<PAGE>
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
WASHINGTON, D.C. 20549
FORM 10-Q
- - --------------------------------------------------------------------------------
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1996 or
--------------
[ ] Transaction 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
-------
InterTAN, Inc.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2130875
- - ------------------------------- ---------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
201 Main Street, Suite 1805
Fort Worth, Texas 76102
- - ------------------------------------------ ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 348-9701
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
At April 30, 1996, 11,046,147 shares of the registrant's common stock, par value
$1.00 per share, were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
The Registrant's financial statements at and for the quarter ended March 31,
1996, providing the information required by Rule 10-01 of Regulation S-X, are
included herewith as Exhibit A.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information required by Item 303 of Regulation S-K is included herewith as
Exhibit B.
<PAGE>
EXHIBIT A - FINANCIAL STATEMENTS AT AND FOR THE QUARTER ENDED MARCH 31, 1996.
<PAGE>
Consolidated Statements of Operations
InterTAN, Inc.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Three Months Ended Nine Months Ended
March 31 March 31
--------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales and operating revenues........................ $ 108,757 $ 101,001 $ 403,840 $ 396,484
Other income............................................ 196 217 697 1,183
------------------------------------------------------------
108,953 101,218 404,537 397,667
------------------------------------------------------------
Operating costs and expenses:
Cost of products sold................................. 59,410 56,344 226,661 226,735
Selling, general and administrative expenses.......... 48,840 45,678 156,754 148,231
Depreciation and amortization......................... 2,014 1,865 5,827 5,861
------------------------------------------------------------
110,264 103,887 389,242 380,827
------------------------------------------------------------
Operating income (loss)................................. (1,311) (2,669) 15,295 16,840
Foreign currency transaction (gains) and losses......... (69) 86 (261) (146)
Interest expense, net................................... 1,516 1,631 5,163 6,042
------------------------------------------------------------
Income (loss) before income taxes....................... (2,758) (4,386) 10,393 10,944
Provision (benefit) for income taxes.................... 1,350 736 6,369 (1,638)
------------------------------------------------------------
Net income (loss)....................................... $ (4,108) $ (5,122) $ 4,024 $ 12,582
============================================================
Primary net income (loss) per average common share...... $ (0.38) $ (0.51) $ 0.37 $ 1.26
Fully diluted net income (loss) per
average common share.................................. $ (0.38) $ (0.51) $ 0.34 $ 0.89
Average common shares outstanding....................... 10,943 10,026 10,964 10,012
Average common shares outstanding
assuming full dilution................................ 10,943 10,026 17,722 17,161
</TABLE>
The comments in Management's Discussion and Analysis of Financial Condition and
Results of Operations are an integral part of these statements.
<PAGE>
Consolidated Balance Sheets
InterTAN, Inc.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
(In thousands, except share information)
March 31 June 30 March 31
1996 1995 1995
------------------------------------
<S> <C> <C> <C>
Assets
Current Assets:
Cash and short-term investments...................................... $ 38,597 $ 45,260 $ 53,695
Accounts receivable, less allowance for doubtful accounts............ 10,775 8,710 8,776
Inventories.......................................................... 160,916 146,184 139,901
Other current assets................................................. 8,585 9,377 10,307
Deferred income taxes................................................ 1,853 8,484 32
------------------------------------
Total current assets............................................ 220,726 218,015 212,711
Property and equipment, less accumulated depreciation
and amortization..................................................... 38,690 34,996 34,844
Other assets........................................................... 2,851 4,117 4,206
Deferred income taxes.................................................. 4,958 4,911 13,695
------------------------------------
$ 267,225 $ 262,039 $ 265,456
====================================
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term bank borrowings $ - $ - $ 362
Current maturities of notes payable to Tandy Corporation............. 17,071 6,958 6,958
Accounts payable..................................................... 15,227 14,039 8,610
Accounts payable to Tandy Corporation................................ 470 429 359
Accrued expenses..................................................... 26,031 25,104 29,853
Income taxes payable................................................. 13,689 13,903 14,107
------------------------------------
Total current liabilities....................................... 72,488 60,433 60,249
Long-term notes payable to Tandy Corporation,
less current maturities........................................... 22,992 39,833 39,757
9% convertible subordinated debentures................................. 41,797 43,722 42,882
Other liabilities...................................................... 5,699 4,725 4,607
------------------------------------
142,976 148,713 147,495
------------------------------------
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, 11,034,112, 10,192,767 and 10,090,046
shares issued and outstanding................................... 11,034 10,193 10,090
Additional paid-in capital........................................... 111,008 106,376 105,850
Retained earnings.................................................... 25,397 21,373 25,832
Foreign currency translation effects................................. (23,190) (24,616) (23,811)
------------------------------------
Total stockholders' equity...................................... 124,249 113,326 117,961
------------------------------------
Commitments and contingent liabilities.................................
$ 267,225 $ 262,039 $ 265,456
====================================
</TABLE>
The comments in Management's Discussion and Analysis of Financial Condition and
Results of Operations are an integral part of these statements.
<PAGE>
Consolidated Statements of Cash Flows
InterTAN, Inc.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
(In thousands) Three months ended Nine months ended
March 31 March 31
---------------------------------------------------------
1996 1995 1996 1995
----------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $ (4,108) $ (5,122) $ 4,024 $ 12,582
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Results from the Australia and U.K. transitional months.. - - - (1,740)
Depreciation and amortization............................ 2,014 2,340 5,827 7,609
Deferred income taxes.................................... 1,125 660 6,708 (1,986)
Foreign currency transaction (gains) losses, unrealized.. 6 (7) (261) (452)
Other.................................................... 640 (175) 1,786 (583)
Cash provided by (used for) current assets and liabilities:
Receivables.............................................. 4,591 5,013 (2,100) (1,578)
Inventories.............................................. 5,544 19,089 (12,990) 8,236
Other current assets..................................... (1,555) (1,924) 524 (1,632)
Accounts payable......................................... (6,185) (24,533) 1,318 (4,675)
Accounts and short-term notes payable
to Tandy Corporation................................ 100 (10) 26 (913)
Accrued expenses......................................... (8,652) (8,643) 496 (1,099)
Income taxes payable..................................... 160 (40) (346) (296)
--------------------------------------------------------
Net cash provided by (used in) operating activities...... (6,320) (13,352) 5,012 13,473
--------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment........................ (2,324) (1,407) (9,649) (4,575)
Proceeds from sales of property and equipment.............. 157 41 343 1,396
Other investment activities................................ 1,235 (374) 1,955 (624)
--------------------------------------------------------
Net cash used in investing activities..................... (932) (1,740) (7,351) (3,803)
--------------------------------------------------------
Cash flows from financing activities:
Changes in short-term borrowings, net..................... - 369 - 369
Proceeds from issuance of common stock to employee plans... 554 1,015 1,445 2,626
Proceeds from exercise of stock options.................... - - 760 -
Principal repayments on long-term borrowings............... (3,479) (3,479) (6,958) (3,479)
--------------------------------------------------------
Net cash used in financing activities..................... (2,925) (2,095) (4,753) (484)
--------------------------------------------------------
Effect of exchange rate changes on cash..................... 281 393 429 243
--------------------------------------------------------
Net increase (decrease) in cash and short-term investments.. (9,896) (16,794) (6,663) 9,429
Cash and short-term investments, beginning of period........ 48,493 70,489 45,260 44,266
--------------------------------------------------------
Cash and short-term investments, end of period.............. $ 38,597 $ 53,695 $ 38,597 $ 53,695
========================================================
</TABLE>
The comments in Management's Discussion and Analysis of Financial Condition and
Results of Operations are an integral part of these statements.
