-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GQprkkGakFtj39V6Yq8fAJH5enQl9opwwANgTQUywsUX9KcP4/LSl8S+k1Ax8GEi iwCgdegPZ2BoHNLNH5R26g== 0000930661-96-001281.txt : 19960930 0000930661-96-001281.hdr.sgml : 19960930 ACCESSION NUMBER: 0000930661-96-001281 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960927 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERTAN INC CENTRAL INDEX KEY: 0000803227 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RADIO TV & CONSUMER ELECTRONICS STORES [5731] IRS NUMBER: 752130875 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10062 FILM NUMBER: 96635764 BUSINESS ADDRESS: STREET 1: 201 MAIN STREET SUITE 1805 CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8173489701 MAIL ADDRESS: STREET 1: 201 MAIN ST STREET 2: STE 1805 CITY: FORT WORTH STATE: TX ZIP: 76102 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended June 30, 1996 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ________________to _________________ . Commission file number 1-10062 ------- InterTAN, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 75-2130875 - --------------------------------- -------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 201 Main Street, Suite 1805 Fort Worth, Texas 76102 - --------------------------------- -------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 817-348-9701 -------------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - --------------------------------- ----------------------------------------- Common Stock, par value $1.00 per share* New York Stock Exchange (*Includes related preferred stock purchase rights) Securities registered pursuant of Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or l5(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 ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( X ) 1 The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 16, 1996 was $70,702,675 based on the New York Stock Exchange closing price on such date. As of September 16, 1996 there were 11,312,428 shares of the registrant's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1996 Annual Report to Stockholders are attached as Exhibit 13 to this Annual Report on Form lO-K and are incorporated by reference into parts I, II and IV. Portions of the definitive Proxy Statement for the 1996 Annual Meeting of Stockholders are incorporated by reference into Part III. With the exception of those portions which are incorporated by reference in this Annual Report on Form 10-K the 1996 Annual Report to Stockholders and the definitive l996 Proxy Statement are not to be deemed incorporated into or filed as part of this Report. PART I Item 1. BUSINESS InterTAN was incorporated in the State of Delaware in June 1986 in order to receive from Tandy Corporation ("Tandy") the assets and businesses of its foreign retail operations, conducted in Canada under the "RadioShack" and "Tandy Computer Center" trade names, in Australia under the "Tandy Electronics" trade name and in the United Kingdom and Europe under the "Tandy" trade name. Following the transfer of assets, on January 16, 1987 Tandy distributed shares of InterTAN common stock to the Tandy stockholders in a tax free distribution on the basis of one InterTAN share for every ten Tandy shares held. Thus Tandy effected a spin-off and divestiture of its entire foreign retail operations and its then entire ownership interest in InterTAN and its operations, thereby constituting InterTAN as an independent public corporation. FACTORS THAT COULD AFFECT FUTURE PERFORMANCE This report contains certain forward looking statements about the business and financial condition of InterTAN, Inc. ("InterTAN" or the "Company"), including various statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations." The forward- looking statements are reasonably based on current assumptions regarding important risk factors. Accordingly, actual results may vary significantly from those expressed in the forward looking statements, and the inclusion of such statements should not be regarded as a representation by the Company or any other person that the anticipated results expressed therein will be achieved. The following information sets forth certain factors that could cause the actual results to differ materially from those contained in forward looking statements. 2 Reliance on Tandy Relationship. Tandy, including certain of its affiliates, is the Company's principal supplier, is the licensor of the Company's principal trade names, and is a secured creditor of the Company. Maintaining its contractual relationships, particularly the supply and license arrangements, with Tandy is critical to the Company. The loss of such relationships with Tandy would have a material adverse effect on the Company. See "Business - Suppliers", "- Merchandise, License and Advertising Agreements" and Note 3 to the Notes to Consolidated Financial Statements contained in InterTAN's 1996 Annual Report to Stockholders. Quarterly Variations; Seasonality. The Company's quarterly results of operations may fluctuate significantly as the result of the timing of the opening of, and the amount of net sales contributed by, new stores and the timing of costs associated with the selection, leasing, construction and opening of new stores, as well as seasonal factors, product introductions and changes in product mix. The Company's business is seasonal, with sales and earnings being relatively lower during the fiscal quarters other than the second fiscal quarter which includes the Christmas selling season. Adverse business and economic conditions during this period may adversely affect results of operations. In addition, excluding the effects of new store openings, the Company's inventories and related short-term financing needs are seasonal, with the greatest requirements occurring during its second fiscal quarter. The Company's financial results for a particular quarter may not be indicative of results for an entire year and the Company's revenues and/or expenses will vary from quarter to quarter. The Company's operating results may also be affected by changes in global economic conditions in the markets where its stores are located, as well as by weather and other natural conditions. See "Business - Other - Seasonality" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Competition. The retailing industry in which the Company operates is highly competitive. Products substantially similar to those sold through the Company's retail outlets are sold by many other retail stores, including department and discount stores, consumer electronics chains and computer outlets. The nature and extent of competition differs from store to store and also from product line to product line. Certain of the Company's competitors are larger, have a high degree of market recognition and have greater resources, financial or otherwise, than the Company. In addition, some large United States retailers have recently expanded into the Canadian market. The Company believes that the major competitive factors in its businesses include customer service, store location, product availability and selection, price, technical support, and marketing and sales capabilities. The Company's utilization of trained personnel and the ability to use national and local advertising media in each country in which it operates are important to the Company's ability to compete in its businesses. Given the highly competitive nature of the retail industry, no assurances can be given that the Company will continue to compete successfully with respect to the above-referenced factors. See "Business - Geographic Analysis." Product Supply. The Company's merchandise strategy places heavy emphasis on private label products. These products are typically sourced for the Company in the Far East and manufactured to the Company's order and specification. Consequently, private label products require larger minimum order quantities and longer lead times than nationally branded product which is generally available locally on reasonably short notice. There can be no assurance that the Company will be able to arrange for the production of private label goods to the level required to meet its merchandising objectives. The 3 private label goods being sourced by the Company in the Far East are also typically purchased by Tandy and are, therefore manufactured to North American standards. These products are, with minor, and in many cases no, modifications, suitable for sale in Canada. However, the Company's Australian and U.K. operations require products using voltage and other specifications which differ from North American standards. There can be no assurance that vendors will agree to manufacture products to these specifications in quantities that are affordable to the Company. Delays in the timing of arrival of goods from the Far East could also have an adverse impact on the Company's business, particularly delays during the Christmas selling season. See "Business - Business Strategy" and "- Products." Dependence on Product Development. The Company's operating results are, and will continue to be, subject in part to the introduction and acceptance of new products in the consumer electronics industry. Fluctuations in consumer demand, which could be caused by lack of successful product development, delays in product introductions, product related difficulties or lack of consumer acceptance, could adversely affect the growth rate of sales of products and services and could adversely affect the Company's operating results. The Company's operating results are also affected by its ability to anticipate and quickly respond to the changes taking place in its markets as consumers' needs, interests and preferences alter with time. There can be no assurance that the Company will be successful in this regard. See "Business - Products and Distribution" and "- Business Strategy - Strategic Alliances." Offering Additional Products and Services. The Company's strategy, particularly in Canada due to its alliance with Rogers Cantel, Inc., includes offering additional communications products and services, which may include, among others, paging, cable television, home security monitoring and communication, cellular phone service, local phone service, and Internet access. Entry into new markets entails risks associated with the state of development of the market, intense competition from companies already operating in those markets, potential competition from companies that may have greater financial resources and experience than the Company, and increased selling and marketing expenses. There can be no assurance that the Company's products or services will receive market acceptance in a timely manner, or at all, or that prices and demand in new markets will be at a level sufficient to provide profitable operations. See "Business - Products and Distribution" and "- Business Strategy - Strategic Alliances." Reliance on Successful Expansion. The Company's success is dependent in part upon its ability to open and operate new stores on a profitable basis and to increase sales at existing stores. The Company's performance is also dependent to a significant degree upon its ability to hire, train and integrate qualified employees into its operations. The Company plans to open approximately 20 new stores in fiscal 1997. There can be no assurances that the Company will be able to locate and obtain favorable store sites to meet its expansion goals, attract and retain competent personnel, open new stores on a timely and cost- efficient basis or operate the new and existing stores on a profitable basis. The Company plans to open new stores in existing markets, which may result in the diversion of sales from existing stores and thus some reduction in comparable store sales. See "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Net Sales and Operating Revenues." Need for Additional Financing. The Company requires substantial capital to fund its inventory purchases and store openings and renovations. Consequently, the Company's ability to grow 4 and the future of its operations will be affected by the availability of financing and the terms thereof. There can be no assurance that the Company will have access to the financing necessary to meet its growth plans or that such financing will be available to the Company on favorable terms. See "Management's Discussion and Analysis of Financial Condition and Results of Operations- Liquidity and Capital Resources." Possible Income Tax Reassessments. The Company is in discussion with Revenue Canada regarding several issues relating to the Company's spin-off from Tandy and the Company's former operations in continental Europe. If Revenue Canada were to prevail in its stated position on these matters, after the Company had unsuccessfully pursued a11 rights of appeal, the Company would likely need to seek additional financing. Depending on the level of reassessments, the Company may also need to seek additional financing to post deposits necessary to pursue its rights of appeal. There can be no assurance that such additional financing would be available. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Income Taxes" and "- Liquidity and Capital Resources." Management Information Systems. The Company's success is dependent to a significant degree upon the accuracy and proper utilization of its management information systems. For example, the Company's ability to manage its inventories, accounts receivable, accounts payable and to price its products appropriately, depends upon the quality and utilization of the information generated by its management information systems. In addition, the success of the Company's expansion plan is dependent to a significant degree upon its management information systems. The failure of the Company's management information systems to adapt to business needs resulting from, among other things, expansion of its store base and the further development of its various businesses, could have a material adverse effect on the Company. See "Business- Management Information Systems." Volatility of Stock Price. The price of the Common Stock may be subject to significant fluctuations in response to the Company's operating results, developments in the consumer electronics industry, general market movements, economic conditions, and other factors. For example, announcements of fluctuations in the Company's, its vendors' or its competitors' operating results, and market conditions for growth stocks or retail industry stocks in general, could have a significant impact on the price of the Common Stock. In addition, the U.S. stock market in recent years has experienced price and volume fluctuations in general that may have been unrelated or disproportionate to the operating performance of individual companies. These fluctuations, as well as general economic and market conditions, may adversely affect the market price of the Common Stock and the ability of the Company to access the capital markets, if necessary, to finance its future operations. See "Market for the Registrant's Common Equity and Related Stockholder Matters" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Currency Fluctuation and Global Economic Risks. The Company's financial results are reported in U.S. Dollars. Due to the structure of the Company's operations, possible periodic fluctuation of local currencies against the U.S. dollar will have an impact on the Company's financial results. The Company's subsidiaries conduct business in several foreign currencies; accordingly, depreciation in the value of those currencies against the U.S. dollar reduces earnings as reported by the Company in its financial statements. The Company and its subsidiaries purchased approximately 30% of their inventory through Tandy in fiscal 1996. These purchases were all made in U.S. dollars and the products purchased were sold in Canada, the United Kingdom and Australia in local currencies. 5 Accordingly, exchange rate fluctuations could have a significant effect on the Company's gross margins. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations." Currency exchange rates may fluctuate significantly over short periods of time. Such rates generally are determined by the forces of supply and demand in the foreign exchange markets and the relative merits of investments in different countries, actual or perceived changes in interest rates, and other complex factors, as seen from an international perspective. Currency exchange rates also can be affected unpredictably by intervention by U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the United States or abroad. Furthermore, due to the nature of the Company's operations, the operating results of the Company may, from time to time, be generally affected by global economic and political conditions and such conditions in each particular country in which the Company operates. DESCRIPTION OF BUSINESS InterTAN is engaged principally in the sale of consumer electronics products and services through company-operated retail stores and dealer outlets in Canada, the United Kingdom and Australia. The Company also sells product to direct resellers and end users in certain European countries where the Company has no company-operated stores or licensed dealers. InterTAN's ongoing retail operations are conducted through three wholly-owned subsidiaries, InterTAN Australia Ltd. ("InterTAN Australia"), a New South Wales corporation which operates in Australia under the trade name "Tandy Electronics", InterTAN Canada Ltd. ("InterTAN Canada"), an Alberta corporation which operates in Canada under the trade name "RadioShack", and InterTAN U.K. Limited ("InterTAN U.K."), a U.K. corporation which operates in the United Kingdom under the "Tandy" trade name. As used herein, "InterTAN" or "Company" sometimes collectively refers to InterTAN, InterTAN Australia, InterTAN Canada and InterTAN U.K., accordinng to the context. In May 1993, InterTAN announced it was discontinuing its continental European operations. These operations were closed during fiscal year 1994. In addition, InterTAN Canada no longer trades under the Tandy Computer Center trade name. As at June 30, 1996, InterTAN's company-operated retail stores and dealers totaled 1,780 consisting of 450 company-operated and 402 dealer stores in Canada, 345 company-operated and 171 dealer stores in the U.K., and 210 company-operated and 202 dealer stores in Australia. InterTAN's company-operated retail stores are located primarily in leased premises. The "dealers" included in the above totals are independent retail businesses which operate under their own trade names but are permitted, under dealer agreements, to purchase any of the products sold by company-operated stores. The dealer agreements contain a sub-license permitting such dealer to designate its consumer electronics department or business as a "RadioShack Dealer", a "Tandy Dealer", or a "Tandy Electronics Dealer", as applicable. 6 EMPLOYEES As at June 30, 1996 InterTAN employed approximately 4,300 persons. Approximately 130 of InterTAN Canada's employees are represented by unions. Those employees are engaged in InterTAN Canada's warehousing and distribution operations and in the Company's stores in the province of Manitoba. Approximately 60 of InterTAN Australia's employees are represented by three separate unions. Approximately 30 of those individuals are employed in warehousing operations while the balance, who are repair technicians and security monitoring staff, are represented by separate unions. PRODUCTS AND DISTRIBUTION InterTAN's stores carry a broad range of private label and brand name, moderately priced, quality consumer electronics products. The Company's private label products are similar, and in many instances identical, to those sold through Tandy's RadioShack retail stores in the United States. The selection of products offered for sale is comprehensive ranging from, among other things, small parts and accessories to large ticket items such as stereo systems and computers. Classes of product include: parts and accessories, audio and video products, computer hardware and software, communication equipment, cellular phones and other wireless services, personal electronics products, telephones and fax machines, batteries and other small electronic items. It is management's view that the range of products offered by InterTAN is broader than that typically offered by others in the retail consumer electronics industry. The product line in InterTAN stores varies from country to country due to product availability, local laws, regulations and consumer preferences. The trade-marks RadioShack, Optimus and Tandy are used under license from Tandy; the Company's trade-marked brands include Genexxa and Techcessories. See "Merchandise, License and Advertising Agreements - License Agreements." InterTAN also offers its customers a selection of brand name products including, among others, Panasonic, AT&T, Compaq, IBM, Sony, Fisher, Microsoft and Sanyo (the lack of a (R), TM or SM is not intended, regarding a11 of the names referred to herein above, to indicate a lack of registration therefor). These brand name products have been selected to complement InterTAN's own private label lines either as extensions or to offer consumers a choice against which they may compare the relative capability and value of InterTAN'S private label products. Brand name goods are also used to test new products. Products substantially similar to those sold through InterTAN's retail outlets are sold by many other retail stores, including department stores, consumer electronics chains and computer outlets. In addition, management believes InterTAN is recognized as the leading retailer of certain categories of products (e.g., scanners and multi-testers), as being a primary source for other specific products (e.g., parts and accessories and cellular phones) and as having the widest selection in a given category (e.g., batteries). These areas of specialty and market leadership typically generate higher gross margin returns relative to certain of the Company's other product lines. 7 1996 SALES BY PRODUCT GROUP (Rounded to nearest 1%) Product Group Total ----------------------------- Audio/Video 18% Parts & Accessories 22% Computers 14% Communications 6% Personal Electronics 9% Other 31% --------------------------- 100% ==== InterTAN believes that it has an efficient product distribution system and efficient store operations systems and procedures. InterTAN has traditionally emphasized store operations and has developed information systems to monitor and control store performance. The store format typically incorporates the concept of small, strategically located stores mostly in primary and secondary retailing centers, and provides the customer with convenience and readily available products to meet a wide range of consumer electronic needs. InterTAN emphasizes product knowledge and customer service. Management believes that many customers perceive store personnel as having superior product knowledge and are, accordingly, a trusted information resource for consumers. InterTAN also provides after-sale service for all the products it sells during warranty periods and beyond. The Company has adapted RadioShack USA's "Repair Shop at RadioShack" program in each of its three markets. Under this program the Company offers out of warranty service to customers to repar a wide range of nationally branded electronic products. Regional service centers provide repair capability within a satisfactory turnaround period. MANAGEMENT INFORMATION SYSTEMS The Company has a network of point-of-sale terminals in every company- operated store in each of the three countries in which it operates. Each of the Company's stores has at least one or more computers which serve as point-of-sale terminals and are linked to operations headquarters in the particular country. This information network, referred to as EPOS, provides detailed sales and margin information on a daily basis, updates InterTAN's customer database and provides improved financial controls, as well as acting as a monitor of individual store performance. In Canada and the United Kingdom, EPOS is also linked directly to a system used to automatically replenish a store's stock as inventory is sold. These programs are store specific and not only ensure that stores are fully stocked with inventory in adequate and appropriate quantities but also relieve store managers of time consuming stock ordering duties, leaving them more time to spend with customers and staff. Management is currently in the process of integrating automatic inventory replenishment into the EPOS system in Australia. While various aspects of this system are currently operational, implementation of the entire program will not be completed until the fourth quarter of fiscal year 1997. 8 SUPPLIERS InterTAN acquires approximately 30% of its inventory pursuant to a merchandise agreement with Tandy and acquires the balance from numerous other manufacturers located in the United States and in the countries in which InterTAN has operations. InterTAN uses Tandy's purchasing and export agent, A&A International, Inc. ("A&A"), a wholly-owned subsidiary of Tandy, as its exclusive purchasing agent and exporter in the Far East. See "Merchandise, License and Advertising Agreements - Merchandise Agreements." In addition, InterTAN Canada previously operated a small manufacturing plant which manufactured TV antennas and CB car antennas and packaged miscellaneous parts and accessories. This plant was closed during fiscal 1995 and the products previously manufactured are now purchased locally or directly from Tandy or through A&A. InterTAN purchased approximately $95 million of products through Tandy in fiscal 1996. This amount is exclusive of certain costs normally associated with cost of goods such as duties, freight and certain taxes. Under its merchandise arrangements with Tandy, InterTAN may purchase any products which Tandy has available for sale in its then current RadioShack catalog, or those products which may otherwise be reasonably available from Tandy or through A&A. Through its ongoing relationship with Tandy, InterTAN is able to take advantage of Tandy's sourcing strength to obtain products which management believes generate gross margins which are higher than industry averages and which offer enhanced customer value. InterTAN is not materially dependent on any one supplier other than Tandy. See "Merchandise, License and Advertising Agreements." GEOGRAPHIC ANALYSIS The principal geographic areas of operations for InterTAN are Canada, Australia and the United Kingdom. InterTAN closed all company-operated outlets in continental Europe during fiscal year 1994. InterTAN has broader market coverage than most of its competitors due to the large number of stores in each country in which it operates. Market coverage is further enhanced by the dealer networks. A table appears in Note 14 to the Consolidated Financial Statements contained in InterTAN's 1996 Annual Report to Stockholders which appears on page 35 of Exhibit 13 to this Annual Report on Form 10-K which shows net sales, operating profit and identifiable assets of the Company by geographic area for the three years ended June 30, 1996. This table is incorporated herein by reference. Canada. As at June 30, 1996, InterTAN Canada operated a total of 450 RadioShack stores in Canada. In addition, a network of associated dealers accounts for a further 402 Canadian RadioShack locations. InterTAN Canada uses a form of contract management program in a small number of its company-operated stores. The consumer electronics industry in Canada is highly competitive. The influx of "big box" retailers into the Canadian market, some of them with origins in the United States, has added additional pressure to an already competitive marketplace. These conditions have been made even more difficult by the consumer's resistance to the price levels of the most recent generation of personal computers. Further, digital satellite systems, which have made a positive contribution to retailing results in the United States, have yet to be introduced in Canada due to regulatory restrictions and supplier 9 constraints. Management believes that InterTAN Canada's range of products and service orientation differentiate the Company from other consumer electronics retailers in Canada. Based on publicly available material, InterTAN believes that the largest retailers in Canada in fiscal 1996 (other than department stores) which have a product line similar to, or competitive with, products offered for sale by InterTAN Canada were: Approximate No. of Stores: ------------------------- Future Shop 72 Adventure Electronique 139 InterTAN's other main competitors in Canada are department stores, general retailers and other consumer electonics retailers. InterTAN Canada's RadioShack stores are very similar to those operated by Tandy in the United States. Because of its geographic proximity to the United States, InterTAN Canada enjoys the benefit of name recognition, and advertising in general, as many of Tandy's advertising programs penetrate the border through media such as cable television and print media. The Company is the market leader in Canada in the number of retail locations and offers the broadest geographic coverage. InterTAN Canada also maintains a strong presence in secondary retail markets through its dealer network. InterTAN Canada has a broad customer base. Management believes that the Company is considered the primary place to shop for products and advice in selected niches such as parts and accessories, cellular phones and personal electronics. United Kingdom. As at June 30, 1996, InterTAN U.K. had 345 company- operated stores and 171 dealer stores in the U.K., all operating under the Tandy name. Management has identified InterTAN U.K.'s primary competitors as: Approximate No. of Stores: ------------------------- Dixons/Curry's Group 771 Regional Electricity Boards 695 Comet (Kingfisher Group) 234 Consumer electronics retailing is undergoing significant change in the United Kingdom. In the last 18 months, the number of retail outlets has declined by approximately 650; additionally, there has been a shift from traditional "High Street" or similar downtown or in-town locations towards out-of-town centers. While these out-of-town centers account for approximately 35% of total consumer electronics retail sales, they tend to have a much different product mix than stores located in the High Street, with 70% of sales coming from white goods and large brown goods. This shift to out-of-town locations, combined with the closure of several chains which previously traded in downtown locations, 10 has left basically three competitors in the High Street - InterTAN U.K., Dixons and independents. It is management's view that Dixons is InterTAN's most direct competitor in the United Kingdom. Management believes that the shift towards out-of-town retailing will provide the Company with several strategic opportunities to fill the retail gap left in the High Street. Management believes that certain customer profiles will continue to shop in High Street locations and there will be continuing customer demand for products such as portable electronics and accessories from recognized retailers in those locations. Australia. As at June 30, 1996 InterTAN Australia had 210 company- operated stores and 202 dealer stores. Of the 210 company-operated retail stores, 146 are operated under "contract management" arrangements. Under the contract management arrangement, the store manager is not employed by InterTAN Australia. InterTAN Australia supplies the store inventory. The store manager is generally obliged to build up a cash deposit to InterTAN Australia amounting to 50% of the average stock value at the store. The gross profit attained by the store is split between InterTAN Australia and the contract manager, who is responsible for paying normal operating expenses such as labor and utility costs out of his/her share of the gross profits. Out of its share of the gross profits, InterTAN Australia is responsible for all payments and duties under the relevant store lease and other fixed operating expenses. InterTAN Australia is committed to providing warranty and service back-up, including advertising and training. Management believes that the contract management program is successful in improving margins and reducing costs by placing responsibility for bottom line performance on the contract manager. While the retailing of household goods in Australia is showing signs of improvement, performance in this category is still weak in comparison with other retail sectors, such as recreational goods and food. While the drought conditions in certain parts of Australia are improving, the general economic conditions in rural Australia continue to be poor. Further, the entrance into Australia of several new category-killer chains has put pressure on both sales and margins. In prior years, further turmoil was created in the marketplace as several of the Company's competitors went through periods of financial reorganization which resulted in downward pressure on pricing of certain products. As the economy in Australia begins to improve, the Company is positioned to take advantage of the opportunity to increase sales by building on its market strengths - a large number of convenient sales outlets, a broad product offering, including many unusual and hard to find items, and a well - trained and service oriented sales staff. With 412 company-operated and dealer locations, InterTAN Australia is Australia's largest consumer electronics retail chain in number of locations. Management believes that InterTAN's primary competitors in Australia are: Approximate No. of Stores: -------------------------- Vox 240 Brash 128 Dick Smith 78 Harvey Norman 59 11 There are few fully independent consumer electronics retailers in Australia since many of the independently owned electronics retailers are members of large buying groups such as Betta and