-----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, F6H7/8oTP8jkwffzHKweKlkN/gSNLldsVolYaQe1gEOxKhzS1X4H3p34uA6FpWZg k43C63Ij/7QnlVclD5GXEw== 0000950149-98-000996.txt : 19980518 0000950149-98-000996.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950149-98-000996 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOOD GUYS INC CENTRAL INDEX KEY: 0000785931 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RADIO TV & CONSUMER ELECTRONICS STORES [5731] IRS NUMBER: 942366177 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14134 FILM NUMBER: 98621864 BUSINESS ADDRESS: STREET 1: 7000 MARINA BLVD CITY: BRISBANE STATE: CA ZIP: 94005 BUSINESS PHONE: 4156155000 MAIL ADDRESS: STREET 2: 7000 MARINA BLVD CITY: BRISBANE STATE: CA ZIP: 94005 10-Q 1 FORM 10-Q FOR PERIOD ENDING 03/31/1998 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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 quarter period ended March 31, 1998 ------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 0-14134 ------------------- THE GOOD GUYS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 94-2366177 - -------------------------------------------------------------------------------- (State of jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7000 Marina Boulevard, Brisbane, California 94005 - -------------------------------------------------------------------------------- (Address of principal executive offices) (zip code) (415) 615-5000 - -------------------------------------------------------------------------------- (Registrant's telephone number including area code) 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 ----- ----- The registrant had 14,081,165 shares of common stock outstanding as of April 30, 1998. 2 THE GOOD GUYS, INC. INDEX
Page Part I. FINANCIAL INFORMATION Item 1 Financial Statements: Consolidated Balance Sheets as of March 31, 1998 (Unaudited) and September 30, 1997 (Unaudited) 3 Consolidated Statements of Operations for the Three and Six Month Periods Ended March 31, 1998 and 1997 (Unaudited) 4 Consolidated Statement of Changes in Shareholders' Equity for the Six Month Period Ended March 31, 1998 (Unaudited) 5 Consolidated Statements of Cash Flows for the Six Month Periods Ended March 31, 1998 and 1997 (Unaudited) 6 Notes to Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 Part II. OTHER INFORMATION 11-12 SIGNATURE PAGE 13
2 3 THE GOOD GUYS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) ASSETS
March 31, September 30, 1998 1997 --------- ------------- Current assets: Cash and cash equivalents $ 5,228 $ 18,951 Accounts receivable, net 29,291 21,711 Income taxes receivable 0 6,176 Merchandise inventories 145,434 117,768 Prepaid expenses 6,896 6,716 -------- -------- Total current assets 186,849 171,322 Property and equipment 127,226 120,121 Less accumulated depreciation and amortization 63,225 57,968 -------- -------- Property and equipment, net 64,001 62,153 Other assets 1,338 2,587 -------- -------- Total assets $252,188 $236,062 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 86,276 $ 75,517 Accrued expenses and other liabilities: Payroll 12,016 13,434 Sales taxes 5,602 5,226 Other 28,737 23,781 -------- -------- Total current liabilities 132,631 117,958 Shareholders' equity: Preferred stock, $.001 par value; authorized 2,000,000 shares; none issued Common stock, $.001 par value; authorized 40,000,000 shares; issued and outstanding, 14,015,429 shares and 13,810,310 shares, respectively 14 14 Additional paid-in capital 63,360 62,316 Retained earnings 56,183 55,774 -------- -------- Total shareholders' equity 119,557 118,104 -------- -------- Total liabilities and shareholders' equity $252,188 $236,062 ======== ========
The accompanying notes are an integral part of these statements. 3 4 THE GOOD GUYS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share data) (Unaudited)
Three Months Six Months Ended March 31, Ended March 31, ------------------------ ---------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net sales $ 209,062 $ 205,091 $499,365 $ 491,656 Cost of sales 156,730 153,137 375,412 368,007 --------- --------- -------- --------- Gross profit 52,332 51,954 123,953 123,649 Selling, general and administrative expenses 55,243 57,147 122,810 125,323 --------- --------- -------- --------- Income (loss) from operations (2,911) (5,193) 1,143 (1,674) Interest expense, net 242 129 495 371 --------- --------- -------- --------- Income (loss) before income taxes (3,153) (5,322) 648 (2,045) Income tax expense (benefit) (1,159) (2,040) 239 (729) --------- --------- -------- --------- Net income (loss) $ (1,994) $ (3,282) $ 409 $ (1,316) ========= ========= ======== ========= Net income (loss) per common share Basic: $ (.14) $ (.24) $ .03 $ (.10) --------- --------- -------- --------- Diluted: $ (.14) $ (.24) $ .03 $ (.10) --------- --------- -------- --------- Weighted average shares Basic: 13,995 13,616 13,856 13,539 --------- --------- -------- --------- Diluted: 13,995 13,616 13,889 13,539 --------- --------- -------- ---------
