<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 June 30, 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 13,621,612 shares of common stock, outstanding as of July 31,
1996.
<PAGE> 2
THE GOOD GUYS, INC. AND SUBSIDIARY
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets as of
June 30, 1996 (Unaudited) and
September 30, 1995 (Unaudited) 3
Consolidated Statements of Operations
for the Three and Nine Month Periods Ended
June 30, 1996 and 1995 (Unaudited) 4
Consolidated Statement of Changes in
Shareholders' Equity for the Nine Month
Period Ended June 30, 1996 (Unaudited) 5
Consolidated Statements of Cash Flows
for the Nine Month Periods Ended
June 30, 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 (Loss)
per Share 14
EXHIBIT 27.1 Financial Data Schedule 15
2
<PAGE> 3
THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
-------- -=-----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,386 $ 18,434
Accounts receivable, net 26,839 21,209
Merchandise inventories 145,460 115,806
Prepaid expenses 8,911 10,300
-------- --------
Total current assets 191,596 165,749
Property and equipment 107,252 101,825
Less accumulated depreciation and amortization 49,319 42,584
-------- --------
Property and equipment, net 57,933 59,241
Other assets 1,905 2,739
-------- --------
Total assets $251,434 $227,729
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 82,406 $ 53,504
Accrued expenses and other liabilities:
Payroll 9,954 12,435
Sales taxes 3,057 6,025
Other 17,448 19,743
-------- --------
Total current liabilities 112,865 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, 13,479,105 shares and
13,581,416 shares, respectively 13 14
Additional paid-in capital 60,798 61,833
Retained earnings 77,758 74,175
-------- --------
Total shareholders' equity 138,569 136,022
-------- --------
Total liabilities and shareholders' equity $251,434 $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 OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
--------------------------- --------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 196,553 $ 198,315 $ 713,683 $ 675,718
Cost of sales 148,898 149,056 548,519 511,176
--------- --------- --------- ---------
Gross profit 47,655 49,259 165,164 164,542
Selling, general and
administrative expenses 53,105 45,301 158,752 142,398
--------- --------- --------- ---------
Income (loss) from operations (5,450) 3,958 6,412 22,144
Interest expense, net 302 163 407 411
--------- --------- --------- ---------
Income (loss) before income
taxes (5,752) 3,795 6,005 21,733
Income taxes (benefits) (2,318) 1,573 2,422 8,610
--------- --------- --------- ---------
Net income (loss) $ (3,434) $ 2,222 $ 3,583 $ 13,123
========= ========= ========= =========
Net income (loss)
per common share $ (.25) $ .17 $ .26 $ .98
========= ========= ========= =========
Shares used in per share
computation 13,476 13,426 13,569 13,378
========= ========= ========= =========
</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 NINE-MONTH PERIOD ENDED JUNE 30, 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 nine-month period
ended June 30, 1996 -- -- -- 3,583 3,583
Issuance of common stock 185,189 -- 1,369 -- 1,369
Retirement of common stock (287,500) (1) (2,404) -- (2,405)
---------- ----------- ----------- ----------- -----------
Balance at
June 30, 1996 13,479,105 $ 13 $ 60,798 $ 77,758 $ 138,569
=========== =========== =========== =========== ===========
</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>
Nine Months Ended June 30,
--------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 3,583 $ 13,123
-------- --------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,981 7,118
Change in assets and liabilities:
Accounts receivable (5,630) (6,454)
Merchandise inventories (29,654) (46,632)
Prepaid expenses and other assets 2,203 2,228
Accounts payable 28,902 30,341
Accrued expenses and other liabilities (7,744) (1,744)
-------- --------
Total adjustments (4,942) (15,143)
-------- --------
Net cash used in operating activities (1,359) (2,020)
-------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment - net (5,653) (13,235)
-------- --------
Net cash used in investing activities (5,653) (13,235)
-------- --------
Cash Flows from Financing Activities:
Issuance of common stock 1,369 1,426
Retirement of common stock (2,405) --
Net cash provided by (used in) financing activities (1,036) 1,426
-------- --------
Net decrease in cash and
cash equivalents (8,048) (13,829)
Cash and cash equivalents at
September 30, 1995 and 1994 18,434 21,661
-------- --------
Cash and cash equivalents at
June 30, 1996 and 1995 $ 10,386 $ 7,832
======== ========
</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 and year
to date ended June 30, 1996 and 1995 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
This Form 10-Q includes forward-looking statements, which 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, and changes in the Company's merchandise sales mix, and
general economic conditions.
RESULTS OF OPERATIONS
Net sales for the quarter ended June 30, 1996 were $196.6 million, a decrease of
1% from sales of $198.3 million for the quarter ended June 30, 1995. This
decrease was due to a 13% decrease in comparable store sales, partially offset
by sales resulting from an increase in the total number of stores in operation
from 60 at June 30, 1995 to 74 at June 30, 1996. On a year-to-date basis, net
sales for the period ended June 30, 1996 increased 6% to $713.7 million,
compared to $675.7 million during the same period in 1995. Comparable store
sales decreased 8% for the nine months ended June 30, 1996.
Gross profit as a percentage of net sales was 24.2% and 23.1% for the quarter
and nine months ended June 30, 1996, respectively, as compared to 24.8% and
24.4% for the comparable 1995 periods. 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, and a highly promotional
consumer electronics market during each period.