Retravision, each having approximately 300 and 525 members, respectively. Business Strategy In recent years, the Company had experienced gradually eroding margins in its markets in Canada, Australia and the United Kingdom. Management believes that one of the factors which contributed to this decline in margins was a shift in the product mix from higher margin private label products, sourced primarily through Tandy, to lower margin nationally branded products. In response to this and other concerns, InterTAN has adopted a business strategy intended to refocus the Company in its unique market niche and to incorporate many of the new service initiatives created by Tandy's RadioShack division. As a first step in implementing this strategy, the Company appointed new management at corporate headquarters and in the Canadian and United Kingdom subsidiaries. A marketing director was also added to the Australian subsidiary. These individuals were recruited not only for their broad-based business skills, but more importantly for their extensive retail experience. The new strategy also involved the relocation of the Company's corporate headquarters from Canada to Fort Worth, Texas. This step was intended to strengthen InterTAN's strategic relationship with Tandy. The Company has an agreement with Tandy to enable it to take advantage of certain marketing and service initiatives introduced by RadioShack USA. These include the positioning statement "You've got questions. We've got answers." and the service initiatives: "The Repair Shop at RadioShack"; "RadioShack Express"; and "RadioShack Unlimited". See "Merchandise, License and Advertising Agreements - Advertising Agreement." Being located in Fort Worth should better enable the Company to maximize the benefits of these new initiatives. The key elements of InterTAN's business strategy are discussed more fully below. Products. InterTAN's strategy focuses on a product plan dedicated to profitable sales growth by improving operating margins while at the same time increasing sales. Cornerstones of this plan are a product offering which includes a higher concentration of private label goods, emphasis on core categories, simplifing the number of private label offerings and managing the performance of lower margin product groups. This strategy will be complemented by the introduction of certain of Tandy's service initiatives designed not only to produce revenue in their own right, but also to increase traffic in the Company's stores. During fiscal year 1996, the Company's sales consisted of the following: Private label goods 59% Name brand goods 27% Computers l4% ---- l00% ==== The Company's objective is to gradually increase the percentage in the product mix of higher margin private label goods from the present level. In order to achieve this objective, the Company is working more closely with A&A, which should enable the Company to expand the range of private label products available to its customers and to leverage Tandy's sourcing capabilities to negotiate 12 favorable prices and product offerings with Far East vendors. Increasing the level of private label products in the merchandise mix will be a gradual process as these products require longer lead times. Success in attaining this goal could also be influenced by a surge in popularity of products, such as personal computers and cellular phones, for which no private label offering is currently available. InterTAN has identified six categories which yield attractive margins and in which management believes the Company has a strong position in all of its markets. These include parts and accessories, telephones (including answering machines and fax machines), cellular phones, personal electronics products, communications equipment and batteries. These categories are emphasized in the Company's merchandising and marketing programs. InterTAN believes that regular promotion of these items and displaying them in a prominent place in its stores will result in higher sales and margins. In prior periods the Company utilized on its private label goods several brand names which were used under license from Tandy. In addition, InterTAN had developed many of its own brand names. Management believes that the numerous private label names then in use not only resulted in customer confusion but also increased the Company's product sourcing and marketing costs. In response to these concerns, the number of private label brand names has been reduced to five. Three of those - RadioShack, Optimus and Tandy - are used under license from Tandy. The remaining two - Genexxa and Techcessories - were developed and are owned by InterTAN and are typically used on private label goods sourced from a supplier other than Tandy. The final cornerstone of InterTAN's product strategy is managing the impact of lower margin product categories. These categories include but are not limited to, computers and video games. The Company has de-emphasized sales of video games in all of its operations and will, in most cases, only stock the most popular items. The Company has also reached an agreement in Canada with a leading supplier of video and computer games and software to stock those items in RadioShack Canada stores on a sale or return basis. This has reduced inventory costs and obsolescence risks associated with those products. While computers yield relatively low margins, the Company believes it is necessary to stock and display them to meet customer expectations and to stimulate sales of higher margin accessories and components. To minimize the impact on overall margins, the Company carefully monitors the level of computer sales to ensure that their share of the total sales mix is kept at a manageable level. STRATEGIC ALLIANCES. InterTAN has the largest number of sales outlets among consumer electronics retailers in both Canada and Australia and is among the top three in the United Kingdom. The Company has over twenty years of retail experience in all of its markets and is known for its knowledgeable and friendly sales associates. Management believes that there are opportunities to leverage on this strength by forming strategic alliances with other businesses which are also leaders in their respective fields. An example of such an alliance is the retail association announced in the fourth quarter of fiscal year 1996 between RadioShack Canada and Rogers Cantel, Inc. ("Cantel"), Canada's only nationally-licensed wireless communications company. Cantel will initially build 70 to 100 retail stores in major malls across Canada; RadioShack Canada will manage the majority of those stores. The stores will predominantly carry Cantel's existing and new products. However, approximately one quarter of the selling space will be devoted to the Company's end products and accessories. Additionally, most of 13 RadioShack Canada's 450 company-operated stores will exclusively feature Cantel wireless communications products and services. Cantel will fund the fixturing of "Wireless Specialists" sections in those stores for the exclusive offering of Cantel cellular products (including digital), paging and other services. This relationship aligns the Company's consumer electronics retail expertise with Cantel's technological strength. The Company has already established alliances with major cellular carriers in both Australia and the United Kingdom and will continue to pursue alliance opportunities, to the extent practicable, in other areas of its business in all three countries. RETAIL OPERATIONS. InterTAN will maintain its current strategy of leasing conveniently located stores in malls in Canada, malls and High Street locations in the United Kingdom and malls and street locations in Australia. The Company is also testing smaller formats, including the express store concept and retail kiosks, in Canada and the United Kingdom. These formats feature a targeted range of merchandise in a more compact floor plan and are established in high traffic areas that do not presently have a company-operated store or which could support a second location. A selected number of clearance stores are also being tested in the United Kingdom. ADVERTISING. Traditionally, InterTAN's advertising approach has been strongly product and price oriented and skewed heavily toward the utilization of print media with broadcast media support only occurring during the Christmas selling season. During fiscal year 1996, the Company added informative image advertising to promote its strength of having knowledgeable and service oriented sales associates whom consumers can trust to take the "technological mystery" out of their electronics purchases. Also, specific advertising with an emphasis on service was created as The Repair Shop program and other service initiatives were launched in each of the countries, thereby giving consumers additional reasons to buy, other than promotional prices alone. This strategy was supported by additional television image advertising outside of the Christmas period. In addition, InterTAN's flyer, catalog, newspaper insert and other newspaper advertising programs now carry the "You've got questions. We've got answers." positioning statement. The Repair Shop program and additional service initiatives were also featured as they were introduced. The Company continues to rely on a strong flyer program including direct mailings to households, newspaper inserts and other forms of distribution of its pre-printed advertising material. In Canada, for example, during fiscal year 1996 the Company's flyer program reached over 50% of Canadian households on a regular basis. Additional direct mail promotions were made to encourage repeat business in the Company's core categories where it has strong market positions and attractive margins. As well, innovative credit promotions and extended product warranties were offered and featured in the Company's advertising. INVENTORY AND DISTRIBUTION. Management believes that initiatives taken in the Management Information Systems area, including the installation of EPOS systems in all three countries and the use of automatic stock replenishment in Canada and the United Kingdom, combined with increased management attention focused on inventory flow, have generated higher inventory turns. The inventory turn ratio had increased steadily in recent years rising from 1.67 for fiscal year 1993 to 1.81 for the 1994 fiscal year and to 1.86 for fiscal year 1995. While management has continued to focus on inventory control, the additional inventory requirements needed to increase sales of private label goods (see "Business Strategy - Products") have made it difficult to maintain inventory turns at fiscal year 1995 levels. Consequently, inventory turns decreased to 1.83 for fiscal year 1996. The larger 14 minimum order size and longer lead time associated with private label purchases present risks that cannot be eliminated. Management believes that InterTAN's warehouse facilities are generally well located and efficent in each country. Late in fiscal year 1995, the parts warehouse in Canada was consolidated with the central warehouse to take advantage of excess capacity. This action has resulted in lower costs and improved effectiveness. A number of changes were made to the warehouse in the United Kingdom, including recruitment of new management, changes to the physical layout and improved security, all intended to improve performance, productivity and cost control. Management implemented improvements to its material handling systems in fiscal 1994 wich continue to increase productivity. Specifically, an electronic material picking system was installed in InterTAN's Canadian warehouse operations, which has increased the speed, accuracy and efficiency of inventory distribution. During fiscal year 1995, a new system for picking parts was introduced in Canada which has further increased the efficiency of inventory distribution. In the United Kingdom, a conveyorized batch picking system was installed late in fiscal year 1994 which has improved productivity and the flow of goods. During fiscal year 1995, InterTAN U.K. commenced a major enhancement of its computer hardware and software. The roll out of this new system was completed in fiscal year 1996 and has produced improved warehousing and distribution efficiencies. Early in fiscal year 1996, a new carrier was engaged in the United Kingdom to distribute inventory from the warehouse to the stores. One of the benefits of this new arrangement is the more frequent inventory replenishment of the InterTAN U.K. stores. MERCHANDISE, LICENSE AND ADVERTISING AGREEMENTS MERCHANDISE AGREEMENT. In October 1993 the Company and Tandy entered into a new Merchandise Agreement. This agreement requires the Company to use A&A as its exclusive exporter of products from the Far East during the term thereof. Consequently, the Company must pay A&A an annual purchasing agent/exporter fee equal to $1 million plus 0.2% of the Company's consolidated sales in excess of $500 million less certain credits the Company earns by purchasing products from Tandy and A&A. The Merchandise Agreement originally required the Company to provide irrevocable letters of credit to A&A in support of 100% of outstanding inventory purchase orders. In May 1994, this provision was amended to lower the level of letter of credit coverage to a minimum of 60% during the December to April period gradually rising to 90% in August. In October, 1995, agreement was reached to further lower the letter of credit requirements on certain Canadian purchases. The Company has recently reached agreement with Tandy whereby the same reduced letter of credit requirements have been extended to the Company's other subsidiaries. The terms of the various commissions and fees payable by InterTAN to Tandy under the Merchandise Agreement are to be reviewed by the parties during the six month periods ending June 30, 2000 and June 30, 2005. In the event that satisfactory agreement regarding such terms is not reached following such reviews, the Merchandise Agreement may be canceled by either party following 180 days prior written notice. 15 LICENSE AGREEMENTS. In October and November, 1993 the Company entered into a series of license agreements with Tandy. These agreements permit InterTAN to use the "RadioShack" trade name in Canada, the "Tandy" trade name in the United Kingdom and the "Tandy Electronics" trade name in Australia and New Zealand. Effective July 1, 1996, the expiry dates of these license agreements were extended from June 30, 2000 to June 30, 2006, with automatic annual extensions to June 30, 2010. The license agreements may be terminated with five years prior written notice by either party. Each of the license agreements also provides for a license to use certain of Tandy's trademarks. In addition, InterTAN has the right to sublicense to its dealers and franchisees. In consideration for these rights, the Company was obliged to pay a royalty of 0.25% of consolidated sales beginning in fiscal year 1996. This royalty will increase by up to 0.25% each fiscal year until it reaches a maximum of up to 1.0% in fiscal year 1999. Both the Merchandise Agreement and the license agreements may be revoked by Tandy in the event of a change in control of InterTAN, the default by the Company in payment of certain indebtedness owing to Tandy or a breach of the terms of the agreements. The rights to use the trade names licensed by Tandy are currently, and in varying degrees (depending on the country of business), essential to InterTAN's marketing ability. The loss of the licenses, particularly the license for the RadioShack trade name for Canada, could have a material adverse impact on the business of InterTAN. Because Tandy's U.S. advertising program includes television advertising received in parts of Canada, and because InterTAN Canada's RadioShack stores have a high profile and wide acceptance, the license to use Tandy's trademarks in Canada is more valuable than in the other countries in which InterTAN operates. ADVERTISING AGREEMENT. In June 1995, the Company announced an advertising agreement (the "InterTAN Advertising Agreement") with Tandy. Under the terms of the InterTAN Advertising Agreement, the Company is entitled to the limited use of certain materials and marks developed by or for Tandy since January 1, 1994, including the service marks and the trademarks "The Repair Shop at RadioShack", "RadioShack Unlimited" and "You've got questions. We've got answers." The right to use any marks covered by the InterTAN Advertising Agreement are vested in the Company by being added to the license agreements described above. In consideration for use of the materials and marks developed during calendar year 1994, the Company paid to Tandy a one-time license fee of $100,000. With respect to materials and marks developed during the term of the agreement, the Company has agreed to pay to Tandy 6% of Tandy's cost, as defined, of developing such materials and marks. The agreement currently expires December 31, 1996 but may, at the Company's request, and at Tandy's option, be extended. OTHER SEASONALITY. InterTAN's business is seasonal, with sales peaking in the November - December Christmas selling season. The United Kingdom and Australian operations were historically reported with a one month lag. Effective with fiscal year 1995, these subsidiaries changed their fiscal year end from May 31 to June 30 to coincide with that of the parent company. This change in reporting did not have a material effect on the annual consolidated financial statements. Cash flow requirements are also 16 seasonal since inventories build prior to the Christmas selling season. Significant inventory growth for all operations typically begins to build in late summer and peaks in mid November. COMPETITION. InterTAN is a specialty consumer electronics retailer and management is not aware of any direct competitors in the niche market in which the Company operates in most of InterTAN's markets. However, products substantially similar to many of those sold through InterTAN's retail outlets are sold by many other retail stores, including department and discount stores, consumer electronics chains and computer outlets. See "Geographic Analysis." Some of these competitors have greater resources, financial or otherwise, than InterTAN. Item 2. PROPERTIES. InterTAN owns three facilities consisting of a 412,000 square-foot building (owned by InterTAN Canada) containing office and warehouse space in Barrie, Ontario, Canada, where the headquarters of InterTAN Canada are located, a 152,000 square-foot building (owned by InterTAN Australia) containing office and warehouse space in Mount Druitt, New South Wales, Australia, where the headquarters of InterTAN Australia are located, and a 43,000 square-foot building (owned by InterTAN U.K.) located near Birmingham, England, where the headquarters for InterTAN U.K. and a properties warehouse are located. IntertTAN U.K. leases three facilities totaling 136,000 square feet near Birmingham, England in which the Company's distribution center and repair facilities are located.exit InterTAN's head office is located in a 6,675 square-foot facility in Fort Worth, Texas. With the exception of a retail store being located in each of InterTAN's three owned properties discussed above, InterTAN's retailing operations are primarily conducted in leased facilities. The average store size is between 1,200 and 1,800 square feet. For additional information concerning InterTAN's properties, the following sections of Exhibit 13 attached hereto are hereby incorporated by reference: Page ---- Rent Expense 17 Retail Square Feet 1 Sales Outlets 13 Item 3. LEGAL PROCEEDINGS. With the exception of the matters discussed in Notes 5 and 9 of the Notes to Consolidated Financial Statements contained in InterTAN's 1996 Annual Report to Stockholders which appear on pages 29 and 30 and 32, respectively, of Exhibit 13 attached hereto, such Notes being incorporated herein by reference, there are no material pending legal proceedings, other than ordinary routine litigation incidental to InterTAN's business, to which InterTAN or any of its subsidiaries is a party or to which any of their property is subject. 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The principal United States market in which InterTAN's common stock trades is the New York Stock Exchange. The common stock also trades in Canada on the Toronto Stock Exchange. The high and low closing sales prices (in U.S. dollars), as reported by the New York Stock Exchange, of InterTan's common stock for each full quarterly period within the two most recent fiscal years are set out below: Quarter Ended High Low ------------- ----- --- June 1996 6 7/8 5 1/4 March 1996 6 1/2 4 5/8 December 1995 9 3/8 7 1/8 September 1995 10 7 1/4 June 1995 7 7/8 6 5/8 March 1995 8 7/8 6 3/4 December 1994 8 3/4 6 3/4 September 1994 7 3/8 5 1/2 As of September 16, 1996, there were approximately 11,700 recordholders of InterTAN's common stock. InterTAN has never declared cash dividends. Based upon InterTAN's long-term growth opportunities, in the opinion of management, the stockholders are best served by InterTAN pursuing a strategy of reinvesting all profits. Further, InterTAN is currently precluded from paying dividends under both the Tandy Loan Agreement and the Syndicated Loan Agreement. ITEM 6. SELECTED FINANCIAL DATA. "Financial Highlights" contained in InterTAN's 1996 Annual Report to Stockholders which appears on page 1 of Exhibit 13 attached hereto is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in InterTAN's 1996 Annual Report to Stockholders which appears on pages 13 through 21 of Exhibit 13 attached hereto is incorporated herein by reference. 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following reports, statements and notes contained in InterTAN's 1996 Annual Report to Stockholders which appear on the indicated pages of Exhibit 13 attached hereto are incorporated herein by reference: Report of Independent Accountants - page 38 Consolidated Statements of Operations - Three years ended June 30, 1996 - page 22 Consolidated Balance Sheets - Two years ended June 30, 1996 - page 23 Consolidated Statements of Cash Flows - Three years ended June 30, 1996 - page 24 Consolidated Statements of Stockholders' Equity - Three years ended June 30, 1996 - page 25 Notes to Consolidated Financial Statements - pages 26-37 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There has been no change in independent accountants and no disagreement with any independent accountant on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure during the period since the end of fiscal 1995. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information called for by this Item with respect to directors and executive officers has been omitted pursuant to General Instruction G(3) to Form 10-K. This information is incorporated by reference from the 1996 definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A. ITEM 11. EXECUTIVE COMPENSATION. The information called for by this Item with respect to executive compensation has been omitted pursuant to General Instruction G(3) to Form 10-K. The information is incorporated herein by reference from the 1996 definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information called for by this Item with respect to security ownership of certain beneficial owners and management has been omitted pursuant to General Instruction G(3) to Form 10-K. This information is incorporated by reference from the 1996 definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A. 19 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information called for by this Item with respect to certain relationships and transactions with management and others has been omitted pursuant to General Instruction G(3) to Form 10-K. This information is incorporated by reference from the 1996 definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Documents filed as part of this report: (1) Financial Statements The consolidated financial statements of InterTAN incorporated by reference in this Form 10-K are listed in the index given in Item 8. (2) Financial Statement Schedules: Financial Statement Schedule VIII is filed herewith. All other financial statement schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 1996 Annual Report to Stockholders and included in Exhibit 13 attached hereto. (3) 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). 20 3(b) Bylaws (Filed as Exhibit 3(b) to InterTAN's Registration Statement on Form 10 and incorporated herein by reference). 3(b)(i) Amendments to Bylaws through August 3, 1990 (Filed as Exhibit 3(b)(i) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1990 and incorporated herein by reference). 3(b)(ii) Amendments to Bylaws through May 15, 1995 (Filed as Exhibit 3(b)(ii) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). * 3(b)(iii) Amended and Restated Bylaws. 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) InterTAN, Inc. Restated 1986 Stock Option Plan (as amended as of February 22, 1994 and April 18, 1995) (Filed as Exhibit 10(a) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 10(b) InterTAN, Inc. Restated 1991 Non-Employee Director Stock Option Plan (as amended through February 21, 1994) (Filed as Exhibit 10(b) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 10(c) Secured Loan Agreement with Trans World Electronics, Inc. (Filed as Exhibit 10(g) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1993 and incorporated herein by reference). 21 10(c)(i) First Amendment to Secured Loan Agreement with Trans World Electronics, Inc. dated January 4, 1994 (Filed as Exhibit 10(e)(i) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1994 and incorporated herein by reference). 10(c)(ii) Second Amendment to Secured Loan Agreement with Trans World Electronics, Inc. dated as of May 6, 1994 (Filed as Exhibit 10(g)(i) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1994 and incorporated herein by reference). 10(d) Warrant Agreement with Trans World Electronics, Inc. (Filed as Exhibit 10(h) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1993 and incorporated herein by reference). 10(e) Registration Rights Agreement between InterTAN, Inc. and Trans World Electronics, Inc. (Filed as Exhibit 10(i) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1993 and incorporated herein by reference). 10(f) Employment Agreement between InterTAN, Inc. and James T. Nichols dated January 1, 1995 (Filed as Exhibit 10(ii) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1995 and incorporated herein by reference). 10(g) Employment Agreement between InterTAN, Inc. and David S. Goldberg dated February 3, 1995 (Filed as Exhibit 10(iii) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1995 and incorporated herein by reference). 10(h) Employment Agreement between InterTAN, Inc. and John A. Capstick dated February 20, 1995 (Filed as Exhibit 10(iv) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1995 and incorporated herein by reference). 10(h)(i) Letter dated December 6, 1995 extending term of employment agreement for John A. Capstick (Filed as Exhibit 10(b) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1995 and incorporated herein by reference). 22 10(i) Employment Agreement between InterTAN, Inc. and James G. Gingerich dated March 1, 1995 (Filed as Exhibit 10(v) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1995 and incorporated herein by reference). 10(j) Employment Agreement between InterTAN, Inc. and Douglas C. Saunders dated March 10, 1995 (Filed as Exhibit 10(vi) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1995 and incorporated herein by reference). 10(k) Minutes of Settlement dated April 13, 1995 between InterTAN, Inc. and James B. Williams (Filed as Exhibit 10(k) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 10(1) Retirement and Severance Agreement dated July 31, 1994 between InterTAN, Inc. and Louis G. Neumann (Filed as Exhibit 10(1) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 10(m) Merchandise Agreement dated October 15, 1993 between InterTAN, Inc., InterTAN Canada Ltd., InterTAN U.K. Limited, InterTAN Australia Ltd., Technotron Sales Corp. Pty. Limited, Tandy Corporation and A&A International, Inc. (Filed as Exhibit 10(m) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1993 and incorporated herein by reference). 10(m)(i) First Amendment to Merchandise Agreement dated November 1, 1993 (Filed as Exhibit 10(m)(i) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1994 and incorporated herein by reference). 10(m)(ii) Second Amendment to Merchandise Agreement dated October 2, 1995 (Filed as Exhibit 10 to InterTAN's Quarterly Report on Form 10-Q for quarter ended September 30, 1995 and incorporated herein by reference). 10(m)(iii) Third Amendment to Merchandise Agreement dated February 1, 1996 (Filed as Exhibit 10(b) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1996 and incorporated herein by reference). 23 10(n) License Agreement dated November 4, 1993 between Tandy Corporation and InterTAN Australia Ltd. (Filed as Exhibit 10(n) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1993 and incorporated herein by reference). 10(o) License Agreement dated November 4, 1993 between Tandy Corporation and InterTAN U.K. Limited (Filed as Exhibit 10(o) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1993 and incorporated herein by reference). 10(o)(i) First Amendment to License Agreement (United Kingdom) between InterTAN U.K. Limited and Tandy Corporation dated April 21, 1995 (Filed as Exhibit 10(o)(i) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 10(p) License Agreement dated November 4, 1993 between Tandy Corporation and InterTAN Canada Ltd. (Filed as Exhibit 10(p) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1993 and incorporated herein by reference). 10(p)(i) First Amendment to License Agreement (Canada) between InterTAN Canada Ltd. and Tandy Corporation dated March 24, 1995 (Filed as Exhibit 10(i) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1995 and incorporated herein by reference). 10(p)(ii) Second Amendment to License Agreement (Canada), Second Amendment to License Agreement (United Kingdom), and First Amendment to License Agreement (Australia and New Zealand), each dated November 9, 1995 (Filed as Exhibit 10(a) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1995 and incorporated herein by reference). * 10(p)(iii) Third Amendment to License Agreement (Canada), Third Amendment to License Agreement (United Kingdom), and Second Amendment to License Agreement (Australia and New Zealand), each dated June 26, 1996. 10(q) Credit Agreement dated as of May 6, 1994 (Filed as Exhibit 10(q) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1994 and incorporated herein by reference). 24 10(q)(i) Amending Agreement and Extension Agreement, each dated as of April 25, 1995, amending and extending Credit Agreement (Filed as Exhibit 10(q)(i) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 10(q)(ii) Amending Agreement dated March 1, 1996, amending and extending Credit Agreement (Filed as Exhibit 10(c) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1996 and incorporated herein by reference). * 10(q)(iii) Amending Agreement dated June 25, 1996, amending and extending Credit Agreement. 10(r) Inventory Repurchase Agreement dated as of May 6, 1994 (Filed as Exhibit 10(r) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1994 and incorporated herein by reference). 10(s) InterTAN Advertising Agreement and first amendment thereto (Filed as Exhibit 10(s) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 10(s)(i) Second Amendment to InterTAN Advertising Agreement dated to be effective as of January 1, 1996 (Filed as Exhibit 10(a) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1996 and incorporated herein by reference). 10(t) Master Sales Agreement (United Kingdom) dated to be effective as of December 31, 1995, among InterTAN, Inc., InterTAN U.K. Limited, and Tandy Corporation (Filed as Exhibit 10(c) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1995 and incorporated herein by reference). * 11 Statement of Computations of Earnings per Share. * 13 1996 Annual Report to Stockholders page 1 ("Financial Highlights" only) and pages 13 through 38. 21 Subsidiaries of InterTAN, Inc. (Filed as Exhibit 21 to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 25 * 23 Consent of Independent Accountants * 27 Article 5 Financial Data Schedule - -------------- * Filed herewith (b) No reports on Form 8-K were filed during the fourth quarter of the fiscal year ended June 30, 1996. 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. InterTAN, Inc. September 27, 1996 /s/James T. Nichols ------------------------------------- James T. Nichols President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 27th day of September 1996 by the following persons on behalf of InterTAN, Inc. and in the capacities indicated. Signature Title - --------- ----- /s/James G. Gingerich Senior Vice President and - -------------------------- Chief Financial Officer James G. Gingerich (Principal Financial Officer) /s/Douglas C. Saunders Vice President and - -------------------------- Corporate Controller Douglas C. Saunders (Principal Accounting Officer) /s/John A. Capstick Director and - -------------------------- Chairman of the Board John A. Capstick /s/Brian H. Christopher - -------------------------- Brian H. Christopher Director /s/Clark A. Johnson - -------------------------- Clark A. Johnson Director /s/Walter F. Loeb - -------------------------- Walter F. Loeb Director /s/John H. McDaniel - -------------------------- John H. McDaniel Director /s/W. Darcy McKeough - -------------------------- W. Darcy McKeough Director /s/Ron. G. Stegall - -------------------------- Ron G. Stegall Director 27 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of InterTAN, Inc. Our audits of the consolidated financial statements referred to in our report dated September 18, 1996, appearing on Page 38 of the 1996 Annual Report to Shareholders of InterTAN, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K), also included an audit of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/Price Waterhouse LLP PRICE WATERHOUSE LLP Fort Worth, Texas September 18, 1996 SCHEDULE VIII InterTAN, Inc. Valuation and Qualifying Accounts and Reserves (In thousands) Business Restructuring Reserve
