<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 September 30, 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
of 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 October 31, 1998, 12,726,819 shares of the registrant's common stock, par
value $1.00 per share, were outstanding.
1
<PAGE>
TABLE OF CONTENTS
PART I
Page
Introductory Note Regarding Forward-Looking Information 3
ITEM 1 - Financial Statements and Supplementary Data
Consolidated Statements of Operations 4
Consolidated Balance Sheets 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II
ITEM 1 - Legal Proceedings 24
ITEM 4 - Submission of Matters to a Vote of Security Holders 24
ITEM 6 - Exhibits and Reports on Form 8-K 25
OTHER
Signatures 26
2
<PAGE>
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, certain aspects of Year 2000 compliance 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.
3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
INTERTAN, INC.
- --------------------------------------------------------------------------------
(U.S. dollars in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
---------------------------------------------------
1998 1997
--------------------- --------------------
<S> <C> <C>
Net sales and operating revenues................... $121,844 $121,709
Other income....................................... 79 92
---------------------------------------------------
121,923 121,801
---------------------------------------------------
Operating costs and expenses:
Cost of products sold............................. 68,876 67,819
Selling, general and administrative expenses...... 47,847 51,360
Depreciation and amortization..................... 1,790 1,919
---------------------------------------------------
118,513 121,098
---------------------------------------------------
Operating income................................... 3,410 703
Foreign currency transaction gains................ (412) (80)
Interest expense, net............................. 1,113 1,643
---------------------------------------------------
Income (loss) before income taxes.................. 2,709 (860)
Provision for income taxes......................... 3,004 2,049
---------------------------------------------------
Net loss........................................... $ (295) $ (2,909)
===================================================
Basic and diluted net loss per average common share $ (0.02) $ (0.24)
Average common shares outstanding.................. 12,524 11,924
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
CONSOLIDATED BALANCE SHEETS
INTERTAN, INC.
- --------------------------------------------------------------------------------
(In thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30 SEPTEMBER 30
1998 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments........................ $ 16,872 $ 32,811 $ 19,272
Accounts receivable, less allowance for
doubtful accounts.................................... 12,910 8,539 13,727
Inventories............................................ 165,298 148,198 180,401
Other current assets................................... 7,805 6,690 7,758
Deferred income taxes.................................. 353 369 479
-------------------------------------------------------------
Total current assets................................. 203,238 196,607 221,637
Property and equipment, less accumulated
depreciation and amortization......................... 26,135 26,228 27,850
Other assets............................................... 641 712 1,076
-------------------------------------------------------------
$ 230,014 $ 223,547 $ 250,563
=============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term bank borrowings............................. $ 16,864 $ 9,172 $ 13,759
Current maturities of notes payable to Tandy
Corporation.......................................... - - 6,958
Accounts payable....................................... 31,883 24,274 29,883
Accrued expenses....................................... 36,653 38,505 23,433
Income taxes payable................................... 16,452 20,955 14,498
-------------------------------------------------------------
Total current liabilities............................ 101,852 92,906 88,531
Long-term notes payable to Tandy Corporation,
less current maturities................................ - - 13,018
9% convertible subordinated debentures..................... 37,087 38,706 41,138
Other liabilities.......................................... 6,694 5,945 6,220
-------------------------------------------------------------
145,633 137,557 148,907
-------------------------------------------------------------
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, 12,622,642, 12,474,077 and
12,009,208 issued and outstanding.................... 12,623 12,474 12,009
Additional paid-in capital............................. 116,554 115,980 114,796
Deficit................................................ (10,545) (10,250) (386)
Foreign currency translation effects................... (34,251) (32,214) (24,763)
-------------------------------------------------------------
Total stockholders' equity........................... 84,381 85,990 101,656
-------------------------------------------------------------
Commitments and contingent liabilities.....................
$ 230,014 $ 223,547 $ 250,563
=============================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
INTERTAN, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands) THREE MONTHS ENDED
SEPTEMBER 30
----------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (295) $ (2,909)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 1,790 1,919
Deferred income taxes -- 133
Foreign currency transaction (gains) losses, unrealized (318) 26
Other 559 491
Cash provided by (used in) current assets and liabilities:
Accounts receivable (4,703) (4,175)
Inventories (20,173) (12,600)
Other current assets (1,358) (840)
Accounts payable 7,918 2,697
Accrued expenses (1,301) (3,202)
Income taxes payable (3,634) 1,759
--------- ---------
Net cash used in operating activities (21,515) (16,701)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,454) (1,389)
Proceeds from sales of property and equipment 43 26
Other investing activities 1,010 1,758
--------- ---------
Net cash provided by (used in) investing activities (1,401) 395
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in short-term bank borrowings, net 7,434 4,227
Proceeds from issuance of common stock to
employee plans 423 340
Principal repayments on long-term borrowings -- (3,479)
--------- ---------
Net cash provided by financing activities 7,857 1,088
--------- ---------
Effect of exchange rate changes on cash (880) (236)
--------- ---------
Net decrease in cash and short-term investments (15,939) (15,454)
Cash and short-term investments, beginning of period 32,811 34,726
--------- ---------
Cash and short-term investments, end of period $ 16,872 $ 19,272
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance
with Rule 10-01 of Regulation S-X, "Interim Financial Statements", and do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial statements have
been prepared in conformity with accounting principles and practices (including
consolidation practices) as reflected in InterTAN, Inc.'s ("InterTAN" or the
"Company") Annual Report on Form 10-K for the fiscal year ended June 30, 1998,
and, in the opinion of the Company, include all adjustments necessary for fair
presentation of the Company's financial position as of September 30, 1998 and
1997 and the results of its operations for the three months ended September 30,
1998 and 1997 and its cash flows for the three months ended September 30, 1998
and 1997. Such adjustments are of a normal and recurring nature. Operating
results for the three months ended September 30, 1998 are not necessarily
indicative of the results that can be expected for the fiscal year ended June
30, 1999. 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, 1998.
NOTE 2 NET INCOME PER AVERAGE COMMON SHARE
Effective December, 1997, the Company adopted Financial Accounting Standards No.
128, "Earnings Per Share" ("FAS 128"), which establishes new standards for
computing and presenting earnings per share ("EPS"). FAS 128 requires dual
presentation of basic and diluted EPS on the face of the income statement for
companies with complex capital structures. Basic EPS is calculated by dividing
the net income or loss for a period by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
which would occur if securities or other contracts to issue common stock were
exercised or converted. FAS 128 also requires that EPS for prior periods be
recomputed using the new rules.
For the three-month periods ended September 30, 1998 and 1997, basic and diluted
losses per average common share were $0.02 and $0.24, respectively, as the
effects of the Company's potentially dilutive instruments were anti-dilutive in
both periods. The Company's potentially dilutive instruments include its 9%
convertible subordinated debentures (the "Debentures"). Under their terms of
issuance, the Debentures are convertible into common stock at the rate of
118.731 shares for each Cdn$1,000 face amount of Debentures held, equivalent to
about 6,750,000 shares in the aggregate. However, 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 fair value of the Company's common
stock at the time of redemption were less than the conversion price. Based on
the fair market value of the Company's common stock on September 30, 1998 and
1997, this would have resulted in the issuance of 9,610,000 and 8,151,000
shares, respectively, on assumed conversion on those dates. FAS 128 requires
that these higher amounts be used in calculating diluted EPS. Had conversion
taken place, the net loss for the three-month periods ended September 30, 1998
and 1997 would have been reduced by $886,000 and $1,139,000, respectively, for
assumed net reduction in expenses. Also, at September 30, 1998 and 1997, the
Company's directors and employees held options to purchase 1,011,500 and 804,666
common shares, respectively, at prices ranging from $3.50 to $8.1875. The
dilutive effect of these various instruments could impact earnings per share
calculations in future periods, and exchange rate impacts on the Debentures
could increase or decrease their dilutive effects.
