<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, 1997
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14134
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THE GOOD GUYS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-2366177
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(State of jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7000 Marina Boulevard, Brisbane, California 94005
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(Address of principal executive offices) (zip code)
(415) 615-5000
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(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
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The registrant had 13,981,069 shares of common stock outstanding as of January
31, 1998.
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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, 1997 (Unaudited) and
September 30, 1997 (Unaudited) 3
Consolidated Statements of Operations
for the Three Month Periods Ended
December 31, 1997 and 1996 (Unaudited) 4
Consolidated Statement of Changes in
Shareholders' Equity for the Three Month
Period Ended December 31, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows
for the Three Month Periods Ended
December 31, 1997 and 1996 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
Part II. OTHER INFORMATION 10-11
Signature Page 12
EXHIBIT INDEX 13
Financial Data Schedule
</TABLE>
2
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THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 28,414 $ 18,951
Accounts receivable, net 28,845 21,711
Income taxes receivable 5,219 6,176
Merchandise inventories 145,828 117,768
Prepaid expenses 8,002 6,716
-------- --------
Total current assets 216,308 171,322
Property and equipment 124,663 120,121
Less accumulated depreciation and amortization 60,560 57,968
-------- --------
Property and equipment, net 64,103 62,153
Other assets 2,108 2,587
-------- --------
Total assets $282,519 $236,062
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $103,647 $ 75,517
Accrued expenses and other liabilities:
Payroll 15,797 13,434
Sales taxes 10,625 5,226
Other 31,876 23,781
-------- --------
Total current liabilities 161,945 117,958
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, 13,810,310 shares
at December 31 and September 30 14 14
Additional paid-in capital 62,383 62,316
Retained earnings 58,177 55,774
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Total shareholders' equity 120,574 118,104
-------- --------
Total liabilities and shareholders' equity $282,519 $236,062
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
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THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended December 31,
1997 1996
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<S> <C> <C>
Net sales $290,303 $286,565
Cost of sales 218,682 214,870
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Gross profit 71,621 71,695
Selling, general and
Administrative expenses 67,567 68,176
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Income from operations 4,054 3,519
Interest expense, net 253 242
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Income before income taxes 3,801 3,277
Income taxes 1,398 1,311
-------- --------
Net income $ 2,403 $ 1,966
======== ========
Net income per common share
Basic: $ .18 $ .15
======== ========
Diluted: $ .18 $ .15
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Weighted average shares
Basic: 13,719 13,464
======== ========
Diluted: 13,736 13,465
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1997
(In thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-in Retained
Shares Amount Capital Earnings Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at
September 30, 1997 13,810,310 $ 14 $ 62,316 $ 55,774 $ 118,104
Issuance of common stock 196,300 196 1,448 1,644
Repurchase and retirement of common stock (196,300) (196) (1,381) (1,577)
Net income for the three-month period
Ending December 31, 1997 2,403 2,403
----------- ----------- ----------- ----------- -----------
Balance at
December 31, 1997 13,810,310 $ 14 $ 62,383 $ 58,177 $ 120,574
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
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THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------- --------
1997 1996
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,403 $ 1,966
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Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,592 2,421
Change in assets and liabilities:
Accounts receivable (7,134) (11,699)
Income taxes receivable 957 2,408
Merchandise inventories (28,060) (31,998)
Prepaid expenses and other assets (807) (932)
Accounts payable 28,130 24,476
Accrued expenses and other liabilities 15,857 23,632
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Total adjustments 11,535 8,308
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Net cash provided by operating activities 13,938 10,274
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Cash Flows from Investing Activities:
Capital expenditures - net of proceeds from
sale of assets (4,542) 864
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Net cash provided by (used in) investing activities (4,542) 864
-------- --------
Cash Flows from Financing Activities:
Repurchase and retirement of common stock (1,381) (1,009)
Issuance of common stock 1,448
-------- --------
Net cash provided by (used in) financing activities 67 (1,009)
-------- --------
Net increase in cash and
cash equivalents 9,463 10,129
Cash and cash equivalents at
beginning of period 18,951 21,965
-------- --------
Cash and cash equivalents at
end of period $ 28,414 $ 32,094
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
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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, 1997 and 1996 are not necessarily indicative of the
results to be expected for the full year. The consolidated financial
statements should be read in conjunction with the financial statements,
notes and supplementary data included and incorporated by reference in
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997.
2. Net Income per common share has been computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS 128). SFAS 128 requires a dual presentation of basic and
diluted EPS. Basic EPS excludes dilution and is computed by dividing
net income available to common shareholders by the weighted average of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that would occur if securities or other contracts to
issue common stock were exercised or converted into common stock. Net
income per common share for prior periods have been restated to conform
to SFAS 128.