<PAGE>
Consolidated Statements of Stockholders' Equity
InterTAN, Inc.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------
(In thousands)
Foreign
Currency
Common Stock Additional Retained Translation
Shares Amount Paid-in Capital Earnings Effects
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995.......... 10,193 $10,193 $106,376 $21,373 ($24,616)
Net foreign currency
translation adjustments.......... 1,426
Issuance of common stock
to employee plans................ 344 344 2,135
Issuance of common stock
under stock option plans......... 118 118 642
Issuance of common stock
upon conversion of debentures.... 379 379 1,855
Net income........................ 4,024
------------------------------------------------------------------
Balance at March 31, 1996......... 11,034 $11,034 $111,008 $25,397 ($23,190)
==================================================================
</TABLE>
The comments in Management's Discussion and Analysis of Financial Condition and
Results of Operations are an integral part of these statements.
<PAGE>
EXHIBIT B - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTORY NOTE REGARDING FORWARD LOOKING INFORMATION
-------------------------------------------------------
With the exception of historical information, the matters discussed herein are
forward-looking statements about the business, financial condition and prospects
of InterTAN, Inc. (the "Company"). The actual results of the Company could
differ materially from those indicated by the forward looking statements because
of various risks and uncertainties including, but not limited to, international
economic conditions, interest and foreign exchange rate fluctuations, various
tax issues, including possible reassessments, changes in product demand,
competitive products and pricing, availability of products, inventory risks due
to shifts in market conditions, dependence on manufacturers' product
development, the regulatory and trade environment, real estate market
fluctuations and other risks indicated in the Company's previous filings with
the Securities and Exchange Commission. These risks and uncertainties are
beyond the ability of the Company to control, and in many cases the Company
cannot predict the risks and uncertainties that could cause its actual results
to differ materially from those indicated by the forward looking statements.
RESULTS OF OPERATIONS
---------------------
The Company is a retailer of consumer electronics products with locations in
Canada, Australia and the United Kingdom. The number of company-operated stores
and dealers at March 31, 1996 and 1995 is presented in the table below:
<TABLE>
<CAPTION>
SALES OUTLETS
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
----------------------- -----------------------
ENDING OPENED CLOSED ENDING OPENED CLOSED
<S> <C> <C> <C> <C> <C> <C>
CANADA
Company-operated 448 2 3 448 - 1
Dealers 420 3 5 430 6 8
--------------------- ---------------------
868 5 8 878 6 9
===================== =====================
AUSTRALIA
Company-operated 209 2 1 204 - 6
Dealers 202 2 18 265 - 2
--------------------- ---------------------
411 4 19 469 - 8
===================== =====================
UNITED KINGDOM
Company-operated 346 1 2 335 2 1
Dealers 175 10 0 159 5 6
--------------------- ---------------------
521 11 2 494 7 7
===================== =====================
TOTAL
Company-operated 1,003 5 6 987 2 8
Dealers 797 15 23 854 11 16
--------------------- ---------------------
1,800 20 29 1,841 13 24
===================== =====================
</TABLE>
<PAGE>
OPERATING PROFIT
The Company's operating profit (loss) for each geographic segment for the three
and nine-month periods ended March 31, 1996 and 1995 is presented in the
following table (in thousands):
OPERATING PROFIT
----------------
<TABLE>
<CAPTION>
UNITED CORPORATE
CANADA AUSTRALIA KINGDOM EXPENSES TOTAL
------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Three Months Ended
March 31, 1996 $ 3,589 $ 153 $(3,801) $(1,252) $(1,311)
Three Months Ended
March 31, 1995 $ 3,285 $ (395) $(4,150) $(1,409) $(2,669)
Nine Months Ended
March 31, 1996 $19,326 $2,370 $(2,874) $(3,527) $15,295
Nine Months Ended
March 31, 1995 $20,245 $ 870 $ (80) $(4,195) $16,840
</TABLE>
The impact of foreign exchange fluctuations on the comparison of operating
results for the three and nine months ended March 31, 1996 with same periods in
the prior year was minimal. The reduction in the operating loss for the three
months ended March 31, 1996 reflected sales increases in all three countries as
well as an overall increase in margins and a reduction in selling, general and
administrative ("SG&A") expenses as a rate to sales. The reduction in
operating income for the nine months ended March 31, 1996 is generally
reflective of results for the second quarter being below expectations.
NET SALES
Net sales for the quarter ended March 31, 1996 were $108,757,000, an increase of
7.7% over the sales for the same quarter in the prior year of $101,001,000.
When the impact of fluctuations in the value of the US dollar in relation to the
currencies of the countries in which the Company operates is removed, the sales
increase, in constant dollars, is reduced to 7.3%. Comparative store sales
increased by 6.4% over the same quarter in the prior year. Year to date, sales
have increased by 1.9% and 1.6% in US dollars and local currency, respectively.
Comparative store sales for the nine months ended March 31, 1996 have increased
1.1% over the same period a year ago.
The table which follows shows by country the percentage changes in sales for the
quarter and nine months ended March 31, 1996 compared to the corresponding
periods in the prior year. Changes are presented in both US dollars and local
currencies to illustrate the effects of exchange
<PAGE>
rate fluctuations. The change in comparative store sales, measured in constant
dollars, is also shown:
NET SALES
---------
PERCENTAGE INCREASE (DECREASE)
------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1996
LOCAL COMPARATIVE LOCAL COMPARATIVE
US$ CURRENCY STORE US$ CURRENCY STORE
----------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Canada 8.2% 5.3% 4.2% 1.6% 0.1% 0.1%
Australia 23.4% 22.0% 21.3% 9.9% 10.3% 11.8%
United Kingdom (1.3)% 2.0% 1.0% (1.7)% (0.5)% (2.6)%
</TABLE>
While the market for consumer electronics products in Canada continues to be
difficult, management is encouraged by the sales performance of RadioShack
Canada, which recovered during the third quarter following a second quarter
which fell short of management's expectations. A significant increase in revenue
from the sale of cellular phones was one of the factors contributing to improved
sales in Canada. The overall sales gain was achieved despite ongoing
competitive pressure reflecting a sluggish consumer electronics market in
Canada. Certain of the Company's competitors experienced sales losses for the
quarter.
Management is also encouraged that the sales increases in Australia, which
started in the second quarter, have continued. While cellular phone sales have
been a major factor driving these sales increases, sales gains were experienced
broadly across the product line during the three months ended March 31, 1996.
Double digit sales gains were experienced in several of the Company's product
categories. As was the case in Canada, the Company's success in Australia
occurred at a time when certain retailers were experiencing difficult trading
conditions.
In the UK, trading in the High Street market in which the Company operates
continues to be difficult. During the three months ended March 31, 1996, a
major electronics retailer announced the closure of almost 200 High Street
stores. While management believes that these closures will better position the
company in the long run, during the closedown process, greater competition could
be experienced. Following a difficult second quarter, management views the
modest sales gain in the UK in the third quarter with optimism.
The Company's merchandising strategy has also put pressure on sales in the short
term in all markets. This strategy includes de-emphasizing the video game
business and replacing certain high ticket but low margin branded products with
an expanded range of lower ticket but more profitable private label products.
This strategy requires sales growth in other products just to remain even with
the prior year. Management believes that as its merchandising strategy continues
to be implemented, this strategy, together with the Company's many new service
initiatives, will have an overall positive impact on sales.
<PAGE>
GROSS PROFIT AND COST OF GOODS SOLD
The gross margin percentage increased to 45.4% in the third quarter of fiscal
1996 from 44.2% a year ago, an increase of 1.2 percentage points. The most
significant improvement was in the United Kingdom, where margins strengthened by
3.9 percentage points over the same quarter last year. In Canada, margins
increased by 0.8 percentage points, while in Australia margins declined by 3.4
percentage points. Year to date, margins are running ten basis points ahead of
the Company's objective of a full percentage point gain over the prior year.
Management anticipates that this objective will also be achieved for the year as
a whole.
