<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 NOVEMBER 28, 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
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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 DECEMBER 31, 1998
----- --------------------------------
Common Shares, $.01 par value 17,439,202 shares
<PAGE> 2
SUN TELEVISION AND APPLIANCES, INC.
(DEBTOR-IN-POSSESSION EFFECTIVE SEPTEMBER 16, 1998)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Operations
for the Two Months Ended
October 31, 1998 and Quarter Ended November 29, 1997 3
Statement of Operations
for the Eight Months Ended
October 31, 1998 and Nine Months Ended November 29, 1997 4
Balance Sheet
October 31, 1998 and February 28, 1998 5
Statement of Cash Flows
for the Eight Months Ended
October 31, 1998 and Nine Months Ended November 29, 1997 6
Statement of Deficiency in Net Assets Available in Liquidation
November 28, 1998 7
Statement of Changes in Deficiency in Net Assets Available in Liquidation
for the Month Ended November 28, 1998 8
Notes to Financial Statements 9-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-14
Part II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SUN TELEVISION AND APPLIANCES, INC.
(DEBTOR-IN-POSSESSION EFFECTIVE SEPTEMBER 16, 1998)
STATEMENT OF OPERATIONS
For the two months ended October 31, 1998
and the quarter ended November 29, 1997
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
October 31, November 29,
1998 1997
---------- ------------
<S> <C> <C>
Net sales and service revenues 56,161 127,887
Cost of sales 45,018 96,567
-------- ---------
Gross profit 11,143 31,320
Selling, general and administrative 20,322 35,262
Impairment of long-lived assets 293 --
Amortization of intangibles -- 123
-------- ---------
Loss from operations (9,472) (4,065)
Other income (expenses):
Interest income 4 --
Interest expense (1,743) (1,049)
Gain on sale of property 6
-------- ---------
(1,739) (1,043)
-------- ---------
Loss before reorganization items, income taxes
and extraordinary loss (11,211) (5,108)
Reorganization items:
Loss on sale of inventory (11,571) --
Professional fees (1,528) --
Other (142) --
-------- ---------
(13,241) --
-------- ---------
Loss before income taxes and
extraordinary loss (24,452) (5,108)
Income tax benefit -- --
-------- ---------
Net loss before extraordinary loss (24,452) (5,108)
Extraordinary loss related to early
extinguishment of debt (1,345) (1,657)
-------- ---------
Net loss $(25,797) $ (6,765)
======== =========
Loss before extraordinary
loss per share - basic and diluted $ (1.40) $ (.29)
Extraordinary loss per share -
basic and diluted (.08) (.10)
-------- ---------
Net loss per share - basic and diluted $ (1.48) $ (.39)
======== =========
Weighted average shares outstanding - basic and diluted 17,439 17,439
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
SUN TELEVISION AND APPLIANCES, INC.
(DEBTOR-IN-POSSESSION EFFECTIVE SEPTEMBER 16, 1998)
STATEMENT OF OPERATIONS
For the eight months ended October 31, 1998
and nine months ended November 29, 1997
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
October 31, November 29,
1998 1997
----------- ------------
<S> <C> <C>
Net sales and service revenues $ 287,343 $ 343,324
Cost of sales 224,647 262,001
--------- ---------
Gross profit 62,696 81,323
Selling, general and administrative 92,807 99,914
Impairment of long-lived assets 47,688 --
Amortization of intangibles 247 370
--------- ---------
(Loss) from operations (78,046) (18,961)
Other income (expenses):
Interest income 15 26
Interest expense (7,584) (3,104)
Gain on sale of property 10 30
--------- ---------
(7,559) (3,048)
--------- ---------
(Loss) before reorganization items, income taxes
and extraordinary loss (85,605) (22,009)
Reorganization items:
Loss on sale of inventory (11,571) --
Professional fees (1,528) --
Other (142) --
--------- ---------
(13,241) --
--------- ---------
Loss before income taxes and extraordinary loss (98,846) (22,009)
Income tax (benefit) -- --
--------- ---------
Net loss before extraordinary loss (98,846) (22,009)
Extraordinary loss related to early
extinguishment of debt (1,345) (1,657)
--------- ---------
Net loss $(100,191) $ (23,666)
========= =========
Loss before extraordinary loss per share -
basic and diluted $ (5.67) $ (1.26)
Extraordinary loss per share - basic and diluted (.08) (.10)
--------- ---------
Net loss per share - basic and diluted $ (5.75) $ (1.36)
========= =========
Weighted average shares outstanding - basic and diluted 17,439 17,439
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
SUN TELEVISION AND APPLIANCES, INC.