7
<PAGE>
NOTE 3 UNITED KINGDOM RESTRUCTURING PLAN
As part of the Company's ongoing efforts to improve the financial performance of
its United Kingdom operation, in January 1998 a plan to close 69 consistently
under-performing stores was approved. See the Company's 1998 Annual Report on
Form 10-K for a further discussion of this plan. Revenue and operating losses
associated with these stores are shown below (in thousands):
THREE MONTHS ENDED
SEPTEMBER 30
1998 1997
- ------------------------------------------------------
Revenues $ - $ 5,579
- ------------------------------------------------------
Operating loss $ - $(1,305)
- ------------------------------------------------------
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 three-month period ended September 30, 1998 (in
thousands):
<TABLE>
<CAPTION>
BALANCE FOREIGN CURRENCY BALANCE
JUNE 30, 1998 PAID RATE EFFECTS SEPTEMBER 30, 1998
------------- -------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Lease disposal costs $ 8,639 $ (1,443) $ 128 $ 7,324
Severance costs 250 (93) 3 160
Other exit costs 527 (124) 7 410
------------- -------------- ---------------- ------------------
$ 9,416 $ (1,660) $ 138 $ 7,894
============= ============== ================ ==================
</TABLE>
As of June 30, 1998, all 69 stores had closed and substantially all inventory
identified for clearance had been sold. All employees affected had either been
reassigned within the Company or terminated. A total of eight of the stores
identified for closure had leases which expired 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. To
date, the Company has disposed of approximately 60% of the 69 locations, either
by expiry of the lease or by assignment, including assignments under contract,
to a third party. Provision has been made for management's best estimate of the
costs of disposing of these leases. The overall economy and other factors
affecting the property market in the United Kingdom could cause the actual lease
disposal costs to differ from management's current estimates and result in
future adjustments.
Management originally estimated that approximately 230 jobs would be lost as a
result of this store closure program. As of September 30, 1998, approximately
194 individuals had been terminated. The difference results from unforeseen
attrition.
8
<PAGE>
Management believes that the closure of these under-performing stores will
improve operations in the United Kingdom. Management will continue to evaluate
a variety of operational and strategic initiatives in an effort to mitigate
demands placed on consolidated cash resources and improve the return on
consolidated stockholders' equity. However, there can be no assurance that such
actions will result in an operating profit in the United Kingdom.
NOTE 4 COMPREHENSIVE INCOME (LOSS)
Effective July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). Comprehensive
income is defined as the change in equity (net assets) of a business enterprise
during a period from transactions and other events and circumstances from non-
owner sources. For the Company, comprehensive income (loss) includes net income
(loss) and the net change in foreign currency translation effects. The
comprehensive loss for the three months ended September 30, 1998 and 1997 was
$2,332,000 and $5,160,000, respectively.
NOTE 5 INCOME TAXES
The provisions for domestic and foreign income taxes for the three-month periods
ended September 30, 1998 and 1997 were $3,004,000 and $2,049,000, respectively.
The Company's income tax expense primarily represents Canadian and Australian
income tax on the profits earned by its subsidiaries in those countries. No tax
is currently payable in the United Kingdom, nor has any benefit been recognized
for the accumulated losses in that country.
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,
approximately $6,600,000. 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
$11,700,000. 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
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. The Company had
previously disclosed that these issues represented a potential loss in the range
of $0 to $21,000,000. Management disagreed with Revenue Canada's views on these
issues and vigorously defended the Company's position. The Company has recently
been advised that Revenue Canada no longer intends to pursue these matters and
that no tax will be imposed on the Company.
An audit of the Canadian income tax returns of the Company's 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,
9
<PAGE>
the Company could potentially have an additional liability in the range of $0 to
$20,000,000. As a consequence of ongoing discussions with Revenue Canada, the
upper end of this range has declined from previous estimates. In order for the
Company to appeal any reassessments with respect to these matters, 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 reassessment could legally be issued was about to
expire. The amount of these reassessments, including interest, is approximately
$15,300,000. 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 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. The Company believes that reassessments of the remaining years under
review could be received during fiscal year 1999. 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 will continue to
vigorously defend its position. Accordingly, it is management's assessment that
no additional provision need be recorded for these possible claims.
It is not practical for management to make any reasonable determination of when
the remaining outstanding Canadian tax issues will ultimately be resolved.
An audit of the Company's United States income tax returns by the Internal
Revenue Service for the 1990-1993 taxation years is in process.
NOTE 6 SEGMENT REPORTING
Effective July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131"). The table below summarizes net sales and operating
revenues, operating income (loss) and identifiable assets for the Company's
segments. Consolidated operating income (loss) is reconciled to the Company's
income (loss) before income taxes (in thousands):
10
<PAGE>
NET SALES AND OPERATING REVENUES AND
OPERATING INCOME (LOSS) BY SEGMENT:
THREE MONTHS ENDED
SEPTEMBER 30
1998 1997
---------- ----------
Net sales and operating revenues
Canada $ 65,922 $ 63,153
Australia 22,497 23,332
United Kingdom 33,425 35,224
---------- ----------
$ 121,844 $ 121,709
========== ==========
Operating income (loss)
Canada $ 6,301 $ 4,955
Australia 1,004 828
United Kingdom (2,404) (3,854)
---------- ----------
4,901 1,929
General corporate expenses (1,491) (1,226)
---------- ----------
Operating income 3,410 703
Foreign currency transaction gains (412) (80)
Interest expense, net 1,113 1,643
---------- ----------
Income (loss) before income taxes $ 2,709 $ (860)
========== ==========
IDENTIFIABLE ASSETS BY SEGMENT
SEPTEMBER 30 JUNE 30 SEPTEMBER 30
1998 1998 1997
---------- ---------- ----------
Canada $ 112,043 $ 111,496 $ 122,841
Australia 44,650 45,675 44,782
United Kingdom 71,163 64,246 77,989
Corporate assets 2,158 2,130 4,951
---------- ---------- ----------
$ 230,014 $ 223,547 $ 250,563
========== ========== ==========
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
InterTAN is engaged in the sale of consumer electronics products primarily
through company-operated retail stores and dealer outlets in Canada, the 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 license from Tandy Corporation ("Tandy") of Fort
Worth, Texas. In addition, the Company has entered into an agreement in Canada
with Rogers Cantel Inc. ("Cantel") to operate telecommunications stores ("Cantel
stores") on its behalf. At September 30, 1998, 53 Cantel stores were in
operation.
Effective July 1, 1998, the Company adopted Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("FAS
131"). All references to "Canada" or "RadioShack Canada", "Australia" or "Tandy
Electronics Australia", the "United Kingdom" or "Tandy U.K." or "Corporate
Headquarters" refer to the Company's segments, unless otherwise noted. The
RadioShack Canada segment includes the results of the Cantel stores described
above. The Tandy U.K. segment, in the prior year information, includes the 69
stores closed pursuant to a restructuring plan announced in January, 1998. See
"United Kingdom Restructuring Plan" below.
UNITED KINGDOM RESTRUCTURING PLAN
As part of the Company's ongoing efforts to improve the financial performance of
its United Kingdom operation, in January 1998 a plan to close 69 consistently
under-performing stores was approved. See the Company's 1998 Annual Report on
Form 10-K for further discussion of this plan. Revenue and operating losses
associated with these stores are shown below (in thousands):
THREE MONTHS ENDED
SEPTEMBER 30
1998 1997
- ------------------------------------------------------
Revenues $ - $ 5,579
- ------------------------------------------------------
Operating loss $ - $(1,305)
- ------------------------------------------------------
12
<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 three-month period ended September 30, 1998 (in
thousands):
<TABLE>
<CAPTION>
BALANCE FOREIGN CURRENCY BALANCE
JUNE 30, 1998 PAID RATE EFFECTS SEPTEMBER 30, 1998
------------- -------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Lease disposal costs $ 8,639 $ (1,443) $ 128 $ 7,324
Severance costs 250 (93) 3 160
Other exit costs 527 (124) 7 410
------------- -------------- ---------------- ------------------
$ 9,416 $ (1,660) $ 138 $ 7,894
============= ============== ================ ==================
</TABLE>
A total of eight of the stores identified for closure had leases which expired
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. To date, the Company has disposed of approximately 60% of the 69
locations, either by expiry of the lease or by assignment, including assignments
under contract, to a third party. Provision has been made for management's best
estimate of the costs of disposing of these leases. The overall economy and
other factors affecting the property market in the United Kingdom could cause
the actual lease disposal costs to differ from management's current estimates
and result in future adjustments.
Management believes that the closure of these under-performing stores will
improve operations in the United Kingdom. Management will continue to evaluate
a variety of operational and strategic initiatives in an effort to mitigate
demands placed on consolidated cash resources and improve the return on
consolidated stockholders' equity. However, there can be no assurance that such
action will result in an operating profit in the United Kingdom.
FOREIGN EXCHANGE EFFECTS
Profit and loss accounts, including sales, are translated from local currency
values to U.S. dollars at monthly average exchange rates. During the first
quarter of fiscal year 1999, the U.S. dollar strengthened against the Canadian
and Australian dollars relative to the comparable values during the first
quarter of the prior year. As a result, the same local currency amounts
translate into fewer U.S. dollars as compared with the prior year. For example,
if local currency sales in Australia in the first quarter of fiscal year 1999
were the same as those in the first quarter of the prior year, the fiscal year
1999 income statement would reflect an 18.6% decrease in sales when reported in
U.S. dollars. On the other hand, the U.S. dollar was weaker against the pound
sterling during the three-month period ended September 30, 1998 than during the
same three-month period a year ago. Consequently, in the United Kingdom, the
same local currency amounts translated into more U.S. dollars in the first
quarter of fiscal year 1999 compared to the prior fiscal year's first quarter.
