<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended September 30, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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 or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
7000 Marina Boulevard, Brisbane, California 94005-1840
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 615-5000
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $74,698,288 as of December 18, 1998.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
On December 18, 1998, there were 14,250,218 shares of common stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Annual Report to Shareholders for fiscal year ended
September 30, 1998. (Part II of Form 10-K)
(2) Portions of definitive proxy statement filed with Securities and
Exchange Commission relating to the Company's 1999 Annual
Meeting of Shareholders. (Part III of Form 10-K)
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PART I
ITEM 1. BUSINESS
General
THE GOOD GUYS! is a leading specialty retailer of consumer electronics
products. The Company currently operates 79 stores: In California, 20 stores are
located in the San Francisco Bay area, 27 in the greater Los Angeles/Orange
County metropolitan area, 3 in Sacramento, 7 in San Diego, and one each in
Bakersfield, Fresno, Modesto and Stockton. In Washington, Oregon and Nevada, THE
GOOD GUYS! operates nine stores, five stores and four stores, respectively.
The Good Guys, Inc. was incorporated in California in 1976. On March
4, 1992, the Company changed its state of incorporation from California to
Delaware by merging into a wholly-owned Delaware subsidiary formed for that
purpose. In September 1995, The Good Guys, Inc. transferred substantially all of
its assets and liabilities to The Good Guys - California, Inc., its wholly-owned
operating subsidiary. Unless the context otherwise requires, the terms "THE GOOD
GUYS!" and "Company" refer to The Good Guys, Inc., together with its operating
subsidiary.
Information Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides
companies with a "safe harbor" when making forward-looking statements.
Statements of the Company that are not historical facts, including statements
about management's expectations for fiscal year 1999 and beyond, are
forward-looking statements and involve certain risks and uncertainties. Factors
that could cause the Company's actual results to differ materially from
management's projections, forecasts, estimates and expectations include, but are
not limited to, the following:
(a) Demand for the Company's products, which in turn is dependent upon
factors such as economic trends, the availability of consumer credit,
the introduction and acceptance of new products and new product
features, and the continued popularity of existing products.
(b) Changes in the amount of promotional activities of current
competitors and potential new competition from both retail stores and
alternative methods of distribution such as electronic and telephone
shopping services and mail order.
(c) Changes in the Company's product mix.
(d) The Company's ability to continue to locate suitable store sites
and to hire and train skilled personnel.
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(e) Changes in the cost of the Company's advertising or in the support
received from vendors for advertising and promotional programs.
(f) The ability of the Company to achieve economies of scale in its
advertising.
(g) Changes in availability of capital expenditure, working capital
and credit card financing.
(h) Availability of sources of supply for the products the Company
desires to sell.
(i) Adoption of new laws or regulations placing restrictions on the
sale of products and/or services by the Company.
(j) Adverse results in significant litigation matters.
(k) Risks associated with Year 2000 issues.
Business Strategy
THE GOOD GUYS! goal is to be a leading specialty retailer of consumer
electronics products in each of its markets. The cornerstones of its business
strategy include:
Differentiated customer service. THE GOOD GUYS! believes that superior
service is the single most important factor in overall customer satisfaction,
and that the Company differentiates itself from other consumer electronics
retailers by providing superior service to its shoppers. The Company believes
that friendly and knowledgeable sales associates are critical to satisfying
customers interested in more fully featured, middle to high-end consumer
electronics products. The Company's objective is to generate long-term repeat
business from its customers.
Merchandising. The Company's merchandising strategy is to provide
shoppers with a broad and compelling selection of brand name consumer
electronics products, with an emphasis on more fully featured merchandise.
Merchandise is offered at competitive prices and backed by a low price
guarantee.
Marketing. The Company aggressively uses newspaper, direct mail and
broadcast advertising to build name recognition, to position THE GOOD GUYS! in
its markets, and to increase store traffic. Stores are designed to be exciting
and easy to shop and are located in high visibility and high traffic commercial
areas.
Expansion. The Company plans to continue to expand its store base.
Successful expansion will depend, among other things, on the Company's ability
to continue to locate suitable store sites and to hire and train skilled
personnel. It will also depend on the Company's ability to open new stores
quickly in existing markets,
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to achieve economies of scale in advertising and distribution, and to continue
to gain market share from established competitors.
Customer Service
The Company believes that knowledgeable and friendly sales associates
are critical to providing superior customer service. As of September 30, 1998,
the Company had over 2,590 highly trained part-time and full-time sales
associates. Sales associates are paid under an incentive compensation program
with a salary guarantee that is applied against incentives earned. Incentives
are based on the gross profit realized, the amount of "repeat" business the
sales associate generates, performance against sales goals and peer ranking,
which evaluates a number of performance standards. The Company believes this
incentive structure creates long-term repeat customers for THE GOOD GUYS!.
All sales associates attend a full-time, in-house initial training
program. The Company's training program is continually updated and is designed
to develop good sales practices and techniques and to provide associates with
the knowledge base to explain and demonstrate to shoppers the use and operation
of store merchandise. This training enables associates to better understand
customer needs and to help them select products that meet those needs.
The Company holds training meetings daily at each store to keep sales
associates trained and focused on the principles of superior customer service,
Company procedures and policies, and to update them on competitive information,
current product introductions, product availability and pricing. Manufacturers
also conduct in-store training sessions to familiarize sales associates with
existing and new products.
The Company hosts a product show annually. All associates attend the
product show and are required to participate in training sessions focused on
product knowledge and selling skills. Manufacturers are in attendance with
product displays and are available to answer questions. Additionally, regional
training workshops are conducted twice a year to enhance the sales associates'
product knowledge. These sessions are conducted by a combination of
manufacturers, corporate trainers and the corporate buyers. Customer service and
sales techniques are also incorporated into these training workshops.
The Company's satisfaction guaranteed policy provides that a product
generally may be returned within 30 days of purchase for a full refund or in
exchange for another product. When purchasing a product from the Company,
customers may elect to purchase a Premier Performance Guarantee under which a
third party provides extended service coverage beyond the period covered by the
manufacturer's warranty.
All merchandise purchased from THE GOOD GUYS! and in need of repair
may be returned to any of the Company's stores for service. Such merchandise is
sent to either a Company-operated or an independent factory authorized repair
facility and is returned to the store after repair. The Company has its own
regional service
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facilities, which service all of its stores. The Company also operates car audio
and car cellular phone installation facilities at almost all of its locations.
The majority of the Company's sales are made through credit cards. The
Company currently honors MasterCard, VISA, American Express and various other
credit cards, as well as THE GOOD GUYS! "Preferred Customer Card" issued by an
independent third party. Because of the relatively high cost of many of the
consumer electronics products sold by the Company, its business could be
affected by consumer credit availability.
The Company places emphasis on developing the managerial skills of its
employees in order to provide a source of quality management personnel for
current and future stores. The Company has been able to fill most sales
managerial positions by promoting sales associates and, similarly, to fill most
store management positions by promoting sales managers.
Merchandising
The Company offers its customers a broad range of high quality
consumer electronics products supplied primarily by manufacturers of nationally
known brands. This selection comprises approximately 4,600 products from over
240 vendors and is intended to cover all of the popular price points within each
product category.
The following table shows the approximate percentage of sales for each
major product category for the last three fiscal years. Historical percentages
may not be indicative of percentages in future years.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
Category 1998 1997 1996
- -------- ---- ---- ----
<S> <C> <C> <C>
Video 41% 38% 39%
Audio and cellular phones 30% 30% 29%
Home office 17% 19% 20%
Other (accessories, repair service,
and premier performance guarantee) 12% 13% 12%
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
For the year ended September 30, 1998, the Company's three
leading suppliers for video products were, in alphabetical order, Mitsubishi,
Panasonic and Sony and for audio and cellular products were, in alphabetical
order, AIWA, Sony and Yamaha. The three leading suppliers of home office
products were, in alphabetical order, Hewlett Packard, Panasonic, and Sony.
Marketing
The Company believes that its advertising activities have
resulted in significant name recognition in its markets and have increased the
number of qualified potential customers visiting its stores. The Company's
advertising vehicles include newspaper, direct mail and broadcast.
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All of the Company's print and direct mail advertisements are
created, produced and placed by the Company's advertising staff. The Company
believes that the use of its own personnel maximizes its control over
advertising effectiveness, increases its flexibility, allows quick response to
changing market conditions, and enables it to purchase media on advantageous
terms.
The Company's advertisements promote the Company as an
"audio-video specialist" and emphasize competitive prices, extensive selection,
and superior customer service from knowledgeable sales associates.
Expansion
The Company has grown from 7 to 79 stores since the end of fiscal
1985 and has expanded its store base at a compound rate of approximately 11% per
year over the past five years. In fiscal 1998, The Good Guys! opened an
Audio/Video Exposition-enhanced WOW! store in Glendale, California, the third
WOW! concept store. The Company in November 1998 and December 1998 opened its
fourth and fifth WOW! concept stores as Audio/Video Exposition-Enhanced WOW!
stores in Laguna Hills and San Mateo, California (replacing an existing store in
San Mateo). In December 1998, the Company also opened a new Audio/Video
Exposition store in Palo Alto, California.
