<PAGE> 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, 1996
---------------------------------------------------
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 13,479,105 shares of common stock, outstanding as of April
30, 1996.
<PAGE> 2
THE GOOD GUYS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets as of
March 31, 1996 (Unaudited) and
September 30, 1995 (Unaudited) 3
Consolidated Statements of Income
for the Three and Six Month Periods Ended
March 31, 1996 and 1995 (Unaudited) 4
Consolidated Statement of Changes in
Shareholders' Equity for the Six Month
Period Ended March 31, 1996 (Unaudited) 5
Consolidated Statements of Cash Flows
for the Six Month Periods Ended
March 31, 1996 and 1995 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
Part II. OTHER INFORMATION 10-11
SIGNATURE PAGE 12
EXHIBIT INDEX 13
EXHIBIT 11.1 Statement Setting Forth Computation of Earnings
per Share 14
EXHIBIT 27.1 Financial Data Schedule 15
</TABLE>
2
<PAGE> 3
THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31, September 30,
1996 1995
--------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,057 $ 18,434
Accounts receivable, net 28,698 21,209
Merchandise inventories 139,163 115,806
Prepaid expenses 8,613 10,300
-------- --------
Total current assets 187,531 165,749
Property and equipment 103,962 101,825
Less accumulated depreciation and amortization 46,893 42,584
-------- --------
Property and equipment, net 57,069 59,241
Other assets 1,903 2,739
-------- --------
Total assets $246,503 $227,729
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 69,818 $ 53,504
Accrued expenses and other liabilities:
Payroll 10,949 12,435
Sales taxes 5,228 6,025
Other 18,441 19,743
-------- --------
Total current liabilities 104,436 91,707
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, 13,481,005 shares and
13,581,416 shares, respectively 13 14
Additional paid-in capital 60,862 61,833
Retained earnings 81,192 74,175
-------- --------
Total shareholders' equity 142,067 136,022
-------- --------
Total liabilities and shareholders' equity $246,503 $227,729
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31, Ended March 31,
--------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $210,415 $195,745 $517,130 $477,403
Cost of sales 162,666 148,418 399,621 362,120
-------- -------- -------- --------
Gross profit 47,749 47,327 117,509 115,283
Selling, general and
administrative expenses 47,208 43,373 105,647 97,097
-------- -------- -------- --------
Income from operations 541 3,954 11,862 18,186
Interest expense, net 60 116 105 248
-------- -------- -------- --------
Income before income
taxes 481 3,838 11,757 17,938
Income taxes 192 1,538 4,740 7,037
-------- -------- -------- --------
Net income $ 289 $ 2,300 $ 7,017 $ 10,901
======== ======== ======== ========
Net income per common share $ .02 $ .17 $ .52 $ .82
======== ======== ======== ========
Shares used in per share
computation 13,650 13,424 13,616 13,354
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1996
(In thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- paid-in Retained
Shares Amount capital earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at
September 30, 1995 13,581,416 $ 14 $ 61,833 $74,175 $ 136,022
Net income for the six-month period
ended March 31, 1996 -- -- -- 7,017 7,017
Issuance of common stock 175,589 -- 1,341 -- 1,341
Retirement of common stock (276,000) (1) (2,312) -- (2,313)
----------- ---- -------- ------- ---------
Balance at
March 31, 1996 13,481,005 $ 13 $ 60,862 $81,192 $ 142,067
=========== ==== ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended March 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 7,017 $ 10,901
-------- --------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,548 4,857
Change in assets and liabilities:
Accounts receivable (7,489) (7,727)
Merchandise inventories (23,357) (38,185)
Prepaid expenses and other assets 2,510 1,754
Accounts payable 16,314 15,720
Accrued expenses and other liabilities (3,585) (1,177)
-------- --------
Total adjustments (11,059) (24,758)
-------- --------
Net cash used in operating activities (4,042) (13,857)
-------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment - net (2,363) (7,103)
-------- --------
Net cash used in investing activities (2,363) (7,103)
-------- --------
Cash Flows from Financing Activities:
Issuance of common stock 1,341 1,402
Retirement of common stock (2,313) --
-------- --------
Net cash provided by (used in) financing activities (972) 1,402
-------- --------
Net decrease in cash and
cash equivalents (7,377) (19,558)
Cash and cash equivalents at
September 30, 1995 and 1994 18,434 21,661
-------- --------
Cash and cash equivalents at
March 31, 1996 and 1995 $ 11,057 $ 2,103
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 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, in the opinion of management, all adjustments necessary for a
fair presentation of the information contained therein, all of which
adjustments are of a normal recurring nature. 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, 1995.
