-----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, KMKG9ZPJj00eYdgzLyBmy9gC4cMkn79frWGoEkVCPSp2dwFOEm/sA7LUUXzbsjP5 pfT2Qha93ZP4CxfmeCqyMQ== 0000950149-98-001463.txt : 19980814 0000950149-98-001463.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950149-98-001463 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 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: 98685798 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 QUARTERLY REPORT FOR PERIOD ENDED 06/30/1998. 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 June 30, 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 14,247,718 shares of common stock, outstanding as of July 31, 1998. 2 THE GOOD GUYS, INC. AND SUBSIDIARY INDEX
Page ---- Part I. FINANCIAL INFORMATION Item 1 Financial Statements: Consolidated Balance Sheets as of June 30, 1998 (Unaudited) and September 30, 1997 (Unaudited) 3 Consolidated Statements of Operations for the Three and Nine Month Periods Ended June 30, 1998 and 1997 (Unaudited) 4 Consolidated Statement of Changes in Shareholders' Equity for the Nine Month Period Ended June 30, 1998 (Unaudited) 5 Consolidated Statements of Cash Flows for the Nine Month Periods Ended June 30, 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 SIGNATURE PAGE 12 EXHIBIT 27.1 Financial Data Schedule 13
2 3 THE GOOD GUYS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) ASSETS
June 30, September 30, 1998 1997 ------------- ------------- Current assets: Cash and cash equivalents $ 8,469 $ 18,951 Accounts receivable, net 33,039 21,711 Income taxes receivable 914 6,176 Merchandise inventories 150,575 117,768 Prepaid expenses 6,350 6,716 ------------- ------------- Total current assets 199,347 171,322 Property and equipment 131,929 120,121 Less accumulated depreciation and amortization 66,060 57,968 ------------- ------------- Property and equipment, net 65,869 62,153 Other assets 1,697 2,587 ------------- ------------- Total assets $ 266,913 $ 236,062 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 100,589 $ 75,517 Accrued expenses and other liabilities: Payroll 9,580 13,434 Sales taxes 3,646 5,226 Other 27,367 23,781 ------------- ------------- Total current liabilities 141,182 117,958 Revolving credit debt 7,957 -- 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, 14,116,051 shares and 13,810,310 shares, respectively 14 14 Additional paid-in capital 64,168 62,316 Retained earnings 53,592 55,774 ------------- ------------- Total shareholders' equity 117,774 118,104 ------------- ------------- Total liabilities and shareholders' equity $ 266,913 $ 236,062 ============= =============
The accompanying notes are an integral part of these statements. 3 4 THE GOOD GUYS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) (Unaudited)
Three Months Nine Months Ended June 30, Ended June 30, --------------------------------- --------------------------------- 1998 1997 1998 1997 ------------- ------------- ------------- ------------- Net sales $ 209,057 $ 194,834 $ 708,422 $ 686,490 Cost of sales 155,792 145,094 531,204 513,101 ------------- ------------- ------------- ------------- Gross profit 53,265 49,740 177,218 173,389 Selling, general and Administrative expenses 57,103 56,166 179,913 181,489 ------------- ------------- ------------- ------------- Loss from operations (3,838) (6,426) (2,695) (8,100) Interest expense, net 252 208 747 579 ------------- ------------- ------------- ------------- Loss before income taxes (4,090) (6,634) (3,442) (8,679) Income tax benefit (1,499) (2,488) (1,260) (3,217) ------------- ------------- ------------- ------------- Net loss $ (2,591) $ (4,146) $ (2,182) $ (5,462) ============= ============= ============= ============= Net loss per common share Basic: $ (.18) $ (.30) $ (.16) $ (.40) ------------- ------------- ------------- ------------- Diluted: $ (.18) $ (.30) $ (.16) $ (.40) ------------- ------------- ------------- ------------- Weighted average shares Basic: 14,086 13,620 13,932 13,566 ------------- ------------- ------------- ------------- Diluted: 14,086 13,620 13,932 13,566 ------------- ------------- ------------- -------------
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 NINE-MONTH PERIOD ENDED June 30, 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 502,041 1 3,233 -- 3,234 Repurchase and retirement of common stock (196,300) (1) (1,381) -- (1,382) Net loss for the nine-month period Ended June 30, 1998 -- -- -- (2,182) (2,182) ------------- ------------- ------------- ------------- ------------- Balance at June 30, 1998 14,116,051 $ 14 $ 64,168 $ 53,592 $ 117,774 ============= ============= ============= ============= =============
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)
Nine Months Ended June 30, -------------------------------- 1998 1997 ------------- ------------- Cash Flows from Operating Activities: Net loss $ (2,182) $ (5,462) ------------- ------------- Adjustments to reconcile net loss to net cash Provided by (used in) operating activities: Depreciation and amortization 8,096 7,222 Change in assets and liabilities: Accounts receivable (11,328) 780 Income tax receivable 5,262 5,257 Merchandise inventories (32,807) (18,763) Prepaid expenses and other assets 1,252 590 Accounts payable 25,072 10,743 Accrued expenses and other liabilities (1,848) (5,903) ------------- ------------- Total adjustments (6,301) (74) ------------- ------------- Net cash used in operating activities (8,483) (5,536) ------------- ------------- Cash Flows from Investing Activities: Capital expenditures (11,808) (3,811) ------------- ------------- Net cash used in investing activities (11,808) (3,811) ------------- ------------- Cash Flows from Financing Activities: Issuance of common stock 3,233 1,090 Repurchase and retirement of common stock (1,381) (1,008) Proceeds from borrowings 7,957 -- ------------- ------------- Net cash provided by financing activities 9,809 82 ------------- ------------- Net decrease in cash and cash equivalents (10,482) (9,265) Cash and cash equivalents at beginning of period 18,951 21,965 ------------- ------------- Cash and cash equivalents at end of period $ 8,469 $ 12,700 ============= =============