The Company in fiscal 1998 introduced its new Audio/Video
Exposition format in its newly remodeled Arden, Concord, Hayward, and Stonestown
stores in California, as discussed in the Store Operations section below. In
calendar 1999, the Company intends to renovate at least six existing stores to
the Audio/Video Exposition concept.
Store Operations
The Company's stores range in size from approximately 9,000 to
32,000 square feet. Most of the newer stores reflect the ongoing evolution in
the Company's store design and are approximately 25,000 to 30,000 square feet in
size. All of the Company's stores are located in high visibility, high traffic
commercial areas and are open seven days a week, including most holidays.
On November 1, 1996, the Company introduced its Audio/Video
Exposition store design. The Audio/Video Exposition format provides greater
merchandising flexibility and connectivity between existing categories of
product, featuring hands-on demonstrations of product interactivity throughout
the store and a central area for customers to meet with sales consultants to
design system solutions for their homes. The Company expects the Audio/Video
Exposition concept to be the cornerstone of its expansion and renovation
program. The Company currently has 11 Audio/Video Exposition stores and has
identified and is initiating additional store relocations/renovations using that
concept.
The Company opened its third, fourth and fifth WOW! MULTIMEDIA
SUPERSTORES in Glendale, Laguna Hills and San Mateo, California in May, November
and December of 1998, respectively, all of which incorporate the Audio/Video
Exposition format. These concept stores, which are jointly operated with
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Tower Records, provide the same full range of consumer electronics offered at
all THE GOOD GUYS! stores, as well as a full range of music, video, computer
software and magazines offered by Tower Records. THE GOOD GUYS! occupies
approximately 32,000 square feet in each of the WOW! stores.
Each store generally has one store manager, three sales managers
and an operations manager. The store manager oversees the store's operations and
the sales managers supervise the sales associates. Sales associates are
specialized by product category. Sales associates handle all aspects of the
customer interface: providing customers with the information necessary to
determine the best product for their specific need, tendering the invoice and
handling the payment, and bringing the goods from the stockroom to the customer.
Store operations are overseen by a senior management team which
holds frequent meetings with the store managers. Merchandising and store
operation policies for all stores are established by senior management.
Distribution
The Company operates a 460,000 square foot operations center in
Hayward, California, which has the capacity to handle deliveries to more than
100 stores in the western United States. Deliveries are generally made to each
store six or seven days a week, as ordered by the Company's automated
replenishment system. The Company believes that this frequency of delivery
maximizes availability of merchandise at the stores while minimizing store level
and overall inventories.
Management Information Systems
The Company's management information system is a distributed,
on-line network of computers that links all stores, delivery locations, service
centers, credit providers, the distribution facility and the corporate offices
into a fully integrated system. Each store has its own system which allows store
management to track sales and inventory at the product, customer or sales
associate level. The Company's point of sale system allows the capture of sales
data and customer information and allows the tracking of merchandising trends
and inventory levels on a daily basis. Management believes that its current
systems are adequate to support THE GOOD GUYS! anticipated growth.
Competition
The business of the Company is highly competitive. The Company
competes primarily with other specialty stores, independent electronics and
appliance stores, department stores, mass merchandisers, discount stores and
catalog showrooms. To some extent, the Company also competes with drugstores,
supermarkets and others that make incidental sales of electronics products.
Competitors of the Company include Circuit City Stores, Best Buy, Sears,
Montgomery Ward, Target, several smaller electronics chains and independent
stores.
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The Company's strategy is to compete by being a value-added
retailer, offering a broad selection of top national brand name merchandise sold
at competitive prices by a friendly, knowledgeable and motivated team of
associates.
Seasonality
As is the case with many other retailers, the Company's sales are
higher during the Christmas season than during other periods of the year.
Employees
At September 30, 1998, the Company employed approximately 5,000
persons, of whom 686 were salaried, 1,681 were hourly non-selling associates and
2,590 were salespeople on commission against a minimum guarantee. At September
30, 1998, approximately 285 of its employees were employed in the Company's
executive offices; the balance were employed in its stores, distribution center,
home delivery center, and service centers. There are no collective bargaining
agreements covering any of the Company's employees. The Company has never
experienced a strike or work stoppage and management believes that relations
with its employees are excellent.
Trademarks and Service Marks
The Company has registered the name "THE GOOD GUYS!" as a
trademark with the United States Patent and Trademark Office and the State of
California. Federal registration of the trademark extends through 2000 and is
renewable indefinitely. The Company has registered "THE GOOD GUYS!" as a service
mark through 1999, which is renewable indefinitely. The Company's name is an
integral part of its advertising and is important to its business. The Company's
Federal trademark application for the WOW! trademark has been approved for
publication by the U.S. Patent and Trademark Office and it is expected that the
registration for the trademark will be issued in early 1999.
ITEM 2. PROPERTIES
Of the Company's stores in California, 20 are located in the San
Francisco Bay area, 27 in the greater Los Angeles/Orange County metropolitan
area, 3 in Sacramento, 7 in San Diego; and one each in Bakersfield, Fresno,
Modesto and Stockton, California. In addition, THE GOOD GUYS! operates 9 stores
in the State of Washington, 5 stores in Oregon and 4 stores in Nevada. All of
the stores are leased under leases that have expiration dates (assuming that
lease options are exercised) in years ranging from 1999 to 2033.
The Company's operations center is located in a 460,000 square
foot facility in Hayward, California under a lease, the term of which expires
(assuming that lease options are exercised) in 2011.
The Company also maintains executive offices in Brisbane,
California at 7000 Marina Boulevard under a lease, the term of which expires
(assuming that lease options are exercised) in 2004.
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ITEM 3. LEGAL PROCEEDINGS
On July 19, 1996, McBride-Newell, Inc. dba Carphones, Inc. and
numerous other individuals and entitled McBride-Newell, Inc., et al. v.
Mobilworks, Inc. et al., San Diego Superior Court Case No. 695897. Plaintiffs,
who are small agents of the cellular service providers offering cellular
telephone products and service in the San Diego area, alleged a conspiracy to
sell cellular telephone equipment below cost with the intent to drive the
plaintiffs out of business. Plaintiffs could treble damages under the California
antitrust laws. This case was settled in November 1998 for an amount that is not
material to the financial condition of the Company.
On or about July 22, 1996, Joe Quattrini dba Sand Canyon Cellular
and numerous other individuals and entities filed a complaint against the
Company and 20 other named defendants entitled Quattrini, et al. v. Pana-Pacific
Corp., et al., Orange County Superior Court Case No. 766649. Plaintiffs, who are
small agents or subagents of the cellular service providers offering cellular
telephone products and service in the Orange County area, allege a conspiracy to
sell cellular telephone equipment below cost with the intent to drive plaintiffs
out of business. Plaintiffs seek treble damages under the California antitrust
laws. The Company believes it has meritorious defenses to the claims alleged in
the lawsuit and intends to defend the action vigorously.
The Company was named in July of this year as a defendant in an
action entitled Cavnar, et al. v. National Semiconductor Corp., et al., No.
996297, San Francisco Superior Court, along with many other defendants.
Plaintiffs' Complaint is styled as a class action and the primary allegation
involving the Company is that the Company's advertisements have misrepresented
the amount of random access memory in certain computers that is available for
programming and processing applications. The Company believes it has meritorious
defenses to the claims alleged in the suit as well as meritorious claims for
indemnification from the computer manufacturers from which it has purchased
personal computers. The Company intends to defend the action, and pursue its
indemnification claims, vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company and their respective ages
and positions with the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert A. Gunst 50 President and Chief Executive Officer
Jayne Spiegelman 43 Senior Vice President, Merchandising and
Marketing
</TABLE>
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<TABLE>
<S> <C> <C>
Dennis C. Carroll 39 Senior Vice President, Finance and
Administration, Chief Financial Officer and
Secretary
Kevin M. McNeill 45 Vice President, Sales
Gregory L. Steele 51 Vice President, Real Estate and
Development
John G. Duken 38 Vice President, Operations
Cathy A. Stauffer 39 Vice President, Quality
Brad S. Bramy 46 Vice President, Advertising
Geradette M. Vaz 45 Vice President, Human Resources
</TABLE>
All executive officers are elected by and serve at the discretion
of the Board of Directors.
Robert A. Gunst became the President and Chief Operating Officer
of the Company in May 1990 and its Chief Executive Officer in January 1993.
Jayne Spiegelman joined the Company in August 1997 as Vice
President of Merchandising and became Senior Vice President, Merchandising and
Marketing in May 1998. From 1995 to 1997, Ms. Spiegelman was a Strategy Senior
Consultant with Andersen Consulting, serving retail clients worldwide. Prior to
joining Andersen Consulting, Ms. Spiegelman served in a variety of senior
merchandising management positions at Federated Department Stores and Macy's
West.