The accompanying notes are an integral part of these statements. 4 5 THE GOOD GUYS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998 (In thousands except share data) (Unaudited)
Common Stock Additional ---------------------- paid-in Retained Shares Amount capital Earnings Total ------ ------ ------- -------- ----- Balance at September 30, 1997 13,810,310 $ 14 $ 62,316 $55,774 $ 118,104 Issuance of common stock 401,419 1 2,425 -- 2,426 Repurchase and retirement of common stock (196,300) (1) (1,381) -- (1,382) Net Income for the six-month period Ended March 31, 1998 -- -- -- 409 409 ----------- ---- -------- ------- --------- Balance at March 31, 1998 14,015,429 $ 14 $ 63,360 $56,183 $ 119,557 =========== ==== ======== ======= =========
The accompanying notes are an integral part of these statements. 5 6 THE GOOD GUYS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended March 31, -------------------------- 1998 1997 ---- ---- Cash Flows from Operating Activities: Net income (loss) $ 409 $ (1,316) -------- -------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 5,258 4,828 Change in assets and liabilities: Accounts receivable (7,580) (1,168) Income taxes receivable 6,176 7,148 Merchandise inventories (27,666) (13,496) Prepaid expenses and other assets 1,069 (57) Accounts payable 10,759 (8,835) Accrued expenses and other liabilities 3,914 4,968 -------- -------- Total adjustments (8,070) (6,612) -------- -------- Net cash used in operating activities (7,661) (7,928) -------- -------- Cash Flows from Investing Activities: Capital expenditures (7,106) (1,469) -------- -------- Net cash used in investing activities (7,106) (1,469) -------- -------- Cash Flows from Financing Activities: Issuance of common stock 2,426 1,092 Repurchase and retirement of common stock (1,382) (1,009) -------- -------- Net cash provided by financing activities 1,044 83 -------- -------- Net decrease in cash and cash equivalents (13,723) (9,314) Cash and cash equivalents at beginning of period 18,951 21,965 -------- -------- Cash and cash equivalents at end of period $ 5,228 $ 12,651 ======== ========
The accompanying notes are an integral part of these statements. 6 7 THE GOOD GUYS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles and reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the information contained therein. The results of operations for the three and six months ended March 31, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements should be read in conjunction with the financial statements, notes and supplementary data included and incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1997. 2. Net Income per common share has been computed in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS 128 requires a dual presentation of basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. Net income per common share for prior periods have been restated to conform to SFAS 128. 3. New Accounting Pronouncements: SFAS No. 130, "Reporting Comprehensive Income" establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. In addition, this statement requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from the retained earnings and additional paid in capital in the equity section of a statement of financial position. This statement is effective for fiscal years beginning after December 15, 1997. Management believes this will have no impact on the Company's financial position or results of operations. SFAS No. 131, "Disclosures about Segment Reporting of an Enterprise and Related Information" establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosure about products and services, geographic areas, and major customers. The adoption of this statement will not impact the Company's financial position, results of operations or cash flows and any effect will be limited to the form and content of its disclosures. This statement is effective for fiscal years beginning after December 15, 1997. 