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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(s) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended DECEMBER 31, 1999
Commission file number: 0-24091
TWEETER HOME ENTERTAINMENT GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-3417513
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10 PEQUOT WAY
CANTON, MA 02021
(Address of principal executive offices including zip code)
781-830-3000
(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
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
TITLE OF CLASS OUTSTANDING AT JANUARY 31, 2000
Common Stock, $.01 par value 15,338,420
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TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
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Part I. FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1999 and December 31, 1999....... 3
Condensed Consolidated Statements of Operations For the Three Months Ended
December 31, 1998 and 1999................................................................. 4
Condensed Consolidated Statements of Cash Flows For the Three Months Ended
December 31, 1998 and 1999................................................................. 5
Notes to Unaudited Condensed Consolidated Financial Statements............................. 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations...... 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk................................. 11
Part II. OTHER INFORMATION.......................................................................... 12
</TABLE>
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TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 999,495 $ 3,727,724
Accounts receivable, net of allowance the doubtful accounts of $650,O00
at September 30, 1999 and $652,0O0 at December 31, 1999 .............. 9,556,846 18,597,703
Inventory .............................................................. 62,135,516 67,891,889
Deferred tax assets .................................................... 1,899,604 1,899,604
Prepaid expenses and other current assets .............................. 678,804 576,809
------------- -------------
Total current assets ................................................ 75,270,265 92,693,729
Investment in joint venture ............................................ -- 2,782,552
Long-term investments .................................................. 1,846,366 2,602,714
Property and equipment, net ............................................ 34,243,241 37,101,112
Other assets, net ...................................................... 191,616 124,124
Goodwill, net .......................................................... 30,067,691 29,928,095
------------- -------------
TOTAL ............................................................... $ 141,619,179 $ 165,232,326
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ...................................... $ 35,551 $ 33,384
Amount due to bank ..................................................... 6,023,056 8,232,174
Accounts payable ....................................................... 18,377,139 19,582,453
Accrued expenses ....................................................... 16,197,306 32,133,124
Customer deposits ...................................................... 2,440,090 3,490,924
Deferred warranty ...................................................... 673,139 638,606
------------- -------------
Total current liabilities ........................................... 43,746,281 64,110,665
------------- -------------
LONG-TERM DEBT:
Notes payable to bank .................................................. 5,716,805 27,707
------------- -------------
OTHER LONG-TERM LIABILITIES:
Rent related accruals .................................................. 3,197,657 3,308,340
Deferred warranty ...................................................... 338,238 169,716
Deferred tax liabilities ............................................... 1,095,527 1,398,066
Other long-term liabilities ............................................ 279,500 50,820
------------- -------------
Total other long-term liabilities ................................... 4,910,922 4,926,942
------------- -------------
Total liabilities ................................................... 54,374,008 69,065,314
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STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value, 10,000,000 shares authorized, no shares
issued and outstanding ............................................... -- --
Common stock, $.01 par value, 60,000,0O0 shares authorized;
17,129,622 shares issued in September 30, 1999 and
17,225,215 in December 31, 1999 ...................................... 171,296 172,252
Additional paid in capital ............................................. 73,202,238 73,540,706
Accumulated other comprehensive income ................................. 301,520 755,329
Retained earnings ...................................................... 15,482,982 23,604,885
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Total ............................................................... 89,158,036 98,073,172
Less treasury stock: 1,905,586 shares in September 30, 1999 and
1,896,007 shares in December 31, 1999, at cost ....................... (1,912,865) (1,906,160)
------------- -------------
Total stockholders' equity .......................................... 87,245,171 96,167,012
------------- -------------
TOTAL ............................................................... $ 141,619,179 $ 165,232,326