The following table outlines, for the three-month period ending September 30,
1998, the percentage change in the weighted average exchange rates of the
currencies of the countries in which the company operates as compared to the
same three-month period in the prior year:
13
<PAGE>
___________________________________
Canada (8.6)%
Australia (18.6)%
United Kingdom 1.8%
___________________________________
SALES OUTLETS
The number of company-operated stores and dealers at September 30, 1998 and
1997, as well as the number of locations opened and closed during the three-
month periods then ended, is presented in the table below:
SALES OUTLETS
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
---------------------- ----------------------
ENDING OPENED CLOSED ENDING OPENED CLOSED
CANADA
Company-operated 451* 1 6 450* - 2
Dealers 331 2 11 393 4 12
---------------------- ----------------------
782 3 17 843 4 14
====================== ======================
AUSTRALIA
Company-operated 217 - - 217 2 -
Dealers 126 1 - 140 1 5
---------------------- ----------------------
343 1 - 357 3 5
====================== ======================
UNITED KINGDOM
Company-operated 270 3 4 339 1 3
Dealers 107 3 4 128 3 5
---------------------- ----------------------
377 6 8 467 4 8
====================== ======================
TOTAL
Company-operated 938 4 10 1,006 3 5
Dealers 564 6 15 661 8 22
---------------------- ----------------------
1,502 10 25 1,667 11 27
====================== ======================
*At September 30, 1998 and 1997, the Company operated 53 and 54 stores,
respectively, on behalf of Cantel. At September 30, 1998, the Company was also
testing "store in store" formats in six locations of The Hudson's Bay Company.
Since these locations are not company-owned, they are not included in the above
table.
NET SALES
Net sales for the quarter ended September 30, 1998 were $121,844,000, an
increase of 0.1% over the net sales for the same quarter in the prior year of
$121,709,000. Foreign currency effects had a significant impact on this
comparison. When the impact of fluctuations in the value of the U.S. dollar in
relation to the currencies of the countries in which the Company operates is
removed, the sales gain over the same quarter last year increases to 8.3%.
Comparative store sales, measured at the same exchange rate, increased by 15.7%
from the same quarter in the prior year.
The table which follows shows by country the percentage changes in net sales for
the quarter ended September 30, 1998, compared to the corresponding period in
the prior year. Changes are
14
<PAGE>
presented in both U.S. dollars and local currencies to illustrate the effects of
exchange rate fluctuations. The change in comparative store sales, measured at
the same exchange rates, is also shown:
NET SALES
---------
PERCENTAGE INCREASE (DECREASE)
------------------------------
THREE MONTHS ENDED
SEPTEMBER 30, 1998
LOCAL COMPARATIVE
CURRENCY U.S.$ STORE
---------------------------------------
Canada 14.3 % 4.4 % 15.9%
Australia 18.4 % (3.6)% 18.4%
United Kingdom (6.8)% (5.1)% 13.6%
---------------------------------------
Consolidated 8.3 % 0.1 % 15.7%
=======================================
While the sales improvement in Canada during the quarter was broadly based,
cellular telephones and accessories, and computers lead the way. In cellular,
the new "pay as you go" programs have proven to be as popular as previously
experienced in the United Kingdom and have contributed to improved sales in that
category. RadioShack Canada has positioned itself in the market as a premiere
supplier of computers and sales have responded to this initiative. The
Company's "Your Telephone Store" program also continues to drive growth in the
telephone category. Other categories which showed strong sales growth included
direct-to-home satellite systems, batteries and toys.
In Australia, the sales growth came from an even broader range of products than
in Canada, with gains coming in all core categories. Like Canada, Australia has
positioned its stores as a destination of choice for telephones and accessories.
This category, together with computers and batteries, were the most significant
factors leading to Australia's strong sales performance.
The overall sales reduction in local currency in the United Kingdom reflected a
reduction in the number of stores following the restructuring plan implemented
in the third quarter of fiscal year 1998. See "United Kingdom Restructuring
Plan". However, business in the continuing stores was good, as evidenced by a
comparative store sales gain of 13.6%. The effect of the store closures will
continue to influence sales comparisons with the prior year until these stores
have been closed for a full 12 months. Cellular products, again driven by sales
of the popular prepaid airtime models and related airtime cards, produced
significant sales increases over the first quarter last year, and this category
was the major factor influencing sales performance in the United Kingdom during
the quarter.
Management does not believe that inflation or price changes have had a material
effect on sales during the three-month periods ended September 30, 1998 and
1997.
GROSS MARGIN AND COST OF PRODUCTS SOLD
The gross margin percentage for the quarter declined to 43.5% from 44.3% in the
first quarter of fiscal year 1998, a reduction of 80 basis points. Much of the
Company's sales growth during the quarter in all three geographic segments came
from aggressively pursuing growth opportunities in certain key product
categories which had high consumer demand and were consistent with the
15
<PAGE>
Company's market niche. These products included cellular products, telephones,
computers and, in Canada, direct-to-home satellite systems. While these products
presented sales growth opportunities, they tend to carry lower than average
gross margin percentages, leading to reductions in the gross margin percentage
in all three geographic segments. The following is a comparison of the gross
margin percentages for the quarter with the prior year for all three countries:
THREE MONTHS ENDED
SEPTEMBER 30
1998 1997
=================================================================
Canada 43.4% 44.3%
Australia 45.6% 47.0%
United Kingdom 42.3% 42.5%
- -----------------------------------------------------------------
Consolidated 43.5% 44.3%
=================================================================
Management continues to actively pursue a number of initiatives intended to have
a positive impact on the gross margin percentage. These include an ongoing
emphasis on the sale of electronic accessories and broadening the range in this
important category, developing strategic relationships with suppliers offering a
stream of residual income associated with the sale of a particular product or
service and aggressively pursuing opportunities to grow sales of extended
warranty programs. However, management believes that future sales growth
opportunities will continue to come primarily from categories with lower than
the Company's average margins. This trend will continue to put pressure on the
Company's margins.
The positive impact of increased sales was more than offset by the effect of
weaker currencies in Canada and Australia. Overall, gross margin dollars for
the quarter decreased by $921,000:
Increase in sales $ 4,114,000
Foreign exchange rate effects (4,194,000)
Decrease in margin percentage (841,000)
-----------
$ (921,000)
===========
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Total selling, general, and administrative expenses ("SG&A expenses") for the
three months ended September 30, 1998 were $47,847,000 compared to $51,360,000
in the first quarter of the prior year, a decrease of $3,513,000. The following
table, broken-down by segment, shows that this reduction in total SG&A expenses
was substantially attributable to foreign currency effects (in thousands):
16
<PAGE>
<TABLE>
<CAPTION>
FOREIGN INCREASE (DECREASE)
THREE MONTHS ENDED CURRENCY MEASURED AT THREE MONTHS ENDED
SEPTEMBER 30, 1997 EFFECTS SAME EXCHANGE RATES SEPTEMBER 30, 1998
------------------ -------- ------------------- ------------------
<S> <C> <C> <C> <C>
Canada $ 21,799 $ (1,877) $ 1,278 $ 21,200
Australia 9,890 (1,838) 982 9,034
United Kingdom 18,459 322 (2,628) 16,153
Corporate
Headquarters 1,212 - 248 1,460
-------- -------- -------- --------
$ 51,360 $ (3,393) $ (120) $ 47,847
======== ======== ======== ========
</TABLE>
The increases in SG&A spending, measured at constant exchange rates, in Canada
and Australia result from a number of factors related to sales growth, including
store payroll and the royalty payable to Tandy. The scheduled increase in the
rate of the royalty payable to Tandy and increases in rents, following scheduled
reviews, were also factors. The increase in SG&A expenses at Corporate
Headquarters resulted from higher compensation costs and various professional
fees. The reduction in SG&A expenses in the United Kingdom resulted primarily
from a planned reduction in advertising expense, reflecting a more focused
strategy, and the restructuring plan undertaken last year. See "United Kingdom
Restructuring Plan".
While SG&A expense increased, measured at the same exchange rates, in certain of
the Company's segments, these increases were generally less than the rate of
sales growth. Consequently, consolidated SG&A expenses, as a percentage of
sales, declined to 39.3% for the three-month period ended September 30, 1998
from 42.2% for the same period in the prior year, an improvement of 2.9
percentage points. The following table compares the SG&A percentage for the
quarter with the corresponding amount for the prior year for each of the
Company's operating segments:
THREE MONTHS ENDED
SEPTEMBER 30
1998 1997
- ------------------------------------------------------------
Canada 32.2% 34.5%
Australia 40.2% 42.4%
United Kingdom 48.3% 52.4%
- ------------------------------------------------------------
17
<PAGE>
FOREIGN CURRENCY TRANSACTION GAINS
Foreign currency transactions gains were $412,000 during the first quarter of
fiscal year 1999 compared with gains of $80,000 for the comparable quarter last
year.
