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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[ ] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
[X] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from October 1, 2000 to
February 28, 2001
Commission File Number 0-14134
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GOOD GUYS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-2366177
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
1600 Harbor Bay Parkway, Alameda, California 94502-1840
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(Address of principal executive offices)
Registrant's telephone number, including area code: (510) 747-6000
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 $79,898,878 as of April 30, 2001.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
On April 30, 2001, there were 23,215,320 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of definitive proxy statement filed with Securities and
Exchange Commission relating to the Company's 2001 Annual Meeting of
Shareholders. (Part III of Form 10-K)
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INTRODUCTORY NOTE
Good Guys, Inc. changed its fiscal year end from September 30 to the last day of
February. This Transition Report on Form 10-K includes information for the
five-month period from October 1, 2000, through February 28, 2001. A separate
Form 10-K was filed previously for the fiscal year ended September 30, 2000.
PART I.
ITEM 1. BUSINESS.
General
Good Guys was incorporated as The Good Guys, Inc. 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. On April 16, 2001, The Good Guys, Inc. changed its
corporate name from The Good Guys, Inc. to Good Guys, Inc. and The Good Guys --
California, Inc. changed its name to Good Guys California, Inc. Unless the
context otherwise requires, the terms "Company" or "Good Guys" refers to Good
Guys, Inc., together with its operating subsidiary.
Good Guys is a leading specialty retailer of consumer entertainment
electronics, offering a distinctive selection of fully featured digital and
high-tech products from more than 100 of the world's most respected
manufacturers. Good Guys currently operates 79 stores in California, Nevada,
Oregon and Washington. In California, 20 stores are located in the San Francisco
Bay area, 27 in the greater Los Angeles/Orange County metropolitan area, three
in Sacramento, seven in San Diego, and one each in Bakersfield, Fresno, Modesto
and Stockton. In Washington, Oregon and Nevada, Good Guys operates nine stores,
five stores and four stores, respectively.
Change In Fiscal Year
As previously reported, Good Guys has changed its fiscal year end from
September 30 to the last day of February for fiscal years ending after September
30, 2000. The change was made to align Good Guys financial reporting with that
of other consumer electronics retailers and to allow the investment and vendor
communities to draw more realistic comparisons between the Company and its major
competitors. This report is for the five-month transition period ended February
28, 2001.
Information Regarding Forward-Looking Statements and Certain Factors
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 future periods, 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 or affect the decision to invest in the Company's securities
include, but are not limited to, the following:
Recent Net Income (Losses) and Restructuring. For the five-month
transition period ended February 28, 2001, Good Guys reported net income of $1.3
million compared to net income for the same year-ago period of $1.1 million.
However, Good Guys experienced net losses for the fiscal years ended September
30, 2000, and September 30, 1999, of $17.3 million and $39.9 respectively.
Although Good Guys believes it will be able to successfully implement its
turnaround strategy and return to profitability, there can be no assurance that
it will be able to do so. Failure to return to profitability could have a
material adverse effect on the Company's relationships with its vendors and
lenders.
Dependence on Key Personnel. The Company's success depends upon the active
involvement of senior management personnel, particularly Chairman and Chief
Executive Officer Ronald A. Unkefer and President Kenneth R. Weller. The loss of
the full-time services of Ronald A. Unkefer, Kenneth R. Weller or other members
of senior management could have a material adverse effect on the Company's
results of operations and financial condition.
Risks Associated With Competition. The retail consumer electronics
industry is highly competitive. Good Guys competes against a diverse group of
retailers, including several national and regional large format merchandisers
and superstores, such as Circuit City and Best Buy. Those competitors sell,
among other products, similar audio and video consumer electronics products.
Certain of these competitors have substantially greater financial resources than
those of Good Guys. A number of different competitive factors could have a
material adverse effect on the Company's results of operations and financial
condition, including, but not limited to:
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- Increased operational efficiencies of competitors;
- Competitive pricing strategies;
- Expansion by existing competitors;
- Entry by new competitors into markets in which Good Guys is currently
operating; or
- Adoption by existing competitors of innovative store formats or retail
sales methods.
Seasonal and Quarterly Fluctuations in Sales. Like many retailers,
seasonal shopping patterns affect the Company's business. Good Guys changed its
fiscal year to end on the last day of February. The next complete fiscal year
(fiscal 2002) began on March 1, 2001. In the new fiscal year, the fourth fiscal
quarter will include the December holiday shopping period, which has
historically contributed, and is expected to continue to contribute, a
substantial portion of the Company's operating income for the entire fiscal
year. As a result, any factors negatively affecting the Company during the
fourth calendar quarter of any year could have a material adverse effect on
results of operations for the entire year. More generally, the Company's
quarterly results of operations also may fluctuate based upon such factors as:
- Competition;
- General regional and national economic conditions;
- Consumer trends;
- Changes in the Company's product mix;
- Timing of promotional events;
- New product introductions; and
- The Company's ability to execute its business strategy effectively.
Changes In Consumer Demand and Preferences. The Company's success depends
on its ability to anticipate and respond in a timely manner to consumer demand
and preferences regarding audio and video consumer electronic products and
changes in such demand and preferences. Consumer spending patterns, particularly
discretionary spending for products such as those Good Guys offers, are affected
by, among other things, prevailing economic conditions. In addition, the
periodic introduction and availability of new products and technologies at price
levels that generate wide consumer interest stimulate the demand for audio and
video consumer electronics products. It is possible that these products or other
new products will never achieve widespread consumer acceptance. Furthermore, the
introduction or expected introduction of new products or technologies may
depress sales of existing products and technologies. Significant deviations from
the projected demand for products Good Guys sells would have a materially
adverse effect on its results of operations and financial condition, either from
lost sales or from lower margins if Good Guys should need to mark down excess
inventory to stimulate sales.
Dependence on Suppliers. The success of the Company's business and growth
strategy depends to a significant degree upon its maintaining good relationships
with its suppliers, particularly brand-name suppliers of audio and video
equipment such as JVC, Mitsubishi, Panasonic and Sony. The loss of any of these
key vendors or the Company's failure to establish and maintain relationships
with these or other vendors could have a material adverse effect on its results
of operations and financial condition.
Inventory Purchased from Foreign Vendors. Good Guys purchases a
significant portion of its inventory from overseas vendors, particularly vendors
headquartered in Japan. Although substantially all the Company's merchandise
inventory purchases are domestically sourced and denominated in U.S. Dollars,
changes in trade regulations, currency fluctuations or other factors may
increase the cost of items purchased from foreign vendors or create shortages of
such items, which could in turn have a material adverse effect on the Company's
results of operations and financial condition. Conversely, significant
reductions in the cost of such items in U.S. dollars may cause a significant
reduction in retail price levels of those products and may limit or eliminate
the ability to successfully differentiate Good Guys from other competitors,
thereby resulting in an adverse effect on the Company's sales, margins or
competitive position.
Shares Eligible for Future Sale. As of February 28, 2001, the Company had
outstanding stock options and warrants to purchase an aggregate of 6,701,301
shares of common stock at exercise prices ranging from $2.63 to $21.00, of which
options and warrants to purchase 3,895,815 shares are exercisable now. As of
February 28, 2001, the Company had 57,729 outstanding restricted shares. The
sale of restricted shares and the sale of shares covered by such options or
warrants by the holders thereof could have an adverse effect on the market price
for the Company's common stock.
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Business Strategy
Good Guys goal is to be the leading specialty retailer of consumer
entertainment electronics in each of its markets. The cornerstones of its
business strategy include:
Merchandising. The Company's merchandising strategy is to provide shoppers
with a differentiated selection of fully featured consumer entertainment
electronics, including name brand products at popular price points and
higher-end brands and models not available at most major retailers. Merchandise
is offered at competitive prices and backed by a low price guarantee.
Marketing. Good Guys aggressively uses newspaper, direct mail and
broadcast advertising to build name recognition, to position itself in its
markets and to increase store traffic. Advertising is primarily directed toward
the Company's target customer base of early adopters, tech savvy consumers and
middle to upper-income households. Stores are designed to be exciting and easy
to shop and are located in high visibility and high traffic commercial areas.
Differentiated Customer Service. Good Guys believes that superior service
is an important factor in overall customer satisfaction and that Good Guys
differentiates itself from other consumer electronics retailers by providing
superior service to its shoppers via a sales staff of highly trained,
commissioned product specialists. Good Guys believes that friendly and
knowledgeable product specialists 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.
Expansion. Currently, the Company has a moratorium on opening new stores
and relocating existing stores. However, when the Company does re-institute an
expansion program, the Company's efforts will focus on, among other things,
locating suitable store sites and hiring and training skilled personnel. Efforts
will also be made to open new stores quickly, to achieve economies of scale in
advertising and distribution and to gain market share from established
competitors.
Merchandising
Good Guys offers its customers a broad range of high quality consumer
electronics products supplied primarily by manufacturers of nationally known
brands. The following table shows the approximate percentage of sales for each
major product category for the five-month periods ended February 2001 and 2000,
and for the last three fiscal years. Historical percentages may not be
indicative of percentages in future years.
Five months ended Year ended September 30,
---------------------------- ------------------------------------
February 28, February 29,
Category 2001 2000 2000 1999 1998
------------ ------------ ---- ---- ----
Video 56% 53% 53% 45% 43%
Audio 19% 19% 18% 16% 16%
Computer & home office -- -- -- 14% 17%
Mobile and wireless 10% 10% 11% 9% 10%
Other
Accessories, repair service
and extended service plans 15% 18% 18% 16% 14%
--- --- --- --- ---
Total company 100% 100% 100% 100% 100%
=== === === === ===
For the five-month period ended February 2001, the Company's three leading
suppliers for video products were, in alphabetical order, Mitsubishi, Panasonic
and Sony, for audio products were, in alphabetical order, Denon, Sony and
Yamaha, and for mobile and wireless products were, in alphabetical order, AT&T
Wireless, Sony and Sprint PCS.
During the five-month transition period ended February 2001, the Company's
ten largest suppliers accounted for approximately 70% of the merchandise
purchased by the Company. One of the Company's suppliers, Sony, accounted for
more than 10% of its merchandise mix.
As part of the Company's strategic initiatives, Good Guys is committed to
partnering with its vendors to introduce new products and host world premieres
for a wide range of digital and high-tech products. Good Guys believes that
consumer electronics retailers who have trained product specialists are uniquely
positioned to assist vendors introduce their increasingly complex technologies
to consumers and speed acceptance of those products.
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Marketing and Advertising
Good Guys aggressively uses newspaper, direct mail and broadcast
advertising to build name recognition, to position Good Guys in its markets and
generate store traffic. The Company's advertisements promote Good Guys as an
entertainment electronics specialist and emphasize competitive prices, extensive
selection and superior customer service from knowledgeable product specialists.
The Company's advertising efforts are targeted to early adopters, tech savvy
consumers and middle to upper-income households.
To support its marketing strategy, Good Guys promotes its merchandise
through an advertising program that emphasizes the print media (consisting of
newspaper advertising, catalogs and other customer mailings) and, to a lesser
extent, television. The Company's primary advertising channel is weekly
newspaper advertisements, which highlight specific products and their prices and
specific financing plans, many times in connection with specific promotions.
Good Guys targets the bulk of these advertisements to run on Fridays and Sundays
in order to drive "impulse" weekend purchases. These advertisements include some
low-priced products to draw attention, but also emphasize the Company's more
fully featured models and higher-end entertainment electronics products. In
addition, Good Guys has an active customer database, which is used for targeted
mailings of catalogs and other promotional advertisements and materials. Good
Guys believes that its direct mail activities leverage and complement its
general media advertising campaign. The Company's television advertising focuses
primarily on "image" ads which consist of name recognition advertising
emphasizing the Good Guys name and the Company's distinctive, high-quality
product selection, knowledgeable sales force, customer-oriented stores and
competitive prices. Good Guys plans and directs all print, direct mail and
television advertisements. The advertisements are produced by outside vendors in
order to control costs and give maximum flexibility. Good Guys increased its
advertising and marketing spending in fiscal 2000 by approximately 20% over the
prior year in order to promote an integrated branding and marketing campaign,
and it maintained the higher spending level for the five-month transition period
ended February 2001. This campaign is designed to convey the Company's
commitment to providing early adopters, tech-savvy consumers and middle and
upper-income customers with a distinctive selection of consumer entertainment
electronics. Good Guys intends to maintain current spending levels in fiscal
2002.
Customer Service
Good Guys believes that knowledgeable and friendly product specialists are
critical to providing superior customer service. As of February 28, 2001, Good
Guys employed 1,718 trained part-time and full-time product specialists.
All product specialists participate in ongoing training programs designed
to develop good sales practices and techniques and to provide product
specialists with the knowledge base to explain and demonstrate to shoppers the
use and operation of store merchandise. This training enables product
specialists to better understand customer needs and to help them select products
that meet those needs. The ongoing program is led by an internal training team
and also includes vendor-led initiatives.
The Company's satisfaction guarantee policy provides that a product
generally may be returned within 30 days of purchase for a full refund or an
exchange for another product. When purchasing a product from Good Guys,
customers may elect to purchase an Extended Service Plan under which a third
party provides extended service coverage beyond the period covered by the
manufacturer's warranty. In addition, Good Guys offers a 60-day low price
guarantee. If a customer finds a lower price on an item identical to the one
purchased at Good Guys, the Company will refund the difference for up to 60 days
after the purchase.
All merchandise purchased from 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. Good Guys has its own regional
service facilities, which service all of its stores. In-home service is also
available. In addition, Good Guys operates mobile installation facilities at
most store locations and offers custom home installation.
