<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 quarterly period ended MAY 31, 1997
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 0-19269
SUN TELEVISION AND APPLIANCES,INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
OHIO 31-1178151
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6600 PORT ROAD, GROVEPORT,OH 43125
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 492-5600
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 in each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JULY 10, 1997
- ----------------------------- ----------------------------
Common shares, $.01 par value 17,439,202 shares
<PAGE> 2
SUN TELEVISION AND APPLIANCES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Operations
for the Quarters Ended
May 31, 1997 and June 1, 1996 3
Balance Sheet
May 31, 1997 and March 1, 1997 4
Statement of Cash Flows
for the Quarters Ended
May 31, 1997 and June 1, 1996 5
Notes to Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Results of Operation and Financial Condition 8 - 10
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SUN TELEVISION AND APPLIANCES, INC.
STATEMENT OF OPERATIONS
For the quarters ended May 31, 1997 and June 1, 1996
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
May 31, June 1,
1997 1996
-------- --------
<S> <C> <C>
Net sales and service revenues $104,995 $153,659
Cost of sales 81,914 116,502
-------- --------
Gross profit 23,081 37,157
Selling, general and administrative 32,122 41,825
Amortization of intangibles 123 123
Restructuring charge -- 2,000
-------- --------
(Loss) from operations (9,164) (6,791)
Other income (expenses): -------- --------
Interest income 26 175
Interest expense (1,128) (1,057)
Gain on sale of property 112 --
-------- --------
(990) (882)
-------- --------
(Loss) before income taxes (10,154) (7,673)
Income tax (benefit) -- (3,085)
-------- --------
Net (loss) $(10,154) $ (4,588)
======== ========
Net (loss) per share $ (.58) $ (.26)
======== ========
Weighted average shares outstanding 17,439 17,434
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
SUN TELEVISION AND APPLIANCES, INC.
BALANCE SHEET
May 31, 1997 and March 1, 1997
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
May 31, March 1,
1997 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,708 $ 1,828
Trade accounts receivable net of allowance
for doubtful accounts of $475 and $475 11,168 11,597
Merchandise inventory 102,872 97,368
Prepaid expenses and other 7,919 7,143
Income taxes refundable -- 14,619
Deferred income taxes 7,224 7,224
-------- --------
Total current assets 130,891 139,779
Property and equipment, net 96,205 100,267
Deferred income taxes 3,114 3,114
Intangible assets 14,430 14,553
-------- --------
Total assets $244,640 $257,713
======== ========
LIABILITIES
Current liabilities:
Trade accounts payable $ 28,889 $ 28,607
Accrued liabilities 30,643 31,604
Current portion of deferred revenue 14,948 16,033
-------- --------
Total current liabilities 74,480 76,244
Capital lease obligations 14,340 14,358
Deferred revenue, non-current 16,210 18,021
Long-term debt 41,677 41,007
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
500 shares authorized - none issued -- --
Common stock, $.01 par value, 30,000 shares authorized
17,439 and 17,439 shares issued and outstanding 174 174
Additional paid-in capital 88,484 88,480
Retained earnings 9,275 19,429
-------- --------
Total stockholders' equity 97,933 108,083
-------- --------
Total liabilities and stockholders' equity $244,640 $257,713
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
SUN TELEVISION AND APPLIANCES, INC.