Dennis C. Carroll, who had served as controller of the Company
from 1990 to 1993, rejoined the Company as Vice President, Chief Financial
Officer and Secretary in May 1996. In September 1997, Mr. Carroll was named
Senior Vice President, Finance and Administration and retained his position as
Chief Financial Officer and Secretary. Mr. Carroll served as Vice President and
Chief Financial Officer of Beverages, & more!, a specialty retailer, from
February 1994 to April 1996 and as Vice President, Controller and Treasurer of
Supercuts, Inc., an owner and franchisor of hair salons, from May 1993 to
January 1994.
Kevin M. McNeill became Vice President, Sales in April 1997. From
1981 until April 1997, Mr. McNeill served the Company in various positions in
the store organization.
Gregory L. Steele has served as Vice President, Real Estate and
Development since April 1986.
John G. Duken joined the Company in September 1993 as General
Manager of Store Operations and was named Vice President, Store Operations in
June 1994. In July 1997, Mr. Duken was named Vice President, Operations. From
June 1988 to August 1993 he held several positions with Circuit City Stores,
Inc., including
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Divisional Operations Manager of the Northern California Division and General
Operations Manager of the Midwest Division.
Cathy A. Stauffer became Vice President, Quality in August 1997.
From January 1989 to April 1993, Ms. Stauffer served as Vice President,
Advertising of the Company. She returned to the Company as a consultant in
January 1997 and was named Vice President, Quality in August 1997.
Brad S. Bramy was named Vice President, Advertising in May 1995.
Prior to holding this position, Mr. Bramy served in various positions in the
advertising department since joining the Company in 1983.
Geradette M. Vaz has served as Vice President, Human Resources
since July 1986.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
Incorporated by reference from page 24 of the Company's 1998
Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from page 13 of the Company's 1998
Annual Report to Shareholders. The following chart details the basic and diluted
earnings per share for each of the last five fiscal years:
<TABLE>
<S> <C> <C> <C> <C> <C>
Net income (loss) per share 1998 1997 1996 1995 1994
-0.64 -0.89 -0.46 1.06 1.06
-0.64 -0.89 -0.46 1.04 1.03
Weighted average shares
outstanding
Basic 14,012 13,676 13,576 13,427 13,164
Diluted 14,012 13,676 13,576 13,603 13,434
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference from pages 10 through 12 of the
Company's 1998 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from pages 14 through 23 of the
Company's 1998 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to directors of the Company required to
be furnished pursuant to this item is incorporated by reference from portions of
the Company's definitive Proxy Statement for its annual meeting of shareholders
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A within 120 days after September 30, 1998 (the "Proxy Statement") under the
caption "Election of Directors." Certain information relating to executive
officers of the Company is set forth in Item 4A of Part I of this Form 10-K
under the caption "Executive Officers of Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from portions of the Proxy Statement
under the captions "Compensation of Directors and Executive Officers" and
"Certain Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from portions of the Proxy Statement
under the captions "Certain Shareholders" and "Compensation of Directors and
Executive Officers."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from portions of the Proxy Statement
under the caption "Compensation of Directors and Executive Officers" and
"Certain Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS
Included in Part II of this report by incorporation by
reference from the 1998 Annual Report to Shareholders:
Independent Auditors' Report (page 23 of the 1998
Annual Report to Shareholders)
Consolidated statements of operations for each of
the three years in the period ended September 30,
1998 (page 15 of the 1998 Annual Report to
Shareholders)
Consolidated balance sheets as of September 30,
1998 and 1997 (page 14 of the 1998 Annual Report
to Shareholders)
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Consolidated statements of shareholders' equity
for each of the three years in the period ended
September 30, 1998 (page 16 of the 1998 Annual
Report to Shareholders)
Consolidated statements of cash flows for each of
the three years in the period ended September 30,
1998 (page 17 of the 1998 Annual Report to
Shareholders)
Notes to consolidated financial statements (pages
18 through 22 of the 1998 Annual Report to
Shareholders)
(a)2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not required (in some
cases because the information is not material), or are not
applicable, or the information is included in the financial
statements.
(a)3. EXHIBITS
<TABLE>
<S> <C>
3.1 Certificate of Incorporation. (Exhibit 3.1 to the Company's Form 8-K
Report for March 4, 1992; incorporated herein by reference.)
3.2 Bylaws. (Exhibit 3.2 to the Company's Form 8-K Report for March 4,
1992; incorporated herein by reference.)
10.1 1985 Stock Option Plan, as amended.* (Exhibit 10.1 to the Company's
Form 10-K Annual Report for the fiscal year ended September 30, 1998;
incorporated herein by reference.)
10.2 Form of Nonqualified Stock Option Agreements.* (Exhibit 4.3 to the
Company's Registration Statement on Form S-8 as filed on January 28,
1991, registration number 33-38749; incorporated herein by reference.)
10.3 Letter Agreement with Robert A. Gunst, dated March 30, 1990.* (Exhibit
10.14 to the Company's Form 10-K Annual Report for its fiscal year
ended September 30, 1990; incorporated herein by reference.)
10.4 Employee Stock Purchase Plan, as amended.* (Exhibit 4.1 to the
Company's Registration Statement on Form S-8 as filed on November 19,
1998, registration number 333-67545; incorporated herein by
reference).
10.5 Amended and Restated 1994 Stock Incentive Plan.* (Exhibit 10.5 to the
Company's Form 10-K Annual Report for the fiscal year ended September
30, 1997; incorporated herein by reference.)
10.6 Assignment and Assumption Agreement, dated September 26, 1995, by and
between The Good Guys, Inc. and The Good Guys - California, Inc.
</TABLE>
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*Compensatory plan or arrangement.
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<TABLE>
<S> <C>
(Exhibit 10.18 to the Company's Form 10-K Annual Report for the fiscal
year ended September 30, 1995; incorporated herein by reference.)
10.7 Form of Operating Agreement, for WOW! Stores between MTS, Inc., dba
Tower Records/Book/Video, and The Good Guys, Inc., used in connection
with all existing WOW! stores. (Exhibit 10.20 to the Company's Form
10-K Annual Report for the fiscal year ended September 30, 1995;
incorporated herein by reference.)
10.8 Loan Agreement between the Good Guys-California, Inc. and Wells Fargo
Bank, National Association, as Agent, dated as of September 29, 1997.
Exhibit 10.8 to the Company's Form 10-K Annual Report for the fiscal
year ended September 30, 1997; incorporated herein by reference.)
10.9 Letter Agreement with Jayne Spiegelman, dated August 15, 1997.*
13.1 Annual Report to Shareholders for fiscal year ended September 30, 1998
(pages incorporated by reference).
21.1 List of Subsidiaries.
23.1 Independent Auditors' Consent.
24.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K for the quarter ended September
30, 1998.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: December 22, 1998 THE GOOD GUYS, INC.
By /s/ ROBERT A. GUNST
--------------------------------------
Robert A. Gunst
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ ROBERT A. GUNST Director, President and December 22, 1998
- ---------------------------- Chief Executive Officer
(Robert A. Gunst) (Principal Executive Officer)
/s/ DENNIS C. CARROLL Senior Vice President, December 22, 1998
- ---------------------------- Finance and Administration,
(Dennis C. Carroll) and Chief Financial Officer
(Principal Financial Officer)
/s/ VANCE SCHRAM Controller (Principal December 22, 1998
- ---------------------------- Accounting Officer)
(Vance Schram)
/s/ STANLEY R. BAKER* Director December 22, 1998
- ----------------------------
(Stanley R. Baker)
/s/ RUSSELL M. SOLOMON Director December 22, 1998
- ----------------------------
(Russell M. Solomon)
/s/ JOHN E. MARTIN* Director December 22, 1998
- ----------------------------
(John E. Martin)
/s/ W. HOWARD LESTER* Director December 22, 1998
- ----------------------------
(W. Howard Lester)
/s/ HORST H. SCHULZE* Director December 22, 1998
- ----------------------------
(Horst H. Schulze)
*By /s/ DENNIS C. CARROLL
-------------------------
Dennis C. Carroll,
Attorney-in-Fact
</TABLE>
-16-
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Certificate of Incorporation. (Exhibit 3.1 to the Company's Form 8-K
Report for March 4, 1992; incorporated herein by reference.)
3.2 Bylaws. (Exhibit 3.2 to the Company's Form 8-K Report for March 4,
1992; incorporated herein by reference.)
10.1 1985 Stock Option Plan, as amended. (Exhibit 10.1 to the Company's
Form 10-K Annual Report for the fiscal year ended September 30, 1998;
incorporated herein by reference.)
10.2 Form of Nonqualified Stock Option Agreements. (Exhibit 4.3 to the
Company's Registration Statement on Form S-8 as filed on January 28,
1991, registration number 33-38749; incorporated herein by reference.)
