-----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, GPMSk8qKItFYLoyebUFGeoZmnBl3lWghSPKA3gcQfC6jv0dqUKGsFRR8kT4lyTbR dB2o04n0acowR9mxarXvKw== 0000950149-98-002027.txt : 19981228 0000950149-98-002027.hdr.sgml : 19981228 ACCESSION NUMBER: 0000950149-98-002027 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981223 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-K SEC ACT: SEC FILE NUMBER: 000-14134 FILM NUMBER: 98774494 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-K 1 ANNUAL REPORT ON FORM 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- [X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended September 30, 1998 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 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 identification no.) incorporation or organization) 7000 Marina Boulevard, Brisbane, California 94005-1840 (Address of principal executive offices) Registrant's telephone number, including area code: (650) 615-5000 Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value ----------------------------- (Title of Class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $74,698,288 as of December 18, 1998. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. On December 18, 1998, there were 14,250,218 shares of common stock outstanding. -1- 2 DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of Annual Report to Shareholders for fiscal year ended September 30, 1998. (Part II of Form 10-K) (2) Portions of definitive proxy statement filed with Securities and Exchange Commission relating to the Company's 1999 Annual Meeting of Shareholders. (Part III of Form 10-K) -2- 3 PART I ITEM 1. BUSINESS General THE GOOD GUYS! is a leading specialty retailer of consumer electronics products. The Company currently operates 79 stores: In California, 20 stores are located in the San Francisco Bay area, 27 in the greater Los Angeles/Orange County metropolitan area, 3 in Sacramento, 7 in San Diego, and one each in Bakersfield, Fresno, Modesto and Stockton. In Washington, Oregon and Nevada, THE GOOD GUYS! operates nine stores, five stores and four stores, respectively. The Good Guys, Inc. was incorporated in California in 1976. On March 4, 1992, the Company changed its state of incorporation from California to Delaware by merging into a wholly-owned Delaware subsidiary formed for that purpose. In September 1995, The Good Guys, Inc. transferred substantially all of its assets and liabilities to The Good Guys - California, Inc., its wholly-owned operating subsidiary. Unless the context otherwise requires, the terms "THE GOOD GUYS!" and "Company" refer to The Good Guys, Inc., together with its operating subsidiary. Information Regarding Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides companies with a "safe harbor" when making forward-looking statements. Statements of the Company that are not historical facts, including statements about management's expectations for fiscal year 1999 and beyond, are forward-looking statements and involve certain risks and uncertainties. Factors that could cause the Company's actual results to differ materially from management's projections, forecasts, estimates and expectations include, but are not limited to, the following: (a) Demand for the Company's products, which in turn is dependent upon factors such as economic trends, the availability of consumer credit, the introduction and acceptance of new products and new product features, and the continued popularity of existing products. (b) Changes in the amount of promotional activities of current competitors and potential new competition from both retail stores and alternative methods of distribution such as electronic and telephone shopping services and mail order. (c) Changes in the Company's product mix. (d) The Company's ability to continue to locate suitable store sites and to hire and train skilled personnel. -3- 4 (e) Changes in the cost of the Company's advertising or in the support received from vendors for advertising and promotional programs. (f) The ability of the Company to achieve economies of scale in its advertising. (g) Changes in availability of capital expenditure, working capital and credit card financing. (h) Availability of sources of supply for the products the Company desires to sell. (i) Adoption of new laws or regulations placing restrictions on the sale of products and/or services by the Company. (j) Adverse results in significant litigation matters. (k) Risks associated with Year 2000 issues. Business Strategy THE GOOD GUYS! goal is to be a leading specialty retailer of consumer electronics products in each of its markets. The cornerstones of its business strategy include: Differentiated customer service. THE GOOD GUYS! believes that superior service is the single most important factor in overall customer satisfaction, and that the Company differentiates itself from other consumer electronics retailers by providing superior service to its shoppers. The Company believes that friendly and knowledgeable sales associates are critical to satisfying customers interested in more fully featured, middle to high-end consumer electronics products. The Company's objective is to generate long-term repeat business from its customers. Merchandising. The Company's merchandising strategy is to provide shoppers with a broad and compelling selection of brand name consumer electronics products, with an emphasis on more fully featured merchandise. Merchandise is offered at competitive prices and backed by a low price guarantee. Marketing. The Company aggressively uses newspaper, direct mail and broadcast advertising to build name recognition, to position THE GOOD GUYS! in its markets, and to increase store traffic. Stores are designed to be exciting and easy to shop and are located in high visibility and high traffic commercial areas. Expansion. The Company plans to continue to expand its store base. Successful expansion will depend, among other things, on the Company's ability to continue to locate suitable store sites and to hire and train skilled personnel. It will also depend on the Company's ability to open new stores quickly in existing markets, -4- 5 to achieve economies of scale in advertising and distribution, and to continue to gain market share from established competitors. Customer Service The Company believes that knowledgeable and friendly sales associates are critical to providing superior customer service. As of September 30, 1998, the Company had over 2,590 highly trained part-time and full-time sales associates. Sales associates are paid under an incentive compensation program with a salary guarantee that is applied against incentives earned. Incentives are based on the gross profit realized, the amount of "repeat" business the sales associate generates, performance against sales goals and peer ranking, which evaluates a number of performance standards. The Company believes this incentive structure creates long-term repeat customers for THE GOOD GUYS!. All sales associates attend a full-time, in-house initial training program. The Company's training program is continually updated and is designed to develop good sales practices and techniques and to provide associates with the knowledge base to explain and demonstrate to shoppers the use and operation of store merchandise. This training enables associates to better understand customer needs and to help them select products that meet those needs. The Company holds training meetings daily at each store to keep sales associates trained and focused on the principles of superior customer service, Company procedures and policies, and to update them on competitive information, current product introductions, product availability and pricing. Manufacturers also conduct in-store training sessions to familiarize sales associates with existing and new products. The Company hosts a product show annually. All associates attend the product show and are required to participate in training sessions focused on product knowledge and selling skills. Manufacturers are in attendance with product displays and are available to answer questions. Additionally, regional training workshops are conducted twice a year to enhance the sales associates' product knowledge. These sessions are conducted by a combination of manufacturers, corporate trainers and the corporate buyers. Customer service and sales techniques are also incorporated into these training workshops. The Company's satisfaction guaranteed policy provides that a product generally may be returned within 30 days of purchase for a full refund or in exchange for another product. When purchasing a product from the Company, customers may elect to purchase a Premier Performance Guarantee under which a third party provides extended service coverage beyond the period covered by the manufacturer's warranty. All merchandise purchased from THE GOOD GUYS! and in need of repair may be returned to any of the Company's stores for service. Such merchandise is sent to either a Company-operated or an independent factory authorized repair facility and is returned to the store after repair. The Company has its own regional service -5- 6 facilities, which service all of its stores. The Company also operates car audio and car cellular phone installation facilities at almost all of its locations. The majority of the Company's sales are made through credit cards. The Company currently honors MasterCard, VISA, American Express and various other credit cards, as well as THE GOOD GUYS! "Preferred Customer Card" issued by an independent third party. Because of the relatively high cost of many of the consumer electronics products sold by the Company, its business could be affected by consumer credit availability. The Company places emphasis on developing the managerial skills of its employees in order to provide a source of quality management personnel for current and future stores. The Company has been able to fill most sales managerial positions by promoting sales associates and, similarly, to fill most store management positions by promoting sales managers. Merchandising The Company offers its customers a broad range of high quality consumer electronics products supplied primarily by manufacturers of nationally known brands. This selection comprises approximately 4,600 products from over 240 vendors and is intended to cover all of the popular price points within each product category. The following table shows the approximate percentage of sales for each major product category for the last three fiscal years. Historical percentages may not be indicative of percentages in future years.
