SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
- - ACT OF 1934 For the quarterly period ended DECEMBER 31, 1996, or
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ________.
Commission file number 0-15194
SOUND ADVICE, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-1520531
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1901 TIGERTAIL BOULEVARD, DANIA, FLORIDA 33004
----------------------------------------------
(Address of principal executive offices) (Zip Code)
(954) 922-4434
----------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
----------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICAL DATE.
COMMON STOCK, PAR VALUE $.01 PER SHARE - 3,728,894 SHARES OUTSTANDING AS OF
FEBRUARY 7, 1997.
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Consolidated Financial Statements.
Consolidated Balance Sheets (Unaudited)
December 31, 1996 and June 30, 1996 3-4
Consolidated Statements of Operations (Unaudited) for the
Three and Six Months Ended December 31, 1996 and 1995 5
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended December 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 9-11
PART II - OTHER INFORMATION
- -----------------------------
Item 4. Submission of Matters to a Vote of Security-Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
- ----------
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, 1996 AND JUNE 30, 1996
DECEMBER 31, 1996 JUNE 30, 1996
------------------ ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 182,226 $ 1,007,231
Receivables:
Vendors 4,148,501 3,259,226
Trade 1,082,770 623,840
Employees 264,071 217,742
------------------ ----------------
5,495,342 4,100,808
Less allowance for doubtful accounts (374,000) (572,000)
------------------ ----------------
5,121,342 3,528,808
Inventories 27,572,910 27,587,101
Prepaid and other current assets 737,951 638,113
Deferred tax asset 609,930 712,930
Income taxes receivable 1,273,571 1,170,571
------------------ ----------------
Total current assets 35,497,930 34,644,754
------------------ ----------------
Property and equipment, net 14,484,504 13,947,974
Deferred tax asset, net 96,098 96,098
Other assets 213,050 196,035
Goodwill, net 158,666 170,891
------------------ ----------------
$ 50,450,248 $ 49,055,752
================== ================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 3
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, 1996 AND JUNE 30, 1996
DECEMBER 31, 1996 JUNE 30, 1996
------------------ ---------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under revolving credit facility $ 6,183,861 $ 9,100,115
Accounts payable 12,531,104 11,605,540
Cash overdraft 892,876 --
Accrued liabilities 7,249,381 5,152,353
Current installments of long-term debt 166,248 161,406
------------------ ---------------
Total current liabilities 27,023,470 26,019,414
Long-term debt, excluding current installments 660,079 745,564
Capital lease obligation 813,398 815,940
Other liabilities and deferred credits 4,255,068 4,305,995
------------------ ---------------
32,752,015 31,886,913
------------------ ---------------
Shareholders' equity:
Common stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding
3,728,894 shares at December 31, 1996
and June 30, 1996 37,289 37,289
Additional paid-in capital 11,058,655 11,058,655
Retained earnings 6,602,289 6,072,895
------------------ ---------------
Total shareholders' equity 17,698,233 17,168,839
Commitments and contingencies
------------------ ---------------
$ 50,450,248 $ 49,055,752
================== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 4
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
DECEMBER 31, DECEMBER 31,
------------ ------------
1996 1995 1996 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 47,724,208 $ 53,260,184 $ 88,074,972 $ 97,425,352
Cost of goods sold 32,720,986 39,293,524 60,772,656 70,818,574
---------------- ---------------- ---------------- ----------------
Gross profit 15,003,222 13,966,660 27,302,316 26,606,778
Selling, general and administrative
expenses 13,578,452 15,698,803 25,540,818 29,063,916
---------------- ---------------- ---------------- ----------------
Income (loss) from operations 1,424,770 (1,732,143) 1,761,498 (2,457,138)
Other income (expense):
Interest expense (442,595) (403,473) (777,962) (724,045)
Other, net 18,034 782 20,858 2,836
---------------- ---------------- ---------------- ----------------
Income (loss) before income taxes (benefit) 1,000,209 (2,134,834) 1,004,394 (3,178,347)
Income taxes (benefit) 475,000 (175,200) 475,000 (461,300)
---------------- ---------------- ---------------- ----------------
Net income (loss) $ 525,209 $ (1,959,634) $ 529,394 $ (2,717,047)
================ ================ ================ ================
COMMON AND COMMON EQUIVALENT
PER SHARE AMOUNTS:
NET INCOME (LOSS) PER SHARE $ 0.14 $ (0.53) $ 0.14 $ (0.73)
================ ================ ================ ================
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 3,728,894 3,728,894 3,728,894 3,728,894