============= =============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------------------------
1998 1999
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Total revenue $ 86,784,153 $ 124,813,563
Cost of sales (57,233,284) (79,165,067)
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Gross Profit 29,550,869 45,648,496
Selling expenses 17,498,748 26,981,949
Corporate, general and administrative expenses 4,040,692 4,647,302
Amortization of goodwill 215,400 331,892
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Income from operations 7,796,029 13,687,353
Income from joint venture -- 107,349
Interest expense 200,498 258,197
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Income before income taxes 7,595,531 13,536,505
Income tax expense 3,038,212 5,414,602
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NET INCOME $ 4,557,319 $ 8,121,903
============= =============
Basic earnings per share $ 0.36 $ 0.53
============= =============
Diluted earnings per share $ 0.32 $ 0.48
============= =============
Weighted average shares outstanding
Basic 12,713,122 15,276,825
Diluted 14,204,200 17,044,278
</TABLE>
See notes to unaudited condensed consolidated financial statements
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TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1999
------------------------------------
1998 1999
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CASH FLOW FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 4,557,319 $ 8,121,903
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .................................. 1,084,598 1,570,250
Equity earnings in joint venture investment .................... -- (107,349)
Gain on disposal of equipment .................................. -- (10,300)
Changes in operating assets and liabilities, net of effects from
acquisition of business:
Increase in accounts receivable ............................... (5,360,826) (9,040,857)
Increase in inventory ......................................... (5,523,537) (5,756,373)
Decrease in prepaid expenses and other current assets ......... 103,570 179,825
Increase in accounts payable and accrued expenses ............. 14,055,406 17,141,132
Increase in customer deposits .. .............................. 1,031,643 1,050,834
Increase in deferred rent ..................................... 105,829 110,683
Decrease in deferred warranty .. .............................. (311,877) (203,055)
Decrease in other liabilities ................................. (27,720) (228,680)
------------ ------------
Net cash provided by operating activities ................... 9,714,405 12,828,013
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .............................. (3,659,478) (4,065,582)
Proceeds from sale of property and equipment .................... -- 10,300
Acquisition of business ......................................... -- (100,321)
------------ ------------
Net cash used in investing activities ....................... (3,659,478) (4,155,603)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Amount due to bank .............................................. 2,331,014 2,209,118
Payments of long-term debt ...................................... (5,250,000) (5,714,299)
Equity transactions ............................................. -- 236,203
Investment in joint venture ..................................... -- (2,675,203)
------------ ------------
Net cash used in financing activities ....................... (2,918,986) (5,944,181)
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS ............................ 3,135,941 2,728,229
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................... 776,709 999,495
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................... $ 3,912,650 $ 3,727,724
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ....................................................... $ 567,287 $ 203,003
============ ============
Taxes .......................................................... $ 1,322,936 989,000
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements
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TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited condensed consolidated financial statements of Tweeter Home
Entertainment Group, Inc. and its subsidiaries ("Tweeter" or the "Company"),
included herein, should be read in conjunction with the consolidated financial
statements and notes thereto included in Tweeter's Annual Report on Form 10-K
for the fiscal year ended September 30, 1999.
2. Accounting Policies
The unaudited consolidated financial statements of Tweeter have been
prepared in accordance with U.S. generally accepted accounting principles. In
the opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation of the interim
consolidated financial statements have been included. Operating results for the
three-month period ended December 31, 1999 are not necessarily indicative of the
results that may be expected for the fiscal year ending September 30, 2000.
Tweeter typically records its highest revenue and earnings in this first fiscal
quarter.
3. Earnings per Share
Tweeter computed earnings per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic
earnings per share is calculated based on the weighted average number of common
shares outstanding, adjusted, in 1998, for the nominal issuance of certain
warrants. Diluted earnings per share is based on the weighted average number of
common shares outstanding, adjusted for the nominal issuance of certain
warrants, shares of preferred stock outstanding, when dilutive, and dilutive
potential common shares (common stock options and warrants).
