<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-8966
---------------------------
RHODES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-0536190
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(404) 264-4600
----------------------------------------------------
(Registrant's telephone number, including area code)
NONE
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of September 30, 1994: 9,778,933 shares of common
stock without par value.
<PAGE> 2
RHODES, INC.
INDEX
Part I. Financial Information
Background
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - -
August 31, 1994 and February 28, 1994
Condensed Consolidated Statements of Operations
for the Three and Six Months Ended August 31, 1994
and August 31, 1993
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended August 31, 1994
and August 31, 1993
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security-Holders
i
<PAGE> 3
RHODES, INC.
PART I
FINANCIAL INFORMATION
BACKGROUND
An important event, the Recapitalization (defined below), occurred
during Rhodes, Inc.'s ("Rhodes" or the "Company") year ended February 28, 1994
which affects the comparison of this year's financial statements with the three
and six month periods ended August 31, 1993. The results of operations for the
three and six months ended August 31, 1994 are best analyzed by comparison with
the pro forma results of operations for the prior year periods which have been
adjusted to reflect the Recapitalization, in addition to comparison with the
historical financial statements presented herein.
RECAPITALIZATION
In June 1993, the Company completed a recapitalization plan (the
"Recapitalization"), whereby $120.2 million of indebtedness and $14.7 million
of preferred stock was retired through the issuance of 8.2 million shares of
common stock and $40.0 million of senior secured notes. The Recapitalization
significantly reduced the Company's indebtedness and interest expense and
provided additional resources and financial flexibility.
1
<PAGE> 4
RHODES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
1994 1994
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 444 $ 235
Accounts receivable 3,220 2,073
Inventories at LIFO cost 56,623 48,187
Prepaid expenses and other 4,097 4,375
Deferred tax assets 2,941 2,941
--------- ---------
Total Current Assets 67,325 57,811
--------- ---------
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation and amortization of $31,841 at
August 31, 1994 and $29,805 at February 28, 1994 51,342 48,027
--------- ---------
CAPITALIZED REAL ESTATE LEASES, at cost, less
accumulated amortization of $4,504 at August 31,
1994 and $4,125 at February 28, 1994 7,441 7,819
--------- ---------
INTANGIBLE ASSETS, net
Goodwill 61,217 62,116
Favorable leases 4,298 4,797
Other intangibles 2,537 2,638
--------- ---------
Total Intangible Assets 68,052 69,551
--------- ---------
OTHER ASSETS 2,396 2,396
--------- ---------
TOTAL ASSETS $ 196,556 $ 185,604
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes and loans payable $ 5,071 $ 2,471
Current maturities of long-term debt
and capital lease obligations 807 1,308
Accounts payable 31,376 27,753
Accrued liabilities 16,429 15,862
Accrued Interest 814 759
Deferred income 9,037 8,732
Current income taxes payable -- --
Current portion deferred gain-sale/leasebacks 318 318
--------- ---------
Total Current Liabilities 63,852 57,203
--------- ---------
DEFERRED INCOME TAXES 11,030 8,415
--------- ---------
LONG-TERM DEBT, less current maturities 40,145 42,046
--------- ---------
OBLIGATIONS UNDER CAPITAL LEASES 14,626 15,006
--------- ---------
DEFERRED GAIN-SALE/LEASEBACKS 2,866 3,025
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000 shares
authorized and 9,779 shares issued and outstanding
at August 31, and February 28, 1994 -- --
Paid-in-Capital 106,863 107,107
Accumulated deficit (42,826) (47,198)
--------- ---------
Total Shareholders' Equity (Deficit) 64,037 59,909
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 196,556 $ 185,604
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
2
<PAGE> 5
RHODES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER QUARTER SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1994 AUGUST 31, 1993
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 88,809 $ 82,560 $171,674 $153,008
COST OF GOODS SOLD 45,669 43,261 87,267 79,491
-------- -------- -------- --------
GROSS PROFIT 43,140 39,299 84,407 73,517
-------- -------- -------- --------
FINANCE CHARGES and
INSURANCE COMMISSIONS 1,338 1,206 2,504 2,518
-------- -------- -------- --------
OPERATING EXPENSES:
Selling 14,940 13,039 29,701 24,364
General and administrative 22,628 20,944 45,037 40,673
Amortization of intangibles 772 773 1,534 1,551
Provision for credit losses 33 57 52 79
Other (income) expense, net 81 50 (83) 93