================ ================ ================ ================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 5
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
------------------ ---------------
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 529,394 $ (2,717,047)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,536,792 1,696,987
Loss on disposition of assets 876 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables (1,592,534) (702,380)
Inventories 14,191 (2,014,108)
Prepaid and other current assets (99,838) 903,342
Deferred tax asset 103,000 --
Income taxes receivable (103,000) 38,700
Other assets (35,015) 82,835
Increase (decrease) in:
Accounts payable 925,564 1,181,339
Accrued liabilities 2,097,028 858,200
Other liabilities (50,927) (9,290)
------------------ ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,325,531 (681,422)
------------------ ---------------
INVESTING ACTIVITIES:
Capital expenditures (2,043,973) (448,209)
------------------ ---------------
NET CASH (USED IN) INVESTING ACTIVITIES (2,043,973) (448,209)
------------------ ---------------
FINANCING ACTIVITIES:
Net repayments on revolving credit agreement (2,916,254) (2,146,376)
Net (repayments) borrowings on long-term debt (80,643) 3,258,678
Increase in cash overdraft 892,876 20,434
Reductions in capital lease obligation (2,542) (2,100)
------------------ ---------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (2,106,563) 1,130,636
------------------ ---------------
(Decrease) increase in cash (825,005) 1,005
Cash, beginning of period 1,007,231 46,950
------------------ ---------------
CASH, END OF PERIOD $ 182,226 $ 47,955
================== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 559,734 $ 626,806
================== ===============
Income taxes paid, net of refunds $ -- $ (500,000)
================== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 6
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.) BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in conformity with instructions to Form 10-Q and, therefore, do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Certain items included
in these statements are based on management estimates. In the opinion of
management, the accompanying financial statements contain all adjustments,
consisting of normal, recurring accruals, necessary to present fairly the
financial position of the Company at December 31, 1996 and June 30, 1996 and the
statements of operations for the three and six month periods ended December 31,
1996 and 1995 and statements of cash flows for the six month periods ended
December 31, 1996 and 1995. The results of operations for the three and six
months ended December 31, 1996 are not necessarily indicative of the operating
results expected for the fiscal year ending June 30, 1997. These financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Company's annual report on Form
10-K for the fiscal year ended June 30, 1996.
2.) NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
--------------------------------------------------------
Net income (loss) per common and common equivalent share has been
determined by dividing net income (loss) by the weighted average number of
shares of common stock and common stock equivalents outstanding during the
respective period unless their effect was antidilutive.
3.) SEASONALITY
-----------
Historically, the Company's net sales are greater during the holiday
season than during other periods of the year. Net sales by fiscal quarters and
their related percentages for the trailing four quarters ended December 31, 1996
and 1995 are as follows:
TRAILING FOUR QUARTERS ENDED DECEMBER 31,
-----------------------------------------
(Dollars in Thousands)
QUARTERLY SALES
- ---------------
1996 1995
---- ----
AMOUNT % AMOUNT %
-------- ---- -------- ----
Second Quarter $47,724 29.9% $ 53,260 29.5%
(October - December)
First Quarter 40,351 25.3 44,165 24.5
(July - September)
Fourth Quarter 32,481 20.3 39,148 21.7
(April - June)
Third Quarter 39,079 24.5 43,781 24.3
(January - March) -------- ---- -------- ----
SALES FOR TRAILING TWELVE $159,635 100% $180,354 100%
MONTHS ENDED DECEMBER 31, ======== ==== ======== ====
1996 AND 1995, RESPECTIVELY
Page 7
<PAGE>
4.) PROPERTY AND EQUIPMENT, NET
---------------------------
Property and equipment, net, consists of the following:
DECEMBER 31, 1996 JUNE 30, 1996
----------------- ------------
Land $ 521,465 $ 521,465
Building 1,119,605 1,119,605
Furniture and equipment 7,964,858 8,545,945
Leasehold improvements 15,229,656 14,494,852
Display fixtures 5,193,111 5,049,940
Vehicles 892,740 949,168
------------ ------------
Total 30,921,435 30,680,975
Less accumulated depreciation (16,436,931) (16,733,001)
------------ ------------
Property and equipment, net $ 14,484,504 $ 13,947,974
============ ============
5.) PROVISION (BENEFIT) FOR INCOME TAXES
------------------------------------
During the fiscal year ended June 30, 1996, the Company recognized the
maximum available tax benefit associated with its net operating loss carryback.