The majority of the Company's sales are made through credit cards. Good
Guys currently honors MasterCard, VISA, American Express and various other
credit cards, as well as the Company's "Preferred Customer Card" issued by an
independent third party. Because of the relatively high cost of many of the
consumer electronics products sold by Good Guys, its business could be affected
by consumer credit availability.
Store Operations
The Company's stores range in size from approximately 9,000 to 38,000
square feet. The Company's stores are predominantly located in high visibility,
high-traffic commercial areas and are open seven days a week, including most
holidays. Stores are designed to be exciting and easy to shop.
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Good Guys has developed three store formats, which emphasize mid to
high-end products. Each store has displays designed to showcase a full spectrum
of the Company's product offerings. These displays allow customers to make
extensive side-by-side product comparisons. The Company's new stores have
substantially larger selling space, providing customers with an uncluttered
presentation of the latest technology and featuring multiple demonstration rooms
dedicated to demonstrating home theater and mobile electronics products.
Good Guys operates: Original Concept stores, Generation 21 format stores
and EXPO format stores.
- Original Concept: The original concept stores sell the full range of
Good Guys merchandise, such as televisions, DVD players, VCRs, audio
components, mobile electronics, cameras, camcorders and related
accessories. The original concept stores typically range from 15,000 to
20,000 square feet. Good Guys currently has 37 original concept stores.
- Generation 21: Good Guys introduced its first Generation 21 stores in
fiscal 1995. These stores are larger and brighter than the original
concept stores and feature more interactive displays, easily accessible
merchandise and vibrant graphics. The Generation 21 stores typically
range in size from 20,000 to 25,000 square feet. Good Guys currently
has 25 Generation 21 stores.
- EXPO: In 1996, Good Guys introduced its EXPO store design. The EXPO
format provides greater merchandise 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 product specialists to design
system solutions for their homes. The EXPO stores typically range from
25,000 to 30,000 square feet. Good Guys currently has 17 EXPO stores.
Good Guys jointly operates 5 locations with Tower Records which are
promoted as WOW! stores. These include 2 Generation 21 style formats and 3 EXPO
formats. These stores offer the same entertainment electronics assortments as
other Good Guys locations as well as a full range of music, video and books
offered by Tower Records. Good Guys occupies approximately 30,000 square feet in
each of the WOW! stores. In addition, Good Guys has subleased 3,000 square feet
in two Good Guys locations in Las Vegas to Tower Records to sell entertainment
software.
Each store generally has one store manager, one operations manager and two
or three sales managers. The store manager oversees the store's operations and
the sales managers supervise the product specialists. Product specialists are
specialized by product category. Product specialists 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.
Cashiers have been re-introduced to all locations to give customers a grab and
go (grab-n-go) option on impulse purchases and also to assist the product
specialists in transactions.
Store operations are overseen by a senior management team, which holds
frequent meetings with the store managers. Senior management establishes
merchandising and store operation policies for all stores.
Distribution
Good Guys operates a 460,000 square foot operations center in Hayward,
California. Deliveries are generally made to each store from three to seven days
a week depending on the season, location of stores and store sales volumes.
Quantities are determined by the Company's automated replenishment system. Good
Guys believes that this frequency and method 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 product
specialist 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.
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Competition
The business of the Company is highly competitive. Good Guys competes
primarily with other specialty stores, independent electronics and appliance
stores, department stores, mass merchandisers, discount stores and catalog
showrooms. Competitors of Good Guys include Circuit City, Best Buy, Sears,
Walmart, Target, Radio Shack and many regional and local electronics chains and
independent stores.
The Company's strategy is to compete by being a value-added retailer,
offering a distinctive selection of fully featured, higher-end consumer
entertainment electronics from leading manufacturers sold at competitive prices
by a friendly, honest and knowledgeable team of product specialists.
Seasonality
Good Guys changed its fiscal year to end on the last day of February. In
the future, the fourth fiscal quarter will include the December holiday shopping
period, which has historically contributed, and is expected to continue to
contribute, a substantial portion of the Company's operating income for the
entire fiscal year. As is the case with many other retailers, the Company's
sales are higher during the quarter that includes the December holiday season
than during other periods of the year, and have previously been between 30% and
33% of the Company's annual sales.
Employees
As of February 28, 2001, Good Guys employed approximately 3,604 persons,
of whom 537 were salaried, 1,349 were hourly non-selling associates and 1,718
were salespeople on commission against a minimum guarantee. As of February 28,
2001, approximately 173 of its employees were employed in the Company's
executive offices; the remaining employees 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. Good
Guys has never experienced a strike or work stoppage and management believes
that relations with its employees are excellent.
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, three
in Sacramento, seven in San Diego; and one each in Bakersfield, Fresno, Modesto
and Stockton, California. In addition, Good Guys operates nine stores in the
State of Washington, five stores in Oregon and four stores in Nevada. All of the
stores are leased under leases that have expiration dates in years ranging from
2002 to 2019.
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 in
2011.
On March 2, 2001, the Company relocated its executive offices from
approximately 35,000 square feet in Brisbane, California, at 7000 Marina
Boulevard to more economical space occupying approximately 31,000 square feet in
Alameda, California, at 1600 Harbor Bay Parkway.
ITEM 3. LEGAL PROCEEDINGS.
Good Guys is involved in various legal proceedings arising during the
normal course of 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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
At the annual meeting of shareholders of Good Guys held on January 31,
2001, 19,011,518 shares were represented 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 17,588,544 1,422,964
Stanley R. Baker 17,525,754 1,485,764
Russell M. Solomon 17,523,881 1,487,637
John E. Martin 17,589,526 1,421,992
Gary M. Lawrence 17,525,889 1,485,629
Joseph P. Clayton 17,589,669 1,421,849
Joseph M. Schell 17,589,629 1,421,889
Kenneth R. Weller 17,589,669 1,421,849
2. The amendment to the Company's 1994 Stock Incentive Plan to increase
the number of shares of Common Stock reserved for issuance under the
plan by 700,000: 13,941,749 votes in favor, 4,221,061 votes against
and 848,708 abstentions.
3. 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: 17,912,100 votes in favor, 256,584 votes
against and 842,834 abstentions.
4. The ratification of selection of Deloitte & Touche LLP as the
independent auditors of the Company: 18,946,563 votes in favor,
31,611 votes against and 33,344 abstentions.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The executive officers of Good Guys and their respective ages and
positions with the Company are as follows:
NAME AGE POSITION
---- --- --------
Ronald A. Unkefer .......... 56 Chairman and Chief Executive Officer
Kenneth R. Weller .......... 52 President
Cathy A. Stauffer .......... 41 Vice President, Merchandising
George J. Hechtman ......... 50 Vice President, Administration
Robert A. Stoffregen ....... 51 Vice President, Finance and Chief Financial
Officer
All executive officers are elected by and serve at the discretion of the
Board of Directors.
Ronald A. Unkefer is the Founder, Chairman and Chief Executive Officer of
Good Guys, Inc. Mr. Unkefer founded the Company on July 1, 1973, and served as
Chairman and Chief Executive Officer until January 1993, when he retired from
the position of Chief Executive Officer to pursue venture capital and
broadcasting interests. He continued to serve as Chairman until January 1996.
Mr. Unkefer returned to the Company as Chairman and Chief Executive Officer on
July 1, 1999, to spearhead the Company's efforts to return to profitability.
During his first tenure with Good Guys (1973-1993), Mr. Unkefer established a
proven track record of achieving profitable results, completing a successful
public offering in 1986 and establishing Good Guys as one of the nation's
premier retailers of consumer electronics. Mr. Unkefer is also Chairman of
goodguys.com, an online consumer electronics retailer formed by Good Guys and a
group of private investors; Chairman of First Ventures, a venture capital fund
investing in Internet and technology companies; and Chairman of First
Broadcasting, an owner and developer of major market radio stations.
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Kenneth R. Weller rejoined Good Guys in August 2000 as President. Mr.
Weller began his career with Good Guys in 1982 as a sales associate, rising to
the position of Vice President of Sales in 1986 after holding various store
management positions. In 1993, Mr. Weller left Good Guys and joined Best Buy as
Senior Vice President, Sales and served in that position until returning to Good
Guys last year. Mr. Weller is largely credited with the substantial growth Good
Guys experienced during his seven years at the helm of the sales organization.
Cathy A. Stauffer was named Vice President, Merchandising in July 1999.
Ms. Stauffer joined Good Guys in 1977 and held various positions in advertising
and marketing before being named Vice President of Marketing in 1988 where she
served until 1993. Ms. Stauffer returned to Good Guys in 1998 as a consultant
and was named Vice President of Quality later that year.
George J. Hechtman was appointed Vice President, Administration in April
2000. Mr. Hechtman was Senior Vice President of Store Operations for Office Max
from 1994 to 1999 and Vice President of Merchandising and Franchise Operations
for BizMart from 1991 to 1993. From July 1999 until joining the Company, he was
Executive Vice President and Chief Operating Officer of Blue Dot Services, a
heating and air conditioning contractor. Mr. Hechtman has held various positions
in consumer electronic merchandising at Circuit City, Montgomery Ward and
Pacific Stereo and has provided consulting services to retailers including
McDonalds and Tandy Corporation.
Robert A. Stoffregen, CPA, JD was appointed Vice President, Finance and
Chief Financial Officer in October 2000. From 1991 to 1994, Mr. Stoffregen
served as Senior Vice President/Chief Financial Officer for The Sharper Image
and from 1994 to October 2000, served as Chief Financial Officer for companies
that included the California Culinary Academy, Radical Entertainment and Zap Me!
Corporation. He began his career with Deloitte & Touche in 1976 where he rose to
the level of partner in the firm's retail specialty group.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
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 the period:
FISCAL PERIOD ENDED HIGH LOW
------------------- ------- -------
Quarter ended June 30, 1999 8 3/16 2 29/32
Quarter ended September 30, 1999 8 5/16 4 5/8
Quarter ended December 31, 1999 11 5 1/4
Quarter ended March 31, 2000 10 1/4 3 5/8
Quarter ended June 30, 2000 4 1/2 2 1/6
Quarter ended September 30, 2000 8 2 15/16
Quarter ended December 31, 2000 7 15/16 2 3/4
Two months ended February 28, 2001 6 1/4 2 15/16
As of April 30, 2001, there were 3,374 shareholders of record excluding
shareholders whose stock is held in nominee or street name by brokers.
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ITEM 6. SELECTED FINANCIAL DATA.
Five-months ended Fiscal years ended September 30,
-------------------------- ---------------------------------------------------------------
February 28, February 29,
2001 2000 2000 1999 1998 1997 1996
------------ ------------ --------- --------- --------- --------- ---------
(Amounts and shares in thousands, (unaudited) (1)
except per share and other data)
SUMMARY OF EARNINGS
Net sales $ 414,978 $ 391,558 $ 850,512 $ 915,642 $ 928,382 $ 889,779 $ 925,714
Cost of sales (298,412) (274,356) (603,975) (692,745) (700,070) (666,815) (711,463)
------------------------ ----------------------------------------------------------------
Gross profit 116,566 117,202 246,537 222,897 228,312 222,964 214,251
Selling, general, and administrative
expenses (112,849) (114,677) (258,637) (257,993) (241,007) (241,411) (220,032)
Store closure expenses -- -- -- (54) (3,008) 314 (3,741)
Gain from property transactions -- 1,025 10,775 -- -- -- --
------------------------ ----------------------------------------------------------------
Income (loss) from operations 3,717 3,550 (1,325) (35,150) (15,703) (18,133) (9,522)
Interest income 90 36 94 91 119 172 211
Interest expense (2,488) (2,440) (6,520) (4,828) (1,396) (930) (679)
------------------------ ----------------------------------------------------------------
Income (loss) before income taxes 1,319 1,146 (7,751) (39,887) (16,980) (18,891) (9,990)
Income tax (expense) benefit -- -- (9,577) -- 5,167 7,237 3,771
------------------------ ----------------------------------------------------------------
Net income (loss) $ 1,319 $ 1,146 $ (17,328) $ (39,887) $ (11,813) $ (11,654) $ (6,219)
======================= ================================================================
Net income (loss) per share
Basic $ 0.06 $ 0.06 $ (0. 84) $ (2.58) $ (0.84) $ (0.86) $ (0.46)
Diluted $ 0.06 $ 0.05 $ (0. 84) $ (2.58) $ (0.84) $ (0.86) $ (0.46)
Weighted average shares
outstanding:
Basic 22,937 19,920 20,560 15,484 14,012 13,626 13,576
Diluted 23,763 21,345 20,560 15,484 14,012 13,626 13,576
FINANCIAL POSITION
Working capital $ 80,935 $ 58,557 $ 59,621 $ 61,858 $ 30,018 $ 53,892 $ 65,606
Total assets $ 219,876 $ 226,860 $ 220,116 $ 226,163 $ 250,948 $ 236,152 $ 246,015
Revolving Credit Debt $ 50,161 $ 40,000 $ 34,358 $ 56,504 -- -- --
Shareholders' equity $ 92,780 $ 97,877 $ 90,519 $ 92,954 $ 109,655 $ 118,632 $ 129,268
OTHER DATA
Number of stores at year end 79 79 79 79 77 76 75
Average sales per store
(in thousands) $ 5,253 $ 4,956 $ 10,894 $ 11,637 $ 12,219 $ 11,811 $ 13,024
Sales per selling square foot $ 410 $ 387 $ 841 $ 931 $ 1,065 $ 1,057 $ 1,213
Sales per gross square foot $ 256 $ 242 $ 526 $ 577 $ 665 $ 660 $ 756
Comparable stores sales increase
(decrease) 6% 1% 5% -4% 3% -8% -8%
Annualized Inventory turns(2) 5.9 5.8 5.3 5.4 5.5 5.5 5.9
(1) As discussed in Note 1 of the Consolidated Financial Statements, previously issued amounts for sales and cost of sales have
been reclassified to give effect to the change in accounting for sales incentives.
