<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, 1998 or
--------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to
------------ --------------
Commission file number 1-10062
-------
InterTAN, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2130875
- -------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
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, 1998, 12,340,032 shares of the registrant's common stock, par value
$1.00 per share, were outstanding.
<PAGE>
TABLE OF CONTENTS
PART I
PAGE
1. ITEM 1 - Financial Statements and Supplementary Data
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Stockholders' Equity 6
2. ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II
1. ITEM 1 - Legal Proceedings 21
2. ITEM 4 - Submission of Matters to a Vote of Security Holders 21
3. ITEM 6 - Exhibits and Reports on Form 8-K 21
OTHER
1. Signatures 23
2
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
INTERTAN, INC.
- --------------------------------------------------------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales and operating revenues ..... $ 117,117 $ 109,555 $ 431,385 $ 412,776
Other income ......................... 66 289 417 545
--------- --------- --------- ---------
117,183 109,844 431,802 413,321
--------- --------- --------- ---------
Operating costs and expenses:
Cost of products sold ............. 68,510 58,802 246,915 229,335
Selling, general and administrative
expenses ...................... 49,425 50,766 163,486 166,508
Depreciation and amortization ..... 1,789 2,566 5,581 7,162
Provision for business
restructuring ................. 12,712 -- 12,712 --
--------- --------- --------- ---------
132,436 112,134 428,694 403,005
--------- --------- --------- ---------
Operating income (loss) .............. (15,253) (2,290) 3,108 10,316
Foreign currency transaction
(gains) losses .................. 158 124 (580) (802)
Interest expense, net ................ 923 1,503 4,459 5,008
--------- --------- --------- ---------
Income (loss) before income taxes .... (16,334) (3,917) (771) 6,110
Provision for income taxes ........... 1,438 1,216 8,563 6,373
--------- --------- --------- ---------
Net loss ............................. $ (17,772) $ (5,133) $ (9,334) $ (263)
========= ========= ========= =========
Basic and diluted net loss per
average common share ............ $ (1.46) $ (0.45) $ (0.77) $ (0.02)
Average common shares outstanding .... 12,208 11,527 12,065 11,373
</TABLE>
The comments in Management's Discussion and Analysis of Financial Condition and
Results of Operations are an integral part of these statements.
3
<PAGE>
CONSOLIDATED BALANCE SHEETS
INTERTAN, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands, except share data) MARCH 31 JUNE 30 MARCH 31
1998 1997 1997
-------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments ................ $ 25,990 $ 34,726 $ 39,036
Accounts receivable, less allowance for doubtful
accounts .................................. 10,606 9,655 9,829
Inventories .................................... 159,820 170,594 171,757
Other current assets ........................... 7,277 7,271 6,258
Deferred income taxes .......................... -- 634 435
-----------------------------------
Total current assets ....................... 203,693 222,880 227,315
Property and equipment, less accumulated
depreciation and amortization.................. 26,524 28,812 38,904
Other assets ....................................... 1,078 2,615 2,648
-----------------------------------
$ 231,295 $ 254,307 $ 268,867
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term bank borrowings ..................... $ 7,521 $ 9,821 $ 9,769
Current maturities of notes payable to Tandy
Corporation ............................... -- 6,958 6,958
Accounts payable ............................... 25,161 25,215 21,641
Accounts payable to Tandy Corporation .......... 1,287 2,589 398
Accrued expenses ............................... 39,945 27,031 31,518
Income taxes payable ........................... 19,650 12,734 12,290
-----------------------------------
Total current liabilities ................. 93,564 84,348 82,574
Long-term notes payable to Tandy Corporation,
less current maturities ....................... -- 16,420 16,344
9% convertible subordinated debentures ............. 40,024 41,138 41,030
Other liabilities .................................. 6,150 6,167 6,475
-----------------------------------
139,738 148,073 146,423
-----------------------------------
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, 12,296,059, 11,873,437 and
11,629,245 issued and outstanding ......... 12,296 11,873 11,629
Additional paid-in capital ..................... 115,145 114,350 113,686
Retained earnings (deficit) .................... (6,811) 2,523 18,869
Foreign currency translation effects ........... (29,073) (22,512) (21,740)
-----------------------------------
Total stockholders'equity ...................... 91,557 106,234 122,444
-----------------------------------
Commitments and contingencies ..................
$ 231,295 $ 254,307 $ 268,867
===================================
</TABLE>
The comments in Management's Discussion and Analysis of Financial Condition and
Results of Operations are an integral part of these statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
INTERTAN, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands) NINE MONTHS ENDED
MARCH 31
-----------------------
1998 1997
-----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................... $ (9,334) $ (263)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization ........................... 5,581 7,162
Deferred income taxes ................................... 584 5,801
Foreign currency transaction gains, unrealized .......... (1,332) (735)
Other ................................................... 1,644 1,706
Cash provided by (used for) current assets and liabilities:
Accounts receivable ..................................... (1,315) (307)
Inventories ............................................. 4,465 (8,370)
Other current assets .................................... (833) 1,203
Accounts payable ........................................ 549 (3,168)
Accounts payable to Tandy Corporation ................... (1,240) (499)
Accrued expenses ........................................ 13,853 5,525
Income taxes payable .................................... 7,328 (483)
--------------------
Net cash provided by operating activities ............... 19,950 7,572
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ......................... (4,654) (6,566)
Proceeds from sales of property and equipment ............... 28 161
Other investing activities .................................. 2,092 1,089
--------------------
Net cash used in investing activities ..................... (2,534) (5,316)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in short-term bank borrowings, net .................. (2,308) 8,630
Proceeds from issuance of common stock to employee plans .... 1,244 1,427
Principal repayments on long-term borrowings ................ (24,353) (6,958)
--------------------
Net cash provided by (used in) financing activities ....... (25,417) 3,099
--------------------
Effect of exchange rate changes on cash ........................ (735) (415)
--------------------
Net increase (decrease) in cash and short-term investments ..... (8,736) 4,940
Cash and short-term investments, beginning of period ........... 34,726 34,096
--------------------
Cash and short-term investments, end of period ................. $ 25,990 $ 39,036
====================
</TABLE>
The comments in Management's Discussion and Analysis of Financial Condition and
Results of Operations are an integral part of these statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
INTERTAN, INC.
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Foreign
Retained Currency Total
Common Stock Additional Earnings Translation Stockholders'
Shares Amount Paid-In Capital (Deficit) Effects Equity
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 ..... 11,873 $ 11,873 $ 114,350 $ 2,523 $ (22,512) $ 106,234
Net foreign currency
translation adjustments ... -- -- -- -- (6,561) (6,561)
Issuance of common stock
to employee plans ......... 423 423 1,693 -- -- 2,116
Retirement of warrants held by
Tandy Corporation ....... -- -- (898) -- -- (898)
Net loss ..................... -- -- -- (9,334) -- (9,334)
---------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1998 .... 12,296 $ 12,296 $ 115,145 $ (6,811) $ (29,073) $ 91,557
=================================================================================
</TABLE>
The comments in Management's Discussion and Analysis of Financial Condition and
Results of Operations are an integral part of these statements.