STATEMENT OF CASH FLOWS
For the quarters ended May 31, 1997 and June 1, 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
May 31, June 1,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(10,154) $ (4,588)
Adjustments to reconcile (loss) to net cash
used by operating activities:
Depreciation and amortization 2,392 2,212
Deferred revenue (2,896) (1,519)
Deferred income taxes -- 653
(Gain) on sale of property and equipment (112) --
Restructuring charge -- 2,000
Changes in items affecting operations:
Trade accounts receivable 429 (193)
Merchandise inventory (5,504) (25,570)
Prepaid expenses and other (776) (596)
Trade accounts payable 282 22,421
Accrued liabilities (1,793) (898)
Income taxes refundable (payable) 15,451 (6,252)
-------- --------
8,089 (11,088)
-------- --------
Net cash (used) by operating activities (2,681) (12,330)
-------- --------
Cash flows from financing activities:
Additional borrowings 670 5,000
Reduction of capital lease obligations (19) (87)
Issuance of common stock under stock options 4 30
Dividends on common stock -- (152)
-------- --------
Net cash provided by financing activities 655 4,791
-------- --------
Cash flows from investing activities:
Additions to property and equipment (535) (2,993)
Proceeds from disposal of property and equipment 2,441 --
-------- --------
Net cash provided by (used) in investing activities 1,906 (2,993)
-------- --------
(Decrease) in cash and cash equivalents (120) (10,532)
Cash and cash equivalents, beginning of year 1,828 13,583
-------- --------
Cash and cash equivalents, end of period $ 1,708 $ 3,051
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,128 --
Income taxes -- $ 2,734
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
SUN TELEVISION AND APPLIANCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
---------------------
The financial statements as of May 31, 1997 and June 1, 1996, of Sun
Television and Appliances, Inc. (the "Company") are unaudited, and are
presented pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, Notes to the Financial Statements
which are contained in the Company's 1997 Annual Report should be read
in conjunction with these Financial Statements. In the opinion of
management, the accompanying unaudited financial statements reflect all
adjustments (which are of a normal recurring nature) necessary to
present fairly the financial position, results of operations and cash
flows for the interim periods presented, but are not necessarily
indicative of the results of operations for a full fiscal year.
2. LONG-TERM DEBT
--------------
As of May 31, 1997, the Company had outstanding borrowings of
$41,677,000 against its revolving credit commitment. The interest rate
in effect at May 31, 1997 was 9.00%. The Company is in compliance with
the covenants of its debt agreement.
3. NEW FINANCIAL ACCOUNTING STANDARDS
----------------------------------
SFAS No. 128, "Earnings Per Share," was issued in February 1997,
effective for financial statements issued for periods after December
15, 1997. The statement specifies the computation, presentation and
disclosure requirements for earnings per share amounts for entities
with publicly held common stock. The impact of the statement on
earnings per share is not expected to be material.
In July 1997, SFAS No. 130, Reporting Comprehensive Income was issued.
SFAS 130 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. The
Statement is effective for fiscal years beginning after December 15,
1997.
4. RESTRUCTURING ACCRUAL
---------------------
During fiscal 1997, the Company recorded restructuring charges of $16.7
million to provide for the closing of nine stores and the restructuring
of management, buying, logistics, store and field operations. As of
March 1, 1997, there was a remaining balance of $10.6 million, which
was included in Accrued Liabilities on the balance sheet. During the
first quarter of fiscal 1998, the Company charged $3.3 million to the
restructuring accrual primarily for severance and benefit costs and
professional and consulting fees. The balance of $7.3 million at May
31, 1997, which is included in Accrued Liabilities, is expected to be
settled during the remainder of fiscal 1998.
6
<PAGE> 7
5. SUBSEQUENT EVENT
----------------
On June 30, 1997, the Company entered into a sale-leaseback agreement
on its warehouse/distribution/general office facility at a sale price
which approximated book value of the assets. At May 31, 1997, the book
value of the assets was as follows (amounts in thousands):
<TABLE>
<CAPTION>
May 31, 1997
------------
<S> <C>
Land $ 2,324
Buildings 18,925
Less accumulated depreciation (891)
--------
Net fixed assets $ 20,358
========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company is involved in various legal proceedings that are
incidental to the conduct of its business. Management believes that any
resulting liability will not have a material adverse effect on the
Company's financial position or results of operations.
The landlords of the five closed stores in New York, three closed
stores and a closed warehouse in Ohio have filed suits in those states
for breach of the leases. The total amounts claimed by the landlords
exceed $48.0 million plus other damages. Discussions with the landlords
are currently in progress, but no agreement or settlements have been
reached. However, based on discussions with counsel, the efforts of the
Company to sublet the premises, reserves recorded for store closings
and other factors, the Company believes that it has adequately provided
for potential liabilities relating to these cases.