(2) Based on average of beginning and ending inventories for each period.
10
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Statements made below and elsewhere in this Transition Report on Form 10-K that
are not historical facts, including any statements about expectations for the
12-month period ending February 28, 2002 and beyond, involve certain risks and
uncertainties. Factors that could cause the estimates and expectations to differ
materially from management's projections, estimates and expectations include,
but are not limited to, the Company's ability to successfully implement its
restructuring program, 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, and other
factors referred to in this Transition Report on Form 10-K under "Information
Regarding Forward Looking Statements and Certain Factors" and in the Company's
Consolidated Financial Statements, including 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 the
Financial Condition and Results of Operations.
CHANGE IN FISCAL YEAR
As reported in its Form 8-K filing with the Securities and Exchange Commission
on November 15, 2000, Good Guys has changed its fiscal year end from September
30 to the last day of February for fiscal years ending after September 30, 2000.
The change was made to align Good Guys financial reporting with that of other
consumer electronics retailers and to allow the investment and vendor
communities to draw more realistic comparisons between the company and its major
competitors.
GENERAL
The following table sets forth, for the periods 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:
Five months ended Year ended September, 30
-------------------------- ----------------------------
February 28, February 29,
2001 2000 2000 1999 1998
------------ ------------ ---- ---- ----
Gross profit 28.1% 29.9% 28.6% 24.3% 24.6%
Selling, general & and administrative
Expenses including depreciation and amortization 27.2% 29.3% 30.1% 28.2% 26.0%
Store closure expenses -- -- -- -- -0.3%
Gain from property transactions -- 0.3% 1.3% -- --
Income (loss) before income taxes 0.3% 0.3% (0.9%) (4.4%) (1.8%)
Net income (loss) 0.3% 0.3% (2.0%) (4.4%) (1.3%)
Number of stores open at end of period 79 79 79 79 77
SALES AND GROSS PROFIT
The following table sets forth sales by product category:
Five months ended Year ended September, 30
------------------------- ------------------------------
February 28, February 29,
2001 2000 2000 1999 1998
------------ ------------ ---- ---- ----
Video 56% 53% 53% 45% 43%
Audio 19% 19% 18% 16% 16%
Computer & home office -- -- -- 14% 17%
Mobile and wireless 10% 10% 11% 9% 10%
Other
Accessories, repair service and
extended service plans 15% 18% 18% 16% 14%
--- --- --- --- ---
Total company 100% 100% 100% 100% 100%
=== === === === ===
11
12
Net Sales
Net sales for the five-month period ended February 2001 were $415 million, an
increase of $23.4 million or 6% from the $391.6 million for the year-ago period.
The sales improvement was driven by strong demand for digital products,
including high definition and HD-ready televisions, digital cameras and
camcorders and digital satellite systems, as well as sizeable growth in
wireless, mobile electronics and core audio/video product sales. Good Guys also
benefited from the impact of company-wide changes made in late 1999 and early
2000 that shifted the company's focus to higher-end consumer entertainment
electronics and increased the level of experience and training for the company's
product specialists. In addition, the introduction of new accessory and
furniture products has provided steady growth, while sales of mature
technologies that have become low price, ubiquitous commodities have declined;
for example, sales of video/VHS players and sales of stereo rack systems were
down from the prior year by 16% and 14%, respectively. Commissions on Extended
Service Plan ("ESP") sales were flat and declined as a percentage of product
sales from the year-ago period.
In fiscal 2000, net sales decreased 7% to $850.5 million from $915.6 million in
fiscal 1999. The decrease resulted primarily from the discontinuation of
computer and home office products and de-emphasis of loss leaders in the fourth
quarter of fiscal 1999 and, as discussed in Note 1 of the Consolidated Financial
Statements, the Company has reduced the previously issued amount for fiscal 2000
net sales by $10.0 million to give effect to a change in accounting for sales
incentives. Excluding sales from these discontinued product lines and the change
in accounting for sales incentives, sales of continuing product categories
increased by 5% or $40.2 million. The largest sales increases occurred in
product lines where consumers were responding to advances in product technology,
such as digital television, digital versatile disc (DVD) players and digital
cameras. Sales declined for VCRs and other mature technologies.
In fiscal 1999, sales decreased 1% to $915.6 million from $928.4 million in
fiscal 1998. The 1% sales decrease in fiscal 1999 resulted from a comparable
store sales decrease of 4%, offset in part by the opening of two new stores in
fiscal 1999. Comparable store sales in the future may be affected by
competition, the opening of additional stores in existing markets, the absence
or introduction of significant new products in the consumer electronics industry
and general economic conditions.
Gross Profit Margin
Gross profit margin for the five-month period ended February 2001 was 28.1% of
sales compared with 29.9% in the year-ago period. The decline was primarily due
to a more competitive promotional environment, which included sales rebates and
credit card financing discounts during the holiday selling season; stronger
sales of video products, which carry slightly lower margins than audio products;
and the Company's successful efforts to increase comparable store sales. There
was also a decline in ESP sales commissions as a percentage of product sales and
in increase in distribution costs.
In fiscal 2000, gross profit margin increased to 28.6% of sales compared with
24.3% in fiscal 1999 and 24.6% in fiscal 1998. The lower gross profit margin for
fiscal 1999 and fiscal 1998 reflects sales of computer and home office products,
primarily computers, which carried lower gross margins than the Company's
average, as well as a greater dependency on low margin, entry-level merchandise.
During the fourth quarter of fiscal 1999, sales of computer and home office
products were discontinued and the Company refocused on the market niche for
fully featured, higher-end products at the front end of the technology curve
where the profit margins are higher. The Company also increased its profit
margin in fiscal 2000 by increasing sales of ESP contracts and by initiating
cost control measures surrounding inventory.
Selling, General and Administrative Expenses
For the five-month period ended February 2001, selling, general and
administrative expenses including depreciation and amortization, as a percentage
of sales, were 27.2% compared to the year-ago period of 29.3%. Total spending
for the five-month period ended February 2001 decreased by $1.8 million from the
year-ago period. The decrease is primarily attributed to: (1) restructuring of
sales incentive programs which lowered commission expense, (2) reductions in
overhead costs for compensation, professional fees and corporate office rent and
(3) the Company's ongoing efforts to reduce costs.
For fiscal 2000, selling, general and administrative expenses as a percentage of
sales were 30.1% compared to 28.2% in fiscal 1999 and 26.0% in fiscal 1998,
reflecting the decline in net sales as a result of the elimination of computer
and home office products. The total spending for selling, general and
administrative expenses for fiscal 2000 increased by $644,000 or less than 1%
from fiscal 1999. In addition, expenses for fiscal 2000 reflect an increase in
net advertising expenses of $7.5 million, or 20 percent, in addition to costs
for reorganizing store operations, increased commissions based upon improved
gross margins and expenses related to Y2K. Expenses for fiscal 1999 reflect the
pre-operating expense for the opening of two new stores, expenses related to Y2K
and expenses of $9.3 million incurred during the fourth quarter in order to
streamline the Company's cost structure. The fourth quarter charges in fiscal
1999 consisted primarily of severance payments, discontinued product line
charges and one-time bank charges. The increase as a percentage of sales in
fiscal 1999 from 1998 was partially the result of a decrease in sales and
partially the result of the expenses in the fourth quarter of fiscal 1999
discussed above.
12
13
Store Closure Expenses
No store closure expenses were reported for the five-month period ended February
28, 2001, or for fiscal 2000. Store closure expenses were $54,000 and $3.0
million in fiscal 1999 and fiscal 1998, respectively. During fiscal 1998, the
Company entered into new lease agreements to relocate five stores and convert
them to its new "EXPO" concept. The Company opened one of these stores in each
quarter from the first quarter of fiscal 1999 through the first quarter of
fiscal 2000. Store closure expense was recorded when the new lease was signed
and reflects amounts reserved for future minimum lease payments and other cash
obligations.
Gain from Property Transactions.
In the first quarter of fiscal 2000, the Company sold a parcel of land and
recorded a gain of approximately $1.0 million. In the fourth quarter of fiscal
2000, the Company entered into a lease amendment and termination agreement for
its corporate office space in exchange for $9.8 million cash from its landlord
and relocated to more cost-effective space leased from a new landlord in March
2001.
Interest Expense
For the five-month period ended February 2001, interest expense was $2.5 million
compared to $2.4 million for the year-ago period, and for fiscal years 2000,
1999, and 1998, interest expense was $6.5 million, $4.8 million, and $1.4
million, respectively. The Company uses a revolving loan to finance its
inventory. Interest expense has increased in each fiscal year as the average
loan balance has increased from $20.8 million in fiscal 1998 to $44.8 million in
fiscal 1999 to $48.0 million in fiscal 2000. The weighted average interest rates
for the five-month periods ended February 2001 and 2000 were 9.8% and 8.9%, and
for fiscal years 2000, 1999 and 1998 were 9.2%, 8.0% and 8.4%, respectively. The
Company entered into a borrowing agreement in September 1999, which increased
its borrowing capacity up to $100 million.
Net Income (Loss)
As a result of the factors discussed above, net income before tax for the
five-month period ended February 2001 was $1.3 million compared to $1.1 million
for the year-ago period. The year-ago period included a gain of $1.0 million for
the sale of land. Income before income taxes as a percentage of sales for both
five-month periods was 0.3%.
As a result of the factors discussed above, the loss before tax for fiscal 2000
was $7.8 million, which includes a one-time gain of $10.8 million associated
with property transactions, compared to a loss before tax of $39.9 million and
$17.0 million for fiscal 1999 and fiscal 1998, respectively. The loss before
income taxes as a percentage of sales for fiscal years 2000, 1999 and 1998 was
0.9%, 4.4%, and 1.8%, respectively.
Income tax expense of $9.6 million was recorded in the fourth quarter of fiscal
2000 and is comprised of $7.5 million in non-cash charges to adjust the fiscal
1999 deferred tax asset valuation allowance associated with the carry-forward of
income tax benefits generated from fiscal 1999 and fiscal 1998 losses and $2.1
million related to a tax settlement with the IRS for years prior to fiscal 1998.
The deferred tax valuation allowance will not inhibit the Company's ability to
offset future taxable income by its federal and state operating loss
carry-forwards of $72.2 million and $42.1 million, respectively. The Company's
loss carry-forwards expire on various dates from 2003 to 2020. The effective
income tax rates for the five-month periods ended February 2001 and 2000 were
both 0%, and for fiscal years 1999 and 1998 were 0%, and 36.6%, respectively.
The zero tax rate for the five-month period ended February 2001 and 2000,
reflects the utilization of operating loss carry-forwards and for fiscal 1999 is
due to the Company providing a valuation allowance on its deferred income tax
benefit generated from fiscal 1999 and fiscal 1998 losses.
13
14
LIQUIDITY AND CAPITAL RESOURCES
The Company's sales are primarily cash and credit card transactions, providing a
source of liquidity for the Company. 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 its capital requirements.
At February 28, 2001, the Company had working capital of $80.9 million. As of
the end of fiscal 2000, the Company had working capital of $59.6 million,
compared to $61.9 million and $30.0 million at the end of fiscal 1999 and 1998,
respectively.
During the five-month period ended February 2001, net cash used by operating
activities was $15.8 million compared to net cash provided by operating
activities of $8.0 million for the year-ago period. The decrease in cash from
operating activities compared to the year-ago period is primarily the result of
a decline in accounts payable as the Company accelerated vendor payments to take
advantage of improved vendor terms and, to a lesser extent, the Company's
accelerated payments to major vendors in preparation for the move of its
corporate headquarters during early March 2001 to avoid disruption in deliveries
during the move. In addition, cash from operating activities decreased as
receivables increased over the prior year end, offset by cash generated from
operating actives for reductions in inventories and prepaid expenses. In fiscal
2000, net cash provided by operating activities was $11.2 million, compared to
net cash used by operating activities of $58.3 million in 1999 and net cash
provided by operating activities of $2.5 million in fiscal 1998. The fiscal 2000
increase in net cash provided by operating activities was primarily attributable
to a decrease in the net loss (which included gains from property transactions)
and an increase in accounts payable, partially offset by an increase in
merchandise inventories. The fiscal 1999 decrease in net cash provided by
operating activities was primarily attributable to an increase in net loss and a
decrease in accounts payable, partially offset by a decrease in merchandise
inventories and accounts receivable.
During fiscal 1999, the Company opened one new EXPO store format. In fiscal
1998, the Company opened one new EXPO store and remodeled and relocated four
existing stores to the EXPO format. Cash utilized for capital expenditures was
$1.8 million, $21.1 million and $21.0 million, in fiscal 2000, 1999 and 1998,
respectively. The Company does not plan to open or extensively remodel any
stores in fiscal 2002.
During the five-month period ended February 2001, cash provided from financing
activities was $16.6 million compared to cash used by financing activities of
$12.7 million in the year-ago period. Cash provided by (used in) financing
activities in fiscal 2000, 1999 and 1998 was ($8.0) million, $78.9 million and
$2.6 million, respectively. In fiscal 2000, the Company raised $14.2 million in
cash through private placements, employee and non-employee stock issuance and
used cash to repay $22.1 million on its revolving credit debt. In fiscal 1999,
the Company raised $22.4 million in cash through private placements, employee
and non-employee stock issuance and increased borrowings by $56.5 million under
its revolving credit debt. In fiscal 1998 the Company raised $4.0 million in
cash through private placements, employee and non-employee stock issuance and
used $1.4 million in cash to repurchase common stock.
