<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, 1997
-------------------
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
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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 13,801,510 shares of common stock outstanding as of July 31,
1997.
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THE GOOD GUYS, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1 Financial Statements:
------
Consolidated Balance Sheets as of
June 30, 1997 (Unaudited) and
September 30, 1996 (Unaudited) 3
Consolidated Statements of Operations
for the Three and Nine Month Periods Ended
June 30, 1997 and 1996 (Unaudited) 4
Consolidated Statement of Changes in
Shareholders' Equity for the Nine Month
Period Ended June 30, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows
for the Nine Month Periods Ended
June 30, 1997 and 1996 (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
</TABLE>
<PAGE> 3
THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,700 $ 21,965
Accounts receivable, net 20,821 21,601
Income taxes receivable 3,115 8,372
Merchandise inventories 142,565 123,802
Prepaid expenses 5,534 6,613
-------- --------
Total current assets 184,735 182,353
Property and equipment 114,097 111,284
Less accumulated depreciation and amortization 55,834 49,614
-------- --------
Property and equipment, net 58,263 61,670
Other assets 2,477 1,992
-------- --------
Total assets $245,475 $246,015
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 84,274 $ 73,531
Accrued expenses and other liabilities:
Payroll 11,722 12,630
Sales taxes 2,938 5,447
Other 22,653 25,139
-------- --------
Total current liabilities 121,587 116,747
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, 13,620,045 shares and
13,554,862 shares, respectively 14 14
Additional paid-in capital 61,380 61,298
Retained earnings 62,494 67,956
-------- --------
Total shareholders' equity 123,888 129,268
-------- --------
Total liabilities and shareholders' equity $245,475 $246,015
======== ========
</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,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 194,834 $ 196,553 $ 686,490 $ 713,683
Cost of sales 145,094 148,898 513,101 548,519
--------- --------- --------- ---------
Gross profit 49,740 47,655 173,389 165,164
Selling, general and
administrative expenses 56,166 53,105 181,489 158,752
--------- --------- --------- ---------
Income (loss) from operations (6,426) (5,450) (8,100) 6,412
Interest expense, net 208 302 579 407
--------- --------- --------- ---------
Income (loss) before income
taxes (6,634) (5,752) (8,679) 6,005
Income taxes (benefits) (2,488) (2,318) (3,217) 2,422
--------- --------- --------- ---------
Net income (loss) $ (4,146) $ (3,434) $ (5,462) $ 3,583
========= ========= ========= =========
Net income (loss)
per common share $ (.30) $ (.25) $ (.40) $ .26
========= ========= ========= =========
Weighted average shares 13,620 13,476 13,566 13,569
========= ========= ========= =========
</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, 1997
(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, 1996 13,554,862 $ 14 $ 61,298 $ 67,956 $ 129,268
Issuance of common stock 200,683 1 1,090 -- 1,091
Repurchase and retirement of common (135,500 (1) (1,008) -- (1,009)
Stock
Net loss for the nine-month period
Ended June 30, 1997 -- -- -- (5,462) (5,462)
----------- ----------- ----------- ----------- -----------
Balance at
June 30, 1997 13,620,045 $ 14 $ 61,380 $ 62,494 $ 123,888
=========== =========== =========== =========== ===========
</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,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (5,462) $ 3,583
-------- --------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,222 6,981
Change in assets and liabilities:
Accounts receivable 780 (5,630)
Income tax receivable 5,257 --
Merchandise inventories (18,763) (29,654)
Prepaid expenses and other assets 590 2,203
Accounts payable 10,743 28,902
Accrued expenses and other liabilities (5,903) (7,744)
-------- --------
Total adjustments (74) (4,942)
-------- --------
Net cash used in operating activities (5,536) (1,359)
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (3,811) (5,653)
-------- --------
Net cash used in investing activities (3,811) (5,653)
-------- --------
Cash Flows from Financing Activities:
Issuance of common stock 1,090 1,369
Repurchase and retirement of common stock (1,008) (2,405)
-------- --------
Net cash provided by (used in) financing activities 82 (1,036)
-------- --------
Net decrease in cash and cash equivalents (9,265) (8,048)
Cash and cash equivalents at beginning of period 21,965 18,434
-------- --------
Cash and cash equivalents at end of period $ 12,700 $ 10,386
======== ========
</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 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 month periods ended June 30, 1997 and 1996 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, 1996.