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share:
<TABLE>
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THREE MONTHS ENDED
DECEMBER 31,
--------------------------------
1998 1999
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BASIC EARNING PER SHARE:
Numerator:
Net income $ 4,557,319 $ 8,121,903
Denominator:
Weighted average common shares outstanding 12,393,448 15,276,825
Nominal issuance of warrants 319,674 --
----------- -----------
Weighted average shares outstanding 12,713,122 15,276,825
----------- -----------
Basic earnings per share $ 0.36 $ 0.53
=========== ===========
DILUTED EARNINGS PER SHARE:
Numerator $ 4,557,319 $ 8,121,903
Denominator:
Weighted average shares outstanding 12,713,122 15,276,825
Potential common stock outstanding 1,491,078 1,767,453
----------- -----------
Total 14,204,200 17,044,278
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Diluted earnings per share $ 0.32 $ 0.48
=========== ===========
</TABLE>
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4. Comprehensive Income
Comprehensive income for the three months ended December 31, 1998 and
December 31, 1999 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------------
1998 1999
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<S> <C> <C>
Net income 4,557,319 8,121,903
Change in fair value of long-
term investments (net of tax) -- 453,809
--------- ---------
Comprehensive income 4,557,319 8,575,712
========= =========
</TABLE>
5. Investment in Joint Venture
On October 4, 1999, Tweeter formed a joint venture with Outpost.com,
organized as Tweeter.Outpost.com, LLC, to jointly market and sell consumer
electronics over the Internet. The Tweeter.Outpost.com site was launched on
October 19, 1999. This joint venture was capitalized with $2.5 million from each
party, primarily to fund inventory procurement. Profits and losses generated
from this entity are split evenly. The joint venture is accounted for by the
Company under the equity method. The investment is presented on the balance
sheet as "Investment in joint venture". As of December 31, 1999, total assets
and total liabilities of the joint venture amounted to $7,233,944 and
$2,019,246, respectively. For the fiscal quarter ended December 31, 1999, the
joint venture had total revenue of $1,538,852 and net income of $214,698.
6. Sound Installations
On November 1, 1999, the Company purchased certain assets and assumed
certain liabilities of Sound Installations, Inc., a custom home installation
company. Total purchase price and related costs amounted to approximately
$210,000, including the issuance of 5,124 shares of common stock with a market
value at issuance of $110,000. The purchase price was allocated primarily to
goodwill and property and equipment. This transaction has been accounted for as
a purchase. The results of operations for the acquired entity in this fiscal
quarter were not significant. Accordingly, pro forma information has not been
presented.
7. Subsequent Events
On January 11, 2000, Tweeter filed a registration statement on Form S-3
with the Securities and Exchange Commission. The prospectus relates to 2,550,000
shares of Tweeter Home Entertainment Group, Inc. common stock of which 550,000
will be offered by selling stockholders and 2,000,000 will be offered by the
Company. The primary purpose of the offering is to raise cash for the Company
for working capital and for other general corporate purposes, including possible
strategic acquisitions. This registration statement has not yet been declared
effective.
On January 20, 2000, Tweeter announced it had reached an agreement in
principle to acquire United Audio Center, Inc. located in the greater Chicago,
Illinois area. The Company expects to exchange Tweeter common stock with an
approximate current value of $6.5 million for 100% of the common stock of United
Audio. The company intends to issue these shares from its shelf registration
filed on April 13, 1999, and amended on December 23, 1999. The agreement in
principle to acquire United Audio is subject to various terms and conditions,
and is subject to regulatory approval. The transaction is expected to qualify as
a tax-free reorganization for tax purposes and will be accounted for as a
purchase.
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On January 25, 2000, the shareholders approved an increase in the
authorized common stock from 30,000,000 to 60,000,000 shares.
8. New Accounting Pronouncements
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 was not required to
be implemented until fiscal year 2000. In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of FASB Statement No. 133 - an amendment of FASB Statement
No. 133." SFAS No. 137 delayed the original implementation date of SFAS No. 133
by one year. This will require that the Company implement this statement in
fiscal year 2001. Management is currently evaluating the effects that the
adoption of SFAS No. 133 will have on the consolidated financial statements.
