders including
assumed conversions $ 12,714 27,203 $ 0.47 $ 15,489 28,676 $ 0.54
========== ========== ======== =========== ========== =========
At December 31, 2001 and 2000, the Company's directors and employees held
options to purchase 1,401,798 and 1,659,357 common shares, respectively, at
prices ranging from $2.4792 to $14.75. During the three months ended December
31, 2001 and 2000, all but 582,822 and 248,402 of such options were considered
in calculating diluted EPS. These options were excluded because the option
exercise price was greater than the average market price of the Company's common
stock during such periods. The dilutive effect of these options in future
periods will depend on the average price of the Company's common stock during
such periods.
9
Note 7 Comprehensive Income
Comprehensive income is defined as the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. For the Company, comprehensive income
includes net income and the net change in foreign currency translation effects.
The comprehensive income for the three months ended December 31, 2001 and 2000
was $10,024,000 and $11,393,000, respectively. For the six month-periods ended
December 31, 2001 and 2000, comprehensive income was $7,822,000 and $12,661,000,
respectively.
Note 8 Income Taxes
The provision for domestic and foreign income taxes for the three and six-month
periods ended December 31, 2001 was $8,325,000 and $10,480,000, respectively,
representing Canadian income tax on the profits of the Company's Canadian
subsidiary. The effective rate of tax for the six-month period ended December
31, 2001 was higher than normal because a full valuation allowance was recorded
against the deferred tax asset arising from certain components of the
restructuring charge recorded in the first quarter that were not currently tax
deductible. For the three and six-month periods ended December 31, 2000, the
provision was $7,896,000 and $12,092,000, including Canadian income tax on the
profits of the Canadian subsidiary as well as Australian income tax on the
profits of the Company's former subsidiary in Australia.
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, at current rates of
exchange, the liability to settle all outstanding tax issues, including the
matter described immediately above, is in the range of $22,000,000 to
$25,000,000. 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 defense 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 of $1,700,000.
10
Note 9 Commitments and Contingencies
In connection with the sale of its former United Kingdom subsidiary during
fiscal year 1999, the Company remains contingently liable as guarantor of
certain leases of InterTAN U.K. Limited. At December 31, 2001 the remaining
lease obligation assumed by the purchaser and guaranteed by the Company was
approximately $18,000,000 and the average remaining life of such leases was
approximately 5 years. If the purchaser were to default on the lease
obligations, management believes the Company could reduce the exposure through
assignment, subletting and other means. The Company has obtained an indemnity
from the purchaser for an amount equal to management's best estimate of the
Company's potential exposure under these guarantees. At December 31, 2001, the
amount of this indemnity was approximately $7,400,000. The amount of this
indemnity declines over time as the Company's risk diminishes. Apart from this
matter and the issues discussed in Notes 3 and 8, there are no material pending
proceedings or claims, other than routine matters incidental to the Company's
business, to which the Company or any of its subsidiaries is a party, or to
which any of its property is subject.
Note 10 Segment Reporting
The Company was traditionally managed along geographic lines, with its Corporate
Headquarters also treated as a separate business unit. Following the sale of the
Company's former subsidiary in Australia during the fourth quarter of fiscal
year 2001, the Company undertook a restructuring program to streamline its
operations and integrate its former Corporate Headquarters with its Canadian
subsidiary. Accordingly, the Company now has only one business segment, referred
to herein as "Canada", the "Canadian subsidiary" or "RadioShack Canada".
Transactions between segments during prior periods were not common and were not
material to the segment information. The table below summarizes net sales and
operating revenues, operating income (loss) and identifiable assets for the
Company's segments. Consolidated operating income is reconciled to the Company's
income before income tax:
Net Sales and Operating Revenues and
Operating Income by Segment
(U.S. dollars in thousands)
Three months ended Six months ended
December 31 December 31
2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Net sales and operating revenues
Canada $ 135,831 $ 132,946 $ 226,196 $ 225,805
Australia - 31,104 - 58,196
- ---------------------------------------------------------------------------------------------------------------------
$ 135,831 $ 164,050 $ 226,196 $ 284,001
- ---------------------------------------------------------------------------------------------------------------------
Operating income (loss)
Canada $ 18,814 /1/ $ 19,128 $ 22,064 /1/ $ 28,368
Australia - 670 - 1,907
- ---------------------------------------------------------------------------------------------------------------------
18,814 19,798 22,064 30,275
Corperate Headquarters' expenses - /1/ (1,280) - /1/ (2,420)
- ---------------------------------------------------------------------------------------------------------------------
Operating income 18,814 18,518 22,064 27,855
Foreign currency transaction gains (losses) 156 (126) 295 (252)
Interest income 309 195 1,035 629
Interest expense (96) (527) (200) (651)
- ---------------------------------------------------------------------------------------------------------------------
Net income before income taxes $ 19,183 $ 18,060 $ 23,194 $ 27,581
=====================================================================================================================
/1/ During fiscal year 2002, the Company's former Corporate
Headquarters unit was integrated with its Canadian subsidiary.
