<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-1
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
or
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________
Commission File Number: 0-14134
THE GOOD GUYS, INC.
(exact name of registrant as specified in its charter)
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<S> <C>
Delaware 94-2366177
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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7000 Marina Blvd.
Brisbane, CA 94005-1840
(Address of principal executive offices)
(650) 615-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required 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. [ X ] Yes [ ] No
<TABLE>
<CAPTION>
CLASS OUTSTANDING AS OF January 31, 2000
----- ----------------------------------
<S> <C>
Common Stock 20,342,695
</TABLE>
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THE GOOD GUYS, INC.
INDEX
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<CAPTION>
Page
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
December 31, 1999 and September 30, 1999 3
Consolidated Statements of Operations -
Three month period ended December 31, 1999 4
Consolidated Statement of Changes in Shareholders' Equity -
Three month period ended December 31, 1999 5
Consolidated Statements of Cash Flows -
Three month period ended December 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,354 $ 2,556
Accounts receivable, net 27,379 19,021
Merchandise inventories 128,290 110,276
Prepaid expenses 11,289 6,637
-------- --------
Total current assets 168,312 138,490
PROPERTY AND EQUIPMENT, NET 73,958 79,954
OTHER ASSETS 7,645 7,646
-------- --------
Total Assets $249,915 $226,090
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 74,778 $ 36,571
Accrued expenses and other liabilities:
Accrued payroll 13,445 9,615
Sales taxes payable 10,023 4,936
Other 35,904 22,584
-------- --------
Total current liabilities 134,150 73,706
REVOLVING CREDIT DEBT 13,346 56,504
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value:
Authorized - 2,000,000 shares
Issued -none -- --
Common stock, $.001 par value
Authorized -40,000,000 shares
Issued and outstanding -19,796,549 and
19,636,022 shares, respectively 20 20
Additional paid-in-capital 89,252 88,332
Retained earnings 13,147 7,528
-------- --------
Total shareholders' equity 102,419 95,880
-------- --------
Liabilities and Shareholders' Equity $249,915 $226,090
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales $262,212 $294,098
Cost of sales 183,434 222,648
-------- --------
Gross profit 78,778 71,450
Selling, general and administrative expenses 72,456 68,258
-------- --------
Income from operations 6,322 3,192
Gain on sale of land 1,025 --
Interest expense, net 1,728 588
-------- --------
Income before income taxes 5,619 2,604
Income tax expense 0 952
-------- --------
Net income $ 5,619 $ 1,652
======== ========
Net income per common share
Basic $ 0.29 $ 0.12
======== ========
Diluted $ 0.27 $ 0.12
======== ========
Weighted average shares
Basic 19,700 14,250
======== ========
Diluted 21,024 14,250
======== ========
</TABLE>
The accompanying notes are an integral part of these financial 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, 1999
(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, 1999 19,636,022 $ 20 $ 88,332 $ 7,528 $ 95,880
Issuance of common stock 160,527 - 920 920
Net income for the three-month period
ended December 31, 1999 5,619 5,619
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 19,796,549 $ 20 $ 89,252 $ 13,147 $ 102,419
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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<CAPTION>
Three Months Ended
December 31,
---------------------
1999 1998
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 5,619 $ 1,652
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,699 2,968
Gain on sale of land (1,025) --
Non-cash stock based compensation 99 --
Changes in assets and liabilities:
Accounts receivable (8,358) (7,629)
Merchandise inventories (18,014) (13,223)
Prepaid expenses and other assets (4,651) 1,111
Accounts payable 38,207 14,931
Accrued expenses and other liabilities 22,392 13,716
-------- --------
Net cash provided by operating activities 37,968 13,526
-------- --------
Cash Flows from Investing Activities:
Sale of land 3,208 --
Capital expenditures (41) (3,349)
-------- --------
Net cash provided by (used in) investing activities 3,167 (3,349)
-------- --------
Cash Flows from Financing Activities:
Repayment of long-term debt (43,158) --
Proceeds from issuance of common stock 821 --
-------- --------
Net cash used in financing activities (42,337) --
-------- --------
Net increase (decrease) in cash and cash equivalents (1,202) 10,177
Cash and cash equivalents at beginning of period 2,556 3,051
-------- --------
Cash and cash equivalents at end of the period $ 1,354 $ 13,228
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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THE GOOD GUYS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation. 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 adjustments) necessary for a fair presentation of the information
contained therein. 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, 1999.
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 earnings per
share (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 had been converted into common stock.
The following is a reconciliation of the weighted average number of shares
(in thousands) used in the Company's basic and diluted per share
computations.
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1999 1998
------ ------
<S> <C> <C>
Basic shares 19,700 14,250
Effect of dilutive stock warrants 975 -
Effect of dilutive stock options 349 -
------ ------
Diluted shares 21,024 14,250
====== ======
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3. Statement of Financial Accounting Standards No. 133 (SFAS No. 133),
"Accounting for Derivative Instruments and Hedging Activities," defines
derivatives, requires all derivatives be carried at fair value, and provides
for hedging accounting when certain conditions are met. As amended by SFAS
No. 137, "Accounting for Derivative Instruments", SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000.