On December 3, 1999, the Securities and Exchange Commission published Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This SAB summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. This SAB requires, among other things, that revenues derived from
products or services in which companies typically act as an agent be reported on
a net basis. This SAB is required to be implemented by the Company in fiscal
year 2001. Had SAB No. 101 been implemented for all periods presented, total
revenue and cost of sales would have decreased by approximately $1.3 million for
the three months ended December 31, 1999 and by $0.8 million for the three
months ended December 31, 1998. The adoption of SAB No. 101 is not expected to
have any other impact on results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Tweeter is a specialty retailer of mid to high-end audio and video consumer
electronics products. Tweeter operates 76 stores under the Tweeter, etc., Bryn
Mawr Stereo & Video, HiFi Buys, Home Entertainment and Dow Stereo/Video names.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999 AS COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1998
Total Revenue. Total revenue includes delivered sales, completed service
center work orders, insurance replacement and corporate sales. Total revenue
increased $38.0 million, or 43.8%, to $124.8 million in the three months ended
December 31, 1999 from $86.8 million for the three months ended December 31,
1998. The increase was mainly comprised of $9.7 million from new stores,
comparable store sales increase of $9.3 million, $9.4 million from the
acquisition of Home Entertainment and, $10.8 million from the acquisition of Dow
Stereo/Video. Comparable store sales, excluding Home Entertainment and Dow
Stereo/Video, increased by 11.9%. The Home Entertainment stores had a total
comparable store sales increase of 30.1 %, and the DOW Stereo/Video stores had a
comparable store sales decrease of 9.1%. New technology products contributed to
the sales increase for the first quarter of fiscal 2000. DVD players represented
approximately 8.7% of total revenue for the three months ended December 31,
1999, as compared to 6.0% for the same period in the prior year. Camcorder
business was up 11.7% and digital camcorders accounted for 80.2% of the
camcorder sales. Digital televisions accounted for 64.4% of all projection
television sets sold in the fiscal quarter ended December 31, 1999.
Gross Profit. Cost of sales includes merchandise, net delivery costs,
distribution costs, purchase discounts, and vendor volume rebates. Cost of sales
increased $21.9 million, or 38.3%, to $79.2 million in the three months ended
December 31, 1999 from $57.2 million in the three months ended December 31,
1998. Gross profit increased $16.1 million, or 54.5%, to $45.6 million in the
three months ended December 31, 1999 from $29.6 million for the three months
ended December 31, 1998. The gross margin percentage increased 2.5%, to 36.6%
for the three months ended December 31, 1999, from 34.1% for the three months
ended December 31, 1998. The increase in margin was primarily due to increased
sales of new digital technology products, such as DVD players, digital
televisions and digital camcorders. These digital products realize higher gross
margin and higher average ticket than their analog counterparts. This increase
was offset by growth in the video category relative to other categories that
Tweeter sells. Video products generally realize lower gross margin than audio
products. Tweeter expects sales of digital televisions to accelerate over the
next few years, which will tend to increase video sales as a percentage of the
Company's overall mix. It is a particular challenge for Tweeter to
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enact strategies such as its "Sell Audio with Video" strategy in order to offset
the margin erosion that could occur due to an increase in sales of video
products relative to the other categories of products that Tweeter sells.
Selling Expenses. Selling expenses include the compensation of store
personnel, occupancy costs, store level depreciation, advertising expenses,
pre-opening expenses and credit card fees and excludes corporate, general and
administrative expenses. Selling expenses increased $9.5 million, or 54.2%, to
$27.0 million in the three months ended December 31, 1999 from $17.5 million for
the three months ended December 31, 1998. As a percentage of revenue, selling
expenses increased to 21.6% for the three months ended December 31, 1999 from
20.2% for the three months ended December 31, 1998. This increase was primarily
due to higher payroll costs associated with the opening of new stores and the
continued development of our custom installation departments. Higher payroll
costs were also driven by the substantial increase in gross margin, as our sales
force is paid an increasing commission rate on higher margin sales.