The Company had sufficient taxable income in previous years to support the
recognition of its deferred tax assets. A valuation allowance has been
established to the extent future deductible amounts cannot be recovered through
Federal taxes paid within the statutory carryback period. Additional tax
benefits will be recognized when the Company generates sufficient additional
taxable income.
6.) STOCK OPTIONS
-------------
During the first quarter ended September 30, 1996 incentive stock
options covering an aggregate of 11,000 shares of common stock having an
exercise price of $7.27 per share expired. During the second quarter ended
December 31, 1996 incentive stock options covering an aggregate of 27,500 shares
of common stock having an exercise price of $5.45 per share expired.
Page 8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
- ---------------------
The Company's net sales for the quarter ended December 31,1996,
decreased $5,536,000 or 10.4% to $47,724,000 compared to $53,260,000 in the
prior fiscal year. The decrease is primarily attributable to the Company's
decision to eliminate personal computers and other non-performing low margin
products from the product mix. Comparable store net sales decreased 11.3% in the
quarter ended December 31, 1996 over the corresponding quarter in the prior
year. The comparable store sales were adjusted to exclude the store relocated to
a larger showroom in November 1996. The Company's operations, in common with
other retailers in general, are subject to seasonal influences. Historically,
the Company has realized more of its net sales and operating income in the
second quarter ending in December.
Net sales for the six months ended December 31,1996, decreased by
$9,350,000 or 9.6% to $88,075,000 over the corresponding period in the prior
fiscal year. The decrease in net sales is attributable, as stated above, to the
Company's decision to eliminate personal computers and other non-performing low
margin products from the product mix. Comparable store net sales as adjusted for
the relocated store decreased 10.4% in the six months ended December 31, 1996
compared to the corresponding six month period in the prior fiscal year.
Gross profit increased by $1,037,000 or 7.4% in the quarter ended
December 31, 1996 compared to the corresponding quarter in fiscal 1996. The
gross profit in the second quarter of fiscal 1996 was impacted by a $1,500,000
provision for loss on personal computer and related accessories in connection
with such product category's elimination from the Company's product mix. The
gross profit percentage was 31.4% in the quarter ended December 31, 1996.
Exclusive of the provision on personal computers and accessories, the gross
profit percentage was 29.0% for the quarter ended December 31, 1995. The
increase in gross profit percentage is directly related to the Company's renewed
specialty retailing focus on value added selling in the core categories of high
end audio, video and mobile electronics.
Gross profit increased by $696,000 or 2.6% in the six months ended
December 31, 1996 compared to the corresponding period in the prior year. The
gross profit percentage was 31.0% in the six months ended December 31, 1996.
Exclusive of the provision for loss on personal computers and accessories, the
gross profit percentage for the six month period ended December 31, 1995 was
28.8%. As stated above, this increase in gross profit and gross profit
percentage is directly related to the elimination of computers and other
non-performing low margin products from the product mix and the Company's
renewed specialty retailing focus on value added selling in the core categories
of high end audio, video and mobile electronics.
Page 9
<PAGE>
Selling, general and administrative expenses ("SG&A") decreased by
$2,120,000 and $3,523,000 in the quarter and six months ended December 31, 1996
over the corresponding periods in the prior year. Decreases in SG&A in both
periods were primarily attributable to cost reduction programs initiated by the
Company primarily in the areas of advertising and personnel expense. SG&A as a
percentage of net sales decreased to 28.5% and 29.0% in the quarter and six
months ended December 31, 1996 from 29.5% and 29.8%, respectively, in the
comparable periods of the previous year.
Interest expense increased by $39,000 for the quarter and $54,000 for
the six months ended December 31, 1996 compared to the same periods in the prior
year. The increase was primarily reflective of a higher effective interest rate
under the Company's revolving credit facility during the second quarter and
first six months of fiscal 1997 on a decreased level of borrowing as compared to
the same quarter and six month periods in fiscal 1996.
The Company had an effective income tax rate of approximately 47.5% for
the quarter and 47.3% for the six months ended December 31, 1996 compared to an
effective income tax rate benefit of 8.2% and 14.5%, respectively, in the
comparable periods of the previous year. The effective tax rate increased during
the first six months of fiscal 1997 due primarily to an increase in taxable
income and the upward adjustment to the valuation reserve on deferred tax assets
resulting from a reduction in the amount of taxes paid in prior years that would
be available to offset future tax losses or temporary differences.
