No 
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
Commission file number: 0-24091
Tweeter Home Entertainment Group, Inc.
| DELAWARE | 04-3417513 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
40 PEQUOT WAY
CANTON, MA 02021
781-830-3000
Indicate by check mark whether the registrant (1) has filed all documents
and 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 No
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| TITLE OF CLASS | OUTSTANDING AT AUGUST 07, 2002 | |||
| Common Stock, $.01 par value | 23,528,918 |
TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
INDEX
| Page | ||||||||
| Part I | FINANCIAL INFORMATION |
|||||||
| Item 1 | Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2001 and June
30, 2002 |
3 | ||||||
Consolidated Statements of Income for the Three Months and Nine
Months Ended June 30, 2001 and 2002 |
4 | |||||||
Consolidated Statements of Cash Flows for the Nine Months Ended
June 30, 2001 and 2002 |
5 | |||||||
Notes to Unaudited Consolidated Financial Statements |
6 | |||||||
| Item 2 | Management’s Discussion and Analysis of Financial Condition and
Results of Operations |
10 | ||||||
| Item 3 | Quantitative and Qualitative Disclosures About Market Risk |
13 | ||||||
| Part II | OTHER INFORMATION |
13 | ||||||
2
Tweeter Home Entertainment Group, Inc. and Subsidiaries
Consolidated Balance Sheets
| September 30, | June 30, | |||||||||
| 2001 | 2002 | |||||||||
| (Unaudited) | ||||||||||
Assets |
||||||||||
Current Assets: |
||||||||||
Cash and cash equivalents |
$ | 3,277,969 | $ | 2,665,766 | ||||||
Accounts receivable, net of allowance for
doubtful accounts of $850,000 at September
30, 2001 and $650,000 at June 30, 2002 |
31,251,444 | 28,750,764 | ||||||||
Inventory |
129,172,638 | 135,375,669 | ||||||||
Deferred tax assets |
4,054,489 | 4,909,040 | ||||||||
Prepaid expenses and other current assets |
3,468,864 | 3,063,867 | ||||||||
Total current assets |
171,225,404 | 174,765,106 | ||||||||
Property and equipment, net |
109,141,981 | 139,737,651 | ||||||||
Investment in joint venture |
3,397,722 | 1,861,470 | ||||||||
Long-term investments |
1,194,425 | 1,124,585 | ||||||||
Intangible assets, net |
7,254,832 | 6,420,749 | ||||||||
Other assets, net |
536,675 | 1,307,464 | ||||||||
Goodwill, net |
187,676,605 | 191,558,339 | ||||||||
Total |
$ | 480,427,644 | $ | 516,775,364 | ||||||
Liabilities and Stockholders’ Equity |
||||||||||
Current Liabilities: |
||||||||||
Current portion of long-term debt |
$ | 322,245 | $ | 273,367 | ||||||
Amount due to bank |
8,464,682 | 6,153,000 | ||||||||
Accounts payable |
38,557,984 | 35,536,332 | ||||||||
Accrued expenses |
38,887,498 | 36,419,545 | ||||||||
Customer deposits |
13,998,996 | 15,716,418 | ||||||||
Deferred warranty |
532,681 | 486,905 | ||||||||
Total current liabilities |
100,764,086 | 94,585,567 | ||||||||
Long-Term Debt |
36,699,411 | 59,807,256 | ||||||||
Other Long-Term Liabilities: |
||||||||||
Rent related accruals |
9,326,705 | 9,455,908 | ||||||||
Deferred warranty |
1,048,562 | 444,060 | ||||||||
Deferred tax liabilities |
197,353 | 239,321 | ||||||||
Total other long-term liabilities |
10,572,620 | 10,139,289 | ||||||||
Total liabilities |
148,036,117 | 164,532,112 | ||||||||
Stockholders’ Equity |
||||||||||
Preferred stock, $.01 par value, 10,000,000 shares
authorized, no shares issued |
— | — | ||||||||
Common stock, $.01 par value, 60,000,000
shares authorized; 24,722,974 shares issued at
September 30, 2001 and 25,331,683 at June 30, 2002 |
247,230 | 253,317 | ||||||||
Additional paid in capital |
285,132,941 | 288,772,795 | ||||||||
Accumulated other comprehensive income |
65,918 | 62,063 | ||||||||
Retained earnings |
48,823,695 | 65,022,186 | ||||||||
Total |
334,269,784 | 354,110,361 | ||||||||
Less treasury stock: 1,856,146 shares at
September 30, 2001 and 1,840,220 shares at
June 30, 2002, at cost |
(1,878,257 | ) | (1,867,109 | ) | ||||||
Total stockholders’ equity |
332,391,527 | 352,243,252 | ||||||||
Total |
$ | 480,427,644 | $ | 516,775,364 | ||||||
See notes to unaudited condensed consolidated financial statements.