7 8 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS To the extent forward-looking statements are made in this Form 10-Q, such statements are subject to certain risks and uncertainties, including but not limited to increases in promotional activities of the Company's competitors, changes in consumer buying attitudes, the presence or absence of new products or product features in the Company's merchandise categories, changes in vendor support for advertising and promotional programs, changes in the Company's merchandise sales mix, general economic conditions, and other factors referred to in the Company's 1997 Annual Report on Form 10-K under "Information Regarding Forward Looking Statements". RESULTS OF OPERATIONS Net sales for the quarter ended March 31, 1998 were $209.1 million, an increase of 2% from sales of $205.1 million for the quarter ended March 31, 1997. For the six months ended March 31, 1998, net sales increased 2% to $499.4 million, compared to $491.7 million for the six months ended March 31, 1997. Comparable store sales increased 2% for the quarter and 1% for the six months ended March 31, 1998. Gross profit as a percentage of net sales was 25.0% for the quarter ended March 31, 1998, as compared to 25.3% for the quarter ended March 31, 1997. For the six months ended March 31, 1998, gross profit as a percentage of sales was 24.8% compared to 25.1% for the six months ended March 31, 1997. The decrease in gross profit was primarily due to shifts in product mix between extended warranties and other product categories. For the quarter ended March 31, 1998, selling, general and administrative expenses were 26.4% of net sales compared to 27.8% for the quarter ended March 31, 1997. For the six months ended March 31, 1998, selling, general and administrative expenses were 24.6% of net sales as compared to 25.5% of net sales for the six months ended March 31, 1997. The decrease in selling, general and administrative costs as a percentage of sales for the quarter and six months ended March 31, 1998 is primarily due to reductions in general and administrative and advertising expenses and an increase in same store sales. The effective income tax rate for the quarter and six months ended March 31, 1998 was 36.8% as compared with 38.3% and 35.6% for the quarter and six months ended March 31, 1997, respectively. The net loss for the quarter ended March 31, 1998 was $2.0 million ($0.14 per share) or 0.9% of net sales for the period. These results compare to a net loss of $3.3 million ($0.24 per share) or 1.6% of net sales for the quarter ended March 31, 1997. For the six months ended March 31, 1998, net income was $409,000 ($0.03 per share) or 0.1% of net sales as compared to a net loss of $1.3 million ($ 0.10 per share) or 0.3% of net sales for the six months ended March 31, 1997. 8 9 LIQUIDITY AND CAPITAL RESOURCES At March 31, 1998, the Company had working capital of $54.2 million. Net cash used in operating activities was $7.7 million for the six months ended March 31, 1998, compared to $7.9 million for the six months ended March 31, 1997. The decrease in net cash used in operating activities was primarily due to an increase in net income, partially offset by an increase in merchandise inventories. Net cash used in investing activities, which primarily consists of expenditures for stores, distribution facilities and administrative property and equipment, was $7.1 million for the six months ended March 31, 1998, as compared to $1.5 million during the same period last year. This increase in cash used in investing activities primarily relates to the building of new stores and the continued remodeling of existing stores to the new Audio/Video Exposition format. The Company continues to identify stores for remodeling to the new Audio/Video Exposition format and plans to renovate four to seven existing locations in calendar 1998. In addition, the Company plans to open three new stores in the Exposition format during calendar 1998. The Company maintains a revolving line of credit, which provides a maximum borrowing level of $75,000,000. The credit agreement contains restrictive loan covenants, which if violated could be used as a basis for termination of the agreement. For the quarter ending March 31, 1998, the Company was in compliance with all covenants under the credit agreement. There were no borrowings outstanding under the credit agreement at March 31, 1998. The Company expects to fund its working capital requirements and expansion plans with a combination of cash flows from operations, normal trade credit, financing arrangements and continued use of lease financing. The Company believes that because of competition among manufacturers and the technological changes in the consumer electronics industry, inflation has not had an effect on net sales and cost of sales. YEAR 2000 The inability of computers, software and other equipment utilizing microprocessors to recognize and properly process data fields containing a two-digit year is commonly referred to as the Year 2000 Compliance issue. As the year 2000 approaches, such systems may be unable to accurately process certain data-based information. The Company has identified all significant applications that will require modification to ensure Year 2000 Compliance. Internal and external resources are being used to make the required modifications and test Year 2000 Compliance. The Company plans on completing the testing process of all significant applications by Mid 1999. 