7
<PAGE> 8
Item 2.
SUN TELEVISION AND APPLIANCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATION AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
---------------------
The Company recorded a net loss of $10,154,000, or $.58 per share, for the first
quarter ended May 31, 1997, compared to a net loss of $4,588,000, or $.26 per
share, for the quarter ended June 1, 1996. Total sales declined $48.7 million to
$105.0 million for the first quarter this year. Comparable store sales declined
24.2% from $126.6 million for the quarter ended June 1, 1996, to $96.0 million
for the quarter ended May 31, 1997. The gross profit percentage rate decreased
from 24.2% last year to 22.0% this year for the comparable quarter. Selling,
general and administrative expenses have decreased $9.7 million dollars due to
the decline in sales, however, the percentage of expense to sales has increased
from 27.2% for the period ended June 1, 1996 to 30.6% for the quarter ended May
31, 1997. In addition, during the first quarter of last year, the Company had a
one-time restructuring charge of $2.0 million, or $.07 per share, principally
related to severance pay.
NET SALES AND SERVICE REVENUES
- ------------------------------
Net sales and service revenues for the first quarter ended May 31, 1997 were
$104,995,000, a decrease of $48,664,000, or 31.6%, from $153,659,000 for the
quarter ended June 1, 1996. Net sales and service revenues for the first quarter
ended June 1, 1996, includes sales of $24,700,000 from nine stores which were
closed in early March 1997. In addition, the net sales and service revenues were
impacted by the continuing soft retail environment and cooler than usual
temperatures, which adversely affect the Company's seasonal sale of air
conditioning. Sales in most product categories declined with home appliances,
including air conditioning, and home office products showing the largest
declines. Sales of personal convenience items as a percent to total sales has
declined as a result of discontinuing the bedding line and related furnishings.
GROSS PROFIT
- ------------
The gross profit percentage for the first quarter ended May 31, 1997 was 22.0%,
compared with 24.2% for the quarter ended June 1, 1996. This decrease in margin
rate was primarily attributable to the increasingly competitive and highly
promotional environment that exists in almost all of the Company's markets due
to the opening of additional competitors' stores, as well as the slow down in
consumer spending on electronics. Although this impacted all major product
categories, the gross margin rates on personal convenience and home audio showed
the most significant declines, while margins on home appliances were only
slightly down.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
As a percentage of net sales, selling, general and administrative expenses
increased from 27.2% in the first quarter ended June 1, 1996, to 30.6% for the
quarter ended May 31, 1997. The overall increase in these expenses as a percent
to sales is primarily a result of the decline in sales. Selling, general and
administrative expenses declined $9,703,000 to $32,122,000, or 23.1%, due to the
closure of nine stores in early March of this year, and expense reduction
programs that have been implemented in response to the soft sales environment.
8
<PAGE> 9
Item 2.
RESTRUCTURING CHARGE
- --------------------
During the quarter ended June 1, 1996, the Company recorded a $2.0 million
restructuring charge primarily related to severance pay and related benefits.
This was attributable to the restructuring of the buying, logistics, store and
field operations and a change of executive management.
OTHER INCOME/EXPENSES
- ---------------------
Interest expense for the quarter ended May 31, 1997 increased $71,000 compared
to the same period in fiscal 1997. The increase is attributable to the increase
in the average outstanding borrowings and higher interest rates this year versus
last year's first quarter.
INCOME TAXES
- ------------
The Company has not reflected any tax benefit for the quarter ended May 31, 1997
as the prior year loss, and the deferred tax assets recorded previously on the
books will utilize the tax benefit carrybacks available to the Company. The tax
benefits relating to current operating losses will be available to the Company
only on a carry forward basis and will be recorded at the time the Company
returns to annual profitability.
9
<PAGE> 10
FINANCIAL CONDITION
-------------------
The Company's financial condition has been impacted by increased competition in
the Company's markets, as well as industry-wide declines in consumer spending.
