<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 May 31, 1995
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
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(Registrant's telephone number, including area code)
NONE
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(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 June 30, 1995: 9,364,198 shares of common
stock without par value.
<PAGE> 2
RHODES, INC.
INDEX
Part 1. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - -
May 31, 1995 and February 28, 1995
Condensed Consolidated Statements of Operations
for the Three Months Ended May 31, 1995
and May 31, 1994
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended May 31, 1995
and May 31, 1994
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
i
<PAGE> 3
RHODES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1995 1995
-------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 574 $ 3,268
Accounts receivable 3,553 3,398
Inventories at LIFO cost 53,241 54,386
Prepaid expenses and other 3,418 5,356
Deferred tax assets 861 861
-------- --------
Total Current Assets 61,647 67,269
-------- --------
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation and amortization of $34,608 at
May 31, 1995 and $34,007 at February 28, 1995 61,287 55,142
CAPITALIZED REAL ESTATE LEASES, at cost, less
accumulated amortization of $5,072 at May 31, 1995
1994 and $4,883 at February 28, 1995 6,872 7,062
-------- --------
INTANGIBLE ASSETS, net
Goodwill 59,869 60,319
Favorable leases 3,631 3,825
Other intangibles 2,308 2,387
-------- --------
Total Intangible Assets 65,808 66,531
-------- --------
OTHER ASSETS 1,915 2,406
-------- --------
TOTAL ASSETS $197,529 $198,410
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes and loans payable $ 8,209 $ ---
Current maturities of long-term debt
and capital lease obligations 967 967
Accounts payable 25,879 35,403
Accrued liabilities 16,767 19,374
Accrued Interest 1,793 781
Deferred income 11,092 9,795
Current income taxes payable 1,132 460
Current portion deferred gain-sale/leasebacks 318 318
-------- --------
Total Current Liabilities 66,157 67,098
-------- --------
DEFERRED INCOME TAXES 7,070 7,070
-------- --------
LONG-TERM DEBT, less current maturities 39,778 40,000
-------- --------
OBLIGATIONS UNDER CAPITAL LEASES 13,724 14,035
-------- --------
DEFERRED GAIN-SALE/LEASEBACKS 2,628 2,707
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000 shares
authorized and 9,364 shares issued and outstanding
at May 31, 1995 and 9,463 shares issued and --- ---
outstanding at February 28, 1995
Paid-in-Capital 102,044 103,179
Accumulated deficit (33,872) (35,679)
-------- --------
Total Shareholders' Equity 68,172 67,500
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $197,529 $198,410
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
1
<PAGE> 4
RHODES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, 1995 MAY 31, 1994
------------ ------------
<S> <C> <C>
NET SALES $89,439 $82,865
COST OF GOODS SOLD 46,344 41,598
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GROSS PROFIT 43,095 41,267
------- -------
FINANCE CHARGES AND INSURANCE COMMISSIONS 1,684 1,166
------- -------
OPERATING EXPENSES:
Selling 14,770 14,761
General and administrative 24,580 22,409
Amortization of intangibles 722 762
Provision for credit losses 21 19
Other (income) expense, net 91 (164)
------- -------
40,184 37,787
------- -------
OPERATING INCOME 4,595 4,646
Interest expense, net 1,532 1,669
------- -------
INCOME BEFORE INCOME TAXES 3,063 2,977
PROVISION FOR INCOME TAXES 1,256 1,221
------- -------
NET INCOME $ 1,807 $ 1,756
======= =======
NET INCOME PER SHARE OF COMMON STOCK $ 0.19 $ 0.18
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING 9,379 9,885
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE> 5
RHODES, INC. AND SUBSIDARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, 1995 MAY 31, 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,807 $ 1,756
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,766 1,709
Change in deferred income taxes --- (121)
Amortization of intangibles 722 762
Amortization of gain-sale/leasebacks (79) (79)
Changes in current assets and liabilities:
Receivables, net (155) (9,224)
Inventories 1,145 737
Prepaid expenses and other 1,938 119
Accounts payable and accrued
liabilities (10,447) 2,403
Deferred income on warranties, undelivered
sales and credit commissions 1,297 2,164
------- -------
Net cash provided by (used in) operating activities $(2,006) $ 226
------- -------
CASH FLOWS FROM (USED BY) INVESTING ACTIVITIES:
Retirements of property and equipment, net 692 ---
Additions to property and equipment (8,398) (2,690)
Additions to intangible assets --- 1
Decrease (Increase) in other assets, net 477 (121)
Decrease in obligations under capital leases (311) (187)
------- -------
Net cash used in investing activities $(7,540) $(2,997)
------- -------
CASH FLOWS FROM (USED BY) FINANCING ACTIVITIES:
Repayment of long-term debt (222) (128)
Purchase of stock-employee stock purchase plan 178 ---
Repurchase of stock (1,313) ---
Proceeds from short-term debt 8,209 2,920
Exercise of stock options --- 17
------- -------
Net cash from financing activities $ 6,852 $ 2,809
------- -------
INCREASE (DECREASE) IN CASH (2,694) 38
CASH AT BEGINNING OF PERIOD 3,268 235
------- -------
CASH AT END OF PERIOD $ 574 $ 273
======= =======
SUPPLEMENTAL DISCLOSURE:
CASH PAYMENTS FOR:
Interest $ 1,532 $ 1,669
======= =======
Income taxes $ 583 $ 2
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
3
<PAGE> 6
RHODES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MAY 31, 1995
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 May 31, 1995 and February 28, 1995, the results
of operations for the three months ended May 31, 1995 and May 31,
1994, and cash flows for the three months ended May 31, 1995 and May
31, 1994. 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. 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. 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
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
(PERCENTAGE OF NET SALES)
MAY 31, 1995 MAY 31, 1994
--------------------- ---------------------
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Goods Sold 51.8 50.2
----- -----
Gross Profit 48.2 49.8
----- -----
Finance Charge and
Insurance Commissions 1.9 1.4
----- -----
Operating Expenses:
Selling 16.5 17.8
General and
administrative 27.5 27.0
Provision for credit
losses 0.0 0.0
Amortization of
intangibles 0.8 0.9
Other (income)
expense, net 0.1 (0.2)
----- -----
Operating Income 5.1 5.6
Interest expense, net 1.7 2.0
----- -----
Income before
income taxes 3.4 3.6
Provision for income taxes 1.4 1.5
----- -----
Net income 2.0% 2.1%
===== =====
</TABLE>
OPERATING RESULTS
THREE MONTHS ENDED MAY 31, 1995 AND 1994 COMPARED
Net sales increased 7.9% to $89,439,000 from $82,865,000 for the three
months ended May 31, 1995 compared with the same period last year. Comparable
store sales growth was 4.1% for the three months ended May 31, 1995. Net
income for the first quarter increased 2.9% to $1,807,000, compared with
$1,756,000, for the same quarter last year. Earnings per share for the first
quarter were $.19 compared with $.18 per share for the first quarter last year,
an increase of 5.6%.
5
<PAGE> 8
During the quarter, one new store was opened in the Jacksonville,
Florida market and one of the two Jackson, Mississippi stores was closed and
the real estate owned by the Company was sold. Also, on May 18, 1995 one of
the four stores in the Nashville, Tennessee market was severely damaged by a
tornado, bringing the total stores in operation at May 31, 1995 to 79, compared
to 80 stores in operation at May 31, 1994. The Company plans to replace the
Jackson, Mississippi store as soon as practical and the Nashville, Tennessee
store is being repaired for re-opening in fall, 1995. The Company has leases
signed on ten additional stores and is in final lease negotiations for one more
new store, all of which are expected to open in this fiscal year. Three of
these ten stores with completed leases will be located in Atlanta, Georgia,
three in Kansas City, Missouri (a new market), two in Charlotte, North
Carolina, one in Cincinnati, Ohio (a new market), and one in Memphis, Tennessee
(a new market). The Company plans to close several stores this year, most of
which are older stores in Atlanta whose customers will be better served by the
nearby newer and larger stores. The Company completed remodeling five stores
and refurbishing one store during the first quarter, bringing the total
completed to 41 since the program began in fiscal 1993. Nine more stores are
scheduled for remodeling or refurbishment during this fiscal year.
Gross profit as a percentage of net sales for the three months ended
May 31, 1995, decreased to 48.2% from 49.8%, compared with the same period last
year. The decline in the gross profit percentage was due to more aggressive
price promotions during the quarter, with much of the gross profit decline
recovered through lower selling expense (discussed below), compared with the
prior year.