NET INTEREST EXPENSE
Net interest expense was $1,113,000 for the three months ended September 30,
1998 compared with $1,643,000 for the same quarter last year. The reduction in
net interest expense over the first quarter of the prior year results from the
effects of the repayment of the note payable to Tandy in December, 1997 and the
benefits of the Company's new revolving credit facility. See "Liquidity and
Capital Resources". Management also expects these benefits to be evident in the
comparison with the prior year during the second quarter of fiscal year 1999, at
which time the facility will have been in place for a full 12 months.
PROVISION FOR INCOME TAXES
An income tax provision of $3,004,000 was recorded during the quarter compared
with a provision of $2,049,000 recorded in the first quarter of fiscal year
1998. This increase primarily reflects higher profits in Canada and Australia.
The unusually high effective tax rate, on a consolidated basis, is due to the
fact that the Company received no tax benefit from the operating losses incurred
by its U.K. subsidiary. Management expects the consolidated rate of tax to
continue to be high at least until profitability is restored in the U.K.
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 September 30, 1998, in exchange rates as measured against
the U.S. dollar:
FOREIGN EXCHANGE RATE FLUCTUATIONS
----------------------------------
% INCREASE % INCREASE
(DECREASE) (DECREASE)
FROM SEPTEMBER 30, 1997 FROM JUNE 30, 1998
------------------------ -------------------
Canada (9.9) (4.2)
Australia (18.3) (4.2)
United Kingdom 5.0 1.9
INVENTORIES
Inventories have increased from $148,198,000 at June 30, 1998 to $165,298,000 at
September 30, 1998. This increase is due in part to the seasonal build-up of
inventories as the Company prepares for anticipated higher sales during the
Christmas period. Inventories increased in particular in Canada due to a
variety of factors, including an expanded product range in the direct-to-home
satellite systems and telephones, the introduction of prepaid airtime cellular
products, including related airtime cards, and the early arrival of certain
Christmas merchandise. The effect of these increases was partially offset by
foreign currency effects. Inventories at September 30, 1997 were $180,401,000,
indicating a year-on-year reduction of $15,103,000.
18
<PAGE>
Approximately 70% of this reduction relates to foreign currency effects. The
balance is due to the effects of the store closure program and other initiatives
taken to reduce inventories in the United Kingdom, partially offset by the
increases in Canadian inventories as outlined above.
ACCOUNTS RECEIVABLE
Accounts receivable were $12,910,000 at September 30, 1998, up from $8,539,000
at June 30, 1998. This increase is attributable to the seasonal increase in
amounts due from dealers as they purchase inventories for the Christmas selling
season. Accounts receivables at September 30, 1997 were $13,727,000. The
apparent reduction of $817,000 to the September 30, 1998 level is more than
attributable to foreign currency effects.
ACCOUNTS PAYABLE
Accounts payable at September 30, 1998 were $31,883,000, compared to $24,274,000
at June 30, 1998. This increase relates to the financing of the seasonal build-
up of inventories in advance of the Christmas selling period. Accounts payable
at September 30, 1997 were $29,883,000.
ACCRUED EXPENSES
Accrued expenses at September 30, 1998 were $36,653,000, compared to $38,505,000
and $23,433,000 at June 30, 1998 and September 30, 1998, respectively. The
increases from the September 30, 1997 level are attributable primarily to the
restructuring reserve recorded in the United Kingdom in the third quarter of
fiscal year 1998. See "United Kingdom Restructuring Plan". Increases in sales-
based accruals in response to higher sales were also a factor.
INCOME TAXES PAYABLE
Income taxes payable were $16,452,000 at September 30, 1998 compared to balances
at June 30, 1998 and September 30, 1997 of $20,955,000 and $14,498,000,
respectively.
The reduction from June 30 to September 30, 1998 represents the impact of the
payment of the final balance of Canadian income taxes for fiscal year 1998 as
well as foreign currency effects, partially offset by the provision for taxes
for the first quarter of fiscal year 1999. The increase from September 30, 1997
represents an increase in the level of the provision for taxes in Canada and
Australia as a result of improved profitability in those countries, partially
offset by foreign currency effects.
The Company's Canadian subsidiary has a number of issues in dispute with the
Canadian tax authorities, including:
(i) Reassessments arising from an audit of RadioShack Canada's income tax
returns for the 1987 to 1989 taxation years; and,
(ii) Actual and possible reassessments relating to the deductibility of
certain interest expense and the treatment of certain foreign
exchange gains related to the Company's former operations in
continental Europe during the 1990 to 1993 taxation years.
19
<PAGE>
Depending on the ultimate outcome of each of these matters, the Company could
have additional liabilities in the range of $0 to $11,700,000 and $0 to
$20,000,000, respectively. The Company believes it has meritorious arguments in
support of its position on each of these issues and, accordingly, no additional
provision has been recorded, pending the outcome of these reassessments and
possible reassessments. In order to pursue an appeal of any reassessments
issued under item (ii) above, the Company would be required to post a cash
deposit or, in certain cases, post letters of credit, equal to one-half of the
tax under dispute. It is not possible for management to make any reasonable
determination of when any of the above issues will ultimately be resolved. See
Note 5 to the Company's Consolidated Financial Statements which appears in Item
1 to this Form 10-Q and is incorporated herein by reference.
An audit of the Company's United States income tax returns by the Internal
Revenue Service for the 1990-1993 taxation years is in process.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Operating activities consumed $21,515,000 in cash during the three-month period
ended September 30, 1998 compared to $16,701,000 in the corresponding period
last year. The seasonal build up of inventories consumed $20,173,000 in cash
during the quarter, up from $12,600,000 a year ago. This increase related
primarily to an increase in inventory levels in Canada. See "Inventories". The
effect of this increased cash outflow was partially offset by a reduction in the
net loss for the quarter from $2,909,000 during the three-month period ended
September 30, 1997 to $295,000 during the first quarter of fiscal year 1998. In
addition, the build-up in accounts payable, directly related to higher inventory
levels, preserved $7,918,000 in cash during the three-month period ended
September 30, 1998 compared to $2,697,000 during the comparable period a year
ago.
Cash flow from investing activities consumed $1,401,000 in cash during the
three-month period ended September 30, 1998, while generating $395,000 in cash a
year ago. This change results from a planned increase in capital spending as
well as a reduction in the liquidation of certain other assets.
Financing activities provided $7,857,000 and $1,088,000 in cash during the
quarters ended September 30, 1998 and September 30, 1997, respectively. This
increase results in large part from an increase of $3,207,000 in the level of
short-term borrowings needed to finance operations in the United Kingdom. In
addition, during the first quarter of fiscal year 1998, $3,479,000 in cash had
been used in repaying term debt to Tandy (the "Secured Loan Agreement").
The Company's principal sources of liquidity during fiscal year 1999 are its
cash and short-term investments, its cash flow from operations and its banking
facilities.
In December, 1997, the Company entered into a three-year revolving credit
facility with a syndicate of three 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 Ltd. 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.
20
<PAGE>
The Syndicated Loan Agreement is used primarily to provide letters of credit in
support of purchase orders and, from time to time, to finance inventory
purchases. At September 30, 1998, there were borrowings against the Syndicated
Loan Agreement aggregating $16,864,000 and $3,827,000 was committed in support
of letters of credit. There was $32,042,000 of credit available for use at
September 30, 1998. The Company's Merchandise Agreement with Tandy permits the
Company to support purchase orders with a surety bond or bonds as well as
letters of credit. The Company has entered into an agreement with a major
insurer to provide surety bond coverage (the "Bond") in an amount not to exceed
$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.
The Company's Australian subsidiaries, InterTAN Australia Ltd. and Technotron
Sales Corp. Pty, Ltd., have entered into a credit agreement with an Australian
bank (the "Australian Facility"). This agreement established a credit facility
in the amount of A$12,000,000 ($7,120,000 at September 30, 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 ($2,967,000 at September 30, 1998 exchange rates)
may be used in support of short-term borrowings. At September 30, 1998, there
were no borrowings outstanding against the Australian Facility; A$6,742,000
($4,000,000 at September 30, 1998 exchange rates) was committed in support of
letters of credit as described above and $3,120,000 of credit was available for
use.