-------- -------- -------- --------
38,454 34,863 76,241 66,760
-------- -------- -------- --------
INCOME BEFORE INTEREST EXPENSE AND
INCOME TAXES 6,024 5,642 10,670 9,275
Interest expense - net 1,591 2,837 3,260 8,213
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 4,433 2,805 7,410 1,062
PROVISION FOR INCOME TAXES 1,817 1,316 3,038 733
-------- -------- -------- --------
NET INCOME BEFORE EXTRAORDINARY
ITEM 2,616 1,489 4,372 329
EXTRAORDINARY ITEM- EARLY RETIREMENT
OF DEBT, NET OF INCOME TAX EFFECT -- (2,727) -- (2,727)
-------- -------- -------- --------
NET INCOME (LOSS) $ 2,616 $ (1,238) $ 4,372 $ (2,398)
======== ======== ======== ========
NET INCOME PER SHARE BEFORE
EXTRAORDINARY ITEM $ 0.27 $ 0.19 $ 0.45 $ 0.07
EXTRAORDINARY ITEM PER SHARE -- (0.35) -- (0.59)
-------- -------- -------- --------
NET INCOME (LOSS) PER SHARE $ 0.27 $ (0.16) $ 0.45 $ (0.52)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 9,779 7,715 9,779 4,623
======== ======== ======== ========
PRO FORMA NET INCOME PER COMMON
SHARE (NOTE 1)
PRO FORMA NET INCOME PER SHARE $ 0.24 $ 0.35
======== ========
PRO FORMA WEIGHTED AVERAGE SHARES 9,777 9,777
======== ========
</TABLE>
The accompaning notes are an integral part of these condensed consolidated
statements.
3
<PAGE> 6
RHODES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
AUGUST 31, 1994 AUGUST 31, 1993
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,372 $ (2,398)
Adjustments to reconcile net income or loss to net cash
provided by operating activities:
Extraordinary item- early retirement of debt -- 3,527
Depreciation and amortization 3,382 3,200
Change in deferred income taxes 2,615 (1,320)
Amortization of intangibles 1,534 1,551
Non-cash interest expense -- 2,626
Amortization of gain-sale/leasebacks (159) (159)
Write-off of intangible assets 19 --
Changes in current assets and liabilities:
Receivables, net (1,147) (42)
Inventories (8,436) (11,492)
Prepaid expenses and other 278 (692)
Accounts payable and accrued
liabilities 4,245 11,343
Deferred income on warranties, undelivered
sales and credit commissions 305 1,019
--------- ----------
Net cash provided by operating activities $ 7,008 $ 7,163
--------- ----------
CASH FLOWS FROM (USED BY) INVESTING ACTIVITIES:
Retirements of property and equipment, net 292 43
Additions to property and equipment (6,580) (2,632)
Additions to intangible assets (55) (900)
Increase in other assets, net (29) (54)
Decrease in obligations under capital leases (380) (294)
--------- ----------
Net cash used in investing activities $ (6,752) $ (3,837)
--------- ----------
CASH FLOWS FROM (USED BY) FINANCING ACTIVITIES:
Prepayment penalty for early retirement of debt -- (2,624)
Proceeds from the Senior Secured Financing -- 40,000
Expenses incurred in stock registration (262) --
Repayment of long-term debt (2,402) (88,103)
Proceeds from the sale of stock -- 45,499
Proceeds from issuance of short-term debt, net 2,600 1,533
Exercise of stock options 17 295
--------- ----------
Net cash used in financing activities $ (47) $ (3,400)
--------- ----------
INCREASE (DECREASE) IN CASH 209 (74)
CASH AT BEGINNING OF PERIOD 235 158
--------- ----------
CASH AT END OF PERIOD $ 444 $ 84
========= ==========
SUPPLEMENTAL DISCLOSURE:
CASH PAYMENTS FOR:
Interest $ 3,260 $ 5,587
========= ==========
Income taxes $ 549 $ 1,246
========= ==========
Exchange of long-term debt for Common Stock $ -- $ 34,309
========= ==========
Exchange of preferred stock and accumulated dividends for
Common Stock $ -- $ 14,660
========= ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
4
<PAGE> 7
RHODES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
AUGUST 31, 1994
1. BASIS OF PRESENTATION
The financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and
Exchange Commission. This information reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion
of management, necessary to a fair statement of the financial position
of the Company as of August 31, 1994 and February 28, 1994, the
results of operations for the three and six months ended August 31,
1994 and August 31, 1993, and cash flows for the six months ended
August 31, 1994 and August 31, 1993. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. Certain reclassifications of
prior years' amounts have been made to conform with fiscal 1995
amounts. Because of the Recapitalization consummated on June 24,
1993, earnings per share for the three and six month periods ended
August 31, 1993 are presented on a pro forma basis assuming the
Recapitalization had taken place at the beginning of each of those
periods. The three and six month periods ended August 31, 1994 have no
pro forma adjustments. These financial statements should be read in
conjunction with the historical financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K.
2. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 109 during fiscal 1992 and recorded the effect of the
adoption retroactive to March 1, 1991 in a manner similar to the
cumulative effect of a change in accounting principle. SFAS No. 109
requires the determination of deferred income taxes using the
liability method under which deferred tax assets and liabilities are
determined based on the differences between the financial accounting
and tax basis of assets and liabilities. Deferred tax assets or
liabilities at the end of each period are determined using the
currently enacted tax rate expected to apply to taxable income in the
periods in which the deferred tax asset or liability is expected to be
settled or realized. Accordingly, the Company recorded a provision
for income taxes for the six months ended August 31, 1994 in the
amount of $3,038,000 compared with a provision of $733,000 for income
taxes recorded for the six months ended August 31, 1993.
5
<PAGE> 8
3. INTERIM LIFO PROVISIONS
The actual valuation of inventory under the LIFO method can be made
only at the end of each year based on inventory levels, price indices
and costs at that time. Therefore, the interim provisions must be
considered as estimates subject to a final year-end LIFO inventory
calculation.
4. EXTRAORDINARY ITEM
In the quarter ended August 31, 1993 the Company expensed certain
charges incurred principally in connection with the Recapitalization.
These extraordinary items represent non-recurring prepayment penalties
of $2,624,000 for early retirement of debt and write-off of $903,000
in related deferred loan costs, less income tax benefit of $800,000.
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following table sets forth the results of operations for the three
and six month periods ended August 31, 1994 compared with the unaudited pro
forma results of operations adjusted as if the Recapitalization had been
completed as of the beginning of the three and six month periods ended August
31, 1993. The three and six month periods ended August 31, 1994 have no pro
forma adjustments. Management believes that these pro forma results present
the most meaningful comparison of historical operating performance as a basis
for understanding future operations.
The pro forma financial information does not purport to represent what
the Company's results of operations would actually have been if such
transactions had occurred on such dates or project the Company's results of
operations for future periods. The pro forma adjustments are based upon
currently available information and upon certain assumptions that management of
the Company believes are reasonable under the circumstances.