Deducted Deducted Deducted Included Included in Total from from from Other in in Other Inventory Property and Non-Current Accrued Non-Current Equipment Assets Expenses Liabilities ----------------------------------------------------------------------------------------- Balance, June 30, 1993 $ 25,140 $ 21,926 $ 858 $ 26,507 $ 5,400 $ 79,831 Payments and other dispositions, net (25,140) (21,926) (858) (20,127) (5,400) (73,451) --------- --------- -------- --------- --------- --------- Balance, June 30, 1994 - - - 6,380 - 6,380 Credited to cost and expense - - - (1,600) - (1,600) Payments and other dispositions, net - - - (2,170) - (2,170) --------- --------- -------- --------- --------- --------- Balance, June 30, 1995 - - - 2,610 - 2,610 Payments and other dispositions, net - - - 20 - 20 --------- --------- -------- --------- --------- --------- Balance, June 30, 1996 $ - $ - $ - $ 2,630 $ - $ 2,630 ========= ========= ======== ========= ========= =========
SCHEDULE VIII InterTAN, Inc. Valuation and Qualifying Accounts and Reserves (In thousands)
Year ended June 30 -------------------------------------------- 1996 1995 1994 ---------- ---------- ---------- Allowance for Doubtful Accounts Balance, beginning of year $ 1,175 $ 1,259 $ 1,308 Additions charged to profit and loss 599 126 375 Accounts receivable charged off, net of recoveries (28) (210) (424) ---------- ---------- ---------- Balance, end of year $ 1,746 $ 1,175 $ 1,259 ========== ========== ========== Deferred Tax Valuation Allowance Balance, beginning of year $ 28,107 $ 37,578 $ - Additions to valuation allowance 3,610 3,427 54,987 Adjustments to valuation allowance (329) (9,100) (17,828) Reduction in deferred tax assets (927) (3,690) - Other - (108) 419 ---------- ---------- ---------- Balance, end of year $ 30,461 $ 28,107 $ 37,578 ========== ========== ==========
INDEX TO EXHIBITS ----------------- Exhibit No. Description ----------- ----------- 3(a) Restated Certificate of Incorporation (Filed as Exhibit 3(a) to InterTAN's Registration Statement on Form 10 and incorporated herein by reference). 3(a)(i) Certificate of Amendment of Restated Certificate of Incorporation (Filed as Exhibit 3(a)(i) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 3(a)(ii) Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock (Filed as Exhibit 3(a)(i) to InterTAN's Registration Statement on Form 10 and incorporated herein by reference). 3(b) Bylaws (Filed as Exhibit 3(b) to InterTAN's Registration Statement on Form 10 and incorporated herein by reference). 3(b)(i) Amendments to Bylaws through August 3, 1990 (Filed as Exhibit 3(b)(i) to InterTAN's Annual Report on Form 10- K for fiscal year ended June 30, 1990 and incorporated herein by reference). 3(b)(ii) Amendments to Bylaws through May 15, 1995 (Filed as Exhibit 3(b)(ii) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). *3(b)(iii) Amended and Restated Bylaws. 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). Exhibit No. Description ----------- ----------- 10(a) InterTAN, Inc. Restated 1986 Stock Option Plan (as amended as of February 22, 1994 and April 18, 1995) (Filed as exhibit 10(a) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 10(b) InterTAN, Inc. Restated 1991 Non-Employee Director Stock Option Plan (as amended through February 21, 1994) (Filed as Exhibit 10(b) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 10(c) Secured Loan Agreement with Trans World Electronics, Inc. (Filed as Exhibit 10(g) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1993 and incorporated herein by reference). 10(c)(i) First Amendment to Secured Loan Agreement with Trans World Electronics, Inc. dated January 4, 1994 (Filed as Exhibit 10(e)(i) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1994 and incorporated herein by reference). 10(c)(ii) Second Amendment to Secured Loan Agreement with Trans World Electronics, Inc. dated as of May 6, 1994 (Filed as Exhibit 10(g)(i) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1994 and incorporated herein by reference). 10(d) Warrant Agreement with Trans World Electronics, Inc. (Filed as Exhibit 10(h) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1993 and incorporated herein by reference). 10(e) Registration Rights Agreement between InterTAN, Inc. and Trans World Electronics, Inc. (Filed as Exhibit 10(i) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1993 and incorporated herein by reference). 10(f) Employment Agreement between InterTAN, Inc. and James T. Nichols dated January 1, 1995 (Filed as Exhibit 10(ii) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1995 and incorporated herein by reference). 10(g) Employment Agreement between InterTAN, Inc. and David S. Goldberg dated February 3, 1995 (Filed as Exhibit 10(iii) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1995 and incorporated herein by reference). Exhibit No. Description ----------- ----------- 10(h) Employment Agreement between InterTAN, Inc. and John A. Capstick dated February 20, 1995 (Filed as Exhibit 10(iv) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1995 and incorporated herein by reference). 10(h)(i) Letter dated December 6, 1995 extending term of employment agreement for John A. Capstick (Filed as Exhibit 10(b) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1995 and incorporated herein by reference). 10(i) Employment Agreement between InterTAN, Inc. and James G. Gingerich dated March 1, 1995 (Filed as Exhibit 10(v) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1995 and incorporated herein by reference). 10(j) Employment Agreement between InterTAN, Inc. and Douglas C. Saunders dated March 10, 1995 (Filed as Exhibit 10(vi) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1995 and incorporated herein by reference). 10(k) Minutes of Settlement dated April 13, 1995 between InterTAN, Inc. and James B. Williams (Filed as Exhibit 10(k) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 10(l) Retirement and Severance Agreement dated July 31, 1994 between InterTAN, Inc. and Louis G. Neumann (Filed as Exhibit 10(l) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 10(m) Merchandise Agreement dated October 15, 1993 between InterTAN, Inc., InterTAN Canada Ltd., InterTAN U.K. Limited, InterTAN Australia Ltd., Technotron Sales Corp. Pty. Limited, Tandy Corporation and A&A International, Inc. (Filed as Exhibit 10(m) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1993 and incorporated herein by reference). 10(m)(i) First Amendment to Merchandise Agreement dated November 1, 1993 (Filed as Exhibit 10(m)(i) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1994 and incorporated herein by reference). Exhibit No. Description ----------- ----------- 10(m)(ii) Second Amendment to Merchandise Agreement dated October 2, 1995 (Filed as Exhibit 10 to InterTAN's Quarterly Report on Form 10-Q for quarter ended September 30, 1995 and incorporated herein by reference). 10(m)(iii) Third Amendment to Merchandise Agreement dated February 1, 1996 (Filed as Exhibit 10(b) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1996 and incorporated herein by reference). 10(n) License Agreement dated November 4, 1993 between Tandy Corporation and InterTAN Australia Ltd. (Filed as Exhibit 10(n) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1993 and incorporated herein by reference). 10(o) License Agreement dated November 4, 1993 between Tandy Corporation and InterTAN U.K. Limited (Filed as Exhibit 10(o) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1993 and incorporated herein by reference). 10(o)(i) First Amendment to License Agreement (United Kingdom) between InterTAN U.K. Limited and Tandy Corporation dated April 21, 1995 (Filed as Exhibit 10(o)(i) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 10(p) License Agreement dated November 4, 1993 between Tandy Corporation and InterTAN Canada Ltd. (Filed as Exhibit 10(p) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1993 and incorporated herein by reference). 10(p)(i) First Amendment to License Agreement (Canada) between InterTAN Canada Ltd. and Tandy Corporation dated March 24, 1995 (Filed as Exhibit 10(i) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1995 and incorporated herein by reference). 10(p)(ii) Second Amendment to License Agreement (Canada), Second Amendment to License Agreement (United Kingdom), and First Amendment to License Agreement (Australia and New Zealand), each dated November 9, 1995 (Filed as Exhibit 10(a) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1995 and incorporated herein by reference). Exhibit No. Description ----------- ----------- *10(p)(iii) Third Amendment to License Agreement (Canada), Third Amendment to License Agreement (United Kingdom), and Second Amendment to License Agreement (Australia and New Zealand), each dated June 26, 1996. 10(q) Credit Agreement dated as of May 6, 1994 (Filed as Exhibit 10(q) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1994 and incorporated herein by reference). 10(q)(i) Amending Agreement and Extension Agreement, each dated as of April 25, 1995, amending and extending Credit Agreement (Filed as Exhibit 10(q)(i) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 10(q)(ii) Amending Agreement dated March 1, 1996, amending and extending Credit Agreement (Filed as Exhibit 10(c) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1996 and incorporated herein by reference). *10(q)(iii) Amending Agreement dated June 25, 1996, amending and extending Credit Agreement. 10(r) Inventory Repurchase Agreement dated as of May 6, 1994 (Filed as Exhibit 10(r) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1994 and incorporated herein by reference). 10(s) InterTAN Advertising Agreement and first amendment thereto (Filed as Exhibit 10(s) to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). 10(s)(i) Second Amendment to InterTAN Advertising Agreement dated to be effective as of January 1, 1996 (Filed as Exhibit 10(a) to InterTAN's Quarterly Report on Form 10-Q for quarter ended March 31, 1996 and incorporated herein by reference). 10(t) Master Sales Agreement (United Kingdom) dated to be effective as of December 31, 1995, among InterTAN, Inc., InterTAN U.K. Limited, and Tandy Corporation (Filed as Exhibit 10(c) to InterTAN's Quarterly Report on Form 10-Q for quarter ended December 31, 1995 and incorporated herein by reference). Exhibit No. Description ----------- ----------- * 11 Statement of Computations of Earnings per Share. * 13 1996 Annual Report to Stockholders page 1 ("Financial Highlights" only) and pages 13 through 38. 21 Subsidiaries of InterTAN, Inc. (Filed as Exhibit 21 to InterTAN's Annual Report on Form 10-K for fiscal year ended June 30, 1995 and incorporated herein by reference). * 23 Consent of Independent Accountants. * 27 Article 5 Financial Data Schedule. _________________ * Filed herewith EX-3.BIII 2 AMENDED AND RESTATED BYLAWS Exhibit 3(b)(iii) INTERTAN, INC. AMENDED AND RESTATED BYLAWS (AS AMENDED THROUGH FEBRUARY 19, 1996) ARTICLE I OFFICES SECTION 1. Registered Office. The registered office of InterTAN, ----------------- Inc. (hereinafter called the "Corporation") within the State of Delaware shall be located in the City of Wilmington, County of New Castle. SECTION 2. Other Offices. The Corporation may also have an ------------- office or offices and keep the books and records of the Corporation, except as may otherwise be required by law, in such other place or places, within or without the State of Delaware, as the Board of Directors of the Corporation (hereinafter sometimes called the "Board") may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. Place of Meetings. All meetings of stockholders of the ----------------- Corporation shall be held at the office of the Corporation in the State of Delaware or at such other place, within or without the State of Delaware, as may from time to time be fixed by the Board or specified or fixed in the respective notices or waivers of notice thereof. SECTION 2. Annual Meetings. The annual meeting of stockholders --------------- of the Corporation for the election of Directors (which shall be by a plurality vote) and for the transaction of such other business as may properly come before the meeting shall be held annually on such date and at such time as may be fixed by the Board. To be properly brought before the annual meeting, business must be either (a) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the annual meeting by or at the direction of the Board, or (c) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before the annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. A stockholder's proposal must be received at the principal executive offices of the Corporation on a timely basis in accordance with the rules and regulations of the Securities and Exchange Commission. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be transacted at the annual meeting except in accordance with the procedures set forth in this Section; provided, however, that nothing in this Section shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting. The Chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that certain business was not properly brought before the meeting in accordance with the provision of this Section, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 3. Special Meetings. Special meetings of the ---------------- stockholders for any purpose or purposes, unless otherwise prescribed by statue or by the Corporation's Restated Certificate of Incorporation, may be called by the Chairman of the Board or the President and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at all special meetings shall be confined to the purposes stated in the notice of special meeting. SECTION 4. Action. As provided in the Corporation's Restated ------ Certificate of Incorporation, no action required to be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. SECTION 5. Notice. Written or printed notice of every meeting of ------ stockholders, annual or special, stating the time and place thereof, and, if a special meeting, the purpose or purposes in general terms for which the meeting is called shall, not less than ten (10) days before such meeting, be served upon or mailed to each stockholder entitled to vote thereat, at his address as it appears upon the books of the Corporation or, if such stockholder shall have filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, then to the address designated in such request. SECTION 6. Quorum. Except as otherwise provided by law or by the ------ Corporation's Restated Certificate of Incorporation, the presence in person or by proxy at any meeting of stockholders of the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote thereat shall be requisite and shall constitute a quorum. If, however, such majority shall not be represented at any meeting of the stockholders regularly called, the holders of a majority of the shares present in person or by proxy and entitled to vote thereat shall have power to adjourn the meeting to another time, or to another time and place, without notice other than announcement of adjournment at the meeting, and there may be successive adjournments for like cause and in like manner until the requisite amount of shares entitled to vote at such meeting shall be represented. At such adjourned meeting at which the requisite amount of shares entitled to vote thereat shall be represented, any business may be transacted at the meeting as originally notified. SECTION 7. Votes and Proxies. At each meeting of stockholders, ----------------- every stockholder shall have one vote for each share of capital stock entitled to vote which is registered in his name on the books of the Corporation on the date on which the transfer books were closed, if closed, or on the date set by the Board of Directors for the determination of stockholders entitled to vote at such meeting. At such meeting every stockholder shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to the meeting in question, unless said instrument provides for a longer period during which it is to remain in force. At all meetings of the stockholders, a quorum being present, all matters shall be decided by a majority vote of the shares of stock entitled to vote held by stockholders present in person or by proxy, except as otherwise required by the Restated Certificate of Incorporation or by any applicable law. Unless so directed by the Chairman of the meeting, or required by the Delaware General Corporation Laws, the vote thereat on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or in his name by his proxy, if there be such proxy, and shall state the number of shares voted by him and the number of votes to which each share is entitled. On a vote by ballot, the Chairman shall appoint two inspectors of election, who shall first take and subscribe an oath or affirmation faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of their ability and who shall take charge of the polls and after the balloting shall make a certificate of the result of the vote taken; but no director or candidate for the office of director shall be appointed as such inspector. SECTION 8. Stock List. At least ten (10) days before every ---------- election of directors, a complete list of stockholders entitled to vote at such meeting, arranged in alphabetical order, with the residence of each and the number of voting shares held by each shall be made available by the Secretary for inspection. Such list shall be open, at a specified place within the city or at the place where the meeting is to be held for said ten (10) days, to the examination of any stockholder entitled to vote at that meeting and shall be produced and kept at the time and place of the meeting during the whole time thereof, and subject to the inspection of any stockholder who may be present. ARTICLE III DIRECTORS SECTION 1. Number. The business and property of the Corporation ------ shall be conducted and managed by a board consisting of such number of directors as shall be fixed from time to time by resolution adopted by a majority of the entire Board of Directors, but not less than three (3), none of whom need be a stockholder. The board shall initially be composed of three (3) directors elected by the Incorporator of the Corporation. Any vacancy resulting from any increase in the size of the Board of Directors shall be filled as provided in Section 4 of this Article III. No decrease in the number of the directors shall have the effect of removing any incumbent director from office. SECTION 2. Term of Office. As provided in the Restated -------------- Certificate of Incorporation, the directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The exact number of directors and the exact number of directors in each such class shall be determined from time to time by resolution adopted by the Board of Directors. From the initial Board of Directors elected by the Incorporator of the Corporation, the Class I director shall serve for a one year term, the Class II director for a two year term and the Class III director for a three year term. At each annual meeting of stockholders beginning in 1987, successors to the class of directors whose term expires at that annual meeting shall be elected for a three year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director elected to fill a newly created directorship resulting from an increase in the number of directors shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. No director shall be removed from office without cause, except upon the affirmative vote of the holders of eighty percent (80%) of the shares then entitled to vote at an election of directors. SECTION 3. Election of Directors. Nominations for the election of --------------------- directors may be made by the Board of Directors or a nominating committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of directors generally. However, any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting, ninety (90) days prior to the anniversary date of the immediately preceding annual meeting, and (ii) with respect to an election to be held at a special meeting for the election of directors, the close of business on the tenth (10th) day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (A) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (B) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (C) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (D) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules and regulations of the Securities and Exchange Commission as then in effect; and (E) the consent of each nominee to serve as a director of the Corporation if so elected. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. The vote necessary to elect directors shall be as set forth in these Bylaws including, without limitation, Article II, Section 7 hereof, unless otherwise required by the Delaware General Corporation Laws. SECTION 4. Vacancies. If any vacancy shall occur among the --------- directors, or if the number of directors shall at any time be increased, the directors in office, although less than a quorum, by a majority vote may fill the vacancies or newly created directorships. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as herein provided in the filling of other vacancies. SECTION 5. Meetings. Meetings of the Board of Directors shall be -------- held at such place within or without the State of Delaware as may from time to time be fixed by resolution of the Board of Directors or by the Chairman of the Board, or by the President or as may be specified in the notice or waiver of notice of any meeting. Meetings may be held at any time upon the call of the Chairman of the Board, the President or the Secretary or any two (2) of the directors in office by oral, telegraphic, or written notice, duly served or sent or mailed to each director no less than one (1) day before such meeting. Meetings may be held at any time and place without notice if all the directors are present, or if those not present shall in writing or by telegram or cable waive notice thereof. A regular meeting of the Board of Directors may be held without notice immediately following the annual meeting of stockholders at the place where such annual meeting is held. Regular meetings of the board may also be held without notice at such time and place as shall from time to time be determined by resolution of the Board of Directors. Members of the Board of Directors may participate in a meeting of such board by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant hereto shall constitute presence in person at such meeting. SECTION 6. Quorum. One third, but not less than two (2), of the ------ directors shall constitute a quorum for the transaction of business. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time without notice other than announcement of the adjournment at the meeting, and at such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 7. Compensation. The directors may be paid their ------------ expenses, if any, of attendance at each meeting of the Board of Directors, a fixed sum for attendance at each meeting of the Board of Directors and/or a stated fee as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of the Executive Committee and/or other committees may be allowed like compensation and reimbursement of expenses for attending committee meetings. ARTICLE IV EXECUTIVE COMMITTEE AND OTHER COMMITTEES SECTION 1. Executive Committee. The Board of Directors may, by ------------------- resolution passed by a majority of the whole board, appoint an Executive Committee of two (2) or more members, to serve at the pleasure of the Board of Directors, to consist of such directors as the Board of Directors may from time to time designate. The chairman of the Executive Committee shall be designated by the Board of Directors. SECTION 2. Procedure. The Executive Committee, by a vote of a --------- majority of its members, shall fix its own times and places of meeting, shall determine the number of its members constituting a quorum for the transaction of business, and shall prescribe its own rules of procedure, no change in which shall be made other than by a majority vote of its members. Members of the Executive Committee or any other committee may participate in a meeting of such committee by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant hereto shall constitute presence in person at such meeting. SECTION 3. Powers. During the interval between the meetings of ------ the Board of Directors, the Executive Committee shall possess and may exercise all the powers of the Board of Directors in the management and direction of the business and affairs of the Corporation, to the extent permitted by law. SECTION 4. Minutes. The Executive Committee shall keep regular ------- minutes of its proceedings and all action by the Executive Committee shall be reported to the Board of Directors at its next meeting. Such action shall be subject to review by the Board of Directors, provided that no rights of third parties shall be affected by such review. SECTION 5. Other Committees. From time to time the Board of ---------------- Directors, by the affirmative vote of a majority of the entire Board of Directors, may appoint other committees for any purpose or purposes, and such committees shall have such powers as shall be conferred by the resolutions of appointment, and as shall be permitted by law. ARTICLE V OFFICERS SECTION 1. Officers. The Board of Directors shall elect, as -------- officers, a Chairman of the Board, a President, a Chief Executive Officer, a Treasurer and a Secretary, and in their discretion one or more of the following officers: Chief Operating Officer, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant Secretaries, and Assistant Treasurers. Such officers shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders, and each shall hold office until the corresponding meeting of the Board of Directors in the next year and until his successor shall have been duly executed and qualified, or until he shall have died or resigned or shall have been removed in the manner provided herein. The powers and duties of two or more officers may be exercised and performed by the same person, except the offices of President and Secretary. SECTION 2. Vacancies. Any vacancy in any office may be filled --------- for the unexpired portion of the term by the Board of Directors at any regular or special meeting. SECTION 3. Chairman of the Board. The Chairman of the Board (who --------------------- may also hold the office of Chief Executive Officer and/or President or other offices) shall preside at all meetings of the stockholders and the Board of Directors and have such other duties as the Board of Directors may prescribe. In the Chairman's absence, such duties shall be attended to by the President or any Vice President. SECTION 4. President/Chief Executive Officer. The President and --------------------------------- Chief Executive Officer shall be the chief executive officer of the Corporation, and, subject to the provisions of these Bylaws, shall have general and active control of all of its business and affairs. He shall have the power to (i) appoint and remove subordinate officers, agents and employees, except that he may not remove those elected or appointed by the Board of Directors, and (ii) delegate and determine their duties. He shall keep the Board of Directors and the Executive Committee (if any) fully informed and shall consult them concerning the business of the Corporation. He may sign, with the Secretary or another officer of the Corporation thereunto authorized by the Board of Directors, certificates for shares of the Corporation and any deeds, bonds, mortgages, contracts, checks, notes, drafts or other instruments the issue or execution of which shall have been authorized by resolution of the Board of Directors, except in cases where the signing and execution thereof has been expressly delegated by these Bylaws or by the Board of Directors to some other officer or agent of the Corporation, or shall be required by law to be otherwise executed. He shall vote, or give a proxy to any other officer of the Corporation to vote, all shares of stock of any other corporation standing in the name of the Corporation. He shall, in general, perform all other duties normally incident to or as usually appertain to the office of President and Chief Executive Officer and such other duties as may be prescribed by these Bylaws, the stockholders, the Board of Directors or the Executive Committee (if any), from time to time. If the positions of President and Chief Executive Officer are held by two persons, then the Chief Executive Officer shall have the powers and responsibilities described in the previous paragraph. In such case, the President shall be considered the Chief Operating Officer, and he shall have the responsibilities assigned to him by the Chief Executive Officer. SECTION 5. Executive Vice Presidents. The Executive Vice ------------------------- Presidents, if any, shall perform such duties as the Board of Directors may prescribe. In the absence or disability of the President, the Executive Vice Presidents, in the order of their seniority in each office, or in such order as may be specified by the Board of Directors, shall perform the duties and exercise the powers of the President. In addition, the Executive Vice Presidents shall perform such duties as from time to time may be delegated to them by the Chairman of the Board or President. SECTION 6. Senior Vice Presidents. The Senior Vice Presidents, if ---------------------- any, shall perform such duties as the Board of Directors may prescribe. In the absence or disability of the President and the Executive Vice Presidents, the Senior Vice Presidents in the order of their seniority in each office, or in such other order as may be specified by the Board of Directors, shall perform the duties and exercise the powers of the President. In addition, the Senior Vice Presidents shall perform such duties as may from time to time be delegated to them by the Chairman of the Board, President or Executive Vice Presidents. SECTION 7. Vice Presidents. The Vice Presidents shall perform --------------- such duties as the Board of Directors may prescribe. In the absence or disability of the President, the Executive Vice Presidents, and the Senior Vice Presidents, the Vice Presidents in the order of their seniority in each office, or in such other order as may be specified by the Board of Directors, shall perform the duties and exercise the powers of the President. In addition, the Vice Presidents shall perform such duties as may from time to time be delegated to them by the Chairman of the Board, President, Executive Vice Presidents, or Senior Vice Presidents. SECTION 8. Treasurer. The Treasurer shall have charge of and be --------- responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit, or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks, trust companies or other depositories as shall, from time to time, be selected by the Board of Directors; he may endorse for collection on behalf of the Corporation, checks, notes and other obligations; he may sign receipts and vouchers for payments made to the Corporation; singly or jointly with another person as the Board of Directors may authorize, he may sign checks of the Corporation and pay out and dispose of the proceeds under the direction of the Board of Directors; he shall cause to be kept correct books of account of all the business and transactions of the Corporation, shall see that adequate audits thereof are currently and regularly made, and shall examine and certify the accounts of the Corporation; he shall render to the Board of Directors, the Executive Committee, the Chairman of the Board or to the President, whenever requested, an account of the financial condition of the Corporation; he may sign with the Chairman of the Board, the President, or a Vice President, certificates of stock of the Corporation; and, in general, shall perform all the duties incident to the office of a treasurer of a corporation, and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 9. Assistant Treasurer. The Assistant Treasurers, if ------------------- any, in order of their seniority shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the President or the Board of Directors shall prescribe. SECTION 10. Secretary. The Secretary shall keep the minutes of --------- all meetings of the stockholders and of the Board of Directors, and the committees thereof, in books provided for that purpose; he shall see that all notices are duly given in accordance with the provisions of law and these Bylaws; he shall be custodian of the records and of the corporate seal or seals of the Corporation; he shall see that the corporate seal is affixed to all documents, the execution of which, on behalf of the Corporation, under its seal, is duly authorized and when the seal is so affixed he may attest the same; he may sign, with the Chairman of the Board, the President, or a Vice President, certificates of stock of the Corporation; and in general he shall perform all duties incident to the office of a secretary of a corporation, and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 11. Assistant Secretaries. The Assistant Secretaries, if --------------------- any, in order of their seniority shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as the President or the Board of Directors shall prescribe. SECTION 12. Subordinate Officers. The Board of Directors may -------------------- appoint such subordinate officers as it may deem desirable. Each such officer shall hold office for such period, have such authority and perform such duties as the Board of Directors may prescribe. The Board of Directors may, from time to time, authorize any officer to appoint and remove subordinate officers and to prescribe the powers and duties thereof. SECTION 13. Compensation. The Board of Directors shall have power ------------ to fix the compensation of all officers of the Corporation. It may authorize any officer, upon whom the power of appointing subordinate officers may have been conferred, to fix the compensation of such subordinate officers. SECTION 14. Removal. Any officer of the Corporation may be ------- removed, with or without cause, by a majority vote of the Board of Directors at a meeting called for that purpose. SECTION 15. Bonds. The Board of Directors may require any officer ----- of the Corporation to give a bond to the Corporation, conditional upon the faithful performance of his duties, with one or more sureties and in such amounts as may be satisfactory to the Board of Directors. ARTICLE VI CERTIFICATES OF STOCK SECTION 1. Form and Execution of Certificates. The interest of ---------------------------------- each stockholder of the Corporation shall be evidenced by a certificate or certificates for shares of stock in such form as may be prescribed from time to time by law and by the Board of Directors. The certificates of stock of each class and series now authorized or which may hereafter be authorized by the Restated Certificate of Incorporation shall be consecutively numbered and signed by the Chairman of the Board, the President, or a Vice President together either with the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation, and may be countersigned and registered in such manner as the Board of Directors may prescribe, and shall bear the corporate seal or a printed or engraved facsimile thereof. Where any such certificate is signed by a transfer agent or transfer clerk and/or by a registrar, the signatures of any such Chairman of the Board, President, Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary upon such certificate may be facsimiles engraved or printed. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been placed upon, such certificate or certificates shall have ceased to be such, whether because of death, resignation or otherwise, before such certificate or certificates shall have been issued and delivered, such certificate or certificates may nevertheless be issued and delivered with the same effect as if such officer or officers had not ceased to be such at the date of its issue and delivery. SECTION 2. Transfer of Shares. The shares of the stock of the ------------------ Corporation shall be transferred on the books of the Corporation by the holder thereof in person or by his attorney lawfully constituted, upon surrender for cancellation of certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof or guaranty of the authenticity of the signature as the Corporation or its agents may reasonably require. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law. SECTION 3. Record Dates. The Board of Directors shall fix in ------------ advance a time not more than sixty (60) days prior to the date of any meeting of stockholders as the time as of which stockholders entitled to notice of and to vote at such a meeting shall be determined, and all persons who were holders of record of voting stock at such time and no others shall be entitled to notice of and to vote at such meeting, notwithstanding any transfer of any stock on the books of the Corporation after any record date fixed as aforesaid. The Board of Directors may also, in its discretion, fix in advance a date not exceeding fifty (50) days preceding the date fixed for the payment of any dividend or the making of any distribution, or for the delivery of evidence of rights, or evidences of interests arising out of any issuance, change, conversion or exchange of capital stock, as a record date for the determination of the stockholders entitled to receive or participate in any such dividend, distribution, rights or interests, notwithstanding any transfer of any stock on the books of the Corporation after any record date fixed as aforesaid. SECTION 4. Lost or Destroyed Certificates. In case of the loss or ------------------------------ destruction of any outstanding certificate of stock, a new certificate may be issued upon the following conditions: (i) The owner of said certificate shall file with the Secretary of the Corporation an affidavit giving the facts in relation to the ownership, and in relation to the loss or destruction of said certificate, stating its number and the number of shares represented thereby; such affidavit to be in such form and contain such statements as shall satisfy the Chairman of the Board and Secretary that said certificate has been accidentally destroyed or lost, and that a new certificate ought to be issued in lieu thereof; upon being so satisfied, the Chairman of the Board and Secretary shall require such owner to file an open penalty indemnity bond in such sum and in such form as they may deem advisable, and with a surety or sureties approved by them, to indemnify and save harmless the Corporation from any claim, loss, damage or liability which may be occasioned by the issuance of a new certificate in lieu thereof; upon such indemnity bond being so filed, a new certificate for the same number of shares shall be issued to the owner of the certificate so lost or destroyed; and the transfer agent and/or registrar of stock, if any, shall countersign and register such new certificate upon receipt of a written order signed by the said Chairman of the Board and Secretary, and thereupon the Corporation will save harmless said transfer agent and/or registrar in the premises; or (ii) The Corporation authorizes its transfer agent to accept from the owner of said certificate an open penalty indemnity bond in such sum and in such form as the Corporation shall determine. The President or any Vice President may act hereunder in the stead of the Chairman of the Board, and an Assistant Secretary in the stead of the Secretary. In case of the surrender of the original certificate, in lieu of which a new certificate has been issued, or the surrender of such new certificate, for cancellation, the bond of indemnity given as a condition of the issue of such new certificate may be surrendered. A new certificate may be issued without requiring any bond when in the judgment of the Board of Directors it is proper to do so. ARTICLE VII CHECK, NOTES, ETC. SECTION 1. Execution of Checks, Notes, etc. All checks and drafts ------------------------------- on the Corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such officer or officers, agent or agents, as shall be thereunto authorized from time to time by the Board of Directors. SECTION 2. Execution of Contracts, Assignments, etc. All ---------------------------------------- contracts, agreements, endorsements, assignments, transfers, stock powers, or other instruments (except as provided in Sections 1 and 3 of this Article VII) shall be signed by the Chairman of the Board, President, any Executive Vice President, Senior Vice President, or Vice President and by the Secretary or any Assistant Secretary or the Treasurer or any Assistant Treasurer, or by such other officer or officers, agent or agents, as shall be thereunto authorized from time to time by the Board of Directors. SECTION 3. Execution of Proxies. The Chairman of the Board, -------------------- President, or a Vice President of the Corporation may authorize from time to time the signature and issuance of proxies to vote upon shares of stock of other companies standing in the name of the Corporation. All such proxies shall be signed in the name of the Corporation by the Chairman of the Board, President, or a Vice President and by the Secretary or an Assistant Secretary. ARTICLE VIII WAIVERS AND CONSENTS SECTION 1. Waivers. Whenever under the provisions of any law or ------- under the provisions of the Restated Certificate of Incorporation of the Corporation or these Bylaws, the Corporation, or the Board of Directors or any committee thereof, is authorized to take any action after notice to stockholders or the directors or the members of such committee, or after the lapse of a prescribed period of time, such action may be taken without notice and without the lapse of any period of time if, at any time before or after such action be completed, such requirements be waived in writing by the person or persons entitled to said notice or entitled to participate in the action to be taken, or, in the case of a stockholder, by his attorney thereunto authorized. SECTION 2. Consents. Any action required or permitted to be -------- taken at any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting, if a written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or of such committee. ARTICLE IX DIVIDENDS AND RESERVE FUNDS SECTION 1. Dividends. Except as otherwise provided by law or by --------- the Restated Certificate of Incorporation, the Board of Directors may declare dividends out of the surplus of the Corporation at such times and in such amounts as it may from time to time designate. SECTION 2. Reserve Funds. Before crediting net profits to the ------------- surplus in any year, there may be set aside out of the net profits of the Corporation for that year such sum or sums as the Board of Directors from time to time in its absolute discretion may deem proper as a reserve fund or funds to meet contingencies or for equalizing dividends or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall deem conducive to the interest of the Corporation. ARTICLE X INSPECTION OF BOOKS The Board of Directors shall determine from time to time whether, and if allowed when and under what conditions and regulations, the accounts and books of the Corporation (except such as may by statute be specifically open to inspection) or any of them shall be open to the inspection of the stockholders; and the stockholders' rights in this respect are and shall be restricted and limited accordingly. ARTICLE XI FISCAL YEAR The fiscal year of the Corporation shall end on the thirtieth day of June of each year unless another date shall be fixed by resolution of the Board of Directors. After such date is fixed it may be changed for future fiscal years at any time or from time to time by further resolution of the Board of Directors. ARTICLE XII SEAL The corporate seal shall be circular in form and shall contain the name of the Corporation, the State of Incorporation, the words "Corporate Seal", and the year of incorporation. ARTICLE XIII AMENDMENTS Except as otherwise provided by law, these Bylaws or the Restated Certificate of Incorporation of the Corporation, these Bylaws may be altered, amended or repealed (i) at any regular or special meeting of the stockholders by the affirmative vote of the holders of a majority of the stock issued and outstanding and entitled to vote thereat or (ii) at any regular or special meeting of the Board of Directors by affirmative vote of a majority of the directors then in office; provided, however, that notice of the proposed alteration or amendment shall have been contained in the notice of the meeting. ARTICLE XIV INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS The Corporation shall indemnify and reimburse each person, and his heirs, executors or administrators, who is made or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he was or is a director, officer, employee or agent of the Corporation or was or is serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement, actually or reasonably incurred by him in connection with such action, suit or proceeding and shall advance the expenses incurred by any officer or director in defending any such action, suit or proceeding to the full extent permitted by Section 145 of the General Corporation Law of the State of Delaware as it may be amended or supplemented from time to time. Such right of indemnification or advancement of expenses of any such person shall not be deemed exclusive of any other rights to which he may be entitled under any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. The foregoing provisions of this Article XIV shall be deemed to be a contract between the Corporation and each person who serves in any capacity specified therein at any time while this Bylaw is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or part upon any such state of facts. I, the undersigned, being the Secretary of the Corporation DO HEREBY CERTIFY that the foregoing are the Bylaws, as amended and restated, of said Corporation, as approved by the Board of Directors of said Corporation on May 22, 1996. /s/David S. Goldberg -------------------- David S. Goldberg, Secretary EX-10.PIII 3 AMENDMENTS TO LICENSE AGREEMENTS EXHIBIT 10(P)(III) THIRD AMENDMENT TO LICENSE AGREEMENT (CANADA) This THIRD AMENDMENT TO LICENSE AGREEMENT (Canada) is dated as of the 26th day of June, 1996 between Tandy Corporation ("Tandy") and InterTAN Canada Ltd. ("ITC") WHEREAS, Tandy and ITC entered into that certain License Agreement (Canada) on November 4, 1993 (the "License Agreement"); WHEREAS, Tandy and ITC entered into that certain First Amendment to License Agreement (Canada) on March 24, 1995 and effective as of April 1, 1995; and WHEREAS, Tandy and ITC entered into that certain Second Amendment to License Agreement (Canada) on November 9, 1995 and effective as of that date; and WHEREAS, the parties hereto desire to amend certain provisions of the License Agreement, including Sections 4.a), 5.a), 5.c), and 6 thereof to provide for extension of the term of the License and restructuring of the royalty; NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Section 4.a) of the ITC License Agreement is hereby amended by deleting Section 4.a) in its entirety and substituting the following: "a) The initial term of this License Agreement shall be from November 3, 1993 to June 30, 2006. However, beginning July 1, 1997 and continuing annually an additional year shall be automatically added to the initial term each July 1 thereafter until July 1, 2000 in the manner set out in the example below: EXAMPLE: Date: Term Extended To: ---- ---------------- July 1, 1997 June 30, 2007 July 1, 1998 June 30, 2008 July 1, 1999 June 30, 2009 July 1, 2000 June 30, 2010 July 1, 2001 June 30, 2010 (Term not extended automatically) Either party may terminate this License Agreement at any time without cause during the initial term or any extension thereof set out above by providing the other party five (5) years prior written notice of termination. Such termination shall be effective on June 30 next following the expiration of five (5) years from the date appearing on the written notice of termination. Any and all of the foregoing notwithstanding, said License Agreement shall automatically terminate on the termination of the Merchandise Agreement between inter alia Tandy and ITC, dated on or about October 15, 1993. On or before June 30, 2005, the parties agree to discuss further extension of this License Agreement, however such discussions shall not imply any duty whatsoever on the part of Tandy to do anything beyond discussing the matter." 2. Section 4. of the ITC License Agreement is hereby amended by adding to the end thereof the following new subsection: "c) Tandy may permit other uses by ITC of the above-licensed trade name, service mark and trademarks (e.g. use of trade name and service mark on the Internet), such use being subject to (i) whatever rules, regulations, procedures, conditions and restrictions as Tandy may impose upon ITC, and (ii) royalties payable in accordance with paragraph 5 hereof." 3. Section 5.a) of the ITC License Agreement is hereby amended by deleting Section 5.a) in its entirety and substituting the following: "a) ITC shall pay to Tandy a royalty on Gross Revenue derived from all retail stores or other facilities of any kind or nature using or deriving benefit directly or indirectly from the use of service marks or trade names licensed under paragraph 1 hereof. Such royalty shall be calculated, on a consolidated basis with the other members of the ITI-Group, and paid by ITC in U.S. dollars to Tandy in Fort Worth, Texas, U.S.A. concurrently with the submission of the Royalty and Sales Report specified in paragraph 5(c) at the following rates: (i) On ITI-Group Gross Revenue (excluding income from services) derived from sales of product purchased through A&A International, Inc. ("A&A-sourced Products") the rate shall be determined as follows: 2 Schedule of Royalties for A&A-sourced Products ---------------------------------------------- ITI - Group Royalty Percentage Percent of ITI-Group Gross Revenue Jul-96 Jul-97 Jul-98 (excluding income from services) Jun-97 Jun-98 beyond from A&A-sourced Products 46.9% or less 0.50% 0.75% 1.00% 47.0% - 51.9% 0.30% 0.55% 0.80% 52.0% - 56.9% 0.15% 0.35% 0.60% 57.0% - 61.9% 0.15% 0.20% 0.45% 62% or greater 0.15% 0.15% 0.35% By September 30 of each year, ITC and the ITI-Group shall calculate its consolidated revenue from sales of A&A-sourced Products (excluding income from services) for the most recently completed fiscal year ended June 30 and its total Gross Revenue (both excluding income from services and including income from services) from sales of all products and services for the most recently completed fiscal year ended June 30. The percentage of Gross Revenue represented by sales of A&A-sourced Products will be calculated by dividing the total Gross Revenue from sales of A&A sourced Products (excluding income from services) by the total Gross Revenue from sales of all Products. The resulting percentage of Gross Revenue from A&A-sourced Products will be compared to the percentages listed in the column entitled "Percent of ITI-Group Gross Revenue from A&A-sourced Products (excluding income from services)" in the Schedule of Royalties --------------------- for A&A-sourced Products set out above in order to determine the ------------------------ Royalty Percentage applicable to Gross Revenue from sales of A&A-sourced Products (excluding income from services) for the then-current fiscal year. EXAMPLE: FY 1996 Total Gross Revenue (excluding income from services) = 100 FY 1996 Gross Revenue (excluding income from services) from A&A-sourced Products = 50 50 100 = 50% of Gross Revenue of the ITI-Group as a whole (excluding income from services) are from sales of A&A-sourced Products. 3 If 50% is compared to the first column of the Schedule of Royalties for A&A-sourced Products, then for FY 1997 (beginning July 1, 1996 and ending June 30, 1997), the Royalty Percentage is 0.30% on revenue from A&A-sourced Products (excluding income from services), to be calculated and paid in accordance with this paragraph 5(a) and paragraph 5(c) below. (ii) On Gross Revenue derived from any and all other sources (including income from services related to A&A-sourced Products), the rate shall be: from and including July 1, 1995 through June 30, 1996, a rate of 0.25% of Gross Revenue; from and including July 1, 1996 through June 30, 1997, a rate of 0.50% of Gross Revenue; from and including July 1, 1997 through June 30, 1998, a rate of 0.75% of Gross Revenue; from and including July 1, 1998 through June 30, 2006, and during any extension of the initial term, through June 30, 2010, a rate of 1.00% of Gross Revenue. Except where expressly stated otherwise, "Gross Revenue" as used ------------- herein shall mean all revenues of the ITI-Group derived from the sale or lease of products, and the rendering of services minus any returns or allowances." 4. Section 5.c) of the ITC License Agreement is hereby amended by deleting Section 5.c) in its entirety and substituting the following: "c) On or before the 30th day following the close of each calendar quarter commencing with the third calendar quarter in 1995 during the term of this Agreement, ITC and the ITI-Group shall furnish to Tandy a complete and accurate report, certified to be accurate by an officer of InterTAN, Inc. Such report shall show ITI-Group consolidated figures on the following: gross sales, itemized discounts and allowances deducted from gross sales price, and returns of all products and services sold during the preceding calendar quarter (all in U.S. dollars calculated using the average exchange rate for such quarter) for each of Sections 5.a)(i) and 5.a)(ii). Each such report is to be accompanied by payment in full by ITC of its portion of the amount of royalties due. Receipt or acceptance by Tandy of any report furnished pursuant to this Agreement, 4 or of any sums paid hereunder shall not preclude Tandy from questioning the correctness thereof at any time. In the event that any inconsistencies or mistakes are discovered in such reports or payments, they shall be rectified immediately and the appropriate payment made by ITC or refunded to ITC by Tandy, as the case may be, within 30 days of discovery." 5. Section 6 of the ITC License Agreement is hereby amended by deleting Section 6 in its entirety. 6. The fifth paragraph on page 1 of the ITC License Agreement is amended by inserting in the second line of such paragraph after the words "ITC owned" the following: "(or managed)". 7. Section 2 of the ITC License Agreement is amended to insert after the word "used" in the second and fifth line of such section the following: "currently (or formerly)". 8. Section 8 of the ITC License Agreement is amended by deleting such section in its entirety and substituting the following: "All products made or services offered for sale under the licenses to one or more trade names, trademarks or service marks granted under paragraphs 1 or 2 shall be sold by ITC (a) at retail in Canada through retail stores owned, managed, or franchised by ITC, or through duly appointed dealers for use with dealer programs, or through franchisees for use with franchise programs, or (b) in such other manner as permitted by Tandy." 9. Subclauses (ii) and (iii) of Section 9(b) of the ITC License Agreement are hereby amended by inserting after "August 25, 1993" and "October 15, 1993", respectively, the following: "as amended, from time to time,". 10. Section 19 of the ITC License Agreement is hereby amended to delete the word "and" in the third line of such section after the word "owned" and to insert the following: ", managed, or". 11. The ITC License Agreement is further amended by adding the following new Section 35: "Notwithstanding anything herein to the contrary, Tandy may, in its sole discretion, waive any breach, default, or event of default arising under the terms of this License Agreement. No failure or delay in exercising any right, power or remedy under any provision of this License Agreement shall operate as a waiver of or otherwise shall 5 prejudice any of the rights, powers or remedies of Tandy. No right, power or remedy herein conferred upon Tandy is intended to be exclusive of any other right, power or remedy, and each and every such right, power or remedy shall be cumulative of every other right, power or remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise." 12. Except as modified hereby, all other terms and provisions of the License Agreement as previously amended shall remain unchanged and in full force and effect. THE PARTIES HERETO have executed this Amendment as of the day and year first written above, to be effective as of July 1, 1996. INTERTAN CANADA LTD. TANDY CORPORATION By: /s/James T. Nichols By: /s/Dwain H. Hughes ------------------- ------------------------- Name: James T. Nichols Name: Dwain H. Hughes Its: President Its: Senior Vice President and Chief Financial Officer 6 The following join in this Amendment for purposes of calculation and payment of royalties on a consolidated basis as set out in Section 5 of the License Agreement (Canada) as hereby amended: InterTAN, INC. By: /s/James T. Nichols ------------------- Its: President and Chief Executive Officer InterTAN AUSTRALIA LTD. By: /s/James T. Nichols ------------------- Its: Director InterTAN U.K. LIMITED By: /s/James T. Nichols ------------------- Its: Director TECHNOTRON SALES CORP. PTY. LTD. By: /s/James T. Nichols ------------------- Its: Director 7 THIRD AMENDMENT TO LICENSE AGREEMENT (UNITED KINGDOM) This THIRD AMENDMENT TO LICENSE AGREEMENT (UNITED KINGDOM) is dated as of the 26th day of June, 1996 between Tandy Corporation ("Tandy") and InterTAN U.K. Limited ("ITUK"). WHEREAS, Tandy and ITUK entered into that certain License Agreement (UNITED KINGDOM) on November 4, 1993 (the "License Agreement"); WHEREAS, Tandy and ITUK entered into that certain First Amendment to License Agreement (UNITED KINGDOM) on April 21, 1995 and effective as of April 1, 1995; and WHEREAS, Tandy and ITUK entered into that certain Second Amendment to License Agreement (UNITED KINGDOM) on November 9, 1995 and effective as of that date; and WHEREAS, the parties hereto desire to amend certain provisions of the License Agreement, including Sections 4.a), 5.a), 5.c), and 6 thereof to provide for extension of the term of the License and restructuring of the royalty; NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Immediately prior to Section 1., a definition shall be added as follows: ""United Kingdom" - wherever the term United Kingdom is used in this License Agreement, such term shall mean England, Scotland, Wales, Northern Ireland and it further shall be deemed to include the Republic of Ireland." 2. Section 4.a) of the ITUK License Agreement is hereby amended by deleting Section 4.a) in its entirety and substituting the following: "a) The initial term of this License Agreement shall be from November 3, 1993 to June 30, 2006. However, beginning July 1, 1997 and continuing annually an additional year shall be automatically added to the initial term each July 1 thereafter until July 1, 2000 in the manner set out in the example below: EXAMPLE: Date: Term Extended To: ---- ---------------- July 1, 1997 June 30, 2007 July 1, 1998 June 30, 2008 July 1, 1999 June 30, 2009 July 1, 2000 June 30, 2010 July 1, 2001 June 30, 2010 (Term not 1 extended automatically) Either party may terminate this License Agreement at any time without cause during the initial term or any extension thereof set out above by providing the other party five (5) years prior written notice of termination. Such termination shall be effective on June 30 next following the expiration of five (5) years from the date appearing on the written notice of termination. Any and all of the foregoing notwithstanding, said License Agreement shall automatically terminate on the termination of the Merchandise Agreement between inter alia Tandy and ITUK, dated on or about October 15, 1993. On or before June 30, 2005, the parties agree to discuss further extension of this License Agreement, however such discussions shall not imply any duty whatsoever on the part of Tandy to do anything beyond discussing the matter." 3. Section 4. of the ITUK License Agreement is hereby amended by adding to the end thereof the following new subsection: "c) Tandy may permit other uses by ITUK of the above-licensed trade name, service mark and trademarks (e.g. use of trade name and service mark on the Internet), such use being subject to (i) whatever rules, regulations, procedures, conditions and restrictions as Tandy may impose upon ITUK, and (ii) royalties payable in accordance with paragraph 5 hereof." 4. Section 5.a) of the ITUK License Agreement is hereby amended by deleting Section 5.a) in its entirety and substituting the following: "a) ITUK shall pay to Tandy a royalty on Gross Revenue derived from all retail stores or other facilities of any kind or nature using or deriving benefit directly or indirectly from the use of service marks or trade names licensed under paragraph 1 hereof. Such royalty shall be calculated, on a consolidated basis with the other members of the ITI-Group and paid by ITUK, in U.S. dollars to Tandy in Fort Worth, Texas, U.S.A. concurrently with the submission of the Royalty and Sales Report specified in paragraph 5(c) at the following rates: (i) On ITI-Group Gross Revenue (excluding income from services) derived from sales of product purchased through A&A International, Inc. ("A&A-sourced Products") the rate shall be determined as follows: 2 Schedule of Royalties for A&A-sourced Products ---------------------------------------------- ITI-Group Royalty Percentage Percent of ITI-Group Gross Revenue Jul-96 Jul-97 Jul-98 (excluding income from services) Jun-97 Jun-98 beyond from A&A-sourced Products 46.9% or less 0.50% 0.75% 1.00% 47.0% - 51.9% 0.30% 0.55% 0.80% 52.0% - 56.9% 0.15% 0.35% 0.60% 57.0% - 61.9% 0.15% 0.20% 0.45% 62% or greater 0.15% 0.15% 0.35% By September 30 of each year, ITUK and the ITI-Group shall calculate its consolidated revenue from sales of A&A-sourced Products (excluding income from services) for the most recently completed fiscal year ended June 30 and its total Gross Revenue (both excluding income from services and including income from services) from sales of all products and services for the most recently completed fiscal year ended June 30. The percentage of Gross Revenue represented by sales of A&A-sourced Products will be calculated by ITUK by dividing the total Gross Revenue from sales of A&A-sourced Products (excluding income from services) by the total Gross Revenue from sales of all Products (excluding services). The resulting percentage of Gross Revenue from A&A- sourced Products will be compared to the percentages listed in the column entitled "Percent of ITI-Group Gross Revenue from A&A-sourced Products (excluding income from services)" in the Schedule of Royalties for A&A-sourced Products set out above in ---------------------------------------------- order to determine the Royalty Percentage applicable to Gross Revenue from sales of A&A-sourced Products (excluding income from services) for the then-current fiscal year. EXAMPLE: FY 1996 Total Gross Revenue (excluding income from services) = 100 FY 1996 Gross Revenue (excluding income from services) from A&A-sourced Products = 50 50 100 = 50% of Gross Revenue of the ITI-Group as a whole (excluding income from services) are from sales of A&A-sourced Products. If 50% is compared to the first column of the Schedule of Royalties for A&A-sourced Products, then for FY 1997 (beginning July 1, 1996 3 and ending June 30, 1997), the Royalty Percentage is 0.30% on revenue from A&A-sourced Products (excluding income from services), to be calculated and paid in accordance with this paragraph 5(a) and paragraph 5(c) below. (ii) On Gross Revenue derived from any and all other sources (including income from services related to A&A-sourced Products), the rate shall be: from and including July 1, 1995 through June 30, 1996, a rate of 0.25% of Gross Revenue; from and including July 1, 1996 through June 30, 1997, a rate of 0.50% of Gross Revenue; from and including July 1, 1997 through June 30, 1998, a rate of 0.75% of Gross Revenue; from and including July 1, 1998 through June 30, 2006, and during any extension of the initial term, through June 30, 2010, a rate of 1.00% of Gross Revenue. Except where expressly stated otherwise, "Gross Revenue" as used herein shall mean all revenue of the ITI-Group derived from the sale or lease of products, and the rendering of services minus any returns or allowances." 5. Section 5.c) of the ITUK License Agreement is hereby amended by deleting Section 5.c) in its entirety and substituting the following: "c) On or before the 30th day following the close of each calendar quarter commencing with the third calendar quarter in 1995 during the term of this Agreement, ITUK and the ITI-Group shall furnish to Tandy a complete and accurate report, certified to be accurate by an officer of InterTAN, Inc. Such report shall show ITI-Group consolidated figures on the following: gross sales, itemized discounts and allowances deducted from gross sales price, and returns of all products and services sold during the preceding calendar quarter (all in U.S. Dollars, calculated using the average exchange rate for such quarter) for each of Sections 5.a)(i) and 5.a)(ii). Each such report is to be accompanied by payment in full by ITUK of its portion of the amount of royalties due. Receipt or acceptance by Tandy of any report furnished pursuant to this Agreement, or of any sums paid hereunder shall not preclude Tandy from questioning the correctness thereof at any time. In the event that any inconsistencies or mistakes are discovered in such reports or payments, they shall be rectified immediately and the appropriate payment made by ITUK or refunded to ITUK by Tandy, as the case may be, within 30 days of discovery." 4 6. Section 6 of the ITUK License Agreement is hereby amended by deleting Section 6 in its entirety. 7. The fifth paragraph on page 1 of the ITUK License Agreement is amended by inserting in the second line of such paragraph after the words "ITUK owned" the following: "(or managed)". 8. Section 2 of the ITUK License Agreement is amended to insert after the word "used" in the third and sixth line of such section the following: "currently (or formerly)". 9. Section 8 of the ITUK License Agreement is amended by deleting such section in its entirety and substituting the following: "All products made or services offered for sale under the licenses to one or more trade names, trademarks or service marks granted under paragraphs 1 or 2 shall be sold by ITUK (a) at retail in the United Kingdom through retail stores owned, managed, or franchised by ITUK, or through duly appointed dealers for use with dealer programs, or through franchisees for use with franchise programs, (b) through export dealers in France, Holland, Belgium and Germany, or (c) in such other manner as permitted by Tandy." 10. Subclauses (ii) and (iii) of Section 9(b) of the ITUK License Agreement are hereby amended by inserting after "August 25, 1993" and "October 15, 1993", respectively, the following: "as amended, from time to time,". 11. Section 19 of the ITUK License Agreement is hereby amended to delete the word "and" in the fourth line of such section after the word "owned" and to insert the following: ", managed, or". 