The Company's primary uses of liquidity during the balance of fiscal year 1999
will include the building of inventories for the 1998 Christmas selling season,
the funding of capital expenditures, the servicing of debt and, possibly, the
payment of tax deposits or amounts in settlement of tax reassessments. The
Company anticipates that capital additions will approximate $6,000,000 during
the balance of fiscal year 1999, mainly related to store expansion, remodeling
and upgrading. The Company's debt servicing requirements during the same period
are estimated to be approximately $3,000,000 and include interest payments on
the Company's 9% convertible subordinated debentures. In addition, management
expects to receive additional reassessments during fiscal year 1999 relating to
its dispute with Revenue Canada in respect of the 1990-1993 taxation years. See
"Income Taxes Payable" and Note 5 to the Company's Consolidated Financial
Statements which is included in Item 1 of this Report on Form 10-Q and is
incorporated herein by reference. The Company plans to appeal such
reassessments; however, in order to do so it will be required to post a cash
deposit or letters of credit in an amount equal to one-half of the amount
reassessed. While the exact amount of such deposits will not be known until
discussions with Revenue Canada, the Company and its advisors have been
concluded, management anticipates that the deposit required will be
approximately $4,000,000 to $10,000,000.
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 fiscal year 1999, including
any tax deposits pursuant to the possible reassessments relating to the 1990-
1993 taxation years.
21
<PAGE>
YEAR 2000 ISSUES
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 are requiring
modification or replacement to make them compliant with the Year 2000.
The Company's critical systems include the following:
. Its store operating systems;
. Its so-called "back end" merchandising and inventory systems,
including purchasing, receiving and warehousing, perpetual inventories
and store replenishment; and,
. Its primary accounting systems, including general ledger, accounts
receivable, accounts payable and payroll.
The Company's information systems include both internally developed systems and
systems purchased from third-party vendors. In Canada, with the exception of
the primary accounting system, the Company employs primarily internally
developed systems. In Australia, the Company has gradually shifted from
internally developed systems to third-party systems. The primary accounting
system and the warehouse distribution system are the only significant internally
developed systems remaining in Australia. In the United Kingdom a
comprehensive, integrated suite of systems purchased from a third-party has
replaced virtually all internally developed systems.
The Company is employing a variety of internal and external resources to assess
and make changes necessitated by Year 2000 issues to its many different systems
and equipment. Many of these changes were contemplated in any event as upgrades
or replacement of outdated systems and hardware. The Company has determined
that its mainframe hardware is Year 2000 compliant in all three countries. In
Canada, during fiscal years 1996 and 1997, point-of-sale hardware was replaced
with equipment that is Year 2000 compliant. The store operating system was
replaced in the third and fourth quarters of fiscal year 1998. Year 2000-
related upgrades to back end inventory and warehouse systems have been
completed. The Company's third-party-sourced accounting and payroll systems in
Canada have been certified as being Year 2000 compliant and are currently in
testing. In Australia, the store hardware and operating system were replaced
with systems that are Year 2000 compliant during the fourth quarter of fiscal
year 1998. The Company is currently evaluating various options to replace the
existing back end inventory and accounting systems. It is anticipated that new
systems will be in place by the end of fiscal year 1999. In the United Kingdom,
the current store hardware has been replaced and new point of sale software will
be installed in January, 1999 following the 1998 Christmas selling season. The
Company plans to migrate to a version of its integrated back end inventory and
accounting systems which is Year 2000 compliant by the end of the third quarter
fiscal year 1999. The payroll system used in the United Kingdom will be
replaced prior to the end of calendar year 1998.
The Company's current projection is that Year 2000 compliance costs will not
exceed $1,000,000.
In the most reasonably likely worst case scenario, the Company's store operating
and back end inventory management systems could fail. The consequence of such
failure could include the
22
<PAGE>
inability to electronically record sales transactions in the Company's stores
and a breakdown in the supply chain. Such an occurrence would likely result in a
loss of revenue; it is not possible to quantify the possible range of such loss.
This would necessitate reverting to a number of manual systems for recording
sales, ordering product and replenishing the Company's stores. Management does
not currently have a formal documented contingency plan to deal with this
scenario. Management anticipates that such a contingency plan will be in place
by June 30, 1999.
The Company has communicated with its suppliers and other organizations with
which it does business to coordinate Year 2000 issues and to ensure the
continuity of supply of product and services. In a most reasonably likely worst
case scenario, one or more significant suppliers could be unable to continue to
adequately supply the Company after 1999. The Company's fallback position would
be to seek an alternative source of supply. However, there can be no assurance
that such alternative sources of supply would be available. The Company does
not yet have a list of alternative suppliers should some suppliers be unable to
continue to provide product or services beyond the end of calendar year 1999.
Such a contingency plan will be in place by the end of fiscal year 1999. It is
not practical for management to estimate the range of financial loss, if any,
which could result from the negative effect that a disruption in supply would
have on the Company's business.
The Company is currently in the process of assessing its obligations, if any,
arising from the sale of warranted product which proves not to be Year 2000
compliant in one or more aspects. It is not possible at this time to reasonably
estimate the range of loss, if any, which could arise from such obligation.
Management is closely monitoring the Company's advancements 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
-------------
Apart from the matters and those described under "United Kingdom Restructuring
Plan", "Income Taxes Payable" and "Year 2000 Issues", there are no material
pending proceedings or claims, other than routine matters incidental to the
Company's business, to which the Company or any of its subsidiaries is a party,
or to which any of its property is subject.
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
With the exception of "Year 2000 Issues", the various matters
discussed under the heading "Contingencies" on page 23 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 September 30, 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).
24
<PAGE>
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) First Amendment to Employment Agreement dated July
1, 1998 between InterTAN, Inc. and James T.
Nichols.
*10(b) Letter Agreement dated July 1, 1998 between
InterTAN, Inc. and James T. Nichols amending prior
stock option agreements.
*27 Article 5, Financial Data Schedule.
*99 Letter agreement dated August 3, 1998 amending
Multi-Option Switch Facility.
- --------------------
* Filed herewith
b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
25
<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: November 12, 1998 By: /s/James T. Nichols
-------------------
James T. Nichols
Chief Executive Officer
and Vice Chairman
(Authorized Officer)
By: /s/Douglas C. Saunders
----------------------
Douglas C. Saunders
Vice President and Corporate Controller
(Principal Accounting Officer)
26
<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 Stock (Filed as Exhibit 3(a)(i) to
InterTAN's Preferred 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).
<PAGE>
Exhibit No. Description
4(a) Articles Fifth and Tenth of the Restated Certificate of
Incorporation (included in Exhibit 3(a)).
4(b) Amended and Restated Rights Agreement reference). 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) First Amendment to Employment Agreement dated July 1, 1998
between InterTAN, Inc. and James T. Nichols.
*10(b) Letter Agreement dated July 1, 1998 between InterTAN, Inc. and
James T. Nichols amending prior stock option agreements.
*27 Article 5, Financial Data Schedule.
*99 Letter agreement dated August 3, 1998 amending Multi-Option
Switch Facility.
- --------------------
* Filed herewith
<PAGE>
EXHIBIT 10(a)
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT ("Agreement") dated as of July 1,
1998 (the "Effective Date") between INTERTAN, INC., a Delaware corporation
("Employer"), and JAMES T. NICHOLS ("Employee").
WHEREAS, Employer and Employee entered into that certain Employment
Agreement dated as of January 1, 1995 and now desire to make this amendment
thereto;
WHEREAS, Employer desires to employ Employee, and Employee desires to be
employed by Employer, upon the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
Section 1. Employment and Duties. Upon the terms and subject to the
conditions set forth herein, Employer hereby employs Employee during the Term
(as such term is hereinafter defined), and Employee accepts employment with
Employer during the Term, to serve as the Vice Chairman of the Board and Chief
Executive Officer of Employer. In such capacities, Employee shall perform such
executive duties and responsibilities, and shall exercise such authority as are
usual and customary for such positions. Employee shall report to the Board of
Directors and the Chairman of the Board of Employer. Employee shall also perform
such additional executive duties and responsibilities with Employer or any of
its subsidiaries or affiliates, and shall enjoy such additional powers, as may
be assigned or delegated to Employee from time to time by the Board of Directors
of Employer. Notwithstanding the foregoing, Employee shall not be assigned or
delegated duties hereunder which would require prolonged absences from, or
changes in, the place of his residence without his consent, nor shall Employee
be assigned or delegated duties which would demean or materially reduce
Employee's effectiveness in his position.
Section 2. Term. The term of this Agreement and Employee's employment
hereunder (the"Term") shall commence on the Effective Date and, unless sooner
terminated pursuant to the termination provisions hereof, continue through
December 31, 1998 (the "Expiration Date").