7
<PAGE> 10
UNAUDITED PRO FORMA RESULTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1994 AUGUST 31,1993
ACTUAL PRO FORMA ACTUAL PRO FORMA
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES $88,809 100.0% $82,560 100.0% $171,674 100.0% $153,008 100.0%
COST OF GOODS 45,669 51.4 43,261 52.4 87,267 50.8 79,491 52.0
------- ----- ------- ----- -------- ----- -------- -----
GROSS PROFIT 43,140 48.6 39,299 47.6 84,407 49.2 73,517 48.0
------- ----- ------- ----- -------- ----- -------- -----
FINANCE CHARGES &
INSURANCE
COMMISSION 1,338 1.5 1,206 1.5 2,504 1.5 2,518 1.6
------- ----- ------- ----- -------- ----- -------- -----
OPERATING EXPENSES:
Selling 14,940 16.8 13,039 15.8 29,701 17.3 24,364 15.9
General &
administrative 22,628 25.5 20,925 25.3 45,037 26.2 40,554 26.5
Amortization of
intangibles 772 .9 772 .9 1,534 .9 1,537 1.0
Provision for
credit losses 33 .0 57 .1 52 .0 79 .1
Other (income)
expense, net 81 .1 50 .1 (83) .0 93 .1
------- ----- ------- ----- -------- ----- -------- -----
38,454 43.3 34,843 42.2 76,241 44.4 66,627 43.5
------- ----- ------- ----- -------- ----- -------- -----
OPERATING INCOME 6,024 6.8 5,662 6.9 10,670 6.2 9,408 6.1
Interest-net 1,591 1.8 1,800 2.2 3,260 1.9 3,700 2.4
------- ----- ------- ----- -------- ----- -------- -----
INCOME BEFORE
INCOME TAXES 4,433 5.0 3,862 4.7 7,410 4.3 5,708 3.7
PROVISION FOR
INCOME TAXES 1,817 2.1 1,544 1.9 3,038 1.8 2,321 1.5
------- ----- ------- ----- -------- ----- -------- -----
NET INCOME $ 2,616 2.9% $ 2,318 2.8% $ 4,372 2.5% $ 3,387 2.2%
======= ===== ======= ===== ======== ===== ======== =====
</TABLE>
OPERATING RESULTS
THREE MONTHS AND SIX MONTHS ENDED AUGUST 31, 1994 AND 1993 COMPARED -
- - PRO FORMA BASIS
Net sales increased 7.6% to $88,809,000 from $82,560,000 for the three
months ended August 31, 1994 compared with the same period last year and
increased 12.2% to $171,674,000 from $153,008,000 for the six months compared
with last year. Comparable store sales growth was 1.7% and 7.1% for the three
and six months ended August 31, 1994, respectively. Comparable store sales
represent furniture and services sold and delivered by stores open for the same
months in each comparative period. During the second quarter this year, eleven
stores were in the process of remodeling, which disrupted operations and
negatively impacted sales in those stores. Also, in the first month of the
quarter sales were affected by a less favorable retail environment. Net income
for the second quarter ended August 31, 1994 increased 12.9% to $2,616,000, or
$.27 per share, compared with $2,318,000, or $.24 per share on a pro forma
basis, for the same quarter last year. Net income for the six months ended
August 31, 1994 increased 29.1% to $4,372,000, or $.45 per share, compared with
$3,387,000, or $.35 per share on a pro forma basis for the six months last
year.
8
<PAGE> 11
During the quarter Rhodes acquired one of Leath Furniture, Inc.'s
Orlando stores and received a cash consideration in exchange for Rhodes' three
Miami stores. This new store located in Eustis, Florida, was the sixth Rhodes
store in the Orlando area and brought the total stores in operation to 78 at
August 31, 1994 compared with 76 in operation at August 31, 1993. However, on
September 15, 1994, one of the four stores in the Jacksonville market was
destroyed by fire. The store was fully covered by insurance and will be
replaced as soon as practical. The Company has leases signed on four
additional stores expected to open later this fiscal year. Rhodes is also in
various stages of negotiations for leases on seven new stores, most of which
would open next fiscal year. During the quarter, eleven stores were completed
under the remodeling program, bringing the total completed in the last two
years to thirty-one (including the store that burned).
Gross profit as a percentage of net sales for the three months ended
August 31, 1994, increased to 48.6%, up from 47.6%, compared with the same
period last year and for the six months ended August 31, 1994 increased to
49.2% from 48.0%, compared with the same period last year. Gross profit
improvement is partially attributable to improved sales penetration of extended
warranties which have a higher gross profit. Also, the credit promotions
discussed below permitted less discounting of selling prices, contributing to
the higher gross profit percentage. Inventory turnover on a FIFO basis was
3.5x for the quarter and six months ended August 31, 1994 compared with 3.8x
for the quarter last year and 3.7x for the prior year six months. Inventories
were approximately $7.8 million higher at August 31, 1994 than last year due to
management's anticipation of an improved economic climate for the fall selling
season and the addition of approximately $4.0 million in accessory inventory to
enhance the appearance of the furniture in the stores, which management
anticipates will stimulate both furniture and accessory sales. The Company
expects that inventory turns will continue at the lower levels due to the
additional accessory inventory and its intention to maintain a higher level of
in-stock items.
Finance charge and insurance commission income derives from
commissions earned from BNB under the Merchant Agreement and from commissions
on credit insurance on credit customer balances. For the three months, earnings
increased due to additional commissions now being paid on new accounts opened
under the BNB Merchant Agreement. The amount earned was down for the six months
compared with the same period last year due primarily to the increased use of
interest free and deferred payment credit promotions.