Effective September 30, 1999, the Company entered into a three-year revolving
credit agreement. This agreement allows for borrowings of up to $100 million
based upon a formula related to the Company's inventory balances, and is secured
by the Company's assets. At February 28, 2001, there was $50.2 million and at
September 30, 2000 and 1999, there was $34.4 million and $56.5 million,
respectively, outstanding under the line. At September 30, 1998, there were no
borrowings outstanding under the prior credit facility. Based upon inventory
levels at February 28, 2001, available borrowing under this facility was $13.1
million. The Company has classified borrowings under the agreement as long-term
because it has the intent and ability to keep its borrowings outstanding greater
than one year.
Maximum borrowings outstanding under credit facilities during the five-month
period ended February 2001 was $62.7 million compared to $64.7 million for
fiscal 2000, compared to $64.3 million in fiscal 1999 and compared to $55.0
million in fiscal 1998. The weighted average borrowings outstanding under credit
facilities during the five-month periods ended February 2001 was $40.3 million,
and for fiscal years 2000, 1999 and 1998 weighted average borrowing was $48.0
million, $44.8 million and $20.8 million, respectively. The weighted average
interest rates for the five-month period ended February 2001 was 9.8%, and for
fiscal years 2000, 1999 and 1998 were 9.2%, 8.0% and 8.4%, respectively.
14
15
The Company continues to implement its strategy for returning to profitability
that was first outlined on July 26, 1999. In the fourth quarter of 1999, the
Company eliminated the computer and home office category from the Company's
product mix, eliminated no-name, entry-level offerings and de-emphasized loss
leaders. This improved the Company's gross profit margins and selling focus in
fiscal 2000 and going forward. To increase foot traffic and brand awareness, the
Company increased the marketing and advertising budget in fiscal 2000 by 20%
over 1999 levels. Because the Company's market niche is the upscale electronics
consumer, product lines have been expanded to showcase leading-edge consumer
electronics. Additionally, the Company is committed to minimizing selling,
general and administrative expenses and has placed a moratorium on opening new
stores and relocations or extensive remodeling of existing stores until the
company returns to sustainable profitability. However, the return to
profitability is contingent on many factors, including, but not limited to, the
successful implementation of the new business strategy, consumer acceptance of
new technologies, continued vendor support and economic conditions in the
regions where the Company's stores are located.
The Company expects to be able to fund its working capital requirements with a
combination of anticipated cash flow from operations, normal trade credit,
existing financing agreements and other financing agreements.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133, as amended by SFAS 138,
establishes standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company
adopted SFAS 133 on October 1, 2000. The Company does not currently engage in
any hedging activity or hold any derivative instruments and has no immediate
plans to do so in the future. The adoption of SFAS No. 133 did not have a
significant impact on the Company's financial statements.
The Emerging Issues Task Force issued Emerging Issues Task Force No. 00-14,
"Accounting for Certain Sales Incentives" ("EITF 00-14") in July 2000. EITF
00-14 addresses the recognition, measurement, and income statement
classification for sales incentives offered voluntarily by a vendor without
charge to customers that can be used in, or that are exercisable by a customer
as a result of, a single exchange transaction. The effective date for adoption
of EITF 00-14 is June 30, 2001. The effect of the adoption of the consensuses
should be reported as a cumulative effect of a change in accounting principle
under APB Opinion No. 20, "Accounting Changes," or prospectively to new sales
incentives offered on or after the effective date. In accordance with EITF
00-14, the Company has retroactively changed its reporting classification of
sales incentives as a reduction of net sales. Sales incentives of $10 million
for the fiscal year ended September 2000 have been reclassified from cost of
sales to conform with the change in accounting classification.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks, which include changes in U.S. interest
rates. The Company does not engage in financial transactions for trading or
speculative purposes. The interest due on the Company's line of credit is based
on variable interest rates and therefore affected by changes in market interest
rates. If interest rates on existing variable rate debt rose 98 basis points (a
10% change from the bank's reference rate as of February 28, 2001), the
Company's annual interest expense and payments would increase by approximately
$451,000.
Substantially all the Company's merchandise inventory purchases are domestically
sourced and denominated in U.S. dollars.
15
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED BALANCE SHEETS
February 28, September 30,
------------ -------------------------
(Dollars in thousands, except share data) 2001 2000 1999
- ---------------------------------------------------------- ------------ --------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,329 $ 7,208 $ 2,556
Accounts receivable, less allowance for doubtful accounts
of $1,206, $1,483 and $1,463, respectively 21,802 15,106 19,021
Merchandise inventories 120,928 121,458 110,276
Prepaid expenses 9,811 11,088 6,710
--------- --------- ---------
Total current assets 157,870 154,860 138,563
PROPERTY AND EQUIPMENT:
Land -- -- 2,306
Leasehold improvements 71,746 73,629 73,298
Furniture, fixtures, and equipment 76,596 76,058 72,686
Construction in progress 3,187 1,269 3,785
--------- --------- ---------
Total property and equipment 151,529 150,956 152,075
Less accumulated depreciation and amortization 89,982 86,148 72,121
--------- --------- ---------
Property and equipment -- net 61,547 64,808 79,954
--------- --------- ---------
Other assets 459 448 7,646
--------- --------- ---------
Total Assets $ 219,876 $ 220,116 $ 226,163
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 36,379 $ 57,395 $ 36,571
Accrued expenses and other liabilities:
Payroll 8,352 9,542 9,615
Sales taxes 4,465 5,751 4,936
Other 27,739 22,551 25,583
--------- --------- ---------
Total current liabilities 76,935 95,239 76,705
Revolving credit debt 50,161 34,358 56,504
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 23,077,802, 22,763,194 and
19,636,022 shares respectively 23 23 20
Additional paid-in capital 104,164 103,222 88,332
Retained earnings (deficit) (11,407) (12,726) 4,602
--------- --------- ---------
Total shareholders' equity 92,780 90,519 92,954
--------- --------- ---------
Total Liabilities and Shareholders' Equity $ 219,876 $ 220,116 $ 226,163
========= ========= =========
See notes to Consolidated Financial Statements.
16
17
CONSOLIDATED STATEMENTS OF OPERATIONS
Five Months ended Years ended September 30,
---------------------------- -----------------------------------------
February 28, February 29,
2001 2000 2000 1999 1998
------------ ------------ --------- --------- ---------
(Dollars and shares in thousands, (Unaudited)
except per share data)
Net sales (Note 1) $ 414,978 $ 391,558 $ 850,512 $ 915,642 $ 928,382
Cost of sales (Note 1) (298,412) (274,356) (603,975) (692,745) (700,070)
--------- --------- --------- --------- ---------
Gross profit 116,566 117,202 246,537 222,897 228,312
Selling, general and administrative (106,972) (107,500) (243,872) (243,870) (229,679)
expenses
Depreciation and amortization (5,877) (7,177) (14,765) (14,123) (11,328)
Store closure expense -- -- -- (54) (3,008)
Gain from property transactions (net) -- 1,025 10,775 -- --
--------- --------- --------- --------- ---------
Income (loss) from operations 3,717 3,550 (1,325) (35,150) (15,703)
Interest income 90 36 94 91 119
Interest expense (2,488) (2,440) (6,520) (4,828) (1,396)
--------- --------- --------- --------- ---------
Income (loss) before income taxes 1,319 1,146 (7,751) (39,887) (16,980)
Income tax (expense) benefit -- -- (9,577) -- 5,167
--------- --------- --------- --------- ---------
Net income (loss) $ 1,319 $ 1,146 $ (17,328) $ (39,887) $ (11,813)
========= ========= ========= ========= =========
Net income (loss) per share
Basic $ 0.06 $ 0.06 $ (0.84) $ (2.58) $ (0.84)
========= ========= ========= ========= =========
Diluted $ 0.06 $ 0.05 $ (0.84) $ (2.58) $ (0.84)
========= ========= ========= ========= =========
Weighted average shares
Basic 22,937 19,920 20,560 15,484 14,012
========= ========= ========= ========= =========
Diluted 23,763 21,345 20,560 15,484 14,012
========= ========= ========= ========= =========
See notes to Consolidated Financial Statements.
17
18
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Additional Retained
-------------------------- Paid-In Earnings
(Dollars in thousands, except share data) Shares Amount Capital (Deficit) Total
- ----------------------------------------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1997 13,810,310 $ 14 $ 62,316 $ 56,302 $ 118,632
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 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 (11,813) (11,813)
----------- ----------- ----------- ----------- -----------
Balance at September 30, 1998 14,250,218 14 65,152 44,489 109,655
Issuance of common stock under
Employee Stock Purchase Plan 390,498 1 2,069 2,070
Non-employee common stock issued
in exchange for services rendered 80,800 500 500
Exercise of stock options 53,912 275 275
Issuance of restricted stock 160,594 250 250
Proceeds from sale of common stock,
net of offering expenses 4,700,000 5 20,086 20,091
Net loss (39,887) (39,887)
----------- ----------- ----------- ----------- -----------
Balance at September 30, 1999 19,636,022 20 88,332 4,602 92,954
Issuance of common stock under
Employee Stock Purchase Plan 384,845 1,688 1,688
Exercise of stock options 623,485 1 3,186 3,187
Issuance of restricted stock 101,195 729 729
Proceeds from sale of common stock,
net of offering expenses 2,017,647 2 9,287 9,289
Net loss (17,328) (17,328)
----------- ----------- ----------- ----------- -----------
Balance at September 30, 2000 22,763,194 23 103,222 (12,726) 90,519
Issuance of common stock under
Employee Stock Purchase Plan 253,629 715 715
Exercise of stock options 7,250 37 37
Issuance of restricted stock 53,729 190 190
Net Income 1,319 1,319
----------- ----------- ----------- ----------- -----------
Balance at February 28, 2001 23,077,802 $ 23 $ 104,164 $ (11,407) $ 92,780
=========== =========== =========== =========== ===========
See notes to Consolidated Financial Statements.
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19
CONSOLIDATED STATEMENTS OF CASH FLOWS
Five months ended Years ended September 30,
--------------------------- --------------------------------------
(Dollars in thousands) February 28, February 29,
2001 2000 2000 1999 1998
- -------------------------------------------------- ------------ ------------ -------- -------- --------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,319 $ 1,146 $(17,328) $(39,887) $(11,813)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,877 7,177 14,765 14,123 11,328
Gain on sale of land -- (1,025) (1,025) -- --
Store closure expense -- -- -- 54 3,008
Allowance for doubtful accounts (277) (587) 20 314 (47)
Deferred taxes -- -- 7,430 -- (4,568)
Issuance of common stock in
exchange for services rendered -- -- -- 500 --
Restricted stock issuance 190 51 729 250 212
Change in:
Accounts receivable (6,419) 1,459 3,895 7,318 (4,895)
Income taxes receivable -- -- -- -- 6,176
Merchandise inventories 530 (5,554) (11,182) 24,796 (17,304)
Prepaid expenses and other assets 1,266 (6,849) (4,610) (490) (85)
Accounts payable (21,016) 11,389 20,824 (59,946) 21,000
Accrued expenses and other liabilities 2,712 892 (2,290) (5,381) (528)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities (15,818) 8,099 11,228 (58,349) 2,484
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (2,616) (1,082) (1,802) (21,086) (21,008)
Sale of fixed assets -- 3,208 3,208 -- --
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities (2,616) 2,126 1,406 (21,086) (21,008)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of revolving credit debt 15,803 -- -- 56,504 --
Repayment of revolving credit debt -- (16,504) (22,146) -- --
Issuance of common stock 752 3,723 14,164 22,436 4,005
Repurchase and retirement of common stock -- -- -- -- (1,381)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities 16,555 (12,781) (7,982) 78,940 2,624
Net increase (decrease) in cash (1,879) (2,556) 4,652 (495) (15,900)
Cash at beginning of period 7,208 2,556 2,556 3,051 18,951
-------- -------- -------- -------- --------
Cash at end of period $ 5,329 $ -- $ 7,208 $ 2,556 $ 3,051
======== ======== ======== ======== ========
See notes to Consolidated Financial Statements.
19
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: Good Guys, Inc. (formerly, The Good Guys, Inc.), through its wholly
owned subsidiary (together, the Company), is a retailer of consumer electronics
in California, Nevada, Oregon and Washington. The Company's operations include
79 retail stores engaging only in activities related to the sale of consumer
electronics products throughout the Western United States and comprise only one
segment.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Good Guys, Inc. and its wholly owned subsidiary. All significant
intercompany transactions have been eliminated in consolidation. The Company has
changed its fiscal year end from September 30 to the last day of February for
fiscal years ending after September 30, 2000.
The consolidated statements of operations and cash flows for the five-month
period ended February 29, 2000 have been prepared by the Company without audit
and in the opinion of management include all adjustments (which include only
normal recurring adjustments) necessary to present fairly the results of
operations and cash flows for the five-month period ended February 29, 2000.
The Company's business is seasonal and the results of operations for the
five-month period ended February 28, 2001 may not be indicative of the results
to be achieved for a full year.
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. During the five-month transition period ended
February 2001, the Company's ten largest suppliers accounted for approximately
70% of the merchandise purchased by the Company. One of the Company's suppliers,
Sony, accounted for more than 10% of its merchandise mix.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Depreciation
and amortization are computed using the straight line method based on estimated
useful lives 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, the
Company, using its best estimates based on reasonable and supportable
assumptions and projections, has reviewed the carrying value of long-lived
assets for impairment. If the undiscounted future cash flows of long-lived
assets are less than the carrying amount, the carrying value of the long-lived
asset is reduced to fair value and an impairment loss is recognized.