11
Identifiable Assets by Segement
(U.S. dollars in thousands) December 31 June 30 December 31
2001 2001 2000
- -----------------------------------------------------------------------------
Canada $ 210,901 /1/ $ 163,016 $ 160,068
Australia - - 52,871
Corporate Headquarters - /1/ 52,514 4,014
- -----------------------------------------------------------------------------
$ 210,901 $ 215,530 $ 216,953
=============================================================================
/1/ During fiscal year 2002, the Company's former Corporate
Headquarters unit was integrated with its Canadian subsidiary.
12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
InterTAN is engaged in the sale of consumer electronics products primarily
through company-operated retail stores and dealer outlets in Canada. The
Company's retail operations are conducted through a wholly-owned subsidiary,
InterTAN Canada Ltd., which operates under the trade name "RadioShack". The
Company's Corporate Headquarters was integrated with the operations of its
Canadian subsidiary during the second quarter of fiscal year 2002. During fiscal
year 2001, the Company also had retail and dealer outlets in Australia.
Operations in Australia were carried out through a wholly-owned subsidiary,
InterTAN Australia Ltd., which conducted business under the trade name "Tandy".
The Company's Australian subsidiary was sold effective April 2001. 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 December 31,
2001, 58 Rogers AT&T stores were in operation.
Overview
There were a number of special factors and charges in the first six months of
fiscal years 2002 and 2001 that significantly impacted the Company's results of
operations and affected the comparability of reported results for both the three
and six-month periods ended December 31, 2001.
As previously discussed, effective April 30, 2001, the Company sold its
subsidiary in Australia. The consolidated balance sheet as at December 31, 2000
and the consolidated statements of operations and cash flows for the three and
six months then ended include the results of the Australian subsidiary.
During the first quarter of fiscal year 2002, the Company recorded a
restructuring charge of $3,213,000. See "Restructuring Charge". Management
estimates that the tax provision for the quarter was reduced by approximately
$1,030,000 as a result of the deductibility for tax purposes of a portion of the
restructuring costs.
The tables below reflect the Company's sales, operating income, net income, and
net income per share for the three and six-month periods ended December 31, 2001
and 2000, adjusted to eliminate the following: sales and results of InterTAN
Australia Ltd. for the three and six-month periods ended December 31, 2000; the
restructuring charge during the six-month period ended December 31, 2001; and
the effect of the restructuring charge on the tax provision for the six-month
period ended December 31, 2001.
Three months ended Six months ended
----------------------------- -------------------------------
(U.S. dollars in thousands, except December 31 December 31
per share amounts) 2001 2000 2001 2000
----------------------------- -------------------------------
Sales and other operating revenues $ 135,831 $ 164,050 $ 226,196 $ 284,001
Sales of Australian subsidiary - (31,104) - (58,196)
-------------- -------------- -------------------------------
Canadian sales in U.S. dollars $ 135,831 $ 132,946 $ 226,196 $ 225,805
============== ============== ===============================
Canadian sales in Canadian dollars $ 214,698 $ 202,805 $ 354,466 $ 340,425
============================= ===============================
13
Three months ended Six months ended
------------------------ ---------------------
(U.S. dollars in thousands, except December 31 December 31
per share amounts) 2001 2000 2001 2000
------------------------ ---------------------
Operating income $ 18,814 $ 18,518 $ 22,064 $ 27,855
Adjustments
Income of Australian subsidiary $ - $ (670) $ - $ (1,907)
Restructuring charge - - 3,213 -
--------- ------------ --------- -----------
Comparable operating income $ 18,814 $ 17,848 $ 25,277 $ 25,948
========= ============ ========= ===========
Net income $ 10,858 $ 10,164 $ 12,714 $ 15,489
Adjustments
Income of Australian subsidiary - (441) - (1,269)
Restructuring charge - - 3,213
Effect of restructuring charge on income taxes - - (1,030 -
--------- ------------ --------- ----------
Comparable net income $ 10,858 $ 9,723 $ 14,897 $ 14,220
========= ============ ========= =========
Diluted earnings per share $ 0.42 $ 0.36 $ 0.47 $ 0.54
========= ============ ========= =========
Comparable diluted earnings per share $ 0.42 $ 0.34 $ 0.55 $ 0.50
========= ============ ========= =========
Restructuring Charge
During the first quarter of fiscal year 2002, the Company recorded a
restructuring charge of $3,213,000. Approximately $500,000 of this charge
related to the write-off of costs incurred in connection with the study of
various alternatives to enhance shareholder value. This study began during
fiscal year 2001 and was concluded during the first quarter of fiscal year 2002.
