<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, 1996
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-9308
--------------------------------------
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 June 30, 1996: 9,149,964 shares of common stock
without par value.
<PAGE> 2
RHODES, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - -
May 31, 1996 and February 29, 1996
Condensed Consolidated Statements of Operations
for the Three Months Ended May 31, 1996
and May 31, 1995
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended May 31, 1996
and May 31, 1995
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
I
<PAGE> 3
RHODES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
ASSETS 1996 1996
- ------ ------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 63 $ 312
Accounts receivable 5,249 5,212
Inventories at LIFO cost 90,343 87,965
Prepaid expenses and other 6,650 10,072
Deferred tax assets 4,052 2,157
------------ -------------
Total Current Assets 106,357 105,718
------------ -------------
PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation and
amortization of $41,057 at May 31, 1996 and $39,007 at February 29, 1996. 80,284 75,951
------------ -------------
CAPITALIZED REAL ESTATE LEASES, at cost, less accumulated amortization
of $5,830 at May 31, 1996 and $5,641 at February 29, 1996. 6,114 6,304
------------ -------------
INTANGIBLE ASSETS, net
Goodwill 62,297 62,482
Favorable leases 2,799 2,962
Other intangibles 2,387 2,488
------------ -------------
Total Intangible Assets 67,483 67,932
------------ -------------
OTHER ASSETS 5,631 5,854
------------ -------------
TOTAL ASSETS $ 265,869 $ 261,759
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations $ 14,445 $ 12,695
Accounts payable 44,121 47,745
Accrued interest 2,152 1,000
Accrued liabilities 25,689 25,912
Deferred income 12,396 11,247
Current portion deferred gain--sale/leasebacks 318 318
------------ -------------
Total Current Liabilities 99,121 98,917
------------ -------------
DEFERRED INCOME TAXES 6,862 6,862
------------ -------------
LONG-TERM DEBT, less current maturities 77,454 70,642
------------ -------------
OBLIGATIONS UNDER CAPITAL LEASES 12,659 12,928
------------ -------------
DEFERRED GAIN--SALE/LEASEBACKS 2,283 2,390
------------ -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock, no par value, 20,000 shares authorized and 9,150
and 9,134 outstanding at May 31, 1996 and February 29, 1996 --- ---
Paid-in Capital 99,839 99,709
Accumulated deficit (32,349) (29,689)
------------ -------------
Total Shareholders' Equity (Deficit) 67,490 70,020
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 265,869 $ 261,759
============ =============
</TABLE>
The accompanying notes are an integral part of these 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, 1996 MAY 31, 1995
------------ ------------
<S> <C> <C>
NET SALES $ 119,726 $ 89,439
COST OF GOODS SOLD 65,501 46,344
------------ -------------
GROSS PROFIT 54,225 43,095
------------ -------------
FINANCE CHARGES AND INSURANCE COMMISSIONS 1,797 1,684
------------ -------------
OPERATING EXPENSES:
Selling 19,994 14,770
General and administrative 37,291 24,580
Amortization of intangibles 714 722
Provision for credit losses 71 21
Other (income) expense, net (50) 91
------------ -------------
58,020 40,184
------------ -------------
OPERATING INCOME (LOSS) (1,998) 4,595
Interest expense, net 2,510 1,532
------------ -------------
INCOME (LOSS) BEFORE INCOME TAXES (4,508) 3,063
PROVISION (BENEFIT) FOR INCOME TAXES (1,848) 1,256
------------ -------------
NET INCOME (LOSS) $ (2,660) $ 1,807
============ =============
NET INCOME (LOSS) PER SHARE OF COMMON STOCK $ (0.29) $ 0.19
============ =============
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING 9,164 9,379
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE> 5
RHODES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, 1996 MAY 31, 1995
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,660) $ 1,807
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 2,741 1,766
Amortization of intangibles 714 722
Amortization of gain-sale/leasebacks (107) (79)
Changes in current assets and liabilities:
Receivables, net (37) (155)
Inventories (2,378) 1,145
Prepaid expenses and other 3,323 1,938
Deferred tax assets (1,895)
Accounts payable and accrued
liabilities (2,695) (10,447)
Deferred income on warranties, undelivered
sales and credit commissions 1,149 1,297
------------- --------------
Net cash used in operating activities $ (1,845) $ (2,006)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Retirements of property and equipment, net 150 692
Additions to property and equipment (6,925) (8,398)
Additions to intangible assets (264) ---
Decrease in other assets, net 212 477
Decrease in obligations under capital leases (269) (311)
------------- --------------
Net cash used in investing activities $ (7,096) $ (7,540)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt --- (222)
Proceeds from long-term debt 8,562 ---
Purchase of stock-employee stock purchase plan 130 178
Repurchase of stock --- (1,313)
Proceeds from short-term debt --- 8,209
------------- --------------
Net cash provided by from financing activities $ 8,692 $ 6,852
------------- --------------
DECREASE IN CASH (249) (2,694)
CASH AT BEGINNING OF PERIOD 312 3,268
------------- --------------
CASH AT END OF PERIOD $ 63 $ 574
============= ==============
SUPPLEMENTAL DISCLOSURE:
CASH PAYMENTS FOR:
Interest $ 2,510 $ 1,532
============= ==============
Income taxes (refund) $ (1,406) $ 583
============= ==============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
3
<PAGE> 6
RHODES, INC.