2. At June 30, 1997, there were no borrowings under the Company's
committed unsecured line of credit agreement. The Company was in
compliance with or received waivers for each of the covenants
required by the agreement for the quarter ended June 30, 1997.
3. The weighted average number of shares outstanding during the three
and nine months ended June 30, 1997 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 three and nine months ended
June 30, 1997 and 1996 as the dilutive effect of the options was less
than 3%.
4. New Accounting Pronouncement: In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS 128). The Company is
required to adopt SFAS 128 in the first quarter of fiscal 1998 at
which time it will restate earnings per share (EPS) data for prior
periods to conform with SFAS 128. Earlier application is not
permitted.
SFAS 128 replaces current EPS reporting requirements and 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 could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
Pro forma income (loss) for basic and diluted EPS assuming SFAS 128
had been in effect for the quarter and year-to-date periods would not
have differed from the reported amounts.
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, changes in the Company's merchandise sales mix, general
economic conditions, and other factors referred to in the Company's 1996 Annual
Report on Form 10-K under "Information Regarding Forward Looking Statements".
RESULTS OF OPERATIONS
Net sales for the quarter ended June 30, 1997 were $194.8 million, a decrease of
1% from $196.6 million for the quarter ended June 30, 1996. During the third
quarter of fiscal 1997, comparable store sales declined 3%, approximately 1% was
due to the temporary closure of the Company's highest volume store in Beverly
Hills, California. The store was closed in June for expansion and remodeling,
and will reopen in August 1997 in the Company's new Audio/ Video Exposition
store format. This decrease in sales was partially offset by sales related to
the increase in the total number of stores in operation from 74 at June 30, 1996
to 75 at June 30, 1997. On a year-to-date basis, net sales for the period ended
June 30, 1997 decreased 4% to $686.5 million, compared to $713.7 million during
the same period in 1996. Comparable store sales decreased 9% for the nine months
ended June 30, 1997. The Company believes the decrease correlates with the
general slowdown in demand for consumer electronics.
Gross profit as a percentage of net sales was 25.5% and 25.3% for the quarter
and nine months ended June 30, 1997, respectively, as compared to 24.2% and
23.1% for the quarter and nine months ended June 30, 1997, respectively. The
increases in gross profit percentage reflect a gross margin improvement in
virtually all product categories.
For the quarter and nine months ended June 30, 1997, selling, general and
administrative expenses were 28.8% and 26.4% of net sales, respectively,
compared to 27.0% and 22.2% for the comparable 1996 periods. These increases are
primarily due to the decline in store sales and, for the nine months ended June
30, 1997, an increase in net advertising expense.
The effective income tax expense/(benefit) rate for the quarter and nine month
periods ended June 30, 1997 were (37.5%) and (37.1%) respectively, compared with
(40.3%) and 40.3% for the six and nine month periods in the prior fiscal year.
The 1997 income tax benefit was reduced by the California net operating loss
carryforward limitations.
8
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The net loss for the quarter ended June 30, 1997 was $4.1 million ($.30 per
share) or 2.1% of net sales. These results compare to a net loss of $3.4 million
($0.25 per share) or 1.7% of net sales for the same period last year. For the
nine months ended June 30, 1997 the net loss was $5.5 million ($.40 per share)
or 0.8% of net sales, compared to net income of $3.6 million ($0.26 per share)
or 0.5% of net sales for the same period last year
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had working capital of $63.1 million. Net cash
used in operating activities was $5.5 million for the nine months ended June 30,
1997, compared to $1.4 million for the nine months ended June 30, 1996. The
increase in net cash used in operating activities was primarily due to the net
loss.
Net cash used in investing activities, which primarily consists of expenditures
for stores, distribution facilities and administrative property and equipment,
was $3.8 million for the nine months ended June 30, 1997 as compared to $5.7
million during the same period last year. This decrease was attributable to the
decrease in the number of stores opened; for the period ending June 30, 1997,
one store opened and one store remodeled, compared to 10 stores opened during
the same period for the previous year. The Company continues to identify stores
for remodeling to the new Audio/ Video Exposition format. In addition to the
Beverly Hills store, the Hayward store closed in July for expansion and
remodeling and will reopen in the fall as the first Audio/ Video Exposition
store in Northern California.