The remainder represents the cost of restructuring the Company's Board of
Directors and streamlining the Company's Corporate Office and integrating it
with InterTAN's operating subsidiary, InterTAN Canada Ltd. Management estimates
that as a result of this action, selling, general and administrative expenses
will be reduced on an annualized basis by approximately $1,300,000. The full
benefits of the plan will not be felt until the third quarter of fiscal year
2002.
The following is a summary of activity within this reserve during fiscal year
2002:
Balance Balance
June 30 Provision December 31
(U.S. dollars in thousands) 2001 Recorded Paid 2001
- -------------------------------------------------------------------------------------
Professional fees and related expenses $ - $ 510 $ 510 $ -
Retirement, severance and other
compensation costs - 2,659 531 2,128
Other charges - 44 44 -
- -------------------------------------------------------------------------------------
$ - $ 3,213 $ 1,085 $ 2,128
- -------------------------------------------------------------------------------------
14
Foreign Exchange Effects
Profit and loss accounts, including sales, are translated from local currency
values to U.S. dollars at monthly average exchange rates. During the second
quarter of fiscal year 2002, the U.S. dollar was 3.5% stronger against the
Canadian dollar relative to the comparable value during the second quarter of
the prior year. As a result, the same local currency amounts in Canada
translated into fewer U.S. dollars as compared with the prior year. For example,
if local currency sales in Canada in the second quarter of fiscal year 2002 were
the same as those in the second quarter of the prior year, the fiscal year 2002
income statement would reflect a 3.5% decrease in sales when reported in U.S.
dollars. For the six months ended December 31, 2001, the U.S. dollar was 3.8%
stronger against the Canadian dollar than during the comparable period last
year.
Sales Outlets
The Company's sales outlets by type and geographic region is summarized in the
following table:
June 30 Dec. 31 Dec. 31
2001 Opened Closed 2001 2000
------------------------------------------------------------------------
Canada
Company-operated 473 14 - 487 469
Rogers AT&T 55 3 - 58 52
Dealer 360 12 2 370 362
------------------------------------------------------------------------
888 29 2 915 883
------------------------------------------------------------------------
Australia
Company-operated - - - - 223
Dealer - - - - 105
------------------------------------------------------------------------
- - - 328
------------------------------------------------------------------------
Total
Company-operated 473 14 - 487 692
Rogers AT&T 55 3 - 58 52
Dealer 360 12 2 370 467
------------------------------------------------------------------------
888 29 2 915 1,211
------------------------------------------------------------------------
Net Sales and Operating Revenues
Net sales at RadioShack Canada for the second quarter in U.S. dollars were
$135,831,000. In local currency, this represented an increase over the prior
year quarter of 6%. Measured on the same basis, comparable stores increased by
3%. The sales comparison, measured in U.S. dollars, was adversely affected by a
decline in the value of the Canadian dollar of 3.5% compared with the same
period last year. Taking this decline into consideration, sales in U.S. dollars
for the second quarter of fiscal year 2002 increased by 2% over the same quarter
last year.
During the quarter, consumers continued to demonstrate a preference towards a
more digital-focused product base. Sales of digital cameras were very strong. To
date the Company's significantly deeper assortment of these products has only
been introduced into about one-third of its stores. Encouraged by results during
the holiday season, management will be expanding the number of stores in which
the full assortment is available. This year, the Company made a strategic
decision to delay the release of its catalog until the second quarter and to
greatly expand the range of products featured in the catalog. This action,
combined with the Company's expanded range of parts and accessories fueled
double-digit growth in more traditional accessory products and
15
growth of over 30% in digital accessories and PC software, in particular
entertainment titles. The Company's decision to introduce Playstation products
into its stores was well accepted by consumers. Management will continue to
pursue opportunities to expand the gaming business, provided it is satisfied
with the incremental gross profit dollar potential of each respective line.