6
<PAGE>
ITEM 2 - 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" or "InterTAN"). The actual results of the
Company could differ materially from those indicated by the forward-looking
statements because of various risks and uncertainties including, but not limited
to, international economic conditions, interest and foreign exchange rate
fluctuations, various tax issues, including possible reassessments, changes in
product demand, competitive products and pricing, availability of products,
inventory risks due to shifts in market conditions, dependence on manufacturers'
product development, the regulatory and trade environment, real estate market
fluctuations, Year 2000 compliance and other risks indicated in this document or
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
---------------------
InterTAN is engaged in the sale of consumer electronics products primarily
through company-operated retail stores and dealer outlets in Canada, the United
Kingdom and Australia. The Company's retail operations are conducted through
three wholly-owned subsidiaries: InterTAN Australia Ltd., which operates in
Australia under the trade name "Tandy Electronics"; InterTAN Canada Ltd., which
operates in Canada under the trade name "RadioShack"; and InterTAN U.K. Limited,
which operates in the United Kingdom under the "Tandy" trade name. All of these
trade names are used under exclusive license from Tandy Corporation ("Tandy") of
Fort Worth, Texas. In addition, during fiscal year 1996, the Company entered
into an agreement in Canada with Rogers Cantel Inc. ("Cantel") to operate
telecommunications stores ("Cantel stores") on its behalf. The first of these
stores was opened in August, 1996 and at March 31, 1998, 55 stores were in
operation.
UNITED KINGDOM RESTRUCTURING PLAN
As part of its ongoing efforts to improve the financial performance of its
United Kingdom operation, the Company recently carried out a review of the
performance of all of its U.K. stores. Consequently, in January, 1998 a plan to
close 69 consistently under-performing stores was approved. Revenue and
operating losses associated with the stores in the closure plan are shown below
(in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
------------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues $ 3,715 $ 5,672 $19,856 $21,021
======= ======= ======= =======
Operating loss $ 2,747/(1)/ $ 1,618 $ 4,267/(1)/ $ 3,199
======= ======= ======= =======
/(1)/ Includes inventory writedowns of $2,325,000 associated with the
restructuring which were recorded in the third quarter.
7
<PAGE>
In connection with this restructuring plan, a provision of $12,712,000 was
recorded during the third quarter of fiscal year 1998, reflecting lease disposal
costs, severance costs, and other closure costs, including fixture removal and
contract termination costs. The following is a summary of the activity within
this reserve during the quarter (in thousands):
Original Foreign Currency Balance
Provision Paid Effects March 31, 1998
--------- ---- ------- --------------
Lease disposal costs $ 11,120 $ (914) $ 240 $ 10,446
Severance costs 748 (288) 11 471
Other exit costs 844 (347) 16 513
-------- -------- -------- --------
$ 12,712 $ (1,549) $ 267 $ 11,430
======== ======== ======== ========
As a result of the store closure plan, the Company implemented an inventory
clearance program designed to liquidate, in a relatively short time frame, a
significant portion of the inventory from the 69 stores to be closed. The
clearance program has been conducted through 18 clearance stores selected from
the list of stores to be closed. As a consequence of this program, a provision
of $2,325,000 was recorded to write down the inventory in the clearance centers.
This amount has been included in cost of products sold and is in addition to the
restructuring reserve shown above.
Immediately upon announcement of the plan, 61 stores were closed. Sixteen of
these stores re-opened as inventory clearance centers, approximately one week
later. In addition to this block of 61 stores, an additional 8 stores were
identified to close at lease end and prior to June 30, 1998. Two of these were
converted to clearance centers. As of March 31, 1998, 17 stores remained open,
including 13 clearance stores; all are scheduled to close prior to June 30,
1998.
A total of eight of the stores identified for closure have leases which expire
prior to June 30, 1998. The remaining 61 stores have lease terms remaining of
varying periods up to 15 years. A national firm of real estate brokers has been
engaged to assist in arranging for the sublet or assignment of these leases to
other parties. Provision has been made for management's best estimate of the
costs of disposing of these leases.
Management originally estimated that approximately 230 jobs would be lost as a
result of this store closure program. As at March 31, 1998, approximately 160
individuals had been terminated.
SALES OUTLETS
The number of company-operated stores and dealers at March 31, 1998 and 1997, as
well as the number of locations opened and closed during the three-month periods
then ended, is presented in the following table:
8
<PAGE>
<TABLE>
<CAPTION>
SALES OUTLETS
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
--------------------------------------- ----------------------------------------
ENDING OPENED CLOSED ENDING OPENED CLOSED
<S> <C> <C> <C> <C> <C> <C>
CANADA
Company-operated 458* 1 4 452* 1 4
Dealers 385 2 3 429 6 3
------------------------------------ ------------------------------------
843 3 7 881 7 7
==================================== ====================================
AUSTRALIA
Company-operated 217 1 1 212 - 1
Dealers 124 1 19 195 1 16
------------------------------------ ------------------------------------
341 2 20 407 1 17
==================================== ====================================
UNITED KINGDOM
Company-operated 286 - 52 348 - 3
Dealers 109 4 25 172 - 3
------------------------------------ ------------------------------------
395 4 77 520 - 6
==================================== ====================================
TOTAL
Company-operated 961 2 57 1,012 1 8
Dealers 618 7 47 796 7 22
------------------------------------ ------------------------------------
1,579 9 104 1,808 8 30
==================================== ====================================
</TABLE>
*In addition, at March 31, 1998 and March 31, 1997, the Company operated 55 and
49 stores, respectively, on behalf of Cantel. Since these locations are not
company-owned, they are not included in the above table.
The reduction in the number of dealers over the prior year is reflective of
management's strategy of focusing on larger dealers with greater sales
potential. This strategic reduction in the number of dealers is not expected to
have a material affect on sales in future periods. As described under "United
Kingdom Restructuring Plan", the Company initiated a plan to close 69
under-performing stores in the United Kingdom before the end of fiscal 1998;
closure of 52 of these stores is reflected in the above table.
OPERATING INCOME
The Company's operating income (loss) for each geographic segment for the three
and nine-month periods ended March 31, 1998 and 1997 is presented in the
following table (in thousands):
<TABLE>
<CAPTION>
OPERATING INCOME (LOSS)
-----------------------
UNITED CORPORATE
CANADA AUSTRALIA KINGDOM EXPENSES TOTAL
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Three months ended
March 31, 1998 $ 3,161 $ 1,017 $ (18,309)/(1)/ $(1,122) $ (15,253)/(2)/
Three months ended
March 31, 1997 $ 3,210 $ 547 $ (4,963) $(1,084) $ (2,290)
Nine months ended
March 31, 1998 $ 19,447 $ 4,726 $ (17,735)/(1)/ $(3,330) $ 3,108/(2)/
Nine months ended
March 31, 1997 $ 16,247 $ 3,914 $ (6,712) $(3,133) $ 10,316
</TABLE>
9
<PAGE>
/(1)/ Includes restructuring and related inventory provisions of $15,037,000.
Before considering the effects of these charges, the operating losses
in the United Kingdom for the three and nine-month periods ended March
31, 1998 were $3,272,000 and $2,698,000, respectively compared with
$4,963,000 and $6,712,000, respectively in the comparable periods a
year ago. Computed on this basis, the operating results in the U.K. for
the third quarter and year to date would have improved by $1,691,000
and $4,014,000, respectively.
/(2)/ Includes restructuring and related inventory provisions of $15,037,000.
Before considering the effects of these charges, the operating loss for
the three-month period ended March 31, 1998 would have been $216,000,
compared with $2,290,000 in comparable prior year period, an
improvement of $2,074,000. Computed on the same basis, the operating
income for the nine-month period ended March 31, 1998 was $18,145,000
compared with $10,316,000 for the first three quarters of fiscal year
1997, an increase of $7,829,000.