9 10 In addition, the Company has communicated with others with whom it does significant business to determine their Year 2000 Compliance readiness and the extent to which the Company is vulnerable to any third party Year 2000 issues. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would have a material adverse effect on the Company. The total cost to the Company of these Year 2000 Compliance activities has not been and is not anticipated to be material to its financial position or results of operations in any given year. These costs and the date on which the Company plans to complete the Year 2000 modification and testing processes are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantees that these estimates will be achieved and actual results could differ from those plans. Item 3. Quantitative and Qualitative Disclosures About Market Risks Not applicable 10 11 PART II. OTHER INFORMATION ITEM 1 Legal Proceedings On July 19, 1996, McBride-Newall, Inc. dba Carphones, Inc. and numerous other individuals filed a complaint against the Company and 21 other named defendants entitled McBride-Newall, Inc., et al. v. Mobilworks, Inc. et al., San Diego Superior Court Case No. 695897. Plaintiffs, who are small agents of the cellular service providers offering cellular telephone products and service in the San Diego area, alleged a conspiracy to sell cellular telephone equipment below cost with the intent to drive the plaintiffs out of business. Plaintiffs sought treble damages under the California antitrust laws. The lawsuit has been settled on a basis that is not material to the financial condition of the Company. On October 31, 1997, Mike Kashri dba Car Phone Express, filed a complaint against the Company and seven other named Defendants entitled Kashri, et at. vs. Los Angeles Cellular Telephone Company, et al., Orange County Superior Court Case No. 786296. Plaintiffs, who are small agents of the cellular service providers offering cellular telephone products and service in the Orange County area, allege a conspiracy to sell cellular telephone equipment below cost with the intent to drive the Plaintiffs out of business. Plaintiffs seek treble damages under the California Antitrust laws. The Complaint was not served on the Company until April 1, 1998. The Company believes it has meritorious defenses to the claims alleged in the lawsuit and intends to defend the action vigorously. ITEM 2-3 Not applicable 11 12 ITEM 4 Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders of The Good Guys, Inc. held on February 13, 1998, 12,691,192 shares were present in person or by proxy out of 13,810,310 outstanding shares on December 19, 1997, the record date. The shareholders voted as follows: 1. On nominees for election as Directors of the Corporation:
Number of Shares ------------------------ Nominees For Withheld -------- --- -------- Stanley R. Baker 11,634,474 1,175,183 Robert A. Gunst 11,612,278 1,197,379 Russell M. Solomon 11,643,088 1,166,569 W. Howard Lester 11,648,668 1,160,989 John E. Martin 11,650,056 1,159,601 Horst H. Schulze 11,652,812 1,156,845
2. On approval of the Amended and Restated 1994 Stock Incentive Plan:
Number of shares ---------------- For the proposal: 6,897,126 Against the proposal: 3,106,679 Withheld: 315,850 Non-Votes: 2,371,537
3. On Ratification of the appointment of Deloitte & Touche, LLP as independent Certified Public Accountants.
Number of shares ---------------- For the proposal: 12,623,169 Against the proposal: 37,495 Withheld: 30,528
ITEM 5 Not applicable ITEM 6 Exhibits and Reports on Form 8-K (a) No reports on Form 8-K were filed during the quarter for which this report is filed. 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE GOOD GUYS, INC. ------------------------------------- Registrant May xx, 1998 /s/ DENNIS C. CARROLL - ----------------------- ------------------------------------- Date Dennis C. Carroll Chief Financial Officer 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS SEP-30-1998 MAR-31-1998 5,228 0 30,285 994 145,434 186,849 127,226 63,225 252,188 132,631 0 0 0 14 119,543 252,188 499,365 499,365 375,412 375,412 122,810 0 495 648 239 409 0 0 0 409 .03 .03
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