Sales of DVD players, camcorders, wireless handset units (cellular) and
direct-to-home satellite all showed strong double-digit growth.
The only digital category that suffered during the quarter was personal computer
hardware. While demand for Pentium 4 computers was strong, the supply of 1.5GHz
Pentium 4 chips was tight. This situation was compounded by a low allocation by
certain manufactures to the Canadian marketplace. The end result was that very
few of the Company's stores had a consistent lineup over the holiday period.
That situation has improved only modestly early in the third quarter. Management
believes that the Canadian consumer's demand for high speed internet access
combined with the benefits of Windows XP to various applications, including
digital photography, will continue to drive demand for Pentium 4 computers.
Accordingly management is in the process of developing a strategy which will
give the company a more reliable supply and a more aggressive position in the
marketplace.
Sales of more traditional analog products, in general, yielded disappointing
results. Sales of analog personal electronics, landline telephones and toys
showed declines. In some cases, the effects of unit sales growth were offset by
falling retail prices, which put pressure on overall sales growth. Management
will evaluate this information to migrate not only the Company's product
assortment but also its overall store plan to better present the products in
demand by consumers.
Gross Profit
While consolidated gross profit dollars for the quarter declined, this reduction
in gross profit dollars was more than attributable to the sale of the Company's
Australian subsidiary. Gross profit dollars at RadioSack Canada, measured at the
same exchange rates, increased by 5%.
The following analysis summarizes the components of the change in gross profit
dollars for the second quarter from the comparable prior year period:
(U.S. dollars in thousands)
Increase in sales $ 2,962
Decrease in gross margin percentage (545)
Foreign currency effects (1,826)
-------------
591
Disposal of Australian subsidiary (11,805)
-------------
Change in gross profit dollars $ (11,214)
=============
The gross margin percentage in the Canadian subsidiary declined by 40 basis
points. During the holiday season, the Company offered a significantly enhanced
range of digital products, as consumers' preferences shifted towards these
products relative to more traditional analog technologies. While many of these
products carry less than the Company's traditional margins, management believes
that the strategic shift in product preferences will continue and the Company
will continue to position the Company for profitable sales growth in response to
these changes in demand. Sales declines during the quarter in more conventional
landline
16
telephones, personal electronics and toys also put pressure on margins.
Management will continue to reallocate its resources and selling space to take
advantage of digital opportunities. The pressure on margins generated by these
shifts in product demand were partially offset by the Company's continued strong
performance in subscriber-based services and attendant increases in after the
sale compensation in the form of residuals and, in particular, sales-based
volume rebates. For the quarter, after the sale compensation was $4,142,000,
about 3% of total revenue. On a comparable basis, this represented an increase
of over 50% over the same quarter last year.
Selling, General and Administrative Expenses
The following table provides a breakdown of selling, general and administrative
expense ("SG&A") by major category:
Three months ended December 31 Six months ended December 31
2001 2000 2001 2000
(U.S. dollars in thousands, Dollars % of Sales Dollars % of Sales Dollars % of Sales Dollars % of Sales
except percents)
- ------------------------------------------------------------------------------- --------------------------------------------
Canadian and Corporate expenses
Payroll $ 14,406 10.6 $13,983 10.5 /1/ $ 27,053 12.0 $ 25,959 11.5 /1/
Advertising 4,311 3.2 6,398 4.8 /1/ 6,946 3.1 9,632 4.3 /1/
Rent 5,072 3.7 4,830 3.6 /1/ 9,493 4.2 9,063 4.0 /1/
Taxes (other than income tax) 2,114 1.6 1,775 1.3 /1/ 4,217 1.9 3,760 1.7 /1/
Telephone and utlities 812 0.7 783 0.6 /1/ 1,671 0.7 1,600 0.7 /1/
Other 6,000 4.3 5,472 4.2 /1/ 11,021 4.8 10,417 4.6 /1/
- ---------------------------------------------------------------------------------- ------------------------------------------
32,715 24.1 33,241 25.0 /1/ 60,401 26.7 60,431 26.8 /1/
Australian expenses - - 10,795 34.7 /2/ - 20,484 35.2 /2/
- ---------------------------------------------------------------------------------- ------------------------------------------
Consolidated expenses $ 32,715 24.1 $44,036 26.8 /3/ $ 60,401 26.7 $ 80,915 28.5 /3/
================================================================================== ==========================================
/1/ Percentages are of Canadian sales.