ADVERTISING: Advertising costs are charged to expense when incurred. Advertising
costs for the five-month periods ended February 2001 and 2000 were $28.0 million
and $29.1 million (unaudited), respectively; and for the fiscal years ended
2000, 1999, and 1998 were $54.1 million, $46.0 million, and $54.1 million,
respectively.
VENDOR REBATES AND PROMOTIONS: The Company receives rebates of certain
promotional costs from its merchants and suppliers. Agreements are made with
each individual supplier, and income is earned as cooperative advertising is
placed and is recorded as a reduction of advertising expenses. The uncollected
amount of vendor rebate and promotional income remaining in accounts receivable
at February 28, 2001 was approximately $12.4 million; and at September 30, 2000
and 1999 was approximately $6.5 million and $12.0 million, respectively.
STORE PRE-OPENING AND CLOSING COSTS: Store pre-opening costs are expensed as
incurred. Store closing costs may include the cost of writing down store assets
to their estimated fair value, less costs of disposal. Additionally, a liability
is recorded for the net present value of any remaining operating lease
obligations after the expected closing date, net of estimated sublease income,
if any, at the time a commitment to close a store is made.
EMPLOYEE STOCK OPTION PLANS: The Company accounts for its stock option grants
using the intrinsic value method in accordance with APB No. 25, "Accounting for
Stock Issued to Employees" and its related interpretations. Because the Company
has granted its stock options to its employees at their fair market value at the
date of grant, under APB No. 25, no compensation expense is required to be
recognized in the financial statements.
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, net of
estimated returns which are estimated based upon historical trends and customer
habits. The effect of the returns is not significant to the Company's operating
results.
20
21
EXTENDED SERVICE PLAN CONTRACTS: The Company sells extended service 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.
INCOME TAXES: The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
this standard, deferred income taxes reflect the tax effects, based on current
tax law, of temporary differences between the amounts of assets and liabilities
recognized for financial reporting and income tax purposes. A valuation
allowance is recorded when it is deemed more likely than not that a deferred tax
asset will not be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying value of cash and cash
equivalents, accounts receivable, accounts payable, and revolving credit debt
approximate their estimated fair values.
NET INCOME (LOSS) PER SHARE:
Net income per 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 (loss) by the weighted
average of 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.
COMPREHENSIVE INCOME: Comprehensive income consists of net income or loss for
the current period and other comprehensive income (income, expenses, gains and
losses that currently bypass the income statement and are reported directly as a
separate component of equity). The Company does not have any items of other
comprehensive income for the five-month periods ended February 2001 and 2000, or
the fiscal years ended September 2000, 1999, and 1998. Therefore, total
comprehensive income (loss) is the same as net income (loss) for those periods.
NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133, as amended by SFAS 138,
establishes standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company
adopted SFAS 133 on October 1, 2000. The Company does not currently engage in
any hedging activity or hold any derivative instruments and has no immediate
plans to do so in the future. The adoption of SFAS No. 133 did not have a
significant impact on the Company's financial statements.
The Emerging Issues Task Force issued Emerging Issues Task Force No. 00-14,
"Accounting for Certain Sales Incentives" ("EITF 00-14") in July 2000. EITF
00-14 addresses the recognition, measurement, and income statement
classification for sales incentives offered voluntarily by a vendor without
charge to customers that can be used in, or that are exercisable by a customer
as a result of, a single exchange transaction. The effective date for adoption
of EITF 00-14 is June 30, 2001. The effect of the adoption of the consensuses
should be reported as a cumulative effect of a change in accounting principle
under APB Opinion No. 20, "Accounting Changes," or prospectively to new sales
incentives offered on or after the effective date. In accordance with EITF
00-14, the Company has changed its reporting classification of sales incentives
as a reduction of net sales effective October 1, 2000. Sales incentives of $10
million for the fiscal year ended September 2000 have been reclassified from
cost of sales to conform with the change in accounting classification. There
were no sales incentive costs in fiscal years 1999 and 1998.
21
22
NOTE 2:
BORROWING ARRANGEMENTS
Effective September 30, 1999, the Company entered into a new revolving credit
agreement with its lenders, which expires on September 30, 2002. The new
agreement allows borrowings up to $100 million based upon a formula related to
the Company's inventory balances, and is secured by substantially all of the
Company's assets. The agreement requires maintenance of certain non-financial
loan covenants. The interest rate varies based on the type of obligation
incurred by the Company but approximates the prime rate plus 0.5 percent. The
Company intends to keep its borrowings under the revolving credit agreement
outstanding greater than one year. As a result, such amounts have been
classified as long-term on the accompanying balance sheet. The outstanding
balance at February 28, 2001 and September 30, 2000 was $50.2 and $34.4 million,
respectively, at an interest rate of 9.0% and 9.75%, respectively. Based upon
inventory levels at February 28, 2001, available borrowing under this facility
was $11.3 million.
Interest paid for the current and previous facilities was $1.7 million for both
five-month periods ended February 2001 and 2000 (unaudited), respectively, and
$5.7 million, $5.1 million and $1.7 million, for the fiscal years ended
September 30, 2000, 1999 and 1998, respectively.
NOTE 3:
GAIN ON PROPERTY TRANSACTIONS
In December 2000, the Company sold a parcel of land and recorded a gain of
approximately $1.0 million. In August 2000, the Company entered into a lease
amendment and termination agreement for its corporate office space in exchange
for $9.8 million cash from its landlord and relocated to more cost-effective
space leased from a new landlord in March 2001.
NOTE 4:
INCOME TAXES
Income tax expense (benefit) consists of the following:
Five Months Ended Years ended September 30,
--------------------------- --------------------------------------
(Dollars in thousands) February 28, February 29,
2001 2000 2000 1999 1998
------------ ------------ ------- ------ -------
(Unaudited)
Currently Payable (Receivable):
Federal $ -- $ -- $ 2,147 $ -- $ (972)
State -- -- -- -- (373)
------ ------ ------- ------ -------
Total currently payable -- -- 2,147 -- (599)
Deferred Tax -- -- 7,430 -- (4,568)
------ ------ ------- ------ -------
Total $ -- $ -- $ 9,577 $ -- $(5,167)
====== ====== ======= ====== =======
For the five-month periods ended February 2001 and 2000, the Company paid income
taxes of $252,000 and $0 (unaudited), respectively. For the years ended
September 30, 2000, 1999 and 1998, the Company paid no income taxes.
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:
Five Months Ended Years ended September 30,
--------------------------- -----------------------------------
February 28, February 29,
2001 2000 2000 1999 1998
------------ ------------ ----- ----- -----
(Unaudited)
Federal income tax
At the statutory rate 35.0% (35.0%) (35.0%) (35.0%) (35.0%)
State franchise tax,
Less federal tax effect -- -- 20.2 -- (1.2)
Other -- net 0.3 -- (0.2) 0.2 0.4
Change in valuation allowance (35.3) (35.0) 138.6 (34.8) 6.0
----- ----- ----- ----- ---
Total 0.0% 0.0% 123.6% 0.0% (29.8%)
===== ===== ===== ===== ===
22
23
Significant components of the Company's net deferred tax assets as of February
28, 2001 and September 30, 2000 and 1999 were as follows:
February 28, September 30,
------------ -----------------------
(Dollars in thousands) 2001 2000 1999
------------ -------- --------
Current
Vacation accruals $ 830 $ 749 $ 729
Prepaid expenses (1,995) (1,887) (1,157)
Reserves 1,190 1,153 1,961
Inventory capitalization (688) (741) (1,505)
Other 83 402 334
-------- -------- --------
Current assets -- net (580) (324) 362
Noncurrent
Depreciation 392 392 123
Net operating loss 28,516 29,084 22,574
Other 481 426 634
Valuation allowance (28,809) (29,578) (16,263)
-------- -------- --------
Noncurrent assets --- net 580 324 7,068
-------- -------- --------
Total $ -- $ -- $ 7,430
======== ======== ========
As of February 28, 2001, the Company had net operating loss carry-forwards for
federal income tax purposes of approximately $72.2 million and net operating
loss carry-forwards for state tax purposes of approximately $42.0 million, which
expire at various dates from 2003 to 2020.
These loss carry-forwards translate into a combined tax benefit of $28.5 million
that can be used to offset future taxes payable. Using its best estimates, the
Company has established a valuation allowance of approximately $28.8 million at
February 28, 2001, due to the uncertainty of realizing future tax benefits from
its net operating loss carry-forwards.
NOTE 5:
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 45 years and generally provide for
rent increases based on the consumer price index. Certain store leases require
additional lease payments based on the achievement of specified store sales.
The Company subleases a portion of one of its stores to a company whose Chairman
is also a member of Good Guys 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 the
five-month periods ended February 2001 and 2000 was $210,766 and $195,642
(unaudited), respectively, and for each of the years ended September 2000, 1999
and 1998 was $326,077, $318,938, and $318,938, respectively.
23
24
The future minimum annual payments for leases having noncancelable terms in
excess of one year, net of sublease income, at February 28, 2001, are as
follows:
(Dollars in thousands) REAL PROPERTY EQUIPMENT
------------- ---------
2002 $ 38,903 $11, 875
2003 37,432 6,799
2004 36,805 4,282
2005 35,980 1,981
2006 33,491 125
Later years through 2019 155,261 --
-------- --------
Total $337,872 $ 25,062
======== ========
Lease expense for the five-month periods ended February 2001 and 2000 was $21.7
million and $22.4 million (unaudited), respectively; and for the years ended
September 2000, 1999 and 1998 was $52.6 million, $51.5 million, and $47.1
million, respectively.
NOTE: 6
STORE CLOSURE EXPENSES
Store closure expenses were $54,000 and $3.0 million in fiscal 1999 and fiscal
1998, respectively. During fiscal 1998, the Company entered into new lease
agreements to relocate five stores and convert them to its new EXPO concept.
Store closure expense was recorded as of the date the new lease was signed and
reflects amounts reserved for future minimum lease payment and other cash
obligations. The following schedule summarizes information related to closed
store reserves:
(dollars in thousands)
Accrued
Fiscal Lease
Period Beginning Exit Cash Other Ending
Ending Balance Charges Payments Adjustments Balance
-------- ---------- ---------- ------------ ----------- ----------
2001 (five months) $2,001 $ (413) $(258) $1,330
2000 $3,285 $(1,284) $2,001
1999 $4,657 $ 54 $(1,746) $ 320 $3,285
1998 $2,609 $3,008 $ (465) $ (95) $4,657
NOTE 7:
DEFERRED PAY AND PROFIT SHARING PLAN
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. The Profit Sharing Plan was
amended for fiscal years 1999 and 1998 such that the Company matched an
employee's contributions to the Deferred Pay Plan that were invested in the
Company's common stock. The Company matched such contributions up to 6% of the
employee's annual salary. The Company's contributions for fiscal year 1999 and
1998 were $754,000 and $566,000, respectively. Effective October 1, 1999,
contributions to the Profit Sharing Plan are at the discretion of the Board of
Directors. There were no discretionary contributions to the Profit Sharing Plan
for the five-month period ending February 2001 or for fiscal 2000.
24
25
NOTE 8:
EMPLOYEE STOCK PLANS
The Company's 1985 Stock Option Plan ("1985 Plan") and 1994 Stock Incentive Plan
("1994 Plan") authorize the issuance of incentive stock options and
non-qualified stock options covering up to 4,215,000 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 granted under the plans prior
to August 1999 vest ratably over four years. Options granted under the 1994 Plan
in August 1999 and thereafter, vest at the end of one year in the case of
options granted to directors and ratably over three years for options granted to
employees. All options under the Plans have a maximum term of ten years, except
those issued to 10% shareholders, which have a term of five years. As of
February 28, 2001, 757,862 shares remained available for the grant of options
under the 1994 Plan. During fiscal 2000, non-qualified options covering
1,125,000 shares were granted outside the 1994 Plan at exercise prices equal to
the fair market value of the stock on the date of grant, having terms ranging
from three to ten years and vesting over three years (with the exception of an
option for 25,000 shares that vests at the end of one year). During the
five-month period ended February 2001, a non-qualified option covering 75,000
shares was granted outside the 1994 Plan at an exercise price equal to the fair
market value of the stock on the date of grant, having a term of 10 years and
vesting over three years.
The following is a summary of stock option activity for the five-month period
ended February 2001 and for the years ended September 30, 2000, 1999, and 1998.
Weighted
Average
Number Exercise
of shares Price
-----------------------
Balance at September 30, 1997 1,454,448 $ 9.48
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 1,498,202 9.25
Granted (weighted average fair value of $3.02) 2,149,240 5.30
Exercised (53,912) 5.09
Canceled (1,823,823) 8.30
-----------------------
Balance at September 30, 1999 1,769,707 5.55
Granted (weighted average fair value of $2.64) 1,398,950 3.91
Exercised (623,485) 5.11
Canceled (300,309) 5.87
-----------------------
Balance at September 30, 2000 2,244,863 4.59
Granted (weighted average fair value of $3.56) 297,250 5.42
Exercised (7,250) 5.09
Canceled (93,285) 5.93
-----------------------
Balance at February 28, 2001 2,441,578 4.63
=======================
At February 28, 2001, options for 593,092 shares were exercisable at a weighted
average exercise price of $5.80 and 757,862 shares were available for additional
option grants. In November 1998, options to purchase 1,341,365 shares of common
stock were re-priced from a weighted average exercise price of $9.22 to a
weighted average exercise price of $5.09, which was equal to fair market value
at the date of re-pricing.