(DEBTOR-IN-POSSESSION EFFECTIVE SEPTEMBER 16, 1998)
BALANCE SHEET
October 31, 1998 and February 28, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
October 31, February 28,
1998 1998
----------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 6,780 $ --
Trade accounts receivable net of allowance
for doubtful accounts of $1,975 and $475 14,226 18,186
Merchandise inventory 54,296 92,053
Prepaid expenses and other 9,718 2,867
Income taxes refundable -- 10,338
--------- ---------
Total current assets 85,020 123,444
Property and equipment, net 41,739 78,782
Assets held for sale 4,344 --
Other noncurrent assets 3,520 6,069
Intangible assets -- 14,060
--------- ---------
Total assets $ 134,623 $ 222,355
========= =========
LIABILITIES
Current liabilities:
Trade accounts payable $ 172 $ 25,221
Accrued liabilities 14,043 20,629
Current portion of deferred revenue -- 12,514
--------- ---------
Total current liabilities 14,215 58,364
Capital lease obligations -- 13,895
Deferred revenue, noncurrent -- 13,259
Long-term debt 44,280 58,971
Other liabilities -- 2,725
Liabilities subject to compromise
Capital lease obligations 14,133 --
Deferred revenue 23,902 --
Trade accounts payable 54,470 --
Accrued liabilities 8,586 --
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 89,176 89,089
Retained deficit (114,313) (14,122)
--------- ---------
Total stockholders' equity (24,963) 75,141
--------- ---------
Total liabilities and stockholders' equity $ 134,623 $ 222,355
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
SUN TELEVISION AND APPLIANCES, INC.
(DEBTOR-IN-POSSESSION EFFECTIVE SEPTEMBER 16, 1998)
STATEMENT OF CASH FLOWS
For the eight months ended October 31, 1998
and the nine months ended November 29, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
October 31, November 29,
1998 1997
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(100,191) $(23,666)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 8,210 7,050
Deferred revenue (1,871) (7,223)
Impairment of long-lived assets 47,688 --
Loss (gain) on sale of property, equipment and inventory 11,561 (30)
Stock options expense 87 --
Changes in items affecting operations:
Trade accounts receivable 3,960 (10,330)
Merchandise inventory 26,186 (17,613)
Prepaid expenses and other (6,101) (7,882)
Trade accounts payable 30,057 15,369
Accrued liabilities 1,382 2,776
Income taxes refundable 10,338 15,509
--------- --------
65,822 (2,171)
--------- --------
Net cash provided by (used by) operating activities 31,306 (26,040)
--------- --------
Cash flows from financing activities:
Cash overdraft (2,088) --
Additional borrowings (repayments) (14,802) (17,338)
Issuance of long-term debt and common stock warrants -- 25,000
Reduction of capital lease obligations (321) (64)
Issuance of common stock under stock options -- 4
--------- --------
Net cash (used in) provided by financing activities (17,211) 7,602
--------- --------
Cash flows from investing activities:
Additions to property and equipment (8,717) (4,370)
Proceeds from sale/leaseback -- 19,937
Proceeds from disposal of property and equipment 1,402 5,372
--------- --------
Net cash (used in) provided by investing activities (7,315) 20,939
--------- --------
Increase in cash and cash equivalents 6,780 2,501
Cash and cash equivalents, beginning of year -- 1,828
--------- --------
Cash and cash equivalents, end of period $ 6,780 $ 4,329
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,849 $ 2,983
Income taxes -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
SUN TELEVISION AND APPLIANCES, INC.
STATEMENT OF DEFICIENCY IN NET ASSETS AVAILABLE IN LIQUIDATION
Liquidation Basis
November 28, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
November 28,
1998
------------
<S> <C>
ASSETS
Current assets :
Cash and cash equivalents 26,835
Trade accounts receivable net
allowance for doubtful accounts
of $1,975 13,545
Merchandise inventory 1,618
Prepaid expenses and other 3,904
--------
Total current assets 45,902
Property and equipment, net 41,433
Assets held for sale 4,344
Other noncurrent assets 2,553
--------
Total assets 94,232
--------
LIABILITIES
Liabilities not subject to compromise
Accounts payable, trade 791
Accrued liabilities 19,276
Secured debt 19,085
--------
Total liabilities not subject to compromise 39,152
--------
Liabilities subject to compromise
Accounts payable 54,470
Accrued liabilities 6,751
Deferred revenue 22,757
Capitalized lease obligations 14,133
--------
Total liabilities subject to compromise 98,111
--------
Total liabilities 137,263
--------
Net deficiency in net assets available in liquidation (43,031)
========
STOCKHOLDERS' DEFICIENCY IN NET ASSETS:
Preferred stock, $.01 par value 500,000
shares authorized, none issued --
Common stock, $.01 par value, 30,000,000
shares authorized, 17,439,202
shares issued and outstanding 174
Additional paid-in capital 89,176
Retained deficit (132,381)
--------
Stockholders' deficiency in net assets (43,031)
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
SUN TELEVISION AND APPLIANCES, INC.
