<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 December 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
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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 13,614,245 shares of common stock, outstanding as of January
31, 1997.
<PAGE> 2
THE GOOD GUYS, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets as of
December 31, 1996 (Unaudited) and
September 30, 1996 (Unaudited) 3
Consolidated Statements of Operations
for the Three Month Periods Ended
December 31, 1996 and 1995 (Unaudited) 4
Consolidated Statement of Changes in
Shareholders' Equity for the Three Month
Period Ended December 31, 1996 (Unaudited) 5
Consolidated Statements of Cash Flows
for the Three Month Periods Ended
December 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
</TABLE>
2
<PAGE> 3
THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32,094 $ 21,965
Accounts receivable, net 33,300 21,601
Income taxes receivable 5,964 8,372
Merchandise inventories 155,800 123,802
Prepaid expenses 7,520 6,613
------------ ------------
Total current assets 234,678 182,353
Property and equipment 110,385 111,284
Less accumulated depreciation and amortization 51,999 49,614
------------ ------------
Property and equipment, net 58,386 61,670
Other assets 2,017 1,992
------------ ------------
Total assets $ 295,081 $ 246,015
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 98,007 $ 73,531
Accrued expenses and other liabilities:
Payroll 14,136 12,630
Sales taxes 10,467 5,447
Other 42,246 25,139
------------ -----------
Total current liabilities 164,856 116,747
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,
13,419,362 shares and
13,554,862 shares, respectively. 13 14
Additional paid-in capital 60,290 61,298
Retained earnings 69,922 67,956
------------ -----------
Total shareholders' equity 130,225 129,268
------------ -----------
Total liabilities and shareholders' equity $ 295,081 $ 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
Ended December 31,
----------------------------
1996 1995
------------ -----------
<S> <C> <C>
Net sales 286,565 306,715
Cost of sales 214,870 236,955
------------ -----------
Gross profit 71,695 69,760
Selling, general and
administrative expenses 68,176 58,439
------------ -----------
Income from operations 3,519 11,321
Interest expense, net 242 45
------------ -----------
Income before income taxes 3,277 11,276
Income taxes 1,311 4,548
------------ -----------
Net income $ 1,966 $ 6,728
============ ===========
Net income
per common share $ .15 $ .50
============ ===========
Weighted average shares 13,464 13,581
============ ===========
</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 THREE-MONTH PERIOD ENDED DECEMBER 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, 1996 13,554,862 $ 14 $ 61,298 $ 67,956 $ 129,268
Net income -- -- -- 1,966 1,966
Repurchase and
retirement of
common stock (135,500) (1) (1,008) -- (1,009)
----------- ----------- ----------- ----------- -----------
Balance at
December 31, 1996 13,419,362 $ 13 $ 60,290 $ 69,922 $ 130,225
=========== =========== =========== =========== ===========
</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>
Three Months Ended
December 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,966 $ 6,728
------------ ------------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 2,421 2,264
Change in assets and liabilities:
Accounts receivable (11,699) (21,273)
Income taxes receivable 2,408 15
Merchandise inventories (31,998) (53,019)
Prepaid expenses and other assets (932) 1,656
Accounts payable 24,476 51,123
Accrued expenses and other liabilities 23,632 17,963
------------ ------------
Total adjustments 8,308 (1,271)
------------ ------------
Net cash provided by operating activities 10,274 5,457
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures - net of proceeds
from sale of assets 864 (72)
------------ ------------
Net cash provided by (used in) investing 864 (72)
activities
------------ ------------
Cash Flows from Financing Activities:
Repurchase and retirement of common stock (1,009) --
------------ ------------
Net cash used in financing activities (1,009) --
------------ ------------
Net increase in cash and
cash equivalents 10,129 5,385
Cash and cash equivalents at
beginning of period 21,965 18,434
------------ ------------
Cash and cash equivalents at
end of period $ 32,094 $ 23,819
============ ============
</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 months ended December 31, 1996 and 1995
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. 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 quarters ended December 31, 1996
and 1995 as the dilutive effect of the options was less than 3%.
3. The Company amended and restated its committed unsecured line of credit
agreement on December 27, 1996. The credit agreement allows borrowings of up
to $50,000,000 and includes a standby letter of credit facility. The
committed agreement allows the Company to borrow under other credit
facilities provided the sum of such other borrowings and any borrowings under
the committed credit agreement does not exceed $50,000,000. There were no
borrowings under these credit facilities at December 31, 1996.
The committed agreement provides the Company with several different borrowing
alternatives with interest rates based on the prime rate or other domestic
and international money market rates. The agreement requires maintenance of
certain financial loan covenants, including minimum tangible net worth, debt
to equity ratio, restrictions on capital expenditures and prohibits payment
of cash dividends. The Company was in compliance with each of the covenants
for the quarter ended December 31, 1996.
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 December 31, 1996 were $286.6 million, a
decrease of 7% from sales of $306.7 million for the quarter ended December 31,
1995. During the first quarter of fiscal 1997, comparable store sales declined
12% in line with the general trend experienced in the consumer electronics
industry. The decrease was partially offset by sales related to the increase
in total number of stores in operation from 70 at December 31, 1995 to 76 at
December 31, 1996.
Gross profit as a percentage of net sales was 25.0% for the quarter ended
December 31, 1996, a 2.3 percentage point improvement overall, which represents
a gross margin improvement in all product categories.