Although the Company has not fully assessed the implications of this new
statement, the Company does not believe adoption of this statement will have
a material impact on the Company's financial statements.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
BUSINESS OUTLOOK AND RISK FACTORS
The trend analyses and other non-historical information contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations are "forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to the safe harbor provisions
of those Sections. Such forward looking statements include, without limitation,
statements concerning the Company's future net sales, net earnings and other
operating results. The Company's actual results could differ materially from
those discussed in the forward looking statements, due to a number of factors,
including but not limited to increases in promotional activities of the
Company's competitors, changes in consumer buying attitudes, changes in vendor
support, changes in the Company's merchandise sales mix including discontinued
product categories, general economic conditions, costs and risks associated with
the Company's current restructuring program and other factors referred to in the
Company's fiscal 1999 Annual Report on Form 10-K under "Information Regarding
Forward Looking Statements".
RESULTS OF OPERATIONS
Net sales for the quarter ended December 31, 1999 were $262.2 million, a
decrease of 11% from sales of $294.1 million last year. The decrease in sales is
primarily due to the discontinuance of computer and home office products that
occurred in the fourth quarter of fiscal 1999. Excluding computer and home
office products, net sales increased by 1% in the first quarter of fiscal 2000
compared to the first quarter of fiscal 1999. This increase is primarily due to
two new stores opened during the first quarter of fiscal 1999 having a full
quarter of sales in the first quarter of fiscal 2000. During the quarter, sales
of new digital technologies, such as DVD, digital television, digital cameras
and camcorders and internet devices were relatively strong, but were offset by
decreases in VCRs, telecommunications, stereo components, auto installation and
video games. The sale of Premier Performance Guarantee contracts increased to
5.7% of sales during the first quarter of fiscal 2000 compared to 4.4% during
the first quarter of fiscal 1999. During the first quarter of fiscal 2000,
comparable store sales for continuing categories decreased 1% from the same
period last year.
The Company's gross profit as a percentage of sales was 30.0% during the first
fiscal quarter of fiscal 2000, compared to 24.3% last year. The increase in the
gross profit percentage reflects the discontinuance of the lower margin computer
and home office products, and the Company's emphasis on higher-margin digital
and high-tech consumer entertainment electronics. Also, commission revenue
earned on the sale of Premier Performance Guarantee contracts sold for an
unrelated third party increased in the first quarter of fiscal 2000 over the
previous year.
Selling, general and administrative expense increased by $4.2 million in the
first quarter of fiscal 2000, compared to the corresponding period in fiscal
1999. Selling, general and administrative expenses were 27.6% of net sales in
the first quarter of fiscal 2000, compared to 23.2% of net sales in the
corresponding period of fiscal 1999. The increase in selling, general and
administrative expenses in the first quarter of fiscal 2000 is primarily due to
increased advertising expenses, which are anticipated to remain above prior year
amounts, higher sales associate commissions due to increased gross margin
dollars, and higher occupancy costs associated with the Company's Audio/Video
Exposition stores that opened in fiscal 1999. These expenses were partially
offset by reduced general and administrative expenses primarily due to reduced
headcount.
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The Company sold a parcel of land for cash in the first quarter of fiscal 2000
resulting in a gain of approximately $1.0 million.
Interest expense was $1.7 million in the first quarter of fiscal 2000, which
represented an increase of $1.1 million, compared to the corresponding period in
fiscal 1999. This increase was due to higher levels of borrowings in the current
fiscal year, primarily to finance inventory for the holiday season.
The Company's effective tax rate was 0.0% for the first quarter of fiscal 2000,
compared to a tax rate of 36.6% for the corresponding period in fiscal 1999. The
effective tax rate for the first quarter of fiscal 2000 is based upon the
Company's best estimate of the effective tax rate expected to be applicable for
the full fiscal year.
As a result of the factors discussed above, the net income in the first quarter
of fiscal 2000 was $5.6 million, compared to income of $1.7 million in the same
period in fiscal 1999. For the first quarter of fiscal years 2000 and 1999,
basic earnings per share were $0.29 and $0.12 and diluted earnings per share
were $0.27 and $0.12, respectively.
As previously announced, the Company continues to implement its business
strategy for returning the Company to profitability. To improve the Company's
focus and profit margins, computers and home office products were eliminated
from the overall product mix in the fourth quarter of fiscal 1999. The Company
has reduced general and administrative expenses by streamlining all corporate
functions, including operations, management information systems, finance, human
resources and merchandising. Also, substantial costs have been reduced in stores
and other non-general and administrative areas. In the current fiscal year, the
Company is also committed to minimizing capital expenditures, and has placed a
moratorium on opening new stores and remodeling or relocating existing stores.
Projected expenditures for fiscal 2000 also incorporate increases in advertising
and marketing by more than 20% from previous levels.