The Company maintains a revolving line of credit of up to $50 million. 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, 1997 the Company was in compliance with or received waivers for each of
these covenants. There were no borrowings outstanding under the credit agreement
at June 30, 1997.
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 September 7, 1995, the Company was 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, Sacramento County Superior Court. 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 claims to have purchased any computer
monitors from the Company. After extended settlement negotiations,
the Company has agreed to participate in a settlement between
plaintiffs and most of the manufacturers, wholesalers and retailers
named as defendants in the cases. The settlement, to which the
Company agreed to contribute a nominal amount, has been preliminarily
approved by the Court and is pending final approval.
On December 30, 1996, Geoffrey H. Gilbert and Bay Area Telecom, Inc.
filed a complaint against the Company and nine other named defendants
entitled Gilbert v. Bay Area Cellular Telephone Company, et al., San
Francisco Superior Court No. 983598. This case was dismissed with
prejudice as to the Company pursuant to a settlement agreement dated
June 10, 1997, under which the Company agreed to contribute a nominal
amount.
In November 1995, the Company was named as a defendant in an action
captioned as Littau et al. v. Circuit City, et al., No. 973978, San
Francisco Superior Court. The other defendants are Circuit City
Stores West Coast, Inc., Sears Roebuck & Co., Tandy Corp., Fry's
Electronics, Inc., Best Buy Co., Inc., and CompUSA, Inc. Plaintiffs'
Complaint, which is styled as a class action, alleges that the
Company has engaged in false advertising and unfair competition in
violation of the California Business and Professions Code and the
California Consumer Legal Remedies Act in the manner in which it has
advertised personal computers sold with pre-installed, "bundled"
software. Plaintiffs' primary allegation is that the Company's
advertisements overstated the value of this software. Plaintiffs seek
injunctive relief, restitution therefore, special damages, and
attorneys' fees. A class settlement, which would have an immaterial
impact on the Company, is very close to being finalized. No
substantial discovery has been taken in the case, and we cannot make
any prediction as to the likely outcome of the matter if the class
settlement were not to be concluded.
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)
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
10
<PAGE> 11
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, 1997 /s/ DENNIS C. CARROLL
- --------------- ------------------------
Date Dennis C. Carroll
Chief Financial Officer
11
<PAGE> 12
EXHIBIT INDEX
NUMBER DESCRIPTION PAGE
11.1 Statement of Computation of 13
earnings (loss) per share
27.1 Financial Data Schedule
12
<PAGE> 1
EXHIBIT 11.1
THE GOOD GUYS, INC. AND SUBSIDIARY
STATEMENT SETTING FORTH COMPUTATION
OF EARNINGS (LOSS) PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
--------- ---------
<S> <C> <C>
Net income (loss) $ (4,146) $ (3,434)
1. As presented in the 10-Q:
Shares used in per share computation 13,620 13,476
Net income (loss) per common share and common share equivalents $ (0.30) $ (0.25)
========= =========
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) 13,620 13,476
Stock options(B) 22 81
--------- ---------
Total 13,642 13,557
Primary earnings (loss) per share $(0.30) $(0.25)
--------- ---------
b) Fully diluted earnings (loss)
per share
Weighted average number of shares:
Common stock(A) 13,620 13,476
Stock options(B) 22 81
--------- ---------
Total 13,642 13,557
Fully diluted earnings (loss) per share $(0.30) $(0.25)
========= =========
(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.
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 12,700
<SECURITIES> 0
<RECEIVABLES> 25,840
<ALLOWANCES> 1,904
<INVENTORY> 142,565
<CURRENT-ASSETS> 184,735
<PP&E> 114,097
<DEPRECIATION> 55,834
<TOTAL-ASSETS> 245,475
<CURRENT-LIABILITIES> 121,587
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 123,874
<TOTAL-LIABILITY-AND-EQUITY> 245,475
<SALES> 194,834
<TOTAL-REVENUES> 194,834
<CGS> 145,094
<TOTAL-COSTS> 145,094
<OTHER-EXPENSES> 56,166
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 208
<INCOME-PRETAX> (6,634)
<INCOME-TAX> (2,488)
<INCOME-CONTINUING> (4,146)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,146)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