STATEMENT OF CHANGES IN DEFICIENCY IN
NET ASSETS AVAILABLE IN LIQUIDATION
Liquidation Basis
For the Month Ended November 28, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
NOVEMBER 28,
1998
------------
<S> <C>
Deficiency in net assets available in liquidation at October 31, 1998 (24,963)
Increase in cash and cash equivalents 20,055
Decrease in trade accounts receivable (681)
Decrease in merchandise inventory (52,678)
Decrease in prepaid expenses and other (5,814)
Depreciation and amortization (515)
Impairment writedown of long-lived assets (9)
Additions to property, plant & equipment 16
Write-off of deferred financing costs - early retirement of debt (779)
Increase in accounts payable, trade (619)
Increase in accrued liabilities (3,398)
Payment of secured debt 25,209
Decrease in deferred revenue 1,145
-------
Deficiency in net assets available in liquidation at November 28, 1998 (43,031)
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
SUN TELEVISION AND APPLIANCES, INC.
(DEBTOR-IN-POSSESSION EFFECTIVE SEPTEMBER 16, 1998)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BANKRUPTCY FILING
On September 16, 1998 (the "Petition Date"), Sun Television and
Appliances, Inc. and its wholly-owned subsidiary, Sun TV and
Appliances, Inc., (collectively referred to as "the Company") filed
voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code"). The Company is presently
operating its business as a debtor-in-possession subject to the
jurisdiction of the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). The Chapter 11 cases are being
jointly administered for procedural purposes by the Bankruptcy Court.
As a debtor-in-possession, the Company is authorized to operate its
business, but may not engage in transactions outside of the normal
course of business without approval, after notice and hearing, of the
Bankruptcy Court. The Official Committee of Unsecured Creditors (the
"Committee") was formed on October 1, 1998, which has the right to
review and object to business transactions outside the ordinary course
and participate in any plan or plans of reorganization or liquidation.
As of the Petition Date, actions to collect pre-petition indebtedness
are stayed and other contractual obligations may not be enforced
against the Company. In addition, under the Bankruptcy Code, the
Company may elect to assume or reject certain pre-petition real estate
leases, employment contracts, personal property leases, service
contracts and other unexpired executory pre-petition contracts and
leases, all subject to Bankruptcy Court approval. Since the Petition
Date, the Company has rejected certain executory contracts and leases.
The parties affected by these rejections may file claims with the
Bankruptcy Court in accordance with the provision to provide for the
Chapter 11 Bankruptcy laws. The Company cannot presently determine or
reasonably estimate the ultimate liability that may result from the
filing of claims for all executory contracts and unexpired leases that
have been, or will be, rejected. Substantially all liabilities as of
the Petition Date are subject to compromise under a plan of liquidation
to be voted upon by certain impaired classes of creditors ultimately
confirmed by the Bankruptcy Court.
Beginning on the Petition Date, the Company explored all options to
maximize value for all constituencies of the Company, including without
limitation, a sale of some or all of the assets of the Company or a
stand-alone reorganization plan. For a stand-alone reorganization plan
to have been viable, however, the Company needed vendor support and
trade credit. Subsequent to the Petition Date, the Company received
little or no vendor support or trade credit, and some vendors chose not
to sell product to the Company post-petition. In addition, the efforts
to sell the Company as a going concern were not successful. Therefore,
at the end of October, the Company (in consultation with the Committee)
determined that due to the continuing decline in the Company's
performance and the resulting lack of vendor support, the only viable
alternative to maximize the value of the Company for its creditors was
to carry out an orderly liquidation. As of the date of this quarterly
filing and based on an analysis of the current assets and liabilities
of the Company, management's belief, as reflected previously in the
Company's 10-Q report for the period ended August 29, 1998 filed on
October 19, 1998, that it was extremely unlikely that holders of the
Company's common stock would receive or retain any property under a
liquidation plan or otherwise has now been confirmed. Indeed, the
consideration received by the Company from the disposition of
substantially all of its assets will be insufficient to pay the
Company's pre-petition creditors.