2. The weighted average number of shares outstanding during the quarter has
been computed by taking the number of days each share is outstanding and
dividing by the number of days in the quarter. Stock options are not
included in the calculation of earnings per share for the quarter ended
March 31, 1996 as the dilutive effect of the options was less than 3%.
7
<PAGE> 8
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1996 reached $210.4 million, an
increase of 8% over sales of $195.7 million for the quarter ended March 31,
1995. This increase was due to an increase in the total number of stores in
operation from 60 at March 31, 1995 to 70 at March 31, 1996, partially offset by
a 5% decrease in comparable store sales. On a year-to-date basis, net sales for
the period ended March 31, 1996 increased 8% to $517.1 million, compared to
$477.4 million during the same period in 1995. Comparable store sales decreased
6% for the six months ended March 31, 1996.
Gross profit as a percentage of net sales was 22.7% for the quarter and six
months ended March 31, 1996, as compared to 24.2% and 24.1% for the quarter and
six months ended March 31, 1995, respectively. The decreases in gross profit
percentage were primarily due to the increased proportion of sales represented
by computer products, which typically carry lower gross margins, significant
model changeovers in many categories and a highly promotional consumer
electronics market during each period.
For the quarter and six months ended March 31, 1996, selling, general and
administrative expenses were 22.5% and 20.4% of net sales, respectively,
compared to 22.2% and 20.3% for the comparable 1995 periods. The quarter and
year to date increase in selling, general and administrative costs is primarily
due to store expenses increasing as a percentage of sales, partially offset by
lower general and administrative costs and vendor support for advertising and
promotional programs.
The effective income tax rates for the quarter and six month period ended March
31, 1996 were 39.9% and 40.3% respectively, compared with 40.1% and 39.2%
respectively, for such periods in the prior fiscal year. The 1995 effective tax
rate was positively impacted by the utililization of job tax credits during the
first half of the year.
Net income for the quarter ended March 31, 1996 was $289,000 ($.02 per share) or
.1% of net sales for the period. These results compare to net income of $2.3
million ($0.17 per share) or 1.2% of net sales for the same period last year.
For the six month period ended March 31, 1996 net income was $7.0 million or
$.52 per share, compared to $10.9 million or $0.82 per share for the same period
last year.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had working capital of $83.1 million. Net cash
used in operating activities was $4.0 million for the six months ended March 31,
1996, compared to $13.9 million for the six months ended March 31, 1995. The
decrease in net cash used in operating activities was primarily due to a
decrease in merchandise inventories.
8
<PAGE> 9
Net cash used in investing activities, which primarily consists of expenditures
for stores, distribution facilities and administrative property and equipment,
was $2.4 million for the six months ended March 31, 1996 as compared to $7.1
million during the same period last year. This decrease was attributable to the
decrease in the number of stores opened, in the first half of fiscal 1996 (5
stores) versus stores opened during the first half of fiscal 1995 (8 stores),
and a more effective use of lease financing during the first half of fiscal
1996.
The Company maintains a revolving line of credit of up to $75 million, the
availability of which fluctuates seasonally. The credit agreement contains
restrictive loan covenants which if violated could be used as a basis for
termination of the agreement. The Company was in compliance with all covenants
under the credit agreement as of March 31, 1996. There were no borrowings
outstanding under the credit agreement at March 31, 1996.