Net income for the quarter ended December 31, 1996 was $525,000 or $.14
per share compared to net loss of $1,960,000 or $.53 per share for the same
quarter in the previous year. Net income for the six months ended December 31,
1996 was $529,000 or $.14 per share compared to net loss of $2,717,000 or $.73
per share in the same period of the prior fiscal year. The net income in the
1997 fiscal year was primarily attributable to the increase in gross profit as a
result of margin improvement in the core categories of audio, video and mobile
electronics, elimination of personal computers and other low margin products and
the reduction in SG&A expenses.
FINANCIAL CONDITION
- -------------------
Net cash provided by operating activities was approximately $3,326,000
for the six months ended December 31, 1996. The Company had working capital of
approximately $8,474,000 at December 31, 1996, as compared to the $8,625,000 in
working capital at June 30, 1996 for an overall decrease of $151,000. The
increase in current assets of $853,000 during the six month period was primarily
related to the $1,593,000 increase in accounts receivable, which was partially
offset by a decrease in cash of $825,000. The net increase in current assets was
offset by an overall increase of $1,004,000 in current liabilities primarily
resulting from an increase in each of accounts payable of $926,000, cash
overdraft of $893,000, and accrued liabilities of $2,097,000, which were
partially offset by a decrease of $2,916,000 in borrowings under the revolving
credit facility.
Page 10
<PAGE>
The Company currently believes that funds from the Company's operations
combined with borrowings available under its revolving credit facility and
vendor credit programs will be sufficient to satisfy its currently projected
operating cash requirement for fiscal 1997. The Company's operating performance
has improved as a result of a return to its traditional speciality retailing
focus on value added selling in the core categories of high end audio, video and
mobile electronics together with the elimination of personal computers and other
non-performing products from its product mix.
Page 11
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
(a) The Registrant held its 1996 annual meeting of shareholders on
Tuesday, January 21, 1997 (the "Annual Meeting").
(b) and (c) The only matter voted upon at the Annual Meeting was the
election of six directors which comprised the Registrant's entire Board of
Directors. The six nominees, who were the nominees of the Registrant's Board of
Directors and all of which were serving as directors of the Registrant as of the
date of the Annual Meeting, were all elected at the Annual Meeting as directors
of the Registrant receiving the number of votes for election and abstentions and
percentage of total votes cast as set forth next to their respective names
below:
NOMINEE FOR DIRECTOR FOR THE ELECTION ABSTAIN
-------------------- -------------------- ---------------
Peter Beshouri 3,120,898.5 (96.59%) 110,068 (3.41%)
Michael Blumberg 3,120,898.5 (96.59%) 110,068 (3.41%)
G. Kay Griffith 3,121,398.5 (96.61%) 109,568 (3.39%)
Herbert A. Leeds 3,120,998.5 (96.60%) 109,968 (3.40%)
Richard W. McEwen 3,121,498.5 (96.61%) 109,468 (3.39%)
Gregory Sturgis 3,121,498.5 (96.61%) 109,468 (3.39%)
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed with this report:
EXHIBIT NO. DESCRIPTION
----------- -----------------------------------------------
27. Financial Data Schedule.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarter ended December 31, 1996.
Page 12
<PAGE>
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.
SOUND ADVICE, INC.
-------------------------------------
(Registrant)
Date FEBRUARY 12, 1997 /s/ PETER BESHOURI
------------------ -------------------------------------
Peter Beshouri, Chairman of the
Board, President and Chief
Executive Officer
Date FEBRUARY 12, 1997 /s/ KENNETH L. DANIELSON
----------------- -------------------------------------
Kenneth L. Danielson, Chief
Financial and Accounting Officer
Page 13
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
27. Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE REGISTRANT'S
FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 182,226
<SECURITIES> 0
<RECEIVABLES> 5,495,342
<ALLOWANCES> 374,000
<INVENTORY> 27,572,910
<CURRENT-ASSETS> 35,497,930
<PP&E> 30,921,435
<DEPRECIATION> 16,436,931
<TOTAL-ASSETS> 50,450,248
<CURRENT-LIABILITIES> 27,023,470
<BONDS> 1,473,477
0
0
<COMMON> 37,289
<OTHER-SE> 17,660,944
<TOTAL-LIABILITY-AND-EQUITY> 50,450,248
<SALES> 88,074,972
<TOTAL-REVENUES> 88,074,972
<CGS> 60,772,656
<TOTAL-COSTS> 60,772,656
<OTHER-EXPENSES> 25,540,818
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 777,962
<INCOME-PRETAX> 1,004,394
<INCOME-TAX> 475,000
<INCOME-CONTINUING> 529,394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 529,394
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