The accompanying financial statements have been prepared on a
liquidation basis, which require the adjustment of assets and
liabilities to estimated net realizable value. However, as a result of
the Chapter 11 cases, such realization of assets and liquidation of
liabilities is subject to significant uncertainty. While under the
protection of Chapter 11, the Company may sell or otherwise dispose of
assets, and liquidate or settle liabilities for amounts other than
those reflected in the financial statements. Further, Bankruptcy Court
actions could materially change the amounts reported in the
<PAGE> 10
financial statements, which do not give effect to any adjustments to
the carrying value of assets or amounts of liabilities that might be
necessary as a consequence of these matters.
Schedules and financial statements were filed with the Bankruptcy Court
on December 31, 1998 setting forth the assets and liabilities of the
Company as of the Petition Date as shown by the Company's accounting
records. Differences between the amounts shown by the Company on the
schedules and the claims filed by creditors will be investigated,
reconciled and resolved through compromise or litigation. The ultimate
amount and settlement terms for such liabilities are subject to a plan
of liquidation, and accordingly, are not presently determinable.
2. BASIS OF PRESENTATION
The accompanying financial statements of the Company are unaudited and
are presented pursuant to the rules and regulations of the Securities
and Exchange Commission. At the end of October 1998, the Company (in
consultation with the Committee) determined that due to the continuing
decline in the Company's performance and the resulting lack of vendor
support, the only viable alternative to maximize the value of the
Company for its creditors was to carry out an orderly liquidation
Generally accepted accounting principles require the adjustment of
assets and liabilities to estimated net realizable value under the
liquidation basis. Accordingly, the statement of deficiency in net
assets available in liquidation at November 28, 1998 reflect assets and
liabilities on this basis. 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
periods ended presented.
3. IMPAIRMENT OF LONG-LIVED ASSETS
During fiscal 1997, the Company adopted SFAS No. 121 - "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" ("SFAS 121"). Under the provisions of SFAS 121, due to
certain adverse circumstances arising in the quarter ended November 28,
1998, the Company has evaluated its long-lived assets for impairment.
Such circumstances included the Company's filing for Chapter 11, poor
comparable store sales in the quarter, slower than expected sales
growth from the new rural market stores and declining gross margins,
with resultant pressure on the overall liquidity of the Company.
The Company has evaluated the recoverability of long-lived assets to be
held and used, including goodwill related to a 1986 acquisition, by
measuring the carrying value of the assets against the estimated
undiscounted future cash flows associated with the assets. This
evaluation indicated that the undiscounted future cash flows of
substantially all of the Company's long-lived assets are not sufficient
to recover the carrying value of such assets. Accordingly, such assets
have been adjusted to fair value, determined as the amount at which the
assets could be bought or sold in a current transaction between willing
parties.
4. LIABILITIES SUBJECT TO COMPROMISE
In November 1990, the American Institute of Certified Public
Accountants issued Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). The
Company will adopt the provisions of SOP 90-7 for all future financial
reporting subsequent to the Petition Date. The most significant impact
on the Company's balance sheet will be the segregation of the Company's
pre-petition liabilities subject to compromise from all other
liabilities. The other liabilities will include those liabilities of
the Company, which are not subject to compromise, and post-petition
liabilities of the Company. SOP 90-7 defines liabilities not subject to
compromise as those that will not be impaired under the plan of
reorganization, such as claims where the value of the security interest
is greater than the claim. All pre-petition liabilities, including
those that become known after the Petition Date, will be reflected in
the
<PAGE> 11
financial statements based on the expected amount of the allowed claims
in accordance with SFAS No. 5, "Accounting For Contingencies", as
opposed to the amounts for which those claims may ultimately be
settled.
The Company is uncertain as to whether, or the extent to which, certain
claims will or can be impaired under a plan, particularly with regard
to whether certain claims will be treated as priority or administrative
claims under the Bankruptcy Code. The Company is still in the process
of accumulating and analyzing information regarding the amount and
nature of all claims.
The November 28, 1998 classification as to current or long-term
obligations has been based upon the contractual terms, without regard
to the potential impact of the bankruptcy proceedings, because of the
uncertainties surrounding the nature, amount and treatment of the
claims, except for long-term debt obligations as explained in Note 5.
