SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended December 31, 2002 |
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
Commission File Number 1-10062
InterTAN, Inc.
(Exact name of registrant as specified in its charter)
| Delaware |
75-2130875 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
| 279 Bayview Drive 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 x No ¨
At January 31, 2003, 20,861,002 shares of the registrant’s common stock, par value $1.00 per share, were outstanding.
| Page | ||
| 3 | ||
| ITEM 1—Financial Statements and Supplementary Data |
||
| 4 | ||
| 5 | ||
| 6 | ||
| 7 | ||
| ITEM 2— Management’s Discussion and Analysis of Financial Condition and Results of Operations |
14 | |
| ITEM 3— Quantitative and Qualitative Disclosures About Market Risk |
24 | |
| ITEM 4— Controls and Procedures |
25 | |
| PART II |
||
| ITEM 1— Legal Proceedings |
26 | |
| 26 | ||
| ITEM 6— Exhibits and Reports on Form 8-K |
26 | |
| OTHER |
||
| Signatures and Certifications under Section 302 of the Sarbanes-Oxley Act of 2002 |
28 |
2
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. |
| • | Future sales levels in the computer and home-satellite categories. |
| • | Estimates of sales growth, the gross margin percentage, the selling general and administrative expense percentage, interest expense and the effective tax rate for the third quarter. |
| • | The quality of the Company’s inventory at December 31, 2002. |
| • | The adequacy of the Company’s liquidity. |
| • | The Company’s ability to comply with certain financial covenants contained in its banking agreement. |
| • | 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 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.
3
ITEM 1 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Operations
(U.S. dollars in thousands, except per share data)
(Unaudited)
| Three months ended |
Six months ended |
|||||||||||||||
| 2002 |
2001 |
2002 |
2001 |
|||||||||||||
| Net sales and operating revenues |
$ |
137,381 |
|
$ |
135,831 |
|
$ |
230,284 |
|
$ |
226,196 |
| ||||
| Other loss |
|
(19 |
) |
|
(13 |
) |
|
(8 |
) |
|
(2 |
) | ||||
|
|
137,362 |
|
|
135,818 |
|
|
230,276 |
|
|
226,194 |
| |||||
| Operating costs and expenses: |
||||||||||||||||
| Cost of products sold |
|
84,036 |
|
|
82,894 |
|
|
141,770 |
|
|
137,756 |
| ||||
| Selling, general and administrative expenses |
|
36,395 |
|
|
32,715 |
|
|
66,257 |
|
|
60,927 |
| ||||
| Depreciation and amortization |
|
1,669 |
|
|
1,395 |
|
|
3,310 |
|
|
2,744 |
| ||||
| Restructuring charge |
|
— |
|
|
— |
|
|
— |
|
|
2,703 |
| ||||
|
|
122,100 |
|
|
117,004 |
|
|
211,337 |
|
|
204,130 |
| |||||
| Operating income |
|
15,262 |
|
|
18,814 |
|
|
18,939 |
|
|
22,064 |
| ||||
| Foreign currency transaction gains (losses) |
|
(3 |
) |
|
156 |
|
|
168 |
|
|
295 |
| ||||
| Interest income |
|
63 |
|
|
309 |
|
|
159 |
|
|
1,035 |
| ||||
| Interest expense |
|
(384 |
) |
|
(96 |
) |
|
(582 |
) |
|
(200 |
) | ||||
| Income before income taxes |
|
14,938 |
|
|
19,183 |
|
|
18,684 |
|
|
23,194 |
| ||||
| Income taxes |
|
6,483 |
|
|
8,325 |
|
|
8,205 |
|
|
10,480 |
| ||||
| Net income |
$ |
8,455 |
|
$ |
10,858 |
|
$ |
10,479 |
|
$ |
12,714 |
| ||||
| Basic net income per average common share |
$ |
0.40 |
|
$ |
0.42 |
|
$ |
0.49 |
|
$ |
0.48 |
| ||||
| Diluted net income per average common share |
$ |
0.40 |
|
$ |
0.42 |
|
$ |
0.49 |
|
$ |
0.47 |
| ||||
| Average common shares outstanding |
|
21,192 |
|
|
25,651 |
|
|
21,275 |
|
|
26,744 |
| ||||
| Average common shares outstanding assuming dilution |
|
21,361 |
|
|
26,097 |
|
|
21,487 |
|
|
27,203 |
| ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
(U.S. dollars in thousands, except share amounts)
(Unaudited)
| December 31 2002 |
June 30 2002 |
December 31 2001 |
||||||||||
| Assets |
||||||||||||
| Current Assets |
||||||||||||
| Cash and short-term investments |
$ |
15,277 |
|
$ |
14,699 |
|
$ |
70,739 |
| |||
| Accounts receivable, less allowance for doubtful accounts |
|
25,523 |
|
|
12,903 |
|
|
25,355 |
| |||
| Inventories |
|
89,458 |
|
|
81,314 |
|
|
86,789 |
| |||
| Other current assets |
|
1,385 |
|
|
1,300 |
|
|
1,819 |
| |||
| Deferred income taxes |
|
1,325 |
|
|
1,374 |
|
|
2,179 |
| |||
| Total current assets |
|
132,968 |
|
|
111,590 |
|
|
186,881 |
| |||
| Property and equipment, less accumulated depreciation and amortization |
|
28,637 |
|
|
29,604 |
|
|
21,120 |
| |||
| Other assets |
|
681 |
|
|
328 |
|
|
16 |
| |||
| Deferred income taxes |
|
3,461 |
|
|
3,580 |
|
|
2,884 |
| |||
| Total Assets |
$ |
165,747 |
|
$ |
145,102 |
|
$ |
210,901 |
| |||
| Liabilities and Stockholders’ Equity |
||||||||||||
| Current Liabilities |
||||||||||||
| Accounts payable |
$ |
26,894 |
|
$ |
12,793 |
|
$ |
25,348 |
| |||
| Accrued expenses |
|
24,763 |
|
|
19,445 |
|
|
23,253 |
| |||
| Income taxes payable |
|
2,959 |
|
|
8,365 |
|
|
24,832 |
| |||
| Long-term bank indebtedness—current portion |
|
1,272 |
|
|
— |
|
|
— |
| |||
| Obligation under capital leases—current portion |
|
168 |
|
|
164 |
|
|
|||||