-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tff1xpcoKpsUOfgqAW0cAPJkcqNUh6f0j2zQ9McyQomrwk8ICTYjcjJFYD9FefQT Tm0bLIyZFovCaS29Zq40kA== 0000950149-00-001192.txt : 20000516 0000950149-00-001192.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950149-00-001192 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOOD GUYS INC CENTRAL INDEX KEY: 0000785931 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RADIO TV & CONSUMER ELECTRONICS STORES [5731] IRS NUMBER: 942366177 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14134 FILM NUMBER: 635979 BUSINESS ADDRESS: STREET 1: 7000 MARINA BLVD CITY: BRISBANE STATE: CA ZIP: 94005 BUSINESS PHONE: 4156155000 MAIL ADDRESS: STREET 2: 7000 MARINA BLVD CITY: BRISBANE STATE: CA ZIP: 94005 10-Q 1 QUARTERLY REPORT FOR THE PERIOD ENDED 03-31-2000 1 UNITED STATES 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 March 31, 2000 or [ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- Commission File Number: 0-14134 THE GOOD GUYS, INC. (exact name of registrant as specified in its charter) Delaware 94-2366177 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7000 Marina Blvd. Brisbane, CA 94005-1840 (Address of principal executive offices) (650) 615-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No CLASS OUTSTANDING AS OF April 30, 2000 ----- -------------------------------- Common Stock 20,557,880 1 2 THE GOOD GUYS, INC. INDEX
PART I: FINANCIAL INFORMATION Page - ------------------------------ ---- Item 1. Financial Statements: Consolidated Balance Sheets - March 31, 2000 and September 30, 1999 3 Consolidated Statements of Operations - Three month and six month period ended March 31, 2000 and 1999 4 Consolidated Statements of Changes in Shareholders' Equity - Six month period ended March 31, 2000 5 Consolidated Statements of Cash Flows - Six month period ended March 31, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II: OTHER INFORMATION Item 1. Legal Proceedings 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other events 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13
2 3 THE GOOD GUYS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)
March 31, September 30, 2000 1999 --------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,885 $ 2,556 Accounts receivable, net 18,319 19,021 Merchandise inventories 120,609 110,276 Prepaid expenses 13,312 6,637 -------- -------- Total current assets 154,125 138,490 PROPERTY AND EQUIPMENT, NET Land - 2,306 Leasehold improvements 73,502 73,298 Furniture, fixtures and equipment 76,298 72,686 Construction in progress - 3,785 -------- -------- Total property and equipment 149,800 152,075 Less accumulated depreciation and amortization 78,905 72,121 -------- -------- Property and equipment, net 70,895 79,954 OTHER ASSETS 7,644 7,646 -------- -------- Total Assets $232,664 $226,090 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 58,545 $ 36,571 Accrued expenses and other liabilities: Accrued payroll 9,769 9,615 Sales taxes payable 4,403 4,936 Other 18,020 22,584 -------- -------- Total current liabilities 90,737 73,706 REVOLVING CREDIT DEBT 46,784 56,504 SHAREHOLDERS' EQUITY: Preferred stock, $.001 par value: Authorized - 2,000,000 shares Issued - none -- -- Common stock, $.001 par value Authorized -40,000,000 shares Issued and outstanding -20,418,279 and 19,636,022 shares, respectively 20 20 Additional paid-in-capital 92,207 88,332 Retained earnings 2,916 7,528 -------- -------- Total shareholders' equity 95,143 95,880 -------- -------- Total Liabilities and Shareholders' Equity $232,664 $226,090 ======== ========
The accompanying notes are an integral part of these financial statements. 3 4 THE GOOD GUYS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share amounts) (Unaudited)
Three Months Ended Six Months Ended March 31, March 31, ------------------------- ------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Net sales $ 190,364 $ 219,099 $ 452,575 $ 513,199 Cost of sales 136,662 167,156 320,096 389,806 --------- --------- --------- --------- Gross profit 53,702 51,943 132,479 123,393 Selling, general and administrative expense 62,884 59,475 134,313 127,733 --------- --------- --------- --------- Income (loss) from operations (9,182) (7,532) (1,834) (4,340) Interest expense, net 1,049 666 2,778 1,254 --------- --------- --------- --------- Income (loss) before income taxes (10,231) (8,198) (4,612) (5,594) Income tax expense (benefit) - (952) - --------- --------- --------- --------- Net income (loss) $ (10,231) $ (7,246) $ (4,612) $ (5,594) ========= ========= ========= ========= Net income (Loss) per common share Basic $ (0.50) $ (0.50) $ (0.23) $ (0.39) ========= ========= ========= ========= Diluted $ (0.50) $ (0.50) $ (0.23) $ (0.39) ========= ========= ========= ========= Weighted average shares Basic 20,300 14,508 19,998 14,378 ========= ========= ========= ========= Diluted 20,300 14,508 19,998 14,378 ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. 4 5 THE GOOD GUYS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 2000 (In thousands except share data) (Unaudited)
Common Stock Additional ----------------------- Paid-in Retained Shares Amount Capital Earnings Total ---------- ------- ---------- --------- --------- Balance at September 30, 1999 19,636,022 $ 20 $ 88,332 $ 7,528 $ 95,880 Issuance of common stock under employee stock purchase plan 145,337 - 891 891 Exercise of stock options and warrants 521,725 - 2,303 2,303 Issuance of restricted stock 115,195 - 681 681 Net (loss) for the six-month period ended March 31, 2000 (4,612) (4,612) ---------- ---- -------- --------- --------- Balance at March 31, 2000 20,418,279 $ 20 $ 92,207 $ 2,916 $ 95,143 ========== ==== ======== ========= =========
