INTERTAN INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10Q

(Mark One)

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the quarterly period ended September 30, 2002

o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period from ______________ to ______________

Commission file number 1-10062

InterTAN, Inc.
(Exact name of registrant as specified in its charter)

Delaware		75-2130875
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

279 Bayview Avenue Barrie, Ontario Canada		L4M 4W5
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:		(705) 728-6242

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

At October 31, 2002, 21,389,528 shares of the registrant’s common stock, par value $1.00 per share, were outstanding.

		Page

PART I

Introductory note regarding forward-looking information		3

ITEM 1 - Financial Statements and Supplementary Data

	Consolidated Statements of Operations	4

	Consolidated Balance Sheets	5

	Consolidated Statements of Cash Flows	6

	Notes to Consolidated Financial Statements	7

ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		11

ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk		19

ITEM 4 - Controls and Procedures		21

PART II

ITEM 1 - Legal Proceedings		22

ITEM 4 - Submission of Matters to a Vote of Security Holders		22

ITEM 6 - Exhibits and Reports on Form 8-K		22

OTHER

Signatures and Certifications under Section 302 of the Sarbanes-Oxley Act of 2002		24

INTRODUCTORY NOTE REGARDING FORWARD-LOOKING INFORMATION

Certain statements in this Report on form 10-Q constitute forward-looking statements that involve risks and uncertainties. The forward-looking statements include statements regarding:

•	The resolution of the Company’s dispute with the purchaser of its former subsidiary in Australia.
•	The outcome of various Australian, Canadian and United States income tax issues and the timing of the payment of related tax liabilities.
•	The timing of the sell through of the Company’s clearance merchandise, including its impact on the gross margin percentage during the second quarter.
•	The benefits of the new pay plan for sales associates.
•	The adequacy of the Company’s liquidity and its short-term borrowing requirements.
•	The adequacy of the indemnity obtained from the purchaser of the Company’s former subsidiary in the United Kingdom.
•	Possible payments under indemnities provided to the purchaser of InterTAN Australia Ltd.
•	Forecasted capital expenditures for fiscal year 2003.
•	Estimates of cash required to fund the repurchase of common stock.

Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements include, but are not limited to:

•	International political, military and economic conditions.
•	Interest and foreign exchange rate fluctuations.
•	Actions of United States and foreign taxing authorities, including computations of balances owing.
•	Changes in consumer demand and preference.
•	Consumer confidence.
•	Competitive environment, products and pricing.
•	Availability of products.
•	Inventory risks due to shifts in market conditions.
•	Dependence on manufacturers’ product development.
•	The regulatory and trade environment.
•	The value of the Company’s common stock and the general condition of the stock market.
•	Real estate market fluctuations and
•	Other risks indicated in InterTAN’s previously filed periodic reports with the Securities and Exchange Commission, including its Form 10-K for the 2002 fiscal year.

These risks and uncertainties are beyond the ability of the Company to control, and in many cases the Company cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements.

ITEM 1 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Statements of Operations
(U.S. dollars in thousands, except per share data)
(Unaudited)

		Three months ended September 30

		2002			2001

Net sales and operating revenues		$	92,903		$	90,365
Other income			11			11

			92,914			90,376
Operating costs and expenses:
	Cost of products sold		57,734			54,862
	Selling, general and administrative expenses		29,862			28,212
	Depreciation and amortization		1,641			1,349
	Restructuring charge		—			2,703

			89,237			87,126

Operating income			3,677			3,250
Foreign currency transaction gains			171			139
Interest income			96			726
Interest expense			(198	)		(104	)

Income before income taxes			3,746			4,011
Income taxes			1,722			2,155

Net income		$	2,024		$	1,856

Basic net income per average common share		$	0.09		$	0.07
Diluted net income per average common share		$	0.09		$	0.07

Average common shares outstanding			21,357			27,835
Average common shares outstanding assuming dilution			21,613			28,308

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Balance Sheets
(U.S. dollars in thousands, except share amounts)
(Unaudited)

			September 30 2002			June 30 2002			September 30 2001

Assets
Current Assets
	Cash and short-term investments		$	6,196		$	14,699		$	55,299
	Accounts receivable, less allowance for doubtful accounts			19,874			12,903			21,390
	Inventories			91,683			81,314			88,519
	Other current assets			1,453			1,300			2,651
	Deferred income taxes			1,312			1,374			2,196

		Total current assets		120,518			111,590			170,055
Property and equipment, less accumulated depreciation and amortization				28,096			29,604			19,660
Other assets				289			328			13
Deferred income taxes				3,428			3,580			2,907

Total Assets			$	152,331		$	145,102		$	192,635

Liabilities and Stockholders’ Equity
Current Liabilities
	Short-term bank borrowings		$	6,301		$	—		$	—
	Accounts payable			25,838			12,793			13,490
	Accrued expenses			14,960			19,445			16,971
	Income taxes payable			7,240			8,365			21,242
	Obligation under capital leases - current portion			157			164			—
	Deferred service contract revenue - current portion			6,037			6,226			5,418

		Total current liabilities		60,533			46,993			57,121
Obligation under capital leases - non-current portion				336			384			—
Deferred service contract revenue - non current portion				4,787			4,975			4,490
Other liabilities				4,124			4,304			2,245

	Total liabilities			69,780			56,656			63,856

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, 32,173,560, 32,091,097 and 31,495,255, respectively, issued				32,174			32,091			31,495
Additional paid-in capital				158,308			157,684			153,820
Common stock in treasury, at cost, 10,792,093, 10,337,243 and 5,010,168 shares, respectively				(116,485	)		(111,527	)		(51,079	)
Retained earnings				29,344			27,320			15,608
Accumulated other comprehensive loss				(20,790	)		(17,122	)		(21,065	)

	Total stockholders’ equity			82,551			88,446			128,779

	Commitments and contingencies (See Notes 7 and 8)
Total Liabilities and Stockholders’ Equity			$	152,331		$	145,102		$	192,635

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Cash Flows

			Three months ended September 30

(U.S. dollars in thousands) (Unaudited)			2002			2001

Cash flows from operating activities:
Net income			$	2,024		$	1,856
	Adjustments to reconcile net income to cash used in operating activities:
		Depreciation and amortization		1,641			1,349
		Stock-based compensation		327			310
		Other		11			17
Cash provided by (used in) assets and liabilities:
	Accounts receivable			(7,551	)		(9,416	)
	Inventories			(14,167	)		(1,805	)
	Other current assets			(216	)		(1,558	)
	Accounts payable			13,808			(5,854	)
	Accrued expenses			(3,953	)		4,053
	Income taxes payable			(797	)		(2,738	)
	Deferred service contract revenue			121			(198	)

		Net cash used in operating activities		(8,752	)		(13,984	)

Cash flows from investing activities:
Additions to property and equipment				(1,291	)		(2,216	)
Proceeds from sales of property and equipment				51			107
Other investing activities				(107	)

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