PART I
FINANCIAL INFORMATION
RECENT DEVELOPMENTS
On November 1, 1995 Rhodes, Inc. ("Rhodes" or the "Company") and
Weberg Enterprises, Inc. ("Weberg") consummated the acquisition of 21 store
operations and two distribution center operations from Weberg in the states of
Colorado, Texas and Illinois. The store locations purchased recorded over $100
million in sales for the year ended December 31, 1994. The acquisition was
accomplished through a purchase of the inventory and operating assets for
approximately $31 million, assumption of operating leases on stores owned by
third parties and the execution of new operating leases on stores owned by
Weberg. Financing was provided primarily through bank credit lines.
On December 15, 1995 Rhodes consummated the acquisition of the
furniture store operations of The Glick Furniture Company ("Glick's") in
Columbus, Ohio, consisting of seven stores and one distribution center. The
store locations purchased recorded over $41 million in sales for year ended
December 31, 1994. The acquisition was accomplished through a purchase of the
inventory and operating assets for approximately $11 million, assumption of
operating leases on stores owned by third parties and the execution of new
operating leases on stores owned by Glick's. Financing was provided through
bank credit lines and a seller note in the amount of $2 million.
For additional information concerning the acquisitions, see note 13 to
the Company's Financial Statements for the year ended February 29, 1996.
On April 29, 1996 the Company reported that it had retained Salomon
Brothers Inc. to advise the Company concerning strategic alternatives,
including a possible sale of the Company, with an objective of enhancing
shareholder value.
4
<PAGE> 7
RHODES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MAY 31, 1996
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, 1996 and February 29, 1996, the results
of operations for the three months ended May 31, 1996 and May 31,
1995, and cash flows for the three months ended May 31, 1996 and May
31, 1995. 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 1997 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.
5
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
(PERCENTAGE OF NET SALES)
MAY 31, 1996 MAY 31, 1995
--------------------- ---------------------
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Goods Sold 54.7 51.8
----- -----
Gross Profit 45.3 48.2
----- -----
Finance Charge and
Insurance Commissions 1.5 1.9
----- -----
Operating Expenses:
Selling 16.7 16.6
General and
administrative 31.1 27.5
Provision for credit
losses 0.1 0.0
Amortization of
intangibles 0.6 0.8
Other (income)
expense, net (0.0) 0.1
----- ----
Operating Income (Loss) (1.7) 5.1
Interest expense, net 2.1 1.7
---- ----
Income (loss) before
income taxes (3.8) 3.4
Provision (Benefit) for income taxes (1.5) 1.4
----- -----
Net income (Loss) (2.2%) 2.0%
===== =====
</TABLE>
6
<PAGE> 9
OPERATING RESULTS
THREE MONTHS ENDED MAY 31, 1996 AND 1995 - COMPARED
Net sales increased 33.9% to $119,726,000 from $89,439,000 for the
three months ended May 31, 1996 compared with the same period last year. Same
store sales decreased 5.9% for the three months ended May 31, 1996. The net
loss for the first quarter was $2,660,000, compared with earnings of
$1,807,000, for the same quarter last year. The loss per share for the first
quarter was $.29 compared with earnings of $.18 per share for the first quarter
last year.