Increased sales, a higher gross margin percentage and foreign exchange rate
effects all combined to produce an increase in gross margin dollars for the
quarter of $4,689,000:
<TABLE>
<CAPTION>
<S> <C>
Increase in margin percentage $1,132,000
Increase in sales 3,265,000
Foreign exchange rate effects 292,000
----------
$4,689,000
==========
</TABLE>
In Canada, a shift in the sales mix from national brands to higher margin house
brands and strong cellular sales contributed to the overall improvement in gross
margins. The planned de-emphasis of video games and related software was also a
factor.
In Australia, several factors contributed to the apparent reduction in trading
margins. Margins in Australia last year had benefited from stock taking gains.
In addition, in the current quarter, margins were lowered as a result of a
writedown of some older generation computers and printers as management prepares
to clear those products. If margins were adjusted for these factors, margins
would have, on a like for like basis, increased by over one percentage point in
Australia.
While margins increased significantly in the United Kingdom, it should be noted
that last year's margins had been reduced by a large stock taking loss
provision. Management's focus on inventory controls helped ensure that these
losses did not recur. The majority of the total margin improvement resulted
from a merchandising strategy which places greater emphasis on the Company's
higher margin core categories, including parts and accessories and private label
goods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Total selling, general and administrative expenses for the three months ended
March 31, 1996 were $48,840,000 compared to $45,678,000 in the third quarter of
the prior year, an increase of $3,162,000 or 6.9%. Year to date, SG&A expenses
have increased from $148,231,000 to $156,754,000, an increase of $8,523,000 or
5.7%. The effect of foreign currency rate fluctuations on both of these
comparisons was not significant.
<PAGE>
The following table provides a breakdown of SG&A expenses by major category for
the three and nine month periods ended March 31, 1996 (percentages shown are as
a rate to sales):
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
<TABLE>
<CAPTION>
(In thousands, except percents)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
1996 1995 1996 1995
----------------------------- ------------------------------
AMOUNT PCT. AMOUNT PCT. AMOUNT PCT. AMOUNT PCT.
---------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advertising $ 5,344 4.9 $ 4,950 4.9 $ 20,704 5.1 $ 19,677 5.0
Rent 10,110 9.3 9,531 9.4 30,590 7.6 29,591 7.5
Payroll 19,997 18.4 18,562 18.4 63,620 15.8 60,315 15.2
Taxes
(other than
income taxes) 3,927 3.6 3,897 3.9 12,636 3.1 12,249 3.1
Telephone &
Utilities 1,842 1.7 1,886 1.9 5,248 1.3 5,345 1.3
Other 7,620 7.0 6,852 6.7 23,956 5.9 21,054 5.3
----------------------------- ------------------------------
Total $48,840 44.9 $45,678 45.2 $156,754 38.8 $148,231 37.4
============================= ==============================
</TABLE>
Higher investments in advertising, store rent and human resources in all three
countries accounted for part of the increase in SG&A expense for the quarter.
Other factors contributing to the increase included the new royalty payable to
Tandy Corporation and higher repair costs as the "Repair Shop at Radio Shack"
initiative is rolled out. These increases were partially offset by a reduction
in spending at Corporate Headquarters.
Management's stated objective was to hold SG&A expense as a rate to sales at a
level consistent with the prior year. That objective was more than met during
the third quarter, as SG&A expense was reduced from 45.2% to 44.9% of sales.
However, as sales during the second quarter were short of the Company's
expectations, it was not possible to achieve this objective for the nine-month
period ended March 31, 1996. While management anticipates continued improvement
in the SG&A rate during the fourth quarter, it is likely that there will be an
increase in SG&A expense as a rate to sales for the year as a whole.
NET INTEREST EXPENSE
Net interest expense declined by $115,000 from $1,631,000 in the third quarter
of fiscal year 1995 to $1,516,000 during the three months ended March 31, 1996.
The reduction reflects the scheduled repayment of term debt and the voluntary
conversion of some of the Company's convertible debentures by the holders
thereof. For similar reasons, net interest expense for the nine months ended
March 31, 1996, at $5,163,000, was $879,000 lower than in the same period last
fiscal year.
<PAGE>
PROVISION FOR INCOME TAXES
An income tax provision of $1,350,000 was recorded during the quarter, primarily
relating to the profits of the Canadian subsidiary. In the third quarter of
fiscal year 1995, a net tax provision of $736,000 was recorded, as a provision
against the profits of the Canadian subsidiary was partially offset by a credit
relating to the loss carry-forwards of the Canadian subsidiary. For the nine
months ended March 31, 1996, income tax expense of $6,369,000 was recorded
compared to a net benefit of $1,638,000 in the first nine months of the prior
year. The primary reason for this increase is that during the second quarter of
fiscal year 1995, a benefit of $7.1 million was recorded, arising from a
reduction in the valuation allowance against the Company's deferred tax assets,
resulting from revised estimates with respect to the Company's ability to
utilize its deferred tax assets.
NET INCOME PER AVERAGE COMMON SHARE
The Company issued Cdn$60,000,000 aggregate principal amount of 9% convertible
subordinated debentures ("Debentures") in the second quarter of fiscal
year 1994, which are convertible to common stock at Cdn$8.42 per share. During
the first quarter of the current fiscal year, the holders of Cdn$3,188,000
aggregate principal amount of Debentures elected to convert into common stock
resulting in an increase of 378,514 common shares outstanding. The Company
currently has outstanding 1,449,007 warrants to purchase shares of common stock
held by Trans World Electronics Inc. ("Trans World"), a subsidiary of Tandy
Corporation ("Tandy"), the Company's principal supplier, at an exercise price of
US$6.618 per share. In addition, at quarter end, directors and employees of the
Company and its subsidiaries held options to purchase 502,000 shares at prices
ranging from $5.31 to $8.1875. Employee options exercised during the three and
nine-month periods ended March 31, 1996 resulted in increases of 0 and 118,000
common shares, respectively, outstanding.
Primary and fully diluted net loss per average common share were each $0.38 and
$0.51 for the three-month periods ended March 31, 1996 and March 31, 1995,
respectively. Because losses were experienced in both quarters, the Debentures,
the warrants held by Trans World and the options held by directors and employees
were all anti-dilutive. They have, therefore been excluded from both the
primary and fully dilutive calculations in each period.
For the nine-month period ended March 31, 1996, primary net income per average
common share was $0.37 compared to $1.26 for the same period in fiscal year
1995. The impact of the warrants held by Trans World and the options held by
directors and employees resulted in increases in the average number of common
shares outstanding for the nine-month period ending March 31, 1996 and March 31,
1995 of 107,000 and 105,000 shares, respectively. The effect of these
adjustments on primary net income per average common share during those periods
was not material. Fully diluted net income per average common share for the
nine-month periods ended March 31, 1996 and March 31, 1995 was $0.34 and $0.89,
respectively. This dilution of net income per average common share was
primarily attributable to the Debentures.
<PAGE>
The dilutive effect of the Debentures and the warrants held by Trans World may
be significant in future periods and exchange rate impacts on the Debentures
could increase or decrease their dilutive effects.
FINANCIAL CONDITION
-------------------
Most balance sheet accounts are translated from their values in local currency
to US dollars at the respective month end rates. The table below outlines the
percentage change, to March 31, 1996, in exchange rates as measured against the
US dollar.
FOREIGN EXCHANGE RATE FLUCTUATIONS
----------------------------------
<TABLE>
<CAPTION>
% INCREASE % INCREASE
(DECREASE) (DECREASE)
FROM MARCH 31, 1995 FROM JUNE 30, 1995
-------------------- -------------------
<S> <C> <C>
Canada 2.9 1.0
Australia 6.5 10.3
United Kingdom (5.8) (4.2)
</TABLE>
ACCOUNTS RECEIVABLE
Accounts receivable have increased from $8,710,000 at June 30, 1995 to
$10,775,000 at March 31, 1996. At March 31, 1996, accounts receivable were
$1,999,000 higher than at March 31, 1995. These increases result primarily from
increased revenue due from cellular phone carriers as a result of the growth in
that business, in particular in Canada and Australia.