Management believes that the most appropriate way to compare both country and
consolidated operating results with the same period in the prior year is to
exclude the effects of the United Kingdom restructuring charge, including the
related inventory write down. On this basis, all three countries have shown
operating improvement both for the three and nine-month periods ended March 31,
1998. This improvement in operating results was due to a combination of higher
sales and control of operating expenses. In the United Kingdom, part of the
operating margin improvement resulted from lower depreciation expense arising
from the effects of an impairment charge recorded pursuant to Financial
Accounting Standard No. 121 ("FAS 121") during the fourth quarter of fiscal year
1997.
The Canadian and Australian dollars were weaker against the U.S. dollar during
both the third quarter and the first nine months of fiscal year 1998 than in the
same periods a year ago. Consequently, the local currency operating incomes in
those countries translate into fewer U.S. dollars. At the same time, the United
Kingdom pound sterling was stronger against the U.S. dollar, resulting in the
operating loss in local currency in that country translating into more U.S.
dollars. Had last year's operating results been translated into U.S. dollars at
this year's exchange rates, the consolidated improvement in operating results
for the three and nine-month periods ended March 31, 1997 would have been
increased by an additional $287,000 and $1,488,000, respectively.
NET SALES
Net sales for the quarter ended March 31, 1998 were $117,117,000, an increase of
6.9% over the sales for the same quarter in the prior year of $109,555,000. When
the impact of fluctuations in the value of the U.S. dollar in relation to the
currencies of the countries in which the Company operates is removed, the sales
gain over the same quarter last year increases to 12.5%. Comparative store
sales, measured at the same exchange rates, increased by 13.6% from the same
quarter in the prior year. Year to date, sales have increased by 4.5% and 8.2%
in U.S. dollars and local currency, respectively. Comparative store sales for
the nine months ended March 31, 1998 have increased 6.9% over the same period a
year ago.
Management does not believe that inflation or price changes have had a material
effect on sales during the first nine months of fiscal year 1998, nor are such
factors expected to materially effect future sales results.
10
<PAGE>
The table which follows shows, by country, the percentage changes in net sales
for the quarter and nine months ended March 31, 1998 compared to the
corresponding periods in the prior year. Changes are presented in both U.S.
dollars and local currencies to illustrate the effects of exchange rate
fluctuations. The change in comparative store sales, measured at the same
exchange rates, is also shown:
<TABLE>
<CAPTION>
NET SALES
---------
PERCENTAGE INCREASE (DECREASE)
-----------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1998
----------------------------------------- -------------------------------------------
LOCAL COMPARATIVE LOCAL COMPARATIVE
CURRENCY US$ STORE CURRENCY US$ STORE
----------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Canada 14.6% 9.0% 12.1% 11.5% 7.5% 8.0%
Australia 16.8% 0.0% 13.4% 9.1% (3.9%) 6.0%
United Kingdom 7.4% 8.2% 15.9% 3.1% 4.9% 5.9%
----------------------------------------- -------------------------------------------
Consolidated 12.5% 6.9% 13.6% 8.2% 4.5% 6.9%
</TABLE>
Increased sales of cellular products continues to be a major factor contributing
to the Canadian subsidiary's improved third quarter sales results, as sales of
these products more than doubled over the same quarter a year ago. The 55
company-operated Cantel stores are an integral part of the Company's cellular
strategy. Sales of outdoor antennas, direct to home satellite dishes, telephones
and batteries also contributed to the sales gain in Canada. In Australia, sales
of telephones and related products, including fax and answering machines, made a
significant contribution to an overall comparative store sales gain of 13.4% for
the three-month period ended March 31, 1998. Growth in the computer category,
especially computer accessories, as well as higher sales of personal electronics
and batteries added to the overall sales improvement. In the United Kingdom, the
momentum in the cellular category, began in the Christmas quarter, continued
into the third quarter of fiscal year 1998. This improved sales performance is
driven primarily by sales of the popular pre-paid air-time models and is the
principal factor contributing to an overall comparative store sales increase of
15.9% over the third quarter of fiscal year 1997.
The stores to be closed under the United Kingdom restructuring plan accounted
for approximately 3.2% and 4.6% of consolidated sales during the three and
nine-month periods ended March 31, 1998, respectively. While management
anticipates that a portion of the sales from these stores will be replaced by
increased sales at continuing units, there can be no assurance that this will
occur, nor is it practical to estimate the impact that the closure of these
stores will have on future sales.
GROSS MARGIN AND COST OF PRODUCTS SOLD
In managing sales growth opportunities, management has reacted to consumer
demand and has taken advantage of opportunities for sales growth in a few key
categories. However, with the exception of batteries and accessories, the
categories which have presented sales growth opportunities have tended to carry
lower than average margins. This is particularly true in the case of cellular
products. Consequently, the gross margin percentage for the quarter fell by 4.8
percentage points to 41.5%.
11
<PAGE>
While all three countries showed margin declines, excluding the effects of the
restructuring-related charge in the United Kingdom, the largest reduction
occurred in Canada, where new competition has driven cellular margins, in
particular in the Cantel stores, lower. Management is focusing on opportunities
to improve margins in this important category. A planned increase in the mix of
accessories as well as increasingly important residuals will also help mitigate
the downward pressure on margins resulting from higher cellular sales. As
indicated earlier, cost of products sold during the quarter included a charge of
$2,325,000 associated with inventory in the stores to be closed in the United
Kingdom. The effect of this charge accounted for 2 percentage points of the
margin percentage decline for the quarter. The restructuring program in the
United Kingdom is not expected to have a material effect on gross margins in
future periods.
The following is a summary of gross margin results for the quarter ended March
31, 1998, excluding the effects of the restructuring-related inventory charge:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
1998 1997
---- ----
<S> <C> <C>
Canada 44.6% 48.6%
Australia 47.5% 48.3%
United Kingdom 39.4(1) 41.7%
Consolidated 43.5%(1) 46.3%
</TABLE>
/(1)/ Including the effects of the restructuring-related inventory
charge, the gross margins in the United Kingdom and the Company as
a whole were 33.3% and 41.5%, respectively.
The effect of a lower gross margin percentage and the restructuring-related
inventory charge combined with the effect of overall weaker currencies, was
offset by the positive impact of increased sales. Overall, gross margin dollars
for the quarter declined by $2,146,000:
Decrease in margin percentage $(3,143,000)
Increase in sales 6,027,000
Restructuring-related charge (2,325,000)
Foreign exchange rate effects (2,705,000)
-----------
$(2,146,000)
===========
Year to date, the gross margin percentage is 1.6 percentage points below the
prior year (1.1 basis points, excluding the effects of the restructuring-related
inventory write down.) Excluding the effects of this restructuring-related
charge, the year on year margin decline results primarily from the increase in
cellular sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses for the quarter in U.S.
dollars decreased to $49,425,000 from $50,766,000 a year ago, a reduction of
$1,341,000. Year to date, SG&A expenses have decreased from $166,508,000 for the
nine months ended March 31, 1997 to $163,486,000, a decrease of $3,022,000 or
1.8%. These reductions are more than attributable to foreign currency rate
effects. When the effects of generally weaker currencies are eliminated, an
increase in SG&A spending, measured at the same exchange rates, of less than 2%
results for both periods. The increase in SG&A expense for the quarter, in local
currency, is primarily attributable to increased
12
<PAGE>
payroll costs reflecting higher sales, in particular in Canada and Australia. In
the United Kingdom, the store closure program contributed to an overall
reduction in SG&A expense in local currency for the quarter. This program should
result in further SG&A expense reductions, at least through the first two
quarters of fiscal year 1999, as the costs of operating the closed stores are
removed from the business. This control in the rate of increase in SG&A spending
is reflective of ongoing steps taken by management to monitor and control these
costs. Consequently, the SG&A percentage for the quarter declined by 4.1
percentage points from the prior year level to 42.2% of sales, with all three
countries showing improvement.