Selling expense for the three and six months ended August 31, 1994
increased as a percentage of net sales to 16.8% and 17.3%, respectively,
compared with 15.8% and 15.9%, for the same periods last year. The increased
expense this year for interest free and deferred payment credit promotions was
off-set by improved gross profit on sales.
General and administrative expenses for the quarter ended August 31,
1994 increased to $22,628,000 (25.5% of net sales) from $20,925,000 (25.3% of
net sales) for the three months last year, and for the six months ended August
31, 1994 increased to $45,037,000 (26.2% of net sales) from $40,554,000 (26.5%
of net sales) for the same period last year. The increased expense for the
three and six month periods ended August 31, 1994 is due to having
9
<PAGE> 12
five new stores this year, less the three Miami stores sold in the second
quarter plus increases in employee expenses. The improvement in the percentage
of net sales for the six months ended August 31, 1994 compared to the prior
year is due principally to the increased sales volume.
Interest expense on the Company's indebtedness is generally fixed and
is expected to decline slightly in future periods as such debt is reduced from
internal cash flow.
THREE MONTHS AND SIX MONTHS ENDED AUGUST 31, 1994 AND 1993 COMPARED -
- - HISTORICAL BASIS
On a historical basis, the three and six months ended August 31, 1994
are not comparable with the prior year due to the Recapitalization which took
place on June 24, 1993. As a result of the Recapitalization, interest expense
has been substantially reduced. The following information describes results of
operations on a historical basis to the extent that the historical information
differs from the pro forma information set forth under "Three and Six Months
ended August 31, 1994 and 1993 Compared--Pro Forma Basis."
General and administrative expenses for the quarter ended August 31,
1994 increased to $22,628,000 (25.5% of net sales) from $20,944,000 (25.4% of
net sales) for the three months last year, and for the six months ended August
31, 1994 increased to $45,037,000 (26.2% of net sales)from $40,673,000 (26.6%
of net sales) for the same period last year. The increased expense for the
three and six month periods ended August 31, 1994 is due to having five new
stores this year, less the three Miami stores sold in the second quarter plus
increases in employee expenses. The improvement in the percentage of net sales
for the six months ended August 31, 1994 compared to the prior year is due
principally to the increased sales volume.
Interest expense for the three and six months ended August 31, 1994
decreased to $1,591,000 and $3,260,000, respectively, compared with $2,837,000
and $8,213,000 for the same periods last year, respectively, as a result of the
Recapitalization and the related reduction in the Company's indebtedness.
INCOME TAXES
The Company adopted SFAS No. 109 during fiscal 1992 and recorded the
effect of the adoption retroactive to March 1, 1991, in a manner similar to the
cumulative effect of a change in accounting principle. SFAS No. 109 requires
the determination of deferred income taxes using the liability method under
which deferred tax assets and liabilities are determined based on the
differences between the financial accounting and tax basis of assets and
liabilities. Deferred tax assets or liabilities at the end of each period are
determined using the currently enacted tax rate expected to apply to taxable
income in the periods in which the deferred tax asset or liability is expected
to be settled or realized. Accordingly, the Company recorded a provision for
income taxes for the six months ended August 31, 1994 in the amount of
$3,038,000 compared with a provision of $733,000 for income taxes recorded for
the six months ended August 31, 1993.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
On June 24, 1993 the Company completed the Recapitalization to enhance
the Company's strategic, financial and operating flexibility by increasing
shareholders' equity and reducing indebtedness and interest expense.
Management believes that the new capital structure provides sufficient cash
flow to fund the planned expansion, remodeling, and refurbishing programs and
debt service requirements.
Currently, the Company's principal sources of liquidity are cash flow
from operations and additional borrowing capacity under its revolving credit
agreement described below. The Company had net cash provided by operating
activities of approximately $7.0 million for the six months ended August 31,
1994 compared with approximately $7.2 million for the same period last year.
The Company received merchandise for this year's third quarter selling season
earlier than last year. Consequently, more trade payables were paid prior to
the end of the second quarter this year. If the scheduling of merchandise
received had been the same in both periods, management believes that the net
cash flow from operating activities would have been approximately $4.0 million
higher this year.
