<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 30, 1998
------------
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 14, 1998
- ----------------------------- ----------------------------
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 30, 1998 and May 31, 1997 3
Balance Sheet
May 30, 1998 and February 28, 1998 4
Statement of Stockholders' Equity
for the Quarter Ended May 30, 1998 5
Statement of Cash Flows
for the Quarters Ended
May 30, 1998 and May 31, 1997 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 11
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
</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 30, 1998 and May 31, 1997
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
May 30, May 31,
1998 1997
-------- --------
<S> <C> <C>
Net sales and service revenues $109,531 $104,995
Cost of sales 82,672 81,914
-------- --------
Gross profit 26,859 23,081
Selling, general and administrative 34,882 32,122
Amortization of intangibles 123 123
-------- --------
Loss from operations ( 8,146) ( 9,164)
Other income (expenses):
Interest income -- 26
Interest expense ( 2,780) ( 1,128)
Gain on sale of property 9 112
-------- --------
( 2,771) ( 990)
-------- --------
Loss before income taxes (10,917) (10,154)
Income tax benefit -- --
-------- --------
Net loss $(10,917) $(10,154)
======== ========
Net loss per share - basic and diluted $ (.63) $ (.58)
======== ========
Weighted average shares outstanding - basic
and diluted 17,439 17,439
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
SUN TELEVISION AND APPLIANCES, INC.
BALANCE SHEET
May 30, 1998 and February 28, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
May 30, February 28,
1998 1998
--------- --------
ASSETS
<S> <C> <C>
Current assets:
Trade accounts receivable net of allowance
for doubtful accounts of $475 $ 13,345 $ 18,186
Merchandise inventory 109,950 92,053
Prepaid expenses and other 3,225 2,867
Income taxes refundable -- 10,338
-------- --------
Total current assets 126,520 123,444
Property and equipment, net 80,112 78,782
Other noncurrent assets 5,344 6,069
Intangible assets 13,937 14,060
-------- --------
Total assets $225,913 $222,355
======== ========
LIABILITIES
Current liabilities:
Trade accounts payable $ 31,675 $ 25,221
Accrued liabilities 21,943 20,629
Current portion of deferred revenue 11,909 12,514
-------- --------
Total current liabilities 65,527 58,364
Capital lease obligations 13,764 13,895
Deferred revenue, noncurrent 12,458 13,259
Long-term debt 67,186 58,971
Other liabilities 2,725 2,725
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
500 shares authorized - none issued -- --
Common stock, $.01 par value, 30,000 shares authorized
17,439 shares issued and outstanding 174 174
Additional paid-in capital 89,118 89,089
Retained deficit (25,039) (14,122)
-------- --------
Total stockholders' equity 64,253 75,141
-------- --------
Total liabilities and stockholders' equity $225,913 $222,355
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
SUN TELEVISION AND APPLIANCES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the Quarter Ended May 30, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Number of Common Paid-In Retained
Shares Stock Capital Deficit
--------- ------ ---------- --------
<S> <C> <C> <C> <C>
Balance, February 28, 1998 17,439 $174 $89,089 $(14,122)
Issuance of warrants and
stock option expense -- -- 29 --
Net loss -- -- -- (10,917)
------ ---- ------- --------
Balance, May 30, 1998 17,439 $174 $89,118 $(25,039)
====== ==== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
SUN TELEVISION AND APPLIANCES, INC.
STATEMENT OF CASH FLOWS
For the quarters ended May 30, 1998 and May 31, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
May 30, May 31,
1998 1997
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,917) $(10,154)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 3,375 2,494
Deferred revenue (1,406) (2,896)
Gain on sale of property and equipment (9) (112)
Stock options expense 29 --
Changes in items affecting operations:
Trade accounts receivable 4,841 429
Merchandise inventory (17,897) (5,004)
Prepaid expenses and other (303) (679)
Trade accounts payable 8,146 (218)
Accrued liabilities 1,351 (1,793)
Income taxes refundable 10,338 15,451
-------- --------
6,476 8,186
-------- --------
Net cash used by operating activities (2,452) (2,482)
-------- --------
Cash flows from financing activities:
Cash overdraft (1,692) --
Additional borrowings 8,174 670
Reduction of capital lease obligations (131) (19)
Issuance of common stock under stock options -- 4
-------- --------
Net cash provided by financing activities 6,351 655
-------- --------
Cash flows from investing activities:
Additions to property and equipment (5,299) (734)
Proceeds from disposal of property and equipment 1,400 2,441
-------- --------
Net cash provided by (used in) investing activities (3,899) 1,707
-------- --------
Decrease in cash and cash equivalents -- (120)
Cash and cash equivalents, beginning of year -- 1,828
-------- --------
Cash and cash equivalents, end of period $ -- $ 1,708
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,698 $ 1,128
Income taxes -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
SUN TELEVISION AND APPLIANCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The financial statements as of and for the periods ended May 30, 1998
and May 31, 1997, 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,
these financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's 1998
Annual Report on Form 10-K. 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 and results of operations and cash flows for the
interim periods presented.