Year Ended September 30, -------------------------------- Category 1998 1997 1996 - -------- ---- ---- ---- Video 41% 38% 39% Audio and cellular phones 30% 30% 29% Home office 17% 19% 20% Other (accessories, repair service, and premier performance guarantee) 12% 13% 12% --- --- --- 100% 100% 100% === === ===
For the year ended September 30, 1998, the Company's three leading suppliers for video products were, in alphabetical order, Mitsubishi, Panasonic and Sony and for audio and cellular products were, in alphabetical order, AIWA, Sony and Yamaha. The three leading suppliers of home office products were, in alphabetical order, Hewlett Packard, Panasonic, and Sony. Marketing The Company believes that its advertising activities have resulted in significant name recognition in its markets and have increased the number of qualified potential customers visiting its stores. The Company's advertising vehicles include newspaper, direct mail and broadcast. -6- 7 All of the Company's print and direct mail advertisements are created, produced and placed by the Company's advertising staff. The Company believes that the use of its own personnel maximizes its control over advertising effectiveness, increases its flexibility, allows quick response to changing market conditions, and enables it to purchase media on advantageous terms. The Company's advertisements promote the Company as an "audio-video specialist" and emphasize competitive prices, extensive selection, and superior customer service from knowledgeable sales associates. Expansion The Company has grown from 7 to 79 stores since the end of fiscal 1985 and has expanded its store base at a compound rate of approximately 11% per year over the past five years. In fiscal 1998, The Good Guys! opened an Audio/Video Exposition-enhanced WOW! store in Glendale, California, the third WOW! concept store. The Company in November 1998 and December 1998 opened its fourth and fifth WOW! concept stores as Audio/Video Exposition-Enhanced WOW! stores in Laguna Hills and San Mateo, California (replacing an existing store in San Mateo). In December 1998, the Company also opened a new Audio/Video Exposition store in Palo Alto, California. The Company in fiscal 1998 introduced its new Audio/Video Exposition format in its newly remodeled Arden, Concord, Hayward, and Stonestown stores in California, as discussed in the Store Operations section below. In calendar 1999, the Company intends to renovate at least six existing stores to the Audio/Video Exposition concept. Store Operations The Company's stores range in size from approximately 9,000 to 32,000 square feet. Most of the newer stores reflect the ongoing evolution in the Company's store design and are approximately 25,000 to 30,000 square feet in size. All of the Company's stores are located in high visibility, high traffic commercial areas and are open seven days a week, including most holidays. On November 1, 1996, the Company introduced its Audio/Video Exposition store design. The Audio/Video Exposition format provides greater merchandising flexibility and connectivity between existing categories of product, featuring hands-on demonstrations of product interactivity throughout the store and a central area for customers to meet with sales consultants to design system solutions for their homes. The Company expects the Audio/Video Exposition concept to be the cornerstone of its expansion and renovation program. The Company currently has 11 Audio/Video Exposition stores and has identified and is initiating additional store relocations/renovations using that concept. The Company opened its third, fourth and fifth WOW! MULTIMEDIA SUPERSTORES in Glendale, Laguna Hills and San Mateo, California in May, November and December of 1998, respectively, all of which incorporate the Audio/Video Exposition format. These concept stores, which are jointly operated with -7- 8 Tower Records, provide the same full range of consumer electronics offered at all THE GOOD GUYS! stores, as well as a full range of music, video, computer software and magazines offered by Tower Records. THE GOOD GUYS! occupies approximately 32,000 square feet in each of the WOW! stores. Each store generally has one store manager, three sales managers and an operations manager. The store manager oversees the store's operations and the sales managers supervise the sales associates. Sales associates are specialized by product category. Sales associates handle all aspects of the customer interface: providing customers with the information necessary to determine the best product for their specific need, tendering the invoice and handling the payment, and bringing the goods from the stockroom to the customer. Store operations are overseen by a senior management team which holds frequent meetings with the store managers. Merchandising and store operation policies for all stores are established by senior management. Distribution The Company operates a 460,000 square foot operations center in Hayward, California, which has the capacity to handle deliveries to more than 100 stores in the western United States. Deliveries are generally made to each store six or seven days a week, as ordered by the Company's automated replenishment system. The Company believes that this frequency of delivery maximizes availability of merchandise at the stores while minimizing store level and overall inventories. Management Information Systems The Company's management information system is a distributed, on-line network of computers that links all stores, delivery locations, service centers, credit providers, the distribution facility and the corporate offices into a fully integrated system. Each store has its own system which allows store management to track sales and inventory at the product, customer or sales associate level. The Company's point of sale system allows the capture of sales data and customer information and allows the tracking of merchandising trends and inventory levels on a daily basis. Management believes that its current systems are adequate to support THE GOOD GUYS! anticipated growth. Competition The business of the Company is highly competitive. The Company competes primarily with other specialty stores, independent electronics and appliance stores, department stores, mass merchandisers, discount stores and catalog showrooms. To some extent, the Company also competes with drugstores, supermarkets and others that make incidental sales of electronics products. Competitors of the Company include Circuit City Stores, Best Buy, Sears, Montgomery Ward, Target, several smaller electronics chains and independent stores. -8- 9 The Company's strategy is to compete by being a value-added retailer, offering a broad selection of top national brand name merchandise sold at competitive prices by a friendly, knowledgeable and motivated team of associates. Seasonality As is the case with many other retailers, the Company's sales are higher during the Christmas season than during other periods of the year. Employees At September 30, 1998, the Company employed approximately 5,000 persons, of whom 686 were salaried, 1,681 were hourly non-selling associates and 2,590 were salespeople on commission against a minimum guarantee. At September 30, 1998, approximately 285 of its employees were employed in the Company's executive offices; the balance were employed in its stores, distribution center, home delivery center, and service centers. There are no collective bargaining agreements covering any of the Company's employees. The Company has never experienced a strike or work stoppage and management believes that relations with its employees are excellent. Trademarks and Service Marks The Company has registered the name "THE GOOD GUYS!" as a trademark with the United States Patent and Trademark Office and the State of California. Federal registration of the trademark extends through 2000 and is renewable indefinitely. The Company has registered "THE GOOD GUYS!" as a service mark through 1999, which is renewable indefinitely. The Company's name is an integral part of its advertising and is important to its business. The Company's Federal trademark application for the WOW! trademark has been approved for publication by the U.S. Patent and Trademark Office and it is expected that the registration for the trademark will be issued in early 1999. ITEM 2. PROPERTIES Of the Company's stores in California, 20 are located in the San Francisco Bay area, 27 in the greater Los Angeles/Orange County metropolitan area, 3 in Sacramento, 7 in San Diego; and one each in Bakersfield, Fresno, Modesto and Stockton, California. In addition, THE GOOD GUYS! operates 9 stores in the State of Washington, 5 stores in Oregon and 4 stores in Nevada. All of the stores are leased under leases that have expiration dates (assuming that lease options are exercised) in years ranging from 1999 to 2033. The Company's operations center is located in a 460,000 square foot facility in Hayward, California under a lease, the term of which expires (assuming that lease options are exercised) in 2011. The Company also maintains executive offices in Brisbane, California at 7000 Marina Boulevard under a lease, the term of which expires (assuming that lease options are exercised) in 2004. -9- 10 ITEM 3. LEGAL PROCEEDINGS On July 19, 1996, McBride-Newell, Inc. dba Carphones, Inc. and numerous other individuals and entitled McBride-Newell, Inc., et al. v. Mobilworks, Inc. et al., San Diego Superior Court Case No. 695897. Plaintiffs, who are small agents of the cellular service providers offering cellular telephone products and service in the San Diego area, alleged a conspiracy to sell cellular telephone equipment below cost with the intent to drive the plaintiffs out of business. Plaintiffs could treble damages under the California antitrust laws. This case was settled in November 1998 for an amount that is not material to the financial condition of the Company. On or about July 22, 1996, Joe Quattrini dba Sand Canyon Cellular and numerous other individuals and entities filed a complaint against the Company and 20 other named defendants entitled Quattrini, et al. v. Pana-Pacific Corp., et al., Orange County Superior Court Case No. 766649. Plaintiffs, who are small agents or subagents of the cellular service providers offering cellular telephone products and service in the Orange County area, allege a conspiracy to sell cellular telephone equipment below cost with the intent to drive plaintiffs out of business. Plaintiffs seek treble damages under the California antitrust laws. The Company believes it has meritorious defenses to the claims alleged in the lawsuit and intends to defend the action vigorously. The Company was named in July of this year as a defendant in an action entitled Cavnar, et al. v. National Semiconductor Corp., et al., No. 996297, San Francisco Superior Court, along with many other defendants. Plaintiffs' Complaint is styled as a class action and the primary allegation involving the Company is that the Company's advertisements have misrepresented the amount of random access memory in certain computers that is available for programming and processing applications. The Company believes it has meritorious defenses to the claims alleged in the suit as well as meritorious claims for indemnification from the computer manufacturers from which it has purchased personal computers. The Company intends to defend the action, and pursue its indemnification claims, vigorously. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS Not Applicable. ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company and their respective ages and positions with the Company are as follows:
Name Age Position - ---- --- -------- Robert A. Gunst 50 President and Chief Executive Officer Jayne Spiegelman 43 Senior Vice President, Merchandising and Marketing
-10- 11 Dennis C. Carroll 39 Senior Vice President, Finance and Administration, Chief Financial Officer and Secretary Kevin M. McNeill 45 Vice President, Sales Gregory L. Steele 51 Vice President, Real Estate and Development John G. Duken 38 Vice President, Operations Cathy A. Stauffer 39 Vice President, Quality Brad S. Bramy 46 Vice President, Advertising Geradette M. Vaz 45 Vice President, Human Resources