During the quarter, one new store was opened in the Kansas City, Missouri
market (our third store in Kansas City) and one of the Jacksonville, Florida
stores was relocated. The Company has entered into leases for two new stores
in Memphis, Tennessee, which will be a new market for the Company. There are
plans to open one new Cincinnati, Ohio store in fiscal 1997, but no lease has
been signed. A total of five new stores are planned and six stores are planned
for relocation. The Company is also considering new markets for potential
store additions in the future but will delay entering new markets until the
recently acquired stores have been completely integrated into Rhodes. However,
as part of its business strategy, the Company will continue to evaluate
strategic acquisition opportunities. The Company cannot predict, however, if
any transactions will be consummated, nor the terms or the form of
consideration that may be required. The Company completed remodeling five
stores and refurbishing one store during the first quarter, including four
stores recently acquired from Weberg. Ten more stores are scheduled for
remodeling during this fiscal year, but all remodeling activity has been
temporarily suspended to await Salomon Brothers' recommendation on strategic
alternatives and to allow the stores acquired from Weberg and Glick's to be
fully integrated into Rhodes' operations.
Gross profit as a percentage of net sales for the three months ended
May 31, 1996, decreased to 45.3% from 48.2%, compared with the same period last
year. The decline in the gross profit percentage was due to the liquidation
sale of inventory acquired from Weberg and Glick's and more aggressive price
promotions during the quarter. The acquired stores will have lower gross
profit in fiscal year 1997 than Rhodes has had historically as the inventories
are liquidated and changed to Rhodes' line-up in the second quarter of fiscal
1997 and due to the accounting deferral of revenues from warranties sold for
the first time in the acquired stores. The Texas and Colorado stores will
continue to have lower gross profit due to higher freight costs.
7
<PAGE> 10
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, 1996 due to an
increase in the net insurance commissions collected on customers' accounts.
Selling expense for the three months ended May 31, 1996 increased as a
percentage of net sales to 16.7% this year, compared with 16.6%, for the same
period last year. The increase as a percentage of net sales is due to a
decrease in same store sales.
General and administrative expenses for the quarter ended May 31, 1996
increased to $37,291,000 (31.1% of net sales) from $24,580,000 (27.5% of net
sales) for the three months last year. The increased expense is due to
increases in employee expenses and the cost of adding 35 new stores. The
increase in the percentage of net sales is due primarily to a decline in same
store sales this year compared with last year. In light of recent
disappointing results the Company is reviewing expense saving measures.
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.
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, 1996 was approximately $1.8 million compared with $2.0
million cash used 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, 1996 FIFO inventory turns decreased
to 2.9x compared with 3.5x for the same period last year. Inventories
increased by $37.1 million at May 31, 1996 compared to May 31, 1995 due to the
acquisition of approximately $30.3 million in inventory from Weberg and Glick's
and the new larger stores. 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.
Working capital at May 31, 1996 was approximately $7.2 million.
8
<PAGE> 11
The Company's capital expenditures for equipment and expansion and
remodeling or refurbishing of stores are estimated at $27.0 million for fiscal
1997 compared with $23.5 million for fiscal 1996, not including $6.3 million in
capital additions related to the Weberg and Glick's acquisitions. The increase
reflects the cost of the Company's plan to remodel or refurbish 16 stores and
open 11 new stores during fiscal 1997, including six planned store relocations.
The Company plans to spend approximately $25.0 million in 1998. However,
capital expenditures in excess of $18.0 million in any year after 1996 will
require approval under the Revolving Credit Agreement. Although the Company
still plans to remodel or refurbish 16 stores in fiscal 1997, it has for the
present temporarily suspended the remodeling program with completion of six
stores both to await the results of the Salomon Brothers' recommendations on
strategic alternatives and to allow the stores acquired from Weberg and Glick's
to be fully integrated into Rhodes' operations.
The Company maintains a Revolving Credit Agreement with Wachovia
National Bank and Fleet Credit Corporation for the lesser of $45.0 million or
50% of eligible inventory plus a three year term loan of $20.0 million. The
loan agreement expires on January 12, 1999 and therefore has been classified in
the financial statements as long term debt. The agreement is secured by
substantially all of the inventory of the Company. As of July 10, 1996, there
was $37.6 million outstanding under the Revolving Credit Agreement and
approximately $5.0 million remains available under the Agreement and other
arrangements described below.