Because of the seasonal nature of the retail industry in general, the
results of operations for the 13 weeks ended May 30, 1998 and May 31,
1997 (which do not include the fall holiday selling season) are not
indicative of the Company's results for the entire fiscal year.
During the first quarter of fiscal 1999, the Company adopted Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income and its components. For all periods presented,
comprehensive income is equivalent to net income.
2. LONG-TERM DEBT
As of May 30, 1998, the Company had outstanding borrowings of $43.8
million against its revolving credit commitment. The interest rate in
effect at May 30, 1998 was 9.00%. The Company also had an outstanding
balance of $23.4 million under its 14.5% term loan at May 30, 1998. The
Company is in compliance with the covenants of its debt agreements.
3. 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
February 28, 1998, there was a remaining balance of $2.2 million, which
was included in accrued liabilities on the balance sheet. During the
first quarter of fiscal 1999, the Company charged $0.7 million to the
restructuring accrual primarily for lease payments on stores closed as
part of the restructuring. The balance of $1.5 million at May 30, 1998,
which is included in accrued liabilities, is expected to be utilized
during the remainder of fiscal 1999.
4. 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.
5. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to current
year presentation.
7
<PAGE> 8
Item 2.
SUN TELEVISION AND APPLIANCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Comments
The Company recorded a net loss of $10,917,000, or $.63 per share, for the first
quarter ended May 30, 1998, compared to a net loss of $10,154,000, or $.58 per
share, for the quarter ended May 31, 1997. Total sales increased $4.5 million to
$109.5 million for the first quarter this year. Comparable store sales declined
9.7% from $103.6 million for the quarter ended May 31, 1997, to $93.5 million
for the quarter ended May 30, 1998. The gross profit percentage rate increased
from 22.0% last year to 24.5% this year for the comparable quarter. Selling,
general and administrative expenses have increased $2.8 million and the
percentage of expense to sales has increased from 30.6% for the quarter ended
May 31, 1997 to 31.8% for the quarter ended May 30, 1998.
Net Sales and Service Revenues
Net sales and service revenues for the first quarter ended May 30, 1998 were
$109,531,000, an increase of $4,536,000, or 4.3%, from $104,995,000 for the
quarter ended May 31, 1997. Net sales and service revenues for the first quarter
ended May 30, 1998, includes sales of $15,100,000 from seventeen stores which
have opened since November 1997. The increase in sales is primarily attributable
to increased sales of home appliances while sales in other product categories
were relatively flat.
Retail store sales mix by major product category for the first quarter was as
follows:
<TABLE>
<CAPTION>
First Quarter Ended
-------------------
May 30, May 31,
1998 1997
------- -------
<S> <C> <C>
Television 21.2% 21.7%
Home Office 23.4 23.0
Appliances 23.4 20.3
Audio 10.5 11.0
Video 10.2 10.8
Extended service contracts, service
revenues and other income 7.3 8.3
Personal convenience 4.0 4.9
----- -----
100.0% 100.0%
===== =====
</TABLE>
8
<PAGE> 9
The Company's business, consistent with other retailers in general, is seasonal.
Historically, the Company has realized more of its net sales and service
revenues and income from operations during the fall holiday selling season than
during other periods of the year. The net earnings/losses of any interim quarter
are seasonally disproportionate to net sales since administrative and certain
operating expenses remain relatively constant during the year. Therefore,
interim results should not be considered indicative of the results for the
entire fiscal year.
During the quarter, the Company opened a total of seven new store locations;
three in Buffalo, New York; one each in Marion and Hamilton, Ohio; Lebanon,
Pennsylvania; and Richmond, Kentucky. The Company had 58 stores open as of May
30 1998, and plans to open up to 10 new stores during the remainder of fiscal
1999.
Gross Profit
The gross profit percentage for the first quarter ended May 30, 1998 was 24.5%,
compared with 22.0% for the quarter ended May 31, 1997. This increase in margin
rate was primarily attributable to a more favorable product sales mix, improved
inventory management and buying processes. All major product categories
experienced significant improvement in margin rates contributing to the overall
increase.
Selling, General and Administrative Expenses
As a percentage of net sales, selling, general and administrative expenses
increased from 30.6% in the first quarter ended May 31, 1997, to 31.8% for the
quarter ended May 30, 1998. The overall increase in these expenses as a percent
of sales is primarily a result of increased payroll and rent and other occupancy
costs as a percent of sales. These costs also resulted in the overall increase
in selling, general and administrative expenses with payroll costs increasing
approximately $1,900,000 and rent and other occupancy costs increasing
approximately $1,500,000 related to the new stores opened by the Company as of
May 30, 1998.