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 nine months ended June 30, 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. Management believes this will have no impact on the Company's financial position or results of operations. This statement is effective for fiscal years ending September 30, 1999. 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 ending September 30, 1999. 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 June 30, 1998 were $209.1 million, an increase of 7% from sales of $194.8 million for the quarter ended June 30, 1997. For the nine months ended June 30, 1998, net sales increased 3% to $708.4 million, compared to $686.5 million for the nine months ended June 30, 1997. Comparable store sales increased 6% for the quarter and 3% for the nine months ended June 30, 1998. Gross profit as a percentage of net sales was 25.5% for both the quarter ended June 30, 1998 and for the quarter ended June 30, 1997. For the nine months ended June 30, 1998, gross profit as a percentage of sales was 25.0% compared to 25.3% for the nine months ended June 30, 1997. For the quarter ended June 30, 1998, selling, general and administrative expenses were 27.3% of net sales compared to 28.8% for the quarter ended June 30, 1997. For the nine months ended June 30, 1998, selling, general and administrative expenses were 25.4% of net sales as compared to 26.5% of net sales for the nine months ended June 30, 1997. The decrease in selling, general and administrative costs as a percentage of sales for the quarter and nine months ended June 30, 1998 is primarily due to reductions in net advertising expenses and an increase in same store sales. The effective income tax rates for the quarter and nine months ended June 30, 1998 were 36.7% and 36.6%, compared with 37.5% and 37.1% for the quarter and nine months ended June 30, 1997, respectively. The net loss for the quarter ended June 30, 1998 was $2.6 million ($0.18 per share) or 1.2% of net sales for the period. These results compare to a net loss of $4.1 million ($0.30 per share) or 2.1% of net sales for the quarter ended June 30, 1997. For the nine months ended June 30, 1998, the net loss was $2.2 million ($0.16 per share) or 0.3% of net sales as compared to a net loss of $5.5 million ($ 0.40 per share) or 0.8% of net sales for the nine months ended June 30, 1997. 8 9 LIQUIDITY AND CAPITAL RESOURCES At June 30, 1998, the Company had working capital of $58.2 million. Net cash used in operating activities was $8.5 million for the nine months ended June 30, 1998, compared to $5.5 million for the nine months ended June 30, 1997. The increase in net cash used in operating activities was primarily due to an increase in merchandise inventory and accounts receivable, partially offset by an increase in accounts payable and a decrease in the year to date net loss. Net cash used in investing activities, which primarily consists of expenditures for stores, distribution facilities and administrative property and equipment, was $11.8 million for the nine months ended June 30, 1998, as compared to $3.8 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 Audio/Video 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 June 30, 1998, the Company was in compliance with all covenants under the credit agreement. There were borrowings of $8.0 million outstanding under the credit agreement at June 30, 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 Risk Not applicable 10 11 PART II. OTHER INFORMATION ITEM 1 Legal Proceedings 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 lawsuit has been settled on a basis that is not material to the financial condition of the Company. On July 7, 1998, the Company was named as a defendant in a purported class action entitled Cavnar, et al. v National Semiconductor Corp., et al., Case No. 996297, filed in San Francisco County Superior Court. Plaintiffs have named as defendants National Semiconductor Corporation, Cyrix Corporation, Compaq Computer Corporation, and fourteen retailers and wholesalers of personal computers systems, including The Good Guys. Plaintiffs allege that since 1994, the defendants have misrepresented to the public the random access memory (RAM) available for software processing applications on personal computers containing the Cyrix MediaGX(TM) central processing unit (CPU). The case is at an early stage, discovery has not yet commenced, and it is too early to be able to express any opinion as to the likely outcome of the matter. The Company believes it has meritorious defenses to the claims alleged in the lawsuit and intends to defend the action vigorously. The Company also believes it has meritorious claims for indemnification from the computer manufacturer or manufacturers from which it has purchased personal computer systems that contain the Cyrix MediaGX(TM) (CPU) ITEM 2-5 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. 11 12 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 August 12, 1998 /s/ DENNIS C. CARROLL --------------- -------------------------- Date Dennis C. Carroll Chief Financial Officer 12 13 Exhibit Index
Exhibit No. Description - ------- ----------- 27.1 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS SEP-30-1998 JUN-30-1998 8,469 0 34,965 1,012 150,575 199,347 131,929 66,060 266,913 141,182 7,957 0 0 14 117,760 266,913 708,422 708,422 531,204 531,204 179,913 0 747 (3,442) (1,260) (2,182) 0 0 0 (2,182) (0.16) (0.16)
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