The current ratio is 1.76 for the quarter ended May 31, 1997 compared to 1.83 at
March 1, 1997. Inventory has increased by $5,500,000 to maintain in-stocks and
prepare for the summer selling season. The increase in inventory was minimized
due to the soft sales in the industry and the better controls achieved with the
implementation of the new software systems in August 1996. The Company received
the income taxes refundable of $14,619,000 as of March 1, 1997 in early May
1997.
The Company plans to remodel existing stores and relocate one store. By fall of
this year, the Canton store is to be relocated and the Findlay store will be
remodeled, increasing the selling square footage, as well as minor remodels at
existing stores. The Company expects capital expenditures for the remainder of
the year to be approximately $1,700,000 and anticipates covering these
requirements from proceeds generated from the sale-leaseback of the Columbus
distribution center that was completed in June, as well as cash flow from
operations and additional borrowings. The Company is also considering proposals
for the opening of new stores in new markets. These proposals have not yet been
finalized by management or reviewed and approved by the Board of Directors. If
these proposals are approved and the Company proceeds to implement the
proposals, anticipated capital expenditures would increase by approximately
$2,500,000.
BTS,LLC, a business turnaround service subsidiary of Price Waterhouse, LLP, has
been retained by the Company since February 1997 to assist in the efforts to
return the Company to profitability. BTS,LLC has assisted in the refinancing of
the Company's debt structure, the closure of stores in two market areas, the
sale-leaseback of the distribution center, the initiatives to revitalize markets
and the proposals for entering into additional single-store market areas. The
Company has paid $637,000 to BTS,LLC. Mr. Pate, Chairman, Interim Chief
Executive Officer and President, is a partner of Price Waterhouse, LLP and a
principle of BTS.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) including, but
not limited to, statements regarding future capital expenditures and possible
expansion, relocation and remodeling plans contained in this report, or made by
management of the Company, involves risks and uncertainties, and are subject to
change based on various important factors. The following factors, among others,
in some cases have affected, and in the future could affect, the Company's
financial performance and actual results, and could cause actual results for
fiscal 1998 and beyond to differ materially from those expressed or implied in
any such forward-looking statements: changes in consumer spending patterns,
consumer preferences and overall economic conditions; technological changes;
future capital needs; uncertainty of additional financing; competition;
dependence on suppliers, product demand, quarterly fluctuations and seasonality;
ability to find suitable new store sites; and volatility of stock price. Actual
results may differ materially from management expectations.
10
<PAGE> 11
PART II. - OTHER INFORMATION
In accordance with the instruction to Part II, the other specified items in this
part have been omitted because they are not applicable or the information has
been previously reported.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. Amendment to BTS,LLC Agreement
11. Computation of Net (Loss) per Common Share
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
11
<PAGE> 12
SUN TELEVISION AND APPLIANCES, INC.
SIGNATURE
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.
SUN TELEVISION AND APPLIANCES, INC.
(Registrant)
By /s/ John J. Lynch
--------------------------------------
John J. Lynch, Interim Chief Financial
Officer and Controller
Date: July 14, 1997
- ----------
* Mr. Lynch is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
12
<PAGE> 1
2001 Ross Avenue, Suite 1800 1177 Avenue of the Americas
Dallas, TX 75201-2997 New York, NY 10036
Telephone 214 754 7900 Telephone 212 596 7000
Facsimile 214 754 7929 Facsimile 212 596 8959
1201 Louisiana, Suite 2900 400 South Hope Street
Houston, TX 77002-5678 Los Angeles, CA 90071-2889
Telephone 713 654 4100 Telephone 213 236 3000
Facsimile 713 750 6000 Facsimile 213 452 7910
BTS LLC
A subsidiary of Price Waterhouse LLP
June 17, 1997
Sun Television and Appliances, Inc. Sun Television and Appliances, Inc.
c/o Mr. Paul Bauer c/o Mr. Brady Churches
182 Roxbury Park 1677 Taylor Corner Circle
East Amherst, NY 14501 Blacklick, OH 43004
Sun Television and Appliances, Inc.
c/o Mr. Thomas Epstein
229 Upper Mountain Ave.
Upper Montclair, NJ 07043
To the Executive Committee of the Board of Directors:
This letter will amend paragraph VI of the Agreement between Sun Television and
Appliances, Inc. ("SNTV" or the "Company") and BTS, LLC ("BTS"), a subsidiary
of Price Waterhouse LLP, as set forth in a letter agreement dated February 11,
1997 (the "Agreement").