INVENTORIES
Inventories have increased from $146,184,000 at June 30, 1995 to $160,916,000 at
March 31, 1996, with increases being experienced in Australia and the United
Kingdom. Inventories at March 31, 1995 were $139,901,000, with year on year
increases experienced in all three countries. The Company's new merchandising
strategy, which places greater emphasis on private label products contributed to
these increases, as these products require larger order sizes and longer order
lead time. Also contributing to the increase in inventories was the improvement
in the Company's in-stock position in Australia as well as the broadening of the
product assortment. Management believes that the Company's inventory is of good
quality and will be sold through in the ordinary course of business without the
need for significant mark downs.
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment has increased from $34,844,000 and $34,996,000 at March
31, 1995 and June 30, 1995, respectively, to $38,690,000 at March 31, 1996.
These increases are the result of planned increases in the level of capital
investment, primarily in store fixtures and other improvements at store level,
for both new and upgraded stores. Previously, the Company's capital spending
had approximated depreciation expense, with the result that there were no
ascertainable changes in the net property and equipment balance.
CURRENT MATURITIES OF NOTES PAYABLE TO TANDY CORPORATION
Current maturities of notes payable to Tandy have increased from $6,958,000 at
March 31, 1995 and June 30, 1995 to $17,071,000 at March 31, 1996. This
increase results from the fact that the Series B Note payable to Trans World in
the principal amount of $10,113,000 is now all classified as a current
liability, as repayment in full is required in August, 1996.
ACCOUNTS PAYABLE
The level of accounts payable has increased from $14,039,000 and $8,610,000 at
June 30, 1995 and March 31, 1995, respectively, to $15,227,000 at March 31,
1996. These increases in accounts payable result primarily from an increase in
the level of inventories generally.
INCOME TAXES PAYABLE
Income taxes payable were $13,689,000 at March 31, 1996 as compared to balances
at June 30, 1995 and March 31, 1995 of $13,903,000 and $14,107,000,
respectively.
An audit of the Canadian income tax returns of the Canadian subsidiary for the
1987 to 1989 taxation years was completed during fiscal year 1994, resulting in
additional tax being levied against the Canadian subsidiary. The Company has
appealed these reassessments and, pending the outcome of these matters, the
Company, by Canadian law, is required to pay one-half of the tax in dispute.
The tax levied by Revenue Canada in reassessing those years was offset by
refunds arising from the carryback of losses incurred in subsequent years.
Depending on the ultimate resolution of these issues, the Company could
potentially have an additional liability in the range of $0 to $10,000,000. The
Company believes it has meritorious arguments in defense of a number of the
issues raised by Revenue Canada and it is in the process of vigorously defending
its position. It is management's determination that no additional provision
need be recorded for these reassessments. In order for the Company to succeed
in appealing certain aspects of these reassessments, it must succeed in
defending the possible reassessments discussed immediately below.
The Company was advised in August 1995 that Revenue Canada intended to extend
the scope of its reassessments to raise certain issues flowing from the spin-off
of the Company from Tandy Corporation in fiscal year 1987. Management disagrees
with Revenue Canada's views on these
<PAGE>
issues and will vigorously defend the Company's position should Revenue Canada
pursue these issues. Management believes it has meritorious arguments supporting
its stance and, accordingly, no additional provision has been recorded for these
possible reassessments. Tax assessments related to these issues, if pursued,
could potentially range from $13,000,000 to $20,000,000. As required by Canadian
law, the Company would be required to post a deposit of one-half of the tax in
dispute, including interest, in order to appeal any assessment.
An audit of the Canadian income tax returns of the Canadian subsidiary for the
1990 to 1993 taxation years was commenced during the 1995 fiscal year. While
this audit has not yet been completed and no formal report has been issued by
Revenue Canada, the Company recently became aware that Revenue Canada may seek
to disallow certain interest expense relating to the Canadian subsidiary's
former operations in continental Europe. Management believes it has meritorious
arguments in support of the deductibility of such interest and is prepared to
vigorously defend its position should the Canadian tax authorities proceed with
such a challenge. Because Revenue Canada has not fully asserted its position,
management is presently unable to reasonably estimate the range of loss which
could arise should Revenue Canada ultimately prevail in this matter after all
appeals have been unsuccessfully pursued by the Company. Assuming Revenue Canada
pursues this matter, in order for the Company to proceed with such appeals, the
Company would be required to post a deposit equal to one-half of the 1990-1993
tax in dispute, together with interest. While management is also unable to
determine the actual amount of deposit which would be required, management
presently believes that the amount would not exceed $5,000,000. As indicated,
management believes it has meritorious arguments to support the deductibility of
the interest in question and, accordingly, it is management's assessment that no
additional provision need be recorded for this possible claim. At this time it
is not possible to determine whether any other issues will be raised by Revenue
Canada as a consequence of its audit of the 1990 to 1993 taxation years.
An audit of the French branch of the Canadian subsidiary was completed by the
French tax authorities in fiscal year 1992 for the 1988 through 1990 taxation
years. An assessment of approximately $2,000,000 has been issued. The Company
has appealed this assessment. It is management's view that the position of the
French tax authorities on this matter is without merit and that the Company will
be successful in its appeal process. Accordingly, no provision has been made in
the accounts for this assessment. In order to avoid having to pay this tax
while the appeal proceeds, the Company has provided the French tax authorities
with a letter of guarantee for the amount in dispute.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's principal sources of outside financing are its loans from Tandy, a
revolving bank facility and the Debentures.
On August 5, 1993, Tandy, through its wholly-owned subsidiary, Trans World,
acquired the debt then outstanding under the Company's Revolving Credit and Term
Loan Agreement of $41,748,000. This debt was then restructured as a term loan
facility ("Series A Note") bearing
<PAGE>
interest at 8.64%. It is payable semi-annually over a six year period commencing
February 25, 1995. In addition, Tandy provided the Company with a $10,113,000
three year loan ("Series B Note") which bears interest at 8.11% and is due on
August 25, 1996. The agreement governing these loans is herein referred to as
the "Tandy Loan Agreement".
As part of the financial restructuring indicated above, the Company entered into
a Merchandise Agreement with Tandy which allows the Company to use Tandy's
export unit as its exclusive exporter of products from the Far East through June
30, 2000. The Merchandise Agreement requires the Company to support a
percentage of purchase orders placed with Far Eastern suppliers with either
letters of credit or cash deposits. The percentage ranges from a low of 60% in
the December to April period to a high of 90% in August. In October, 1995
agreement was reached to lower the letter of credit posting requirement on
Canadian purchases.
On May 6, 1994, InterTAN Canada Ltd., InterTAN, Inc., and InterTAN U.K. Limited
entered into a one-year credit agreement ("Syndicated Loan Agreement") with a
syndicate of banks. In April, 1995, the Syndicated Loan Agreement was extended
for a further year to April, 1996. Effective March 1, 1996, the Syndicated Loan
Agreement was further amended and extended until August 16, 1996. Subsequently,
the Company and the banking syndicate have agreed in principle to a further
extension of the Syndicated Loan Agreement to August, 1997, subject to the
completion of a definitive agreement with respect to such extension; however,
there can be no assurance of such renewal. This facility is used to provide
letters of credit in support of purchase orders issued to Far Eastern suppliers,
for general working capital purposes and to support foreign exchange contracts.
