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, 2003 |
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, 2004, 20,211,214 shares of the registrant’s common stock, par value $1.00 per share, were outstanding.
| PART I | ||
| Page | ||
| 3 | ||
| ITEM 1 - Financial Statements and Supplementary Data |
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| 5 | ||
| 6 | ||
| 7 | ||
| 8 | ||
| ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 | |
| ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk |
25 | |
| 26 | ||
| PART II | ||
| 27 | ||
| ITEM 4 - Submission of Matters to a Vote of Security Holders |
27 | |
| 27 | ||
| OTHER | ||
| 30 | ||
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 and the timing of the payment of related tax liabilities; |
| • | Estimates of future foreign exchange rates; |
| • | Management’s estimates of future sales growth and gross margin and selling, general and administrative expense percentages; |
| • | Future levels of interest income and expense and income taxes; |
| • | 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 the fiscal period ending March 31, 2004; |
| • | Estimates of cash required to fund the repurchase of common stock; and |
| • | The intended change of the Company’s domicile to Canada and its conversion to an income trust. |
Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements include, but are not limited to:
| • | The occurrence of certain material events including natural disasters, acts of terrorism, the outbreak of war or other significant national or international events; |
| • | Changes in the national or regional economic conditions, including but not limited to, recessionary trends, level of equity markets, consumer credit availability, interest rates, foreign exchange rates, inflation, consumers’ disposable income and spending levels, job security and unemployment, and overall consumer confidence; |
| • | Interest and foreign exchange rate fluctuations; |
| • | The imposition of new restrictions or regulations regarding the sale of products and/or services we sell or changes in tax rules and regulations applicable to us; |
| • | Impact of technological changes on the retail price and profit margins associated with products in our product categories; |
| • | The presence or absence of new products in our product categories, particularly digital products, including the level of consumer acceptance of new technology; |
| • | The inability to liquidate inventory should excess inventory develop; |
| • | The lack of availability or access to sources of inventory; |
| • | Dependence on manufacturers’ product development; |
| • | The imposition of additional restrictions or regulations regarding the sale of products or services we offer; |
| • | The value of the Company’s common stock and the general condition of the stock market; |
| • | Changes in the availability of suitable real estate locations for expansion on acceptable terms; |
| • | The disruption of international, national or regional transportation systems; |
| • | Changes in the amount and degree of promotional intensity exerted by current competitors and potential new competition from both retail stores and alternative methods or channels of distribution, such as e-commerce, telephone shopping services and mail order; |
3
| • | The inability to attract, retain and grow an effective management team in a dynamic environment or changes in the cost or availability of a suitable work force to manage and support our service-driven operation strategies; |
| • | The inability to successfully maintain our business arrangements or strategic alliances; |
| • | The occurrence of severe weather events or natural disasters, which could destroy outlets or prevent consumers from traveling to our retail locations, especially during the peak winter holiday season; |
| • | The inability to react in a timely manner and maintain our critical business processes and information systems capabilities in a disaster recovery situation; and |
| • | Other risks indicated in InterTAN’s previously filed periodic reports with the Securities and Exchange Commission, including its Form 10-K for the 2003 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.
4
ITEM 1 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Operations
(U.S. dollars in thousands, except per share amounts)
(Unaudited)
| Three months ended December 31 |
Six months ended December 31 |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| Net sales and operating revenues |
$ | 171,284 | $ | 137,381 | $ | 277,743 | $ | 230,284 | ||||||||
| Other income (loss) |