SG&A expense includes a royalty payable to Tandy under a license agreement for
the right to use, in designated countries, the "Tandy", "Tandy Electronics" and
"RadioShack" trade names. For fiscal year 1998, this royalty was set at an
amount not to exceed 0.75% of consolidated sales. For the three and nine-month
periods ended March 31, 1998, the amounts paid under this agreement were
$853,000 and $3,113,000, respectively. For fiscal year 1999, the royalty rate
under this agreement will increase to an amount not to exceed 1.0% of
consolidated sales. No further rate increases are contemplated under the
agreement. Had the fiscal 1999 rate structure been in place during the current
fiscal year, SG&A expenses for the three and nine-month periods ended March 31,
1998 would have increased by $284,000 and $1,038,000, respectively.
The following table provides a breakdown of SG&A expenses by major category
(percentages shown are as a rate to sales):
<TABLE>
<CAPTION>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
(In thousands, except percents)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
1998 1997 1998 1997
----------------------------------------- -------------------------------------------
AMOUNT PCT. AMOUNT PCT. AMOUNT PCT. AMOUNT PCT.
----------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advertising $ 4,923 4.2 $ 5,384 4.9 $ 19,917 4.6 $ 22,240 5.4
Rent 10,307 8.8 10,831 9.9 32,190 7.5 32,634 7.9
Payroll 20,688 17.7 20,459 18.7 67,751 15.7 67,418 16.3
Taxes
(other than
income taxes) 4,221 3.6 4,336 4.0 13,773 3.2 13,714 3.3
Telephone and
utilities 1,747 1.5 1,917 1.7 5,309 1.2 5,637 1.4
Other 7,539 6.4 7,839 7.1 24,546 5.7 24,865 6.0
----------------------------------------- -------------------------------------------
Total $ 49,425 42.2 $50,766 46.3 $ 163,486 37.9 $ 166,508 40.3
========================================= ===========================================
</TABLE>
NET INTEREST EXPENSE
Net interest expense was $923,000 for the three months ended March 31, 1998
compared with $1,503,000 for the same quarter last year. Net interest expense
for the nine months ended March 31, 1998, of $4,459,000 was $549,000 lower than
in the same period last fiscal year. These decreases reflect the effects of a
reduction in a long-term loan (the "Series A Note") owing under a loan
13
<PAGE>
agreement with Tandy (the "Secured Loan Agreement"). On December 30, 1997, the
Series A Note was repaid in full. The Series A Note, together with the Company's
then existing revolving credit arrangements, were replaced by a three-year
revolving facility with a new syndicate of three lenders. Management believes
that replacing the Company's fixed term financing with a revolving credit
facility better reflects the seasonal borrowing needs of its retail business.
Additionally, the amortization of costs associated with the Company's new credit
facility will be lower than under prior credit arrangements. Consequently,
management anticipates that net interest expense will be lower in future periods
than has been the Company's recent experience.
PROVISION FOR INCOME TAXES
A net income tax provision of $1,438,000 was recorded during the quarter
compared with a provision of $1,216,000 a year ago. For the nine months ended
March 31, 1998, income tax expense of $8,563,000 was recorded compared to
$6,373,000 in the first nine months of the prior year. These increases primarily
reflect higher profits in Canada and Australia, offset partially by the
recognition of tax benefits associated with the loss carry forwards and other
deferred tax assets in Australia. No income tax benefit has been recognized for
the tax losses being generated in the United Kingdom.
NET INCOME PER AVERAGE COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 128, "Earnings per Share" ("FAS 128"), which is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. Effective December 31, 1997, the Company
adopted FAS 128, which established new standards for computing and presenting
earnings per share ("EPS"). The statement requires dual presentation of basic
and diluted EPS on the face of the income statement for entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes the effect of potentially dilutive
securities while diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised, converted,
or resulted in the issuance of common stock that would then share in the
earnings of the entity.
Basic and diluted net loss per average common share were $1.46 for the
three-month period ended March 31, 1998, as compared to $0.45 for the same
quarter in the prior year. For the nine-month period ended March 31, 1998, basic
and diluted net loss per average common share were $0.77, compared to $0.02 for
the same period a year ago. All of the Company's potentially dilutive
instruments were anti-dilutive during both the three and nine-month periods
ended March 31, 1998. Such instruments include Cdn $56,812,000 ($40,024,000 at
March 31, 1998 exchange rates) of 9% subordinated convertible debentures (the
"Debentures"). The Debentures are convertible at any time at a conversion rate
of 118.7310 common shares for each Cdn $1,000 face amount of Debentures,
equivalent to a conversion price of approximately Cdn $8.42 or $5.93 per share
at the March 31, 1998 exchange rate. In addition, if the Company were to redeem
the Debentures after February 28, 2000 by issuing common shares to the holders
thereof in accordance with the terms of the Debentures, the dilutive effect of
the Debentures would be increased if the market value of the Company's common
stock at the time of redemption were less than the conversion price ($5.93 at
March 31, 1998 exchange rates). In addition, at March 31, 1998 and 1997, the
Company's directors and employees held options to purchase 1,015,500 and 795,333
common shares, respectively, at
14
<PAGE>
exercise prices ranging from $3.50 to $8.1875 and $5.31 to $8.1875,
respectively. The Debentures and the employee and director options, when
dilutive, are considered in determining diluted net income per average common
shares. Previously, the Company also had outstanding warrants exercisable for
1,449,007 common shares at an exercise price of $6.618 per share. These warrants
were surrendered for cancellation in December, 1997. See "Liquidity and Capital
Resources."
FINANCIAL CONDITION
-------------------
Most balance sheet accounts are translated from their values in local currency
to U.S. dollars at the respective month end rates. The table below outlines the
percentage change, to March 31, 1998, in exchange rates as measured against the
U.S. dollar:
<TABLE>
<CAPTION>
FOREIGN EXCHANGE RATE FLUCTUATIONS
----------------------------------
% INCREASE % INCREASE
(DECREASE) (DECREASE)
FROM MARCH 31, 1997 FROM JUNE 30, 1997
------------------- ------------------
<S> <C> <C>
Canada (2.5) (2.7)
Australia (15.8) (12.2)
United Kingdom 1.9 0.4
</TABLE>
INVENTORIES
Inventories at March 31, 1998 were $159,820,000 compared to $170,594,000 and
$171,757,000 at June 30, 1997 and March 31, 1997, respectively, with foreign
currency rate effects accounting for approximately 50% of each reduction. In
local currency, inventories have increased in Australia in response to higher
sales. In addition, in Australia certain products previously shipped directly by
vendors to stores are now stocked in limited quantities in the warehouse.
Inventories in local currency have declined in both Canada and the United
Kingdom.
PROPERTY AND EQUIPMENT
Property and equipment, less accumulated depreciation and amortization, totaled
$26,524,000 at March 31, 1998, compared with $38,904,000 at March 31, 1997, a
reduction of $12,380,000. This decrease relates primarily to an impairment
charge of $10,042,000 recorded pursuant to FAS 121 in the fourth quarter of
fiscal 1997. This charge reduced the carrying value of the Company's investment
in store assets in the United Kingdom to their estimated fair value. The balance
of the reduction relates to foreign currency effects and depreciation expense,
partially offset by planned additions. Foreign currency effects and depreciation
expense, partially offset by planned additions, primarily on store refits and
improvements, also explain the reduction in property and equipment from the June
30, 1997 level of $28,812,000.