All executive officers are elected by and serve at the discretion of the Board of Directors. Robert A. Gunst became the President and Chief Operating Officer of the Company in May 1990 and its Chief Executive Officer in January 1993. Jayne Spiegelman joined the Company in August 1997 as Vice President of Merchandising and became Senior Vice President, Merchandising and Marketing in May 1998. From 1995 to 1997, Ms. Spiegelman was a Strategy Senior Consultant with Andersen Consulting, serving retail clients worldwide. Prior to joining Andersen Consulting, Ms. Spiegelman served in a variety of senior merchandising management positions at Federated Department Stores and Macy's West. Dennis C. Carroll, who had served as controller of the Company from 1990 to 1993, rejoined the Company as Vice President, Chief Financial Officer and Secretary in May 1996. In September 1997, Mr. Carroll was named Senior Vice President, Finance and Administration and retained his position as Chief Financial Officer and Secretary. Mr. Carroll served as Vice President and Chief Financial Officer of Beverages, & more!, a specialty retailer, from February 1994 to April 1996 and as Vice President, Controller and Treasurer of Supercuts, Inc., an owner and franchisor of hair salons, from May 1993 to January 1994. Kevin M. McNeill became Vice President, Sales in April 1997. From 1981 until April 1997, Mr. McNeill served the Company in various positions in the store organization. Gregory L. Steele has served as Vice President, Real Estate and Development since April 1986. John G. Duken joined the Company in September 1993 as General Manager of Store Operations and was named Vice President, Store Operations in June 1994. In July 1997, Mr. Duken was named Vice President, Operations. From June 1988 to August 1993 he held several positions with Circuit City Stores, Inc., including -11- 12 Divisional Operations Manager of the Northern California Division and General Operations Manager of the Midwest Division. Cathy A. Stauffer became Vice President, Quality in August 1997. From January 1989 to April 1993, Ms. Stauffer served as Vice President, Advertising of the Company. She returned to the Company as a consultant in January 1997 and was named Vice President, Quality in August 1997. Brad S. Bramy was named Vice President, Advertising in May 1995. Prior to holding this position, Mr. Bramy served in various positions in the advertising department since joining the Company in 1983. Geradette M. Vaz has served as Vice President, Human Resources since July 1986. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Incorporated by reference from page 24 of the Company's 1998 Annual Report to Shareholders. ITEM 6. SELECTED FINANCIAL DATA Incorporated by reference from page 13 of the Company's 1998 Annual Report to Shareholders. The following chart details the basic and diluted earnings per share for each of the last five fiscal years: Net income (loss) per share 1998 1997 1996 1995 1994 -0.64 -0.89 -0.46 1.06 1.06 -0.64 -0.89 -0.46 1.04 1.03 Weighted average shares outstanding Basic 14,012 13,676 13,576 13,427 13,164 Diluted 14,012 13,676 13,576 13,603 13,434
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference from pages 10 through 12 of the Company's 1998 Annual Report to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference from pages 14 through 23 of the Company's 1998 Annual Report to Shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. -12- 13 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information relating to directors of the Company required to be furnished pursuant to this item is incorporated by reference from portions of the Company's definitive Proxy Statement for its annual meeting of shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after September 30, 1998 (the "Proxy Statement") under the caption "Election of Directors." Certain information relating to executive officers of the Company is set forth in Item 4A of Part I of this Form 10-K under the caption "Executive Officers of Registrant." ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from portions of the Proxy Statement under the captions "Compensation of Directors and Executive Officers" and "Certain Relationships and Related Transactions." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from portions of the Proxy Statement under the captions "Certain Shareholders" and "Compensation of Directors and Executive Officers." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from portions of the Proxy Statement under the caption "Compensation of Directors and Executive Officers" and "Certain Relationships and Related Transactions." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)1. FINANCIAL STATEMENTS Included in Part II of this report by incorporation by reference from the 1998 Annual Report to Shareholders: Independent Auditors' Report (page 23 of the 1998 Annual Report to Shareholders) Consolidated statements of operations for each of the three years in the period ended September 30, 1998 (page 15 of the 1998 Annual Report to Shareholders) Consolidated balance sheets as of September 30, 1998 and 1997 (page 14 of the 1998 Annual Report to Shareholders) -13- 14 Consolidated statements of shareholders' equity for each of the three years in the period ended September 30, 1998 (page 16 of the 1998 Annual Report to Shareholders) Consolidated statements of cash flows for each of the three years in the period ended September 30, 1998 (page 17 of the 1998 Annual Report to Shareholders) Notes to consolidated financial statements (pages 18 through 22 of the 1998 Annual Report to Shareholders) (a)2. FINANCIAL STATEMENT SCHEDULES All schedules are omitted because they are not required (in some cases because the information is not material), or are not applicable, or the information is included in the financial statements. (a)3. EXHIBITS 3.1 Certificate of Incorporation. (Exhibit 3.1 to the Company's Form 8-K Report for March 4, 1992; incorporated herein by reference.) 3.2 Bylaws. (Exhibit 3.2 to the Company's Form 8-K Report for March 4, 1992; incorporated herein by reference.) 10.1 1985 Stock Option Plan, as amended.* (Exhibit 10.1 to the Company's Form 10-K Annual Report for the fiscal year ended September 30, 1998; incorporated herein by reference.) 10.2 Form of Nonqualified Stock Option Agreements.* (Exhibit 4.3 to the Company's Registration Statement on Form S-8 as filed on January 28, 1991, registration number 33-38749; incorporated herein by reference.) 10.3 Letter Agreement with Robert A. Gunst, dated March 30, 1990.* (Exhibit 10.14 to the Company's Form 10-K Annual Report for its fiscal year ended September 30, 1990; incorporated herein by reference.) 10.4 Employee Stock Purchase Plan, as amended.* (Exhibit 4.1 to the Company's Registration Statement on Form S-8 as filed on November 19, 1998, registration number 333-67545; incorporated herein by reference). 10.5 Amended and Restated 1994 Stock Incentive Plan.* (Exhibit 10.5 to the Company's Form 10-K Annual Report for the fiscal year ended September 30, 1997; incorporated herein by reference.) 10.6 Assignment and Assumption Agreement, dated September 26, 1995, by and between The Good Guys, Inc. and The Good Guys - California, Inc.
- -------- *Compensatory plan or arrangement. -14- 15 (Exhibit 10.18 to the Company's Form 10-K Annual Report for the fiscal year ended September 30, 1995; incorporated herein by reference.) 10.7 Form of Operating Agreement, for WOW! Stores between MTS, Inc., dba Tower Records/Book/Video, and The Good Guys, Inc., used in connection with all existing WOW! stores. (Exhibit 10.20 to the Company's Form 10-K Annual Report for the fiscal year ended September 30, 1995; incorporated herein by reference.) 10.8 Loan Agreement between the Good Guys-California, Inc. and Wells Fargo Bank, National Association, as Agent, dated as of September 29, 1997. Exhibit 10.8 to the Company's Form 10-K Annual Report for the fiscal year ended September 30, 1997; incorporated herein by reference.) 10.9 Letter Agreement with Jayne Spiegelman, dated August 15, 1997.* 13.1 Annual Report to Shareholders for fiscal year ended September 30, 1998 (pages incorporated by reference). 21.1 List of Subsidiaries. 23.1 Independent Auditors' Consent. 24.1 Power of Attorney. 27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K. There were no reports on Form 8-K for the quarter ended September 30, 1998. -15- 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: December 22, 1998 THE GOOD GUYS, INC. By /s/ ROBERT A. GUNST -------------------------------------- Robert A. Gunst President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ ROBERT A. GUNST Director, President and December 22, 1998 - ---------------------------- Chief Executive Officer (Robert A. Gunst) (Principal Executive Officer) /s/ DENNIS C. CARROLL Senior Vice President, December 22, 1998 - ---------------------------- Finance and Administration, (Dennis C. Carroll) and Chief Financial Officer (Principal Financial Officer) /s/ VANCE SCHRAM Controller (Principal December 22, 1998 - ---------------------------- Accounting Officer) (Vance Schram) /s/ STANLEY R. BAKER* Director December 22, 1998 - ---------------------------- (Stanley R. Baker) /s/ RUSSELL M. SOLOMON Director December 22, 1998 - ---------------------------- (Russell M. Solomon) /s/ JOHN E. MARTIN* Director December 22, 1998 - ---------------------------- (John E. Martin) /s/ W. HOWARD LESTER* Director December 22, 1998 - ---------------------------- (W. Howard Lester) /s/ HORST H. SCHULZE* Director December 22, 1998 - ---------------------------- (Horst H. Schulze) *By /s/ DENNIS C. CARROLL ------------------------- Dennis C. Carroll, Attorney-in-Fact
-16- 17 EXHIBIT INDEX 3.1 Certificate of Incorporation. (Exhibit 3.1 to the Company's Form 8-K Report for March 4, 1992; incorporated herein by reference.) 3.2 Bylaws. (Exhibit 3.2 to the Company's Form 8-K Report for March 4, 1992; incorporated herein by reference.) 10.1 1985 Stock Option Plan, as amended. (Exhibit 10.1 to the Company's Form 10-K Annual Report for the fiscal year ended September 30, 1998; incorporated herein by reference.) 10.2 Form of Nonqualified Stock Option Agreements. (Exhibit 4.3 to the Company's Registration Statement on Form S-8 as filed on January 28, 1991, registration number 33-38749; incorporated herein by reference.) 10.3 Letter Agreement with Robert A. Gunst, dated March 30, 1990. (Exhibit 10.14 to the Company's Form 10-K Annual Report for its fiscal year ended September 30, 1990; incorporated herein by reference.) 10.4 Employee Stock Purchase Plan, as amended. (Exhibit 4.1 to the Company's Registration Statement on Form S-8 as filed on November 19, 1998, registration number 333-67545; incorporated herein by reference). 10.5 Amended and Restated 1994 Stock Incentive Plan. (Exhibit 10.5 to the Company's Form 10-K Annual Report for the fiscal year ended September 30, 1997; incorporated herein by reference.) 10.6 Assignment and Assumption Agreement, dated September 26, 1995, by and between The Good Guys, Inc. and The Good Guys - California, Inc. (Exhibit 10.18 to the Company's Form 10-K Annual Report for the fiscal year ended September 30, 1995; incorporated herein by reference.) 10.7 Form of Operating Agreement, for WOW! Stores between MTS, Inc., dba Tower Records/Book/Video, and The Good Guys, Inc., used in connection with all existing WOW! stores. (Exhibit 10.20 to the Company's Form 10-K Annual Report for the fiscal year ended September 30, 1995; incorporated herein by reference.) 10.8 Loan Agreement between the Good Guys-California, Inc. and Wells Fargo Bank, National Association, as Agent, dated as of September 29, 1997. Exhibit 10.8 to the Company's Form 10-K Annual Report for the fiscal year ended September 30, 1997; incorporated herein by reference.) 10.9 Letter Agreement with Jayne Spiegelman, dated August 15, 1997. 13.1 Annual Report to Shareholders for fiscal year ended September 30, 1998 (pages incorporated by reference). 21.1 List of Subsidiaries.