12. The ITUK License Agreement is further amended by adding the following new Section 35: "Notwithstanding anything herein to the contrary, Tandy may, in its sole discretion, waive any breach, default, or event of default arising under the terms of this License Agreement. No failure or delay in exercising any right, power or remedy under any provision of this License Agreement shall operate as a waiver of or otherwise shall prejudice any of the rights, powers or remedies of Tandy. No right, power or remedy herein conferred upon Tandy is intended to be exclusive of any other right, power or remedy, and each and every such right, power or remedy shall be cumulative of every other right, power or remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise." 5 13. Except as modified hereby, all other terms and provisions of the License Agreement as previously amended shall remain unchanged and in full force and effect. THE PARTIES HERETO have executed this Amendment as of the day and year first written above, to be effective as of July 1, 1996. INTERTAN U. K. LIMITED TANDY CORPORATION By: /s/James T. Nichols By: /s/Dwain H. Hughes ------------------- ------------------------- Name: James T. Nichols Name: Dwain H. Hughes Its: Director Its: Senior Vice President and Chief Financial Officer The following join in this Amendment for purposes of calculation and payment of royalties on a consolidated basis as set out in Section 5 of the License Agreement (United Kingdom) as hereby amended: InterTAN, INC. By: /s/James T. Nichols ------------------- Its: President and Chief Executive Officer InterTAN AUSTRALIA LTD. By: /s/James T. Nichols ------------------- Its: Director InterTAN CANADA LTD. By: /s/James T. Nichols ------------------- Its: President TECHNOTRON SALES CORP. PTY. LTD. By: /s/James T. Nichols ------------------- Its: Director 6 SECOND AMENDMENT TO LICENSE AGREEMENT (AUSTRALIA AND NEW ZEALAND) This SECOND AMENDMENT TO LICENSE AGREEMENT (AUSTRALIA AND NEW ZEALAND) is dated as of the 26th day of June, 1996 between Tandy Corporation ("Tandy") and InterTAN AUSTRALIA Ltd. ("ITA") WHEREAS, Tandy and ITA entered into that certain License Agreement (AUSTRALIA AND NEW ZEALAND) on November 4, 1993 (the "License Agreement"); WHEREAS, Tandy and ITA entered into that certain First Amendment to License Agreement (AUSTRALIA AND NEW ZEALAND) on November 9, 1995 and effective as of that date; and WHEREAS, the parties hereto desire to amend certain provisions of the License Agreement, including Sections 4.a), 5.a), 5.c), and 6 thereof to provide for extension of the term of the License and restructuring of the royalty; NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Section 4.a) of the ITA License Agreement is hereby amended by deleting Section 4.a) in its entirety and substituting the following: "a) The initial term of this License Agreement shall be from November 3, 1993 to June 30, 2006. However, beginning July 1, 1997 and continuing annually an additional year shall be automatically added to the initial term each July 1 thereafter until July 1, 2000 in the manner set out in the example below: EXAMPLE: Date: Term Extended To: ----- ----------------- July 1, 1997 June 30, 2007 July 1, 1998 June 30, 2008 July 1, 1999 June 30, 2009 July 1, 2000 June 30, 2010 July 1, 2001 June 30, 2010 (Term not extended automatically) 1 Either party may terminate this License Agreement at any time without cause during the initial term or any extension thereof set out above by providing the other party five (5) years prior written notice of termination. Such termination shall be effective on June 30 next following the expiration of five (5) years from the date appearing on the written notice of termination. Any and all of the foregoing notwithstanding, said License Agreement shall automatically terminate on the termination of the Merchandise Agreement between inter alia Tandy and ITA, dated on or about October 15, 1993. On or before June 30, 2005, the parties agree to discuss further extension of this License Agreement, however such discussions shall not imply any duty whatsoever on the part of Tandy to do anything beyond discussing the matter." 2. Section 4. of the ITA License Agreement is hereby amended by adding to the end thereof the following new subsection: "c) Tandy may permit other uses by ITA of the trade name, service mark and trademarks (e.g. use of trade name and service mark on the Internet), such use being subject to (i) whatever rules, regulations, procedures, conditions and restrictions as Tandy may impose upon ITA, and (ii) royalties payable in accordance with paragraph 5 hereof." 3. Section 5.a) of the ITA License Agreement is hereby amended by deleting Section 5.a) in its entirety and substituting the following: "a) ITA shall pay to Tandy a royalty on Gross Revenue derived from all retail stores or other facilities of any kind or nature using or deriving benefit directly or indirectly from the use of service marks or trade names licensed under paragraph 1 hereof. Such royalty shall be calculated, on a consolidated basis with the other members of the ITI-Group and paid by ITA, in U.S. dollars to Tandy in Fort Worth, Texas, U.S.A. concurrently with the submission of the Royalty and Sales Report specified in paragraph 5(c) at the following rates: (i) On ITI-Group Gross Revenue (excluding income from services) derived from sales of product purchased through A&A International, Inc. ("A&A-sourced Products") the rate shall be determined as follows: 2 Schedule of Royalties for A&A-sourced Products ---------------------------------------------- ITI-Group Royalty Percentage Percent of ITI-Group Gross Revenue Jul-96 Jul-97 Jul-98 (excluding income from services) Jun-97 Jun-98 beyond from A&A-sourced Products 46.9% or less 0.50% 0.75% 1.00% 47.0% - 51.9% 0.30% 0.55% 0.80% 52.0% - 56.9% 0.15% 0.35% 0.60% 57.0% - 61.9% 0.15% 0.20% 0.45% 62% or greater 0.15% 0.15% 0.35% By September 30 of each year, ITA and the ITI-Group shall calculate its revenue from sales of A&A-sourced Products (excluding income from services) for the most recently completed fiscal year ended June 30 and its total Gross Revenue (both excluding income from services and including income from services) from sales of all products and services for the most recently completed fiscal year ended June 30. The percentage of Gross Revenue represented by sales of A&A-sourced Products will be calculated by dividing the total Gross Revenue from sales of A&A-sourced Products (excluding income from services) by the total Gross Revenue from the sales of all Products. The resulting percentage of Gross Revenue from A&A-sourced Products will be compared to the percentages listed in the column entitled "Percent of ITI- Group Gross Revenue from A&A-sourced Products (excluding income from services)" in the Schedule of Royalties for A&A-sourced Products set out ---------------------------------------------- above in order to determine the Royalty Percentage applicable to Gross Revenue from sales of A&A-sourced Products (excluding income from services) for the then-current fiscal year. EXAMPLE: FY 1996 Total Gross Revenue (excluding income from services) = 100 FY 1996 Gross Revenue (excluding income from services) from A&A-sourced Products = 50 50/100 = 50% of Gross Revenue of the ITI-Group as a whole (excluding income from services) are from sales of A&A-sourced Products. 3 If 50% is compared to the first column of the Schedule of Royalties for A&A-sourced Products, then for FY 1997 (beginning July 1, 1996 and ending June 30, 1997), the Royalty Percentage is 0.30% on revenue from A&A-sourced Products (excluding income from services), to be calculated and paid in accordance with this paragraph 5(a) and paragraph 5(c) below. (ii) On Gross Revenue derived from any and all other sources (including income from services related to A&A-sourced Products), the rate shall be: from and including July 1, 1995 through June 30, 1996, a rate of 0.25% of Gross Revenue; from and including July 1, 1996 through June 30, 1997, a rate of 0.50% of Gross Revenue; from and including July 1, 1997 through June 30, 1998, a rate of 0.75% of Gross Revenue; from and including July 1, 1998 through June 30, 2006, and during any extension of the initial term, through June 30, 2010, a rate of 1.00% of Gross Revenue. Except where expressly stated otherwise, "Gross Revenue" as used herein shall mean all revenue of the ITI-Group derived from sales or leases of product, rendering of services minus any returns or allowances." 4. Section 5.c) of the ITA License Agreement is hereby amended by deleting Section 5.c) in its entirety and substituting the following: "c) On or before the 30th day following the close of each calendar quarter commencing with the second calendar quarter in 1995 during the term of this Agreement, ITA and the ITI-Group shall furnish to Tandy a complete and accurate report, certified to be accurate by an officer of InterTAN, Inc. Such report shall show ITI-Group consolidated figures on the following: gross sales, itemized discounts and allowances deducted from gross sales price, and returns of all products and services sold during the preceding calendar quarter (all in U.S. dollars, calculated using the average exchange rate for such quarter) for each of Sections 5.a)(i) and 5.a)(ii). Each such report is to be accompanied by payment in full by ITA of its portion of the amount of royalties due. Receipt or acceptance by Tandy of any report furnished pursuant to this Agreement, 4 or of any sums paid hereunder shall not preclude Tandy from questioning the correctness thereof at any time. In the event that any inconsistencies or mistakes are discovered in such reports or payments, they shall be rectified immediately and the appropriate payment made by ITA or refunded to ITA by Tandy, as the case may be, within 30 days of discovery." 5. Section 6 of the ITA License Agreement is hereby amended by deleting Section 6 in its entirety. 6. The fifth paragraph on page 1 of the ITA License Agreement is amended by inserting in the second line of such paragraph after the words "ITA owned" the following: "(or managed)". 7. Section 2 of the ITA License Agreement is amended to insert after the word "used" in the second and sixth line of such section the following: "currently (or formerly)". 8. Section 8 of the ITA License Agreement is amended by deleting such section in its entirety and substituting the following: "All products made or services offered for sale under the licenses to one or more trade names, trademarks or service marks granted under paragraphs 1 or 2 shall be sold by ITA (a) at retail in Australia and New Zealand through retail stores owned, managed, or franchised by ITA, or through duly appointed dealers for use with dealer programs, or through franchisees for use with franchise programs, (b) through export dealers, as the case may be, in New Zealand, or (c) in such other manner as permitted by Tandy." 9. Subclauses (ii) and (iii) of Section 9(b) of the ITA License Agreement are hereby amended by inserting after "August 25, 1993" and "October 15, 1993", respectively, the following: "as amended, from time to time,". 10. Section 19 of the ITA License Agreement is hereby amended to delete the word "and" in the fourth line of such section after the word "owned" and to insert the following: ", managed, or". 11. The ITA License Agreement is further amended by adding the following new Section 35: "Notwithstanding anything herein to the contrary, Tandy may, in its sole discretion, waive any breach, default, or event of default arising under the terms of this License Agreement. No failure or delay in exercising any right, power or remedy under any provision of this 5 License Agreement shall operate as a waiver of or otherwise shall prejudice any of the rights, powers or remedies of Tandy. No right, power or remedy herein conferred upon Tandy is intended to be exclusive of any other right, power or remedy, and each and every such right, power or remedy shall be cumulative of every other right, power or remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise." 12. Except as modified hereby, all other terms and provisions of the License Agreement as previously amended shall remain unchanged and in full force and effect. THE PARTIES HERETO have executed this Amendment as of the day and year first written above, to be effective as of July 1, 1996. INTERTAN AUSTRALIA LTD. TANDY CORPORATION By: /s/James T. Nichols By: /s/Dwain H. Hughes --------------------- -------------------- Name: James T. Nichols Name: Dwain H. Hughes Its: Director Its: Senior Vice President and Chief Financial Officer 6 The following join in this Amendment for purposes of calculation and payment of royalties on a consolidated basis as set out in Section 5 of the License Agreement (Australia and New Zealand) as hereby amended: InterTAN, INC. By: /s/James T. Nichols ------------------- Its: President and Chief Executive Officer InterTAN CANADA LTD. By: /s/James T. Nichols ------------------- Its: President InterTAN U.K. LIMITED By: /s/James T. Nichols ------------------- Its: Director TECHNOTRON SALES CORP. PTY. LTD. By: /s/James T. Nichols ------------------- Its: Director 7 EX-10.QIII 4 AMENDING AGREEMENT Exhibit 10(q)(iii) AMENDING AGREEMENT ------------------ THIS AGREEMENT, dated as of June 25, 1996, is made by and between INTERTAN CANADA LTD., a corporation existing under the laws of the Province of Alberta ("ICL"), INTERTAN U.K. LIMITED, a limited liability company existing under the laws of England ("IUK"), INTERTAN INC., a corporation existing under the laws of Delaware ("InterTAN"), CANADIAN IMPERIAL BANK OF COMMERCE, a Canadian chartered bank ("CIBC"), as Agent and the Lenders from time to time listed on the signature pages hereof. WHEREAS the parties hereto entered into a credit agreement dated as of May 6, 1994 whereby the Lenders established certain credits in favour of the Borrowers which agreement was amended by Amending Agreement dated as of April 25, 1995 and further amended by Amending Agreement dated as of March 1, 1996 (together referred to as the "Credit Agreement"); AND WHEREAS the parties wish to further amend the Credit Agreement; NOW THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the parties hereto agree as follows: 1. Interpretation. In this Agreement, defined terms shall have the -------------- meaning given in the Credit Agreement. 2. Amendments. ---------- (a) The definition of Repayment Date is amended to read as follows: "Repayment Date" means August 16, 1996 until such time as the U.K. Lenders have delivered to the Agent, a Notice of Extension in the form of Schedule L at which time Repayment Date shall mean August 15, 1997, and Repayment Date shall mean such later date, if any, as may be from time to time applicable pursuant to Section 3.5. (b) Section 2.1(f) is amended to permit advances by the U.K. Lenders by way of acceptances upon agreement of the relative U.K. Lender and the applicable Borrower as follows: the U.K. Lenders agree to establish a revolving facility and thereunder to make available to IUK (but not ICL) from time to time, Accommodation by way of U.K. Base Rate Loans, Letters of Credit, Performance Bonds and LIBOR Loans (and by way of acceptances of -2- the relevant U.K. Lender upon such terms and the execution of such documents as such U.K. Lender and IUK may agree) in the maximum principal amount not to exceed Cdn. $21,800,000 or the Exchange Equivalent thereof (the "UK Revolving Credit"). (c) Section 2.2(vi) is deleted, Section 2.2(vii) is renumbered as 2.2(vi) and as a result of the foregoing, Section 2.2(v) is amended to delete the words "excluding Letters of Guarantee referred to in Section 2.2(vi),". (d) Section 2.12 is amended so that the third and fourth sentences read as follows: No Forward Exchange Contract shall provide for a term which extends beyond a period of nine months from its date of booking except as otherwise consented to in writing by the applicable Lender. If any Forward Exchange Contract is outstanding upon the acceleration of the Credits pursuant to Section 13.1. or if any Forward Exchange Contract is outstanding on the Repayment Date, the applicable Borrower shall forthwith pay an amount (the "deposit amount") equal to the amount of the Borrower's liability under such Forward Exchange Contract, such deposit amount to be held by the applicable Lender, for application in respect of amounts owing by the Borrower under such Forward Exchange Contract or in respect of any other amount payable under the Loan Documents. (e) Section 5.6 dealing with Letters of Credit/Letters of Guarantee and/or Performance Bonds is amended so that the last line thereof reads as follows: No Letter of Credit, Letter of Guarantee or Performance Bond will have a Maturity Date beyond a period of one year from the date of issue except as otherwise consented to in writing by the Agent. (f) Section 8.1 dealing with Security is amended to delete the references to Technotron and IAL from subsections (a) and (h) to delete the reference to Technotron from subsection (k) and subsection 8.1(1) is deleted in its entirety. (g) Section 8.3 dealing with Opinions of Counsel is amended to delete the references to IAL and Technotron. (h) Section 11.1(b) dealing with the Use of Proceeds of the Credits is amended to read as follows: The Borrowers will use the proceeds of the Credits to finance their inventory purchases and for other general corporate purposes; provided that such proceeds are not loaned, made available by Letters of Credit, Letters of -3- Guarantee or otherwise, to IAL or Technotron and further provided that neither Borrower shall use or permit the proceeds of the Credits to be used to finance the inventory purchase of any Affiliate if under applicable law respecting financial assistance it would be prohibited from doing so and unless the Borrowers have obtained the prior consent in writing of the Lenders. In addition, neither Borrower shall use the proceeds of the Credits to repay or refinance any indebtedness incurred for the purpose of acquiring shares in IUK or otherwise in contravention of Section 151 of the Companies Act 1985 of Great Britain. Any existing Letters of Credit, Letters of Guarantee or Performance Bonds issued at the request of the Borrowers in support of operating indebtedness of IAL or Technotron shall be replaced from the proceeds of the credit established by Westpac Banking Corporation in favour of such companies and referred to in Section 11.2(b). (i) Section 11.2(b) dealing with Indebtedness is amended to read as follows: Neither Borrower will, nor will it permit any of its Subsidiaries to, and each will cause IAL, Technotron and InterTAN not to, create, incur or suffer to exist any Indebtedness, except the Indebtedness hereunder, such Indebtedness as may be consented to in writing by the Majority Lenders, the Indebtedness set out in Schedule "E" and such Indebtedness of IAL and Technotron to Westpac Banking Corporation as contemplated by the facilities letter dated May 6, 1996 from Westpac Banking Corporation to IAL and Technotron and as may be incurred pursuant to the definitive agreement as amended from time to time (the "Westpac Facilities"). (j) Section 11.2(e) dealing with Investments and Acquisitions is amended to delete subsection 11.2(e)(v) dealing with Letters of Guarantee issued for the benefit of IAL. (k) Section 11.2(f) dealing with Guarantees is amended to read as follows: Neither Borrower will, nor will it permit any of its Subsidiaries to, and each will cause IAL and Technotron not to, make or suffer any Guarantee except as permitted by the Westpac Facilities, or by endorsement of instruments for deposit or collection in the ordinary course of business. (l) Section 11.2(g) dealing with Liens is amended to add "; and" after Majority Lenders in (xi) and add subsection (xii) as follows: (xii) Liens granted by IAL or Technotron to Westpac Banking Corporation pursuant to the Westpac Facilities. -4- (m) Section 11.2(l) dealing with Capital Expenditures is amended to read as follows: InterTAN will not permit its annual capital expenditures on a consolidated basis to exceed U.S.$9,000,000 in its 1994 fiscal year, U.S.$12,000,000 in its 1995 and 1996 fiscal years, U.S.$13,000,000 in its 1997 fiscal year, and U.S.$13,000,000 in each subsequent fiscal year unless otherwise approved by the Majority Lenders. (n) Exhibit One to the Credit Agreement is replaced by Exhibit One to this Amending Agreement. (o) Schedule E to the Credit Agreement is replaced by Schedule E to this Agreement. (p) Schedule L in the form attached to this Agreement as Schedule L is added to the Credit Agreement. 3. CONTINUING EFFECT. Each of the parties hereto acknowledges and agrees ----------------- that the Credit Agreement as amended by this Agreement shall be and continue in full force and effect. 4. COUNTERPARTS. This Agreement may be executed in counterparts, each of ------------ which will be deemed to be an original and which together will constitute one and the same agreement. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date and year first above written. CANADIAN IMPERIAL BANK OF COMMERCE, as Agent By: /s/ H. D. Chataway ---------------------- Authorized Officer: -5- CANADIAN IMPERIAL BANK OF COMMERCE, as Lender By: /s/ H. D. Chataway ------------------------------------------ Authorized Officer: THE FIRST NATIONAL BANK OF BOSTON, as U.K. Administrative Agent and as a Lender By: /s/ Judy C.E. Kelly ------------------------------------------ Authorized Officer: Vice President LLOYDS BANK PLC By: /s/ J. N. Mortell ------------------------------------------ Authorized Officer: Manager Corporate Banking CREDIT LYONNAIS CANADA By: /s/ C. M. Stade ------------------------------------------ Authorized Officer: Caroline M. Stade Ass. Vice President INTERTAN CANADA LTD. By: /s/ James G. Gingerich ------------------------------------------ Name: James G. Gingerich Title: Vice President -6- INTERTAN INC. By: /s/ James T. Nichols -------------------- Name: James T. Nichols Title: President and CEO INTERTAN U.K. LIMITED By: /s/ James T. Nichols -------------------- Name: James T. Nichols Title: Director -7- EXHIBIT ONE ----------- COMMITMENTS OF LENDERS ---------------------- % Commitment Cdn. $ Commitment Lender (on a several basis) (on a several basis) - ------ -------------------- -------------------- I. OVERDRAFT CREDIT ---------------- 1. CIBC 100% $4,000,000 II. CANADIAN FEC CREDIT ------------------- Credit Lyonnais 100% $1,000,000 Canada III. DOMESTIC REVOLVING CREDIT ------------------------- 1. CIBC 60.99% $17,200,000 2. Credit Lyonnais 39.01% $11,000,000 ----------- Canada $28,200,000 IV. U.K. OVERDRAFT CREDIT --------------------- 1. Lloyds Bank Plc 100% $4,000,000 V. U.K. FEC CREDIT --------------- 1. The First National 100% $1,000,000 Bank of Boston VI. U.K. REVOLVING CREDIT --------------------- 1. The First National 56.88% $12,400,000 Bank of Boston 2. Lloyds Bank Plc 43.12% $9,400,000 ----------- -8- $21,800,000 SCHEDULE E ---------- PERMITTED INDEBTEDNESS ---------------------- 1. Indebtedness owed by one or more of the Obligors to one or more of Tandy Corporation, A & A International, Inc., Trans World Electronics, Inc. (collectively the "Tandy Group") and any subsidiary of any one or more of the Tandy Group, under the Secured Loan Agreement. 2. Indebtedness incurred in respect of capital leases under which the total aggregate payments do not exceed Cdn. $5,000,000. 3. Indebtedness incurred in respect of operating leases of equipment and vehicles entered into in the ordinary course of business and with respect to which liens have been registered by the lessor. 4. Foreign currency hedging contracts entered into with institutions other than the Lenders, having a face amount of no more than Cdn. $30,000,000 in the aggregate, on the understanding that any obligations under such contracts are unsecured. 5. Interest rate swaps entered into with institutions other than the Lenders on principal amounts not exceeding Cdn. $75,000,000 in the aggregate, on the understanding that any obligations under such contracts are unsecured. 6. Indebtedness of IAL and Technotron to any financial institution in Australia, including West Pac Banking Corporation, up to a maximum amount of Australian $12,000,000 in the aggregate. 7. The following inter-corporate Indebtedness plus any accrued interest thereon which shall not exceed: (i) Australian $17,614,270 owed by IAL and Technotron to InterTan. (ii) (Pounds)19,050,873 owed by IUK to Intertan. 8. The convertible subordinated debentures issued under the Trust Indenture or any Subordinated Debt of IAL, ICL, IUK or Technotron to InterTan arising from the loan of the proceeds of such debentures. -9- SCHEDULE L ---------- NOTICE OF EXTENSION ------------------- TO: Canadian Imperial Bank of Commerce, as Agent for the Lenders from time to time under the Credit Agreement dated as of May 6, 1994 between InterTan Canada Ltd., InterTan U.K. Limited, InterTan Inc. and Canadian Imperial Bank of Commerce, as Agent for the Lenders from time to time listed on the signature pages thereof (such agreement as amended from time to time being the "Credit Agreement") The undersigned confirm that the Repayment Date as defined in the Credit Agreement is extended to August 15, 1997 pursuant to Section 3.5 of the Credit Agreement. DATED this 25th day of June, 1996. LLOYDS BANK PLC By: /s/ J. N. Mortell ------------------------------------------ Authorized Officer Manager Corporate Banking THE FIRST NATIONAL BANK OF BOSTON By: /s/ Judy C.E. Kelly ------------------------------------------- Authorized Officer Vice President EX-11 5 STATEMENT OF COMPUTATION OF EARNINGS PER SHARE Statement of Computation of Earnings per Share Exhibit 11 InterTAN, Inc. - ------------------------------------------------------------------------------- (in thousands, except per share data)
Three Months Ended Twelve Months Ended ----------------------- ------------------------- June 30 June 30 1996 1995 1996 1995 ----------------------- ------------------------- Primary Earnings Per Share Net income (loss)....................................................($6,265) ($4,459) ($2,241) $8,123 ======================= ========================= Weighted average number of common shares outstanding................. 11,069 10,134 10,901 9,964 Weighted average number of common shares issuable under warrants and stock option plans, net of assumed treasury stock repurchases at average market prices........................... (a) (a) (a) 79 ------------------------ ------------------------- Weighted average number of common and common equivalent shares outstanding................................................ 11,069 10,134 10,901 10,043 ======================= ========================== Primary net income (loss) per average common share $(0.57) $(0.44) $(0.21) $0.81 ======================== ========================== Fully Diluted Earnings Per Share Reconciliation of net income (loss) per statements to amounts used in computation of fully diluted net income (loss) per average common share: Net income (loss), as reported.......................................($6,265) ($4,459) ($2,241) $8,123 Adjustments for assumed conversion of the 9% convertible subordinated debentures: Add interest on the debentures....................................... (a) (a) (a) 3,927 Add amortization expense on the debentures........................... (a) (a) (a) 363 Add foreign exchange loss recognized on interest payable on convertible debentures......................................... (a) (a) (a) 20 Add foreign exchange transaction loss recognized on the debentures................................................. (a) (a) (a) 354 Less income tax effect of the debentures............................. (a) (a) (a) (1,586) ------------------------ ------------------------- Net income (loss), as adjusted.......................................($6,265) ($4,459) ($2,241) $11,201 ======================== ========================= Reconciliation of weighted average number of shares outstanding to amount used in computation of fully diluted net income per average common share: Weighted average number of shares outstanding........................ 11,069 10,134 10,901 9,964 Adjustments for assumed conversion of the 9% convertible subordinated debentures to common stock........................................ (a) (a) (a) 7,124 Adjustments for assumed exercise of warrants and stock options, net of assumed treasury stock repurchases at period end prices... (a) (a) (a) 79 Weighted average number of common and common equivalent shares ------------------------ ------------------------- outstanding, as adjusted.......................................... 11,069 10,134 10,901 17,186 ======================== ========================= Fully diluted net income (loss) per average common share...................................................... $(0.57) $ (0.44) $ (0.21) $ 0.65 ======================== ==========================
(a) These items are anti-dilutive and thus are omitted from the calculation. EX-13 6 COMPANY PROFILE Exhibit 13 Company Profile InterTAN, Inc., headquartered in Fort Worth, Texas, is an international consumer electronics retailer with approximately 1,800 company-operated retail stores and dealer outlets in Canada, the United Kingdom and Australia. InterTAN's retail operations are conducted under trade names licensed from Tandy Corporation: "RadioShack" in Canada, "Tandy" in the United Kingdom and "Tandy Electronics" in Australia. InterTAN carries a broad range of private label and brand name consumer electronics products, including audio and video, communication products, telephones, cellular equipment, computers, personal electronics, batteries and parts and accessories. InterTAN is committed to providing consumers with high quality merchandise, convenient locations and excellent service from friendly, knowledgeable sales associates. InterTAN's common shares are traded on the New York Stock Exchange under the symbol "ITN" and the Toronto Stock Exchange under the symbol "ITA." [Three images (all being photographs) appear in the foregoing text and are described as follows: 1) a caller-ID telephone device; 2) a personal computer consisting of a CPU, monitor with built-in speakers, keyboard and mouse; and 3) an assortment of batteries for general consumer usage.] Financial Highlights
(In thousands, except percent, per share data, Year ended June 30 number of sales outlets and number of employees) 1996 1995 1994 1993/3/ 1992/3/ - ----------------------------------------------------------------------------------------------------------------------------------- Operating Results: Net sales $506,445 $491,751 $465,766 $641,966 $681,440 Gross profit percent 44.3 43.2 44.3 43.0 48.7 Operating income 11,629 13,861/1/ 16,851/1/ (93,155)/1/ (49,554)/1/ Net income (loss) (2,241) 8,123 9,649 (109,060) (45,892) Primary net income (loss) per average common share (0.21) .81 2.09 (12.20) (5.15) Fully diluted net income (loss) per average common share (0.21) .65 1.50 (12.20) (5.15) - ----------------------------------------------------------------------------------------------------------------------------------- Financial Position at Year End: Total assets 261,633 262,039 258,591 240,534 361,422 Net working capital 145,471 157,582 148,108 40,989 160,141 Long-term debt 64,730 83,555 89,831 40,000/2/ 40,000 Stockholders' equity 119,512 113,326 101,513 82,179 201,025 - ----------------------------------------------------------------------------------------------------------------------------------- Other Information at Year End: Number of sales outlets 1,780 1,839 1,817 2,136 2,341 Retail square feet (Company-operated stores) 1,707 1,780 1,821 2,272 2,648 Number of employees 4,343 4,217 4,220 5,662 6,200 - -----------------------------------------------------------------------------------------------------------------------------------