At March 31, 1996 there were no borrowings for working capital purposes against
the facility. Both the Tandy Loan Agreement and the Syndicated Loan Agreement
preclude the Company from paying dividends on its common stock. In addition,
the Tandy Loan Agreement and the Syndicated Loan Agreement contain covenants
which require the Company to maintain tangible net worth at a specified minimum
level and which limit the level of debt due both to Tandy as well as other
parties, capital spending, lease commitments and store openings and require the
Company to maintain debt to equity and working capital ratios at agreed levels.
These loan agreements also require the Company to meet certain interest coverage
ratios. At March 31, 1996, the Company was in compliance with these
requirements.
During fiscal year 1994, the Company closed a private placement of
Cdn$60,000,000 of 9% subordinated convertible debentures which will mature on
August 30, 2000. Interest on the Debentures is payable semi-annually, at the
end of February and August. At December 31, 1995, Cdn$56,812,000 of Debentures
were outstanding. The conversion rate is 118.7310 common shares for each
Cdn$1,000 face amount of Debentures, equivalent to a conversion price of
approximately Cdn$8.42, or $6.19 per share at the March 31, 1996 exchange rate.
The Debentures are subordinated to all senior indebtedness of the Company,
including the Company's revolving bank facility and the Tandy Loan Agreement.
Operating activities used $6,320,000 in cash during the three months ended March
31, 1996 compared to $13,352,000 in the third quarter of the prior year. Net
income for the quarter, adjusted to reconcile net income to cash, used $323,000
in cash, while using $2,304,000 in cash during the same period in fiscal year
1995. Reductions in inventory levels generated cash of
<PAGE>
$5,544,000 in the March 1996 quarter and $19,089,000 in the March 1995 quarter.
The effect of this reduction in the rate of inventory decline was more than
offset by a reduction in the rate of liquidation of accounts payable, which
consumed $6,185,000 in cash during the quarter compared with $24,533,000 a year
ago. For the nine months ended March 31, 1996, operating activities contributed
$5,012,000 in cash compared with $13,473,000 in the same period of fiscal 1995.
Year to date, the increase in the level of inventories has consumed $12,990,000
in cash, whereas a year ago reductions in inventories had generated $8,236,000
in cash. This negative swing in cash was partially offset by a variety of
factors, including an increase in cash generated by net income adjusted to
reconcile to cash and an increase, rather than a reduction, in the level of
accounts payable.
Cash flow from investing activities consumed $932,000 during the current quarter
compared with $1,740,000 a year ago. The effect of increases in capital spending
over the third quarter of fiscal year 1995, as the Company proceeds with a plan
to upgrade and remodel its stores, was more than offset by an increase in cash
generated by other investment activities. Year to date, investing activities
have consumed $7,351,000 in cash compared to $3,803,000 in the prior year, as
the effects of the increased capital spending program were partially offset by
an increase in cash generated from other investing activities. Management
anticipates that fiscal year 1997 capital spending will continue at a level at
least equal to that of the current fiscal year.
During the third quarter of fiscal year 1996, financing activities used
$2,925,000 in cash as the effect of cash consumed by principal repayments on
long-term debt was partially offset by cash generated from the issuance of
common stock to employee plans. During the third quarter of fiscal 1995,
financing activities had consumed $2,095,000 in cash, as proceeds from the
issuance of shares to employee plans and cash generated from short-term bank
borrowings were more than offset by the repayment of long-term debt. Year to
date, financing activities have consumed $4,753,000 in cash compared with
$484,000 in the same period a year ago, as cash used in the repayment of long-
term debt was partially offset by cash generated by the issuance of common stock
to employee plans and proceeds received on the exercise of stock options by
employees.
The Company's principal use of liquidity in the remainder of fiscal year 1996
will be the funding of capital additions, estimated to be $2.5 million,
primarily related to store expansion, remodeling and upgrading. In addition, as
discussed above, the Company believes that it is possible the Canadian
subsidiary could receive reassessments of tax from Revenue Canada. See "Income
Taxes Payable".
The Company's primary sources of liquidity for the remainder of fiscal year 1996
will be its cash and short-term investments on hand, cash generated from
operations and available borrowings under the Syndicated Loan Agreement. The
Company anticipates that these sources will provide the Company with adequate
liquidity to meet its planned cash flow requirements through fiscal year 1996.
While the Syndicated Loan Agreement will be used primarily to support letters of
credit issued in accordance with the Merchandise Agreement, management believes
that it will be necessary to borrow against the facility as inventories are
built for the 1996 Christmas selling season. Additionally, the Company will be
required to seek further liquidity to provide it with the resources to build
inventories as the 1996 Christmas selling season approaches and possibly
<PAGE>
for deposits required on potential contested tax reassessments. Management is
currently in advanced negotiations with lenders involving a plan to increase the
Company's liquidity to the required level. Alternatives under consideration
include increasing the credit line under the existing facility, augmented by
additional bank support outside of the Syndicated Loan Agreement. Management has
agreed in principle with its banking syndicate to a renewal of such facility
consistent with the plan presently under discussion and believes that the
additional financing presently being sought will be obtained; however, there can
be no assurance of such renewal on terms acceptable to the Company or that such
additional financing will be obtained. The plan under negotiation would provide
the Company with sufficient additional liquidity to meet its requirements
through fiscal year 1997, including payments of principal and interest under the
Tandy Loan Agreement aggregating $15,354,000 required in August, 1996, provided
the amount of any additional tax deposits were not at the upper end of the
ranges described above. If this were the case, the Company would be required to
seek additional sources of liquidity. Management is currently in the process of
studying additional funding alternatives. However, there can be no assurance
that additional funding would be available, if required.
CONTINGENCIES
-------------
A claim by a former employee for damages for wrongful dismissal remains
outstanding. The Company is vigorously defending this action. The Company
believes that the possible range of loss in the matter is not material, and has
recognized a provision representing its best estimate of the liability which may
ultimately arise from this claim. In February 1996, the Company settled a
lawsuit with a former executive officer for an amount within the reserve
established by the Company relating to the claim.
In the fourth quarter of fiscal year 1993, the Company recorded a pre-tax charge
of $77,400,000 in connection with the Company's plan to close its continental
European retail operations. This provision represented management's best
estimate of the costs of inventory liquidation, lease commitments, payroll and
severance, other operating costs during the shutdown period and losses on the
disposal of fixed assets and leasehold interests. The shutdown process is now
substantially complete. Management believes that the remaining provision of
$2,024,000 is adequate to provide for the Company's remaining obligations in
Europe, including claims brought against the Company by former employees,
dealers and franchisees.
Apart from these matters and those described under "Income Taxes Payable", 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 its property is subject.
<PAGE>
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 the Company's Annual Report on Form 10-
K for the fiscal year ended June 30, 1995, and, in the opinion of the Company,
include all adjustments necessary for fair presentation of the Company's
financial position as of March 31, 1996 and 1995 and the results of its
operations and its cash flow for the three and nine months ended March 31, 1996
and 1995. Such adjustments are of a normal and recurring nature. Operating
results for the three and nine months ended March 31, 1996 are not necessarily
indicative of the results that can be expected for the fiscal year ended June
30, 1996. 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, 1995.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The matters discussed in the first paragraph under the heading
"Contingencies" herein above are incorporated herein by reference.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were put to a vote of the stockholders during the three-
month period ended March 31, 1996.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits Required by Item 601 of Regulation S-K:
Exhibit No. Description
----------- -----------
[S] [C]
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).
<PAGE>
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).
4(a) Articles Fifth and Tenth of the Restated
Certificate of Incorporation (included in
Exhibit 3(a) above).
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) Trust Indenture securing the issue of 9%
Convertible Subordinated Debentures due
August 30, 2000 (Filed as Exhibit 4(c) to
InterTAN's Annual Report on Form 10-K
for fiscal year ended June 30, 1993 and
incorporated herein by reference).
10(a) Second Amendment to InterTAN Advertising
Agreement dated to be effective as of
January 1, 1996.
10(b) Third Amendment to Merchandise Agreement
dated February 1, 1996.