-17- 18 23.1 Independent Auditors' Consent. 24.1 Power of Attorney. 27.1 Financial Data Schedule.
-18-
EX-10.9 2 LETTER AGREEMENT WITH JAYNE SPIEGLEMAN 1 EXHIBIT 10.9 [THE GOOD GUYS! LETTERHEAD] August 15, 1997 Jayne Spiegelman 61 Catalpa Drive Atherton, CA 94027 Dear Jayne: I am very pleased to present you with an offer of employment for the position of Senior Vice President, Merchandising of THE GOOD GUYS! I believe the professional and personal skills that you will bring to the Company, along with the experience that you've gained, will well serve our company. Your initial base salary will be at a rate of $300,000 per year. Our present practice is for the Compensation Committee of the Board of Directors to review Officers' pay and performance as of the end of each fiscal year, making you first eligible for a salary review a our November 1998 Board Meeting. Salary increases, if granted by the Board, have generally been effective retroactive to October 1st. As a Senior Vice President of the Company, you will be eligible during your employment to participate in the Fiscal 1998 Management Bonus Plan. This plan will be targeted in your case to pay a bonus equal to 40% of base salary should the Company achieve 100% of its established goal. You will upon commencement of your employment also receive a non-qualified option to purchase 20,000 shares of THE GOOD GUYS! stock which will be granted in accordance with the 1994 Stock Incentive Plan. The exercise price of this option will be equal to the fair market value of the Company's stock at the close of the market on your first day of employment. 2 Jayne Spiegelman August 15, 1997 Page Two Your medical benefits will become effective the first of the month following employment. Additionally, you will be eligible during your employment to participate in all of the benefits programs available to associates of THE GOOD GUYS! as described in the summary information which you have already received. As an Officer of the Company, you will also be eligible to receive additional benefits, which include enriched Long Term Disability and Life Insurance, Tax Preparation/Financial Planning and three weeks vacation administered in accordance with our vacation policy. All policies, procedures, rules and regulations written in our handbook are applicable to you and your employment with THE GOOD GUYS! In the event that the Company were to terminate your employment for any reason other than cause, your then base monthly salary would be continued during the twelve months immediately following the date of your termination, subject only to reduction in an amount equal to any compensation received by you from other employers during such period and to your executing a mutually satisfactory release. You could be terminated for cause only in the event of your willful misconduct, conviction of a felony or neglect of your duties, obligations and responsibilities on behalf of the Company (after having received reasonable notice of such neglect). Jayne, any associates and I are very excited about the prospect of your joining our management team. I look forward to working together with you in the years to come. Please give me a call if you have any questions whatsoever. Sincerely, /s/ ROBERT A. GUNST cc: G. Vaz EX-13.1 3 EXHIBIT 13.1 1 EXHIBIT 13.1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements made below and elsewhere in the Annual Report that are not historical facts, including any statements about expectations for fiscal year 1999 and beyond, involve certain risks and uncertainties. Factors that could cause the Company's actual results to differ materially from management's projections, estimates and expectations include, but are not limited to, increases in promotional activities of the Company's competitors, changes in consumer buying attitudes, the presence or absence of new products or product features in the Company's merchandise categories, changes in vendor support for advertising and promotional programs, changes in the Company's merchandise sales mix, general economic conditions, risks associated with Year 2000 issues, and other factors referred to in the Company's fiscal 1998 Annual Report on Form 10-K under "Information Regarding Forward Looking Statements" and in the Company's Consolidated Financial Statements and Notes thereto. The Consolidated Financial Statements and Notes to the Consolidated Financial Statements should be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations. GENERAL The following table sets forth, for the years indicated, the relative percentages that certain income and expense items bear to net sales, and the number of stores open at the end of each period:
Years ended September 30, 1998 1997 1996 Gross profit 24.6% 25.1% 23.1% Selling, general and administrative expenses 26.0% 27.2% 23.8% Early retirement of assets -- -- 0.4% Loss before income taxes (1.5%) (2.2%) (1.1%) Net loss (1.0%) (1.4%) (0.7%) Number of stores open at end of period 77 76 75
SALES AND GROSS PROFIT The following table sets forth sales by product category:
Years Ended September 30, 1998 1997 1996 Video 41% 38% 39% Audio and Cellular Phones 30% 30% 29% Home Office 17% 19% 20% Other Accessories, Repair Service, and Premier Performance Guarantee 12% 13% 12% ------------------------------------ Total Company 100% 100% 100% ====================================
Sales increased to $928.5 million in fiscal 1998 from $890.5 million and $925.7 million in fiscal 1997 and 1996, respectively. The 4% increase in fiscal 1998 resulted from a comparable store sales increase of 3%, and the opening of one new store in fiscal 1998. The gain was partially offset by the temporary closing of certain stores remodeled to the Audio/Video Exposition format during the year. The introduction of new technologies, such as digital versatile disc (DVD), Dolby Digital audio components, and new technologies in television, fueled sales gains in the video, audio, and cellular phone categories. Sales decreased in fiscal 1997 to $890.5 million from $925.7 million in fiscal 1996. The 4% decrease in fiscal 1997 resulted from a comparable store sales decrease of 8% and the temporary closure of stores being remodeled. The decrease was partially offset by the opening of one new store in fiscal 1997 and full-year sales for the net nine stores opened in fiscal 1996. Sales decreased in virtually all product categories during fiscal 1997. The gross profit margin decreased to 24.6% of sales in fiscal 1998 compared with 25.1% in fiscal 1997 and 23.1% in fiscal 1996. The decrease in gross profit percentage for fiscal 1998 was primarily due to a reduction in sales mix of the Premier Performance Guarantee contracts. 2 The increase in gross profit percentage for fiscal 1997 reflected a gross margin improvement in virtually every product category. The Company believes that this improvement was due to enhanced sales training and product merchandising. As a percentage of sales, Premier Performance Guarantee contracts were 5.0%, 5.7%, and 5.3% for fiscal 1998, 1997, and 1996, respectively. Profit margins on products sold with Premier Performance Guarantee contracts are generally higher than margins on other products the Company sells. Comparable store sales in the future may be affected by competition, the opening of additional the good guys! stores in existing markets, the absence or introduction of significant new products in the consumer electronics industry, and general economic conditions. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses as a percentage of sales were 26.0% in fiscal 1998 compared to 27.2% in fiscal 1997 and 23.8% in fiscal 1996. The decrease as a percentage of sales in fiscal 1998 was the result of an increase in same store sales and a decrease in net advertising expense for fiscal 1998. The increase in fiscal 1997 was the result of the decline in same store sales, an increase in net advertising expense, and the costs associated with the temporary closure and reopening of stores remodeled during the year. NET LOSS The loss before income taxes as a percentage of sales for fiscal 1998, 1997, and 1996 was 1.5%, 2.2%, and 1.1%, respectively. The effective income tax rates for fiscal years 1998, 1997, and 1996 were 36.6%, 37.2%, and 37.7%, respectively. The net loss as a percentage of sales for fiscal years 1998, 1997, and 1996 was 1.0%, 1.4%, and 0.7%, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company's sales are primarily cash and credit card transactions, providing a source of liquidity. The Company also uses private label credit card programs administered and financed by financial services companies, which allow the Company to expand store sales without the burden of additional receivables. Working capital requirements are reduced by vendor credit terms. The Company also uses lease financing to fund a portion of its capital requirements. As of the end of fiscal 1998, the Company had working capital of $32.4 million, compared to $53.4 million in fiscal 1997 and $65.6 million in fiscal 1996. In fiscal 1998, net cash provided by operating activities was $2.5 million compared to $6.1 million in 1997 and $16.6 million in fiscal 1996. The decrease in net cash provided by operating activities was primarily attributable to the increase in merchandise inventories and accounts receivable offset by a decrease in the net loss for fiscal 1998, an increase in accounts payable, and an increase in depreciation expense. The net cash decrease in fiscal 