The Company's financial goal is to report a pre-tax profit in the current fiscal
year that began October 1, 1999. However, the return to profitability is
contingent on many factors, including, but not limited to the successful
implementation of its new business strategy, the development of consumer
acceptance of new technologies, consumer demand for existing technologies, the
presence or absence of new features on existing merchandise, continued vendor
support and economic conditions in the regions in which the Company's stores are
located.
Liquidity and Capital Resources
At December 31, 1999, the Company's had cash and cash equivalents of $1.4
million. The Company's working capital was $34.2 million at December 31, 1999,
compared to $34.7 million at December 31, 1998. Net cash provided by operating
activities was $38.0 million for the three months ended December 31, 1999 as
compared to $13.5 million for the same period last year. The increase in net
cash provided by operating activities for the first three months of fiscal 2000
was primarily due to higher net income, accounts payable and other accrued
expenses, offset in part by higher inventories and prepaid expenses.
Net cash provided by investing activities was $3.2 million for the three months
ended December 31, 1999, as compared to net cash used in investing activities of
$3.3 million for the three months ended December 31, 1998. During the first
three months of fiscal 2000, the Company sold a parcel of land valued at $2.3
million and had a net increase in fixed assets of approximately $41,000 due to
the Company's decision not to open or remodel any stores in fiscal 2000.
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At December 31, 1999, the Company maintained a $100 million revolving credit
facility. The amount of borrowing allowed under the credit agreement is based on
a formula related to the Company's inventory balances. For the three months
ended December 31, 1999, the Company was in compliance with all covenants under
the credit agreement. At December 31, 1999, the Company had borrowings of $14.3
million outstanding under the revolving credit agreement and $29.6 million of
the credit line was reserved under a vendor financing agreement, leaving a
formula-based availability of $39.3 million.
The Company expects to fund its working capital requirements for the next twelve
months with a combination of cash flows from operations, normal trade credit,
and other financing arrangements.
Year 2000 Matters
As used by the Company, "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.
The Company identified all significant applications that required modification
to ensure Year 2000 Compliance. Internal and external resources were used to
make the required modifications and test Year 2000 Compliance. The Company
completed that testing on September 30, 1999.
In addition, the Company sought assurances from vendors, suppliers and other
third parties with whom it did significant business to determine their Year 2000
Compliance readiness and the extent to which the Company was vulnerable to any
third party Year 2000 issues.
As a result of these procedures, the Company did not experience any significant
operational problems due to unresolved Year 2000 issues either within the
Company or as a result of third parties who do business with the Company.
The Company estimates that the total cost of achieving Year 2000 compliance was
approximately $2,900,000, which was incurred through December 31, 1999.
Quantitative and Qualitative Disclosures About Market Risk
The Company believes that because of competition among manufacturers and
technological changes in consumer electronics industry, inflation has not had a
material effect on net sales and cost of sales.
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THE GOOD GUYS, INC.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On January 13, 1999, the Company was named as a defendant in an action entitled
Johnson v. Circuit City Stores, et al., filed in Contra Costa County Superior
Court. The primary allegation is that a number of consumer electronics retailers
have sold computer hardware and software products that allegedly will not
properly process dates after December 31, 1999. Plaintiff claims that the
actions of the defendants violate the prohibitions in the California Business
and Professions Code on unfair business practices and false and misleading
advertising, and seeks injunctive relief, restitution, and attorney's fees. The
defendants have removed the case to federal court and the plaintiff has filed a
motion to remand the case to state court. The Company intends to defend the
action and pursue its indemnification claims vigorously and does not believe
that the outcome will be material to the financial condition, results of
operations or liquidity of the Company.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27.1 Financial Data Schedule
b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
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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.
THE GOOD GUYS, INC.
Date: February 10, 2000 By: /s/ Paul N. Erickson
----------------------------- -------------------------
Paul N. Erickson
Chief Financial Officer
(Principal Financial Officer)
Date: February 10, 2000 By: /s/ Vance R. Schram
----------------------------- ------------------------
Vance R. Schram
VP, Finance and Controller
(Principal Accounting Officer)
12
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EXHIBIT INDEX
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<CAPTION>
Exhibit No. Description
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<S> <C> <C>
27.1 Financial Data Schedule
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13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 1,354
<SECURITIES> 0
<RECEIVABLES> 28,263
<ALLOWANCES> 884
<INVENTORY> 128,290
<CURRENT-ASSETS> 168,312
<PP&E> 149,185
<DEPRECIATION> 75,227
<TOTAL-ASSETS> 249,915
<CURRENT-LIABILITIES> 134,150
<BONDS> 13,346
0
0
<COMMON> 20
<OTHER-SE> 102,399
<TOTAL-LIABILITY-AND-EQUITY> 249,915
<SALES> 262,212
<TOTAL-REVENUES> 262,212
<CGS> 183,434
<TOTAL-COSTS> 183,434
<OTHER-EXPENSES> 70,986
<LOSS-PROVISION> 445
<INTEREST-EXPENSE> 1,728
<INCOME-PRETAX> 5,619
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,619
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.27
</TABLE>