10(c) Amending Agreement dated March 1, 1996
between, among others, InterTAN, Inc. and
Canadian Imperial Bank of Commerce.
11 Computation of Earnings Per Share.
27 Article 5 Financial Data Schedule.
<PAGE>
99 Reclassification of Prior Year Balances.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March
31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
InterTAN, Inc.
(Registrant)
Date: May 13, 1996 By:/s/James T. Nichols
-------------------------------------
James T. Nichols
President and Chief Executive Officer
(Principal Executive Officer)
By:/s/Douglas C. Saunders
-------------------------------------
Douglas C. Saunders
Vice President and Corporate
Controller (Principal Accounting
Officer)
<PAGE>
Exhibit 10(a)
Second Amendment to
-------------------
InterTAN Advertising Agreement
------------------------------
This Second Amendment to the InterTAN Advertising Agreement (the "Agreement") is
by and between InterTAN, the InterTAN Group, and Tandy (all as defined in the
Agreement). The parties hereto agree as follows:
1. Paragraph 1. of the Agreement, Section a), entitled "License of Materials".
---------------------
is hereby deleted and in its place is added the following:
"a) License of Materials.
--------------------
(i) Subject to all payments required hereunder being timely made by
INTERTAN GROUP and to INTERTAN GROUP's compliance with all the
terms of this Agreement, TANDY agrees to provide InterTAN with
the following (which are collectively referred to in this
Agreement as "Materials"):
(a) Market Research. Copies of all printed market research
---------------
completed between January 1, 1994 and to December 31, 1996
on The Repair Shop at Radio Shack, You've Got Questions!
We've Got Answers! and the Radio Shack Gift Express programs
("Programs") which were used by TANDY in the development of
new and updated marketing strategies for TANDY's Radio Shack
Division;
1
<PAGE>
(b) Program Schedules. Copies of printed Radio Shack
-----------------
advertising schedules and calendars (including all changes)
for 1996 for the Programs;
(c) Sales Percentage. Printed bi-monthly advice of sales growth
----------------
percentage by category for the Programs in 1996;
(d) Flyers and Inserts. Pre-release printed copies of all
------------------
flyers and inserts for the Programs used by TANDY during
1996;
(e) Television Commercials. Video tape copies of all newly
----------------------
developed television commercials used by TANDY for the
Programs during 1996; and
(f) Radio Commercials. Cassette copies of all newly developed
-----------------
radio commercials used by TANDY for the Programs during
1996.
(ii) Subject to TANDY's entering into a definitive agreement with
Lord, Dentsu & Partners and subject to the provisions of that
agreement, TANDY grants a non-assignable, non-exclusive license
to INTERTAN GROUP to use the Materials in the Licensed
Countries in the limited manner specified in this Agreement.
(iii) INTERTAN GROUP shall have no right to sublicense or disclose
any of the Materials to any third party other than dealers and
franchisees duly granted a sublicense by INTERTAN GROUP in
accordance with the terms and conditions of the applicable
License Agreement. INTERTAN GROUP agrees to use the Materials
provided only as a source for concepts and ideas and will not
use the actual Materials provided in any other way.
(iv) INTERTAN GROUP will use only photography, talent, props and
backdrops which it currently owns, or which it purchases or
licenses for its own use, in any advertisements produced by the
INTERTAN GROUP arising from the Materials.
2
<PAGE>
(v) INTERTAN GROUP agrees to keep all information specified in
subparagraphs (i)(a), (b) and (c) above confidential and not to
provide this information to any third party. INTERTAN GROUP
agrees to keep all items specified in subparagraphs (i)(d), (e)
and (f) above confidential until five days after an item has
been published or broadcast to the general public anywhere in
the United States. INTERTAN agrees to return to TANDY or
destroy all copies and originals of confidential information
within 30 days after expiration or other termination of this
Agreement."
2. Paragraph 10. Of the Agreement, entitled "TERM." Is hereby deleted in its
----
entirety and in its place the following is substituted:
"10. TERM.
----
The term of this Agreement is from January 1, 1996 through December 31,
1996. In the event TANDY's agreement with Lord, Dentsu & Partners
terminates prior to the expiration of the term of this Agreement, and
provided that no party hereto is then in default of this Agreement, the
parties hereto agree to negotiate terms for an amendment to this Agreement
to provide for its possible continuation for the balance of the remaining
term under such new terms and conditions as are appropriate under the
circumstances, in TANDY's opinion."
3. Paragraph 11.of the Agreement, entitled "EXTENSION OF TERM." is hereby
-----------------
deleted in its entirety and in its place the following is substituted:
3
<PAGE>
"11. EXTENSION OF TERM.
-----------------
At January 1, 1997 this Agreement may be extended on new or existing terms
and conditions, at TANDY's option. INTERTAN GROUP shall provide TANDY a
written request for extension at least 30 days prior to December 1, 1996.
If the parties agree to extend this Agreement and agree on all terms
thereof, the parties shall enter into a written amendment stating the new
terms."
4. Paragraph 12. Section a) of the Agreement, entitled "Expiration." Is hereby
----------
deleted in its entirety and in its place the following is substituted:
"a) Expiration. Unless the term is extended by written contract of the
----------
parties, and unless earlier terminated as hereinabove provided, this
Agreement shall automatically expire and terminate at the expiration
of the term provided in paragraph 10, as amended, or at the same time
as the License Agreements, whichever is earlier."
5. The Agreement is hereby ratified and confirmed in all other respects and
all of its provisions, as amended, shall continue in full force and effect.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the dates shown beneath their respective signatures hereto, to be effective as
of January 1, 1996.
InterTAN Inc.
By: /s/James T. Nichols
-----------------------------------------
Title: President
--------------------------------------
Date Signed: Feb. 8, 1996
--------------------------------
InterTAN Canada Ltd.
By: /s/James T. Nichols
-----------------------------------------
Title: President
--------------------------------------
Date Signed: Feb. 8, 1996
--------------------------------
InterTAN U.K. Limited
By: /s/James T. Nichols
-----------------------------------------
Title: Director
--------------------------------------
Date Signed: Feb. 8, 1996
--------------------------------
5
<PAGE>
InterTAN Australia Ltd.
By: /s/James T. Nichols
-----------------------------------------
Title: Director
--------------------------------------
Date Signed: Feb. 8, 1996
--------------------------------
Tandy Corporation
By: /s/Dwain H. Hughes
-----------------------------------------
Title: Senior Vice President and
--------------------------------------
Chief Financial Officer
Date Signed: February 12, 1996
--------------------------------
6
<PAGE>
Exhibit 10(b)
THIRD AMENDMENT TO MERCHANDISE AGREEMENT
THIS THIRD AMENDMENT TO MERCHANDISE AGREEMENT (the "Third Amendment") is
entered into as of February 1, 1996, by and among InterTAN Canada Ltd. ("ITC"),
a corporation organized under the laws of the Province of Alberta, Canada,
InterTAN, Inc. ("ITI"), a Delaware corporation, InterTAN Australia Ltd. ("ITA"),
a corporation organized under the laws of the State of New South Wales,
Australia, InterTAN U.K. Limited ("ITUK"), a corporation organized under the
laws of England and Wales, and Technotron Sales Corp. Pty. Ltd. ("TSC"), a
corporation organized under the laws of the State of New South Wales, Australia
(along with their respective current or future subsidiaries, being collectively
referred to herein as the "ITI-GROUP") and Tandy Corporation ("TANDY"), a
Delaware corporation, and A&A International, Inc. ("A&A"), a Nevada corporation.