The Company's principal uses of cash are capital expenditures,
working capital needs and debt service obligations. The Company's capital
expenditures for equipment and expansion and remodeling or refurbishing of
stores are estimated at $12.0 million for fiscal 1995 compared with $6.9
million for fiscal 1994. The increase reflects the cost of the Company's plan
to remodel or refurbish 18 stores, open ten new stores and make an addition to
the Powder Spring Regional Distribution Center during fiscal 1995. The Company
plans to make capital expenditures of approximately $9.1 million in fiscal 1996
to fund the remodeling or refurbishing of approximately 16 stores and the
opening of approximately eight new stores.
The Company maintains a revolving credit agreement for up to $30.0
million or 50% of eligible inventory with Wachovia National Bank. The
agreement is secured by substantially all of the inventory of the Company. As
of October 11, 1994, the balance outstanding under the revolving loan agreement
was $3.0 million and approximately $20.4 million remained available under the
agreement.
During the second quarter ended August 31, 1994 the Company pre-paid
$2.4 million in mortgage notes that were at a higher rate than available under
its revolving credit agreement. No pre-payment penalties or consents were
required.
11
<PAGE> 14
RHODES, INC.
PART II
OTHER INFORMATION
SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On July 26, 1994, the shareholders of the Company, acting at the
annual meeting of shareholders, re-elected the then current directors of the
Company, Messrs. Holcombe T. Green, Jr., Irwin L. Lowenstein, James R. Kuse,
James V. Napier, and Don L. Chapman. Shares were cast for each director, or
shares withheld authority from each nominee, as follows:
<TABLE>
<CAPTION>
VOTES
-----
DIRECTOR NOMINEE VOTES FOR WITHHELD
---------------- --------- --------
<S> <C> <C>
Holcombe T. Green, Jr. 8,407,297 8,900
Irwin L. Lowenstein 8,407,997 8,200
James R. Kuse 8,396,588 19,609
James V. Napier 8,404,697 11,500
Donald L. Chapman 8,407,897 8,300
</TABLE>
At such annual meeting, the shareholders of the Company adopted the
1994 Employee Stock Purchase Plan, pursuant to which an aggregate of 250,000
shares may be purchased pursuant to such plan by employees of the Company. An
aggregate of 8,380,477 shares were voted in favor of the adoption of such plan,
and an aggregate of 20,020 shares were voted against the adoption of such plan.
At such annual meeting, the shareholders of the Company also ratified
the appointment of Arthur Andersen & Co. as the Company's independent auditors
for the fiscal year ending February 28, 1995. An aggregate of 8,408,197 were
voted in favor of such ratification, and an aggregate of 550 shares were voted
against such ratification.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RHODES, INC.
-----------------------
(Registrant)
DATE: October 14, 1994 By: s/Joel H. Dugan
---------------- -----------------------
Joel H. Dugan
Senior Vice President--
Finance and Administration
<PAGE> 16
EXHIBIT INDEX
EXHIBIT NUMBER
- --------------
27 Financial Data Schedule (submitted to the SEC for its
information)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENT OF RHODES, INC. FOR THE QUARTER ENDED AUGUST 31, 1994,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1994
<PERIOD-START> MAR-1-1994
<PERIOD-END> AUG-31-1994
<CASH> 444
<SECURITIES> 0
<RECEIVABLES> 3,220
<ALLOWANCES> 0
<INVENTORY> 56,623
<CURRENT-ASSETS> 67,325
<PP&E> 83,183
<DEPRECIATION> 31,841
<TOTAL-ASSETS> 196,556
<CURRENT-LIABILITIES> 63,852
<BONDS> 40,145
<COMMON> 0
0
0
<OTHER-SE> 64,037
<TOTAL-LIABILITY-AND-EQUITY> 196,556
<SALES> 171,674
<TOTAL-REVENUES> 171,674
<CGS> 87,267
<TOTAL-COSTS> 87,267
<OTHER-EXPENSES> 76,189
<LOSS-PROVISION> 52
<INTEREST-EXPENSE> 3,260
<INCOME-PRETAX> 7,410
<INCOME-TAX> 3,038
<INCOME-CONTINUING> 4,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,372
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