ACCRUED EXPENSES
Accrued expenses have increased from $27,031,000 and $31,518,000 at June 30,
1997 and March 31, 1997, respectively, to $39,945,000 at March 31, 1998. These
increases primarily relate to the reserve for restructuring in the United
Kingdom, partially offset by foreign currency rate effects.
15
<PAGE>
INCOME TAXES PAYABLE
Income taxes payable were $19,650,000 at March 31, 1998, up from $12,734,000 at
June 30, 1997. This increase is reflective of the fact that available tax loss
carryforwards have now been fully utilized in both Canada and Australia and the
Company is in a tax paying position in both of those countries for fiscal 1998.
Income taxes payable at March 31, 1997 were $12,290,000.
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, was 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 carry-back 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 $11,600,000. The
Company believes it has meritorious arguments in defense of the issues raised by
Revenue Canada and it is in the process of vigorously defending its position. It
is management's determination that no additional provision need be recorded for
these reassessments. In order for the Company to succeed in appealing certain
aspects of these reassessments, it must succeed in defending the possible
reassessments discussed in the paragraph immediately below.
The Company was advised in August 1995 that Revenue Canada intended to extend
the scope of its 1987 to 1989 reassessments to raise certain issues flowing from
the spin-off of the Company from Tandy in fiscal year 1987. Management disagrees
with Revenue Canada's views on these 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.
Depending on the ultimate resolution of these issues, the Company could
potentially have an additional liability in the range of $0 to $20,000,000. As
required by Canadian law, the Company would likely be required to post a deposit
of one-half of the tax in dispute, including interest, in order to appeal any
reassessment.
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. The
Company has been advised that Revenue Canada is challenging certain interest
deductions relating to the Canadian subsidiary's former operations in
continental Europe and is proposing to tax certain foreign exchange gains
related to such operations. Depending on the ultimate resolution of these
issues, the Company could potentially have an additional liability in the range
of $0 to $25,000,000. Assuming Revenue Canada pursues these issues, in order for
the Company to proceed with such appeals, the Company would likely be required
to post a cash deposit or letters of credit equal to one-half of the 1990-1993
tax in dispute, together with interest. Notwithstanding that the Company is
still in discussions with Revenue Canada regarding these issues, Revenue Canada
and certain provincial jurisdictions were required to issue protective
reassessments for one of the years because the time period during which such
reassessments could legally be issued was about to expire. The amount of these
federal and provincial reassessments, including interest, is approximately
$13,100,000 and $2,225,000, respectively. These amounts relate to the 1992
taxation year only and are reflected in the range described immediately above.
The Company has appealed these reassessments and, as indicated above, would
normally be required to post a cash deposit equal to one-half of the
16
<PAGE>
reassessments, pending the outcome of such appeal. However, Revenue Canada has
agreed to defer the posting of such deposit pending the outcome of ongoing
discussions on this particular issue. Revenue Canada has further agreed to
accept a letter of credit in lieu of a cash deposit should it be necessary for
the Company to actively proceed with its appeal. The Company has requested a
similar deferral from the relevant provincial authorities and reasonably expects
that such deferral will be approved. Management believes it has meritorious
arguments in support of the deductibility of such interest and in support of its
treatment of the foreign exchange gains and is prepared to vigorously defend its
position should the Canadian tax authorities proceed with such a challenge
following the conclusion of discussions with the Company and its advisors.
Accordingly, it is management's position that no provision need be recorded for
these possible claims.
It is not practical for management to make any reasonable determination of when
any of the above issues will be resolved.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Operating activities generated $19,950,000 in cash during the nine-month period
ended March 31, 1998 compared to $7,572,000 in the same period of the prior
year, an increase of $12,378,000. While the net loss for the period was
$9,071,000 greater than a year ago, the potential impact of this increased loss
was partially offset by an increase in the level of accrued expenses, resulting
primarily from the deferral of expenditures relating to the restructuring plan
in the United Kingdom. The deferral of income tax installments as well as a
reduction in the level of inventories also contributed to the overall
improvement in the operating cash position.
Cash flow from investing activities consumed $2,534,000 in cash during the
nine-month period ended March 31, 1998, compared to $5,316,000 a year ago. This
change results from a planned reduction in capital spending as well as the
liquidation of certain assets.
Financing activities resulted in cash outflows of $25,417,000 during the
nine-month period ended March 31, 1998, while generating $3,099,000 in the
comparable period in the prior year. This change results primarily from
repayment of the Series A Note payable to Tandy as well as a decrease in the
level of short-term borrowings used to finance operations in the United Kingdom.
The Company's principal sources of liquidity during fiscal year 1998 are its
cash and short-term investments, its cash flow from operations and its banking
facilities.
In 1994, InterTAN Canada Ltd., InterTAN, Inc., and InterTAN U.K. Limited entered
into a one-year credit agreement with a syndicate of banks. In December, 1997
this credit agreement was replaced with a three-year revolving facility with a
syndicate of three new lenders (the "Syndicated Loan Agreement") in an amount
not to exceed $75,000,000 in the aggregate. 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 and
InterTAN U.K. Limited (the "Borrowers"). The amount of available credit is then
reduced by the amount of trade accounts payable of the Borrowers then
outstanding as well as certain other reserves. The interest rate under the
credit facility is the Canadian prime rate plus 1.0% on loans to InterTAN Canada
Ltd. and the London Inter Bank Offered Rate plus 2.5% for loans to InterTAN U.K.
Limited. Letters of credit are charged at the rate of 1.5% per annum. In
addition, a standby fee is payable on the unused
17
<PAGE>
portion of the credit facility. The amount of this fee is subject to certain
thresholds and ranges from 0.375% to 0.50% of the unused credit line. The
Syndicated Loan Agreement is secured by a first priority lien over all of the
assets of the Borrowers and is guaranteed by InterTAN, Inc. This facility will
be used primarily to provide letters of credit in support of purchase orders, to
finance inventory purchases and for general corporate purposes. At March 31,
1998, the maximum borrowing base under the Syndicated Loan Agreement was
$25,948,000 of which $3,426,000 was committed in support of letters of credit.
There were loans outstanding against the facility at March 31, 1998 of
$7,521,000. Approximately $15,000,000 was available for borrowing at March 31,
1998. In September, 1997, the Company's Merchandise Agreement with Tandy was
amended to permit the Company to support purchase orders with a surety bond or
bonds as well as letters of credit. The Company has entered into an agreement
with a major insurer to provide such a surety bond (the "Bond") in an amount not
to exceed $15,000,000. Use of the Bond will give the Company greater flexibility
in placing orders with Far Eastern suppliers by releasing a portion of the
credit available under the Syndicated Loan Agreement for other purposes.
In fiscal year 1997, the Company's Australian subsidiaries, InterTAN Australia
Ltd. and Technotron Sales Corp. Pty. Ltd., entered into a credit agreement with
an Australian bank (the "Australian Facility"). This agreement established a
credit facility in the amount of A$12,000,000 ($7,950,000 at March 31, 1998
exchange rates). The Australian Facility has no fixed term and may be terminated
at any time upon five days prior written notice by the lender. All or any part
of the facility may be used to provide letters of credit in support of purchase
orders. A maximum amount of A$5,000,000 ($3,300,000 at March 31, 1998 exchange
rates) may be used in support of short-term borrowings. At March 31, 1998, there
were no borrowings outstanding against the Australian Facility; A$3,775,000
($2,500,000 at March 31, 1998 exchange rates) was committed in support of
letters of credit.