The accompanying notes are an integral part of these financial statements. 5 6 THE GOOD GUYS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended March 31, ----------------------- 2000 1999 -------- -------- Cash Flows from Operating Activities: Net loss $ (4,612) $ (5,594) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 7,377 6,209 Gain on sale of land (1,025) -- Early retirement of assets -- 702 Changes in assets and liabilities: Accounts receivable 702 469 Merchandise inventories (10,333) (12,524) Prepaid expenses and other assets (6,673) 53 Accounts payable 21,974 (4,312) Accrued expenses and other liabilities (4,943) (4,412) -------- -------- Net cash provided by (used in) operating activities 2,467 (19,409) -------- -------- Cash Flows from Investing Activities: Sale of land 3,208 -- Capital expenditures, net (501) (11,147) -------- -------- Net cash provided by (used in) investing activities 2,707 (11,147) -------- -------- Cash Flows from Financing Activities: Net proceeds from issuance (repayment) revolving credit debt (9,720) 29,305 Proceeds from issuance of common stock 3,875 1,324 -------- -------- Net cash provided by (used in) financing activities (5,845) 30,629 -------- -------- Net increase (decrease) in cash and cash equivalents (671) 73 Cash and cash equivalents at beginning of period 2,556 3,051 -------- -------- Cash and cash equivalents at end of the period $ 1,885 $ 3,124 ======== ========
The accompanying notes are an integral part of these financial statements. 6 7 THE GOOD GUYS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles and reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information contained therein. The consolidated financial statements should be read in conjunction with the financial statements, notes and supplementary data included and incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999. 2. Net income per common share has been computed in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS 128 requires a dual presentation of basic and diluted earnings per share (EPS). Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock had been converted into common stock. No potential common shares were included in the computation of diluted per-share amounts for the periods presented, during which a loss from operations was recorded, as such potential shares would be anti-dilutive. 3. Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," defines derivatives, requires all derivatives be carried at fair value, and provides for hedging accounting when certain conditions are met. As amended by SFAS No. 137, "Accounting for Derivative Instruments," SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Although the Company has not fully assessed the implications of this new statement, the Company does not believe adoption of this statement will have a material impact on the Company's financial statements. 7 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations BUSINESS OUTLOOK AND RISK FACTORS The trend analyses and other non-historical information contained in Management's Discussion and Analysis of Financial Condition and Results of Operations are "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor provisions of those Sections. Such forward looking statements include, without limitation, statements concerning the Company's future net sales, net earnings and other operating results. The Company's actual results could differ materially from those discussed in the forward looking statements due to a number of factors, including but not limited to increases in promotional activities of the Company's competitors, changes in consumer buying attitudes, changes in vendor support, changes in the Company's merchandise sales mix including discontinued product categories, general economic conditions, costs and risks associated with the Company's current restructuring program and other factors referred to in the Company's fiscal 1999 Annual Report on Form 10-K under "Information Regarding Forward Looking Statements". RESULTS OF OPERATIONS Net sales for the second quarter and first six months ending March 31, 2000 were $190.4 million and $452.6 million, compared to $219.1 million and $513.2 million for the same periods last year. This represented a 13% and 12% decrease in sales for the second quarter and the first six months of the fiscal year. For continuing categories, net sales decreased 1% for the second quarter and remained level for the first six months of fiscal 2000 compared to the same periods last year. Comparable store sales for continuing categories, decreased 1% for the quarter and first six months of fiscal 2000, respectively. This is primarily due to the discontinuation of computer and home office products that occurred in the fourth quarter of fiscal 1999. Sales for the month of March were impacted by the disruption caused by the reorganization of the Company's in-store operations including the relocation of certain merchandise categories. The reorganization eliminated the stand-alone personal electronics department and its entry level staff by redistributing most of the products into the audio, video and mobile electronics departments which typically employ better trained and more experienced salespeople. In addition, cashiers were added to aid with transactions, department staffing and scheduling has been adjusted to better reflect sales volume and in-store traffic and sales managers' compensation was changed to a more commission-based structure. These changes are expected to improve the effectiveness of the Company's sales force, enhance customer service, increase earning potential for experienced sales counselors and reduce costs by an additional $9 million annually. For the second quarter and the first six months of fiscal 2000, sales of new digital technologies, such as DVD, DSS, digital television, digital cameras and internet devices showed strong growth but were offset by decreases in VCRs, telecommunications, stereo systems, car audio, camcorders and video games. The sale of Premier Performance Guarantee contracts increased to 6.1% and 5.9% of sales during the second quarter and first six months of fiscal 2000, up substantially from 4.7% and 4.5% for the same periods last year. The Company's gross profit as a percentage of net sales increased substantially to 28.2% in the second quarter and 29.3% in the first six months of fiscal 2000, compared to 23.7% and 24.0% for the same periods last year. The increase in the gross profit percentage in both periods primarily resulted 8 9 from the discontinuation of the lower margin computer and home office products and the Company's increased emphasis on higher-margin digital and high-tech consumer entertainment electronics. Selling, general and administrative expense increased by $3.4 million and $6.6 million in the second quarter and the first half of fiscal 2000, compared to the corresponding periods in fiscal 1999. These expenses represented 33.0% and 29.7% of net sales in the second quarter and first six months of fiscal 2000 compared to 27.1% and 24.9 % for the same periods last year. The increase in selling, general and administrative expenses for both the second quarter and six month period is primarily due to increased advertising expenses, which are anticipated to remain above prior year amounts. Higher sales associate commissions due to increased gross margin dollars and higher occupancy costs associated with the Company's Audio/Video Exposition stores that opened in fiscal 1999 also contributed to the increase. Selling expenses were also negatively impacted in the second quarter by the in-store reorganization, which eliminated approximately 300 positions and resulted in one-time charge of approximately 250,000 for severance packages. During the second quarter, the Company also eliminated the production side of the advertising department to leverage external expertise and resources to strengthen its advertising and marketing efforts and reduce costs, which also contributed to a one time charge of approximately 115,000 for severance packages. These expenses were partially offset by decreased general and administrative expenses primarily due to reduced headcount. Interest expense increased $383,000 and $1.5 million in the second quarter and first six months of fiscal 2000 compared to the corresponding periods last year. These increases were due to higher levels of borrowings in the second quarter and first six months of the current fiscal year. The Company's effective tax rate was 0.0% for the second quarter and the first six months of fiscal 2000, compared to a benefit of 11.6% and a rate of 0.0% , for the same periods last year. The effective tax rate is based upon the Company's best estimate of the effective tax rate expected to be applicable for the full fiscal year. As a result of the factors discussed above, the net loss in the second quarter and the first half of fiscal 2000 was $10.2 million and $4.6 million compared to net losses of $7.2 million and $5.6 million for the second quarter and the first half of fiscal 1999. The net loss per share for the second quarter and first six months was $0.50 and $0.23 per share, compared to a net loss of $0.50 and $0.39 per share for the same periods last year. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased to $5.5 million in the first six months of fiscal 2000 from $3.0 million in the first six months of fiscal 1999. As previously announced, the Company continues to implement its business strategy for returning the Company to profitability. To improve the Company's focus and profit margins, computers and home office products were eliminated from the overall product mix in the fourth quarter of fiscal 1999. The Company has reduced general and administrative expenses by eliminating its internal advertising production department and streamlining all corporate functions, including operations, management information systems, finance, human resources and merchandising. In the current fiscal year, the Company is also committed to minimizing capital expenditures, and has placed a moratorium on opening new stores and remodeling or relocating existing stores. Projected expenditures for fiscal 2000 also incorporate increases in advertising and marketing by 9 10 more than 20% from fiscal year 1999 levels. The Company's financial goal is to report a pre-tax profit in the current fiscal year that began October 1, 1999. However, the return to profitability is contingent on many factors, including, but not limited to, the successful implementation of its new business strategy, the development of consumer acceptance of new technologies, consumer