/1/ Fiscal years 1995, 1994, 1993 and 1992 include provisions (credits) of ($1,600,000), ($3,612,000), $77,400,000 and $49,754,000, respectively, relating to business restructuring. /2/ Classified as current in 1993 and included in debt to be refinanced on the balance sheet. If the long-term debt had not been reclassified, net working capital would have been $80,989,000. /3/ Amounts for 1993 and 1992 include results for the Company's former operations in continental Europe which have been closed. 1 INTERTAN, INC. - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations Introductory Note Regarding Forward Looking Information With the exception of historical information, the matters discussed herein are forward looking statements about the business, financial condition and prospects of InterTAN, Inc. (the "Company" or "InterTAN"). The actual results of the Company could differ materially from those indicated by the forward looking statements because of various risks and uncertainties including, but not limited to, international economic conditions, interest and foreign exchange rate fluctuations, various tax issues, including possible reassessments, changes in product demand, competitive products and pricing, availability of products, inventory risks due to shifts in market conditions, dependence on manufacturers' product development, the regulatory and trade environment, real estate market fluctuations and other risks indicated in the Company's previous filings with the Securities and Exchange Commission. These risks and uncertainties are beyond the ability of the Company to control, and in many cases the Company cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward looking statements. Results of Operations Overview InterTAN is engaged in the sale of consumer electronics products through company-operated retail stores and dealer outlets in Canada, the United Kingdom and Australia. The Company's ongoing 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. The geographic distribution of the Company's sales outlets is summarized in the following table: Sales Outlets Fiscal Year 1996 June 30 Ending Opened Closed 1995 1994 - -------------------------------------------------------- Canada Company-operated 450 9 5 446 451 Dealer 402 21 48 429 425 - -------------------------------------------------------- 852 30 53 875 876 - -------------------------------------------------------- Australia Company-operated 210 9 4 205 210 Dealer 202 23 81 260 266 - -------------------------------------------------------- 412 32 85 465 476 - -------------------------------------------------------- United Kingdom Company-operated 345 14 4 335 334 Dealer 171 17 10 164 131 - -------------------------------------------------------- 516 31 14 499 465 - -------------------------------------------------------- Total Company-operated 1,005 32 13 986 995 Dealer 775 61 139 853 822 - -------------------------------------------------------- 1,780 93 152 1,839 1,817 - -------------------------------------------------------- 13 INTERTAN, INC. - -------------------------------------------------------------------------------- The dealers included in the preceding table are independent retail businesses which operate under their own trade names but are permitted, under dealer agreements, to purchase any of the products sold by InterTAN company stores. The dealer agreements contain a license permitting the dealer to designate the consumer electronics department of the dealer's business as a "RadioShack Dealer," a "Tandy Dealer," or a "Tandy Electronics Dealer," as applicable. Sales to dealers accounted for approximately 9% of total sales during fiscal year 1996. InterTAN's business is seasonal; sales peak in the November-December Christmas selling season. The Company's cash flow requirements are also seasonal since inventories build prior to the Christmas selling season. Significant inventory growth for all operations typically begins to build in late summer and peaks in November. The Company's fiscal year ends June 30. Historically, units operating outside North America reported on a May 31 fiscal year end. Effective with fiscal year 1995, the Company's subsidiaries in Australia and the United Kingdom changed their fiscal year end to June 30 to coincide with that of the parent Company, thus eliminating the historical one-month lag in reporting. As a consequence of this change, losses incurred in Australia and the United Kingdom during the month of June, 1994, aggregating $1,740,000, have been charged directly to retained earnings. In order to facilitate the comparison of results for fiscal year 1995 with those of fiscal year 1994, management has revised the 1994 results to show what they would have been had this change in reporting been given retroactive effect. The table which follows presents a statement of operations which compares results for the current year with results for fiscal years 1995 and 1994, as revised and as reported:
Year ended June 30 1996 1995 1994 1994 (In thousands, except per share data) (Revised) (As Reported) - -------------------------------------------------------------------------------------------------------------- Net sales and operating revenues $506,445 $491,751 $467,629 $465,766 Other income 902 1,217 713 771 - -------------------------------------------------------------------------------------------------------------- 507,347 492,968 468,342 466,537 Operating costs and expenses: Cost of products sold 282,052 279,436 261,449 259,338 Selling, general and administrative expenses 205,694 193,767 186,221 186,017 Depreciation and amortization 7,972 7,504 7,951 7,943 Provision for business restructuring -- (1,600) (3,612) (3,612) - -------------------------------------------------------------------------------------------------------------- 495,718 479,107 452,009 449,686 Operating income 11,629 13,861 16,333 16,851 Foreign currency transaction (gains) losses (338) 314 (2,207) (1,472) Interest expense, net 6,709 7,462 8,459 8,351 - -------------------------------------------------------------------------------------------------------------- Income before income taxes 5,258 6,085 10,081 9,972 Provision (benefit) for income taxes 7,499 (2,038) (9,677) (9,677) - -------------------------------------------------------------------------------------------------------------- Net income (loss) $(2,241) $8,123 $19,758 $19,649 - -------------------------------------------------------------------------------------------------------------- Primary net income (loss) per average common share $(0.21) $0.81 $2.10 $2.09 - -------------------------------------------------------------------------------------------------------------- Fully diluted net income (loss) per average common share $(0.21) $0.65 $1.50 $1.50 - -------------------------------------------------------------------------------------------------------------- Average common shares outstanding 10,901 10,043 9,422 9,422 - -------------------------------------------------------------------------------------------------------------- Average common shares outstanding assuming full dilution 10,901 17,186 13,639 13,639 - --------------------------------------------------------------------------------------------------------------
In the discussion of Results of Operations which follows, when comparisons are made between fiscal years 1995 and 1994, comparisons will be made, in all cases, with the results as revised. Management believes that these revised results provide the most meaningful basis of comparison. Since the impact of the fluctuations of local country currencies against the U.S. dollar can be significant, the following analysis of the income and expense categories is based both on amounts expressed in U.S. dollars and as a percent of sales. Profit and loss accounts, including sales, are generally translated from local currency values to U.S. dollars at the monthly average exchange rates. 14 INTERTAN, INC. - -------------------------------------------------------------------------------- During fiscal year 1996, the U.S. dollar was weaker against the Canadian and Australian dollars than in fiscal year 1995. As a result, the same local currency amounts translate into more U.S. dollars as compared with the prior year. For example, if local currency sales of the Canadian operation in fiscal 1996 were equal to those in fiscal 1995, the fiscal 1996 income statement would reflect a 1.4% increase in sales when reported in U.S. dollars. On the other hand, during fiscal year 1996 the U.S. dollar strengthened against the pound sterling. Consequently, in the United Kingdom, the same local currency amounts would translate into less U.S. dollars in fiscal year 1996 as compared with fiscal year 1995. The table below outlines the percentage change of the weighted average exchange rates as compared to the prior year: 1996 1995 1994 - --------------------------------------------------- Canada 1.4 (3.1) (6.4) Australia 2.1 8.3 (3.2) United Kingdom (1.9) 5.6 (8.9) - --------------------------------------------------- Net Sales and Operating Revenues Net sales and operating revenues ("sales") in U.S. dollars increased by $14,694,000 in fiscal year 1996, an increase of 3.0% over fiscal year 1995. The impact on sales of stronger Australian and Canadian dollars was partially offset by a weaker pound sterling. On a net basis, foreign exchange effects accounted for $1,450,000 of the increase. In constant dollars, therefore, sales increased by $13,244,000, or 2.7%. This increase in sales, measured at comparable exchange rates, was attributable, in part, to an increase in the number of company-operated stores. During fiscal year 1996, the Company opened 32 new company-operated stores while closing 13 stores for a net increase of 19 company-operated stores. In fiscal years 1995 and 1994, the Company reduced the number of stores by 9 and 33, respectively. The Company is actively seeking viable new and replacement locations, particularly in the United Kingdom, where management believes prospects for increasing sales are greatest. Net additions are planned for fiscal year 1997 in all three countries, aggregating approximately 15 company-operated stores, with about one-half of those in the United Kingdom. The Company's strategy of reviewing and closing certain marginal locations, where appropriate, will also continue. The decrease in the number of dealers is primarily attributable to programs in Canada and Australia designed to eliminate dealers that were not purchasing product in sufficient quantities to make them profitable to the Company. The reduction in the number of dealers is not expected to have a material effect on sales. The Company intends to continue to explore opportunities to expand its dealer base to produce sales from communities too small to support company- operated stores. The following table illustrates the total percentage sales increase (decrease) by geographic area as measured in U.S. dollars and local currencies: Sales Increase (Decrease) U.S. dollars Year ended June 30 (Percent change) 1996 1995 1994 - ------------------------------------------------- Canada 2.2 2.0 (6.4) Australia 12.1 7.8 (3.1) United Kingdom (0.6) 8.8 1.2 - ------------------------------------------------- Local Currencies Year ended June 30 1996 1995 1994 - ------------------------------------------------- Canada 1.0 5.3 0 Australia 10.3 (0.1) (0.5) United Kingdom 1.3 3.2 10.9 - ------------------------------------------------- The following table illustrates comparative company-operated store sales measured in comparable exchange rates: Comparative Company-Operated Store Sales/1/ U.S. dollars Year ended June 30 (Percent change) 1996 1995 1994 - --------------------------------------------------------------------------- Canada 0.6 6.5 1.7 Australia 10.7 2.5 4.0 United Kingdom (0.7) 4.1 11.0 /1/ Derived from the accumulation of each store's monthly sales in local currency for those months in which it was open both in the current and preceding year. - ------------------------------------------------- Comparative stores sales increased during fiscal year 1996 as a whole by 1.9%. The effect of a difficult fiscal 1996 Christmas quarter partially offset gains made during the other periods of the year. While comparative store sales increased by 0.3%, 6.4% and 5.1% in the September, March and June quarters, respectively, a comparative store sales loss of 3.6% occurred in December quarter. Management believes that certain steps taken to refocus the Company into its market niche, including the decision to de-emphasize the video game business, had a temporary unfavorable impact on sales. For example, reduced video game sales depressed overall sales by 2.1%, requiring improvements in other product categories just to stay even with the prior year. During fiscal year 1996, the Company implemented a number of new service initiatives and advertising programs made available to it under an advertising agreement concluded with Tandy late in fiscal year 1995. These included the positioning statement, "You've got questions. We've got answers." and the new service initiative, "The Repair Shop at RadioShack." The Company is also in the early stages of implementing the service initiative, "RadioShack Unlimited." 15 INTERTAN, INC. - -------------------------------------------------------------------------------- The steps taken to refocus the Company into its niche market together with the introduction of these and other new service initiatives had an overall positive impact on sales during fiscal year 1996 and management believes that sales will continue to benefit from this strategy during fiscal year 1997. Net sales increased by $24,122,000 in fiscal year 1995. A stronger Australian dollar and pound sterling accounted for $7,034,000 of the increase. Sales at comparable exchange rates increased by 3.6% in fiscal year 1995. This increase in sales was achieved despite a net reduction of nine company-operated stores. Comparative store sales increased by 4.9% during fiscal year 1995. Net sales decreased by $176,200,000 during fiscal year 1994. Elimination of sales in continental Europe following the closure of European operations accounted for $157,175,000 of this decline. A stronger U.S. dollar explains a further reduction in sales of $28,423,000. When both of these factors are removed, sales in the Company's ongoing markets measured at comparable exchange rates increased by 2.4% in fiscal year 1994. The closure of a net 33 stores during the year had a negative impact on sales. Comparative store sales for the year increased by 5.1%. Gross Profit Gross profit in fiscal year 1996 was $12,078,000 higher than in fiscal 1995, primarily due to an increase in sales and an improvement in the gross margin percentage. The following analysis summarizes the components of the increase in gross profit over that experienced in fiscal year 1995 (in thousands): - --------------------------------------------------- Higher gross margin percentage $5,488 Higher sales 5,725 Stronger foreign currencies 865 - --------------------------------------------------- $12,078 The following table illustrates gross profit as a percentage of sales, by geographic area: (As a percent of sales) 1996 1995 1994 (Revised) - --------------------------------------------------- Canada 45.6 45.1 46.8 Australia 45.5 43.8 43.1 United Kingdom 41.6 39.9 40.3 - --------------------------------------------------- Consolidated 44.3 43.2 44.1 The gross profit percentage for fiscal year 1996 rose from 43.2% a year ago to 44.3%, an increase of 1.1 percentage points. Management's overall objective for the year had been to improve margins by a full percentage point. This objective was achieved as margins increased in all markets. This improvement results primarily from a merchandising strategy which places greater emphasis on the Company's higher margin core categories, including parts and accessories and private label goods. Increased cellular phone revenues, emphasis on the sale of extended warranty contracts and tighter controls over inventories also had a positive effect on margins. Management believes that the steps taken to refocus the Company in its niche market as well as the benefits of current and planned service and other initiatives will continue to make a positive contribution to margins in fiscal year 1997. However, it may be unrealistic to expect that improvement will continue at the pace experienced in fiscal 1996. In fiscal year 1995, the gross margin percentage declined by 0.9 percentage points. Much of this decline occurred in Canada and was due to a swing in the sales mix away from private label goods towards branded product, in particular computers. Management addressed this issue by better managing the percentage of computers in the product mix. The effect of the decline in Canadian margins was partially offset by an improvement in the gross margin percentage in Australia following the installation of an electronic point-of-sale system in that operation. In fiscal year 1994, the gross margin percentage improved by 0.9 percentage points. In fiscal year 1993, however, margins had been depressed by the low margin on sales in continental Europe. The margin percentage in the Company's core markets of Canada, Australia and the United Kingdom actually declined by 1.8 percentage points. Reductions in margin percentages in Australia and the United Kingdom were partially offset by an improvement in Canada. These reductions were attributable to competitive pricing pressure and to the introduction of lower margin branded products in Australia. Selling, General and Administrative Expenses Selling, general and administrative expense ("SG&A"), as a percentage of sales, increased from 39.4% in fiscal year 1995 to 40.6% in the current year. The following chart illustrates SG&A expense as a percentage of sales by geographic area: SG&A Expense by Geographic Area (As a percent of sales) 1996 1995 1994 (Revised) - --------------------------------------------------- Canada 35.6 34.5 36.2 Australia 41.6 41.9 41.6 United Kingdom 45.0 42.1 42.0 - --------------------------------------------------- Consolidated 40.6 39.4 39.8 16 INTERTAN, INC. - -------------------------------------------------------------------------------- The following table provides a breakdown of SG&A expense by major category (in thousands):
SG&A Expense by Category 1996 1995 1994 (Revised) Dollars % of Sales Dollars % of Sales Dollars % of Sales - --------------------------------------------------------------------------------------------------------------- Payroll $83,507 16.5 $78,359 15.9 $75,469 16.1 Advertising 26,045 5.1 24,638 5.0 24,880 5.3 Rent 40,918 8.1 39,423 8.0 38,845 8.3 Taxes (other than income taxes) 16,942 3.3 16,160 3.3 15,593 3.3 Telephone, telex and utilities 6,865 1.4 6,669 1.4 6,863 1.5 Other 31,417 6.2 28,518 5.8 24,571 5.3 - --------------------------------------------------------------------------------------------------------------- $205,694 40.6 $193,767 39.4 $186,221 39.8 - ---------------------------------------------------------------------------------------------------------------
Foreign exchange rate effects did not have a material effect on the increase in SG&A expenses during fiscal year 1996. Implementing a strategy of growing the business by refocusing the Company in its niche market, introducing new service and other initiatives and expanding in selected markets of necessity required some increase in SG&A spending. The increase in the number of stores resulted in higher rent and increased store payroll costs. Payroll costs also increased as a result of the "Repair Shop at RadioShack" initiative as well as the strengthening of the management teams in all three countries. Management information systems were also improved, particularly in the United Kingdom. Management's objective had been to keep SG&A expense as a rate to sales flat with the prior year. This objective proved to be unattainable, primarily as a result of sales in the December quarter which did not meet expectations. Management will continue to focus its attention on controlling costs, with an overall strategy of reducing SG&A as a percentage of sales during fiscal 1997, after excluding the scheduled 0.25 percentage point increase in the royalty payable to Tandy. In fiscal year 1995, SG&A expense increased by $7,546,000. After the effects of foreign exchange rate fluctuations are eliminated, the increase, measured at constant exchange rates was $4,544,000. SG&A spending in fiscal year 1995 was heavily affected by the decision to refocus the Company in its niche market. This action resulted in one-time costs incurred in the process of restructuring the business, including the severance of two senior executives and the retirement of a third as well as the relocation of the corporate headquarters from Toronto to Fort Worth. These one-time costs totaled approximately $1,500,000. In fiscal year 1994, SG&A expense was reduced by $96,320,000. After the effects of foreign exchange and the impact of the closure of the Company's operation in continental Europe are eliminated, SG&A in the Company's core markets, measured at constant exchange rates, declined by $9,848,000. Almost 60% of this reduction was in payroll. These savings resulted from management's focus on managing payroll at the store level and eliminating certain functions in central units and corporate headquarters. Depreciation and Amortization Depreciation and amortization expense increased modestly in fiscal year 1996 by $468,000, primarily as a result of increased capital spending on store renovations, new stores and investments in management information systems. Depreciation and amortization expense had decreased by $477,000 during fiscal year 1995, primarily as a result of reduced capital spending during the period of the Company's financial restructuring. In fiscal year 1994, depreciation and amortization expense fell by $5,570,000. Most of this reduction was attributable to the closure of operations in continental Europe. Management anticipates that depreciation and amortization expense will increase in future periods as capital spending increases to renew assets and in response to growth in the business. Most of this spending will be on store expansion, remodeling and upgrading. Provision for Business Restructuring In May, 1993, the Board of Directors approved management's plan to discontinue the Company's continental European retail operations. The Company recorded a pre-tax charge in the fourth quarter of fiscal 1993 in the amount of $77,400,000 in connection with the shutdown to provide for management's best estimate of the costs of inventory liquidation, lease commitments, payroll and severance, other operating costs during the shutdown period, and losses on the disposal of fixed assets and leaseholds. At June 30, 1994, all inventory and assets had been sold, all significant leases had been canceled and all employees had been terminated. 17 INTERTAN, INC. - -------------------------------------------------------------------------------- The credit of $3,612,000 to the business restructuring provision in fiscal 1994 represents the cumulative translation adjustment effects of liquidating the European business entities. During the fourth quarter of fiscal 1995, certain European claims and contingencies were settled for amounts less than originally estimated. As a result of these settlements and certain other developments, management reduced the accrual by $1,600,000. Management believes the remaining restructuring reserve at June 30, 1996 of $2,630,000 is adequate to provide for the Company's remaining obligations in Europe including those arising from legal actions brought against the Company by former employees, dealers and franchisees. Foreign Currency Transaction (Gains)/Losses A foreign currency transaction gain of $338,000 arose during fiscal year 1996 compared to a foreign currency loss of $314,000 in fiscal year 1995. These gains and losses resulted from a variety of factors, including the effect of fluctuating foreign currency values on inter-company debt and regular trade payables denominated in currencies other than the functional currency of the debtor. The Company's major exposure to foreign currency risks are the Canadian dollar denominated subordinated convertible debentures (the "Debentures") carried on the books of the Company and the U.S. dollar denominated notes due to Tandy which are recorded in the Canadian subsidiary. Historically, these two debts provided a natural hedge, as the related foreign currency risks were largely offsetting. The risk with respect to these two debts will increase with time as the notes payable to Tandy are paid down. In fiscal year 1994, a foreign currency transaction gain of $1,472,000 was experienced. This gain was attributable primarily to a gain on the repayment of a loan owing by the Canadian subsidiary to the Company. Net Interest Expense Interest expense, net of interest income, was $6,709,000, $7,462,000 and $8,351,000 for fiscal years 1996, 1995 and 1994, respectively. The reduction in net interest expense in fiscal year 1996 results from reduced interest bearing debt as a consequence of principal repayments on the notes payable to Tandy as well as the voluntary conversion of a portion of the Debentures by the holders thereof. In addition, the amortization of a significant portion of the Company's bank financing costs had been completed in fiscal 1995. The reduction in net interest expense during fiscal year 1995 is attributable to lower average net debt, primarily because of the fact that during part of fiscal year 1994, interest was being paid to Tandy on short-term debt which had accumulated during the period of the Company's financial restructuring. The effect of this reduction in net debt was partially offset by an increase in the amortization of financing charges. The increase in net interest expense in fiscal year 1994 was due to a combination of higher rates, the amortization of financing costs and increased average borrowings. Income Taxes In assessing the required valuation allowance against the deferred tax assets at June 30, 1994, the Company concluded that it was more likely than not that a portion of the deferred tax assets of the Canadian subsidiary would be used to offset future tax. This conclusion was primarily influenced by the successful completion of new financing arrangements in the form of bank loans and the Debentures, negotiation of its loan and merchandising agreements with Tandy and the closure of its European operations. Accordingly, during fiscal year 1994, the Company recognized a deferred tax benefit in the amount of $12,325,000. This deferred tax benefit was partially offset by current tax expenses related to U.S. taxes on foreign interest income and certain Canadian federal and provincial taxes, resulting in a net tax benefit of $9,677,000. During fiscal 1995, management reviewed the realization of its remaining deferred tax assets. Based on the operating performance of the Canadian subsidiary, particularly in the first two quarters, management concluded that the valuation allowance should be further reduced by approximately $9,100,000 and the Company recognized a deferred tax benefit of that amount. The Company also recorded a current tax benefit of $1,000,000 relating to the parent Company. These tax benefits were partially offset by a provision for Canadian federal and provincial income taxes on the profits of the Canadian subsidiary, resulting in a net tax benefit for the year of $2,038,000. The provision for taxes for fiscal year 1996 of $7,499,000 primarily represents a provision for Canadian federal and provincial taxes on the profits of the Canadian subsidiary. At June 30, 1996, the Company had deferred tax assets in all three countries aggregating $36,684,000 against which a valuation allowance has been recorded in the amount of $30,461,000. Approximately $20,500,000 of the valuation allowance relates to loss carryforwards in Australia and the United Kingdom. The potential realization of the deferred tax assets will be reviewed on a regular basis. An audit of the Canadian income tax returns of the Canadian subsidiary for the 1987 to 1989 taxation years was completed during fiscal year 1994, resulting in additional tax being levied against the Canadian subsidiary. The Company has appealed these reassessments and, pending the outcome of these matters, the Company, by Canadian law, was required to pay one-half of the tax in dispute. The tax levied by Revenue Canada in reassessing those years was offset by refunds arising from the carryback of losses incurred in subsequent years. 18 INTERTAN, INC. - -------------------------------------------------------------------------------- Depending on the ultimate resolution of these issues, the Company could potentially have an additional liability in the range of $0 to $10,700,000. The Company believes it has meritorious arguments in defense of a number of the issues raised by Revenue Canada and it is in the process of vigorously defending its position. It is management's determination that no additional provision need be recorded for these reassessments. In order for the Company to succeed in appealing certain aspects of these reassessments, it must succeed in defending the possible reassessments discussed immediately below. The Company was advised in August 1995 that Revenue Canada intended to extend the scope of its 1987 to 1989 reassessments to raise certain issues flowing from the spin-off of the Company from Tandy in fiscal year 1987. Management disagrees with Revenue Canada's views on these issues and will vigorously defend the Company's position should Revenue Canada pursue these issues. Management believes it has meritorious arguments supporting its stance and, accordingly, no additional provision has been recorded for these possible reassessments. Tax reassessments related to these issues, if successfully pursued, could potentially range from $14,000,000 to $20,000,000. As required by Canadian law, the Company would be required to post a deposit of one-half of the tax in dispute, including interest, in order to appeal any reassessment. An audit of the Canadian income tax returns of the Canadian subsidiary for the 1990 to 1993 taxation years was commenced during the 1995 fiscal year. While to date no reassessments have been issued by Revenue Canada arising from this audit, 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. Management estimates that the possible range of loss should Revenue Canada ultimately prevail in these matters, after all appeals have been unsuccessfully pursued by the Company, could range from $18,000,000 to $25,000,000. Assuming Revenue Canada pursues these issues, in order for the Company to proceed with such appeals, the Company would be required to post a deposit equal to one-half of the 1990-1993 tax in dispute, together with interest, which management estimates should not exceed $9,000,000. Management believes it has meritorious arguments in support of the deductibility of such interest and in support of its treatment of the foreign exchange gains and is prepared to vigorously defend its position should the Canadian tax authorities proceed with such a challenge. Accordingly, it is management's assessment that no provision need be recorded for these possible claims. Net Income per Average Common Share The primary net loss and fully diluted loss per average common share were both $0.21 for fiscal year 1996 as the effect of the Debentures was anti-dilutive. For fiscal years 1995 and 1994, primary net income per average common share and fully diluted net income per average common share were $0.81 and $0.65, and $2.09 and $1.50, respectively. In each of those periods, the difference between primary and fully diluted net income per average common share was due primarily to the dilutive effect of the Debentures, which are convertible into 7,123,860 common shares. Because the Debentures were anti-dilutive during one or more quarters of fiscal years 1996 and 1995, fully diluted net income (loss) per average common share during the four quarters of those fiscal years do not total fully diluted net income per average common share for those fiscal years as a whole. The dilutive effect of this instrument will likely continue in future periods and exchange rate impacts on the Debentures may increase or decrease their dilutive effects. The Company has outstanding warrants exercisable for 1,449,007 common shares at an exercise price of $6.618 per share. Also, in fiscal years 1996, 1995 and 1994, the Company's directors and employees held options to purchase 650,833, 650,000 and 707,499 common shares, respectively, at exercise prices ranging from $5.31 to $8.1875, $5.31 to $8.125 and $5.31 to $7.125, respectively. The outstanding warrants and options were also considered in determining primary and fully diluted net income per average common share. 19 INTERTAN, INC. - -------------------------------------------------------------------------------- Liquidity and Capital Resources The Company's principal sources of outside financing are its loan from Tandy, the Debentures and bank facilities. On August 5, 1993, Tandy, through its wholly-owned subsidiary, Trans World Electronics, Inc., acquired the debt then outstanding under the Company's Revolving Credit and Term Loan Agreement of $41,748,000. This debt was then restructured as a term loan facility ("Series A Note") bearing interest at 8.64%. It is payable semi-annually over a six year period commencing February 25, 1995. In addition, Tandy provided the Company with a $10,113,000 three-year loan ("Series B Note") which bears interest at 8.11% and was due on August 25, 1996. The agreement governing these loans is herein referred to as the "Tandy Loan Agreement." During fiscal year 1996, the Company made scheduled repayments on the Series A Note aggregating $6,958,000. In addition, the Series B Note was retired early in May, 1996. As part of the financial restructuring indicated above, the Company entered into a Merchandise Agreement with Tandy which requires the Company to use Tandy's export unit as its exclusive exporter of products from the Far East through the term of the Merchandise Agreement. The Merchandise Agreement requires the Company to support a percentage of the total cost of purchase orders placed with Far Eastern suppliers with either letters of credit or cash deposits. The percentage ranges from a low of 60% in the December to April period to a high of 90% in August. In October, 1995, agreement was reached to lower the letter of credit posting requirement on Canadian purchases. The Company has reached agreement with Tandy whereby the same reduced letter of credit requirements have been extended to the Company's other subsidiaries. On May 6, 1994, InterTAN Canada Ltd., InterTAN, Inc., and InterTAN U.K. Limited entered into a one-year credit agreement ("Syndicated Loan Agreement") with a syndicate of banks. This agreement has been renewed and now extends through mid-August, 1997. This facility is used primarily to provide letters of credit in support of purchase orders. At June 30, 1996, there were borrowings against the credit facility aggregating $975,000. In addition, $29,279,000 was committed in support of letters of credit and a further $399,000 was committed in support of foreign exchange contracts. At June 30, 1996, $13,345,000 of credit was available for use. Both the Tandy Loan Agreement and the Syndicated Loan Agreement preclude the Company from paying dividends on its common stock. In addition, the Tandy Loan Agreement and the Syndicated Loan Agreement contain covenants which require the Company to maintain tangible net worth at a specified minimum level and which limit the level of debt due both to Tandy as well as other parties, capital spending, lease commitments, store openings and require the Company to maintain debt to equity and working capital ratios at agreed levels. These loan agreements also require the Company to meet certain interest coverage ratios. During fiscal year 1996, the Company was in compliance with all of these requirements except for the interest coverage ratio tests under the Syndicated Loan Agreement at December 31, 1995 and under the Tandy Loan Agreement at June 30, 1996. All members of the bank syndicate and Tandy have waived these events of non-compliance. During fiscal year 1994, the Company closed a private placement of Cdn$60,000,000 of 9% subordinated convertible debentures which will mature on August 30, 2000. Interest on the Debentures is payable semi-annually, at the end of February and August. At June 30, 1996, Cdn$56,812,000 ($41,660,000 at the June 30, 1996 exchange rate) of Debentures were outstanding. The conversion rate is 118.7310 common shares for each Cdn$1,000 face amount of Debentures, equivalent to a conversion price of approximately Cdn$8.42, or $6.17 per share at the June 30, 1996 exchange rate. The Debentures are subordinated to all senior indebtedness of the Company, including the Company's revolving bank facility and the Tandy Loan Agreement. Operating activities generated $12,185,000 in cash during fiscal year 1996, an increase of $4,155,000 over the cash generated during fiscal year 1995. Increases in inventories consumed $13,698,000 in cash during fiscal year 1996, while reductions in inventories had generated $1,687,000 in cash a year ago. The increase in the Company's inventory levels in fiscal year 1996 results from a merchandising strategy which places greater emphasis on higher margin private label goods. These products require larger order sizes and longer lead times. An improvement in the Company's in-stock position and a wider product assortment also contributed to the increase. The effect of this reduction in cash was partially offset by an increase in accounts payable which preserved $9,960,000 in cash compared to $834,000 in fiscal 1995. Net income, adjusted to reconcile net income to cash, generated $15,418,000 in cash, $1,634,000 more than in fiscal year 1995. Operating activities resulted in an inflow of cash of $8,030,000 during fiscal year 1995, compared to an outflow of $24,788,000 during fiscal year 1994. Net income in fiscal year 1995, adjusted to reconcile net income to cash, generated only $1,357,000 more cash than in fiscal year 1994. However, significant cash outflows had occurred in fiscal 1994 as the European restructuring reserve was reduced and amounts owing to Tandy and other creditors which had accumulated during the period of the Company's financial restructuring were liquidated. These outflows were partially offset by tax refunds of approximately $14,000,000. 