In June, 1996 the Company arranged a bridge loan of $9.0 million for
60 days as an amendment to the Revolving Credit Agreement. Green Capital,
L.P., an affiliate of the Company, participated in the extension of the loan to
the Company in the amount of $3 million. Proceeds of the loan were used to
make a mandatory prepayment on the Company's senior secured notes in the amount
of $7.5 million and for working capital purposes. The Company expects to repay
the bridge loan with cash flow from operations.
----------------------------------
The foregoing discussion contains forward-looking statements with
respect to the Company's sales, cash flow, capital expenditures and gross
profit. The Company's ability to meet these projections will be subject to
general economic trends, the Company's ability to increase same store sales,
and sales trends for the Company and the industry, which may deviate
substantially from the Company's expectations.
9
<PAGE> 12
RHODES, INC.
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.1 Subordinated Promissory Note Dated June 12, 1996 from
Rhodes, Inc. Payable to Green Capital Investors, L.P.
4.2 Waiver and Amendment dated as of May 31, 1996 to Note
Purchase Agreement Dated as of June 13, 1993 by and
among the Company and the Lenders Named Therein.
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during
the quarter ended May 31, 1996.
10
<PAGE> 13
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 15, 1996 By: /s/Joel H. Dugan
------------- --------------------
Joel H. Dugan
Senior Vice President--
Finance and Administration
<PAGE> 14
INDEX TO EXHIBITS
4.1 Subordinated Promissory Note dated June 12, 1996 from Rhodes,
Inc. Payable to Green Capital Investors, L.P.
4.2 Waiver and Amendment dated as of May 31, 1996 to Note Purchase
Agreement Dated as of June 13, 1996 by and among the Company and
the Lenders Named Therein
27 Financial Data Schedules (for SEC use only).
<PAGE> 1
EXHIBIT 4.1
SUBORDINATED PROMISSORY NOTE DATED JUNE 12, 1996
FROM RHODES, INC. PAYABLE TO GREEN CAPITAL INVESTORS, L.P.
<PAGE> 2
NATIONSBANK, N.A. PROMISSORY NOTE
Private Client Group ESTOPPEL CERTIFICATE
600 Peachtree St., Suite 1100 GREEN CAPITAL INVESTORS, L.P.
Atlanta, Georgia 30308
WHEREAS, on this 14th of June, 1996, GREEN CAPITAL INVESTORS, L.P. the
"Assignor" has assigned to NationsBank, N.A. (the "Bank") a promissory note in
the original principal amount of $3,000,000.00 dated June 14, 1996 (the
"Collateral Note") from Rhodes, Inc. (the "Maker") to the Assignor and various
other documents executed in connection with the Collateral Note (collectively
the "Loan Documents"), and, in connection therewith, the Bank has requested the
Maker to certify to the Bank the following facts which may be relied upon by
the Bank in accepting the assignment of the Collateral Note and the Loan
Documents.
1. The principal amount of $3,000,000.00 evidenced by the
Collateral Note has been duly and fully disbursed to and received by the
Maker, and there have been no modifications, amendments or extensions of the
Collateral Note or the other Loan Documents.
2. The current outstanding principal balance under the Collateral
Note is $3,000,000.00 as of the date hereof. Interest accrues on the
outstanding principal balance of the Collateral Note at the rate specified
therein.
3. There exists no default under the Collateral Note or the
other Loan Documents, and no event has occurred and no condition exists which,
with the giving of notice or passage of time, or both, would constitute a
default under the Collateral Note or the other Loan Documents.
4. No event has occurred and no condition exists which could give
rise to a right of set-off or a defense of any kind or description, and the
Maker hereby waives against the Bank any future right of set-off or defense of
any kind to an action for repayment of the Collateral Note against the
Assignor under the Collateral Note or the other Loan Documents.
5. The maker hereby consents to the endorsement and transfer of
the Collateral Note by the Assignor to the Bank as collateral and security for
the aforementioned financial accommodations provided by the Bank, and agrees
with respect thereto:
(i) to make all payments of principal and/or interest
as and when due directly to the Bank at the
above address upon demand by Bank;
(ii) to make no prepayments of principal to the
Assignor; and
(iii) to make no modification, amendment or extension
of the Collateral Note or the other Loan
Documents without the prior written consent of
the Bank.