Other Income/Expenses
Interest expense for the quarter ended May 30, 1998 increased $1,652,000
compared to the same period in fiscal 1998. 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 30,
1998. 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
Liquidity and Capital Resources
The Company's financial condition continues to be impacted by increased
competition in the Company's markets. The current ratio is 1.93 for the quarter
ended May 30, 1998 compared to 2.12 at February 28, 1998. Trade accounts
receivable decreased by $4,841,000 resulting primarily from a reduction in
finance contracts receivable due to lower sales in the first quarter of fiscal
1999 versus sales in the fourth quarter of fiscal 1998, reflecting the seasonal
business of the Company. Inventory has increased by $17,897,000 to maintain
in-stocks, prepare for the summer selling season and stock the Company's new
stores. The Company received the income taxes refundable of $10,338,000 as of
February 28, 1998 in April 1998. The $6,454,000 increase in trade accounts
payable since the end of fiscal 1998 is attributable to planned and completed
store openings and the continued favorable support from trade vendors.
Capital expenditures for the first quarter ended May 30, 1998 totaled $5.3
million compared to $0.7 million for the first quarter last year, reflecting
planned new store openings. The Company currently estimates that capital
expenditures for the remainder of fiscal 1999 will not exceed $8.0 million
depending on the number of stores opened and other capital expenditures incurred
by the Company. Management anticipates that capital expenditures will be funded
through cash flow from operations and additional borrowings.
BRS,LLC, a business turnaround service subsidiary of PricewaterhouseCoopers,
LLP, has been retained by the Company since February 1997 to assist in the
efforts to return the Company to profitability. BRS,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. For the quarter ended May 30, 1998, the Company paid $309,000 to
BRS,LLC. Mr. R. Carter Pate, Chairman, Interim Chief Executive Officer and
President of the Company, is a partner of PricewaterhouseCoopers, LLP and a
principle of BRS, LLC.
Year 2000 Conversion
As discussed in the Company's Annual Report on Form 10-K, the Company is in the
process of evaluating its information technology infrastructure for compliance
with the year 2000 ("Y2K"). As part of this process, the Company has, and will
continue, to evaluate appropriate courses of action, including the replacement
of certain systems that are determined to not be Y2K compliant.
The Company does not expect that the cost to be Y2K compliant will be material
to its financial condition or results of operations. The costs are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans. The Company does not anticipate any material
disruption in its operations as a result of any failure by the Company to be in
compliance.
10
<PAGE> 11
The Company is in the process of obtaining, but does not currently have,
complete information concerning the Y2K compliance status of its suppliers and
vendors. In the event that any of the Company's significant suppliers or vendors
do not successfully and timely achieve Y2K compliance, the Company's business or
operations could be adversely affected.
New Financial Accounting Standards
On April 13, 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities."
(SOP 98-5). The SOP requires that costs incurred during start-up activities be
expensed as incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. Adoption of this statement is not expected to have a material
impact on the Company's financial position or results of operations.
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 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 1999 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.
11
<PAGE> 12
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
11. Computation of Net Loss Income per Common Share
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
12
<PAGE> 13
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/ Beth A. Savage
---------------------------------------
Beth A. Savage, Chief Financial Officer
and Treasurer
Date: July 14, 1998
- -------------------
* Ms. Savage is the principal financial officer and has been duly authorized
to sign on behalf of the Registrant.
13
<PAGE> 1
Exhibit 11
SUN TELEVISION AND APPLIANCES, INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
For the Quarters Ended May 30, 1998 and May 31, 1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Quarter Ended
---------------------
May 30, May 31,
1998 1997
------- -------
<S> <C> <C>
Net loss $(10,917) $(10,154)
======== ========
Common shares outstanding:
Weighted average 17,439 17,439
Dilutive effect of stock options and warrants -- --
-------- --------
Weighted average shares used to calculate
diluted loss per share 17,439 17,439
======== ========
Net loss per share:
Assuming basic $ (0.63) $ (0.58)
======== ========
Assuming diluted $ (0.63) $ (0.58)
======== ========
</TABLE>
14
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000874690
<NAME> SUN TELEVISION AND APPLIANCES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 13,345<F1>
<ALLOWANCES> 0
<INVENTORY> 109,950
<CURRENT-ASSETS> 126,520
<PP&E> 80,112
<DEPRECIATION> 0
<TOTAL-ASSETS> 225,913
<CURRENT-LIABILITIES> 65,527
<BONDS> 0
0
0
<COMMON> 174
<OTHER-SE> 64,079
<TOTAL-LIABILITY-AND-EQUITY> 225,913
<SALES> 109,531
<TOTAL-REVENUES> 109,531
<CGS> 82,672
<TOTAL-COSTS> 82,672
<OTHER-EXPENSES> 34,996
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,780
<INCOME-PRETAX> (10,917)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,917)
<EPS-BASIC> (0.63)
<EPS-DILUTED> (0.63)
<FN>
<F1>Trade accounts receivable net allowance for doubtful accounts of $475.
</FN>
</TABLE>