3
Tweeter Home Entertainment Group, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| 2001 | 2002 | 2001 | 2002 | |||||||||||||||
Total revenue |
$ | 110,038,056 | $ | 175,326,678 | $ | 389,839,141 | $ | 613,062,047 | ||||||||||
Cost of sales |
(71,175,737 | ) | (111,869,058 | ) | (250,075,931 | ) | (391,339,628 | ) | ||||||||||
Gross Profit |
38,862,319 | 63,457,620 | 139,763,210 | 221,722,419 | ||||||||||||||
Selling expenses |
28,826,296 | 50,427,204 | 95,367,726 | 160,088,800 | ||||||||||||||
Corporate, general and administrative expenses |
5,739,587 | 11,959,171 | 17,895,576 | 31,864,622 | ||||||||||||||
Amortization of intangibles |
521,137 | 393,198 | 1,481,137 | 1,184,083 | ||||||||||||||
Income from operations |
3,775,299 | 678,047 | 25,018,771 | 28,584,914 | ||||||||||||||
Income (loss) from joint venture |
92,877 | (826 | ) | 777,057 | 71,126 | |||||||||||||
Interest income (expense), net |
248,318 | (504,828 | ) | 949,989 | (1,654,666 | ) | ||||||||||||
Income before income taxes |
4,116,494 | 172,393 | 26,745,817 | 27,001,374 | ||||||||||||||
Income taxes |
1,650,550 | 68,957 | 10,698,327 | 10,802,883 | ||||||||||||||
NET INCOME |
$ | 2,465,944 | $ | 103,436 | $ | 16,047,490 | $ | 16,198,491 | ||||||||||
Basic earnings per share |
$ | 0.13 | $ | 0.00 | $ | 0.86 | $ | 0.70 | ||||||||||
Diluted earnings per share |
$ | 0.13 | $ | 0.00 | $ | 0.83 | $ | 0.67 | ||||||||||
Weighted average shares outstanding: |
||||||||||||||||||
Basic |
18,717,060 | 23,454,117 | 18,609,033 | 23,278,568 | ||||||||||||||
Diluted |
19,396,276 | 24,138,413 | 19,283,544 | 24,268,771 | ||||||||||||||
See notes to unaudited condensed consolidated financial statements.