In addition to the credit facilities described above, the Company's principal
sources of outside financing have been from the Series A Note payable to Tandy
and from the Debentures. In order to obtain a release of its security interests
so that security could be given under the Syndicated Loan Agreement, the Series
A Note was repaid in full in December, 1997. In consideration of the early
repayment of this loan, warrants to purchase 1,449,007 shares of the common
stock of the Company held by Tandy were surrendered for cancellation.
The Company's primary uses of liquidity during the remainder of fiscal year 1998
will include the funding of capital expenditures and the servicing of debt. The
Company anticipates that capital additions will approximate $3,000,000 during
the remainder of fiscal year 1998, mainly related to new store openings,
remodeling and upgrading. Management estimates that the effects of the recently
announced restructuring program in the United Kingdom will be cash neutral
during the remainder of fiscal year 1998 and cash positive thereafter, as cash
inflows from inventory reductions and improved operating results are expected to
exceed remaining store closure costs. The Company's debt servicing requirements
in the balance of fiscal year 1998 are not expected to be material. As
previously described, the Company believes that it may be required to post
additional tax deposits or letters of credit with Revenue Canada in order to
appeal existing, and, possibly, additional reassessments of tax. See "Income
Taxes Payable."
18
<PAGE>
Management believes that the Company's cash and short-term investments on hand
and its cash flow from operations combined with the Syndicated Loan Agreement,
the Australian Facility and the Bond will provide the Company with sufficient
liquidity to meet its planned requirements through the 1998 Christmas selling
season, provided the amount of any additional tax deposits is not at the upper
end of the ranges described above under "Income Taxes Payable." If this were the
case, the Company would be required to seek additional sources of liquidity.
There can be no assurance that additional funding would be available, if
required, on terms acceptable to the Company.
YEAR 2000
---------
Management recognizes that many of the Company's information systems and related
hardware were designed and developed without considering the impact of the
upcoming change in the century ("Year 2000") and that a significant number of
InterTAN's computer applications, systems and hardware will require modification
or replacement to make them compliant with the Year 2000.
The Company is using a combination of internal and external resources to assess
and make the needed changes to its many different systems and equipment,
including mainframe applications, communications systems and store operating
equipment. These systems include both those developed internally by the Company
and those purchased from third parties. Many systems have already been modified
or replaced; the remaining software and hardware modifications and replacements
are scheduled to take place during the latter half of calendar year 1998 and in
early 1999. As required by generally accepted accounting principles, these costs
are expensed as incurred. Management anticipates that the expenditures
associated with Year 2000 modifications, excluding those expenditures which
would have been incurred to modify or replace systems and equipment in any
event, will be less than $500,000.
The Company has, and will continue to communicate with its suppliers, and other
organizations with which it does business to coordinate Year 2000 compliance
issues. Management is closely monitoring the Company's advancement towards Year
2000 conversion and progress reports are presented regularly to the Company's
Board of Directors.
Although there can be no assurance that the Company will be able to complete all
of the modifications in the required time frame, or that the Company will be
able to identify all Year 2000 issues before problems manifest themselves, in
management's opinion, the Company is taking adequate action to address Year 2000
issues and does not expect the financial impact of being Year 2000 compliant to
be material to the Company's consolidated financial position, results of
operations or cash flows.
CONTINGENCIES
-------------
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. The shutdown process is now substantially complete.
Management believes that the remaining provision is adequate to provide for the
Company's remaining obligations in Europe, including claims brought against the
Company by certain trade creditors, former employees, dealers and franchisees.
19
<PAGE>
Apart from this matter 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.
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, 1997, and, in the opinion of the
Company, include all adjustments necessary for fair presentation of the
Company's financial position as of March 31, 1998 and 1997 and the results of
its operations for the three and nine months ended March 31, 1998 and 1997 and
its cash flows for the nine months ended March 31, 1998 and 1997. Such
adjustments are of a normal and recurring nature. Operating results for the
three and nine months ended March 31, 1998 are not necessarily indicative of the
results that can be expected for the fiscal year ended June 30, 1998. 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, 1997.
20
<PAGE>
ITEM 1 LEGAL PROCEEDINGS
The various matters discussed under the heading
"Contingencies" on page 19 of this Form 10-Q 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 Company's stockholders
during the three-month period ended March 31, 1998.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits Required by Item 601 of Regulation S-K:
Exhibit No. Description
3(a) Restated Certificate of Incorporation (Filed as
Exhibit 3(a) to InterTAN's Registration
Statement on Form 10 and incorporated herein by
reference).
3(a)(i) Certificate of Amendment of Restated
Certificate of Incorporation (Filed as Exhibit
3(a)(i) to InterTAN's Annual Report on Form
10-K for fiscal year ended June 30, 1995 and
incorporated herein by reference).
3(a)(ii) Certificate of Designation, Preferences and
Rights of Series A Junior Participating
Preferred Stock (Filed as Exhibit 3(a)(i) to
InterTAN's Registration Statement on Form 10
and incorporated herein by reference).
3(b) Bylaws (Filed on Exhibit 3(b) to InterTAN's
Registration Statement on Form 10 and
incorporated herein by reference).
3(b)(i) Amendments to Bylaws through August 3, 1990
(Filed as Exhibit 3(b)(i) to InterTAN's Annual
Report on Form 10-K for fiscal year ended June
30, 1990 and incorporated herein by reference).
3(b)(ii) Amendments to Bylaws through May 15, 1995
(Filed as Exhibit 3(b)(ii) to InterTAN's Annual
Report on Form 10-K for fiscal year ended June
30, 1995 and incorporated herein by reference).
21
<PAGE>
Exhibit No. Description
3(b)(iii) Amended and Restated Bylaws (filed as Exhibit
3(b)(iii) to InterTAN's Annual Report on Form
10-K for fiscal year ended June 30, 1996 and
incorporated herein by reference).
4(a) Articles Fifth and Tenth of the Restated
Certificate of Incorporation (included in
Exhibit 3(a)).
4(b) Amended and Restated Rights Agreement between
InterTAN Inc. and The First National Bank of
Boston (Filed as Exhibit 4(b) to InterTAN's
report on Form 8-K dated September 25, 1989 and
incorporated herein by reference).
4(c) 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) Form of Rectification and Amendment No. 1 to
Loan Agreement dated to be effective as of
February 24, 1998 among InterTAN, Inc.,
InterTAN Canada Ltd., InterTAN U.K. Limited,
Bank of America Canada, Bank of America N.T. &
S.A. (London England Branch Office) and certain
other Lenders as identified therein.
*27 Article 5, Financial Data Schedule.
- ---------------------------
* Filed herewith
b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
March 31, 1998.
22
<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 14, 1998 By: /s/James T. Nichols
---------------------------------------
James T. Nichols
Chief Executive Officer
(Authorized Officer)
By: /s/Douglas C. Saunders
---------------------------------------
Douglas C. Saunders
Vice President and Corporate Controller
(Principal Accounting Officer)
23
<PAGE>
INTERTAN, INC.
FORM 10-Q
INDEX TO EXHIBITS
Exhibit No. Description
3(a) Restated Certificate of Incorporation
(Filed as Exhibit 3(a) to InterTAN's
Registration Statement on Form 10 and
incorporated herein by reference).
3(a)(i) Certificate of Amendment of Restated
Certificate of Incorporation (Filed as
Exhibit 3(a)(i) to InterTAN's Annual
Report on Form 10-K for fiscal year ended
June 30, 1995 and incorporated herein by
reference).
3(a)(ii) Certificate of Designation, Preferences
and Rights of Series A Junior
Participating Preferred Stock (Filed as
Exhibit 3(a)(i) to InterTAN's Registration
Statement on Form 10 and incorporated
herein by reference).