10.3 Letter Agreement with Robert A. Gunst, dated March 30, 1990. (Exhibit
10.14 to the Company's Form 10-K Annual Report for its fiscal year
ended September 30, 1990; incorporated herein by reference.)
10.4 Employee Stock Purchase Plan, as amended. (Exhibit 4.1 to the
Company's Registration Statement on Form S-8 as filed on November 19,
1998, registration number 333-67545; incorporated herein by
reference).
10.5 Amended and Restated 1994 Stock Incentive Plan. (Exhibit 10.5 to the
Company's Form 10-K Annual Report for the fiscal year ended September
30, 1997; incorporated herein by reference.)
10.6 Assignment and Assumption Agreement, dated September 26, 1995, by and
between The Good Guys, Inc. and The Good Guys - California, Inc.
(Exhibit 10.18 to the Company's Form 10-K Annual Report for the fiscal
year ended September 30, 1995; incorporated herein by reference.)
10.7 Form of Operating Agreement, for WOW! Stores between MTS, Inc., dba
Tower Records/Book/Video, and The Good Guys, Inc., used in connection
with all existing WOW! stores. (Exhibit 10.20 to the Company's Form
10-K Annual Report for the fiscal year ended September 30, 1995;
incorporated herein by reference.)
10.8 Loan Agreement between the Good Guys-California, Inc. and Wells Fargo
Bank, National Association, as Agent, dated as of September 29, 1997.
Exhibit 10.8 to the Company's Form 10-K Annual Report for the fiscal
year ended September 30, 1997; incorporated herein by reference.)
10.9 Letter Agreement with Jayne Spiegelman, dated August 15, 1997.
13.1 Annual Report to Shareholders for fiscal year ended September 30, 1998
(pages incorporated by reference).
21.1 List of Subsidiaries.
</TABLE>
-17-
<PAGE> 18
<TABLE>
<S> <C>
23.1 Independent Auditors' Consent.
24.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
-18-
<PAGE> 1
EXHIBIT 10.9
[THE GOOD GUYS! LETTERHEAD]
August 15, 1997
Jayne Spiegelman
61 Catalpa Drive
Atherton, CA 94027
Dear Jayne:
I am very pleased to present you with an offer of employment for the
position of Senior Vice President, Merchandising of THE GOOD GUYS! I believe
the professional and personal skills that you will bring to the Company, along
with the experience that you've gained, will well serve our company.
Your initial base salary will be at a rate of $300,000 per year. Our
present practice is for the Compensation Committee of the Board of Directors to
review Officers' pay and performance as of the end of each fiscal year, making
you first eligible for a salary review a our November 1998 Board Meeting.
Salary increases, if granted by the Board, have generally been effective
retroactive to October 1st.
As a Senior Vice President of the Company, you will be eligible during
your employment to participate in the Fiscal 1998 Management Bonus Plan. This
plan will be targeted in your case to pay a bonus equal to 40% of base salary
should the Company achieve 100% of its established goal.
You will upon commencement of your employment also receive a non-qualified
option to purchase 20,000 shares of THE GOOD GUYS! stock which will be granted
in accordance with the 1994 Stock Incentive Plan. The exercise price of this
option will be equal to the fair market value of the Company's stock at the
close of the market on your first day of employment.
<PAGE> 2
Jayne Spiegelman
August 15, 1997
Page Two
Your medical benefits will become effective the first of the month
following employment. Additionally, you will be eligible during your employment
to participate in all of the benefits programs available to associates of THE
GOOD GUYS! as described in the summary information which you have already
received. As an Officer of the Company, you will also be eligible to receive
additional benefits, which include enriched Long Term Disability and Life
Insurance, Tax Preparation/Financial Planning and three weeks vacation
administered in accordance with our vacation policy. All policies, procedures,
rules and regulations written in our handbook are applicable to you and your
employment with THE GOOD GUYS!
In the event that the Company were to terminate your employment for any
reason other than cause, your then base monthly salary would be continued
during the twelve months immediately following the date of your termination,
subject only to reduction in an amount equal to any compensation received by
you from other employers during such period and to your executing a mutually
satisfactory release. You could be terminated for cause only in the event of
your willful misconduct, conviction of a felony or neglect of your duties,
obligations and responsibilities on behalf of the Company (after having
received reasonable notice of such neglect).
Jayne, any associates and I are very excited about the prospect of your
joining our management team. I look forward to working together with you in the
years to come. Please give me a call if you have any questions whatsoever.
Sincerely,
/s/ ROBERT A. GUNST
cc: G. Vaz
<PAGE> 1
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements made below and elsewhere in the Annual Report that are not historical
facts, including any statements about expectations for fiscal year 1999 and
beyond, involve certain risks and uncertainties. Factors that could cause the
Company's actual results to differ materially from management's projections,
estimates and expectations include, but are 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, risks associated with Year 2000 issues, and other factors
referred to in the Company's fiscal 1998 Annual Report on Form 10-K under
"Information Regarding Forward Looking Statements" and in the Company's
Consolidated Financial Statements and Notes thereto. The Consolidated Financial
Statements and Notes to the Consolidated Financial Statements should be read in
conjunction with this Management's Discussion and Analysis of Financial
Condition and Results of Operations.
GENERAL
The following table sets forth, for the years indicated, the relative
percentages that certain income and expense items bear to net sales, and the
number of stores open at the end of each period:
<TABLE>
<CAPTION>
Years ended September 30,
1998 1997 1996
<S> <C> <C> <C>
Gross profit 24.6% 25.1% 23.1%
Selling, general and administrative expenses 26.0% 27.2% 23.8%
Early retirement of assets -- -- 0.4%
Loss before income taxes (1.5%) (2.2%) (1.1%)
Net loss (1.0%) (1.4%) (0.7%)
Number of stores open at end of period 77 76 75
</TABLE>
SALES AND GROSS PROFIT
The following table sets forth sales by product category:
<TABLE>
<CAPTION>
Years Ended September 30,
1998 1997 1996
<S> <C> <C> <C>
Video 41% 38% 39%
Audio and Cellular Phones 30% 30% 29%
Home Office 17% 19% 20%
Other
Accessories, Repair Service, and
Premier Performance Guarantee 12% 13% 12%
------------------------------------
Total Company 100% 100% 100%
====================================
</TABLE>
Sales increased to $928.5 million in fiscal 1998 from $890.5 million and
$925.7 million in fiscal 1997 and 1996, respectively. The 4% increase in fiscal
1998 resulted from a comparable store sales increase of 3%, and the opening of
one new store in fiscal 1998. The gain was partially offset by the temporary
closing of certain stores remodeled to the Audio/Video Exposition format during
the year. The introduction of new technologies, such as digital versatile disc
(DVD), Dolby Digital audio components, and new technologies in television,
fueled sales gains in the video, audio, and cellular phone categories.
Sales decreased in fiscal 1997 to $890.5 million from $925.7 million in
fiscal 1996. The 4% decrease in fiscal 1997 resulted from a comparable store
sales decrease of 8% and the temporary closure of stores being remodeled. The
decrease was partially offset by the opening of one new store in fiscal 1997 and
full-year sales for the net nine stores opened in fiscal 1996. Sales decreased
in virtually all product categories during fiscal 1997.
The gross profit margin decreased to 24.6% of sales in fiscal 1998 compared
with 25.1% in fiscal 1997 and 23.1% in fiscal 1996. The decrease in gross profit
percentage for fiscal 1998 was primarily due to a reduction in sales mix of the
Premier Performance Guarantee contracts.
<PAGE> 2
The increase in gross profit percentage for fiscal 1997 reflected a gross
margin improvement in virtually every product category. The Company believes
that this improvement was due to enhanced sales training and product
merchandising.
As a percentage of sales, Premier Performance Guarantee contracts were 5.0%,
5.7%, and 5.3% for fiscal 1998, 1997, and 1996, respectively. Profit margins on
products sold with Premier Performance Guarantee contracts are generally higher
than margins on other products the Company sells.
Comparable store sales in the future may be affected by competition, the
opening of additional the good guys! stores in existing markets, the absence
or introduction of significant new products in the consumer electronics
industry, and general economic conditions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of sales were 26.0%
in fiscal 1998 compared to 27.2% in fiscal 1997 and 23.8% in fiscal 1996. The
decrease as a percentage of sales in fiscal 1998 was the result of an increase
in same store sales and a decrease in net advertising expense for fiscal 1998.
The increase in fiscal 1997 was the result of the decline in same store sales,
an increase in net advertising expense, and the costs associated with the
temporary closure and reopening of stores remodeled during the year.
NET LOSS
The loss before income taxes as a percentage of sales for fiscal 1998, 1997, and
1996 was 1.5%, 2.2%, and 1.1%, respectively.
The effective income tax rates for fiscal years 1998, 1997, and 1996 were
36.6%, 37.2%, and 37.7%, respectively.