WHEREAS, each of the parties hereto entered into that certain Merchandise
Agreement signed on or about October 8, 1993, and dated (or which is hereby
deemed to have been dated) as of October 15, 1993 (the "Agreement"); and
WHEREAS, the Agreement has been amended by the First Amendment to
Merchandise Agreement (dated November 1, 1993) and the Second Amendment to
Merchandise Agreement (dated October 2, 1995); and
WHEREAS, the parties hereto have agreed to modify the applicable open order
coverage requirements to be secured by letters of credit maintained by ITUK as
set out in Section 1.3 of the Agreement, as previously amended; and
WHEREAS, in order to give affect to the parties' intentions, the parties
hereto desire to execute this Third Amendment.
NOW, THEREFORE, for good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
Section 1. Definitions. Terms used herein shall have the meanings set
------------
forth in the Agreement, as amended by the First Amendment and Second Amendment
thereto, except as otherwise defined herein.
<PAGE>
Section 2. Amendment to Section 1.3. Section 1.3 of Article I of the
-------------------------
Agreement, as previously amended by the First Amendment and Second Amendment
thereto, is hereby further amended by adding the following new provision to the
end of Section 1.3 as set out below:
"(i) Notwithstanding anything to the contrary in the Agreement, as
amended, the required percentage (as calculated according to the foregoing
subsections of this Section 1.3) of the aggregate U.S. dollar amount of Open
Orders as specified in the L/C Notice to be covered by the applicable L/C
maintained by ITUK shall be further reduced so as to provide ITUK with a
reduction of the required coverage in an amount equal to the percentage derived
by dividing (i) the gross amount of sales made by ITUK to RadioShack
International ("RSI"), under that certain Master Sales Agreement (dated December
31, 1995) in each successive fiscal quarter of ITUK by (ii) the amount of gross
sales earned by ITUK in the applicable fiscal quarter (for example, if during
ITUK's third quarter of its 1996 fiscal year the sales to RSI represent 4% of
ITUK's gross sales for such period, ITUK shall receive a 4% equivalent reduction
(on a point by point basis) in its required letter of credit coverage for the
fourth quarter of its 1996 fiscal year). Such percentage shall be determined by
ITUK on a quarterly basis, to be applicable for the immediately succeeding
fiscal quarter, on or before the thirtieth (30th) day following ITUK's close of
each fiscal quarter (commencing with the first calendar quarter of 1996).
Additionally, on or before the thirtieth (30th) day following the close of each
fiscal quarter, ITUK shall furnish to RSI and A&A International, Inc. a complete
and accurate report, certified as such by an officer of ITUK or ITI, showing
ITUK's gross sales for the quarter and gross sales to RSI, less itemized
discounts and allowances deducted from such gross sales price, of all products
sold by ITUK to RSI during the preceding fiscal quarter."
Section 3. Ratification of Merchandise Agreement and Prior Amendments
----------------------------------------------------------
Thereto. The Agreement, as amended by the First Amendment and Second Amendment
- - --------
thereto, is in all other respects hereby ratified and confirmed, and all of its
provisions, as hereby amended, continue in full force and effect.
Section 4. Governing Law. THIS THIRD AMENDMENT SHALL BE SUBJECT TO
--------------
ARTICLE 7, SECTION 7.1 OF THE AGREEMENT, AS AMENDED, ENTITLED "Texas Law
---------
Applicable; Submission to Jurisdiction." SECTION 7.1 OF THE AGREEMENT, AS
- - ---------------------------------------
AMENDED, IS HEREBY ADOPTED BY REFERENCE AND INCORPORATED HEREIN FOR ALL PURPOSES
AS IF SET OUT AT LENGTH.
Section 5. Execution in Counterparts. This Third Amendment may be
--------------------------
executed in any number of counterparts and by different parties hereto and
separate counterparts, each of which when so executed shall be deemed to be an
original, and all of which taken together shall constitute one and the same
Third Amendment. Delivery of an executed counterpart of a
<PAGE>
signature page to this Third Amendment by telecopy shall be as effective as
delivery of a manually executed counterpart of this Third Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
Merchandise Agreement to be executed by their duly authorized officers, or
representatives, all as of the day and year first above written.
TANDY CORPORATION
By: /s/Dwain H. Hughes
------------------------------
Its: Senior Vice President
------------------------------
A&A INTERNATIONAL, INC.
By: /s/David Christopher
------------------------------
Its: President
------------------------------
InterTAN CANADA LTD.
By: /s/James T. Nichols
------------------------------
Its: President
------------------------------
InterTAN, INC.
By: /s/James T. Nichols
------------------------------
Its: President
------------------------------
InterTAN AUSTRALIA LTD.
By: /s/James T. Nichols
------------------------------
Its: Director
------------------------------
InterTAN U.K. LIMITED
By: /s/James T. Nichols
------------------------------
Its: Director
------------------------------
TECHNOTRON SALES CORP. PTY. LTD
By: /s/James T. Nichols
------------------------------
Its: Director
------------------------------
<PAGE>
EXHIBIT 10(c)
AMENDING AGREEMENT
------------------
THIS AGREEMENT, dated as of March 1, 1996, is made by and between
INTERTAN CANADA LTD., a corporation existing under the laws of the Province of
Alberta ("ICL"), INTERTAN U.K. LIMITED, a limited liability company existing
under the laws of England ("IUK"), INTERTAN, INC., a corporation existing under
the laws of Delaware ("InterTAN"), CANADIAN IMPERIAL BANK OF COMMERCE, a
Canadian chartered bank ("CIBC"), as Agent, and the Lenders from time to time
listed on the signature pages hereof.
WHEREAS the parties hereto entered into a credit agreement dates as of
May 6, 1994 whereby the Lenders established certain credits in favour of the
Borrowers which agreement was amended by the Amending Agreement dated as of
April 25, 1995 (together referred to as the "Credit Agreement");
AND WHEREAS the parties wish to further amend the Credit Agreement;
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the parties hereto agree as
follows:
1. INTERPRETATION. In this Agreement, defined terms shall have the meaning
--------------
given in the Credit Agreement.
2. AMENDMENTS.
----------
(a) The definition of Repayment Date in Section 1.1 is amended to read as
follows:
"REPAYMENT DATE" means August 16, 1996, or such later date as may be
from time to time applicable pursuant to Section 3.5.
(b) Section 11.1(m)(iii) is amended so that Section 11.1(m) will read in
its entirety as follows:
(m) Cash Interest Coverage Ratio.
----------------------------
InterTAN will have a Cash Interest Coverage Ratio calculated at
the end of each period set out below of not less than (i) 1.25:1 for
each of the nine month period ending March 31, 1994, the twelve month
period ending June 30, 1994 and the twelve month period ending
September 30, 1994, (ii) 1.50:1 for the twelve month period ending
December 31, 1994, and (iii) 1.05:1 for the twelve month period ended
March 31, 1996, 1.25:1 for the twelve month period ended June 30, 1996
and 1.50:1 for each
<PAGE>
twelve month period ending each March 31, June 30, September 30 and
December 31 thereafter.
3. AMENDMENT AND EXTENSION FEE. The Borrowers shall pay to the Agent
---------------------------
upon the execution and delivery of this Agreement, a fee for the amendment of
the Credit Agreement and for the extension of the Repayment Date equal to one-
tenth of one percent of the amount of the Credits, to be disbursed to the
Lenders according to their Pro Rata Shares.
4. CONTINUING EFFECT. Each of the parties hereto acknowledges and
-----------------
agrees that the Credit Agreement as amended by this Agreement shall be and
continue in full force and effect.
5. COUNTERPARTS. This Agreement may be executed in counterparts, each
------------
of which will be deemed to be an original and which together will constitute one
and the same agreement.
IN WITNESS WHEREOF of the parties hereto have executed this Agreement
as of the date and year first above written.