/2/ Percentage is of Australian sales.
/3/ Percentage is of consolidated sales.
As previously indicated, following the sale of the Australian subsidiary during
the fourth quarter of fiscal year 2001, the Company streamlined its remaining
operations and integrated its former Corporate headquarters with those of its
Canadian subsidiary. See "Overview". To make comparisons more meaningful, in the
following discussion, the selling, general and administrative expenses of the
Company's former Corporate Headquarters for the prior year period have been
aggregated with those of RadioShack Canada.
SG&A expenses at RadioShack Canada and the Company's former Corporate
Headquarters in U.S. dollars decreased by $526,000 over the comparable quarter
last year. This comparison was influenced by the effects of a weaker Canadian
dollar. Measured at the same exchange rates, SG&A expense in these two segments
increased by less than 2%.
The following is a breakdown of the same-exchange-rate increase (decrease) in
SG&A expense in Canada and Corporate Headquarters during the second quarter of
fiscal year 2002 over the same quarter in the prior year:
(In thousands)
Payroll $ 899
Advertising (1,867)
Rent 410
Taxes (other than income taxes) 512
Telephone and utilities 56
Other 578
- -----------------------------------------------------------
Increase $ 588
- -----------------------------------------------------------
Payroll and rent were both up over the prior year. Payroll increased not only in
response to higher sales, but also as a result of a conscious decision on the
part of management to invest additional resources both in central units and in
stores. The investment of additional staff involved in sales support functions
is already evident in a significant reduction in Canadian inventory levels. See
"Financial Condition - Inventories." Management believes that the benefits of
the Company's investment in people in the field will be evident in future
periods as the Company commits to having a highly trained, energized staff to
meet the challenges of continued advancements in digital technologies. Rent
expense was driven primarily by an increase in retail square footage, both as a
result of an increase in new, and therefore not mature, stores, and as a result
of increasing the size of selected stores as strategic opportunities to enhance
product assortments present themselves. The Company is currently planning about
20 new company-operated stores during this fiscal year 2002 and, importantly, 14
of those stores were open in time for the holiday selling season. At lease
renewal, management will continue to pursue opportunities to increase the size
of the Company's stores in strategic locations where it believes such action
would result in profitable sales growth. Taxes (other than income taxes),
primarily represents business taxes on the Company's stores and head office and
warehouse locations. The increase in this expense category was a result of the
combination of regular rate increases, new stores and increases in the size of
existing stores. The effects of higher costs in the payroll, rent and tax
expense categories were substantially offset by a more efficient advertising
spend and some tactical reductions in television advertising as the holiday
season unfolded.
Foreign Currency Transaction Gains / Losses
Foreign currency transaction gains were $156,000 during the second quarter of
fiscal year 2002 compared with losses of $126,000 for the comparable quarter
last year.
Interest income and expense
Interest income for the quarter was $309,000 compared with $195,000 a year ago.
The increase results primarily from the investment of proceeds from the sale of
the Australian subsidiary. Interest income will likely be lower in future
periods as a substantial portion of these funds have already been used to fund
the Company's stock buy-back programs. Additional funds will also be required to
complete the stock buy back program announced in October 2001 and to fund the
payment of income taxes. See "Liquidity and Capital Resources." Interest expense
for the quarter was $96,000 and consisted entirely of commitment fees and loan
amortization charges, as there were no borrowings during the quarter. In the
second quarter of fiscal year 2001, interest expense was $527,000, as RadioShack
Canada borrowed under its credit line to finance the seasonal build of
inventories. Such borrowings were not necessary this year.
18
Provision for Income Taxes
The provision for income taxes for the quarter was $8,325,000, and consisted
entirely of Canadian taxes on the profits of RadioShack Canada. The effective
rate for the quarter was 43.4%. Last year, the provision for tax was $7,896,000
and included a small amount of Australian tax on the profits of InterTAN
Australia. The effective tax rate a year ago was 43.7%.