The net loss as a percentage of sales for fiscal years 1998, 1997, and 1996
was 1.0%, 1.4%, and 0.7%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sales are primarily cash and credit card transactions, providing a
source of liquidity. The Company also uses private label credit card programs
administered and financed by financial services companies, which allow the
Company to expand store sales without the burden of additional receivables.
Working capital requirements are reduced by vendor credit terms. The Company
also uses lease financing to fund a portion of its capital requirements.
As of the end of fiscal 1998, the Company had working capital of $32.4
million, compared to $53.4 million in fiscal 1997 and $65.6 million in fiscal
1996. In fiscal 1998, net cash provided by operating activities was $2.5 million
compared to $6.1 million in 1997 and $16.6 million in fiscal 1996. The decrease
in net cash provided by operating activities was primarily attributable to the
increase in merchandise inventories and accounts receivable offset by a decrease
in the net loss for fiscal 1998, an increase in accounts payable, and an
increase in depreciation expense. The net cash decrease in fiscal 1997 was
primarily attributable to the increase in the net loss for fiscal 1997, a
decrease in accounts payable, offset by a decrease in the income tax receivable
and in merchandise inventories.
During fiscal 1998, the Company opened one new Audio/Video Exposition store
and remodeled and relocated four existing stores to its Audio/Video Exposition
format. In fiscal 1997, the Company opened one new WOW! store and remodeled two
stores to the Audio/Video Exposition format. This expansion and remodeling has
been financed primarily through the cash provided from operations and lease
financing. Cash utilized for capital expenditures was $21.0, $10.2, and $12.5
million for fiscal years 1998, 1997, and 1996, respectively. The Company plans
to open two new stores and remodel/relocate at least six stores during fiscal
1999.
The Company expects to be able to fund its working capital requirements and
expansion plans, including remodels and relocations, with a combination of cash
flows from operations, normal trade credit, financing agreements, and the
continued use of lease financing.
Effective September 29, 1997, the Company entered into a new three-year
revolving credit agreement. This replaced a previous agreement and allows
borrowings of up to $75,000,000, which fluctuates with seasonal working capital
requirements. This credit facility is used for working capital and store
construction purposes and is secured by the Company's assets. At both September
30, 1998 and 1997, there were no borrowings outstanding under the lines.
Maximum borrowings outstanding under credit facilities during fiscal 1998
were $55 million compared to $35 million in fiscal 1997 and $38 million in
fiscal 1996. The weighted average borrowings outstanding under credit facilities
during fiscal years 1998, 1997, and 1996 were $20,822,000, $11,098,000, and
$9,475,000, respectively. The weighted average interest rates for such
borrowings were 8.4% during fiscal 1998, 6.8% during fiscal 1997, and 5.8%
during fiscal 1996.
IMPACT OF INFLATION
The Company believes that, because of competition among manufacturers and the
technological changes in the consumer electronics industry, inflation has not
had a significant effect on results of operations.
<PAGE> 3
YEAR 2000 MATTERS
BACKGROUND: As used by The Good Guys - California, Inc., "Year 2000 compliance"
means that the Operating Systems (OS), Data Base Systems, Application or
Business Systems have been reviewed to confirm that they store, process
(including sorting and performing mathematical operations), input, and output
data containing date information correctly, regardless of whether the data
contains dates before, on or after January 1, 2000.
READINESS: The Company began addressing the Year 2000 compliance issues in 1991,
and since then, has been actively pursuing the goal of Year 2000 compliance. The
Company has made Year 2000 compliance a top priority and has committed to it
significant internal and external resources, including automated tools and
third-party resources.
In 1995, a Year 2000 Task Force was formed to (1) identify Year 2000
compliance issues within the Company's hardware, software, and business systems;
and (2) develop and implement Year 2000 compliance remediation measures. The
Director of Management Information Systems was appointed to head up this effort.
The Company has also engaged the services of outside consultants and experts to
advise it on particular Year 2000 Compliance issues.
As a first step in achieving Year 2000 compliance, an audit was conducted to
identify those computer systems, programs, and processes that are affected by
the Year 2000 and other date-recognition issues. This audit was started in 1995
and the Company continues to probe for additional date-sensitive issues that,
although subtle, could affect its business processes.
The Year 2000 Task Force analyzed the audit results and, with the
participation and approval of senior management, developed a Year 2000
remediation plan with target dates. The plan contemplates that the remediation
efforts on all of the mission-critical internal systems will be complete by June
30, 1999. The Company will thereafter engage in thorough testing to ensure the
Year 2000 fixes are effective. The Company anticipates all testing will be
concluded on or about September 30, 1999 and is currently on schedule to meet
its remediation and testing target deadlines.
In addition, the Company is seeking, and will continue to seek, assurances
from vendors and other third parties with whom it does business that they are on
target for completing their own Year 2000 remediation programs.
RISKS: The Company presently believes that with modifications to existing
software, as well as conversions to new hardware and software, the Year 2000
issue is not reasonably likely to pose significant operational problems.
However, if unforeseen difficulties arise, or such modifications, conversions,
and replacements are not completed in a timely manner, or if the Company's
vendors' or suppliers' systems are not modified to become Year 2000 compliant,
the Year 2000 issue may have a material impact on the results of operations and
financial condition of the Company.
Currently, the Company is unable to assess the likelihood that it will
experience significant operational problems due to unresolved Year 2000 issues
of third parties who do business with the Company. There can be no assurance
that other entities will achieve timely Year 2000 compliance. If they do not,
Year 2000 problems could have a material impact on the Company's operations.
Similarly, there can be no assurance that the Company can timely mitigate its
risks related to a supplier's failure to resolve its Year 2000 issues. If such
mitigation is not achievable, Year 2000 problems could have a material impact on
the Company's operations.
ESTIMATED YEAR 2000 COSTS: The Company estimates the cost of achieving Year 2000
readiness for its internal systems and equipment will be in the range of
$2,500,000 to $3,500,000, of which $1,963,000 has been spent through September
30, 1998. This represents management's best estimate, given the most current
information and could change as the project moves forward.
CONTINGENCY PLANNING: The Company is reviewing its existing business-
interruption contingency plans to address internal and external issues
specific to the Year 2000 issue, to the extent practicable. Such revisions are
expected to be completed by June 30, 1999. These plans, which are intended to
enable the Company to continue to operate to the extent that it can do so
safely, include performing certain processes manually, repairing or obtaining
replacement systems, changing suppliers, and reducing or suspending operations.
The Company believes, however, that due to the widespread nature of potential
Year 2000 issues, the contingency planning process is an ongoing one, which will
require further modifications as the Company obtains additional information
regarding (1) the Company's internal systems and equipment during the
remediation and testing phases of its Year 2000 program, and (2) the status of
third-party Year 2000 readiness.
NEW ACCOUNTING PRONOUNCEMENTS
The Company will adopt SFAS 130 "Reporting Comprehensive Income" and SFAS 131
"Disclosures about Segment Reporting of an Enterprise and Related Information"
in fiscal 1999. Although the Company has not completed its review of these
standards, management does not believe they will have a significant impact on
its financial statements when implemented. For further discussion, see Note 1 to
the Consolidated Financial Statements included in this Annual Report.
<PAGE> 4
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended September 30,
(Dollars and shares in thousands, except per 1998 1997 1996 1995 1994
share and other data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS
Net sales $ 928,490 $ 890,524 $ 925,714 $ 889,206 $ 724,713
Cost of sales 700,158 667,409 711,463 674,179 535,690
-----------------------------------------------------------------------------
Gross profit 228,332 223,115 214,251 215,027 189,023
Selling, general, and administrative expenses 241,155 241,776 220,032 191,066 166,046
Early retirement of assets -- -- 3,741 -- --
-----------------------------------------------------------------------------
Income (loss) from operations (12,823) (18,661) (9,522) 23,961 22,977
Interest income -- 172 211 220 758
Interest expense (1,277) (930) (679) (619) (191)
-----------------------------------------------------------------------------
Income (loss) before income taxes (14,100) (19,419) (9,990) 23,562 23,544
Income tax expense (benefit) (5,167) (7,237) (3,771) 9,396 9,651
-----------------------------------------------------------------------------
Net income (loss) $ (8,933) $ (12,182) $ (6,219) $ 14,166 $ 13,893
-----------------------------------------------------------------------------
Net income (loss) per basic and diluted share $ (0.64) $ (0.89) $ (0.46) $ 1.06 $ 1.06
Basic and diluted weighted average shares 14,012 13,626 13,576 13,427 13,164
FINANCIAL POSITION
Working capital $ 32,370 $ 53,364 $ 65,606 $ 74,042 $ 66,900
Total assets $ 250,858 $ 236,062 $ 246,015 $ 227,729 $ 188,712
Shareholders' equity $ 112,007 $ 118,104 $ 129,268 $ 136,022 $ 118,948
OTHER DATA
Number of stores at year end 77 76 75 66 52
Average sales per store $ 12,219 $ 11,811 $ 13,024 $ 14,962 $ 14,912
Sales per selling square foot $ 1,065 $ 1,057 $ 1,213 $ 1,481 $ 1,519
Sales per gross square foot $ 665 $ 660 $ 756 $ 921 $ 925
Comparable stores sales 3% (8%) (8%) 7% 19%
Inventory turns* 5.5 5.5 5.9 6.4 6.4
</TABLE>
*Based on average of beginning and ending inventories for each fiscal year.
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
(Dollars in thousands) 1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,051 $ 18,951
Accounts receivable, less allowance for doubtful
accounts of $1,149 and $1,196, respectively 26,653 21,711
Income taxes receivable -- 6,176
Merchandise inventories 135,072 117,768
Prepaid expenses 6,445 6,716
--------------------------
Total current assets 171,221 171,322
PROPERTY AND EQUIPMENT:
Leasehold improvements 63,818 63,085
Furniture, fixtures, and equipment 59,284 49,264
Construction in progress 12,684 7,772
--------------------------
Total property and equipment 135,786 120,121
Less accumulated depreciation and amortization 63,570 57,968
--------------------------
Property and equipment - net 72,216 62,153
--------------------------
Other assets 7,421 2,587
--------------------------
Total Assets $250,858 $236,062
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 96,517 $ 75,517
Accrued expenses and other liabilities:
Payroll 10,630 13,434
Sales taxes 5,940 5,226
Other 25,764 23,781
--------------------------
Total current liabilities 138,851 117,958
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 14,250,218 and
13,810,310 shares, respectively 14 14
Additional paid-in capital 65,152 62,316
Retained earnings 46,841 55,774
--------------------------
Total shareholders' equity 112,007 118,104
--------------------------
Total Liabilities and Shareholders' Equity $250,858 $236,062
==========================
</TABLE>
See notes to these consolidated financial statements.
<PAGE> 6
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended September 30,
(Dollars and shares in thousands, 1998 1997 1996
except per share data)
<S> <C> <C> <C>
Net sales $ 928,490 $ 890,524 $ 925,714
Cost of sales 700,158 667,409 711,463
-------------------------------------------------
Gross profit 228,332 223,115 214,251
Selling, general and administrative expenses 241,155 241,776 220,032
Early retirement of assets -- -- 3,741
-------------------------------------------------
Loss from operations (12,823) (18,661) (9,522)
Interest income -- 172 211
Interest expense (1,277) (930) (679)
-------------------------------------------------
Loss before income taxes (14,100) (19,419) (9,990)
Income tax benefit (5,167) (7,237) (3,771)
-------------------------------------------------
Net Loss $ (8,933) $ (12,182) $ (6,219)
=================================================
Net loss per basic and diluted share $ (0.64) $ (0.89) $ (0.46)
=================================================
Basic and diluted weighted average shares 14,012 13,626 13,576
=================================================
</TABLE>
See notes to these consolidated financial statements.
<PAGE> 7
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
(Dollars in thousands) 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
Issuance of common stock under
Employee Stock Purchase Plan 317,316 2,397 2,397
Exercise of stock options including related tax
benefits 14,630 84 84
Repurchase and retirement of common stock (358,500) (3,016) (3,016)
Net loss (6,219) (6,219)
-----------------------------------------------------------------
Balance at September 30, 1996 13,554,862 14 61,298 67,956 129,268
Issuance of common stock under
Employee Stock Purchase Plan 372,348 1,938 1,938
Exercise of stock options including related tax
benefits 18,600 88 88
Repurchase and retirement of common stock (135,500) (1,008) (1,008)
Net loss (12,182) (12,182)
-----------------------------------------------------------------
Balance at September 30, 1997 13,810,310 14 62,316 55,774 118,104
Issuance of common stock under
Employee Stock Purchase Plan 299,926 1,740 1,740
Profit Sharing Plan 196,300 1,447 1,447
Exercise of stock options including related tax
benefits 110,622 849 849
Issuance of restricted stock 29,360 181 181
Repurchase and retirement of common stock (196,300) (1,381) (1,381)
Net loss (8,933) (8,933)
-----------------------------------------------------------------
Balance at September 30, 1998 14,250,218 $14 $ 65,152 $ 46,841 $ 112,007
=================================================================
</TABLE>
See notes to these consolidated financial statements.
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended September 30,
(Dollars in thousands) 1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,933) $(12,182) $ (6,219)
Adjustments to reconcile net loss to net cash provided
by (used in) operating
activities:
Depreciation and amortization 10,945 9,667 9,456
Early retirement of assets -- -- 3,741
Allowance for doubtful accounts (47) 275 352
Shareholders' equity tax benefits from stock options 212 18 29
Change in:
Accounts receivable (4,895) (385) (744)
Income taxes receivable 6,176 2,196 (8,372)
Merchandise inventories (17,304) 6,034 (7,996)
Prepaid expenses and other assets (4,563) (703) 4,407
Accounts payable 21,000 1,986 20,027
Accrued expenses and other liabilities (107) (775) 1,901
--------------------------------------
Net cash provided by operating activities 2,484 6,131 16,582
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (21,008) (10,145) (12,487)
--------------------------------------
Net cash used in investing activities (21,008) (10,145) (12,487)
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 4,005 2,008 2,452
Repurchase and retirement of common stock (1,381) (1,008) (3,016)
--------------------------------------
Net cash provided by (used in) financing activities 2,624 1,000 (564)
Net increase (decrease) in cash (15,900) (3,014) 3,531
Cash at beginning of period 18,951 21,965 18,434
--------------------------------------
Cash at End of Period $ 3,051 $ 18,951 $ 21,965
======================================
</TABLE>
See notes to these consolidated financial statements.
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: The Good Guys, Inc., through its wholly owned subsidiary (together,
the Company), is a retailer of consumer electronic products in California,
Nevada, Oregon, and Washington.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of The Good Guys, Inc. and its wholly owned subsidiary. All significant
intercompany transactions have been eliminated in consolidation.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS: Cash equivalents represent short-term, highly liquid
investments with original maturities of three months or less. Interest earned
from these investments is included in interest income.
MERCHANDISE INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out method) or market.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Depreciation
and amortization are computed using the straight line method based on an
estimated useful life of three to five years for furniture, fixtures, and
equipment, and the lesser of the estimated useful lives of assets or the
remaining lease terms for leasehold improvements. Whenever events or changes in
circumstances have indicated that the carrying amount of its assets might not be
recoverable, in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company,
using its best estimates based on reasonable and supportable assumptions and
projections, has reviewed for impairment of carrying value of long-lived assets.
ADVERTISING: Advertising costs are charged to expense when incurred. Advertising
costs for fiscal years ended 1998, 1997, and 1996 were $54,145,000, $60,576,000,
and $60,665,000, respectively.
STORE PRE-OPENING COSTS: Store pre-opening costs are expensed as incurred.
EMPLOYEE STOCK PLANS: The Company accounts for its stock-based awards using the
intrinsic value method in accordance with APB No. 25, "Accounting for Stock
Issued to Employees," and its related interpretations. No compensation expense
has been recognized in the financial statements for employee stock arrangements.
INSURANCE RISK RETENTION: The Company retains certain risks for workers'
compensation, general liability, and employee medical programs and accrues
estimated liabilities on an undiscounted basis for known claims and claims
incurred but not reported.
REVENUE RECOGNITION: The Company recognizes revenue at the point of sale.
Merchandise returns are recorded at the time of return, as the effect of returns
is not significant to the Company's operating results.
PREMIER PERFORMANCE GUARANTEE CONTRACTS: The Company sells extended service
contracts ("Premier Performance Guarantee contracts") on behalf of an unrelated
company (the "Warrantor") that markets this product for merchandise sold by the
Company. Commission revenue is recognized at the time of sale. The Company acts
solely as an agent for the Warrantor and has no liability to the customer under
the extended service contract nor any other material obligation to the customer
or the Warrantor. Merchandise presented to the Company for servicing under
extended service contracts is repaired by the Company on behalf of the
Warrantor. The repairs are billed to the Warrantor at amounts customarily
charged by the Company for these services.
INCOME TAXES: The Company accounts for its income taxes in accordance with
Statement of Financial Accounting Standard ("SFAS") No. 109, "Accounting for
<PAGE> 10
Income Taxes." Under this standard, deferred income taxes reflect the tax
effects, based on current tax law, of temporary differences resulting from
differences between the amounts of assets and liabilities recognized for
financial reporting and income tax purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying value of cash and cash
equivalents, accounts receivable, and accounts payable approximate their
estimated fair values.
NET LOSS PER COMMON SHARE: Net loss per share was computed based on the weighted
average number of shares of common stock outstanding during the year. SFAS No.
128, "Earnings Per Share," requires dual presentation of net loss per share on a
basic and diluted basis. However, since the Company has reported net losses for
each of the three fiscal years in the period ended September 30, 1998, the
dilutive effect of stock options was not required to be reported since such
options, if exercised, would be anti-dilutive.
RECLASSIFICATIONS: Certain reclassifications have been made to the prior
year financial statements to conform with the fiscal 1998 financial
statement presentation.