5 | (19 | ) | (28 | ) | (8 | ) | |||||||||
| 171,289 | 137,362 | 277,715 | 230,276 | |||||||||||||
| Operating costs and expenses: |
||||||||||||||||
| Cost of products sold |
98,783 | 82,379 | 163,188 | 138,907 | ||||||||||||
| Selling, general and administrative expenses |
50,330 | 38,819 | 86,930 | 70,035 | ||||||||||||
| Depreciation |
1,991 | 1,669 | 3,923 | 3,310 | ||||||||||||
| 151,104 | 122,867 | 254,041 | 212,252 | |||||||||||||
| Operating income |
20,185 | 14,495 | 23,674 | 18,024 | ||||||||||||
| Foreign currency transaction gains (losses) |
(183 | ) | (3 | ) | (236 | ) | 168 | |||||||||
| Interest income |
51 | 63 | 100 | 159 | ||||||||||||
| Interest expense |
(315 | ) | (384 | ) | (502 | ) | (582 | ) | ||||||||
| Income before income taxes and cumulative effect of accounting change |
19,738 | 14,171 | 23,036 | 17,769 | ||||||||||||
| Income taxes |
10,847 | 6,174 | 12,664 | 7,837 | ||||||||||||
| Income before cumulative effect of accounting change |
8,891 | 7,997 | 10,372 | 9,932 | ||||||||||||
| Cumulative effect of accounting change for vendor allowances, net of income taxes of $388 (Note 2) |
— | — | — | (580 | ) | |||||||||||
| Net income |
$ | 8,891 | $ | 7,997 | $ | 10,372 | $ | 9,352 | ||||||||
| Basic net income per average common share |
||||||||||||||||
| Before cumulative effect of accounting change |
$ | 0.43 | $ | 0.38 | $ | 0.50 | $ | 0.47 | ||||||||
| Cumulative effect of accounting change |
— | — | — | (0.03 | ) | |||||||||||
| Basic net income per average common share |
$ | 0.43 | $ | 0.38 | $ | 0.50 | $ | 0.44 | ||||||||
| Diluted net income per average common share |
||||||||||||||||
| Before cumulative effect of accounting change |
$ | 0.43 | $ | 0.37 | $ | 0.50 | $ | 0.47 | ||||||||
| Cumulative effect of accounting change |
— | — | — | (0.03 | ) | |||||||||||
| Diluted net income per average common share |
$ | 0.43 | $ | 0.37 | $ | 0.50 | $ | 0.44 | ||||||||
| Average common shares outstanding |
20,469 | 21,192 | 20,546 | 21,275 | ||||||||||||
| Average common shares outstanding assuming dilution |
20,819 | 21,361 | 20,871 | 21,487 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
(U.S. dollars in thousands, except share amounts)
(Unaudited)
| December 31 2003 |
June 30 2003 |
December 31 2002 |
||||||||||
| Assets |
||||||||||||
| Current Assets |
||||||||||||
| Cash and short-term investments |
$ | 38,528 | $ | 10,322 | $ | 15,277 | ||||||
| Accounts receivable, less allowance for doubtful accounts |
36,047 | 16,275 | 25,523 | |||||||||
| Inventories |
94,068 | 92,433 | 87,574 | |||||||||
| Deferred service contract costs - current portion (Note 10) |
1,551 | 1,368 | 1,177 | |||||||||
| Prepaids, deposits and other current assets |
1,785 | 5,301 | 1,385 | |||||||||
| Deferred income taxes |
1,358 | 1,306 | 1,325 | |||||||||
| Total current assets |
173,337 | 127,005 | 132,261 | |||||||||
| Property and equipment, less accumulated depreciation |
35,697 | 33,537 | 28,637 | |||||||||
| Deferred service contract costs - non-current portion (Note 10) |
1,351 | 1,071 | 913 | |||||||||
| Other assets |
655 | 761 | 681 | |||||||||
| Deferred income taxes |
4,110 | 3,955 | 3,461 | |||||||||
| Total Assets |
$ | 215,150 | $ | 166,329 | $ | 165,953 | ||||||
| Liabilities and Stockholders’ Equity |
||||||||||||
| Current Liabilities |
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| Short-term bank borrowings (Note 5) |
$ | 4,677 | $ | — | $ | — | ||||||
| Accounts payable |
31,665 | 22,633 | 26,894 | |||||||||
| Accrued expenses |
30,130 | 15,290 | 24,763 | |||||||||
| Income taxes payable (Note 9) |
10,387 | 1,867 | 2,203 | |||||||||
| Long-term bank indebtedness - current portion (Note 5) |
1,543 | 1,484 | 1,272 | |||||||||
| Obligation under capital leases - current portion |
275 | 216 | 168 | |||||||||
| Deferred service contract revenue - current portion (Note 10) |
9,867 | 8,809 | 7,599 | |||||||||
| Deferred income taxes |
286 | 400 | — | |||||||||
| Total current liabilities |
88,830 | 50,699 | 62,899 | |||||||||
| Long-term bank indebtedness - non-current portion (Note 5) |
4,628 | 5,937 | 5,088 | |||||||||
| Obligation under capital leases - non-current portion |
550 | 432 | 340 | |||||||||
| Deferred service contract revenue - non current portion (Note 10) |
8,311 | 6,917 | 6,305 | |||||||||
| Other liabilities |
5,110 | 4,847 | 4,340 | |||||||||
| Total liabilities |
107,429 | 68,832 | 78,972 | |||||||||
| Stockholders’ Equity |
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| Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding |
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