20 INTERTAN, INC. - -------------------------------------------------------------------------------- Investing activities consumed $9,961,000 in cash in fiscal year 1996 compared to $5,773,000 in fiscal year 1995. This change results primarily from an increase in additions to property and equipment as the Company proceeds with a plan to open new stores and renovate existing stores. In fiscal year 1994, investing activities generated cash of $9,013,000 as the proceeds from the liquidation of assets in continental Europe significantly exceeded routine additions to property and equipment. In fiscal year 1996, financing activities consumed $13,895,000 in cash. The effects of scheduled repayments on the Series A Note payable to Tandy as well as the early retirement of the Series B Note were partially offset by short-term borrowings and cash generated from the sale of stock to employee plans. In fiscal year 1995, financing activities consumed $1,658,000 in cash. Cash consumed by the principal payment of debt to Tandy was partially offset by the proceeds from the sale of common stock to employee plans. In fiscal year 1994, cash generated by the sale of stock to employee plans together with the net proceeds from long-term borrowings contributed $47,095,000 in cash. The Company's primary uses of liquidity in fiscal year 1997 will include the building of inventory levels for the 1996 Christmas selling season, the funding of capital additions and the servicing of debt. The Company anticipates that capital additions will approximate $12,000,000 in fiscal year 1997, mainly related to store expansion, remodeling and upgrading. The Company's debt servicing requirements in fiscal year 1997 are estimated to be $13,300,000 and include principal payments on the Tandy Loan of $6,958,000. In addition, as previously described, the Company believes that it could possibly receive additional reassessments of tax from Revenue Canada. See "Income Taxes." The Company's primary sources of liquidity in fiscal year 1997 will be its cash and short-term investments on hand, cash generated from operations and the syndicated credit facility. In addition, the Company has recently concluded an agreement with an Australian bank which would provide a further credit facility to the Australian subsidiary in the amount of A$12,000,000 ($9,450,000 at the June 30, 1996 rate of exchange). While the Syndicated Loan Agreement together with the new Australian facility will be used primarily to support letters of credit issued in accordance with the Merchandise Agreement, management believes that it will be necessary to borrow against these facilities as inventories are built for the 1996 Christmas selling season. Borrowings against the Syndicated Loan Agreement will also be required from time to time to fund operations, primarily in the United Kingdom. Management believes these facilities will be adequate to provide letters of credit to the level required by peak outstanding orders. Management believes that the Company's cash and short-term investments on hand and its cash flow from operations coupled with the Syndicated Loan Agreement and the new credit facility in Australia will provide the Company with sufficient liquidity to meet its planned requirements through fiscal year 1997, provided the amount of any additional tax deposits were not at the upper end of the ranges described above under "Income Taxes." If this were the case, the Company would be required to seek additional sources of liquidity. Management is currently in the process of studying additional funding alternatives. However, there can be no assurance that additional funding would be available, if required. 21 INTERTAN, INC. - -------------------------------------------------------------------------------- Consolidated Statements of Operations
Year ended June 30 (In thousands, except per share data) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------ Net sales and operating revenues $506,445 $491,751 $465,766 Other income 902 1,217 771 - ------------------------------------------------------------------------------------------------------ 507,347 492,968 466,537 - ------------------------------------------------------------------------------------------------------ Operating costs and expenses: Cost of products sold (including purchases from Tandy Corporation of $86,366, $69,091, and $94,604, respectively) 282,052 279,436 259,338 Selling, general and administrative expenses 205,694 193,767 186,017 Depreciation and amortization 7,972 7,504 7,943 Provision for business restructuring -- (1,600) (3,612) - ------------------------------------------------------------------------------------------------------ 495,718 479,107 449,686 - ------------------------------------------------------------------------------------------------------ Operating income 11,629 13,861 16,851 Foreign currency transaction (gains) losses (338) 314 (1,472) Interest expense, net 6,709 7,462 8,351 - ------------------------------------------------------------------------------------------------------ Income before income taxes 5,258 6,085 9,972 Provision (benefit) for income taxes 7,499 (2,038) (9,677) - ------------------------------------------------------------------------------------------------------ Net income (loss) $(2,241) $8,123 $19,649 - ------------------------------------------------------------------------------------------------------ Primary net income (loss) per average common share $(0.21) $0.81 $2.09 - ------------------------------------------------------------------------------------------------------ Fully diluted net income (loss) per average common share $(0.21) $0.65 $1.50 - ------------------------------------------------------------------------------------------------------ Average common shares outstanding 10,901 10,043 9,422 - ------------------------------------------------------------------------------------------------------ Average common shares outstanding assuming full dilution 10,901 17,186 13,639 - ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 22 INTERTAN, INC. - -------------------------------------------------------------------------------- Consolidated Balance Sheets
June 30, June 30, (In thousands, except share amounts) 1996 1995 - ---------------------------------------------------------------------------------------------- Assets Current Assets: Cash and short-term investments $ 34,096 $ 45,260 Accounts receivable, less allowance for doubtful accounts 9,422 8,710 Inventories 162,207 146,184 Other current assets 7,628 9,377 Deferred income taxes 3,831 8,484 - ---------------------------------------------------------------------------------------------- Total current assets 217,184 218,015 Property and equipment, less accumulated depreciation and amortization 39,129 34,996 Other assets 2,928 4,117 Deferred income taxes 2,392 4,911 - ---------------------------------------------------------------------------------------------- $261,633 $262,039 - ---------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current Liabilities: Short-term bank borrowings $ 975 $ -- Current maturities of notes payable to Tandy Corporation 6,958 6,958 Accounts payable 24,082 14,039 Accounts payable to Tandy Corporation 894 429 Accrued expenses 25,833 25,104 Income taxes payable 12,971 13,903 - ---------------------------------------------------------------------------------------------- Total current liabilities 71,713 60,433 Long-term notes payable to Tandy Corporation, less current maturities 23,070 39,833 9% convertible subordinated debentures 41,660 43,722 Other liabilities 5,678 4,725 - ---------------------------------------------------------------------------------------------- 142,121 148,713 - ---------------------------------------------------------------------------------------------- Stockholders' Equity: Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding -- -- Common stock, $1 par value, 40,000,000 shares authorized, 11,172,506 and 10,192,767 issued and outstanding 11,173 10,193 Additional paid-in capital 111,678 106,376 Retained earnings 19,132 21,373 Foreign currency translation effects (22,471) (24,616) - ---------------------------------------------------------------------------------------------- Total stockholders' equity 119,512 113,326 - ---------------------------------------------------------------------------------------------- Commitments and contingent liabilities $261,633 $262,039 - ----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 23 INTERTAN, INC. - -------------------------------------------------------------------------------- Consolidated Statements of Cash Flows
Year ended June 30 (In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $ (2,241) $ 8,123 $ 19,649 Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Results from the Australia and the U.K. transitional month (see Note 1) -- (1,740) -- Depreciation and amortization 7,972 9,444 8,840 Deferred income taxes 7,172 (1,392) (12,325) Foreign currency transaction gains, unrealized (100) (170) (89) Provision for business restructuring -- (1,600) (3,612) Other 2,615 1,119 (36) Cash provided by (used for) current assets and liabilities: Receivables (674) (1,517) (816) Inventories (13,698) 1,687 3,441 Other current assets 1,298 (1,480) (661) Accounts payable 9,960 834 (5,819) Accounts and short-term notes payable to Tandy Corporation 449 (851) (10,320) Accrued expenses 452 (3,667) (39,201) Income taxes payable (1,020) (760) 16,161 - -------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 12,185 8,030 (24,788) - -------------------------------------------------------------------------------------------------- Cash flows from investing activities: Additions to property and equipment (12,119) (7,530) (7,011) Proceeds from sales of property and equipment 331 1,538 18,227 Other investment activities 1,827 219 (2,203) - -------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (9,961) (5,773) 9,013 - -------------------------------------------------------------------------------------------------- Cash flows from financing activities: Changes in short-term borrowings, net 972 -- -- Proceeds from issuance of common stock to employee plans 1,484 1,809 3,103 Proceeds from exercise of stock options 760 12 -- Proceeds from long-term borrowings -- -- 55,137 Principal repayments on long-term borrowings (17,111) (3,479) (11,145) - -------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (13,895) (1,658) 47,095 - -------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash 507 395 (1,150) - -------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and short-term investments (11,164) 994 30,170 Cash and short-term investments, beginning of year 45,260 44,266 14,096 - -------------------------------------------------------------------------------------------------- Cash and short-term investments, end of year $34,096 $45,260 $44,266 - -------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information Cash paid (received) during the year for: Interest $7,976 $8,616 $6,338 Income taxes $967 $271 $(13,288) - --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 24 INTERTAN, INC. - -------------------------------------------------------------------------------- Consolidated Statements of Stockholders' Equity
Foreign Retained Currency Common Stock Additional Earnings Translation (In thousands) Shares Amount Paid-In Capital (Deficit) Effects - --------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1993 9,201 $9,201 $98,855 $(4,659) $(21,218) Net foreign currency translation adjustments -- -- -- -- (5,573) Issuance of warrants to purchase common stock -- -- 2,155 -- -- Issuance of common stock to employee plans 514 514 2,589 -- -- Net income -- -- -- 19,649 -- - --------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1994 9,715 9,715 103,599 14,990 (26,791) Net foreign currency translation adjustments -- -- -- -- 2,175 Issuance of common stock to employee plans 476 476 2,767 -- -- Issuance of common stock under stock option plans 2 2 10 -- -- Results from Australia and the U.K. transitional month (see Note 1) -- -- -- (1,740) -- Net income -- -- -- 8,123 -- - --------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1995 10,193 10,193 106,376 21,373 (24,616) Net foreign currency translation adjustments -- -- -- -- 2,145 Issuance of common stock to employee plans 483 483 2,805 -- -- Issuance of common stock under stock option plans 118 118 642 -- -- Conversion of subordinated debentures to common stock 379 379 1,855 -- -- Net loss -- -- -- (2,241) -- - --------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1996 11,173 11,173 $111,678 $19,132 $(22,471) - ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 25 INTERTAN, INC. - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Note 1 Summary Of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiaries. The Company operates consumer electronic retail stores in Canada, Australia, and the United Kingdom. The Company's operations in continental Europe (Belgium and France) were closed during fiscal year 1994. All material intercompany transactions, balances and profits have been eliminated. The Company's fiscal year ends June 30. For fiscal years 1994 and prior, units operating outside North America reported on a May 31 fiscal year end. Effective with fiscal year 1995, the Company's subsidiaries in Australia and the United Kingdom changed their fiscal year end to June 30 to coincide with that of the parent company. This change did not have a material impact on the comparability of the Company's consolidated financial statements for the year as a whole. Losses for the month of June, 1994, in Australia and the United Kingdom, which totaled $1,740,000, were charged directly to retained earnings. Cash and Short-Term Investments Cash in stores, deposits in banks and short-term investments with original maturities of three months or less are considered as cash and cash equivalents. Inventory Inventories are comprised primarily of finished merchandise and are stated at the lower of cost, based on the average cost method, or market value. Property and Equipment Property and equipment are recorded at cost and depreciated over the estimated useful lives of the assets using the straight-line method. Estimated useful lives range from 25 to 40 years for buildings, 2 to 8 years for fixtures and equipment and 25 years for lease premiums. Leasehold improvements are amortized over the life of the lease or the useful life of the asset, whichever is shorter. Maintenance and repairs are charged to expense as incurred. Renewals and improvements which materially prolong the useful lives of the assets are capitalized. The cost and related accumulated depreciation of property retired or sold are removed from the accounts, and gains or losses are recognized in the income statement. Net Sales and Operating Revenues Net sales and operating revenues include items related to normal business operations, including service contract and repair income. Service contract revenue, net of direct selling expenses, is recognized over the life of the contract. Translation of Foreign Currencies The local currencies of the Company's foreign entities are the functional currencies of those entities. For reporting purposes, assets and liabilities are translated to U.S. dollars using the exchange rates in effect at the balance sheet date; income and expense items are translated using monthly average exchange rates. The effects of exchange rate changes on net assets located outside the United States are recorded in a separate account in equity. Gains and losses from foreign currency transactions are included in the operations of each period. Contract Management At June 30, 1996, InterTAN Australia had 210 company-operated stores, of which 146 were operated under "contract management" arrangements. Under the typical contract management arrangement, the store manager is not employed by InterTAN Australia, but is under contract to operate the store on behalf of the Company. InterTAN Australia selects and supplies the store location (including lease payments and other fixed location charges) and also supplies leasehold improvements, fixtures and store inventory. InterTAN Australia is also committed to provide service back-up, including advertising and training. The contract manager is responsible for providing the labor and overhead necessary to operate the store (i.e., labor, store utility and other operating costs). The contract manager may be required to provide a cash deposit. In return for the service of operating the store, the contract manager receives compensation equal to one-half of the store's gross profit. The revenue, as well as the expenses paid by the Company, related to contract management stores are included in the consolidated statement of operations. The contract manager's compensation is included in selling, general and administrative expenses. Contract managers' deposits are included in the "Other liabilities" section of the consolidated balance sheet and amounted to $3,145,000 and $2,044,000 at June 30, 1996 and June 30, 1995, respectively. Capitalized Financing Costs Costs incurred in connection with the issuance of debt are capitalized and are amortized over the term of the respective debt. These costs, which include underwriting, bank, legal and accounting fees totaled $4,198,000. Amortization for fiscal years 1996, 1995 and 1994 was $608,000, $1,199,000 and $640,000, respectively. Unamortized balances at June 30, 1996 and June 30, 1995 were $1,805,000 and $2,392,000, respectively. Advertising Costs Advertising costs are expensed the first time the related advertising occurs. During fiscal years 1996, 1995 and 1994, advertising expense was $26,045,000, $24,419,000 and $24,898,000, respectively. 26 INTERTAN, INC. - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Income Taxes The Company records deferred income taxes under the asset and liability approach which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the book amounts and tax basis of assets and liabilities. However, deferred tax assets can be recognized only to the extent that it is more likely than not that the Company will realize the benefits of that deferred tax asset. InterTAN considers the earnings of its foreign subsidiaries to be permanently reinvested for use in those operations and, consequently, deferred federal income taxes, net of applicable foreign tax credits, are not provided on the undistributed earnings of foreign subsidiaries. If the earnings of those subsidiaries as of June 30, 1996 were remitted to the parent, approximately $16,207,000, subject to adjustment for deemed foreign taxes paid, would be included in the taxable income of the parent. By operation of tax statutes currently in effect, the Company would incur certain U.S. income taxes, including alternative minimum tax. Such remittances may also be subject to certain foreign withholding taxes (presently rates range from 0% to 15%) for which there would likely be no U.S. tax relief. Forward Exchange Contracts Gains and losses on contracts entered to hedge open inventory purchase orders are included in the cost of the merchandise purchased. Gains and losses on contracts intended to mitigate the effects of exchange rate fluctuations on payables and debt denominated in currencies other than the functional currency of the debtor are included in income in the periods the exchange rates change. Earnings per Share The Company computes primary net income (loss) per average common share by dividing net income by the sum of the weighted average number of common shares outstanding and dilutive common stock equivalents as determined using the treasury stock method. Dilutive common stock equivalents consist of outstanding stock options and warrants. Fully diluted net income per average common share assumes conversion of the 9% subordinated convertible debentures ("Debentures") into common stock, whereby the related interest expense and foreign currency transaction (gains) losses, net of tax, are added back to net income. New Accounting Standards In March 1995, the FASB issued FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"), which is effective for fiscal years beginning after December 15, 1995. Effective July 1, 1996, the Company will adopt SFAS 121 which requires that long-lived assets (i.e. property, plant and equipment and goodwill) held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the net book value of the asset may not be recoverable. An impairment loss will be recognized if the sum of the expected future cash flows (undiscounted and before interest) from the use of the asset is less than the net book value of the asset. The amount of the impairment loss will generally be measured as the difference between the net book value of the assets and the estimated fair value of the related assets. The adoption of SFAS 121 in the first quarter of fiscal 1997 is not expected to have a material effect on the Company's consolidated financial statements. In October 1995, the FASB issued FAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which is effective for fiscal years beginning after December 15, 1995. Effective July 1, 1996, the Company will adopt SFAS 123 which establishes financial accounting and reporting standards for stock-based employee compensation plans. The pronouncement defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock option compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting as prescribed by Accounting Principles Board Option No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Entities electing to remain with the accounting in APB 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined in SFAS 123 had been applied. The Company will continue to account for stock-based employee compensation plans under the intrinsic method pursuant to APB 25 and will make the disclosures in the fiscal 1997 financial statements as required by SFAS 123. Pervasiveness of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and related revenues and expenses, and disclosure of gain and loss contingencies at the date of the financial statements. Actual results could differ from those estimates. Classification Certain prior year balances have been reclassified to conform with the current year presentation. Note 2 Bank Debt On May 6, 1994, InterTAN Canada Ltd., InterTAN Inc., and InterTAN U.K. Limited entered into a one-year credit agreement ("Syndicated Loan Agreement") with a syndicate of 27 INTERTAN, INC. - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements banks (the "Bank Syndicate"). The Syndicated Loan Agreement is used primarily to provide letters of credit in support of the Company's inventory purchases. This agreement established a one year revolving facility in an amount which is determined using an inventory level calculation not to exceed Cdn$60,000,000 ($43,998,000 at June 30, 1996 exchange rates). The interest rate under the credit facility is Canadian prime rate plus 1% on loans to InterTAN Canada Ltd. and the U.K. base rate plus 2% for loans to InterTAN U.K. Limited. In addition, a standby fee of 0.25% per annum is payable on unused credit facilities. The credit agreement is secured principally by an inventory repurchase agreement among the syndicated agent, the Company and Tandy Corporation ("Tandy"), the Company's principal supplier. This Syndicated Loan Agreement has been renewed and now extends through mid-August, 1997. The Syndicated Loan Agreement requires the Company to maintain tangible net worth greater than $80,000,000 before considering the effects of foreign currency translation. The Company must also maintain net capital expenditures at or below $12,000,000 per annum in fiscal year 1996 and $13,000,000 thereafter, maintain a consolidated working capital ratio above 2.0:1 and a debt to equity ratio, as defined, below 0.75:1. The Syndicated Loan Agreement also requires the Company to maintain earnings before depreciation and amortization, interest and taxes less capital expenditures of at least 1.50 times net finance charges for each twelve month period ending September 30, 1995 and December 31, 1995, 1.05 times net finance charges for the twelve month period ended March 31, 1996, 1.25 times net finance charges for the twelve month period ended June 30, 1996 and 1.5 times net finance charges for each twelve month period ending September, December, March, and June thereafter. In September, 1996, the cash interest coverage ratio for the twelve month period ended September 30, 1996 was amended from 1.5 times net finance charges to 0.9 times net finance charges. The Company has met all of its covenants throughout fiscal year 1996, except the cash interest coverage ratio at December 31, 1995. However, each member of the Bank Syndicate has waived such non-compliance. The Syndicated Loan Agreement also precludes the Company from paying dividends. At June 30, 1996, there were borrowings against the credit facility aggregating $975,000. In addition, $29,279,000 was committed in support of letters of credit issued primarily to secure product purchases from Far Eastern suppliers and a further $399,000 was committed in support of foreign exchange contracts. $13,345,000 of credit was available for use at June 30, 1996. One of the Company's directors also serves as a director of the agent bank of the Bank Syndicate. Note 3 Restructuring of Debt and Merchandise Agreement with Tandy On August 5, 1993, Tandy, through its wholly-owned subsidiary, Trans World Electronics, Inc., acquired the debt then outstanding under the Company's Revolving Credit and Term Loan Agreement of $41,748,000. This debt was then restructured as a term loan facility ("Series A Note") bearing interest at 8.64%. It is payable semi-annually over a six year period commencing February 25, 1995. In addition, Tandy provided the Company with a $10,113,000 three year loan ("Series B Note") which bears interest at 8.11% and was due on August 25, 1996. The Series B Note was repaid in May, 1996. Since October 15, 1993, the Company's purchase orders with Tandy have been supported, based on a formula agreed with Tandy, by letters of credit issued by banks on behalf of InterTAN or backed by cash deposits. Under the terms of the agreement concerning the Series A Note ("Tandy Loan Agreement"), the Company has granted Tandy a first priority lien over all of the assets of the Company and its subsidiaries. In addition, InterTAN has pledged the shares of each of its subsidiaries to Tandy. The Tandy Loan Agreement allows new revolving credit facility lenders to participate in the security granted to Tandy. The Series A Note can be repaid at any time without penalty. The Tandy Loan Agreement requires the Company to maintain tangible net worth greater than $80,000,000 before considering the effects of foreign currency translation. Total debt due to Tandy, including long-term notes payable under the Tandy Loan Agreement, accounts payable, and open inventory purchase orders placed with Tandy which are not supported by letters of credit, is limited to $60,000,000. In addition, total debt due to parties other than Tandy, excluding the Debentures and trade payables, is limited to $50,000,000. The Tandy Loan Agreement also requires the Company to maintain earnings before interest, taxes and unrealized foreign currency transaction gains or losses of at least 2.0 times finance charges for each six and twelve month period ending December 31 and June 30, respectively. In addition, the Company is required to maintain capital expenditures below agreed levels during each six month period throughout the term of the loan. The Company has met all of those covenants except for the financial charge ratio which was 1.9 at June 30, 1996; Tandy has waived such non-compliance. The Tandy Loan Agreement also precludes the Company from paying dividends. 28 INTERTAN, INC. - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements The Series A Note matures as follows (in thousands): For Years ending June 30 - ------------------------------------- 1997 $6,958 1998 6,958 1999 6,958 2000 6,958 2001 and thereafter 3,479 - ------------------------------------- $31,311 - ------------------------------------- In consideration for Tandy's extension of credit, InterTAN agreed to issue to Tandy five-year warrants to purchase 1,449,007 shares of the Company's common stock exercisable beginning August 5, 1993 at an exercise price of $6.618, which was the market price of the Company's common stock at the date of issuance. These warrants were valued at $2,155,000 and this amount was recorded as a discount against the Series A and B Notes. The discount is being amortized over the term of the notes. Amortization during fiscal years 1996, 1995 and 1994 was $308,000, $308,000 and $257,000, respectively. In October and November, 1993, the Company and Tandy entered into a new Merchandise Agreement and a series of license agreements. These license agreements permit InterTAN to use, in designated countries, the "Tandy," "Tandy Electronics" and "RadioShack" trade names until June 30, 2000. Effective July 1, 1996, these license agreements were extended to June 30, 2006, with automatic annual extensions to June 30, 2010. The license agreements may be terminated with five years prior written notice by either party. In consideration for these licenses, the Company is obliged to pay a royalty of 0.25% of consolidated sales beginning in fiscal year 1996. This royalty will increase by up to 0.25 percentage points each fiscal year until it reaches a maximum of up to 1.0% in fiscal 1999. During fiscal year 1996, the Company paid Tandy royalties totaling $1,260,000. The Company is obliged to use Tandy's export unit, A & A International, Inc. ("A & A"), as its exclusive exporter of products from the Far East under the terms of the Merchandise Agreement. In such connection, the Company must pay a purchasing agent/exporter fee to A & A calculated by adding 0.2% of consolidated sales in excess of $500,000,000 to the base amount of $1,000,000 and deducting from this certain credits the Company earns by purchasing products from Tandy and A & A. The Company paid A & A fees totaling $785,000, $810,000, $829,000 in 1996, 1995 and 1994, respectively, under the current and previous arrangements. In the event a change in control of InterTAN or any of its subsidiaries occurs, Tandy may revoke such agreements. Note 4 Debentures During fiscal year 1994, the Company closed a private placement of Cdn$60,000,000 ($43,998,000 at June 30, 1996 exchange rates) of 9% subordinated convertible debentures which will mature on August 30, 2000. The Debentures are convertible, at the option of the holder, at any time at a conversion rate of 118.7310 common shares for each Cdn$1,000 face amount of Debentures, equivalent to a conversion price of approximately Cdn$8.42, or $6.17 per share at the June 30, 1996 exchange rate. The Debentures are subordinated to all senior indebtedness of the Company, including the Syndicated Loan Agreement and the Tandy Loan Agreement. The Debentures are not redeemable by the Company until August 30, 1996. Thereafter, the Debentures are redeemable, in whole or in part, on a pro rata basis, upon 30 business days notice at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest, if any, provided that the current market price of the Company's common shares as of the date of such notice is not less than 125% of the conversion price. After August 30, 1999, the Debentures will be redeemable upon 30 business days notice at a redemption price equal to the principal amount thereof plus accrued and unpaid interest, if any, regardless of the current market price of the Company's common shares. After February 28, 2000, the Company may redeem the Debentures by issuing and delivering to the holders that number of the Company's common shares obtained by dividing the principal amount of the Debentures by 95% of the market price of the Company's common stock at the date of redemption. Note 5 Business Restructuring In May, 1993, the Board of Directors approved management's plan to discontinue the Company's continental European retail operations. The Company recorded a pre-tax charge in the fourth quarter of fiscal 1993 in the amount of $77,400,000 in connection with the shutdown to provide for management's best estimate of the costs of inventory liquidation, lease commitments, payroll and severance, other operating costs during the shut down period, and losses on the disposal of fixed assets and leaseholds. At June 30, 1994, all inventory and assets had been sold, all significant leases had been canceled and all employees had been terminated. The credit of $3,612,000 to the business restructuring provision in fiscal 1994 represents the cumulative translation adjustment effects of liquidating the European business entities. During the fourth quarter of fiscal 1995, certain European claims and contingencies were settled for amounts less than originally estimated. As a result of these settlements and certain other developments, management reduced the accrual by $1,600,000. 