For the quarter ended December 31, 1996, selling, general and administrative
expenses were 23.8% of net sales compared to 19.1% for the comparable fiscal
1996 period. The increase in selling, general and administrative costs as a
percentage of sales for the quarter ended December 31, 1996 is primarily due to
the decline in same store sales and an increase in net advertising expense.
The effective income tax rate for the quarter ended December 31, 1996 was 40.0%
compared with 40.3% for the same period in the prior fiscal year.
Net income for the quarter ended December 31, 1996 was $2.0 million ($0.15 per
share) or 0.7% of net sales for the period. These results compare to net income
of $6.7 million ($0.50 per share) or 2.2% of net sales for the same period in
fiscal 1996.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had working capital of $69.8 million. Net cash
provided by operating activities was $10.3 million for the three months ended
December 31, 1996, compared to $5.5 million for the three months ended December
31, 1995. The increase in net cash provided by operating activities, as compared
with the first quarter of fiscal 1996, was primarily due to a reduction in lease
financing receivables, an increase in accrued expenses, partially offset by the
decrease in net income. Net cash provided by operations also reflects the
Company's continued control over its inventory levels and corresponding accounts
payable.
Net cash provided by investing activities reflects lease financing of property
and equipment partially offset by expenditures for stores, distribution
facilities and administrative property and equipment.
On December 29, 1996, the Company amended and restated its existing $75 million
credit agreement with a new $50 million agreement, which otherwise is
substantially unchanged from the previous agreement. 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 December 31, 1996, the
Company was in compliance with all covenants under the credit agreement. There
were no borrowings outstanding under the credit agreement at December 31, 1996.
The Company expects to fund its working capital requirements and expansion plans
with a combination of cash flows from operations, normal trade credit, financing
arrangements and continued use of lease financing.
The Company believes that because of competition among manufacturers and the
technological changes in the consumer electronics industry, inflation has not
had a material 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 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. Plaintiffs have indicated that
they plan to appeal these rulings. Pending such an appeal, 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, is subject to approval by the Court.
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. The defendants include the two cellular telephone service
providers in the San Francisco Bay Area, Bay Area Cellular Telephone Company
("BACTC") and GTE Mobilnet of California Limited Partnership; several other
providers of cellular telephone service, including Airtouch Cellular Company,
Pactel Mobile Services, American Telephone & Telegraph Co., and McCaw Cellular
Company; a manufacturer of cellular telephones, Motorola, Inc.; and one other
large retail chain store, Circuit City Stores, Inc. Plaintiffs, a small agent of
BACTC offering cellular telephone products and service in the San Francisco area
and its principal owner, allege a wide variety of antitrust and fraud-related
claims against the cellular telephone service providers, including alleged
conspiracy to fix cellular telephone rates. As against the Company and the other
retailer defendant, plaintiffs allege a conspiracy to sell cellular telephone
equipment below cost with the intent to drive plaintiffs out of business, in
violation of the California Cartwright Act and Unfair Practices Act, as well as
unfair trade practices. Plaintiffs seek treble damages under the California
antitrust laws. The complaint has not yet been served on the Company, and it is
too soon to be able to express an opinion as to the likely outcome of this
matter. The Company believes it has meritorious defenses to the claims alleged
in the lawsuit and intends to defend the action vigorously if and when it is
served.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 2-5 Not Applicable
ITEM 6 Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
(a) Exhibit Description
11.1 Statement Setting Forth
Computation of Earnings Per
Share
</TABLE>
(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
February 13, 1997 /s/ DENNIS C. CARROLL
- ----------------- -------------------------------
Date Dennis C. Carroll
Chief Financial Officer
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
<S> <C> <C>
11.1 Statement Setting Forth Computation
of Earnings Per Share 14
27 Financial Data Schedule
</TABLE>
13
<PAGE> 1
EXHIBIT 11.1
THE GOOD GUYS, INC. AND SUBSIDIARY
STATEMENT SETTING FORTH COMPUTATION
OF EARNINGS PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ -----------
<S> <C> <C>
Net income $ 1,966 $ 6,728
1. As presented in the 10-Q:
Shares used in per share computation 13,464 13,581
Net income per common share
and common share equivalents $ 0.15 $ 0.50
============ ===========
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) 13,464 13,581
Stock options (B) 1 126
------------ -----------
Total 13,465 13,707
Primary earnings per share $ 0.15 $ 0.49
============ ===========
Fully diluted earnings per share
Weighted average number of
shares:
Common stock (A) 13,464 13,581
Stock options (B) 1 126
------------ -----------
Total 13,465 13,707
Fully diluted earnings per share 0.15 0.49
============ ===========
</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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 32,094
<SECURITIES> 0
<RECEIVABLES> 40,185
<ALLOWANCES> 921
<INVENTORY> 155,800
<CURRENT-ASSETS> 234,678
<PP&E> 110,385
<DEPRECIATION> 51,999
<TOTAL-ASSETS> 295,081
<CURRENT-LIABILITIES> 164,856
<BONDS> 0
13
0
<COMMON> 0
<OTHER-SE> 130,212
<TOTAL-LIABILITY-AND-EQUITY> 295,081
<SALES> 286,565
<TOTAL-REVENUES> 286,565
<CGS> 214,870
<TOTAL-COSTS> 214,870
<OTHER-EXPENSES> 68,176
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 242
<INCOME-PRETAX> 3,277
<INCOME-TAX> 1,311
<INCOME-CONTINUING> 1,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,966
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