IN WITNESS WHEREOF, and intending to create an instrument executed
under seal, the Maker has executed this instrument under seal as of the day and
year first above written.
Maker: RHODES, INC.
/s/ JOEL DUGAN
------------------------------
By: Joel Dugan
Sr. V.P. of Finance &
Administration
<PAGE> 1
EXHIBIT 4.2
WAIVER AND AMENDMENT DATED AS OF MAY 31, 1996
TO NOTE PURCHASE AGREEMENT DATED AS OF JUNE 13, 1996
BY AND AMONG THE COMPANY
AND THE LENDERS NAMED THEREIN
<PAGE> 2
RHODES, INC.
4370 PEACHTREE ROAD
ATLANTA, GEORGIA 30319
JOEL H. DUGAN
SENIOR VICE PRESIDENT DIRECT: 404/264-4622
FINANCE & ADMINISTRATION FAX: 404/364-3970
July 2, 1996
VIA TELEFAX
212 969 1529
Alliance Corporate Finance Group, Incorporated
1345 Avenue of the Americas
New York, NY 10105
ATTN: Peter Gummeson
RE: Note Purchase Agreement, Dated as of June 17, 1993, as Amended, Among
Rhodes, Inc., You and the Other Purchasers Named Therein (the "Agreement")
Dear Mr. Gummeson:
Financial statements for the first quarter ending May 31, 1996 were
released on June 28, 1996 by press release, a copy of which is attached. The
statements reflect a quarterly loss, the first since Rhodes became a public
company on June 18, 1993. The loss was caused by liquidating inventories that
came with the recent acquisitions of Weberg and Glick's. The core stores of
Rhodes would have had a small profit without the acquisitions.
Under the Agreement the Fixed Charge Coverage Ratio test (Section 8.2)
increased from 1.90 to 2.25 on May 31, 1996. Rhodes' Fixed Charge Coverage
for the four quarters ended May 31, 1996, achieved a ratio of 2.00, sufficient
to meet the previous requirement of 1.90 but not enough to meet the new
requirement of 2.25. Also, if the third quarter fiscal 1996 non-cash charge
of $2.4 million to reserve for the name changes and store closings are added
back, the May 31, 1996 ratio improves to 2.16.
Our calculations indicate that the first quarter loss this year will
adversely affect the covenant calculations through the third quarter this year,
ending on November 30, 1996; therefore we request that Fixed Charge Coverage
Ratio covenants be modified effective May 31, 1996 from 2.25 as follows:
May 31, 1996 1.90
August 31, 1996 1.70
November 30, 1996 1.90
February 28, 1997 2.25
Thereafter 2.25
We do not expect to request relief on any other covenants and the
quarterly covenant calculations for May 31, 1996 are attached.
<PAGE> 3
- 2 -
We request your approval as soon as practical so that we may file our Form
10-Q with the SEC on July 14, 1996 without a default disclosure.
If you are agreeable to this request, kindly countersign below in the
spaces provided. When sufficient of your signatures are received, the waiver
and amendment will be effective retroactive to May 31, 1996.
Very truly yours,
/s/Joel H. Dugan
Joel H. Dugan
JHD:eeg
Enclosures
Approved:
Alliance Corporate Finance Group
[The Equitable Private Income
and Equity Partnership II, L.P.]
/s/ Peter Gummeson
- -------------------------
By: Peter Gummeson
- -------------------------
Title: Investment Officer
-------------------
<PAGE> 4
RHODES, INC.
4370 PEACHTREE ROAD
ATLANTA, GEORGIA 30319
JOEL H. DUGAN
SENIOR VICE PRESIDENT DIRECT: 404/264-4622
FINANCE & ADMINISTRATION FAX: 404/364-3970
July 2, 1996
VIA TELEFAX
206 516 4841
G N A Corp.