1997 was primarily attributable to the increase in the net loss for fiscal 1997, a decrease in accounts payable, offset by a decrease in the income tax receivable and in merchandise inventories. During fiscal 1998, the Company opened one new Audio/Video Exposition store and remodeled and relocated four existing stores to its Audio/Video Exposition format. In fiscal 1997, the Company opened one new WOW! store and remodeled two stores to the Audio/Video Exposition format. This expansion and remodeling has been financed primarily through the cash provided from operations and lease financing. Cash utilized for capital expenditures was $21.0, $10.2, and $12.5 million for fiscal years 1998, 1997, and 1996, respectively. The Company plans to open two new stores and remodel/relocate at least six stores during fiscal 1999. The Company expects to be able to fund its working capital requirements and expansion plans, including remodels and relocations, with a combination of cash flows from operations, normal trade credit, financing agreements, and the continued use of lease financing. Effective September 29, 1997, the Company entered into a new three-year revolving credit agreement. This replaced a previous agreement and allows borrowings of up to $75,000,000, which fluctuates with seasonal working capital requirements. This credit facility is used for working capital and store construction purposes and is secured by the Company's assets. At both September 30, 1998 and 1997, there were no borrowings outstanding under the lines. Maximum borrowings outstanding under credit facilities during fiscal 1998 were $55 million compared to $35 million in fiscal 1997 and $38 million in fiscal 1996. The weighted average borrowings outstanding under credit facilities during fiscal years 1998, 1997, and 1996 were $20,822,000, $11,098,000, and $9,475,000, respectively. The weighted average interest rates for such borrowings were 8.4% during fiscal 1998, 6.8% during fiscal 1997, and 5.8% during fiscal 1996. IMPACT OF INFLATION The Company believes that, because of competition among manufacturers and the technological changes in the consumer electronics industry, inflation has not had a significant effect on results of operations. 3 YEAR 2000 MATTERS BACKGROUND: As used by The Good Guys - California, Inc., "Year 2000 compliance" means that the Operating Systems (OS), Data Base Systems, Application or Business Systems have been reviewed to confirm that they store, process (including sorting and performing mathematical operations), input, and output data containing date information correctly, regardless of whether the data contains dates before, on or after January 1, 2000. READINESS: The Company began addressing the Year 2000 compliance issues in 1991, and since then, has been actively pursuing the goal of Year 2000 compliance. The Company has made Year 2000 compliance a top priority and has committed to it significant internal and external resources, including automated tools and third-party resources. In 1995, a Year 2000 Task Force was formed to (1) identify Year 2000 compliance issues within the Company's hardware, software, and business systems; and (2) develop and implement Year 2000 compliance remediation measures. The Director of Management Information Systems was appointed to head up this effort. The Company has also engaged the services of outside consultants and experts to advise it on particular Year 2000 Compliance issues. As a first step in achieving Year 2000 compliance, an audit was conducted to identify those computer systems, programs, and processes that are affected by the Year 2000 and other date-recognition issues. This audit was started in 1995 and the Company continues to probe for additional date-sensitive issues that, although subtle, could affect its business processes. The Year 2000 Task Force analyzed the audit results and, with the participation and approval of senior management, developed a Year 2000 remediation plan with target dates. The plan contemplates that the remediation efforts on all of the mission-critical internal systems will be complete by June 30, 1999. The Company will thereafter engage in thorough testing to ensure the Year 2000 fixes are effective. The Company anticipates all testing will be concluded on or about September 30, 1999 and is currently on schedule to meet its remediation and testing target deadlines. In addition, the Company is seeking, and will continue to seek, assurances from vendors and other third parties with whom it does business that they are on target for completing their own Year 2000 remediation programs. RISKS: The Company presently believes that with modifications to existing software, as well as conversions to new hardware and software, the Year 2000 issue is not reasonably likely to pose significant operational problems. However, if unforeseen difficulties arise, or such modifications, conversions, and replacements are not completed in a timely manner, or if the Company's vendors' or suppliers' systems are not modified to become Year 2000 compliant, the Year 2000 issue may have a material impact on the results of operations and financial condition of the Company. Currently, the Company is unable to assess the likelihood that it will experience significant operational problems due to unresolved Year 2000 issues of third parties who do business with the Company. There can be no assurance that other entities will achieve timely Year 2000 compliance. If they do not, Year 2000 problems could have a material impact on the Company's operations. Similarly, there can be no assurance that the Company can timely mitigate its risks related to a supplier's failure to resolve its Year 2000 issues. If such mitigation is not achievable, Year 2000 problems could have a material impact on the Company's operations. ESTIMATED YEAR 2000 COSTS: The Company estimates the cost of achieving Year 2000 readiness for its internal systems and equipment will be in the range of $2,500,000 to $3,500,000, of which $1,963,000 has been spent through September 30, 1998. This represents management's best estimate, given the most current information and could change as the project moves forward. CONTINGENCY PLANNING: The Company is reviewing its existing business- interruption contingency plans to address internal and external issues specific to the Year 2000 issue, to the extent practicable. Such revisions are expected to be completed by June 30, 1999. These plans, which are intended to enable the Company to continue to operate to the extent that it can do so safely, include performing certain processes manually, repairing or obtaining replacement systems, changing suppliers, and reducing or suspending operations. The Company believes, however, that due to the widespread nature of potential Year 2000 issues, the contingency planning process is an ongoing one, which will require further modifications as the Company obtains additional information regarding (1) the Company's internal systems and equipment during the remediation and testing phases of its Year 2000 program, and (2) the status of third-party Year 2000 readiness. NEW ACCOUNTING PRONOUNCEMENTS The Company will adopt SFAS 130 "Reporting Comprehensive Income" and SFAS 131 "Disclosures about Segment Reporting of an Enterprise and Related Information" in fiscal 1999. Although the Company has not completed its review of these standards, management does not believe they will have a significant impact on its financial statements when implemented. For further discussion, see Note 1 to the Consolidated Financial Statements included in this Annual Report. 4 SELECTED FINANCIAL DATA
Years ended September 30, (Dollars and shares in thousands, except per 1998 1997 1996 1995 1994 share and other data) SUMMARY OF EARNINGS Net sales $ 928,490 $ 890,524 $ 925,714 $ 889,206 $ 724,713 Cost of sales 700,158 667,409 711,463 674,179 535,690 ----------------------------------------------------------------------------- Gross profit 228,332 223,115 214,251 215,027 189,023 Selling, general, and administrative expenses 241,155 241,776 220,032 191,066 166,046 Early retirement of assets -- -- 3,741 -- -- ----------------------------------------------------------------------------- Income (loss) from operations (12,823) (18,661) (9,522) 23,961 22,977 Interest income -- 172 211 220 758 Interest expense (1,277) (930) (679) (619) (191) ----------------------------------------------------------------------------- Income (loss) before income taxes (14,100) (19,419) (9,990) 23,562 23,544 Income tax expense (benefit) (5,167) (7,237) (3,771) 9,396 9,651 ----------------------------------------------------------------------------- Net income (loss) $ (8,933) $ (12,182) $ (6,219) $ 14,166 $ 13,893 ----------------------------------------------------------------------------- Net income (loss) per basic and diluted share $ (0.64) $ (0.89) $ (0.46) $ 1.06 $ 1.06 Basic and diluted weighted average shares 14,012 13,626 13,576 13,427 13,164 FINANCIAL POSITION Working capital $ 32,370 $ 53,364 $ 65,606 $ 74,042 $ 66,900 Total assets $ 250,858 $ 236,062 $ 246,015 $ 227,729 $ 188,712 Shareholders' equity $ 112,007 $ 118,104 $ 129,268 $ 136,022 $ 118,948 OTHER DATA Number of stores at year end 77 76 75 66 52 Average sales per store $ 12,219 $ 11,811 $ 13,024 $ 14,962 $ 14,912 Sales per selling square foot $ 1,065 $ 1,057 $ 1,213 $ 1,481 $ 1,519 Sales per gross square foot $ 665 $ 660 $ 756 $ 921 $ 925 Comparable stores sales 3% (8%) (8%) 7% 19% Inventory turns* 5.5 5.5 5.9 6.4 6.4