3(b) Bylaws (Filed on Exhibit 3(b) to
InterTAN's Registration Statement on Form
10 and incorporated herein by reference).
3(b)(i) Amendments to Bylaws through August 3,
1990 (Filed as Exhibit 3(b)(i) to
InterTAN's Annual Report on Form 10-K for
fiscal year ended June 30, 1990 and
incorporated herein by reference).
3(b)(ii) Amendments to Bylaws through May 15, 1995
(Filed as Exhibit 3(b)(ii) to InterTAN's
Annual Report on Form 10-K for fiscal year
ended June 30, 1995 and incorporated
herein by reference).
3(b)(iii) Amended and Restated Bylaws (filed as
Exhibit 3(b)(iii) to InterTAN's Annual
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)).
24
<PAGE>
Exhibit No. Description
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) Form of Rectification and Amendment No. 1
to Loan Agreement dated to be effective as
of February 24, 1998 among InterTAN, Inc.,
InterTAN Canada Ltd., InterTAN U.K.
Limited, Bank of America Canada, Bank of
America N.T. & S.A. (London England Branch
Office) and certain other Lenders as
identified therein.
*27 Article 5, Financial Data Schedule.
- --------------------
* Filed herewith
25
<PAGE>
EXHIBIT 10(a)
-------------
February 24, 1998
InterTAN Canada Ltd.
InterTAN U.K. Limited
InterTAN, Inc.
c/o 201 Main Street, Suite 1805
Fort Worth, Texas
U.S.A. 76102
Attention: Mr. David Goldberg
and to: The Security Trustee and Lenders
Dear Sirs/Mesdames:
RE: RECTIFICATION AND AMENDMENT NO. 1
-------------------------------------
Reference is hereby made to the Loan Agreement (the "Loan Agreement"),
dated as of December 22, 1997, among, inter alia, InterTAN Canada Ltd., as
Canadian Borrower, InterTAN U.K. Limited, as U.K. Borrower, InterTAN, Inc., as
the Parent, Bank of America Canada, as Agent and as a Canadian Lender, and the
other Lenders party thereto. Capitalized terms used herein and not otherwise
defined shall have the meanings specified in the Loan Agreement.
The Agent has been advised that, through inadvertence, Congress Financial
Corporation's U.K. affiliate was incorrectly stated to be "Burdale Acceptances
Limited", when in fact that entity had changed its name and should have appeared
in all Loan Documents as "Burdale Financial Limited". Certain additional
matters requiring rectification and/or amendment have been brought to the
Agent's attention, as hereinbelow described. The Agent is hereby requesting all
parties agreement, by signing back a copy of this agreement, to hereby rectify
and amend the Loan Documents, with effect from the respective dates of each of
the Loan Documents, as follows:
(a) each reference to "Burdale Acceptances Limited" in the Loan Documents,
including for greater certainty, the Loan Agreement, the Hypothec of
Moveable Property (General) and the Security Trust Deed, is deleted
and "Burdale Financial Limited" is substituted therefor such that each
reference to "Burdale Acceptances Limited" in the Loan Documents shall
be construed as being and as always having been "Burdale Financial
Limited";
<PAGE>
(b) the definition of "U.K. Availability" in Section 1.1 of the Loan
Agreement is amended by adding the following phrase after subclause
(B) of clause (a)(ii):
"plus (C) one hundred percent (100%) of cash amounts held on deposit
at Bank of America International Limited secured in favour of the
Security Trustee;"
and by deleting reference to "(C)" in the fourth line and substituting
"(D)" therefor.
(c) the reference to "writing" in Section 2.2(c) of the Loan Agreement is
deleted and "written notice" is substituted therefor;
(d) the reference to "first day" in Section 2.3(g)(i) of the Loan
Agreement is deleted and "first Business Day" is substituted therefor;
(e) the reference to "30, 60, 90 or 180 days" in Section 2.9 of the Loan
Agreement is deleted and "1, 2, 3 or 6 months" is substituted
therefor;
(f) the reference to "mutandus" in Section 2.4(a) of the Loan Agreement is
deleted and "mutandis" is substituted therefor;
(g) the reference to "14.5" in Section 14.1 of the Loan Agreement is
deleted and "14.15" is substituted therefor;
(h) Section 3.3(a) of the Loan Agreement is amended by adding the phrase
", in U.S. Dollars;" after the word "Agent" in the 8th line thereof
and by deleting the word "day" and substituting "Business Day"
therefor;
(i) Section 3.3(b) of the Loan Agreement is amended by adding the phrase
",in BPS," after the word "Agent" in the 7th line thereof and by
deleting the word "day" and substituting "Business Day" therefor;
(j) the phrase "the second paragraph of" in the third and fourth lines of
Section 3.7 of the Loan Agreement is deleted;
(k) Section 6.10 of the Loan Agreement is deleted and the following is
substituted therefor:
"6.10 Collection of Accounts; Payments. (a) (i) Each Borrower,
jointly and severally, agrees to establish, within 60 days after the
Closing Date (or such later date as may from time to time be consented
to by the Agent, the "Deadline"), a system (the "Cash Dominion
System") of depository accounts (together with accounts opened from
time to time pursuant to clause (ii) hereof "Deposit Accounts") into
which each such Borrower shall promptly deposit or cause to be
deposited all cash proceeds, store receipts, collections of Accounts
and other moneys that it receives from whatever source but excepting
(x) advances of Loans, (y) petty cash in an amount not exceeding
$1,000 in the aggregate at any time at the RadioShack head office plus
(Pounds)1,000 in the aggregate at any time at the U.K. Borrower's head
office in the United Kingdom and (z) up to (Pounds)400 in the
2
<PAGE>
case of U.K. stores or Cdn.$400 in the case of Canadian stores in the
aggregate outstanding at any time at any store, held back from store
receipts to operate cash registers (collectively, "Cash Proceeds")
received by it or any other Person on its behalf. Each Borrower
represents that on or prior to the Closing Date it has provided to the
Agent a true and complete list of all depository accounts and all
concentration accounts maintained by it with any banks or financial
institutions as of the Closing Date into which Cash Proceeds are
deposited. Each Borrower further agrees (I) not less frequently than
daily (on each Business Day) in the case of the U.K. Borrower and
monthly until the occurrence of an Event or Event of Default and daily
(on each Business Day) following the occurrence and during the
continuance of an Event or Event of Default in the case of the
Canadian Borrower, to cause all cleared moneys in the Deposit Accounts
to be transferred to concentration accounts maintained by it (the
"Payment Accounts"), (II) to execute and deliver to the Agent with
respect to each such Payment Account maintained by it on or prior to
the Deadline, a blocked account agreement or lockbox agreement in form
satisfactory to the Agent (collectively, the "Collection Account
Agreements"), and (III) to use reasonable efforts, with the co-
operation of the Agent, to cause the banks ("Depository Banks") with
which the Payment Accounts are maintained to execute and deliver to
the Agent on or prior to the Deadline, a Collection Account Agreement.
In the event that, notwithstanding the efforts of the Borrowers
pursuant to the preceding sentence, a Depository Bank does not execute
a Collection Account Agreement with respect to the relevant Payment
Account on or prior to the Deadline, such Borrower shall cease to
deposit and/or transfer Cash Proceeds in such Payment Account unless
and until such Depository Bank executes a Collection Account
Agreement.