Corporate, General and Administrative Expenses. Corporate, general and
administrative expenses include the costs of executive officers, finance,
merchandising, information systems, human resources, training, and related
support functions. Corporate, general and administrative expenses increased 15%
to $4.6 million for the three months ended December 31, 1999 from $4.0 million
for the three months ended December 31, 1998. As a percentage of total revenue,
corporate general and administrative expenses decreased to 3.7% for the three
months ended December 31, 1999 from 4.7% for the three months ended December 31,
1998. This decrease was due to the increased sales volume from new stores opened
since the fiscal quarter ended December 31, 1998 and from stores acquired in the
Home Entertainment and Dow Stereo/Video acquisitions.
Amortization of Goodwill. Amortization of goodwill increased to $332,000
for the three months ended December 31, 1999 from $215,000 for the three months
ended December 31, 1998. The increase was due to the completion of the Home
Entertainment acquisition on February 1, 1999 and the Dow Stereo/Video
acquisition on July 1, 1999.
Interest Expense. Interest expense increased to $258,000 for the three
months ended December 31, 1999 from $200,000 for the three months ended December
31, 1998. The increase was due to the incurrence of debt to facilitate the
building of new stores and relocating of existing stores. Additionally,
inventory was maintained at a higher level due to the lack of availability of
the newer digital products.
Income Taxes. The effective tax rate for the fiscal quarters ended December
31, 1999 and December 31, 1998 was 40.0%. Tweeter expects that the income tax
rate for the fiscal year ending September 30, 2000 will remain substantially
unchanged.
New Stores. In October 1999, Tweeter opened its 74th store in Douglasville,
Georgia, operating under the HiFi Buys name. In November 1999, the Company
opened its 75th and 76th stores in Snellville, Georgia and Birmingham, Alabama,
both operating under the HiFi Buys name.
Seasonality. Tweeter's operations, in common with other retailers, are
subject to seasonal influences. Historically, Tweeter has realized more of its
revenue and net earnings in this first fiscal quarter, which includes the
holiday season, than in any other fiscal quarter. The net earnings of any
interim quarter are seasonally disproportionate to net sales since certain
selling expenses and administrative expenses are relatively fixed during the
year. Therefore, interim results should not be relied upon as necessarily
indicative of results for the entire fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $12.8 million for the three
months ended December 31, 1999 compared to $9.7 million for the three months
ended December 31, 1998. Cash provided by operations in 1999 was primarily the
result of $8.1 million in net income, an increase in accounts payable and
accrued expenses of $17.1 million, depreciation and amortization of $1.6 million
and an increase in customer deposits of $1.1 million. This was offset by
increases in accounts receivable of $9.0 million and inventory of $5.8 million,
as well as minor changes in other operating accounts.
At December 31, 1999, working capital was $28.6 million, compared to $31.5
million at September 30, 1999. The ratio of current assets to current
liabilities was 1.45 to 1 at December 31, 1999 and 1.72 to 1 at September 30,
1999.
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Capital expenditures for the three months ended December 31, 1999 were $4.1
million, primarily used for the building of new stores and the relocation of
existing stores.
Net cash used in financing activities during the three months ended
December 31, 1999 was $5.9 million, comprised mainly of payments made for
long-term debt of $5.7 million and an investment in our Tweeter.Outpost.com
joint venture of $2.7 million. This was offset by an increase in amount due bank
of $2.2 million.
The Company had available at December 31, 1999 a $50,000,000 revolving
credit facility, and there were no balances outstanding at December 31, 1999.
On January 11, 2000, Tweeter filed a registration statement with the
Securities and Exchange Commission for a public offering of both primary shares
and shares to be sold by certain selling stockholders. Tweeter expects that the
proposed offering will consist of 2,550,000 shares of common stock, 550,000 of
which will be offered by selling stockholders and 2,000,000 of which will be
offered by the Company.