Financial Condition
- -------------------
Most balance sheet accounts are translated from their values in local currency
to U.S. dollars at the respective month end rates. The table below outlines the
percentage change, to December 31, 2001, in the value of the Canadian dollar as
measured against the U.S. dollar:
- -----------------------------------------------------------------------------
Percentage decrease from December 31, 2000 5.9%
Percentage decrease from June 30, 2001 4.9%
=============================================================================
Accounts Receivable
- -------------------
Accounts receivable were $25,355,000 at December 31, 2001 compared with
$28,753,000 at December 31, 2000 and $12,598,000 at June 30, 2001. The decrease
from December 31, 2000 is attributable to the sale of the Australian subsidiary
and foreign currency effects. The increase from June 30, 2001 resulted from the
seasonal build up of dealer receivables for the holiday selling season and
seasonal increases in amounts due from vendors for various subscriber-based
services, including activation income, residuals and sales-based volume rebates.
Inventories
Inventories at December 31, 2001 were $86,789,000, down from $137,161,000 a year
ago and $90,394,000 at June 30, 2001. The sale of the Australian subsidiary
accounts for only a portion of the reduction from December 31, 2001. The balance
is attributable to significant improvements in inventory management at
RadioShack Canada. Canadian inventories, measured in local currency, were
approximately 10% lower at December 30, 2001 than at the same date a year ago
and days sales in inventory was reduced 13% from the prior year. These
improvements are a direct result of the Company's investment in people involved
in sales support functions and from the benefits of the Company's micro
merchandising program. The Company is now sourcing locally-purchased inventory
more frequently, and purchasing in smaller quantities. This strategy will
reflect positively on both cash flow requirements and the risk of obsolescence.
The benefits of the new inventory strategy are also evident in the comparison
with inventory levels at June 30, 2001. Despite seasonal fluctuations and the
introduction of over 500 new SKUs, inventories at RadioShack Canada at December
31, 2001 were up, in local currency, less than 1% from June 30, 2001 levels.
Accounts payable
Accounts payable were $25,348,000 at December 31, 2001 compared to $28,042,000
at December 31, 2000 and $20,034,000 at June 30, 2001. The reduction from
December 31, 2000 is explained by the sale of the Australian
19
subsidiary, partially offset by the fact that extended payment terms were
obtained from certain key vendors this year. The increase from June 30, 2001 is
due to increased purchases for the holiday season as well as the fact that
certain of those purchases benefited from extended payment terms.
Accrued Expenses
Accrued expenses were $23,253,000 at December 31, 2001 compared with $26,800,000
at December 31, 2000 and $13,650,000 at June 30, 2001. The decrease from
December 31, 2000 relates primarily to the sale of the Australian subsidiary.
The increase from the June 30, 2001 level is due to the seasonal increase in
certain sales-sensitive accruals and to the restructuring charge recorded in the
first quarter of fiscal year 2002. See `Restructuring Charge."
Income Taxes Payable
Income taxes payable were $24,832,000 at December 30, 2001 compared with
$27,130,000 at December 31, 2000 and $24,913,000 at June 30, 2001. The reduction
from December 31, 2000 is due primarily to foreign currency effects. The
reduction from June 30, 2001 is also due to foreign currency effects, partially
offset by the fact that during the first half of the year, the provision for tax
exceeded installment payments during the same period as a result of the
seasonality of the business.
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, at current rates of
exchange, the liability to settle all outstanding tax issues, including the
matter described immediately above, is in the range of $22,000,000 to
$25,000,000, and anticipates that payment of a substantial portion of this
amount will be required during the current fiscal year. 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 defense 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.
20
Other Liabilities
Other liabilities were $2,333,000 at December 31, 2001 compared with $6,421,000
at December 31, 2000 and $2,518,000 at June 30, 2001. The reduction in the level
of other liabilities from December 31, 2000 relates to the disposal of the
Australian subsidiary. Foreign currency effects explain the reduction from June
30, 2001.
Liquidity and Capital Resources
- -------------------------------
Cash flows from operating activities during the six-month period ended December
31, 2001 generated $20,225,000 in cash, while consuming $3,529,000 in cash
during the comparable period last year. This improvement was due primarily to
changes in working capital requirements, partially offset by a decrease in net
income, adjusted for non-cash items. In the six months ended December 31, 2001,
changes in working capital generated $4,025,000 in cash. In the comparable prior
period, working capital requirements consumed $22,867,000 in cash. This variance
is due primarily to the effects of lower inventories at RadioShack Canada. Net
income, adjusted for non-cash items, generated $16,200,000 in cash during the
six-month period ended December 31, 2001, compared with $19,338,000 a year ago.