For the quarter and nine months ended June 30, 1996, selling, general and
administrative expenses were 27.0% and 22.2% of net sales, respectively,
compared to 22.8% and 21.1% for the comparable 1995 periods. The quarter and
year to date increase in selling, general and administrative costs as a
percentage of sales is primarily due to the decrease in sales for the quarter
ended June 30, 1996 and the fixed cost associated with the nine stores opened
and one store closed during the year.
The effective income tax rate for the quarter and nine month period ended June
30, 1996 was 40.3% compared with 41.4% and 39.6% respectively, for such periods
in the prior fiscal year. The 1995 effective tax rate was positively impacted by
the utilization of job tax credits during the first half of 1995.
8
<PAGE> 9
The loss for the quarter ended June 30, 1996 was $3.4 million ($0.25 per share)
or 1.7% of net sales for the period. These results compare to net income of $2.2
million ($0.17 per share) or 1.1% of net sales for the same period last year.
For the nine month period ended June 30, 1996 net income was $3.6 million or
$0.26 per share, compared to $13.1 million or $0.98 per share for the same
period last year.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of $78.7 million. Net cash
used in operating activities was $1.4 million for the nine months ended June 30,
1996, compared to $2.0 million for the nine months ended June 30, 1995. The
decrease in net cash used in operating activities was primarily due to improved
leveraging on merchandise inventory.
Net cash used in investing activities, which primarily consists of expenditures
for stores, distribution facilities and administrative property and equipment,
was $5.7 million for the nine months ended June 30, 1996 as compared to $13.2
million during the same period last year. This decrease was attributable to a
more effective use of lease financing during the first nine months 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. For the quarter ending June 30, 1996 the Company
was in compliance with or had received waivers for each of these covenants.
There were no borrowings outstanding under the credit agreement at June 30,
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
The Company has been named as a defendant in two purported class actions,
entitled LONG V. PACKARD BELL ELECTRONICS, ET AL., Case No. 7515706, filed in
Orange County Superior Court on August 21, 1995, and SUTTER V. ACER AMERICA
CORPORATION, ET AL., Case No. 95A505027, filed in Sacramento County Superior
Court on September 7, 1995. In both cases, plaintiffs have named a large number
of computer manufacturers, wholesalers and retailers, alleging that since 1986
the defendants have misrepresented to the public the screen size of certain
computer monitors. In addition to these two cases, there are numerous other
cases pending around the State of California (and in other parts of the country)
making essentially the same allegations against a variety of computer
manufacturers, wholesalers and retailers. All of the California cases have now
been coordinated in a single court in San Francisco. At the end of June 1996,
the Court granted the Company's demurrers on the grounds (a) that a prior
settlement of an action brought by the California Attorney General precludes
relitigation of the same issues in this case; and (b) that plaintiffs lack
standing to bring class claims against the Company because none of the named
plaintiffs claim to have purchased any computer monitors from the Company. The
cases are 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 certain computer
manufacturers from which it has purchased computer equipment.
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 Statute, 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. In May 1996, the Company entered into
an agreement with the plaintiff settling the action as to the Company for the
payment of a nominal sum, and the action has been dismissed as to the Company.
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 (Loss)
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
August 13, 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 14
earnings (loss) per share
27.1 Financial Data Schedule 15
13
<PAGE> 1
THE GOOD GUYS, INC. AND SUBSIDIARY Exhibit 11.1
STATEMENT SETTING FORTH COMPUTATION
OF EARNINGS (LOSS) PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
-------- -------
<S> <C> <C>
Net income (loss) $(3,434) $ 2,222
1. As presented in the 10-Q shares
used in per share computation 13,476 13,426
Net income (loss) per common share
and common share equivalents $(0.25) $ 0.17
====== =======
2. Computation of primary and fully diluted earnings (loss) per share
including common stock equivalents
a) Primary earnings (loss) per common share
Weighted average number of shares:
Common stock (A) 13,476 13,426
Stock options (B) 81 135
------ -------
Total 13,557 13,561
Primary earnings (loss)
per share $(0.25) $ 0.16
====== =======
b) Fully diluted earnings (loss)
per share
Weighted average number of shares:
Common stock (A) 13,476 13,426
Stock options (B) 81 150
------ -------
Total 13,557 13,576
Fully diluted earnings (loss)
per share $(0.25) $ 0.16
====== =======
</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 (loss) per share are
calculated using the average market price. Stock options in fully diluted
earnings (loss) 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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,386
<SECURITIES> 0
<RECEIVABLES> 28,074
<ALLOWANCES> 1,235
<INVENTORY> 145,460
<CURRENT-ASSETS> 191,596
<PP&E> 107,252
<DEPRECIATION> 49,319
<TOTAL-ASSETS> 251,434
<CURRENT-LIABILITIES> 112,865
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 138,556
<TOTAL-LIABILITY-AND-EQUITY> 138,569
<SALES> 713,683
<TOTAL-REVENUES> 713,683
<CGS> 548,519
<TOTAL-COSTS> 548,519
<OTHER-EXPENSES> 158,752
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 407
<INCOME-PRETAX> 6,005
<INCOME-TAX> 2,422
<INCOME-CONTINUING> 3,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,583
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