CANADIAN IMPERIAL BANK OF
COMMERCE, AS AGENT
By: /s/ Doug Cornett
------------------------------------
Authorized Officer: Doug Cornett
CANADIAN IMPERIAL BANK OF
COMMERCE, AS LENDER
By: /s/ H. D. Chataway
------------------------------------
Authorized Officer: Harold D. Chataway
THE FIRST NATIONAL BANK OF
BOSTON, AS U.K. ADMINISTRATIVE AGENT
AND AS A LENDER
By: /s/ Judy C.E. Kelly
------------------------------------
Authorized Officer: Vice President
<PAGE>
LLOYDS BANK PLC
By: /s/ J. N. Mortell
------------------------------------
Authorized Officer: Manager Corporate
Banking
CREDIT LYONNAIS CANADA
By: /s/ C. M. Stade
------------------------------------
Authorized Officer: Caroline Stade,
Assistant Vice President
INTERTAN CANADA LTD.
By: /s/ James G. Gingerich
------------------------------------
Name: James G. Gingerich
Title: Vice President
INTERTAN, INC.
By: /s/ James T. Nichols
------------------------------------
Name: James T. Nichols
Title: President and CEO
INTERTAN U.K. LIMITED
By: /s/ James T. Nichols
------------------------------------
Name: James T. Nichols
Title: Director
<PAGE>
Exhibit 11
Statement of Computation of Earnings per Share
InterTAN, Inc.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Three Months Ended Nine Months Ended
-------------------------- ---------------------------
March 31 March 31
1996 1995 1996 1995
--------------------------- --------------------------
<S> <C> <C> <C> <C>
Primary Earnings Per Share
Net income (loss)......................................... $ (4,108) $ (5,122) $ 4,024 $ 12,582
=========================== ==========================
Weighted average number of common shares outstanding...... 10,943 10,026 10,857 9,907
Weighted average number of common shares issuable
under warrants and stock option plans, net of
assumed treasury stock repurchases at average
market prices.......................................... (a) (a) 107 105
--------------------------- --------------------------
Weighted average number of common and common
equivalent shares outstanding.......................... 10,943 10,026 10,964 10,012
=========================== ==========================
Primary net income (loss) per average common share $ (0.38) $ (0.51) $ 0.37 $ 1.26
=========================== ==========================
Fully Diluted Earnings Per Share
Reconciliation of net income (loss) per statements
to amounts used in computation of fully
diluted net income (loss) per average
common share:
Net income (loss), as reported............................ $ (4,108) $ (5,122) $ 4,024 $ 12,582
Adjustments for assumed conversion of the 9%
convertible subordinated debentures:
Add interest on the debentures............................ (a) (a) 2,873 2,945
Add amortization expense on the debentures................ (a) (a) 271 273
Add foreign exchange loss recognized on interest
payable on convertible debentures..................... (a) (a) - 14
Less foreign exchange transaction loss (gain)
recognized on the debentures.......................... (a) (a) (117) (486)
Add income tax effect of the debentures................... (a) (a) (1,069) -
--------------------------- --------------------------
Net income (loss), as adjusted............................ $ (4,108) $ (5,122) $ 5,982 $ 15,328
=========================== ==========================
Reconciliation of weighted average number of shares
outstanding to amount used in computation of fully
diluted net income per average common share:
Weighted average number of shares outstanding............. 10,943 10,026 10,857 9,907
Adjustments for assumed conversion of 9% convertible
subordinated debentures to common stock................ (a) (a) 6,745 7,124
Adjustments for assumed exercise of warrants
and stock options, net of assumed treasury
stock repurchases at period end prices................ (a) (a) 107 130
Adjustment for conversion of debentures held for
part of period .......................................... (a) (a) 13 -
Weighted average number of common and common --------------------------- --------------------------
equivalent shares outstanding, as adjusted............. 10,943 10,026 17,722 17,161
=========================== ==========================
Fully diluted net income (loss) per average
common shares.......................................... $ (0.38) $ (0.51) $ 0.34 $ 0.89
=========================== ==========================
</TABLE>
(a) These items are anti-dilutive and thus are omitted from the calculation.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 38,597
<SECURITIES> 0
<RECEIVABLES> 10,775
<ALLOWANCES> 0
<INVENTORY> 160,916
<CURRENT-ASSETS> 220,726
<PP&E> 38,690
<DEPRECIATION> 0
<TOTAL-ASSETS> 267,225
<CURRENT-LIABILITIES> 72,489
<BONDS> 64,789
0
0
<COMMON> 11,034
<OTHER-SE> 113,215
<TOTAL-LIABILITY-AND-EQUITY> 267,225
<SALES> 403,840
<TOTAL-REVENUES> 404,537
<CGS> 226,661
<TOTAL-COSTS> 226,661
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,163
<INCOME-PRETAX> 10,393
<INCOME-TAX> 6,369
<INCOME-CONTINUING> 4,024
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,024
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.34
</TABLE>
<PAGE>
EXHIBIT 99
INTERTAN, INC.
RECLASSIFICATION OF PRIOR YEAR BALANCES
During the year the Company made certain minor reclassifications in the
presentation of certain revenue and expense items on the Consolidated Statements
of Operations. Prior year balances have been reclassified, as appropriate, to
conform with the current year presentation. Set out below are tables which
compare, on a quarterly basis, the Statements of Operations for the prior year
as reported and as reclassified. These tables exclude foreign currency
transaction gains and losses, interest expense and provision for income taxes,
none of which were affected by the reclassification. All amounts shown are in
thousands.
<TABLE>
<CAPTION>
(in thousands)
First Quarter Ended Second Quarter Ended Third Quarter Ended
September 30, 1994 December 31, 1994 March 31, 1995
--------------------------- -------------------------- --------------------------
As As As As As As
Reported Reclassified Reported Reclassified Reported Reclassified
----------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales..............................$ 108,464 $ 111,799 $ 179,836 $ 183,684 $ 97,707 $ 101,001
Other income........................... 1,496 104 2,328 862 1,610 217
--------------------------- -------------------------- ---------------------------
109,960 111,903 182,164 184,546 99,317 101,218
--------------------------- -------------------------- ---------------------------
Operating costs and expenses:
Cost of products sold................ 62,964 64,402 103,720 105,989 54,522 56,344
Selling, general and
administrative expenses........... 44,924 45,429 57,011 57,124 45,599 45,678
Depreciation and amortization........ 2,027 2,027 1,969 1,969 1,865 1,865
--------------------------- -------------------------- ---------------------------
109,915 111,858 162,700 165,082 101,986 103,887
--------------------------- -------------------------- ---------------------------
Operating income (loss)................$ 45 $ 45 $ 19,464 $ 19,464 $ (2,669) $ (2,669)
=========================== ========================== ===========================
<CAPTION>
Nine Months Ended Fourth Quarter Ended Twelve Months Ended
March 31, 1995 June 30, 1995 June 30, 1995
--------------------------- -------------------------- --------------------------
As As As As As As
Reported Reclassified Reported Reclassified Reported Reclassified
----------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales..............................$ 386,007 $ 396,484 $ 91,777 $ 95,267 $ 477,784 $ 491,751
Other income........................... 5,434 1,183 1,410 34 6,844 1,217
--------------------------- -------------------------- ---------------------------
391,441 397,667 93,187 95,301 484,628 492,968
--------------------------- -------------------------- ---------------------------
Operating costs and expenses:
Cost of products sold................ 221,206 226,735 50,838 52,701 272,044 279,436
Selling, general and
administrative expenses........... 147,534 148,231 45,285 45,536 192,819 193,767
Depreciation and amortization........ 5,861 5,861 1,643 1,643 7,504 7,504
Provision for business restructuring. - - (1,600) (1,600) (1,600) (1,600)
--------------------------- -------------------------- ---------------------------
374,601 380,827 96,166 98,280 470,767 479,107
--------------------------- -------------------------- ---------------------------
Operating income (loss)................$ 16,840 $ 16,840 $ (2,979) $ (2,979) $ 13,861 $ 13,861
=========================== ========================== ===========================
</TABLE>