29 INTERTAN, INC. - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Management believes the remaining restructuring reserve at June 30, 1996 of $2,630,000 is adequate to provide for the Company's remaining obligations in Europe including those arising from legal actions brought against the Company by former employees, dealers and franchisees. Note 6 Property and Equipment Property and equipment at June 30, 1996 and June 30, 1995 are summarized as follows (in thousands): 1996 1995 - ------------------------------------------------------- Land $ 1,137 $ 1,086 Buildings 10,218 9,849 Equipment, furniture and fixtures 40,477 34,041 Leasehold improvements 40,189 35,123 Leasehold premiums 8,664 9,003 - ------------------------------------------------------- 100,685 89,102 Less accumulated depreciation and amortization 61,556 54,106 - ------------------------------------------------------- Property and equipment, net $39,129 $34,996 - ------------------------------------------------------- During fiscal year 1995, the Company retired certain fully depreciated assets consisting primarily of furniture and fixtures and leasehold improvements. Note 7 Accrued Expenses The following is a summary of accrued expenses at June 30, 1996 and June 30, 1995 (in thousands): 1996 1995 - ------------------------------------------------------ Restructuring costs $ 2,630 $ 2,610 Payroll and bonuses 7,227 6,949 Taxes (other than income taxes) 2,554 2,887 Deferred service contract income 4,121 2,247 Other 9,301 10,411 - ------------------------------------------------------ $25,833 $25,104 - ------------------------------------------------------ Note 8 Income Taxes The components of the provisions for domestic and foreign income taxes are shown below (in thousands): Year ended June 30 1996 1995 1994 - --------------------------------------------------- Current United States $ (374) $(1,178) $ 1,965 Foreign 701 532 683 - --------------------------------------------------- 327 (646) 2,648 Deferred Foreign 7,172 (1,392) (12,325) - --------------------------------------------------- Total income tax expense (benefit) $7,499 $(2,038) $(9,677) - --------------------------------------------------- 30 (1 of 2) INTERTAN, INC. - -------------------------------------------------------------------------------- Components of the difference between income tax expense and the amount calculated by applying the U.S. statutory rate of 35% to income before income taxes are as follows (in thousands): Year ended June 30 1996 1995 1994 - ----------------------------------------------------- Components of pre-tax income (loss): United States $(1,872) $(3,578) $2,105 Foreign 7,130 9,663 7,867 - -------------------------------------------------------- Income before income taxes 5,258 6,085 9,972 Statutory U.S. tax rate 35% 35% 35% - -------------------------------------------------------- Federal income tax expense at statutory rate 1,840 2,130 3,490 Foreign tax rate differentials 887 927 369 Provincial income taxes, less foreign federal income tax benefit 1,433 900 569 U.S. tax on foreign dividends and interest -- -- 1,500 Book losses for which no tax benefit was recognized 3,610 3,427 1,811 Adjustment to valuation allowance for deferred tax assets (329) (9,100) (17,828) Other, net 58 (322) 412 - --------------------------------------------------------- Total income tax expense (benefit) $7,499 $(2,038) $(9,677) - --------------------------------------------------------- Deferred tax assets are comprised of the following at June 30 (in thousands): June 30, June 30, 1996 1995 - --------------------------------------------------- Deferred Tax Assets Depreciation $ 2,045 $ 2,133 Deferred service contracts 1,454 895 Reserves for business restructuring 835 1,224 Loss carryforwards 28,157 34,283 Other 4,193 2,967 - ---------------------------------------------------- 36,684 41,502 Valuation allowance (30,461) (28,107) - ---------------------------------------------------- Deferred tax asset $ 6,223 $ 13,395 - ---------------------------------------------------- At the time of adoption of SFAS 109 in July, 1993, the Company had net deferred tax assets, before considering the valuation allowance, in the amount of $54,987,000. In assessing the future benefit, if any, which might be derived from these deferred tax assets, the Company considered its recent operating history and financial condition. At that time, the Company was in default under its financing and merchandising arrangements and had incurred operating losses in fiscal 30 (2 of 2) INTERTAN, INC. - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements 1993. New financing and merchandising arrangements were under negotiation, but nothing had been finalized and arrangements under consideration were all contingent on the Company's significantly improved performance during fiscal year 1994. Under these circumstances, the Company believed it was necessary to record a valuation allowance equal to the entire net deferred tax asset balance. During fiscal year 1994, the Company successfully negotiated new financing agreements, obtained additional financing through bank loans and convertible debentures and renegotiated its merchandising agreements with Tandy. In assessing the required valuation allowance against the deferred tax assets at June 30, 1994, the Company concluded that it was more likely than not that a portion of the deferred tax assets of the Canadian subsidiary would be used to offset future tax. Accordingly, the Company recognized a deferred tax benefit in the amount of $12,325,000. In addition, during fiscal year 1994, the Company realized the benefit of certain deferred tax assets in connection with reserves for business restructuring. As a consequence, the valuation allowance was further reduced by $5,503,000. During fiscal 1995, management reviewed the realization of its remaining deferred tax assets. Based on the operating performance of the Canadian subsidiary, particularly in the first two quarters, management concluded that the valuation allowance should be further reduced by $9,100,000 and the Company recognized a deferred tax benefit of that amount. For Canadian tax purposes, the Company has net operating loss carryforwards of approximately $17,546,000 which can be used to offset future taxable income in Canada. These loss carryforwards will expire in 2001. The Company also has net operating loss carryforwards for tax purposes of approximately $56,871,000 and $4,812,000 in the United Kingdom and Australia, respectively. These losses can be carried forward indefinitely in both jurisdictions. Certain restrictions may apply to the use of these loss carryforwards in the event of a change in control of the Company. An audit of the Canadian income tax returns of the Canadian subsidiary for the 1987 to 1989 taxation years was completed during fiscal year 1994, resulting in additional tax being levied against the Canadian subsidiary. The Company has appealed these reassessments and, pending the outcome of these matters, the Company, by Canadian law, was required to pay one-half of the tax in dispute. The tax levied by Revenue Canada in reassessing those years was offset by refunds arising from the carryback of losses incurred in subsequent years. Depending on the ultimate resolution of these issues, the Company could potentially have an additional liability in the range of $0 to $10,700,000. The Company believes it has meritorious arguments in defense of a number of the issues raised by Revenue Canada and it is in the process of vigorously defending its position. It is management's determination that no additional provision need be recorded for these reassessments. In order for the Company to succeed in appealing certain aspects of these reassessments, it must succeed in defending the possible reassessments discussed immediately below. The Company was advised in August 1995 that Revenue Canada intended to extend the scope of its 1987 to 1989 reassessments to raise certain issues flowing from the spin-off of the Company from Tandy in fiscal year 1987. Management disagrees with Revenue Canada's views on these issues and will vigorously defend the Company's position should Revenue Canada pursue these issues. Management believes it has meritorious arguments supporting its stance and, accordingly, no additional provision has been recorded for these possible reassessments. Tax assessments related to these issues, if successfully pursued, could potentially range from $14,000,000 to $20,000,000. As required by Canadian law, the Company would be required to post a deposit of one-half of the tax in dispute, including interest, in order to appeal any reassessment. An audit of the Canadian income tax returns of the Canadian subsidiary for the 1990 to 1993 taxation years was commenced during the 1995 fiscal year. While to date no reassessments have been issued by Revenue Canada arising from this audit, 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. Management estimates that the possible range of loss should Revenue Canada ultimately prevail in these matters, after all appeals have been unsuccessfully pursued by the Company, could range from $18,000,000 to $25,000,000. Assuming Revenue Canada pursues these issues, in order for the Company to proceed with such appeals, the Company would be required to post a deposit equal to one-half of the 1990-1993 tax in dispute, together with interest, which management estimates should not exceed $9,000,000. Management believes it has meritorious arguments in support of the deductibility of such interest and in support of its treatment of the foreign exchange gains and is prepared to vigorously defend its position should the Canadian tax authorities proceed with such a challenge. Accordingly, it is management's assessment that no provision need be recorded for these possible claims. 31 INTERTAN, INC. - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements An audit of the former French branch of the Canadian subsidiary was also completed by the French tax authorities for the 1988 through 1990 taxation years. An assessment of approximately $2,000,000 has been issued. The Company has appealed this assessment. It is management's view that the Company will be successful in its appeal process. Accordingly, no provision has been made in the accounts for this assessment. In order to avoid having to pay this tax while the appeal proceeds, the Company has provided the French tax authorities with a letter of guarantee for the amount in dispute. Note 9 Commitments and Contingencies The Company leases virtually all of its retail space under operating leases with terms ranging from three to twenty-five years. Canadian leases are normally based on a minimum rental plus a percentage of store sales in excess of a stipulated base. The remainder of InterTAN's store leases generally provide for fixed monthly rent adjusted periodically using inflation indices and rent reviews. In fiscal years 1996, 1995, and 1994, minimum rents, including immaterial contingent rents and sublease rental income, were $34,033,000, $32,585,000 and $31,985,000, respectively. Future minimum rent commitments at June 30, 1996 for all long-term non-cancelable leases (net of immaterial sublease rent income) are as follows (in thousands): - -------------------------------- 1997 $ 31,700 1998 29,289 1999 26,015 2000 21,333 2001 16,250 2002 and thereafter 123,391 - -------------------------------- A claim has been made by a former employee for damages for wrongful dismissal totaling $880,000. The Company is vigorously defending this action. The Company believes that the possible range of loss in this matter is substantially less than the amount claimed by this former employee, and the Company has recorded a provision representing its best estimate of any liability which may ultimately arise from this matter. Apart from this matter and those described in Notes 5 and 8, there are no material pending legal proceedings or claims other than routine litigation incidental to the Company's business to which the Company or any of its subsidiaries is a party or to which any of their property is subject. Note 10 Financial Instruments Other than long-term debt instruments, management believes that the book value of the Company's financial instruments recorded on the balance sheet is a reasonable estimate of their fair value based on their nature and generally short maturity; such instruments include cash and short-term investments, accounts receivable, short-term bank borrowings, accounts payable and accrued expenses. The estimated fair values of the Company's long-term debt instruments are shown in the table below (in thousands). June 30, 1996 June 30, 1995 Book Estimated Book Estimated value fair value value fair value - -------------------------------------------------------------------- Notes payable to Tandy $31,311 $31,397 $48,382 $48,514 Discount on Tandy notes (1,283) -- (1,590) -- - -------------------------------------------------------------------- Carrying value of notes payable to Tandy $30,028 $31,397 $46,792 $48,514 - -------------------------------------------------------------------- 9% convertible subordinated debentures $41,660 $44,785 $43,722 $54,727 - -------------------------------------------------------------------- The estimated fair value of the note payable to Tandy has been determined by discounting the related cash flows using management's estimate of the Company's incremental borrowing rate for similar issues. The estimated fair value of the Debentures is based on market values. The Company enters into foreign exchange contracts to hedge against exchange rate fluctuations on certain debts, payables and open inventory purchase orders denominated in currencies other than the functional currency of the issuing entity. All forward exchange contracts are written with international financial institutions. The Company's risk in those transactions is limited to the cost of replacing the contracts at current market rates in the event of nonperformance by the counterparties. The Company believes its risk of counterparty nonperformance is remote, and any losses incurred would not be material. At June 30, 1996 and 1995, the Company had approximately $25,795,000 and $9,050,000, respectively, of forward exchange contracts outstanding with a market value of approximately $17,000 and $91,000, respectively. Maturity on these contracts outstanding at June 30, 1996 and 1995 ranged from one to six months from fiscal year-end. 32 INTERTAN, INC. - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Note 11 Stock Purchase and Savings Plans The Company's Stock Purchase Program is available to most employees. Each participant may contribute from 1% to 10% of annual compensation. The Company matches from 40% to 80% of the employee's contribution depending on the length of the employee's participation in the program. Shares are provided to the plan either by periodic purchases on the open market or by the Company issuing new shares. Under the InterTAN Canada Ltd. Employee Savings Plan (the "Savings Plan"), a participating employee may contribute 5% of annual compensation into the plan. The Canadian subsidiary matches 80% of the employee's contribution. The Savings Plan is available to most Canadian employees who have been employed at least two years. An employee may also elect to contribute an additional 5% of annual compensation to the plan which is not matched by the employer. The Canadian subsidiary's contributions are fully vested at the end of each calendar quarter. An Administrative Committee appointed by the Company's Board of Directors directs the investment of the plan's assets; a significant portion of which are invested in InterTAN common stock. Effective October 1, 1995, the InterTAN Employee Deferred Salary and Investment Plan was amended and restated as the InterTAN, Inc. 401(k) Plan. This plan is available to all U.S. employees who have completed at least two months service with the Company. Eligible employees may contribute, subject to statutory limits, up to 14% of their salary to the plan. The Company matches the employee contributions, subject to statutory limits, to a maximum of 4% of salary. Fifty percent of the Company's contributions vest in the first year with full vesting after an employee has completed two years of service with the Company. Employees have a number of investment options available to them within the plan, one of which is InterTAN common stock. The aggregate cost of these plans included in other selling, general and administration expense totaled $1,811,000, $1,563,000 and $1,682,000 in 1996, 1995 and 1994, respectively. Note 12 Stock Option Plans In 1986, the Company adopted the InterTAN, Inc. 1986 Stock Option Plan (the "1986 Stock Option Plan") under which the Organization and Compensation Committee of the Board of Directors may grant options to key management employees to purchase up to an aggregate of 800,000 shares of the Company's common stock. Incentive options granted under this plan are exercisable on a cumulative basis equal to one-third for each year outstanding; unless otherwise specified by the Committee, nonstatutory options issued under the plan are exercisable on a cumulative basis equal to 20% for each year outstanding. Upon death or disability of an optionee, all options then held become immediately exercisable for one year, and upon retirement, at age 50 or older, the Committee may accelerate the dates at which the outstanding options may be exercised. Options under this plan generally expire ten years after the date of grant. The exercise price of the options granted is determined by the Committee, but cannot be less than 100% of the market price at the date of grant; accordingly, no compensation is charged against earnings. In May, 1996, the Board of Directors unanimously approved the InterTAN, Inc. 1996 Stock Option Plan (the "1996 Stock Option Plan"). Subject to shareholder approval, under the terms of the 1996 Stock Option Plan the Committee may grant options to key management employees to purchase up to an aggregate of 1,500,000 shares of the Company's common stock. The terms and conditions of the 1996 Stock Option Plan are substantially similar to those of the 1986 Stock Option Plan. Options outstanding under the 1986 Stock Option Plan will remain in force until they are exercised, canceled or expire. At June 30, 1996, options to purchase 500,833 shares were outstanding under the 1986 Stock Option Plan, at prices ranging from $5.31 to $8.1875 per share; 153,167 options were exercisable at that date. Under the 1986 Stock Option Plan, there were options to purchase 89,695 and 208,528 shares of common stock available for future grant at the end of fiscal 1996 and 1995, respectively. No options have been issued under the 1996 Stock Option Plan. In 1991, the Company adopted the Non-Employee Director Stock Option Plan ("Director Plan") under which each director was granted an option, exercisable immediately, to purchase 25,000 shares of the Company's common stock. Upon election, all new non-employee directors are granted an option to purchase 25,000 shares of the Company's common stock. Options granted under the Director Plan are exercisable at a price equal to 100% of the market price at the date of grant. The options generally expire ten years after the date of grant unless the optionee ceases to be a non-employee director, in which case the options expire one year after the date of cessation. Common stock issued under the Director Plan cannot exceed 200,000 shares. At June 30, 1996, options to purchase 150,000 shares were outstanding under the Director Plan at a price of $7.125 per share for a total option price of $1,069,000. At that date, 150,000 options were exercisable. As of June 30, 1996 and 1995, options to purchase 50,000 shares of stock were available for future grant under the Director Plan. 33 INTERTAN, INC. - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements A summary of transactions relating to these stock option plans is as follows: Number Total of Shares Share Price - ------------------------------------------------------------------ Outstanding at June 30, 1995 650,000 $4,531,000 Granted ($6.69 to $7.88 per share) 210,000 1,585,000 Expired/canceled ($5.31 to $7.94 per share) (91,167) (623,000) Exercised ($5.31 to $6.75 per share) (118,000) (760,000) - ------------------------------------------------------------------ Outstanding at June 30, 1996 650,833 $4,733,000 - ------------------------------------------------------------------ Note 13 Preferred Stock Purchase Rights In December, 1986, the Board of Directors adopted a shareholder rights plan, which expires in September, 1999, and declared a dividend of one right for each outstanding share of InterTAN common stock. The plan was amended in October, 1987 and September, 1989. The rights are represented by the Company's common stock certificates; and if they become exercisable, will entitle holders to purchase one one-hundredth of a share of InterTAN Series A Junior Participating Preferred Stock for a purchase price of $175 (subject to adjustment). The rights become exercisable and will trade separately from the common stock only upon the date of a public announcement that a person, entity or group ("person") has acquired 20% or more of InterTAN's outstanding common stock without the prior approval of the Company ("Acquiring Person"), or, 10 days after the commencement or the public announcement of an offer which would result in any person becoming an Acquiring Person. In the event that an Acquiring Person becomes the beneficial owner of 20% or more of the common stock of the Company, the rights will be exercisable for InterTAN equity securities with a fair market value (as determined under the rights plan) equal to $350. In accordance with the terms of the rights plan, the rights are redeemable at a price of $0.03 per right. Note 14 Geographic Areas The Company operates in one industry segment: consumer electronics retailing. The principal geographic areas of InterTAN's operations are Canada, Australia, the United Kingdom and, previously, continental Europe. As previously discussed in Note 5, the Company has closed all company-operated outlets in continental Europe and recorded a $77,400,000 restructuring charge in fiscal year 1993. Credit provisions of $1,600,000 and $3,612,000 have been recorded in continental European income for 1995 and 1994, respectively. Transfers between geographic areas were immaterial. The following table shows net sales, operating profit and identifiable assets by geographic area for fiscal 1996, 1995 and 1994 (in thousands): 34 INTERTAN, INC. - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements
United Continental Canada Australia Kingdom Europe Total - ---------------------------------------------------------------------------------------------------------------------- June 30, 1996 Net sales and operating revenues $249,413 $93,896 $163,136 $ -- $506,445 Other income 41 426 435 -- 902 - ---------------------------------------------------------------------------------------------------------------------- Net sales and other income $249,454 $94,322 $163,571 $ -- $507,347 - ---------------------------------------------------------------------------------------------------------------------- Operating profit (loss) $ 21,274 $2,777 $ (7,807) $ -- $ 16,244 General corporate expenses (4,615) Foreign currency transaction gains 338 Interest expense, net (6,709) - ---------------------------------------------------------------------------------------------------------------------- Income before income taxes $ 5,258 - ---------------------------------------------------------------------------------------------------------------------- Identifiable assets $124,404 $48,839 $ 75,948 $ 2,111 $251,302 Corporate assets 10,331 - ---------------------------------------------------------------------------------------------------------------------- Total assets $261,633 - ---------------------------------------------------------------------------------------------------------------------- June 30, 1995 Net sales and operating revenues $243,949 $83,724 $164,078 $ -- $491,751 Other income 413 362 442 -- 1,217 - ---------------------------------------------------------------------------------------------------------------------- Net sales and other income $244,362 $84,086 $164,520 $ -- $492,968 - ---------------------------------------------------------------------------------------------------------------------- Operating profit (loss) $ 22,820 $ 534 $ (5,954) $ 1,600 $ 19,000 General corporate expenses (5,139) Foreign currency transaction losses (314) Interest expense, net (7,462) - ---------------------------------------------------------------------------------------------------------------------- Income before income taxes $ 6,085 - ---------------------------------------------------------------------------------------------------------------------- Identifiable assets $128,214 $41,837 $ 67,105 $ 2,427 $239,583 Corporate assets 22,456 - ---------------------------------------------------------------------------------------------------------------------- Total assets $262,039 - ---------------------------------------------------------------------------------------------------------------------- June 30, 1994 Net sales and operating revenues $239,106 $76,486 $150,174 $ -- $465,766 Other income (62) 301 532 -- 771 - ---------------------------------------------------------------------------------------------------------------------- Net sales and other income $239,044 $76,787 $150,706 $ -- $466,537 - ---------------------------------------------------------------------------------------------------------------------- Operating profit (loss) $ 21,927 $ 304 $ (5,017) $ 3,612 $ 20,826 General corporate expenses (3,975) Foreign currency transaction gains 1,472 Interest expense, net (8,351) - ---------------------------------------------------------------------------------------------------------------------- Income before income taxes $ 9,972 - ---------------------------------------------------------------------------------------------------------------------- Identifiable assets $116,478 $42,683 $ 71,576 $ 3,190 $233,927 Corporate assets 24,664 - ---------------------------------------------------------------------------------------------------------------------- Total assets $258,591 - ----------------------------------------------------------------------------------------------------------------------
35 INTERTAN, INC. - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Note 15 Quarterly Data (Unaudited) Quarter ended September 30 (In thousands, except per share data) 1995 1994 - ---------------------------------------------------------------------------- Net sales and operating revenues $113,672 $111,799 Other income 203 104 - ---------------------------------------------------------------------------- 113,875 111,903 Operating costs and expenses: Cost of products sold 63,463 64,402 Selling, general and administrative expenses 48,247 45,429 Depreciation and amortization 1,832 2,027 Provision for business restructuring -- -- - ---------------------------------------------------------------------------- 113,542 111,858 - ---------------------------------------------------------------------------- Operating income (loss) 333 45 Foreign currency transaction (gains) losses (148) (303) Interest expense, net 1,738 2,133 - ---------------------------------------------------------------------------- Income (loss) before income taxes (1,257) (1,785) Provision (benefit) for income taxes 948 (34) - ---------------------------------------------------------------------------- Net income (loss) $(2,205) $(1,751) - ---------------------------------------------------------------------------- Primary net income (loss) per average common share $(0.21) $(0.18) Fully diluted net income (loss) per average common share(1) $(0.21) $(0.18) - ---------------------------------------------------------------------------- Average common shares outstanding 10,453 9,794 Average common shares outstanding assuming full dilution 10,453 9,794 - ---------------------------------------------------------------------------- (1) The sum of fully-diluted earnings per share for the four quarters ending June 30, 1996 and 1995 do not approximate the fully diluted earnings per share as reported for the respective years primarily because the Company's convertible debentures were dilutive in the second quarter, but anti- dilutive in all other quarters and for each year as a whole. 36 INTERTAN, INC. - -------------------------------------------------------------------------------- Quarter ended Quarter ended Quarter ended December 31 March 31 June 30 1995 1994 1996 1995 1996 1995 - -------------------------------------------------------------------------------- $ 181,411 $183,684 $108,757 $101,001 $102,605 $95,267 298 862 196 217 205 34 - -------------------------------------------------------------------------------- 181,709 184,546 108,953 101,218 102,810 95,301 103,788 105,989 59,410 56,344 55,391 52,701 59,667 57,124 48,840 45,678 48,940 45,536 1,981 1,969 2,014 1,865 2,145 1,643 -- -- -- -- -- (1,600) - -------------------------------------------------------------------------------- 165,436 165,082 110,264 103,887 106,476 98,280 - -------------------------------------------------------------------------------- 16,273 19,464 (1,311) (2,669) (3,666) (2,979) (44) 72 (69) 85 (77) 460 1,909 2,278 1,516 1,631 1,546 1,420 - -------------------------------------------------------------------------------- 14,408 17,114 (2,758) (4,385) (5,135) (4,859) 4,071 (2,341) 1,350 737 1,130 (400) - -------------------------------------------------------------------------------- $ 10,337 $ 19,455 $ (4,108) $ (5,122) $ (6,265) $ (4,459) - -------------------------------------------------------------------------------- $ 0.93 $ 1.90 $ (0.38) $ (0.51) $ (0.57) $ (0.44) $ 0.58 $ 1.06 $ (0.38) $ (0.51) $ (0.57) $ (0.44) - -------------------------------------------------------------------------------- 11,148 10,225 10,943 10,026 11,069 10,134 17,893 17,425 10,943 10,026 11,069 10,134 - -------------------------------------------------------------------------------- 37 INTERTAN, INC. - -------------------------------------------------------------------------------- Report of Independent Accountants To the Board of Directors and Stockholders of InterTAN, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of InterTAN, Inc. and its subsidiaries at June 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which required that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/Price Waterhouse LLP Fort Worth, Texas September 18, 1996 Market Price and Related Matters The high and low closing prices in U.S. dollars of InterTAN's common stock on the New York Stock Exchange for each full quarterly period within the two most recent fiscal years are as set out below: Quarter ended High Low - ------------------------------------ June 1996 6 7/8 5 1/4 March 1996 6 1/2 4 5/8 December 1995 9 3/8 7 1/8 September 1995 10 7 1/4 June 1995 7 7/8 6 5/8 March 1995 8 7/8 6 3/4 December 1994 8 3/4 6 3/4 September 1994 7 3/8 5 1/2 - ------------------------------------ As of August 31, 1996 there were approximately 11,700 recordholders of InterTAN's common stock. InterTAN has never declared cash dividends. Based upon InterTAN's long-term growth opportunities, in the opinion of management, the stockholders are best served by reinvesting all profits. Further, InterTAN is currently precluded from paying dividends under the Tandy Loan Agreement and Syndicated Loan Agreement. 38 EX-23 7 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 INTERTAN, INC. CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-74314) and in the Registration Statements on Form S-8 (Nos. 33-63090, 33-92286, 33-29055 and 333-4344) of InterTAN, Inc. of our report dated September 18, 1996 appearing on page 38 of the Annual Report to shareholders, which is incorporated in this Annual Report on Form 10-K for the year ended June 30, 1996. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which is also included in this Form 10-K. /s/Price Waterhouse LLP PRICE WATERHOUSE LLP Fort Worth, Texas September 27, 1996 EX-27 8 FINANCIAL DATA SCHEDULE
5
1,000 12-MOS JUN-30-1996 JUL-1-1995 JUN-30-1996 34,096 0 9,422 0 162,207 217,184 39,129 0 261,633 71,713 64,730 0 0 11,173 108,339 261,633 506,445 507,347 282,052 282,052 0 0 6,709 5,258 7,499 (2,241) 0 0 0 (2,241) (0.21) (0.21)
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