Tweeter believes that the net proceeds from the offering, together with
cash generated by operations and available borrowings under its credit facility
will be sufficient to finance its working capital and capital expenditure
requirements, including the proposed acquisition of United Audio Center, Inc.,
for at least the next twelve months. If management pursues additional
acquisitions within this period, however, such acquisitions could strain
Tweeter's capital resources. Furthermore, due to the seasonality of its
business, Tweeter's working capital needs are significantly higher the fiscal
third and fourth quarters and there is the possibility that this could cause
unforeseen capital constraints in the future.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q,
including, without limitation, statements containing the words "expects,"
"anticipates," "believes" and words of similar import, constitute "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward looking statements are subject to various
risks and uncertainties, including those relating to Company growth and
acquisitions, dependence on key personnel, the need for additional financing,
competition and seasonal fluctuations, and those referred to in Tweeter's
Registration Statement filed on Form S-3 (SEC file number 333-94433) on January
11, 2000 and in the Company's Annual Report on Form 10-K filed on December 10,
1999, that could cause actual future results and events to differ materially
from those currently anticipated. Readers are cautioned not to place undue
reliance on these forward looking statements.
YEAR 2000 COMPLIANCE
To date, there were no Year 2000 issues with the internal business systems.
As of this date, Tweeter is not aware of any Year 2000 problems with any of its
suppliers or any of its products and Tweeter has continued to receive shipments
from its suppliers on a timely basis. The Company does not expect to incur any
additional costs relating to Year 2000 issues.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Tweeter's credit facility provides for borrowings which bear interest at
variable rates based on either (i) the higher of BankBoston's Base Rate or the
Federal Funds rate plus 0.50% or (ii) the London Interbank Offering Rate (LIBOR)
plus an applicable margin varying from 100 to 175 basis points. Tweeter had no
borrowings outstanding pursuant to the credit facility as of December 31, 1999.
Tweeter believes that the effect, if any, of reasonably possible near-term
changes in interest rates on Tweeter's financial position, results of
operations, and cash flows should not be material.
At December 31, 1999, the Company has approximately $2.6 million in
marketable equity securities classified as "available-for-sale." Equity market
fluctuations can impact fair values (although not earnings, unless such equity
positions are actually liquidated). A 10% fluctuation in the value of such
securities would either reduce or increase total assets by approximately
$260,000.
Currently, Tweeter does not enter into financial instrument transactions
for speculative purposes or to manage interest rate exposure.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On January 11, 2000, Tweeter filed a registration statement on Form S-3
with the Securities and Exchange Commission. The prospectus relates to 2,550,000
shares of Tweeter Home Entertainment Group, Inc. common stock, of which 550,000
shares will be offered by selling stockholders and 2.0 million of which will be
offered by the Company. The primary purpose of the offering is to raise cash for
the Company for working capital and for general corporate purposes, including
possible strategic acquisitions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
On January 20, 2000, Tweeter filed with the Securities and Exchange
Commission a Current Report on Form 8-K to announce that it had reached an
agreement in principle to acquire United Audio Centers, Inc., located in
Chicago, Illinois and to announce earnings for the fiscal quarter ended December
31, 1999.
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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.
TWEETER HOME ENTERTAINMENT GROUP, INC.
By: /s/ Joseph McGuire
------------------------------------
JOSEPH MCGUIRE,
Chief Financial Officer
Date: January 31, 2000
13
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<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,727,724
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<RECEIVABLES> 18,597,703
<ALLOWANCES> (652,000)
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<PP&E> 37,101,112
<DEPRECIATION> (16,071,909)
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<CURRENT-LIABILITIES> 64,110,665
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0
0
<COMMON> 172,252
<OTHER-SE> 95,994,760
<TOTAL-LIABILITY-AND-EQUITY> 165,232,326
<SALES> 124,813,563
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<CGS> 79,165,067
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<OTHER-EXPENSES> 31,853,794
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258,197
<INCOME-PRETAX> 13,536,505
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<EPS-BASIC> .53
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