25
26
The following table summarizes information about stock options at February 28,
2001.
Options Outstanding Options Exercisable
--------------------------------- -------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Range of Number Life Exercise Number Exercise
Exercise Prices Shares (Years) Price Shares Price
--------------- --------------------------------- -------------------
$ 2.63 - $ 5.25 1,753,061 8.5 $3.94 296,740 $ 5.07
$ 5.26 - $ 7.88 648,683 8.1 $6.13 267,182 $ 5.92
$ 7.89 - $10.50 23,834 6.2 $8.20 13,170 $ 8.20
$10.51 - $13.13 4,000 3.9 $12.63 4,000 $12.63
$13.14 - $15.75 8,000 2.4 $14.13 8,000 $14.14
$15.76 - $21.00 4,000 1.0 $20.38 4,000 $20.38
----------------------------------------------------------------------------
$ 2.63 - $21.00 2,441,578 8.3 $ 4.63 593,092 $ 5.80
----------------------------------------------------------------------------
The Company established an Employee Stock Purchase Plan ("ESPP") in February
1986, which permits employees to purchase the Company's common stock under terms
specified by this ESPP. The ESPP is a statutory Employee Stock Purchase Plan
under Section 423 of the Internal Revenue Code. Common stock issued under the
ESPP during the five-month period ended February 2001 and during fiscal 2000 and
1999 totaled 253,629, 384,845 and 390,498 shares, respectively, at a weighted
average price of $2.82, $4.15 and $5.30, respectively. At February 28, 2001,
536,384 shares were reserved for future issuance under the ESPP.
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 prior
to fiscal 1995. Under SFAS No. 123, the fair value of stock-based awards to
employees is calculated through the use of options pricing models, even though
such models were developed to estimate the fair value of freely tradable, 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 value.
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 and accordingly, the proforma adjustments presented 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, 5 years; stock volatility
of, 75% for the five-month period ended February 2001, 75% in fiscal 2000, and
60% in fiscal 1999 and 50% in fiscal 1998; risk-free interest rates of, 6% in
fiscal 2001, 6% in fiscal 2000 and 5.75% in fiscal 1999 and 1998; and no
dividends during the expected term. Had compensation cost been recognized in
accordance with SFAS No. 123, the pro forma net income for the five-month period
ended February 2001 would have been $659,000 or $0.03 per share, and in fiscal
2000 the pro forma net loss would have been $18.3 million or $0.89 per share,
and in fiscal 1999 the pro forma net loss would have been $44.0 million or $2.84
per share and in fiscal 1998 the pro forma net loss would have been $12.8
million or $0.91 per share.
NOTE 9:
COMMON STOCK
In August 2000, the Company issued, in a private placement, 2.0 million shares
of common stock and received $9.3 million in net proceeds. Additionally, the
Company issued warrants for the purchase of 1.0 million shares. The warrants
were issued with an exercise price of $4.64, representing the fair market value
of the common stock at the date of issuance. The warrants are exercisable over
the period of three years from the date of issuance
In August 1999, the Company issued 3.25 million shares of common stock in a
private placement of its common stock in exchange for $15.4 million in net
proceeds. As part of the private placement, the Company issued warrants totaling
1.785 million shares. The warrants were issued with an exercise price of $6.125,
which was in excess of the fair market value of the common stock at the date of
issuance and are exercisable during the three-year period following the date of
issuance.
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27
In June 1999, the Company issued 1.45 million shares of common stock to its
current Chairman and Chief Executive Officer and received $4.7 million in cash.
Additionally, the Company issued warrants to him for the purchase of 1.435
million shares. The warrants were issued with an exercise price of $3.396,
representing 105 percent of the fair market value of the common stock at the
date of issuance. The warrants become exercisable over a period of one to three
years from the date of issuance and expire five years from the date they are
first exercisable.
Restricted stock issuance: The Company has issued restricted stock to directors,
officers and certain key employees as part of the Company's compensation
program. All shares awarded entitle the recipient to full rights of a
shareholder, are restricted as to disposition and are subject to forfeiture
under certain circumstances. The market value of these shares at the date of
grant is amortized to expense ratable over the vesting period of one year.
Shares issued during the five-month period ended February 2001, fiscal 2000,
1999, and 1998 were 57,729, 101,195, 160,594 and 29,360, respectively. During
the five-month period ended February 2001, fiscal 2000, 1999 and 1998,
compensation expense of $190,000, $729,000, $250,000 and $181,000, respectively,
was recognized on the amortization of restricted stock, leaving unamortized
compensation expense of $113,000, $66,000, $341,000 and $0, respectively, at the
end of each period.
Non-employee stock issuance: In fiscal 1999, the Company issued 80,800 shares of
common stock and warrants for 40,400 common shares at an exercise price of
$6.125 per share with a combined fair market value of $500,000 to a vendor in
exchange for $500,000 of advertising services provided. These advertising
expenses have been included in selling, general and administrative expenses for
fiscal 1999 in the accompanying statements of operations.
NOTE 10:
REPURCHASE AND RETIREMENT OF STOCK
In January 1996 and September 1997, the Company's Board of Directors authorized
the purchase of up to 1,000,000 shares of the Company's common stock on the open
market or in private transactions. For the year ended September 30, 1998, the
Company had repurchased 196,300 shares for $1.4 million. The Company did not
repurchase shares in the five-month period ended February 2001, fiscal 2000 or
fiscal 1999.
NOTE 11:
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings arising during the normal
course of 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 12:
RELATED PARTY
During fiscal 2000, Good Guys and a group of private equity investors,
including the Chairman and certain Good Guys Directors, formed a company,
goodguys.com, to sell consumer electronics through the Internet. In exchange
for a trademark license, a product supply agreement and other non-cash
considerations, the Company received common stock for approximately 20% of
goodguys.com and a warrant for an additional 29.9% exercisable only upon a
change in control or other liquidation event, as defined. In addition, the
Company receives a percentage of sales to goodguys.com. The Company has not
made any cash investments in goodguys.com. goodguys.com commenced Internet
operations in October 2000. For the five-month period ended February 2001, the
Company recorded revenues of $1.9 million from goodguys.com attributable to
product sales, royalties, and reimbursable expenses. At February 28, 2001, the
Company had $179,000 in trade receivables from goodguys.com. The Company
accounts for its investment in goodguys.com under the equity method.
27
28
NOTE 13:
NET INCOME (LOSS) PER SHARE
Basic earnings per share are calculated based upon the weighted average number
of common shares outstanding. Diluted earnings per share assume the exercise of
all options, which are dilutive, whether exercisable or not. Net loss per share
was computed based on the weighted average number of shares of common stock
outstanding during the year. Since the Company has reported net losses for each
of the three fiscal years ended September 30, 2000, the potentially dilutive
effect of stock options and warrants of 1.4 million, 115,000, and 151,000 to
purchase shares of the Company's common stock in the fiscal years ended
September 30, 2000, 1999 and 1998, respectively, has been excluded from the
calculation of net loss per share.
The following is a reconciliation of the weighted average number of shares (in
thousands) used in the Company's basic and diluted per share computations:
Five-months Ended
--------------------------
February 28, February 29,
2001 2000
------------ ------------
(Unaudited)
Basic shares 22,937 19,920
Effect of dilutive stock warrants 574 1,060
Effect of dilutive stock options 252 365
------ ------
Diluted shares 23,763 21,345
====== ======
NOTE 14:
QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data are summarized in the following table. As discussed in
Note 1 to these financial statements, previously issued financial statements
have been reclassified to conform with the change in accounting classification
for sales incentives.
Two Months
Quarter Ended Ended
----------------------------------------- ------------
(Dollars in thousands, June 30, September 30, December 31, February 28,
except per share amounts) 2000 2000 2000 2001
- ----------------------------------------------------------------------------------
Net sales $ 195,121 $ 208,175 $ 282,157 $ 132,821
Gross profit 57,116 56,941 78,781 37,785
Net income (loss) (2,972) (9,744) 5,802 (4,483)
Net income (loss) per:
basic share $ (0.14) $ (0.45) $ 0.25 $ (0.19)
Diluted share $ (0.14) $ (0.45) $ 0.25 $ (0.19)
Quarter Ended
-------------------------------------------------------
(Dollars in thousands, June 30, September 30, December 31, March 31,
except per share amounts) 1999 1999 1999 2000
- ----------------------------------------------------------------------------------
Net sales $ 210,451 $191, 994 $ 260,940 $ 186,276
Gross profit 54,640 44,864 78,778 53,702
Net income (loss) (8,196) (25,542) 5,619 (10,231)
Net income (loss) per:
basic share $ (0.54) $ (1.42) $ 0.29 $ (0.50)
Diluted share $ (0.54) $ (1.42) $ 0.27 $ (0.50)
28
29
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Good Guys, Inc.
Alameda, California
We have audited the accompanying consolidated balance sheets of Good Guys, Inc.
(formerly The Good Guys, Inc.) and subsidiary as of February 28, 2001, and
September 30, 2000 and 1999, and the related statements of operations,
shareholders' equity, and cash flows for the five-month period ended February
28, 2001, and for each of the three years in the period ended September 30,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 financial position of Good Guys, Inc. and subsidiary at
February 28, 2001, and September 30, 2000 and 1999, and the results of their
operations and their cash flows for the five-month period ended February 28,
2001, and for each of the three years in the period ended September 30, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
San Francisco, California
April 13, 2001
29
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table and biographical summaries set forth the names and
ages of the nominees, their principal occupations at present, the positions and
offices held by each of them with the Company in addition to the position as
director, and the period during which each of them has served as a director of
the Company.
DIRECTOR
CONTINUOUSLY
DIRECTOR AGE SINCE
-------- --- ------------
Ronald A. Unkefer 56 1999
Stanley R. Baker (1) 56 1976
Russell M. Solomon (2) 75 1986
John E. Martin (1) 55 1990
Gary M. Lawrence (2) 44 1999
Joseph P. Clayton (1) 51 1999
Joseph M. Schell (2) 54 1999
Kenneth R. Weller 52 2000
- ----------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Ronald A. Unkefer is the Founder, Chairman and Chief Executive Officer of
Good Guys, Inc. Mr. Unkefer founded the Company on July 1, 1973, and served as
Chairman and Chief Executive Officer until January 1993, when he retired from
the position of Chief Executive Officer to pursue venture capital and
broadcasting interests. He continued to serve as Chairman until January 1996.
Mr. Unkefer returned to the Company as Chairman and Chief Executive Officer on
July 1, 1999, to spearhead the Company's efforts to return to profitability.
During his first tenure with Good Guys (1973-1993), Mr. Unkefer established a
proven track record of achieving profitable results, completing a successful
public offering in 1986 and establishing Good Guys as one of the nation's
premier retailers of consumer electronics. Mr. Unkefer is also Chairman of
goodguys.com, an online consumer electronics retailer formed by Good Guys and a
group of private investors; Chairman of First Ventures, a venture capital fund
investing in Internet and technology companies; and Chairman of First
Broadcasting, an owner and developer of major market radio stations.
Stanley R. Baker, an original investor in the Company, is a founder of
Good Guys and has been a member of the Board of Directors since the company's
incorporation in 1976. From 1975 to 1991, he held a variety of senior executive
positions in marketing and merchandising, retiring from active daily involvement
in the business in 1991. From 1995 to 1999, Mr. Baker served as Chairman of the
Board of Trustees for the Schools of the Sacred Heart, a K-12 private school in
San Francisco. He continues to serve as a trustee.
Russell M. Solomon, a member of the Board of Directors since 1986, is the
Founder and Chairman of MTS Incorporated (d.b.a. Tower Records.) Over the past
40 years, Mr. Solomon has built Tower Records into an internationally recognized
retailer with 243 record, video and book stores spanning 18 countries. Mr.
Solomon is a former President of the National Association of Recording
Merchandisers (NARM) and has served on the Board of Directors for both NARM and
the Video Software Dealers Association (VSDA.) He is currently Chairman of the
Dean's Advisory Council for the Graduate School of Management at the University
of California, Davis and is also a member of the Board of Directors for the
Crocker Art Museum Association in Sacramento.
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31
John E. Martin, a member of the Board of Directors since 1990, is Chairman
of Culinary Adventures, a privately held restaurant company with locations in
California, Arizona and Oklahoma, and Chairman of RTHPORT, a retail organization
that facilitates online auctions. Mr. Martin, who has more than 34 years of
experience in retail and restaurant management, served as Chief Executive
Officer of Taco Bell from 1983 until 1996 and also served as Chairman from 1994
until 1996. From October 1996 to June 1997, Mr. Martin served as Chairman and
Chief Executive Officer of PepsiCo Casual Restaurants International. Mr. Martin
is also the former President of Burger Chef, Hardees and La Petite Boulangerie.
Most recently, he served as Chairman of Easyriders, Inc., an operator of
restaurants and apparel stores, and Chairman of Diedrich Coffee, Inc., an
operator of specialty coffee stores. Mr. Martin is also a director of
Williams-Sonoma, Inc.
Gary M. Lawrence, a member of the Board of Directors since 1999, is a
managing partner in the Dallas office of international law firm Akin, Gump,
Strauss, Hauer & Feld, L.L.P., where he chairs the technology practice group and
is a member of the firm-wide strategic planning and management committees. His
clients include Internet and other emerging technology companies, major U.S. and
European Stock Exchange-listed corporations, venture capitalists and private
equity investors. Mr. Lawrence has substantial experience in counseling
individual and corporate clients across a broad spectrum of legal and business
issues, with particular emphasis on financings, mergers, acquisitions,
divestitures and joint ventures in the high-technology arena. Mr. Lawrence is
also a director of goodguys.com.