(ii) Each Borrower agrees that it shall not, without giving prior written
notice to the Agent, open or maintain any Deposit Account or similar
account after the Closing Date into which Cash Proceeds are deposited
except for those disclosed to the Agent as provided in clause (i)
above and provided that the Agent is and continues to be satisfied in
its discretion that all cleared funds in each such account can and
will be transferred to Payment Accounts subject to the Collection
Account Agreements on a daily (on each Business Day) basis immediately
in the case of the U.K. Borrower and following the occurrence and
during the continuance of an Event of Default in the case of the
Canadian Borrower.
(iii) Notwithstanding the establishment of the Cash Dominion System, until
the Agent or, as appropriate, Security Trustee, notifies either
Borrower to the contrary, each Borrower shall make collection of its
Accounts and other Collateral for the benefit of the Agent or, as
appropriate, Security Trustee, and whether or not an Event of Default
has occurred, any Cash Proceeds (including, without limitation, in
payment of any Account or in payment for any Inventory or otherwise)
that are not received and deposited directly into a Deposit Account,
when collected by any Borrower, shall be promptly deposited by such
Borrower in a Deposit Account, in precisely the form received, except
for its endorsement when required, and transferred to Payment Accounts
as hereinabove provided. All such accounts shall be deemed to be held
in trust by such Borrower for and as the Agent's or, as appropriate,
Security Trustee's property, and shall be held separately from such
Borrower's other funds.
(iv) Notwithstanding anything to the contrary herein, the terms of the
Collection Account Agreements shall provide (I) in the case of the
U.K. Borrower, that the Agent or Security Trustee has exclusive
control over the Payment Accounts of the U.K. Borrower and all funds
are to be wire transferred to the Agent or Security Trustee daily (on
each Business
3
<PAGE>
Day) and (II) in the case of the Canadian Borrower, (A) upon the
occurrence and during the continuance of any Event or Event of
Default, the Agent has exclusive control over the Payment Accounts of
the Canadian Borrower and all cleared funds in the Payment Accounts
are to be wire transferred to the Agent daily (on each Business Day)
and, (B) until the occurrence of any Event or Event of Default, the
Borrower shall be entitled to utilize funds in the Payment Accounts
for its working capital purposes subject to the terms and conditions
of this Agreement.
(v) The Agent or the Agent's designee or, in the case of the U.K.
Borrower, the Security Trustee may, at any time after the occurrence
of any Event of Default, publish notice of the Security Interest of
the Agent or, in the case of the U.K. Borrower, the Security Trustee
and/or Lenders, signify Accounts or otherwise notify obligors that the
Accounts have been hypothecated or assigned to the Agent and/or
Lenders or, in the case of the U.K. Borrower, the Security Trustee and
of the Security Interest therein, and may collect them directly and
charge the reasonable collection costs and expenses to the applicable
Borrower's loan account as a Canadian Revolving Loan or U.K. Revolving
Loan, as the case may be. At the Agent's or, in the case of the U.K.
Borrower, the Security Trustee's request, each Borrower shall execute
and deliver to the Agent or, in the case of the U.K. Borrower, the
Security Trustee such documents as the Agent or, in the case of the
U.K. Borrower, the Security Trustee shall require to grant the Agent
or, in the case of the U.K. Borrower, the Security Trustee access to
any post office box in which collections of Accounts are received.
(b) All Payments received by the Agent or, in the case of the U.K.
Borrower, the Security Trustee on account of Accounts or as Proceeds of other
Collateral will be the Agent's or, in the case of the U.K. Borrower, the
Security Trustee's (for the Agent and the other applicable Lenders) sole
property and will be credited promptly to the applicable Borrower's loan account
(conditional upon final collection) upon receipt."
By signing back this rectification agreement, the parties further agree as
follows:
1. The requirement in the definition of "Letter of Credit" in Section 1.1
of the Loan Agreement that no letter of credit have an expiry date
later than 365 days from the Issue Date thereof is hereby waived in
connection with Letter of Credit No. 7114SB 10114498, issued on behalf
of the Canadian Borrower in favour of Societe Generale Paris, in the
face amount of FF 6,803,448, having an expiration date of January 15,
2000 (the "French L/C") and, for all purposes of the Loan Agreement,
the French L/C shall be deemed to be a "Letter of Credit".
2. All reasonable expenses of the Agent incurred in connection with this
rectification agreement and any and all matters incidental thereto
including, without limitation, fees and out-of-pocket expenses of
Agent's legal counsel are for the account of the Canadian Borrower and
shall be payable upon demand.
3. This agreement shall be deemed to have been made in the Province of
Ontario and shall be governed by and interpreted in accordance with
the laws of such Province and the laws of Canada applicable therein,
except that no doctrine of choice of law shall be used to apply the
laws of any other jurisdiction.
4
<PAGE>
4. This agreement may be executed in counterparts, each of which shall be
an original but all of which shall together constitute one and the
same agreement, binding on the parties.
5. Each of the Lenders irrevocably constitutes and appoints each vice
president of the Agent and each partner of Meighen Demers, of Barlow
Lyde & Gilbert and of Mendelsohn, Rosentzveig & Shacter its true and
lawful attorney, with full power of substitution, to sign, execute,
deliver, register, do and perform all acts, things, filings and
registrations considered by him or her necessary or appropriate to
give effect to the rectification herein described and/or to continue,
preserve, register or perfect the Liens in favour of the Agent,
Security Trustee and/or Lenders created or intended to be created by
the Loan Documents, including by signing financing change statements,
filing documents under the RDPRM of Quebec and filing documents with
the Companies Branch in England.
6. Except to the extent rectified hereby, the Loan Agreement and each of
the other Loan Documents remains in full force and effect and is
hereby ratified and confirmed.
Please evidence your agreement with the terms of this agreement by signing
in the space below. This agreement shall become effective in accordance with
its terms upon its execution by the Lenders, the Borrowers and the Parent.
Sincerely,
BANK OF AMERICA CANADA, AS AGENT AND AS A LENDER
By:
-------------------------------
Name: Robert Kizell
Title: Vice-President
5
<PAGE>
AGREED AS OF THE DATE FIRST-ABOVE PROVIDED:
INTERTAN CANADA LTD. BANKBOSTON RETAIL FINANCE INC.
By: By:
------------------------------ ------------------------------
Name: Name:
Title: Title:
INTERTAN U.K. LIMITED CONGRESS FINANCIAL CORPORATION
By: By:
------------------------------ ------------------------------
Name: Name:
Title: Title:
INTERTAN, INC. BANKBOSTON, N.A.
By: By:
------------------------------ ------------------------------
Name: Name:
Title: Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
(LONDON, ENGLAND BRANCH), AS
SECURITY TRUSTEE AND A U.K. LENDER
By:
Name:
Title:
AGREED AT THIS DAY OF
------------------------ -----------
, 1998.
- ---------------------------
BURDALE FINANCIAL LIMITED
By:
------------------------------
Name:
Title:
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 25,990
<SECURITIES> 0
<RECEIVABLES> 10,606
<ALLOWANCES> 0
<INVENTORY> 159,820
<CURRENT-ASSETS> 203,693
<PP&E> 26,524
<DEPRECIATION> 0
<TOTAL-ASSETS> 231,295
<CURRENT-LIABILITIES> 93,564
<BONDS> 40,024
0
0
<COMMON> 12,296
<OTHER-SE> 79,261
<TOTAL-LIABILITY-AND-EQUITY> 231,295
<SALES> 431,385
<TOTAL-REVENUES> 431,802
<CGS> 246,915
<TOTAL-COSTS> 246,915
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,459
<INCOME-PRETAX> (771)
<INCOME-TAX> 8,563
<INCOME-CONTINUING> (9,334)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,334)
<EPS-PRIMARY> (0.77)
<EPS-DILUTED> (0.77)
</TABLE>