demand for existing technologies, the presence or absence of new features on existing merchandise, continued vendor support and economic conditions in the regions in which the Company's stores are located. Liquidity and Capital Resources At March 31, 2000, the Company had cash and cash equivalents of $1.9 million. The Company's working capital was $63.4 million at March 31, 2000 compared to $53.3 million at March 31, 1999. Net cash provided by operating activities was $2.5 million for the first six months of fiscal 2000 compared to net cash used in operating activities of $19.4 million for the same period last year. The increase in cash flows from operating activities for the first six months of fiscal 2000 was primarily due to higher accounts payable and lower inventory balances partially offset by increases in prepaid expenses. Net cash provided by investing activities was $2.7 million for the six months ended March 31, 2000, as compared to net cash used in investing activities of $11.1 million for the same period last year. During the first three months of fiscal 2000, the Company sold a parcel of land for $3.2 million. The net increase in fixed assets was limited to approximately $501,000 due to the Company's decision not to open or remodel any stores in fiscal 2000. At March 31, 2000, the Company maintained a $100 million revolving credit facility. The amount of borrowing allowed under the credit agreement is based on a formula related to the Company's inventory balances. At March 31, 2000, the Company had borrowings of $46.8 million outstanding under the revolving credit agreement and $19.9 million of the credit line was reserved under a vendor financing agreement, leaving a availability of $10.0 million based on current inventory levels. The Company expects to fund its working capital requirements for the next twelve months with a combination of cash flows from operations, normal trade credit, and other financing arrangements. Quantitative and Qualitative Disclosures About Market Risk The Company believes that because of competition among manufacturers and technological changes in consumer electronics industry, inflation has not had a material effect on net sales and cost of sales. 10 11 THE GOOD GUYS, INC. PART II: OTHER INFORMATION Item 1. Legal Proceedings On January 13, 1999, the Company was named as a defendant in an action entitled Johnson v. Circuit City Stores, et al., filed in Contra Costa County Superior Court. The primary allegation was that a number of consumer electronics retailers sold computer hardware and software products that allegedly will not properly process dates after December 31, 1999. Plaintiff claimed that the actions of the defendants violate the prohibitions in the California Business and Professions Code on unfair business practices and false and misleading advertising, and seeks injunctive relief, restitution, and attorney's fees. The Company settled this case in March, 2000 for an amount that was not material to the financial condition, results of operations or liquidity of the Company. Item 4. Submission of Matters to a Vote of Security Holders At the annual meeting of shareholders of the Company held on January 26, 2000, 15,441,526 shares were presented in person or by proxy. The matters voted upon and the results of the voting are as follows: 1. The election of directors
NOMINEE IN FAVOR WITHHELD - ------- -------- -------- Ronald A. Unkefer 15,422,445 19,081 Stanley R. Baker 15,422,081 19,445 Russell M. Solomon 15,422,081 19,445 W. Howard Lester 15,421,876 19,650 John E. Martin 15,422,070 19,456 Horst H. Schulze 14,387,409 1,054,117 Gary M. Lawrence 15,422,445 19,081 Joseph P. Clayton 15,422,444 19,082 Joseph M. Schell 15,422,445 19,081
2. The amendment to the Company's Employee Stock Purchase Plan to increase the number of shares of Common Stock reserved for issuance under the plan by 400,000: 14,656,801 votes in favor, 319,226 votes against and 465,499 abstentions. 3. The ratification of selection of Deloitte & Touche LLP as the independent auditors of the Company; 15,418,104 votes in favor, 9,691 votes against and 13,731 abstentions. 11 12 Item 5. Other Events In January 2000, the Company announced that Good Guys.Com, Inc. was being formed by the Company outside investors and members of the Company's management and Board of Directors to maximize opportunities for electronic commerce in the consumer entertainment electronics industry and that the Company would own stock and warrants in Good Guys.Com,Inc. in an amount which, upon exercise of the warrants, would give it a 49.9% ownership interest. Horst H. Schulze resigned as a Director of the Company, effective April 13, 2000. Item 6. Exhibits and Reports on Form 8-K a) Exhibits 27.1 Financial Data Schedule b) No reports on Form 8-K were filed during the quarter for which this report is filed. 12 13 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto. THE GOOD GUYS, INC. Date: May , 2000 By: /s/ Vance R. Schram --------------------------- ----------------------------- Vance R. Schram Chief Financial Officer 13 14 EXHIBIT INDEX
Exhibit No. - ----------- 27.1 Financial Data Schedule
EX-27.1 2 FINANCIAL DATA SCHEDULE
5 3-MOS SEP-30-2000 MAR-31-2000 1,855 0 19,026 707 120,609 154,125 149,800 78,905 232,664 90,737 46,784 0 0 20 95,143 232,664 452,575 452,575 320,096 320,096 134,313 741 2,778 (4,612) 0 (4,612) 0 0 0 (4,612) (.23) (.23)
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