3. New Accounting Pronouncements:
SFAF 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.
SFAF 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.
7
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Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
To the extent forward-looking statements are made in this Form 10-Q, such
statements 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 1997 Annual Report on Form 10-K under "Information Regarding
Forward Looking Statements".
RESULTS OF OPERATIONS
Net sales for the quarter ended December 31, 1997 were $290.3 million, an
increase of 1% from sales of $286.6 million for the quarter ended December 31,
1996. During the first quarter of fiscal 1997, comparable store sales increased
1%.
Gross profit as a percentage of net sales was 24.7% for the quarter ended
December 31, 1997, as compared to 25.0% for the comparable fiscal 1997 period.
The decrease in gross profit percentage resulted primarily from the increased
promotional environment in the Home Office categories.
For the quarter ended December 31, 1997, selling, general and administrative
expenses were 23.3% of net sales compared to 23.8% for the comparable fiscal
1996 period. The decrease in selling, general and administrative costs as a
percentage of sales for the quarter ended December 31, 1997 is primarily due to
reductions in general and administrative and advertising expenses and an
increase in same store sales.
The effective income tax rate for the quarter ended December 31, 1997 was 36.8%
compared with 40.0% for the same period in the prior fiscal year.
Net income for the quarter ended December 31, 1997 was $2.4 million ($0.18 per
share) or 0.8% of net sales for the period. These results compare to net income
of $2.0 million ($0.15 per share) or 0.7% of net sales for the same period in
fiscal 1997.
8
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LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had working capital of $54.4 million. Net cash
provided by operating activities was $13.9 million for the three months ended
December 31, 1997, compared to $10.3 million for the three months ended December
31, 1996. The increase in net cash provided by operating activities was
primarily due to a combination of increased net income and a year over year
reduction in receivables and inventory.
Net cash used in investing activities, which primarily consists of expenditures
for stores, distribution facilities and administrative property and equipment,
was $4.5 million for the three months ended December 31, 1997, as compared to
$0.9 million provided during the same period last year. This increase in cash
used in investing activities relates to capital expenditures for remodeling
stores to the new Audio/Video Exposition format. The Company continues to
identify stores for remodeling to the new Audio/Video Exposition format and
plans to renovate four to seven existing locations in calendar 1998. In
addition, the Company plans to open three new stores in the Exposition format
during calendar 1998.
The Company maintains a revolving line of credit which provides a maximum
borrowing level of $75,000,000. 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, 1997, the Company was in
compliance with all covenants under the credit agreement. There were no
borrowings outstanding under the credit agreement at December 31, 1997.
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
technological changes in the consumer electronics industry, inflation has not
had a material effect on net sales and cost of sales.
9
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 19,1996, McBride-Newall, Inc. dba Carphones, Inc. and numerous other
individuals filed a complaint against the Company and 21 other named defendants
entitled McBride-Newall, 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, allege a conspiracy to sell cellular telephone equipment below cost
with the intent to drive the plaintiffs out of business. Plaintiffs seek treble
damages under the California antitrust laws. A motion by Defendants to dismiss
the case as a sanction for abuse of the discovery process has been denied. The
Company believes it has meritorious defenses to the claims alleged in the
lawsuit and intends to defend the action vigorously.
10
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PART II. OTHER INFORMATION
ITEM 2-5 Not Applicable
ITEM 6 Exhibits and Reports on Form 8-K
(a) See Exhibit Index included herein on page 2.
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
11
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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, 1998 /s/ DENNIS C. CARROLL
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Date Dennis C. Carroll
Chief Financial Officer
12
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EXHIBIT INDEX
<TABLE>
<CAPTION> Page
<S> <C> <C>
Exhibit 27 Financial Data Schedule
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 28,414
<SECURITIES> 0
<RECEIVABLES> 35,573
<ALLOWANCES> 1,509
<INVENTORY> 145,828
<CURRENT-ASSETS> 216,308
<PP&E> 124,663
<DEPRECIATION> 60,560
<TOTAL-ASSETS> 282,519
<CURRENT-LIABILITIES> 161,945
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 120,560
<TOTAL-LIABILITY-AND-EQUITY> 282,519
<SALES> 290,303
<TOTAL-REVENUES> 290,303
<CGS> 218,682
<TOTAL-COSTS> 218,682
<OTHER-EXPENSES> 67,567
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253
<INCOME-PRETAX> 3,801
<INCOME-TAX> 1,398
<INCOME-CONTINUING> 2,403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,403
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