Section 3. Exclusive Service. Employee shall devote his exclusive and
full time services to the performance of his duties and obligations hereunder
during the Term and shall not during the Term engage in any other activity for
gain, profit or pecuniary advantage; provided, however, that, subject to
Employee's fiduciary duties and to the restrictions set forth in Section 12
hereof, (i) Employee shall not be prohibited from investing his assets in such
form or manner as will not require his services in the operation of the affairs
of the entities in which such investments are made or, in the aggregate, detract
from the performance by
1
<PAGE>
Employee of his duties and obligations hereunder, and (ii) Employee may engage
in activities involving charitable, educational, religious and similar types of
organizations, speaking engagements and similar type activities to the extent
that such other activities do not detract from the performance by Employee of
his duties and obligations hereunder.
Section 4. Compensation. As compensation for services rendered by
Employee to Employer during the Term pursuant to this Agreement:
(a) Employer shall pay to Employee an annualized base salary (the "Base
Salary") of not less than $460,000, payable in installments during the Term in
accordance with the standard payroll policies of Employer as from time to time
in effect, from which shall be deducted state and federal income taxes, local
income or earnings taxes, social security taxes, and such other and similar
payroll taxes and charges as may be required or appropriate under applicable
law; provided, however, that such Base Salary may be appropriately adjusted, but
not below $425,000, by the mutual agreement of the parties in the event that
Employee becomes eligible for any deferred compensation, retirement or other
employee plans in addition to those specified herein. In the event of any
Termination (as such term is hereinafter defined) of this Agreement, Employee
shall be entitled to receive the unpaid portion, if any, of the Base Salary
attributable to the period during which the effective date of such Termination
occurs; provided, however, that if such Termination is on account of Employee's
long-term disability pursuant to Section 6 hereof, then, during the period
beginning with the onset of such disability and ending on the effective date of
such Termination, Employee's Base Salary shall be reduced by any sick pay or
disability benefits received by Employee, through insurance contracts or
otherwise.
(b) For the period July 1 through December 31, 1998, Employer shall also
pay to Employee a bonus of $87,500 (the "Fixed Bonus"), payable not later than
December 31, 1998, from which shall be deducted state and federal income taxes,
local income or earnings taxes, social security taxes, and such other and
similar payroll taxes and charges as may be required or appropriate under
applicable law. In the event of any Termination (as such term is hereinafter
defined) of this Agreement, Employee shall be entitled to receive the unpaid
portion, if any, of the Fixed Bonus, reduced as aforesaid.
(c) Employer shall pay to Employee such other bonuses as may be
determined by the Board of Directors of Employer, in the exercise of its sole
and absolute discretion, from which shall be deducted state and federal income
taxes, local income or earnings taxes, social security taxes, and such other and
similar payroll taxes and charges as may be required or appropriate under
applicable law.
(d) Employee shall be entitled to participate in Employer's Stock
Purchase Plan in accordance with the terms thereof.
2
<PAGE>
(e) In addition to any other retirement benefits, Employer shall pay
Employee, in the event of his retirement, the annual amount of $85,455.48 per
year for a period of ten (10) years commencing on the first day of the month
following Employee's actual date of retirement. The annual amount shall be paid
each year in twelve (12) equal monthly installments (such monthly payments
totaling 120) and each installment shall have deducted therefrom all state and
federal income taxes, local income or earning taxes, social security taxes, and
such other and similar payroll taxes and charges as may be required or
appropriate under applicable law.
(f) Employer shall use its best efforts to obtain for Employee life
insurance in the amount of $900,000 and long-term disability insurance providing
for payment of not less than 60% of Employee's Base Salary and Fixed Bonus for
so long as Employee shall suffer a Disability (as such term is hereinafter
defined) for the remainder of Employee's life.
(g) Employer shall pay country club membership assessments, charges and
dues of Employee at the Fort Worth, Texas, country club of his choosing.
Section 5. Other Benefits. During the Term, Employee shall be entitled
to such holidays, paid vacations (of at least four weeks per calendar year) and
sick leave as are consistent with Employer's standard policies for a person
holding Employee's position and tenure with Employer. Employee shall also be
eligible, from and after the Effective Date, for participation in such group
insurance, hospitalization, major medical and dental insurance as such programs
may be from time to time implemented, modified or maintained and made available
in the sole discretion of the Board of Directors of Employer for a person
holding Employee's position and tenure with Employer. Employee shall also be
entitled to a car allowance of not less than $666.67 per month during the Term
and shall be entitled to reimbursement by Employer for costs of all gasoline and
oil used in the operation of his car during the Term.
Section 6. Early Termination of Term of Agreement: Effect of
Termination.
(a) The Term and the employment of Employee hereunder shall be
terminated (a "Termination") on the Expiration Date or prior to the Expiration
Date in any of the following circumstances:
(i) immediately, if Employee dies; or
(ii) immediately upon Employee becoming entitled to receive the
maximum benefits under the long-term disability insurance coverage then provided
by Employer or, if no such insurance is in effect, upon Employee's "Disability"
(as such term is hereinafter defined); or
3
<PAGE>
(iii) at the option of Employer for "Cause" (as such term is
hereinafter defined) upon continuation of the occasion for Termination at the
expiration of the time for cure as provided in Section 14 hereof; or
(iv) by Employee, if Employer materially breaches its obligations
under this Agreement, upon continuation of the breach at the expiration of the
time for cure as provided in Section 14 hereof; or
(v) by Employer at any time upon 30 days' prior written notice to
Employee; or
(vi) by Employee at any time upon 30 days' prior written notice to
Employer.
(b) In addition to the foregoing, upon the occurrence of a Termination
for any reason, then, except as otherwise specified in this Agreement, Employer
and Employee shall be released from any further obligations hereunder, but
Employer and Employee shall retain and may exercise any and all remedies against
the other. Notwithstanding the foregoing, the provisions of Sections 7 through 9
and Sections 11 through 23 hereof shall survive and continue after the effective
date of any Termination.
(c) For purposes of this Agreement, "Cause" means (i) a final conviction
of Employee by a court of competent jurisdiction in the United States of a
felony under federal, state or local criminal law, (ii) such willful or gross
misconduct on the part of Employee in following the legitimate directions of the
Board of Directors of Employer, (iii) drug addiction or habitual drunkenness of
Employee (iv) excessive absenteeism by Employee not related to illness, sick
leave or vacations (but only after written notice from Employer followed by a
repetition of such excessive absenteeism), (v) Employee's act of fraud,
embezzlement or theft in connection with his duties or in the course of his
employment or (vi) the intentional wrongful damage to a material amount of the
property of the Employer and such other intentional conduct as is in violation
of established business, professional or industry principles so as to cause a
material adverse effect to the Employer; provided, however, that no act or
omission shall be deemed "intentional" if done or omitted in good faith and with
a reasonable belief that the act or omission was in the best interests of the
Employer.
(d) For purposes of this Agreement, "Disability" means Employee's
inability to render, for a period of 180 consecutive days during any 365-day
period, services hereunder by reason of permanent disability, as determined by
the written medical opinion of an independent medical physician mutually
acceptable to Employee and Employer. If Employee and Employer cannot agree as to
the independent medical physician, each shall appoint one medical physician and
those two physicians shall appoint a third physician who shall make the
determination. If Employer has implemented a long-term disability coverage plan
which covers Employee, in no
4
<PAGE>
event shall Employee be considered disabled for the purposes of this Agreement,
unless Employee is deemed disabled pursuant to Employer's long-term disability
plan, if any, covering Employee.
Section 7. Severance Benefits.
(a) If Employee terminates his employment pursuant to Section 6(a)(iv)
hereof or for Good Reason (as such term is hereinafter defined), or if Employer
terminates Employee's employment under Section 6(a)(v) hereof, or if Employee's
employment terminates pursuant to Section 6(a)(ii), then, notwithstanding any
other provision hereof, Employer shall be obligated during the period from the
effective date of such Termination until the Expiration Date (the "Severance
Period") (i) to continue to make payments to Employee of the Base Salary
(monthly) and the Fixed Bonus (annually); and (ii) to pay any other bonuses
which were earned by Employee, but unpaid, prior to the effective date of the
Termination; provided, however, that, (A) if the Employer shall so elect, the
Company shall make all such payments in one lump sum within ten days after the
effective Termination date and (B) the Company may deduct from any such payments
the amount of any payments under any long-term disability insurance coverage
provided by Employer. All such payments shall be made without reference to or
deduction for any subsequent employment obtained or obtainable by Employee.