This decrease is primarily due to the disposal of the Company's former
Australian subsidiary.
Cash flow from investing activities consumed $5,174,000 and $5,959,000 in cash
during the six-month periods ended December 31, 2001, and 2000 respectively, as
the effects of routine additions to property and equipment were partially offset
by the proceeds from the sale of property and equipment and from other investing
activities. The reduction is partially attributable to the effects of the
disposal of the Australian subsidiary.
During the six-month period ended December 31, 2001, cash flow from financing
activities consumed $28,552,000 in cash. In August 2001, the Company's Board of
Directors announced its third share repurchase program under which management
was authorized to purchase up to 2,800,000 shares of the Company's common stock.
This program was completed in October 2001 at a total cost of $23,146,000. In
October 2001, a fourth stock buy back program was announced under which
management was authorized to purchase up to 2,600,000 additional shares of the
Company's common stock. By December 31, 2001, 764,700 shares had been acquired
under this program at a cost of $8,221,000. These cash outflows were partially
offset by proceeds from the issuance of common stock to employee plans and from
the exercise of stock options. During the six-month period ended Dectember 31,
2000, cash flow from financing activities consumed $14,167,000 in cash. In April
2000, the Company announced that the Board of Directors had authorized a program
for the repurchase of up to 1,500,000 common shares. By June 30, 2000, 285,200
shares had been acquired under this program. During the first quarter of fiscal
year 2001, the remaining 1,214,800 shares were acquired at an aggregate cost of
$15,529,000. This cash outflow was partially offset by proceeds from the
issuance of stock to employee plans and from the exercise of stock options.
On May 4, 2001, InterTAN Canada Ltd. and InterTAN, Inc. extended its revolving
credit facility (the "Revolving Loan Agreement") in an amount not to exceed
C$75,000,000 (approximately $47,100,000 at December 31, 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 $24,000 at December 31, 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 are 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
21
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 December 31, 2001,
there were no borrowings against the Revolving Loan Agreement, and approximately
$10,000 was committed in support of letters of credit. There was approximately
C$55,000,000 (approximately $35,000,000 at December 31, 2001 exchange rates) of
credit available for use at December 31, 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. 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 primary uses of liquidity during the remainder of fiscal year 2002
will include the funding of capital expenditures, funding the repurchase of
common stock and payments in settlement of tax issues. Management estimates that
capital expenditures in Canada during the remainder of fiscal 2002 will
approximate $8,000,000. 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. On October 25, 2001,
the Company's Board of Directors announced an additional share repurchase
program. Under this program, management is authorized, subject to appropriate
market conditions, to repurchase up to 2,600,000 shares of the Company's common
stock, approximately 10% of shares then outstanding. By December 31, 2001,
764,700 shares had been acquired under this plan at an aggregate cost of
$8,221,000, approximately $10.75 per share, including commissions. While
additional purchases under this program will depend on market conditions,
management estimates that the program could require between $18,000,000 and
$24,000,000 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 $22,000,000 to
$25,000,000.
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.
22
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The various matters discussed in Notes 3, and 8 to the Company's
Consolidated Financial Statements on page 7 and 10 of this Form 10-Q
are incorporated herein by reference.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held in November 9,
2001, the following persons were re-elected to the Board of Directors:
William C. Bousquette
Brian E. Levy
In such connection, Messrs. Bousquette and Levy received 23,162,132
and 23,168,242 votes, respectively, "For" election and 116,496 and
110,386 votes, respectively, were withheld. In total 23,278,628 shares
were authorized to vote.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits Required by Item 601 of Regulation S-K:
Exhibit No. Description
3(a) Restated Certificate of Incorporation (Filed as
Exhibit 3(a) to InterTAN's Registration Statement
on Form 10 and incorporated herein by reference).
3(a)(i) Certificate of Amendment of Restated Certificate
of Incorporation (Filed as Exhibit 3(a)(i) to
InterTAN's Annual Report on Form 10-K for fiscal
year ended June 30, 1995 and incorporated herein
by reference).
3(a)(ii) Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock
(Filed as Exhibit 3(a)(i) to InterTAN's
Registration Statement on Form 10 and incorporated
herein by reference).
3(b) Bylaws (Filed on Exhibit 3(b) to InterTAN's
Registration Statement on Form 10 and incorporated
herein by reference).