4
Tweeter Home Entertainment Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| Nine Months Ended | ||||||||||||
| June 30, | ||||||||||||
| 2001 | 2002 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income |
$ | 16,047,490 | $ | 16,198,491 | ||||||||
Adjustments to reconcile net income to net cash provided by |
||||||||||||
operating activities: |
||||||||||||
Depreciation and amortization |
7,570,232 | 12,957,464 | ||||||||||
Income from joint venture |
(777,057 | ) | (71,126 | ) | ||||||||
Gain on disposal of equipment |
(10,000 | ) | (12,350 | ) | ||||||||
Provision for uncollectible accounts |
67,500 | 818,209 | ||||||||||
Deferred income tax provision |
(437,308 | ) | (812,583 | ) | ||||||||
Changes in operating assets and liabilities, net of effects from |
||||||||||||
acquisition of business: |
||||||||||||
(Increase) decrease in accounts receivable |
(6,769,615 | ) | 1,943,203 | |||||||||
Decrease (increase) in inventory |
12,277,580 | (4,286,353 | ) | |||||||||
Increase in prepaid expenses and other assets |
(1,569,587 | ) | (384,787 | ) | ||||||||
Increase (decrease) in accounts payable and accrued expenses |
11,892,920 | (6,949,347 | ) | |||||||||
Increase in customer deposits |
716,715 | 1,209,454 | ||||||||||
Increase in deferred rent |
575,995 | 129,203 | ||||||||||
Decrease in deferred warranty |
(808,679 | ) | (650,278 | ) | ||||||||
Net cash provided by operating activities |
38,776,186 | 20,089,200 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Purchase of property and equipment |
(28,650,896 | ) | (41,852,886 | ) | ||||||||
Proceeds from sale of property and equipment |
10,000 | 12,350 | ||||||||||
(Purchase) sale of investments |
(2,841,379 | ) | 63,416 | |||||||||
Acquisitions net of cash acquired |
(10,933,971 | ) | (3,912,968 | ) | ||||||||
Distributions from joint venture |
500,000 | 1,583,469 | ||||||||||
Net cash used in investing activities |
(41,916,246 | ) | (44,106,619 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Decrease in amount due to bank |
(3,685,372 | ) | (2,311,682 | ) | ||||||||
(Payments) proceeds of long-term debt |
(2,037,456 | ) | 23,058,967 | |||||||||
Equity transactions |
1,087,906 | 2,657,931 | ||||||||||
Net cash (used) provided by financing activities |
(4,634,922 | ) | 23,405,216 | |||||||||
DECREASE IN CASH AND CASH EQUIVALENTS |
(7,774,982 | ) | (612,203 | ) | ||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
34,292,555 | 3,277,969 | ||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 26,517,573 | $ | 2,665,766 | ||||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||||||
Cash paid during the period for: |
||||||||||||
Interest |
$ | 11,527 | $ | 1,779,960 | ||||||||
Taxes |
$ | 8,611,431 | $ | 9,832,757 | ||||||||
Noncash investing activities: |
||||||||||||
Issuance of common stock for acquisitions |
$ | 3,397,566 | $ | 1,000,016 | ||||||||
See notes to unaudited condensed consolidated financial statements.
5
TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited condensed consolidated financial statements of Tweeter Home Entertainment Group, Inc. and its subsidiaries (“Tweeter” or the “Company”), included herein, should be read in conjunction with the consolidated financial statements and notes thereto included in Tweeter’s Annual Report on Form 10-K for the fiscal year ended September 30, 2001.
2. Accounting Policies
The unaudited consolidated financial statements of Tweeter have been prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim consolidated financial statements have been included. Operating results for the nine-month period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2002. Tweeter typically records its highest revenue and earnings in its first fiscal quarter.
3. Earnings per Share
The weighted average shares used in computing basic and diluted net income per share are presented in the table below. Certain options are not included in the earnings per share calculation when the exercise price is greater than the average market price for the period. The number of options excluded in each period is reflected in the table.
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2001 | 2002 | 2001 | 2002 | ||||||||||||||
Basic Earnings Per Share: |
|||||||||||||||||
Numerator: |
|||||||||||||||||
Net income |
$ | 2,465,944 | $ | 103,436 | $ | 16,047,490 | $ | 16,198,491 | |||||||||
Denominator: |
|||||||||||||||||
Weighted average common shares outstanding |
18,717,060 | 23,454,117 | 18,609,033 | 23,278,568 | |||||||||||||
Basic earnings per share |
$ | 0.13 | $ | 0.00 | $ | 0.86 | $ | 0.70 | |||||||||
Diluted Earnings Per Share: |
|||||||||||||||||