The Company expects to be able to fund its working capital requirements and
expansion plans with a combination of anticipated 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.
9
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 1 Legal Proceedings
On March 31, 1992, Alan J. Story and his wife, Janice Story, filed a
complaint against the Company and others in Solano County Superior Court, based
on Mr. Story being held hostage and shot in the Company's Florin Mall store in
Sacramento by individuals unrelated to the Company. Also named as defendants in
the complaint are the individuals (or their legal representatives) who
allegedly took the hostages and shot Mr. Story, the store (Big R Country West
Stores, which is unrelated to the Company) where the individuals allegedly
purchased the weapons used in the incident, the Sacramento County Sheriffs
Department which responded to the incident, and the County of Sacramento. The
causes of the action in the complaint are as follows: (1) "Assault and
Battery," (2) "Premises Liability," (3) "Negligence--Law Enforcement Hostage
Negotiations," (4) "Negligence--Sales of Firearms," (5) "Negligence--Parental
Supervision," and (6) "Loss of Consortium." In 1994, the Court entered an order
granting summary judgment in favor of the Company with respect to all causes
of action in the complaint.
On August 11, 1993, an unincorporated association known as Cellular
Agents Association and six small retail agents of LA Cellular in the Los
Angeles and Orange County area filed an action against the Company and three of
its store managers entitled Cellular Agents Association v. The Good Guys, Inc.,
et al, Los Angeles Superior Court No. YC017055. The Complaint alleges three
principal claims: below-cost pricing of cellular telephones in violation of the
California Unfair Practices Act; "bundling" of cellular telephones and service
in violation of Public Utility Commission rules and the California Cartwright
Act; and false advertising. Plaintiffs dismissed this action, subject to an
agreement that they could refile the action in Orange County Superior Court and
seek to have it consolidated with the Cellular Activators case described below.
Plaintiffs subsequently refiled the action in Orange County, and the two cases
were consolidated.
On May 5, 1994, Cellular Activators, a general partnership consisting of
Richard Hansen and Jacque Coon, and several other individuals and entities,
filed a complaint against the Company and seven other named defendants entitled
Cellular Activators, et al. v. Los Angeles Cellular Telephone Company, et al.,
Orange County Superior Court Case No. 729278. The named defendants are Los
Angeles Cellular Telephone Company, Los Angeles SMSA Limited Partnership,
PacTel Cellular, PacTel Corporation, AirTouch Communications, AirTouch
Cellular, Circuit City Stores, and the Company. The complaint alleges a wide
variety of antitrust and fraud-related claims against the carrier defendants,
including alleged conspiracy to fix cellular telephone prices. Only two of the
several plaintiffs allege claims against the Company (although, as noted above,
the claims in the Cellular Agents case were consolidated with this case). Those
claims are for below cost pricing in violation of the California Unfair
Practices Act, bundling of cellular telephones and service, and conspiracy to
engage in bundling and below-cost pricing. In January 1996, the Company entered
into an agreement with the plaintiffs in both the Cellular Agents and Cellular
Activators cases settling the actions as to the Company for the payment of a
nominal sum, and the actions have been dismissed as to the Company.
On March 7, 1995, the Company filed a lawsuit for trademark infringement
against Good Guys Stereo Warehouse, an Oregon corporation offering retail
consumer electronics services out of two stores in the Corvallis, Oregon area.
The Good Guys, Inc. v. Good Guys Stereo Warehouse, Inc., et al., No. 95-283-HA
(D. Ore.). On March 27, 1995, Defendant filed an Answer and Counterclaim for
injunctive and declaratory relief for trademark infringement. The issues raised
by Defendants's counterclaim are essentially coextensive with the issues raised
by the Company's underlying lawsuit. On July 14, 1995, the court granted the
Company's request for a preliminary injunction, thus provisionally validating
the Company's position. On March 25, 1996 the court reaffirmed the preliminary
injunction and on April 19, 1996 the parties agreed to a resolution of the
entire action with the court entering a judgment for the Company and a permanent
injunction in conformance with the preliminary injunction.