NEW ACCOUNTING PRONOUNCEMENTS: SFAS No. 130, "Reporting Comprehensive Income"
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. This statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. In addition, this statement
requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from the retained earnings and additional
paid-in capital in the equity section of a statement of financial position. This
statement is effective for fiscal years beginning after December 15, 1997.
Management believes this will have no impact on the Company's financial position
or results of operations.
SFAS No. 131,"Disclosures about Segment Reporting of an Enterprise and
Related Information" establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosure about products and services,
geographic areas, and major customers. This statement is effective for fiscal
years beginning after December 15, 1997. Management believes this will have no
impact on the Companies financial position or results of operations.
Note 2: BORROWING ARRANGEMENTS
The Company currently maintains a revolving credit agreement, which fluctuates
with seasonal working capital requirements and allows borrowings of up to
$75,000,000. The agreement requires maintenance of certain financial loan
covenants, including minimum tangible net worth, restrictions on capital
expenditures and prohibits payment of cash dividends. The line of credit is
secured by the Company's assets. The company was in compliance with these
covenants for the year ended September 30, 1998. The credit line also includes a
standby letter of credit facility. There were no borrowings under the line of
credit and $1,000,000 of the commitment was reserved under the letter of credit
facility at September 30, 1998.
Interest paid on the facility was $1,744,000, $864,000, and $652,000, for the
fiscal years ended September 30, 1998, 1997, and 1996, respectively.
The Company also purchases products from some vendors through finance
companies under agreements which generally require payment in 30 days and
provide for purchase discounts.
Note 3: INCOME TAXES
Income tax benefit consists of the following:
<TABLE>
<CAPTION>
Years ended September 30,
(Dollars in thousands) 1998 1997 1996
<S> <C> <C> <C>
CURRENTLY PAYABLE (RECEIVABLE):
Federal $ (972) $(6,461) $(6,701)
State 373 (2) --
-------------------------------------------
Total currently payable (599) (6,463) (6,701)
Deferred tax (4,568) (774) 2,930
-------------------------------------------
Total $(5,167) $(7,237) $(3,771)
===========================================
</TABLE>
For the years ended September 30, 1998, 1997, and 1996, the Company paid
federal income taxes totaling $0, $0, and $2,615,000, respectively.
The fiscal year 1998 and 1997 tax provisions reflect the benefit of federal
operating loss carrybacks of $6,859,000 and $17,952,000, respectively. The 1997
net operating loss carryback was recouped through carryback to prior fiscal
years.
<PAGE> 11
This amount is included in income taxes receivable as of September 30, 1997. The
1996 carryback, along with the amounts refundable from the 1996 estimated tax
payments, was included in the 1996 income tax receivable balance and was
received in 1997.
The provisions for income taxes as reported are different from the tax
provisions computed by applying the statutory federal income tax rate. The
differences are reconciled as follows:
<TABLE>
<CAPTION>
Years ended September 30,
1998 1997 1996
<S> <C> <C> <C>
Federal income tax
at the statutory rate (35.0%) (35.0%) (35.0%)
State franchise tax,
Less federal tax effect (1.5) (2.5) (3.7)
Other - net (0.1) 0.3 1.0
-------------------------------------
Total (36.6%) (37.2%) (37.7%)
=====================================
</TABLE>
Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes. Significant components of the Company's
net deferred tax assets as of September 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
September 30,
(Dollars in thousands) 1998 1997
<S> <C> <C>
CURRENT
Vacation accruals $ 1,025 $ 979
Prepaid expenses (1,048) (1,362)
Reserves 1,182 2,050
Inventory capitalization (1,456) (1,742)
Other 236 0
-------------------------
Current assets - net (61) (75)
NONCURRENT
Depreciation 74 1,573
Net operating loss 6,859 891
Other - net 558 461
-------------------------
Noncurrent assets - net 7,491 2,925
-------------------------
Total $ 7,430 $ 2,850
=========================
</TABLE>
Note 4: LEASES
The Company's stores, distribution and administration facilities, and certain
equipment are leased under operating leases. The leases have remaining initial
terms inclusive of renewal options, of one to forty-one years and generally
provide for rent increases based on the consumer price index. Certain store
leases require additional lease payments based on store sales.
The Company subleases a portion of one of its stores to a company whose
Chairman is also a member of the Company's Board of Directors. The lease expires
on July 31, 2003 and provides for additional rent increases based on the
consumer price index. Under the terms of the sublease agreement, the income
received for each of the years ended September 30, 1998, 1997, and 1996 was
$318,938.
The future minimum annual payments for leases having noncancelable terms in
excess of one year, net of sublease income, at September 30, 1998, are as
follows:
<TABLE>
<CAPTION>
Real
(Dollars in thousands) Property Equipment
<S> <C> <C>
1999 $34,837 $10,924
2000 31,712 9,021
2001 31,472 6,487
2002 29,889 3,081
2003 29,064 552
Later years through 2018 160,594 0
---------------------
Total $317,568 $30,065
=====================
</TABLE>
Rental expense for the years ended September 30, 1998, 1997, and 1996 was
$47,099,000, $45,001,000, and $40,932,000, respectively.
Note 5: PENSION PLANS
The Company has a deferred Pay Plan to which its employees may contribute a
portion of their annual salaries and a Profit Sharing Plan that covers
substantially all of the Company's employees. Contributions to the Profit
Sharing Plan were at the discretion of the Company's Board of Directors through
the year ended September 30, 1997, and the contributions for the years ended
September 30, 1997 and September 30, 1996 were $2,187,000, and $1,781,000,
respectively. The Profit Sharing Plan became non-discretionary for years
beginning after September 30, 1997. Effective January 1, 1998, the Company
matches, through contributions to the Profit Sharing Plan, an employee's
contributions to the Deferred Pay Plan that are invested in the Company's common
stock. The Company matches such contributions up to 6% of the employee's annual
salary.
<PAGE> 12
Note 6: EMPLOYEE STOCK PLANS
The Company's 1985 Stock Option Plan and 1994 Stock Incentive Plan authorize the
issuance of incentive stock options and non-qualified stock options covering up
to 3,515,000 shares of common stock. Although the 1985 Plan expired in 1995 and
no further options may be granted under it, options granted prior to its
expiration remain outstanding. Options granted under both Plans are exercisable
at prices equal to the fair market value of the stock on the date of grant.
Options vest ratably over four years and no option may be granted for a term
exceeding ten years.
The following is a summary of stock option activity under the Plans for the
years ended September 30, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
Of Shares Price
<S> <C> <C>
Balance at September 30, 1995 1,209,980 $ 12.42
Granted (weighted average fair value of $3.93) 383,000 10.19
Exercised (14,630) 3.74
Canceled (225,900) 12.75
-----------------------------
Balance at September 30, 1996 1,352,450 11.82
Granted (weighted average fair value of $2.55) 758,600 7.54
Exercised (18,600) 4.54
Canceled (678,002) 11.98
-----------------------------
Balance at September 30, 1997 1,414,448 9.55
Granted (weighted average fair value of $2.58) 314,750 7.51
Exercised (110,622) 7.52
Canceled (160,374) 9.17
-----------------------------
Balance at September 30, 1998 1,458,202 $ 9.30
=============================
</TABLE>
At September 30, 1998, incentive stock options for 835,987 shares were
exercisable at a weighted average price of $10.27 per share and 941,951 shares
were available for additional option grants. During fiscal 1997, options to
purchase 459,550 shares of common stock were repriced from a weighted average
exercise price of $12.58 to a weighted average exercise price of $7.50, which
was equal to fair market value at the date of repricing. Options issued to the
Company's Directors and Officers were not included in the repricing.
At September 30, 1998, the Company also had non-qualified Stock options for
40,000 shares outstanding that were exercisable at a weighted average price of
$7.31 per share.
The following table summarizes information about stock options at September
30, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number
Number Weighted Weighted Exercisable Weighted
Outstanding Average Average At Average
Range of Sep. 30, Contractual Exercise Sep. 30, Exercise
Exercise prices 1998 Life (Years) Price 1998 Price
<S> <C> <C> <C> <C> <C>
$5.88 - 7.49 468,000 6.2 $ 6.69 195,750 $ 6.68
7.50 388,977 6.6 7.50 225,462 7.50
7.51 - 12.00 442,425 5.5 10.12 300,725 10.38
12.01 - 26.25 198,800 5.3 16.74 154,050 17.92
------------------------------------------------------------------
$5.88 - 26.25 1,498,202 6.0 $ 9.25 875,987 $ 10.14
</TABLE>
The Company established an employee stock purchase plan (Plan) in February
1986, which permits eligible employees to purchase the Company's common stock
under terms specified by this Plan. Common stock issued under the Plan during
fiscal 1998 totaled 299,926 shares at a weighted average price of $5.80. The
weighted average fair value of the fiscal 1998 awards was $2.34 per share. At
September 30, 1998, 765,356 shares were reserved for future issuances under the
Plan.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123), requires the disclosure of pro forma
net earnings and earnings per share as if the Company had adopted the fair value
method as of the beginning of fiscal 1996. Under SFAS No. 123, the fair value of
stock-based awards to employees is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value of
freely tradeable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values.