*Based on average of beginning and ending inventories for each fiscal year. 5 CONSOLIDATED BALANCE SHEETS
September 30, (Dollars in thousands) 1998 1997 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,051 $ 18,951 Accounts receivable, less allowance for doubtful accounts of $1,149 and $1,196, respectively 26,653 21,711 Income taxes receivable -- 6,176 Merchandise inventories 135,072 117,768 Prepaid expenses 6,445 6,716 -------------------------- Total current assets 171,221 171,322 PROPERTY AND EQUIPMENT: Leasehold improvements 63,818 63,085 Furniture, fixtures, and equipment 59,284 49,264 Construction in progress 12,684 7,772 -------------------------- Total property and equipment 135,786 120,121 Less accumulated depreciation and amortization 63,570 57,968 -------------------------- Property and equipment - net 72,216 62,153 -------------------------- Other assets 7,421 2,587 -------------------------- Total Assets $250,858 $236,062 ========================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 96,517 $ 75,517 Accrued expenses and other liabilities: Payroll 10,630 13,434 Sales taxes 5,940 5,226 Other 25,764 23,781 -------------------------- Total current liabilities 138,851 117,958 SHAREHOLDERS' EQUITY: Preferred stock, $.001 par value - Authorized, 2,000,000 shares - None issued Common stock, $.001 par value: Authorized, 40,000,000 shares Issued and outstanding 14,250,218 and 13,810,310 shares, respectively 14 14 Additional paid-in capital 65,152 62,316 Retained earnings 46,841 55,774 -------------------------- Total shareholders' equity 112,007 118,104 -------------------------- Total Liabilities and Shareholders' Equity $250,858 $236,062 ==========================
See notes to these consolidated financial statements. 6 CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended September 30, (Dollars and shares in thousands, 1998 1997 1996 except per share data) Net sales $ 928,490 $ 890,524 $ 925,714 Cost of sales 700,158 667,409 711,463 ------------------------------------------------- Gross profit 228,332 223,115 214,251 Selling, general and administrative expenses 241,155 241,776 220,032 Early retirement of assets -- -- 3,741 ------------------------------------------------- Loss from operations (12,823) (18,661) (9,522) Interest income -- 172 211 Interest expense (1,277) (930) (679) ------------------------------------------------- Loss before income taxes (14,100) (19,419) (9,990) Income tax benefit (5,167) (7,237) (3,771) ------------------------------------------------- Net Loss $ (8,933) $ (12,182) $ (6,219) ================================================= Net loss per basic and diluted share $ (0.64) $ (0.89) $ (0.46) ================================================= Basic and diluted weighted average shares 14,012 13,626 13,576 =================================================
See notes to these consolidated financial statements. 7 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional Common Stock Paid-In Retained (Dollars in thousands) Shares Amount Capital Earnings Total Balance at September 30, 1995 13,581,416 $14 $ 61,833 $ 74,175 $ 136,022 Issuance of common stock under Employee Stock Purchase Plan 317,316 2,397 2,397 Exercise of stock options including related tax benefits 14,630 84 84 Repurchase and retirement of common stock (358,500) (3,016) (3,016) Net loss (6,219) (6,219) ----------------------------------------------------------------- Balance at September 30, 1996 13,554,862 14 61,298 67,956 129,268 Issuance of common stock under Employee Stock Purchase Plan 372,348 1,938 1,938 Exercise of stock options including related tax benefits 18,600 88 88 Repurchase and retirement of common stock (135,500) (1,008) (1,008) Net loss (12,182) (12,182) ----------------------------------------------------------------- Balance at September 30, 1997 13,810,310 14 62,316 55,774 118,104 Issuance of common stock under Employee Stock Purchase Plan 299,926 1,740 1,740 Profit Sharing Plan 196,300 1,447 1,447 Exercise of stock options including related tax benefits 110,622 849 849 Issuance of restricted stock 29,360 181 181 Repurchase and retirement of common stock (196,300) (1,381) (1,381) Net loss (8,933) (8,933) ----------------------------------------------------------------- Balance at September 30, 1998 14,250,218 $14 $ 65,152 $ 46,841 $ 112,007 =================================================================
See notes to these consolidated financial statements. 8 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, (Dollars in thousands) 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (8,933) $(12,182) $ (6,219) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 10,945 9,667 9,456 Early retirement of assets -- -- 3,741 Allowance for doubtful accounts (47) 275 352 Shareholders' equity tax benefits from stock options 212 18 29 Change in: Accounts receivable (4,895) (385) (744) Income taxes receivable 6,176 2,196 (8,372) Merchandise inventories (17,304) 6,034 (7,996) Prepaid expenses and other assets (4,563) (703) 4,407 Accounts payable 21,000 1,986 20,027 Accrued expenses and other liabilities (107) (775) 1,901 -------------------------------------- Net cash provided by operating activities 2,484 6,131 16,582 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets (21,008) (10,145) (12,487) -------------------------------------- Net cash used in investing activities (21,008) (10,145) (12,487) -------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 4,005 2,008 2,452 Repurchase and retirement of common stock (1,381) (1,008) (3,016) -------------------------------------- Net cash provided by (used in) financing activities 2,624 1,000 (564) Net increase (decrease) in cash (15,900) (3,014) 3,531 Cash at beginning of period 18,951 21,965 18,434 -------------------------------------- Cash at End of Period $ 3,051 $ 18,951 $ 21,965 ======================================
See notes to these consolidated financial statements. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS: The Good Guys, Inc., through its wholly owned subsidiary (together, the Company), is a retailer of consumer electronic products in California, Nevada, Oregon, and Washington. BASIS OF PRESENTATION: The consolidated financial statements include the accounts of The Good Guys, Inc. and its wholly owned subsidiary. All significant intercompany transactions have been eliminated in consolidation. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS: Cash equivalents represent short-term, highly liquid investments with original maturities of three months or less. Interest earned from these investments is included in interest income. MERCHANDISE INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out method) or market. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Depreciation and amortization are computed using the straight line method based on an estimated useful life of three to five years for furniture, fixtures, and equipment, and the lesser of the estimated useful lives of assets or the remaining lease terms for leasehold improvements. Whenever events or changes in circumstances have indicated that the carrying amount of its assets might not be recoverable, in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company, using its best estimates based on reasonable and supportable assumptions and projections, has reviewed for impairment of carrying value of long-lived assets. ADVERTISING: Advertising costs are charged to expense when incurred. Advertising costs for fiscal years ended 1998, 1997, and 1996 were $54,145,000, $60,576,000, and $60,665,000, respectively. STORE PRE-OPENING COSTS: Store pre-opening costs are expensed as incurred. EMPLOYEE STOCK PLANS: The Company accounts for its stock-based awards using the intrinsic value method in accordance with APB No. 25, "Accounting for Stock Issued to Employees," and its related interpretations. No compensation expense has been recognized in the financial statements for employee stock arrangements. INSURANCE RISK RETENTION: The Company retains certain risks for workers' compensation, general liability, and employee medical programs and accrues estimated liabilities on an undiscounted basis for known claims and claims incurred but not reported. REVENUE RECOGNITION: The Company recognizes revenue at the point of sale. Merchandise returns are recorded at the time of return, as the effect of returns is not significant to the Company's operating results. PREMIER PERFORMANCE GUARANTEE CONTRACTS: The Company sells extended service contracts ("Premier Performance Guarantee contracts") on behalf of an unrelated company (the "Warrantor") that markets this product for merchandise sold by the Company. Commission revenue is recognized at the time of sale. The Company acts solely as an agent for the Warrantor and has no liability to the customer under the extended service contract nor any other material obligation to the customer or the Warrantor. Merchandise presented to the Company for servicing under extended service contracts is repaired by the Company on behalf of the Warrantor. The repairs are billed to the Warrantor at amounts customarily charged by the Company for these services. INCOME TAXES: The Company accounts for its income taxes in accordance with Statement of Financial Accounting Standard ("SFAS") No. 109, "Accounting for 10 Income Taxes." Under this standard, deferred income taxes reflect the tax effects, based on current tax law, of temporary differences resulting from differences between the amounts of assets and liabilities recognized for financial reporting and income tax purposes. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate their estimated fair values. NET LOSS PER COMMON SHARE: Net loss per share was computed based on the weighted average number of shares of common stock outstanding during the year. SFAS No. 128, "Earnings Per Share," requires dual presentation of net loss per share on a basic and diluted basis. However, since the Company has reported net losses for each of the three fiscal years in the period ended September 30, 1998, the dilutive effect of stock options was not required to be reported since such options, if exercised, would be anti-dilutive. RECLASSIFICATIONS: Certain reclassifications have been made to the prior year financial statements to conform with the fiscal 1998 financial statement presentation. NEW ACCOUNTING PRONOUNCEMENTS: SFAS No. 130, "Reporting Comprehensive Income" 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. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. In addition, this statement requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from the retained earnings and additional paid-in capital in the equity section of a statement of financial position. This statement is effective for fiscal years beginning after December 15, 1997. Management believes this will have no impact on the Company's financial position or results of operations. SFAS No. 131,"Disclosures about Segment Reporting of an Enterprise and Related Information" establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosure about products and services, geographic areas, and major customers. This statement is effective for fiscal years beginning after December 15, 1997. Management believes this will have no impact on the Companies financial position or results of operations. Note 2: BORROWING ARRANGEMENTS The Company currently maintains a revolving credit agreement, which fluctuates with seasonal working capital requirements and allows borrowings of up to $75,000,000. The agreement requires maintenance of certain financial loan covenants, including minimum tangible net worth, restrictions on capital expenditures and prohibits payment of cash dividends. The line of credit is secured by the Company's assets. The company was in compliance with these covenants for the year ended September 30, 1998. The credit line also includes a standby letter of credit facility. There were no borrowings under the line of credit and $1,000,000 of the commitment was reserved under the letter of credit facility at September 30, 1998. Interest paid on the facility was $1,744,000, $864,000, and $652,000, for the fiscal years ended September 30, 1998, 1997, and 1996, respectively. The Company also purchases products from some vendors through finance companies under agreements which generally require payment in 30 days and provide for purchase discounts. Note 3: INCOME TAXES Income tax benefit consists of the following:
Years ended September 30, (Dollars in thousands) 1998 1997 1996 CURRENTLY PAYABLE (RECEIVABLE): Federal $ (972) $(6,461) $(6,701) State 373 (2) -- ------------------------------------------- Total currently payable (599) (6,463) (6,701) Deferred tax (4,568) (774) 2,930 ------------------------------------------- Total $(5,167) $(7,237) $(3,771) ===========================================
For the years ended September 30, 1998, 1997, and 1996, the Company paid federal income taxes totaling $0, $0, and $2,615,000, respectively. The fiscal year 1998 and 1997 tax provisions reflect the benefit of federal operating loss carrybacks of $6,859,000 and $17,952,000, respectively. The 1997 net operating loss carryback was recouped through carryback to prior fiscal years. 11 This amount is included in income taxes receivable as of September 30, 1997. The 1996 carryback, along with the amounts refundable from the 1996 estimated tax payments, was included in the 1996 income tax receivable balance and was received in 1997. The provisions for income taxes as reported are different from the tax provisions computed by applying the statutory federal income tax rate. The differences are reconciled as follows:
Years ended September 30, 1998 1997 1996 Federal income tax at the statutory rate (35.0%) (35.0%) (35.0%) State franchise tax, Less federal tax effect (1.5) (2.5) (3.7) Other - net (0.1) 0.3 1.0 ------------------------------------- Total (36.6%) (37.2%) (37.7%) =====================================
Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company's net deferred tax assets as of September 30, 1998 and 1997 were as follows:
September 30, (Dollars in thousands) 1998 1997 CURRENT Vacation accruals $ 1,025 $ 979 Prepaid expenses (1,048) (1,362) Reserves 1,182 2,050 Inventory capitalization (1,456) (1,742) Other 236 0 ------------------------- Current assets - net (61) (75) NONCURRENT Depreciation 74 1,573 Net operating loss 6,859 891 Other - net 558 461 ------------------------- Noncurrent assets - net 7,491 2,925 ------------------------- Total $ 7,430 $ 2,850 =========================
Note 4: LEASES The Company's stores, distribution and administration facilities, and certain equipment are leased under operating leases. The leases have remaining initial terms inclusive of renewal options, of one to forty-one years and generally provide for rent increases based on the consumer price index. Certain store leases require additional lease payments based on store sales. The Company subleases a portion of one of its stores to a company whose Chairman is also a member of the Company's Board of Directors. The lease expires on July 31, 2003 and provides for additional rent increases based on the consumer price index. Under the terms of the sublease agreement, the income received for each of the years ended September 30, 1998, 1997, and 1996 was $318,938. The future minimum annual payments for leases having noncancelable terms in excess of one year, net of sublease income, at September 30, 1998, are as follows:
Real (Dollars in thousands) Property Equipment 1999 $34,837 $10,924 2000 31,712 9,021 2001 31,472 6,487 2002 29,889 3,081 2003 29,064 552 Later years through 2018 160,594 0 --------------------- Total $317,568 $30,065 =====================
Rental expense for the years ended September 30, 1998, 1997, and 1996 was $47,099,000, $45,001,000, and $40,932,000, respectively. Note 5: PENSION PLANS The Company has a deferred Pay Plan to which its employees may contribute a portion of their annual salaries and a Profit Sharing Plan that covers substantially all of the Company's employees. Contributions to the Profit Sharing Plan were at the discretion of the Company's Board of Directors through the year ended September 30, 1997, and the contributions for the years ended September 30, 1997 and September 30, 1996 were $2,187,000, and $1,781,000, respectively. The Profit Sharing Plan became non-discretionary for years beginning after September 30, 1997. Effective January 1, 1998, the Company matches, through contributions to the Profit Sharing Plan, an employee's contributions to the Deferred Pay Plan that are invested in the Company's common stock. The Company matches such contributions up to 6% of the employee's annual salary. 12 Note 6: EMPLOYEE STOCK PLANS The Company's 1985 Stock Option Plan and 1994 Stock Incentive Plan authorize the issuance of incentive stock options and non-qualified stock options covering up to 3,515,000 shares of common stock. Although the 1985 Plan expired in 1995 and no further options may be granted under it, options granted prior to its expiration remain outstanding. Options granted under both Plans are exercisable at prices equal to the fair market value of the stock on the date of grant. Options vest ratably over four years and no option may be granted for a term exceeding ten years. The following is a summary of stock option activity under the Plans for the years ended September 30, 1998, 1997, and 1996.
Weighted Average Number Exercise Of Shares Price Balance at September 30, 1995 1,209,980 $ 12.42 Granted (weighted average fair value of $3.93) 383,000 10.19 Exercised (14,630) 3.74 Canceled (225,900) 12.75 ----------------------------- Balance at September 30, 1996 1,352,450 11.82 Granted (weighted average fair value of $2.55) 758,600 7.54 Exercised (18,600) 4.54 Canceled (678,002) 11.98 ----------------------------- Balance at September 30, 1997 1,414,448 9.55 Granted (weighted average fair value of $2.58) 314,750 7.51 Exercised (110,622) 7.52 Canceled (160,374) 9.17 ----------------------------- Balance at September 30, 1998 1,458,202 $ 9.30 =============================
At September 30, 1998, incentive stock options for 835,987 shares were exercisable at a weighted average price of $10.27 per share and 941,951 shares were available for additional option grants. During fiscal 1997, options to purchase 459,550 shares of common stock were repriced from a weighted average exercise price of $12.58 to a weighted average exercise price of $7.50, which was equal to fair market value at the date of repricing. Options issued to the Company's Directors and Officers were not included in the repricing. At September 30, 1998, the Company also had non-qualified Stock options for 40,000 shares outstanding that were exercisable at a weighted average price of $7.31 per share. The following table summarizes information about stock options at September 30, 1998.