From and after June 17, 1997, BTS will endeavor not to bill the Company for
time expended by BTS employees (other than R. Carter Pate) in the day-to-day
operation of the Company's business in an aggregate amount in excess of $10,000
per week, plus their reasonable out-of-pocket (including out-of-town living)
expenses. However, the Company will pay BTS for time expended by such employees
in connection with the day-to-day operation of the Company's business in an
aggregate amount not to exceed $12,000, plus their reasonable out-of-pocket
(including out-of-town living) expenses.
In addition, the Company will pay BTS for time expended by BTS employees (other
than R. Carter Pate) and outside consultants engaged by BTS at standard hourly
rates on special projects that have received prior written approval from the
Company's Board of Directors ("Special Projects"), including the current
Special Projects involving the proposed 10 Store expansion and the solicitation
and closing of new financing arrangements.
Mr. Pate will continue to be compensated for his services at the hourly rate of
$350 as provided in paragraph IX of the Agreement.
Sincerely,
BTS, LLC
a Subsidiary of Price Waterhouse LLP
By: /s/ R. Carter Pate
-----------------------------------
R. Carter Pate (not individually)
SUN TELEVISION AND APPLIANCES, INC.
By: /s/ Paul D. Bauer
-----------------------------------
Its: Director
----------------------------------
Date: 7/7/97
---------------------------------
<PAGE> 1
Exhibit 11
SUN TELEVISION AND APPLIANCES, INC.
COMPUTATION OF NET (LOSS) PER COMMON SHARE
FOR THE PERIODS ENDED MAY 31, 1997 AND JUNE 1, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the
Quarters Ended
---------------------
May 31, June 1,
1997 1996
--------- --------
<S> <C> <C>
Net (loss).................................................... $(10,154) $(4,588)
======== =======
Common shares outstanding:
Weighted average....................................... 17,439 17,364
Dilutive effect of stock option........................ -- 70
-------- -------
Weighted average shares used to calculate
net (loss) per share................................ 17,439 17,434
Add net additional dilutive effect of stock
options using period-end market price............... -- 95
-------- -------
Weighted average shares used to calculate
fully diluted (loss) per share...................... 17,439 17,529
======== =======
Net (loss) per share:
Assuming primary diluted.............................. $ (0.58) $ (0.26)
======== =======
Assuming full dilution................................ $ (0.58) $ (0.26)
======== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Sun
Television and Appliances, Inc.'s quarterly report on Form 10-Q for the
quarter ended May 31, 1997.
</LEGEND>
<CIK> 0000874690
<NAME> SUN TELEVISION AND APPLIANCES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-02-1997
<PERIOD-END> MAY-31-1997
<CASH> 1,708
<SECURITIES> 0
<RECEIVABLES> 11,168<F1>
<ALLOWANCES> 0
<INVENTORY> 102,872
<CURRENT-ASSETS> 130,891
<PP&E> 96,205
<DEPRECIATION> 0
<TOTAL-ASSETS> 244,640
<CURRENT-LIABILITIES> 74,480
<BONDS> 0
0
0
<COMMON> 174
<OTHER-SE> 97,759
<TOTAL-LIABILITY-AND-EQUITY> 244,640
<SALES> 104,995
<TOTAL-REVENUES> 104,995
<CGS> 81,914
<TOTAL-COSTS> 81,914
<OTHER-EXPENSES> 9,026
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,128
<INCOME-PRETAX> (10,154)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,154)
<EPS-PRIMARY> (.58)
<EPS-DILUTED> (.58)
<FN>
<F1>Trade accounts receivable net allowance for doubtful accounts of $475,000.
</FN>
</TABLE>