(b) For the purposes of this Agreement, Employee shall be deemed to have
terminated his employment for "Good Reason" if, without Employee's prior
expressed written consent, (i) Employer moves Employee's principal office, other
than within the Dallas/Fort Worth metropolitan area; (ii) Employee is assigned
duties or responsibilities materially inconsistent with the scope or level of
the duties or responsibilities associated with Employee's position, as set forth
and described in Section 1 hereof; or (iii) Employee suffers a material
reduction in the scope or level of Employee's duties, responsibilities or
effective authority associated with Employee's position, as set forth and
described in Section 1 hereof.
Section 8. Change of Control. In the event that:
(a) any person, corporation, partnership, association, joint stock
company, trust, unincorporated organization, or government, including a
political subdivision thereof (or any combination thereof acting for the purpose
of acquiring, holding, voting, or disposing of equity securities of Employer),
acquires beneficial ownership of at least twenty percent (20%) of the then
issued and outstanding common stock of Employer; or
(b) on any day more than fifty percent (50%) of the members of the Board
of Directors of Employer (excluding those members replacing deceased Directors)
were not Directors two (2) years prior to such date; or
(c) substantially all the assets of Employer are sold or Employer is
merged or
5
<PAGE>
consolidated or otherwise acquired by or with another corporation (other than an
Employer subsidiary) unless, as the result of any such merger, consolidation, or
acquisition,
(i) Employer is the surviving entity, and
(ii) not more than twenty percent (20%) of Employer's then issued
and outstanding common stock is sold or exchanged as the result of such merger,
consolidation, or acquisition;
then during the Term hereof, if there shall occur any such change of control
event described in subsection (a), (b) or (c) above, Employee shall be vested
with and be entitled to receive a benefit equal to $2,750,000.00 conditioned
upon and subject to Employee's employment with Employer being terminated,
whether voluntary or involuntary, during the Term hereof. Such benefit shall be
payable in accordance with Section 4(e) commencing on the first day of the month
following the date on which Employee terminated his employment or had his
employment terminated.
Any provision hereof to the contrary notwithstanding, any shares of Employer
common stock sold or exchanged as the result of any acquisition agreement
initiated by Employer whereby Employer acquires control of or substantially all
the assets of another corporation shall not constitute an event described in
subsection (a) or (c) above.
It is specifically provided that the provisions of Section 12 shall remain fully
applicable during the payment of benefits under this Section 8 and shall
continue for a one year period following termination of the payment of benefits.
In the event of the death of Employee prior to the receipt of all benefits
payable under this Section, all remaining benefits shall be paid as designated
in his last will and testament, or to his heirs at law, as the case may be.
(d) All options, warrants and other rights to acquire shares of capital
stock of Employer (including those of its subsidiaries and affiliates), whether
pursuant to employee benefit plans or otherwise, which shall have been granted
to Employee prior to a change of control event described in subsection (a), (b)
or (c) above shall fully vest and become immediately exercisable upon the
occurrence of any such change of control event. If subsequent to a change of
control, Employee's employment is terminated by Employer other than for Cause or
if such employment is voluntarily terminated by Employee, then in either such
event, all such options, warrants and rights shall be exercisable by Employee in
accordance with their respective terms.
(e) Employer shall pay or reimburse Employee for all fees and
disbursements of counsel, if any, incurred by the Employee as a result of the
termination of his employment by Employer following a change of control event or
his voluntary termination of such employment during the Term subsequent to a
change of control event (including, without limitation, those which may be
incurred by the Employee in seeking to obtain or enforce any right or benefit
6
<PAGE>
provided by this Agreement).
(f) In the event that Employee's employment with Employer is
involuntarily terminated for any reason other than those reasons set forth in
Section 6(c), and during a period beginning on the date of such termination and
expiring at midnight, Fort Worth, Texas time, on December 31, 1998, there occurs
a change of control event described in subsection (a), (b) or (c) above then
Employee, or his devisees or heirs, as the case may be, if he dies after
termination of employment, shall be entitled to receive a benefit equal to
$2,750,000.00 payable in accordance with Section 4(e) commencing on the first
day of the month following the occurrence of such change of control event
described in subsection (a), (b) or (c) above.
It is specifically provided that the provisions of Section 12 shall remain fully
applicable during the payment of benefits under this Section 8 and shall
continue for a one year period following termination of the payment of benefits.
In the event of the death of Employee prior to the receipt of all benefits
payable under this Section, all remaining benefits shall be paid as designated
in his last will and testament, or to his heirs at law, as the case may be.
Section 9. Maximum Amount. If any payment or the receipt of any
benefit under this Agreement shall be deemed to constitute an "excess parachute
payment" as such term is defined in Internal Revenue Code of 1986 ("Code")
Section 280G, or any successor section thereto, so as to result in the loss of a
deduction to Employer under Code Section 280G or in the imposition of any excise
tax on Employee under Code Section 4999, or any successor section thereto, then
the amounts payable or the benefits provided under this Agreement shall be
reduced to the minimum extent necessary so that no such deduction will be lost
by Employer and no such excise tax will be imposed on Employee.
Section 10. Expenses. Employee's duties under this Agreement may
require a reasonable amount of travel and the incurrence of travel and other
business expenses. Employer shall pay or reimburse Employee for all such
reasonable expenses incurred or paid by the Employee upon presentation of
expense statements or vouchers and such other information as Employer may
reasonably require.
Section 11. Confidentiality. Employee shall not at any time during
or after the Term (without regard to the circumstances under which this
Agreement or the employment hereunder may have been terminated), directly or
indirectly, disclose, use, or permit those under his control to disclose or use,
except as shall be necessary in the performance of his duties hereunder, such
trade secrets or other proprietary or confidential information of Employer or
any of its subsidiaries, without the prior written consent of Employer. The
obligation of Employee pursuant to this Section 11 shall be in effect during the
Term and shall survive and continue after the effective date of any Termination.
7
<PAGE>
Section 12. Restrictive Covenants.
(a) Noncompetition. Employee covenants and agrees that (i) in the event
Employee is Terminated for Cause, and (ii) in any other event, if Employee is
timely receiving payments as provided in this Agreement, he shall not, for a
period of one year from and after the effective date of any Termination, working
alone or in conjunction with one or more other persons or entities, for
compensation or not, permit his name to be used by or engage in or carry on,
directly or indirectly, either for himself or as a member of a partnership or
other entity or as a stockholder, investor, officer or director of a corporation
(other than Employer or any of its subsidiaries or affiliates) or as an
employee, agent, associate or contractor of any person, partnership, corporation
or other entity (other than Employer or any of its respective subsidiaries or
affiliates), any business in competition with the business of Employer as
carried on by Employer and within 25 miles of any location operated by Employer,
in each case, immediately prior to the effective date of any Termination, but
only for as long as such business is carried on by (i) Employer or any of its
respective subsidiaries or affiliates or (ii) any person, corporation,
partnership, trust or other organization or entity deriving title from Employer
or any of its subsidiaries or affiliates to the assets and goodwill of the
business being carried on by Employer immediately prior to the effective date of
any Termination. Employer and Employee intend that the covenants contained in
this Section shall be deemed to be a series of separate covenants, one for each
location and, each such separate covenant shall be identical in terms to the
covenant contained in this Section.
(b) Tolling. If Employee violates any covenant contained in Section
12(a) hereof, then the term of such violated covenant shall be tolled for the
period commencing on the commencement of such violation and ending upon the
earlier of (i) such time as such violation shall be cured by Employee to the
reasonable satisfaction of Employer, (ii) final adjudication (including appeals)
of any action filed for injunctive relief or damages arising out of such
violation, and (iii) the expiration of 36 months after Termination during which
no violation of the covenant has occurred.
(c) Reformation. If, in any judicial proceeding, the court shall
refuse to enforce all of the separate covenants contained in Section 12(a)
hereof because the time limit is too long, it is expressly understood and agreed
between Employer and Employee that for purposes of such proceeding such time
limitation shall be deemed reduced to the extent necessary to permit enforcement
of such covenants. If, in any judicial proceeding, the court shall refuse to
enforce all of the separate covenants contained in Section 12(a) hereof because
they are more extensive (whether as to geographic area, scope of business or
otherwise) than necessary to protect the business and goodwill of Employer or
any of its subsidiaries or affiliates, it is expressly understood and agreed
between Employer and Employee that for purposes of such proceeding the
geographic area, scope of business or other aspect shall be deemed reduced to
the extent necessary to permit enforcement of such covenants.