Joseph P. Clayton, a member of the Board of Directors since 1999, has more
than 25 years of experience in the consumer electronics and telecommunications
industries. Mr. Clayton currently is President and Chief Executive Officer -
North America and member of the Board of Directors of Global Crossing, Ltd., a
global provider of integrated telecommunications solutions. Prior to its merger
with Global Crossing in 1999, he served as Chief Executive Officer of Frontier
Corporation. From March 1992 to January 1997, Mr. Clayton was Executive Vice
President of Marketing and Sales for Thomson Consumer Electronics for the
Americas and Asia. From May 1988 to March 1992, Mr. Clayton served as Thomson's
Senior Vice President of Television Operations for North and South America. Mr.
Clayton also serves on the Boards of Directors for Asia Global Crossing and E.W.
Scripps, both publicly held communications companies.
Joseph M. Schell, a member of the Board of Directors since 1999, has more
than 25 years of experience in investment banking and financial services. Mr.
Schell currently is Chairman of Global Technology Investment Banking for Merrill
Lynch & Co. From May 1985 until June 1999, Mr. Schell was Senior Managing
Director, Director of Investment Banking and a member of the Executive Committee
of NationsBank Montgomery Securities. Mr. Schell also serves on the Boards of
Directors of Dycom Industries, a publicly held engineering, construction and
maintenance services company, and Sanmina Corporation, a publicly held
electronics contract manufacturing services company.
Kenneth R. Weller rejoined Good Guys in August 2000 as President. Mr.
Weller began his career with Good Guys in 1982 as a sales associate, rising to
the position of Vice President of Sales in 1986 after holding various store
management positions. In 1993, Mr. Weller left Good Guys and joined Best Buy as
Senior Vice President of Sales and served in that position until returning to
Good Guys last year. Mr. Weller is largely credited with the substantial growth
Good Guys experienced during his seven years at the helm of the sales
organization.
Certain information relating to executive officers of the Company is set
forth in Item 4A in Part 1 of this Transition Report on Form 10-K under the
caption "Executive Officers of the Company".
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors
and executive officers, and any persons holding more than ten percent of the
Company's common stock, are required to report their initial ownership of the
Company's common stock and any subsequent changes in that ownership to the
Securities and Exchange Commission. Specific due dates for these reports have
been established and the Company is required to disclose in this Transition Form
10-K statement any failure to file by such dates of which it becomes aware
during the fiscal year. Subject to the foregoing, the Company believes that
during the five-month transition period ended February 28, 2001 its directors
and officers filed on a timely basis all such reports required to be filed, with
the exception of Form 5's for the five-month transition period covering the
annual grant of restricted shares on January 31, 2001 to the non-employee
directors listed in Item 10 hereof, an option granted to Robert Stoffregen, Vice
President, Finance and Chief Financial Officer of the Company, and an option
granted to Cathy Stauffer, Vice President, Merchandising of the Company.
31
32
PERFORMANCE GRAPH
The following graph shows a five-year comparison (for annual periods
ending on the last day of February) of cumulative total returns for $100
invested in each of the Company's common stock, the NASDAQ Stock Market (US)
Index and the NASDAQ Retail Trade Index, each of which assumes reinvestment of
dividends:
[GRAPH]
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Good Guys Stock 100 86 91 44 70 64
NASDAQ Stock Market 100 119 163 212 434 198
NASDAQ Retail Trade 100 111 147 151 131 94
32
33
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference from portions of the Proxy Statement for the
Company's Annual Meeting of Shareholders held on January 31, 2001, (the "Proxy
Statement") under the captions "Compensation of Directors and Executive
Officers" and "Certain Relationships and Related Transactions," except for the
information that follows in this Item 11.
The following table shows specific compensation information for the 12
months ended February 28, 2001 (February 2001) and for each of the fiscal years
ending September 30, 2000, 1999 and 1998 for the Chief Executive Officer, the
three other executive officers who were serving as of February 28, 2001, and
received over $100,000 dollars for the fiscal year then ended, and a former
executive officer who would have been included among the most highly compensated
officers had he remained in the employ of the Company through February 28, 2001.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ ------------
RESTRICTED SHARES
FISCAL STOCK UNDERLYING
YEAR OTHER ANNUAL AWARDS OPTIONS
NAME AND PRINCIPAL POSITION ENDING SALARY BONUS COMPENSATION(1) ($) (NUMBER)
- ---------------------------- ------------- -------- ------- --------------- ---------- ------------
Ronald A. Unkefer February 2001 $500,043 $0 $594 $0 0
Chief Executive Officer(2) September 2000 $500,043 $0 $0 $0 0
September 1999 $125,005 $0 $0 $0 0
September 1998 $0 $0 $0 $0 0
Cathy A. Stauffer February 2001 $221,675 $50,000 $6,330 $0 75,000
Vice President, September 2000 $199,591 $0 $6,754 $0 30,000
Merchandising September 1999 $185,994 $0 $19,619 $60,000 17,500
September 1998 $170,925 $0 $0 $0 0
George J. Hechtman February 2001 $220,841 $50,000 $76,052 $0 100,000
Vice President, September 2000 $106,254 $0 $6,477 $0 100,000
Administration(3) September 1999 $0 $0 $0 $0 0
September 1998 $0 $0 $0 $0 0
Richard C. Gazlay February 2001 $171,257 $7,500 $396 $0 0
Vice President, September 2000 $167,506 $15,000 $0 $0 0
Operations(4) September 1999 $53,343 $75,679 $0 $0 26,000
September 1998 $103,587 $94,203 $0 $0 1,000
Kenneth R. Weller, February 2001 $218,188 $66 $0 $0 1,000,000
President(5) September 2000 $51,515 $0 $0 $0 1,000,000
September 1999 $0 $0 $0 $0 0
September 1998 $0 $0 $0 $0 0
- ---------
(1) Consists of perquisites and other personal benefits, including long term disability, life insurance premiums
paid by the Company, accrued vacation for terminated employees, and the tax gross up for relocation
expenses.
(2) Mr. Unkefer was named Chief Executive Officer of the Company on July 1, 1999.
(3) Mr. Hechtman was named Vice President, Administration in April 2000.
(4) Mr. Gazlay served the Company in a variety of positions, including Vice President, Operations until November
2000 and then Director of Service until his resignation in March 2001.
(5) Mr. Weller was named President of the Company on August 15, 2000.
33
34
STOCK OPTION TABLES
The following table shows information concerning stock options granted to
the individuals named in the Summary Compensation Table above during the
12-month period ended February 28, 2001 ("Transition Period").
OPTION GRANTS IN
TRANSITION PERIOD
INDIVIDUAL GRANTS
-------------------------
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
NUMBER OF GRANTED TO RATES OF STOCK PRICE
SECURITIES EMPLOYEES APPRECIATION FOR
UNDERLYING IN OPTION TERM(2)
OPTIONS TRANSITION EXERCISE EXPIRATION --------------------------
NAME GRANTED(1) PERIOD PRICE DATE 5% 10%
- ---- --------- ---------- -------- ---------- ---------- ----------
Ronald A. Unkefer 0 0 -- -- -- --
Cathy A. Stauffer 5,000 .29% $4.6250 3/17/10 $14,543 $36,855
70,000 4.08% $7.0625 11/08/10 $310,905 $787,906
George J. Hechtman 100,000 5.82% $2.8750 4/26/10 $180,807 $458,201
Richard C. Gazlay 0 0 -- -- -- --
Kenneth R. Weller 1,000,000 58.22% $ 3.75 8/15/10 $2,358,000 $5,976,000
- ----------
(1) All of the above options were granted under the 1994 Stock Incentive Plan
with the exception that the options granted to George Hechtman and Kenneth
Weller were granted outside that Plan. The options are non-qualified stock
options that were granted at 100% of the fair market value of the common
stock on the date of grant. The options expire ten years from the date of
grant, unless otherwise earlier terminated upon the occurrence of certain
events related to termination of employment. Options granted vest 33.3%
per year on the first three anniversaries of the option grant date.
Additional vesting of the right to exercise the options ceases when the
optionee's employment terminates.
(2) The 5% and the 10% assumed rates of appreciation applied to the option
exercise price over the ten-year option term are prescribed by the rules
of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future price of common stock. If
the Company's common stock does not appreciate relative to the exercise
price, the named executive officers will receive no benefit from the
options.
(4) (3) All information given in this table and the following table as to
exercise prices and values is as of February 28, 2001.
34
35
The following table shows the number of shares covered by both
exercisable and non-exercisable stock options held by the individuals named in
the Summary Compensation Table above as of February 28, 2001, and the value of
unexercised options as of that date.
VALUE(1) OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT 2/28/01 2/28/01
ACQUIRED VALUE ------------------------------- -------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
Ronald A. Unkefer........ -- -- 0 0 $0 $0
Cathy A. Stauffer........ -- -- 41,251 96,249 $47,799 $3,059
George J. Hechtman....... -- -- 33,334 66,666 $79,168 $158,332
Richard C. Gazlay........ -- -- 18,053 0 $3,286 $0
Kenneth R. Weller -- -- 0 1,000,000 $0 $1,500,000
- ----------
(1) The value of unexercised options is calculated by multiplying
the number of options outstanding by the difference between the option exercise
price and the February 28, 2001 closing price of $5.25 per share of the
Company's common stock as reported on the NASDAQ National Market. Options with
an exercise price in excess of the February 28, 2001 closing price were not
included in this calculation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 11, 2001, unless
otherwise noted, regarding securities ownership by (i) each person who is known
by the Company to own beneficially more than five percent of the Company's
common stock, (ii) each current executive officer named in the Summary
Compensation Table, (iii) the directors and nominees individually, and (iv) all
executive officers and directors as a group.
COMMON STOCK
BENEFICIALLY OWNED(1)
NAME NUMBER PERCENT
---- ---------- ----------
Lord, Abbett & Co.(2) ............................................... 1,736,258 6.8%
767 Fifth Avenue, 11th Floor
New York, NY 10153
First Pacific Advisors(2) ........................................... 1,669,500 6.6%
11400 West Olympic Blvd., Suite 1200
Los Angeles, CA 90064
Dimensional Fund Advisors(2) ........................................ 1,525,100 6.0%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Ronald A. Unkefer (3) ............................................... 2,914,329 11.5%
Kenneth R. Weller (4) ............................................... 750,000 3.0%
John E. Martin (5) .................................................. 729,836 2.9%
Joseph M. Schell (6) ................................................ 450,644 1.8%
Stanley R. Baker (7) ................................................ 433,278 1.7%
Gary M. Lawrence (8) ................................................ 269,813 1.1%
W. Howard Lester (9) ................................................ 248,219 1.0%
Russell M. Solomon (10) ............................................. 72,764 *
Joseph P. Clayton (11) .............................................. 60,011 *
George J. Hechtman .................................................. 20,000 *
Cathy A. Stauffer (12) .............................................. 48,384 *
---------- ----------
All executive officers and directors as a group (12 persons) (13) 6,005,669 23.6%
35
36
- ----------
* Represents less than 1% of the outstanding shares.
(1) The stockholders named in the table have sole voting and investment power
with respect to all shares of stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in the footnotes to this table.
(2) As of March 31, 2001.
(3) Includes 801,734 shares issuable upon the exercise of outstanding warrants
that are exercisable within 60 days. Mr. Unkefer is a member of the
administrative committees for The Good Guys! Profit Sharing Plan, the
trustee of which currently holds 532,392 shares on behalf of plan
participants, and The Good Guys! Deferred Pay Plan, the trustee of which
currently holds 377,200 shares on behalf of plan participants. If a
participant fails to vote his or her shares under either Plan, such shares
will be voted in the manner determined by the administrative committees.
(4) Includes 250,000 shares issuable upon the exercise of outstanding warrants
that are exercisable within 60 days.
(5) Includes 133,744 shares issuable upon the exercise of outstanding stock
options and warrants that are exercisable within 60 days.
(6) Includes 127,744 shares issuable upon the exercise of outstanding stock
options and warrants that are exercisable within 60 days.
(7) Includes 106,808 shares issuable upon the exercise of outstanding stock
options and warrants that are exercisable within 60 days.
(8) Includes 73,872 shares issuable upon the exercise of outstanding stock
options and warrants that are exercisable within 60 days.
(9) Includes 79,872 shares issuable upon the exercise of outstanding stock
options and warrants that are exercisable within 60 days.
(10) Includes 31,387 shares issuable upon the exercise of outstanding stock
options and warrants that are exercisable within 60 days, and also includes
shares held in trusts established by him as to which he disclaims
beneficial interest.
(11) Includes 30,000 shares issuable upon the exercise of outstanding stock
options and warrants that are issuable within 60 days.
(12) Includes 139 shares held by the trustee of The Good Guys! Profit-Sharing
Plan and allocated to Ms. Stauffer, as to which Ms. Stauffer has voting
power, 2,298 shares held by the trustee of The Good Guys! Deferred Pay Plan
and allocated to Ms. Stauffer's individual account, as to which Ms.
Stauffer has voting power, and 19,584 shares issuable upon exercise of
outstanding stock options that are exercisable within 60 days.
(13) Includes 139 shares held by the trustee of The Good Guys! Profit-Sharing
Plan and allocated to the individual accounts of members of the group, as
to which such individuals have voting power; 2,298 shares held by the
trustee of The Good Guys! Deferred Pay Plan and allocated to the individual
accounts of such members, as to which such individuals have voting power,
and 1,680,631 shares issuable upon exercise of outstanding stock options
and warrants that are exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference from portions of the Proxy Statement under the
captions "Compensation of Directors and Executive Officers" and "Certain
Relationships and Related Transactions." See also Note 5 and Note 12 of the
Consolidated Financial Statements - Item 8 of this Transition Report relating
to transactions during the transition period.