3(b)(i) Amendments to Bylaws through August 3, 1990 (Filed
as Exhibit 3(b)(i) to InterTAN's Annual Report on
Form 10-K for fiscal year ended June 30, 1990 and
incorporated herein by reference).
23
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) Rights Agreement between InterTAN, Inc. and Bank
Boston, NA (filed as Exhibit 4 to the company's
Form 8-A filed on September 17, 1999 and
incorporated herein by reference)
*10 (a) Ninth Amendment to Loan Agreement between
InterTAN Canada Ltd., InterTAN, Inc. and Bank
America Canada dated as of November 15, 2001.
* 10(b) Retirement Letter Agreement between James G.
Gingerich and InterTAN, Inc. dated September 25,
2001.
* 10 (c) Composite copy of InterTAN Inc.'s Deferred
Compensation Plan reflecting amendments thereto
authorized by the Board of Directors of InterTAN,
Inc. on November 9, 2001.
* 10 (d) Addendum No. 2 to Deferred Compensation Plan
Agreement between Jeffrey A. Losch and InterTAN,
Inc. dated November 1, 2001.
* 10 (e) Addendum No. 2 to Deferred Compensation Plan
Agreement between Jeffrey A. Losch and InterTAN,
Inc. dated November 1, 2001.
* 10 (f) Addendum No. 2 to Deferred Compensation Plan
Agreement between Jeffrey A. Losch and InterTAN,
Inc. dated November 1, 2001.
________________________
* Filed herewith
24
b) Reports on Form 8-K:
A Report on Form 8-K was filed on October 29, 2001 to report that on
October 25, 2001 the Board of Directors had authorized management,
subject to obtaining applicable securities regulators' approval and
market conditions, to repurchase up to 2,600,000 shares of the
Company's common stock.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
InterTAN, Inc.
(Registrant)
Date: February 12, 2002 By: /s/ James P. Maddox
-------------------
James P. Maddox
Vice-President and Chief Financial Officer
(Chief Financial Officer)
By: /s/ Brian E. Levy
----------------------
Brian E. Levy
President and Chief Executive Officer
(Authorized Officer)
26
InterTAN, Inc.
Quarterly Report on Form 10-Q
Three Months Ended December 31, 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'sRegistration Statement on Form
10 and incorporated herein by reference).
3(b) Bylaws (Filed on Exhibit 3(b) to InterTAN's Registration
Statement on Form 10 and incorporated herein by reference).
3(b)(i) Amendments to Bylaws through August 3, 1990 (Filed as
Exhibit 3(b)(i) to InterTAN's Annual Report on Form 10-K for
fiscal year ended June 30, 1990 and incorporated herein by
reference).
3(b)(ii) Amendments to Bylaws through May 15, 1995 (Filed as
Exhibit 3(b)(ii) to InterTAN's Annual Report on Form 10-K
for fiscal year ended June 30, 1995 and incorporated herein
by reference).
3(b)(iii) Amended and Restated Bylaws (filed as Exhibit 3(b)(iii)
to InterTAN's Annual Report on Form 10-K for fiscal year
ended June 30, 1996 and incorporated herein by reference).
4(a) Articles Fifth and Tenth of the Restated Certificate of
Incorporation (included in Exhibit 3(a)).
4(b) Rights Agreement between InterTAN, Inc. and Bank Boston, NA
(filed as Exhibit 4 to the
company's Form 8-A filed on September 17, 1999 and
incorporated herein by reference)
* 10 (a) Ninth Amendment to Loan Agreement between InterTAN Canada
Ltd., InterTAN, Inc. and Bank America Canada dated as of
November 15, 2001.
* 10 (b) Retirement Letter Agreement between James G. Gingerich and
InterTAN, Inc. dated September 25, 2001.
* 10 (c) Composite copy of InterTAN Inc.'s Deferred Compensation Plan
reflecting amendments thereto authorized by the Board of
Directors of InterTAN, Inc. on November 9, 2001.
* 10 (d) Addendum No. 2 to Deferred Compensation Plan Agreement
between Jeffrey A. Losch and InterTAN, Inc. dated November
1, 2001.
* 10 (e) Addendum No. 2 to Deferred Compensation Plan Agreement
between Jeffrey A. Losch and InterTAN, Inc. dated November
1, 2001.
* 10 (f) Addendum No. 2 to Deferred Compensation Plan Agreement
between Jeffrey A. Losch and InterTAN, Inc. dated November
1, 2001.
___________________
* Filed herewith