5. LONG-TERM DEBT
As of November 28, 1998, the Company had no outstanding borrowings
against its revolving credit facility. The interest rate effective at
November 28, 1998 was 8%. The Company had outstanding borrowings of
$19.1 million under its term loan facility with an effective interest
rate of 14.5%. As a result of the continued deterioration of the
Company's operating performance, the Company was in breach of the
EBITDA covenant under the loan facilities as of November 28, 1998.
Therefore, the Company was in default and the entire debt balance
became immediately due and payable. As such, the Company's entire debt
balance is reflected in the balance sheet as a current liability as of
November 28, 1998.
On September 16, 1998, the Bankruptcy Court entered an interim order
approving the Company's Debtor-In-Possession Loan and Security
Agreement (the "DIP Loan Agreement") for a $75 million revolving credit
facility. The interim order concerning the DIP Loan Agreement also
included a Stipulation by and between the Company and BankBoston for
Adequate Protection. The $75 million DIP Loan Agreement replaced the
Company's previous $100 million revolving credit facility with Bank
Boston.
After continued negotiations, a final order concerning the DIP Loan
Agreement was entered on October 15, 1998. The $75 million DIP Loan
Agreement was reduced to $60 million with acceptable borrowings under
the facility being determined by advance rates on eligible inventory
and accounts receivable. Advance rates under the DIP Loan Agreement for
inventory and accounts receivable are more favorable than the Company's
previous $100 million credit facility. The DIP Loan Agreement has an
effective interest rate of prime +.25% or LIBOR + 2.75%, whichever is
greater. The Company paid a $600,000 commitment fee to Bank Boston upon
the closing of the DIP Loan Agreement. The DIP Loan Agreement includes
four financial performance covenants: (1) minimum average inventory per
store, (2) minimum EBITDAR, (3) maximum capital expenditures, and (4)
minimum purchases of inventory.
Borrowings under the DIP Loan Agreement are secured by substantially
all of the assets of the Company. The daily cash receipts of the
Company will pay down the line of credit, while daily disbursements
become draws on the line of credit. The DIP Loan Agreement matures on
the earliest of (a) September 15, 2000, (b) notice by BankBoston to the
Company as a result of the occurrence of any event of default, or (c)
the confirmation of a plan of reorganization in the bankruptcy
proceedings.
6. 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 nine months of fiscal 1999, the
<PAGE> 12
Company charged $1.6 million to the restructuring accrual primarily for
lease payments on stores closed as part of the restructuring. The
remaining balance of $0.6 million was reversed in the quarter ended
November 28, 1998.
7. 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. As a result of
the Chapter 11 filing, there is an automatic stay placed on all legal
proceedings against the Company.
8. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to current
year presentation.
<PAGE> 13
Item 2.
SUN TELEVISION AND APPLIANCES, INC.
(DEBTOR-IN-POSSESSION EFFECTIVE SEPTEMBER 16, 1998)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Bankruptcy Filing
On September 16, 1998 (the "Petition Date"), Sun Television and Appliances, Inc.
and its wholly-owned subsidiary, Sun TV and Appliances, Inc. (collectively
referred to as the "Company"), filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). The
Company is presently operating its business as a debtor-in-possession subject to
the jurisdiction of the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). The Chapter 11 cases are being jointly
administered for procedural purposes by the Bankruptcy Court.
There were a number of factors that led to the Company's decision to seek
protection through the Chapter 11 filing, not the least of which was the
Company's lack of liquidity. Cash flow was particularly strained while operating
during one of the seasonally weaker sales quarters, and was further impacted by
some vendors restricting the Company's terms and credit lines.
Beginning on the Petition Date, the Company explored all options to maximize
value for all constituencies of the Company, including without limitation, a
sale of some or all of the assets of the Company or a stand-alone reorganization
plan. For a stand-alone reorganization plan to have been viable, however, the
Company needed vendor support and trade credit. Subsequent to the Petition Date,
the Company received little or no vendor support or trade credit, and some
vendors chose not to sell product to the Company post-petition. In addition, the
efforts to sell the Company as a going concern were not successful. Therefore,
at the end of October, the Company (in consultation with the Committee)
determined that due to the continuing decline in the Company's performance and
the resulting lack of vendor support, the only viable alternative to maximize
the value of the Company for its creditors was to carry out an orderly
liquidation. As of the date of this quarterly filing and based on an analysis of
the current assets and liabilities of the Company, management's belief, as
reflected previously in the Company's 10-Q report for the period ended August
29, 1998 filed on October 19, 1998, that it was extremely unlikely that holders
of the Company's common stock would receive or retain any property under a
liquidation plan or otherwise has now been confirmed. Indeed, the consideration
received by the Company from the disposition of substantially all of its assets
will be insufficient to pay the Company's pre-petition creditors.