36
37
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:
Independent Auditors' Report
Consolidated statements of operations for the five months
ended February 28, 2001, February 29, 2000 (unaudited) and
each of the three years in the period ended September 30,
2000
Consolidated balance sheets as of February 28, 2001 and
September 30, 2000 and 1999
Consolidated statements of shareholders' equity for the
five months ended February 28, 2001 and for each of the
three years in the period ended September 30, 2000
Consolidated statements of cash flows for the five months
ended February 28, 2001, February 29, 2000 (unaudited) and
for each of the three years in the period ended September
30, 2000
Notes to consolidated financial statements
(2) Financial Statement Schedules.
Independent Auditor's Report on Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
All other schedules are omitted because they are not required or are not
applicable, or the information is included in the financial statements.
(b) REPORTS ON FORM 8-K.
None
37
38
Exhibits.
3.1 Restated Certificate of Incorporation.
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 Employee Stock Purchase Plan, as amended.* (Exhibit 4.2 to
the Company's Registration Statement of Form S-8 as filed on
March 30, 2001, registration number 333-57964; incorporated
herein by reference).
10.4 Amended and Restated 1994 Stock Incentive Plan.*(Exhibit
42.2 to the Company's Form 10-K Annual Report for the fiscal
year ended September 30, 2000; incorporated herein by
reference.)
10.5 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.)
10.6 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.)
10.7 Loan Agreement between The Good Guys-California, Inc. and
Bank of America and GE Capital, dated as of September 30,
1999. (Exhibit 10.9 to the Company's Form 10-K for the
fiscal year ended September 30, 1999; incorporated herein by
reference.)
10.8 Stock Purchase Agreement, dated June 1, 1999, between Ronald
A. Unkefer and the Company. (Exhibit 10.15 to the Company's
Report on Form 10-Q for the quarter ended June 30, 1999;
incorporated herein by reference.)
10.9 Employment Agreement dated June 2, 1999, between Ronald A.
Unkefer and the Company. (Exhibit 10.16 to the Company's
Report on Form 10-Q for the quarter ended June 30, 1999;
incorporated herein by reference.)*
10.10 Form of severance agreement entered into with Cathy Stauffer
in June 1999. (Exhibit 10.17 to the Company Form 10-Q for
the quarter ended June 30, 1999, incorporated herein by
reference.)*
10.11 Stock Purchase Agreement dated as of August 19, 1999,
together with the forms of Warrant to Purchase Shares of
Common Stock and Registration Rights Agreement executed in
connection with private placement. (Exhibit 10.18 to the
Company's Report on Form 8-K for August 20, 1999;
incorporated herein by reference.)
10.12 Executive Employment Agreement with Kenneth R. Weller, dated
August 15, 2000. (Exhibit 10.14 to the Company's Report on
Form 8-K filed on August 29, 2000; incorporated herein by
reference.)
10.13 Stock and Warrant Subscription Agreement, dated as of August
15, 2000, between The Good Guys, Inc. and Kenneth R. Weller.
(Exhibit 10.15 to the Company's Report on Form 8-K filed on
August 29, 2000; incorporated herein by reference.)
10.14 Stock Purchase Agreement, dated as of August 15, 2000,
between The Good Guys, Inc. and the persons listed on
Schedule A thereto. (Exhibit 10.16 to the Company's Report
on Form 8-K filed on August 29, 2000; incorporated herein by
reference.)
10.15 Registration Rights Agreement, dated as of August 16, 2000,
between The Good Guys, Inc. and the persons listed on
Schedule A thereto. (Exhibit 10.17 to the Company's Report
on Form 8-K filed on August 29, 2000; incorporated herein by
reference.)
10.16 Form of Warrant to Purchase Shares of Common Stock of The
Good Guys to be issued pursuant to the Stock Purchase
Agreement, dated as of August 16, 2000, between The Good
Guys and the persons listed on Schedule A thereto. (Exhibit
10.18 to the Company's Report on Form 8-K filed on August
29, 2000; incorporated herein by reference.)
- ----------------------------------
*Compensatory plan or arrangement.
38
39
10.17 Letter agreement between George J. Hechtman and the Company,
dated April 12, 2000.* (Exhibit 10.17 to the Company's Form
10-K filed for its fiscal year ended September 30, 2000;
incorporated herein by reference.)
10.18 Letter agreement between Robert A. Stoffregen and the
Company, dated September 29, 2000.* (Exhibit 10.18 to the
Company's Form 10-K filed for its fiscal year ended
September 30, 2000; incorporated herein by reference.)
10.19 Option Agreement between George Hechtman and the Company,
dated April 26, 2000.* (Exhibit 10.19 to the Company's Form
10-K filed for its fiscal year ended September 30, 2000;
incorporated herein by reference.)
10.20 Option Agreement between Robert A. Stoffregen and the
Company, dated October 6, 2000.* (Exhibit 10.20 to the
Company's Form 10-K filed for its fiscal year ended
September 30, 2000; incorporated herein by reference.)
10.21 Option Agreement between the Company and Stanley R. Baker,
dated July 27, 2000.* (Exhibit 10.21 to the Company's Form
10-K filed for its fiscal year ended September 30, 2000;
incorporated herein by reference.)
10.22 Lease Agreement for Corporate Office, dated December 29,
2000, by and between Good Guys and LNR Harbor Bay, LLC.
10.23 Royalty and services, licensing, domain name, and stock
subscription & warrant agreements, dated as of January 1,
2000, entered into between The Good Guys-California, Inc
and goodguys.com, inc.
21.1 List of Subsidiaries.
23.1 Independent Auditors' Consent.
24.1 Power of Attorney.
99.1 Definitive Proxy Statement for Annual Meeting of
Shareholders held on January 31, 2001.
- ----------------------------------
*Compensatory plan or arrangement.
39
40
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
of Good Guys, Inc.:
We have audited the consolidated financial statements of Good Guys, Inc.
(formerly The Good Guys, Inc.) and subsidiary as of February 28, 2001, and
September 30, 2000 and 1999, and for the five-month Year ended February 28,
2001, and for each of three fiscal years in the Year ended September 30, 2000,
and have issued our report thereon dated April 13, 2001. Our audits also
included the financial statement schedule of Good Guys, Inc. and subsidiaries
listed in Item 14(a)(2). This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
San Francisco, California
April 13, 2001
SCHEDULE II
GOOD GUYS, INC. & SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Column A Column B Column C Column D Column E
----------- --------- --------- --------- ---------
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Year Expenses Deductions Year
----------- --------- --------- --------- ---------
Year Ended September 30, 1998:
Allowance for Doubtful Accounts $ 1,196 - $ 47 $ 1,149
Year Ended September 30, 1999:
Allowance for Doubtful Accounts $ 1,149 $ 400 $ 86 $ 1,463
Year Ended September 30, 2000:
Allowance for Doubtful Accounts $ 1,463 $ 488 $ 468 $ 1,483
Year Ended February 28, 2001:
Allowance for Doubtful Accounts $ 1,483 $ 53 $ 330 $ 1,206
40
41
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: May 25, 2001 GOOD GUYS, INC.
By: /S/ RONALD A. UNKEFER
----------------------------------------
Ronald A. Unkefer
Chairman 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/ RONALD A. UNKEFER Chairman and Chief Executive Officer May 25, 2001
- -------------------------------- (Principal Executive Officer)
(Ronald A. Unkefer)
/S/ ROBERT A. STOFFREGEN Chief Financial Officer May 25, 2001
- -------------------------------- (Principal Financial and Accounting Officer)
(Robert A. Stoffregen)
/s/ STANLEY R. BAKER* Director May 25, 2001
- -------------------------------
(Stanley R. Baker)
/s/ RUSSELL M. SOLOMON* Director May 25, 2001
- -------------------------------
(Russell M. Solomon)
/s/ JOHN E. MARTIN* Director May 25, 2001
- -------------------------------
(John E. Martin)
/s/ GARY M. LAWRENCE* Director May 25, 2001
- -------------------------------
(Gary M. Lawrence)
/s/ JOSEPH P. CLAYTON* Director May 25, 2001
- -------------------------------
(Joseph P. Clayton)
/s/ JOSEPH M. SCHELL* Director May 25, 2001
- -------------------------------
(Joseph M. Schell)
/s/ KENNETH R. WELLER* Director May 25, 2001
- -------------------------------
(Kenneth R. Weller)
*By /S/ ROBERT A. STOFFREGEN
- -------------------------------
Robert A. Stoffregen,
Attorney-in-Fact
41
42
EXHIBIT INDEX
3.1 Restated Certificate of Incorporation.
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 Employee Stock Purchase Plan, as amended.* (Exhibit 4.2 to
the Company's Registration Statement of Form S-8 as filed on
March 30, 2001, registration number 333-57964; incorporated
herein by reference).
10.4 Amended and Restated 1994 Stock Incentive Plan.*(Exhibit
42.2 to the Company's Form 10-K Annual Report for the fiscal
year ended September 30, 2000; incorporated herein by
reference.)
10.5 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.)
10.6 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.)
10.7 Loan Agreement between The Good Guys-California, Inc. and
Bank of America and GE Capital, dated as of September 30,
1999. (Exhibit 10.9 to the Company's Form 10-K for the
fiscal year ended September 30, 1999; incorporated herein by
reference.)
10.8 Stock Purchase Agreement, dated June 1, 1999, between Ronald
A. Unkefer and the Company. (Exhibit 10.15 to the Company's
Report on Form 10-Q for the quarter ended June 30, 1999;
incorporated herein by reference.)
10.9 Employment Agreement dated June 2, 1999, between Ronald A.
Unkefer and the Company. (Exhibit 10.16 to the Company's
Report on Form 10-Q for the quarter ended June 30, 1999;
incorporated herein by reference.)*
10.10 Form of severance agreement entered into with Cathy Stauffer
in June 1999. (Exhibit 10.17 to the Company Form 10-Q for
the quarter ended June 30, 1999, incorporated herein by
reference.)*
10.11 Stock Purchase Agreement dated as of August 19, 1999,
together with the forms of Warrant to Purchase Shares of
Common Stock and Registration Rights Agreement executed in
connection with private placement. (Exhibit 10.18 to the
Company's Report on Form 8-K for August 20, 1999;
incorporated herein by reference.)
10.12 Executive Employment Agreement with Kenneth R. Weller, dated
August 15, 2000. (Exhibit 10.14 to the Company's Report on
Form 8-K filed on August 29, 2000; incorporated herein by
reference.)
10.13 Stock and Warrant Subscription Agreement, dated as of August
15, 2000, between The Good Guys, Inc. and Kenneth R. Weller.
(Exhibit 10.15 to the Company's Report on Form 8-K filed on
August 29, 2000; incorporated herein by reference.)
10.14 Stock Purchase Agreement, dated as of August 15, 2000,
between The Good Guys, Inc. and the persons listed on
Schedule A thereto. (Exhibit 10.16 to the Company's Report
on Form 8-K filed on August 29, 2000; incorporated herein by
reference.)
10.15 Registration Rights Agreement, dated as of August 16, 2000,
between The Good Guys, Inc. and the persons listed on
Schedule A thereto. (Exhibit 10.17 to the Company's Report
on Form 8-K filed on August 29, 2000; incorporated herein by
reference.)
10.16 Form of Warrant to Purchase Shares of Common Stock of The
Good Guys to be issued pursuant to the Stock Purchase
Agreement, dated as of August 16, 2000, between The Good
Guys and the persons listed on Schedule A thereto. (Exhibit
10.18 to the Company's Report on Form 8-K filed on August
29, 2000; incorporated herein by reference.)
10.17 Letter agreement between George J. Hechtman and the Company,
dated April 12, 2000.* (Exhibit 10.17 to the Company's Form
10-K filed for its fiscal year ended September 30, 2000;
incorporated herein by reference.)
- ----------------------------------
*Compensatory plan or arrangement.
42
43
10.18 Letter agreement between Robert A. Stoffregen and the
Company, dated September 29, 2000.* (Exhibit 10.18 to the
Company's Form 10-K filed for its fiscal year ended
September 30, 2000; incorporated herein by reference.)
10.19 Option Agreement between George Hechtman and the Company,
dated April 26, 2000.* (Exhibit 10.19 to the Company's Form
10-K filed for its fiscal year ended September 30, 2000;
incorporated herein by reference.)
10.20 Option Agreement between Robert A. Stoffregen and the
Company, dated October 6, 2000.* (Exhibit 10.20 to the
Company's Form 10-K filed for its fiscal year ended
September 30, 2000; incorporated herein by reference.)
10.21 Option Agreement between the Company and Stanley R. Baker,
dated July 27, 2000.* (Exhibit 10.21 to the Company's Form
10-K filed for its fiscal year ended September 30, 2000;
incorporated herein by reference.)
10.22 Lease Agreement for Corporate Office, dated December 29,
2000, by and between Good Guys and LNR Harbor Bay, LLC
10.23 Services, licensing, domain name, and stock subscription &
warrant agreements, dated January 2000, entered into between
The Good Guys-California, Inc and goodguys.com
21.1 List of Subsidiaries.
23.1 Independent Auditors' Consent.
24.1 Power of Attorney.
99.1 Definitive Proxy Statement for Annual Meeting of
Shareholders held on January 31, 2001 *Compensatory plan or
arrangement.
*Compensatory plan or arrangement.
- --------------------------------------------------------------------------------
43