The Company's calculations are based on a single-option valuation approach
and forfeitures are recognized as they occur. The impact of outstanding unvested
stock options granted prior to 1996 has been excluded from the pro forma
calculation;
<PAGE> 13
accordingly, the 1998, 1997, and 1996 pro forma adjustments are not indicative
of future period pro forma adjustments. The Company's calculations were made
using the Black-Scholes option pricing model, with the following weighted
average assumptions: expected option life, 6 years; stock volatility, 50% in
fiscal 1998 and 1997, and 60% in fiscal 1996; risk-free interest rates, 5.75% in
fiscal 1998, 6.12% in fiscal 1997, and 6.72% in fiscal 1996;, and no dividends
during the expected term. Had compensation cost been recognized in accordance
with SFAS No. 123 the pro forma net loss would have been $9,926,000 or $0.71 per
share in fiscal 1998, $13,805,000 or $1.01 per share in fiscal 1997, and
$7,343,000 or $0.54 per share for fiscal 1996.
Note 7: REPURCHASE, AND RETIREMENT OF STOCK
In January 1996, the Company's Board of Directors authorized the purchase of up
to 500,000 shares of the Company's common stock on the open-market or in private
transactions. For the years ended September 30, 1997, and 1996, the Company had
repurchased 135,500 shares for $1,008,000 and 358,500 shares for $3,016,000,
respectively. In September 1997, the Company's Board of Directors authorized the
purchase of an additional 500,000 shares of common stock. For the year ended
September 30, 1998, the Company repurchased 196,300 shares for $1,381,000.
Note 8: LEGAL PROCEEDINGS
The Company is involved in various legal proceedings arising during the normal
course of conducting its business. Management believes that the ultimate outcome
of these proceedings, individually and in the aggregate, will not have a
material impact on the financial position or results of operations of the
Company.
Note 9: QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended September 30, 1998 and 1997 are
summarized in the following table:
<TABLE>
<CAPTION>
(Dollars in thousands, December 31, March 31, June 30, September 30,
except per share amounts) 1997 1998 1998 1998
<S> <C> <C> <C> <C>
Net sales $290,303 $ 209,062 $ 209,057 $ 220,068
Gross profit 71,621 52,332 53,265 51,114
Net income (loss) 2,403 (1,994) (2,591) (6,751)
Net income (loss) per
basic and diluted share $ 0.18 $ (0.14) $ (0.18) $ (0.47)
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands, December 31, March 31, June 30, September 30,
except per share amounts) 1996 1997 1997 1997
<S> <C> <C> <C> <C>
Net sales $286,565 $ 205,091 $ 194,834 $ 204,034
Gross profit 71,695 51,954 49,740 49,726
Net income (loss) 1,966 (3,282) (4,146) (6,720)
Net income (loss) per
basic and diluted share $ 0.15 $ (0.24) $ (0.30) $ (0 .49)
</TABLE>
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The Good Guys, Inc.
Brisbane, California
We have audited the accompanying consolidated balance sheets of The Good
Guys, Inc. as of September 30, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended September 30, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of The Good Guys, Inc. at
September 30, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 1998 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
San Francisco, California
November 6, 1998
<PAGE> 15
CORPORATE INFORMATION
OFFICERS
Robert A. Gunst
President and Chief Executive Officer
Dennis C. Carroll
Senior Vice President, Finance and Administration,
Chief Financial Officer and Secretary
Jayne Spiegelman
Senior Vice President, Merchandising and Marketing
Brad S. Bramy
Vice President, Advertising
John G. Duken
Vice President, Operations
Kevin M. McNeill
Vice President, Sales
Cathy A. Stauffer
Vice President, Quality
Gregory L. Steele
Vice President, Real Estate and Development
Gera M. Vaz
Vice President, Human Resources
DIRECTORS
Stanley R. Baker
Director
Robert A. Gunst
Director and President and
Chief Executive Officer of the Company
W. Howard Lester
Director and Chairman and
Chief Executive Officer of Williams-Sonoma, Inc.
John E. Martin
Director and Chairman of Easyriders, Inc. and
Chairman of Diedrich Coffee, Inc.
Horst H. Schulze
Director and President and
Chief Operating Officer of The Ritz-Carlton Company L.L.C.
Russell M. Solomon
Director and Founder and
Chairman of MTS, Inc. (Tower Records)
ANNUAL MEETING
February 10, 1999, 10:30 AM
The Good Guys!
Auditorium
7000 Marina Blvd.
Brisbane, CA 94005
INDEPENDENT AUDITORS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105
TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 356-2017
Home page on the Internet:
http://www.chasemellon.com
FORM 10-K
A copy of the Company's Form 10-K Annual Report filed with the Securities and
Exchange Commission may be obtained without charge by writing to Investor
Relations at the address noted below.
QUARTERLY REPORTS
Shareholders can obtain a faxed copy of recent quarterly financial press
releases by calling Company News On Call, a division of PR Newswire, at:
1-800-758-5804. The Good Guys! news # is 108403.
The Good Guys home page on the Internet: http://www.thegoodguys.com
Or write to: The Good Guys! Attn: Investor Relations 7000 Marina Blvd.
Brisbane, CA 94005-1840
COMMON STOCK
The Good Guys, Inc. common stock is traded on the Nasdaq National Market under
the symbol GGUY. The following table sets forth the quarterly high and low sales
prices for the Company's common stock as quoted for fiscal 1997 and 1998.
<TABLE>
<CAPTION>
Fiscal Quarter Ended High Low
<S> <C> <C>
December 31, 1996 8 5/8 6 1/8
March 31, 1997 7 1/2 6 1/8
June 30, 1997 7 1/8 5 1/2
September 30, 1997 9 5
December 31, 1997 8 1/2 6 5/16
March 31, 1998 10 9/16 6 5/16
June 30, 1998 15 3/4 10 1/4
September 30, 1998 13 5/8 5 3/4
</TABLE>
As of November 23, 1998, there were 2,090 shareholders of record, excluding
shareholders whose stock is held in nominee or street name by brokers.
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries
<TABLE>
<CAPTION>
Name Place of Incorporation
---- ----------------------
<S> <C>
The Good Guys -- California, Inc. California
</TABLE>
-1-
<PAGE> 1
[DELOITTE & TOUCHE LETTERHEAD]
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Board of Directors
The Good Guys, Inc.
We consent to the incorporation by reference in Registration Statement Nos.
33-5935, 33-19342, 33-32986, 33-38749, 33-39421,33-60957 and 333-67545 of The
Good Guys, Inc. on Form S-8 of our report dated November 6, 1998, incorporated
by reference in this Annual Report on Form 10-K of The Good Guys, Inc. for the
fiscal year ended September 30, 1998.
DELOITTE & TOUCHE LLP
December 22, 1998
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose
signature appears below, being a member of the Board of Directors of
The Good Guys, Inc. (the "Company"), hereby constitutes and appoints
Robert A. Gunst and Dennis C. Carroll, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for and in his name, place and stead, in any and all capacities, to sign on his
behalf the Company's Annual Report on Form 10-K for its fiscal year ended
September 30, 1998, and to execute any amendments thereto, and to file the same,
with all exhibits thereto, and all other documents in connection therewith, with
the Securities and Exchange Commission, with the full power and authority to do
and perform each and every act and thing necessary or advisable to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
This power of attorney may be executed in any number of counterparts.
DATED: November 12, 1998
/s/ ROBERT A. GUNST /s/ STANLEY R. BAKER
- ---------------------------- ------------------------------
ROBERT A. GUNST STANLEY R. BAKER
/s/ RUSSELL M. SOLOMON /s/ W. HOWARD LESTER
- ---------------------------- ------------------------------
RUSSELL M. SOLOMON W. HOWARD LESTER
/s/ JOHN E. MARTIN /s/ HORST H. SCHULZE
- ---------------------------- ------------------------------
JOHN E. MARTIN HORST H. SCHULZE
-1-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 3,051
<SECURITIES> 0
<RECEIVABLES> 27,802
<ALLOWANCES> 1,149
<INVENTORY> 135,072
<CURRENT-ASSETS> 171,221
<PP&E> 135,786
<DEPRECIATION> 63,570
<TOTAL-ASSETS> 250,858
<CURRENT-LIABILITIES> 138,851
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 111,993
<TOTAL-LIABILITY-AND-EQUITY> 250,858
<SALES> 928,490
<TOTAL-REVENUES> 928,490
<CGS> 700,158
<TOTAL-COSTS> 700,158
<OTHER-EXPENSES> 241,155
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,277
<INCOME-PRETAX> (14,100)
<INCOME-TAX> (5,167)
<INCOME-CONTINUING> (8,933)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,933)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>