Finance charge and insurance commission income derives from
commissions earned under the Company's merchant agreement whereby all newly
created accounts receivable are sold to Beneficial National Bank U.S.A. ("BNB")
and from commissions on credit insurance on credit customer balances. The
amounts earned increased for the three months ended May 31, 1995 due to an
increase since last year in the amounts paid to the Company by BNB for
origination of new accounts and an increase in the net insurance commissions
collected on customers' accounts.
Selling expense for the three months ended May 31, 1995 decreased as a
percentage of net sales to 16.5% this year, compared with 17.8%, for the same
period last year. The decrease is due to less expensive interest-free and
deferred payment credit promotions for the first quarter this year compared
with the first quarter of the prior year, partially offset by an increase in
advertising expense.
General and administrative expenses for the quarter ended May 31, 1995
increased to $24,580,000 (27.5% of net sales) from $22,409,000 (27.0% of net
sales) for the three months last year. The increased expense is due to
increases in employee expenses and the cost of adding five new stores, offset
partially by the sale or closing of stores after the first quarter last year.
The increase in the percentage of net sales is due primarily to lower
comparable store sales growth this year compared with last year.
6
<PAGE> 9
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.
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 three months ended May 31, 1995 in the amount of
$1,256,000 compared with a provision for income taxes of $1,221,000 recorded
for the three months ended May 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Currently, the Company's principal sources of liquidity are cash flow
from operations and additional borrowing capacity under its Revolving Credit
Agreement described below. Net cash used in operating activities for the first
quarter ended May 31, 1995 was approximately $2.0 million compared with $.2
million cash provided for the first quarter last year. The Company's principal
uses of cash are debt service obligations, capital expenditures and working
capital needs.
For the three months ended May 31, 1995 FIFO inventory turns decreased
slightly to 3.5x compared with 3.6x for the same period last year. Inventories
increased by $5.8 million at May 31, 1995 compared to May 31, 1994 due to the
new larger stores and approximately $3.0 million more in accessory inventories
added since last year to enhance the appearance of the furniture in the stores,
which management believes has stimulated both furniture and accessory sales.
The Company has historically had low or negative working capital, primarily as
a result of its tight inventory controls, low cash balances and the inclusion
in current liabilities of deferred revenues, such as merchandise sold but not
delivered and deferred warranty revenue. Negative working capital at May 31,
1995 was approximately $4.5 million.
The Company's capital expenditures for equipment and expansion and
remodeling or refurbishing of stores are estimated at $17.0 million for fiscal
1996 compared with $14.1 million for fiscal 1995. Capital expenditures in
excess of $15 million in any one year will require approval under the Company's
Revolving Credit Agreement. The increase reflects the cost of the Company's
plan to remodel or refurbish 15 stores and open 12 new stores during fiscal
1996. The Company plans to have capital expenditures of approximately $14
million in fiscal 1997 to fund the remodeling, refurbishing or relocation of
approximately 14 stores and the opening of approximately ten new stores.
7
<PAGE> 10
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 July 12, 1995, the loan balance outstanding under the Revolving Credit
Agreement was $5.6 million and approximately $15.3 million remained available
under the agreement.
8
<PAGE> 11
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: July 14, 1995 By: s/Joel H. Dugan
------------- ----------------------
Joel H. Dugan
Senior Vice President--
Finance and Administration
<PAGE> 12
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule (for SEC use only)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENT OF RHODES, INC. FOR THE YEAR/QUARTER ENDED MAY 31, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1996
<PERIOD-START> MAR-1-1994
<PERIOD-END> MAY-31-1995
<CASH> 574
<SECURITIES> 0
<RECEIVABLES> 3,553
<ALLOWANCES> 0
<INVENTORY> 53,241
<CURRENT-ASSETS> 61,647
<PP&E> 95,895
<DEPRECIATION> 34,608
<TOTAL-ASSETS> 197,529
<CURRENT-LIABILITIES> 66,157
<BONDS> 39,778
<COMMON> 0
0
0
<OTHER-SE> 68,172
<TOTAL-LIABILITY-AND-EQUITY> 197,529
<SALES> 89,439
<TOTAL-REVENUES> 89,439
<CGS> 46,344
<TOTAL-COSTS> 46,344
<OTHER-EXPENSES> 40,163
<LOSS-PROVISION> 21
<INTEREST-EXPENSE> 1,532
<INCOME-PRETAX> 3,063
<INCOME-TAX> 1,256
<INCOME-CONTINUING> 1,807
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,807
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