The Company has omitted the discussion of quarterly and year-to-date financial
results and other similar type information because at the end of October 1998
the Company (in consultation with the Committee) made the decision to carry out
an orderly liquidation. The Company does not believe such information will be
meaningful under the circumstances.
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). SOP 98-5 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.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which is required to be adopted for all fiscal quarters of fiscal years
beginning after June 15, 1999. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts (collectively referred to as derivatives) and for hedging
activities. The statement requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Adoption of this statement is not expected to
have a material impact on the Company's financial position or results of
operations.
<PAGE> 14
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 the bankruptcy proceedings and the orderly
liquidation of the Company's assets, 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.
<PAGE> 15
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 3. Defaults Upon Senior Securities
At August 29, 1998, the Company was in default of its $100.0
million revolving credit agreement and its $25.0 million term
loan, as it failed to meet certain of its debt covenants. Both
the revolving credit agreement and the term loan were due
February 28, 2000. The debt has been classified as current in
the accompanying financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Computation of Net Loss per Common Share
27. Financial Data Schedule
(b) Reports on Form 8-K
October 1, 1998 Reporting bankruptcy filing
November 6, 1998 Company's decision to liquidate
<PAGE> 16
SUN TELEVISION AND APPLIANCES, INC.
(DEBTOR-IN-POSSESSION EFFECTIVE SEPTEMBER 16, 1998)
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: January 19, 1999
- -----------------
* Ms. Savage is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
<PAGE> 1
Exhibit 11
SUN TELEVISION AND APPLIANCES, INC.
(DEBTOR-IN-POSSESSION EFFECTIVE SEPTEMBER 16, 1998)
COMPUTATION OF NET LOSS PER COMMON SHARE
For the two months ended October 31, 1998 and
the quarter ended November 29, 1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Two For the
Months Ended Quarter Ended
------------ -------------
October 31, November 29,
1998 1997
------------ -------------
<S> <C> <C>
Net loss $ (25,797) $ (6,765)
========== ========
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 $ (1.48) $ (.39)
========== ========
Assuming diluted $ (1.48) $ (.39)
========== ========
</TABLE>
<PAGE> 2
Exhibit 11 (continued)
SUN TELEVISION AND APPLIANCES, INC.
(DEBTOR-IN-POSSESSION EFFECTIVE SEPTEMBER 16, 1998)
COMPUTATION OF NET LOSS PER COMMON SHARE
For the eight months ended October 31, 1998 and the
nine months ended November 29, 1997
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the For the
Eight Months Ended Nine Months Ended
------------------ -----------------
October 31, November 29,
1998 1997
------------------ -----------------
<S> <C> <C>
Net loss $ (11,191) $(23,666)
============== ========
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 $ (5.75) $ (1.36)
============== ========
Assuming diluted $ (5.75) $ (1.36)
============== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000874690
<NAME> SUN TELEVISION AND APPLIANCES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 26,835
<SECURITIES> 0
<RECEIVABLES> 13,545<F1>
<ALLOWANCES> 0
<INVENTORY> 1,618
<CURRENT-ASSETS> 45,902
<PP&E> 41,433
<DEPRECIATION> 0
<TOTAL-ASSETS> 94,232<F2>
<CURRENT-LIABILITIES> 137,263
<BONDS> 0
0
0
<COMMON> 174
<OTHER-SE> (43,205)
<TOTAL-LIABILITY-AND-EQUITY> 94,232
<SALES> 287,343
<TOTAL-REVENUES> 287,343
<CGS> 224,647
<TOTAL-COSTS> 224,647
<OTHER-EXPENSES> 140,742
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,584
<INCOME-PRETAX> (98,846)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (1,345)
<CHANGES> 0
<NET-INCOME> (100,191)
<EPS-PRIMARY> (5.75)
<EPS-DILUTED> (5.75)
<FN>
<F1>Trade accounts receivable net allowance for doubtful account of $1,975.
<F2>Includes assets held for sale of $4,344 and other noncurrent assets of $2,553.
</FN>
</TABLE>