The Company has been named as a defendant in an action known as Levy v.
Circuit City Stores, Inc., et al., Case No. 971872, filed in San Francisco
Superior Court on August 18, 1995. The plaintiff is an individual named Carol
Levy, who claims to be suing on her own behalf and on behalf of the general
public. The defendants, in addition to the Company, are Circuit City Stores,
Inc., Wireless Depot, Inc., Tandy Corporation, Cellular Warehouse, Bay Area
Cellular Telephone Company, and GTE Mobilnet of California. The First Amended
Complaint alleges various violations of the California Unfair Practices Act and
the Unfair Competition Statue, including failure to post certain signs in
connection with the sale of cellular telephones, bundling of cellular telephone
equipment and service, unlawful loss leader sales of cellular telephone
equipment, and unfair and deceptive advertising of cellular telephone equipment
and service. The plaintiff seeks injunctive relief and restitution. On February
2, 1996, the Court issued an order granting the Company's demurrer to the
Complaint as to four of the five causes of action alleged. With respect to the
remaining cause of action, the Company believes that it has meritorious
defenses to the claims alleged and intends to defend the case vigorously.
10
<PAGE> 11
ITEM 2-5 Not Applicable
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibit Description
11.1 Statement of Computation of
Per Share Earnings
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
11
<PAGE> 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
May 15, 1996 /s/ ROBERT A. GUNST
- ------------------- -----------------------------
Date Robert A. Gunst
President and Chief
Executive Officer
May 15, 1996 /s/ DENNIS C. CARROLL
- ------------------- -----------------------------
Date Dennis C. Carroll
Chief Financial Officer
12
<PAGE> 13
EXHIBIT INDEX
NUMBER DESCRIPTION PAGE
11.1 Statement of Computation of earnings per share 14
27.1 Financial Data Schedule 15
13
<PAGE> 1
THE GOOD GUYS, INC. AND SUBSIDIARY Exhibit 11.1
STATEMENT SETTING FORTH COMPUTATION
OF EARNINGS PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
-------- --------
<S> <C> <C>
Net Income $ 289 $ 2,300
1. As presented in the 10-Q Shares
used in per share computation 13,650 13,424
Net income per common share
and common share equivalents $ 0.02 $ 0.17
======== ========
2. Computation of primary and fully diluted earnings per
share including common stock equivalents
a) Primary earnings per common share
Weighted average number of shares:
Common Stock (A) 13,650 13,424
Stock Options (B) 61 200
-------- --------
Total 13,711 13,624
Primary earnings
per share $ 0.02 $ 0.17
======== ========
b) Fully diluted earnings per share
Weighted average number of shares:
Common stock (A) 13,650 13,424
Stock options (B) 75 200
-------- --------
Total 13,725 13,624
Fully diluted earnings
per share $ 0.02 $ 0.17
======== ========
</TABLE>
(A) The weighted average number of common shares outstanding during the
quarter has been computed by taking the number of days each share is
outstanding and dividing by the number of days in the quarter.
(B) Stock options used in the primary earnings per share are calculated
using the average market price. Stock options in fully diluted earnings
per share are calculated using the higher of the ending market price or
the average market price.
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,057
<SECURITIES> 0
<RECEIVABLES> 29,296
<ALLOWANCES> 598
<INVENTORY> 139,163
<CURRENT-ASSETS> 187,531
<PP&E> 103,962
<DEPRECIATION> 46,893
<TOTAL-ASSETS> 246,503
<CURRENT-LIABILITIES> 104,436
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 142,054
<TOTAL-LIABILITY-AND-EQUITY> 246,503
<SALES> 517,130
<TOTAL-REVENUES> 517,130
<CGS> 399,621
<TOTAL-COSTS> 399,621
<OTHER-EXPENSES> 105,647
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> 11,757
<INCOME-TAX> 4,740
<INCOME-CONTINUING> 7,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,017
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