8
<PAGE>
Section 13. Injunctive Relief. Employee acknowledges that a breach of
Sections 11 or 12 hereof would cause irreparable damage to Employer, and in the
event of Employee's breach of the provisions of Sections 11 or 12 hereof,
Employer shall be entitled to a temporary restraining order and an injunction
restraining Employee from breaching such covenants without the necessity of
posting bond or proving irreparable harm, such being conclusively admitted by
Employee. Nothing shall be construed as prohibiting Employer from pursuing any
other available remedies for such breach, including the recovery of damages from
Employee. Employee acknowledges that the restrictions set forth in Sections 11
and 12 hereof are reasonable in scope and duration, given the nature of the
business of Employer. Employee agrees that issuance of an injunction restraining
Employee from breaching such covenants in accordance with their terms will not
pose an unreasonable restriction on Employee's ability to obtain employment or
other work following the effective date of any Termination.
Section 14. Cure of Breach. Should either party deem the other to be in
breach or default of any obligation hereunder or should Employer deem there to
be an occasion of Termination for Cause as that term is defined in clauses (ii),
(iii) or (vi) of subsection 6(c), the party claiming such breach, default or
occasion shall give notice specifying in detail the nature thereof and the
desired, reasonable cure. In the event the breach, default or occasion for
termination is the failure to pay money when due, the party receiving such
notice immediately shall pay such amounts as are due. In any other event of such
notice, the receiving party shall respond within five days of his receipt and
shall effect the cure of any breach, default or occasion for termination within
ten business days.
Section 15. Employer's Representations and Warranties.
(a) Employer represents and warrants that:
(i) it has all requisite power and authority to execute and
deliver this Agreement and perform its duties and obligations hereunder;
(ii) all necessary corporate proceedings of the Employer have been
duly undertaken to authorize the execution, delivery and performance of this
Agreement by the Employer; and
(iii) this Agreement has been duly authorized, executed and
delivered by Employer, is the legal, valid and binding obligation of the
Employer and is enforceable against the Employer in accordance with its terms.
The representations and warranties under this Section 15(a) shall be true and
correct as of the date of execution of this Agreement and on the Effective Date.
(b) The Employer's 1986 Stock Option Plan and 1996 Stock Option Plan
(each as
9
<PAGE>
amended through June 8, 1998) have not been subsequently modified or amended and
each plan qualifies for the exemption under Securities and Exchange Commission
Rule 16b-3.
Section 16. Currency; Income Tax Adjustment. All payments to Employee
under this Agreement are denominated and shall be paid in the legal tender of
the United States of America ("USA") and shall be payable in the State of Texas.
If any national (other than USA), state (other than Texas), provincial or local
income tax is imposed upon Employee in respect of payments under this Agreement,
Employer will adjust such payments to keep Employee whole, after paying such
income taxes.
Section 17. Other Agreements. The provisions of Section 11 shall be
independent of and in addition to any other agreement (whether oral or written)
between Employer and Employee regarding the subject matter of Section 11.
Section 18. Entire Agreement. This Agreement is the entire agreement
between the parties hereto with respect to the subject matter hereof and shall
not be amended, altered, or modified in any manner whatsoever, except by a
written instrument executed by the parties hereto. This Agreement supersedes all
prior agreements between Employer and Employee with respect to the subject
matter hereof and all such prior agreements shall be void and of no further
force or effect as of the Effective Date.
Section 19. Waiver. The waiver by any party hereto of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach.
Section 20. Governing Law. This Agreement shall be subject to, and be
governed by, the laws of the State of Texas.
Section 21. Assignability. Employee shall not, without the prior written
consent of Employer, assign, transfer, or otherwise convey this Agreement or any
right or interest herein. This Agreement and all rights and obligations of
Employer or any of its successors may be assigned or otherwise transferred to
any of its successors and shall be binding upon and inure to the benefit of its
successors. As used herein, the term "successor" shall mean any person,
corporation or other entity that, by merger, consolidation, purchase of stock,
assets, liquidation, voluntary or involuntary assignment, or otherwise, acquires
all or a substantial part of the assets of Employer or succeeds to one or more
lines of business of Employer.
Section 22. Interpretation. The parties hereto acknowledge and agree that
each party and its counsel has reviewed and negotiated the terms and provisions
of this Agreement and have contributed to its revision and that the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
10
<PAGE>
Section 23. Notices. All notices hereunder shall be in writing, shall be
delivered personally or sent by certified or registered mail, postage prepaid,
return receipt requested, or by press or other delivery service, if to Employee,
to his attention at the address set forth below and, if to Employer, to the
attention of the Chairman at its office in Fort Worth, Texas. All notices
hereunder shall be deemed effective when received as set forth above. No notice
shall be effective if given otherwise than as provided herein.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the Effective Date.
INTERTAN, INC.
By : /s/ Clark A. Johnson
-----------------------
Clark A. Johnson,
Chairman of the Organization and
Compensation Committee
EMPLOYEE:
/s/ James T. Nichols
----------------------
James T. Nichols
Address: 3300 Cambridge Court
Colleyville, Texas 76034
11
<PAGE>
EXHIBIT 10(b)
[InterTAN, Inc. Letterhead]
July 1, 1998
Mr. James T. Nichols
InterTAN, Inc.
201 Main Street, Suite 1805
Fort Worth, Texas 76102
Re: Amendments to Stock Option Agreements
Dear Jim:
According to the records of InterTAN, Inc. (the "Company"), you have been
granted stock options as follows:
PLAN OPTION GRANT SHARE EXERCISE
YEAR TYPE/# DATE AMOUNT PRICE
---- ------ ---- ------ -----
1986 ISO/160 1/1/95 36,641 $8.1875
1986 NSO/56 1/1/95 63,359 $8.1875
1986 NSO/57 1/1/96 100,000 $7.3125
1996 NSO/91 11/12/96 50,000 $ 6.00
1996 NSO/92 11/10/97 50,000 $ 5.50
Each of the above grants is evidenced by a stock option agreement signed by you
and by an authorized representative of the Company.
On June 8, 1998, the Company's 1986 Stock Option Plan and 1996 Stock Option
Plan were amended in order to permit the Organization and Compensation Committee
of the Board of Directors of the Company to approve and recommend certain
amendments to the text of a stock option agreement. Consequently, on June 8,
1998 the Board of Directors of the Company approved an amendment to each of your
stock option agreements whereby you will have up to 24 months after the date of
your retirement (presently December 31, 1998) in which to exercise your vested
stock options, which will be all of the stock options listed above given that
any unvested stock options held by you at January 1, 1999 will be automatically
accelerated as provided in each Plan.
<PAGE>
July 1, 1998
Page 2
Given the foregoing, clause (a) of section 3, entitled "Expiration of
Option," of each of your stock option agreements shall hereby be deemed amended
to permit the exercise of all vested stock options for a period of 24 months
after December 31, 1998. All other terms of the stock option agreements shall
remain unchanged.
InterTAN, Inc.
By: /s/ David S. Goldberg
Its: V.P., Sec. & General Counsel
Accepted July 1, 1998
/s/ James T. Nichols
James T. Nichols
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 16,872
<SECURITIES> 0
<RECEIVABLES> 12,910
<ALLOWANCES> 0
<INVENTORY> 165,298
<CURRENT-ASSETS> 203,238
<PP&E> 26,135
<DEPRECIATION> 0
<TOTAL-ASSETS> 230,014
<CURRENT-LIABILITIES> 101,852
<BONDS> 37,087
0
0
<COMMON> 12,623
<OTHER-SE> 71,758
<TOTAL-LIABILITY-AND-EQUITY> 230,014
<SALES> 121,844
<TOTAL-REVENUES> 121,923
<CGS> 68,876
<TOTAL-COSTS> 68,876
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,113
<INCOME-PRETAX> 2,709
<INCOME-TAX> 3,004
<INCOME-CONTINUING> (295)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (295)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
<PAGE>
EXHIBIT 99
[WESTPAC BANKING CORPORATION LETTERHEAD]
17 July 1998
Mr. Christopher Avery
Finance Director
InterTAN Australia Limited
91 Kurrajong Avenue
Mount Druitt
NSW 2770
Dear Chris,
This letter is intended to document our recent discussions whereby Westpac
Banking Corporation ("Westpac") has agreed with InterTAN Australia Ltd. ("ITA")
to modify the Multi-Option Switch Facility Agreement (the "Facility") dated
November 27, 1996 between Westpac and ITA as follows:
Section 9, subsections (p) and (s) are each amended to delete the reference
to "A$22,000,000" and to substitute therefor the number "A$17,000,000".
If the foregoing accurately sets forth our agreement regarding the modification
of a certain provision of the Facility, please acknowledge as such by signing
this letter below.
Kind regards.
Yours faithfully
/s/ Louise Sawer
Louise Sawer
Senior Relationship Manager
Corporate Banking
Acknowledged and Agreed
this 3/rd/ Day of August, 1998
For and behalf of InterTAN Australia Limited
/s/ M R Williams
Cc: Greg Dickey, Director of Treasury, InterTAN, Inc.