Options Outstanding Options Exercisable Number Number Weighted Weighted Exercisable Weighted Outstanding Average Average At Average Range of Sep. 30, Contractual Exercise Sep. 30, Exercise Exercise prices 1998 Life (Years) Price 1998 Price $5.88 - 7.49 468,000 6.2 $ 6.69 195,750 $ 6.68 7.50 388,977 6.6 7.50 225,462 7.50 7.51 - 12.00 442,425 5.5 10.12 300,725 10.38 12.01 - 26.25 198,800 5.3 16.74 154,050 17.92 ------------------------------------------------------------------ $5.88 - 26.25 1,498,202 6.0 $ 9.25 875,987 $ 10.14
The Company established an employee stock purchase plan (Plan) in February 1986, which permits eligible employees to purchase the Company's common stock under terms specified by this Plan. Common stock issued under the Plan during fiscal 1998 totaled 299,926 shares at a weighted average price of $5.80. The weighted average fair value of the fiscal 1998 awards was $2.34 per share. At September 30, 1998, 765,356 shares were reserved for future issuances under the Plan. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), requires the disclosure of pro forma net earnings and earnings per share as if the Company had adopted the fair value method as of the beginning of fiscal 1996. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradeable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations are based on a single-option valuation approach and forfeitures are recognized as they occur. The impact of outstanding unvested stock options granted prior to 1996 has been excluded from the pro forma calculation; 13 accordingly, the 1998, 1997, and 1996 pro forma adjustments are not indicative of future period pro forma adjustments. The Company's calculations were made using the Black-Scholes option pricing model, with the following weighted average assumptions: expected option life, 6 years; stock volatility, 50% in fiscal 1998 and 1997, and 60% in fiscal 1996; risk-free interest rates, 5.75% in fiscal 1998, 6.12% in fiscal 1997, and 6.72% in fiscal 1996;, and no dividends during the expected term. Had compensation cost been recognized in accordance with SFAS No. 123 the pro forma net loss would have been $9,926,000 or $0.71 per share in fiscal 1998, $13,805,000 or $1.01 per share in fiscal 1997, and $7,343,000 or $0.54 per share for fiscal 1996. Note 7: REPURCHASE, AND RETIREMENT OF STOCK In January 1996, the Company's Board of Directors authorized the purchase of up to 500,000 shares of the Company's common stock on the open-market or in private transactions. For the years ended September 30, 1997, and 1996, the Company had repurchased 135,500 shares for $1,008,000 and 358,500 shares for $3,016,000, respectively. In September 1997, the Company's Board of Directors authorized the purchase of an additional 500,000 shares of common stock. For the year ended September 30, 1998, the Company repurchased 196,300 shares for $1,381,000. Note 8: LEGAL PROCEEDINGS The Company is involved in various legal proceedings arising during the normal course of conducting its business. Management believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material impact on the financial position or results of operations of the Company. Note 9: QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly financial data for the years ended September 30, 1998 and 1997 are summarized in the following table:
(Dollars in thousands, December 31, March 31, June 30, September 30, except per share amounts) 1997 1998 1998 1998 Net sales $290,303 $ 209,062 $ 209,057 $ 220,068 Gross profit 71,621 52,332 53,265 51,114 Net income (loss) 2,403 (1,994) (2,591) (6,751) Net income (loss) per basic and diluted share $ 0.18 $ (0.14) $ (0.18) $ (0.47)
(Dollars in thousands, December 31, March 31, June 30, September 30, except per share amounts) 1996 1997 1997 1997 Net sales $286,565 $ 205,091 $ 194,834 $ 204,034 Gross profit 71,695 51,954 49,740 49,726 Net income (loss) 1,966 (3,282) (4,146) (6,720) Net income (loss) per basic and diluted share $ 0.15 $ (0.24) $ (0.30) $ (0 .49)
14 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders The Good Guys, Inc. Brisbane, California We have audited the accompanying consolidated balance sheets of The Good Guys, Inc. as of September 30, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended September 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of The Good Guys, Inc. at September 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1998 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP San Francisco, California November 6, 1998 15 CORPORATE INFORMATION OFFICERS Robert A. Gunst President and Chief Executive Officer Dennis C. Carroll Senior Vice President, Finance and Administration, Chief Financial Officer and Secretary Jayne Spiegelman Senior Vice President, Merchandising and Marketing Brad S. Bramy Vice President, Advertising John G. Duken Vice President, Operations Kevin M. McNeill Vice President, Sales Cathy A. Stauffer Vice President, Quality Gregory L. Steele Vice President, Real Estate and Development Gera M. Vaz Vice President, Human Resources DIRECTORS Stanley R. Baker Director Robert A. Gunst Director and President and Chief Executive Officer of the Company W. Howard Lester Director and Chairman and Chief Executive Officer of Williams-Sonoma, Inc. John E. Martin Director and Chairman of Easyriders, Inc. and Chairman of Diedrich Coffee, Inc. Horst H. Schulze Director and President and Chief Operating Officer of The Ritz-Carlton Company L.L.C. Russell M. Solomon Director and Founder and Chairman of MTS, Inc. (Tower Records) ANNUAL MEETING February 10, 1999, 10:30 AM The Good Guys! Auditorium 7000 Marina Blvd. Brisbane, CA 94005 INDEPENDENT AUDITORS Deloitte & Touche LLP 50 Fremont Street San Francisco, CA 94105 TRANSFER AGENT ChaseMellon Shareholder Services, L.L.C. 85 Challenger Road Ridgefield Park, NJ 07660 (800) 356-2017 Home page on the Internet: http://www.chasemellon.com FORM 10-K A copy of the Company's Form 10-K Annual Report filed with the Securities and Exchange Commission may be obtained without charge by writing to Investor Relations at the address noted below. QUARTERLY REPORTS Shareholders can obtain a faxed copy of recent quarterly financial press releases by calling Company News On Call, a division of PR Newswire, at: 1-800-758-5804. The Good Guys! news # is 108403. The Good Guys home page on the Internet: http://www.thegoodguys.com Or write to: The Good Guys! Attn: Investor Relations 7000 Marina Blvd. Brisbane, CA 94005-1840 COMMON STOCK The Good Guys, Inc. common stock is traded on the Nasdaq National Market under the symbol GGUY. The following table sets forth the quarterly high and low sales prices for the Company's common stock as quoted for fiscal 1997 and 1998.
Fiscal Quarter Ended High Low December 31, 1996 8 5/8 6 1/8 March 31, 1997 7 1/2 6 1/8 June 30, 1997 7 1/8 5 1/2 September 30, 1997 9 5 December 31, 1997 8 1/2 6 5/16 March 31, 1998 10 9/16 6 5/16 June 30, 1998 15 3/4 10 1/4 September 30, 1998 13 5/8 5 3/4
As of November 23, 1998, there were 2,090 shareholders of record, excluding shareholders whose stock is held in nominee or street name by brokers.
EX-21.1 4 LIST OF SUBSIDIARIES 1 EXHIBIT 21.1 List of Subsidiaries
Name Place of Incorporation ---- ---------------------- The Good Guys -- California, Inc. California
-1-
EX-23.1 5 INDEPENDENT AUDITORS' CONSENT 1 [DELOITTE & TOUCHE LETTERHEAD] EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT Board of Directors The Good Guys, Inc. We consent to the incorporation by reference in Registration Statement Nos. 33-5935, 33-19342, 33-32986, 33-38749, 33-39421,33-60957 and 333-67545 of The Good Guys, Inc. on Form S-8 of our report dated November 6, 1998, incorporated by reference in this Annual Report on Form 10-K of The Good Guys, Inc. for the fiscal year ended September 30, 1998. DELOITTE & TOUCHE LLP December 22, 1998 EX-24.1 6 POWER OF ATTORNEY 1 EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose signature appears below, being a member of the Board of Directors of The Good Guys, Inc. (the "Company"), hereby constitutes and appoints Robert A. Gunst and Dennis C. Carroll, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for and in his name, place and stead, in any and all capacities, to sign on his behalf the Company's Annual Report on Form 10-K for its fiscal year ended September 30, 1998, and to execute any amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, with the full power and authority to do and perform each and every act and thing necessary or advisable to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This power of attorney may be executed in any number of counterparts. DATED: November 12, 1998 /s/ ROBERT A. GUNST /s/ STANLEY R. BAKER - ---------------------------- ------------------------------ ROBERT A. GUNST STANLEY R. BAKER /s/ RUSSELL M. SOLOMON /s/ W. HOWARD LESTER - ---------------------------- ------------------------------ RUSSELL M. SOLOMON W. HOWARD LESTER /s/ JOHN E. MARTIN /s/ HORST H. SCHULZE - ---------------------------- ------------------------------ JOHN E. MARTIN HORST H. SCHULZE -1- EX-27.1 7 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS SEP-30-1998 OCT-01-1997 SEP-30-1998 3,051 0 27,802 1,149 135,072 171,221 135,786 63,570 250,858 138,851 0 0 0 14 111,993 250,858 928,490 928,490 700,158 700,158 241,155 0 1,277 (14,100) (5,167) (8,933) 0 0 0 (8,933) (0.64) (0.64)
-----END PRIVACY-ENHANCED MESSAGE-----