601 Union Street
Suite 1500
2 Union Square
Seattle, WA 98101 2336
ATTN: Ms. Tami Hendrickson
RE: Note Purchase Agreement, Dated June 17, 1993, as Amended, Among Rhodes,
Inc., You and the Other Purchasers Named Therein (the "Agreement")
Dear Ms. Hendrickson:
Financial statements for the first quarter ending May 31, 1996 were
released on June 28, 1996 by press release, a copy of which is attached. The
statements reflect a quarterly loss, the first since Rhodes became a public
company on June 18, 1993. The loss was caused by liquidating inventories that
came with the recent acquisitions of Weberg and Glick's. The core stores of
Rhodes would have had a small profit without the acquisitions.
Under the Agreement the Fixed Charge Coverage Ratio test (Section 8.2)
increased from 1.90 to 2.25 on May 31, 1996. Rhodes' Fixed Charge Coverage for
the four quarters ended May 31, 1996, achieved a ratio of 2.00, sufficient to
meet the previous requirement of 1.90 but not enough to meet the new
requirement of 2.25. Also, if the third quarter fiscal 1996 non-cash charge of
$2.4 million to reserve for the name changes and store closings are added back,
the May 31, 1996 ratio improves to 2.16.
Our calculations indicate that the first quarter loss this year will
adversely affect the covenant calculations through the third quarter this year,
ending on November 30, 1996; therefore we request that Fixed Charge Coverage
Ratio covenants be modified effective May 31, 1996 from 2.25 as follows:
May 31, 1996 1.90
August 31, 1996 1.70
November 30, 1996 1.90
February 28, 1997 2.25
Thereafter 2.25
We do not expect to request relief on any other covenants and the
quarterly covenant calculations for May 31, 1996 are attached.
<PAGE> 5
- 2 -
We request your approval as soon as practical so that we may file our Form
10-Q with the SEC on July 14, 1996 without a default disclosure.
If you are agreeable to this request, kindly countersign below in the
spaces provided. When sufficient of your signatures are received, the waiver
and amendment will be effective retroactive to May 31, 1996.
Very truly yours,
/s/ Joel H. Dugan
Joel H. Dugan
JHD:eeg
Enclosures
Approved:
G N A Corp.
LIFE OF VIRGINIA
- ----------------
/s/ Charles Kaminski
- --------------------
By: Charles Kaminski
Title: Senior Vice President
---------------------
<PAGE> 6
RHODES, INC.
4370 PEACHTREE ROAD
ATLANTA, GEORGIA 30319
JOEL H. DUGAN
SENIOR VICE PRESIDENT DIRECT: 404/264-4622
FINANCE & ADMINISTRATION FAX: 404/364-3970
July 2, 1996
VIA TELEFAX
205 868 3609
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, AL 35223
ATTN: Mr. Richard Beilen
RE: Note Purchase Agreement, Dated June 17, 1993, as Amended, Among Rhodes,
Inc., You and the Other Purchasers Named Therein (the "Agreement")
Dear Mr. Beilen:
Financial statements for the first quarter ending May 31, 1996 were
released on June 28, 1996 by press release, a copy of which is attached. The
statements reflect a quarterly loss, the first since Rhodes became a public
company on June 18, 1993. The loss was caused by liquidating inventories that
came with the recent acquisitions of Weberg and Glick's. The core stores of
Rhodes would have had a small profit without the acquisitions.
Under the Agreement the Fixed Charge Coverage Ratio test (Section 8.2)
increased from 1.90 to 2.25 on May 31, 1996. Rhodes' Fixed Charge Coverage for
the four quarters ended May 31, 1996, achieved a ratio of 2.00, sufficient to
meet the previous requirement of 1.90 but not enough to meet the new
requirement of 2.25. Also, if the third quarter fiscal 1996 non-cash charge of
$2.4 million to reserve for the name changes and store closings are added back,
the May 31, 1996 ratio improves to 2.16.
Our calculations indicate that the first quarter loss this year will
adversely affect the covenant calculations through the third quarter this year,
ending on November 30, 1996; therefore we request that Fixed Charge Coverage
Ratio covenants be modified effective May 31, 1996 from 2.25 as follows:
May 31, 1996 1.90
August 31, 1996 1.70
November 30, 1996 1.90
February 28, 1997 2.25
Thereafter 2.25
We do not expect to request relief on any other covenants and the
quarterly covenant calculations for May 31, 1996 are attached.
<PAGE> 7
- 2 -
We request your approval as soon as practical so that we may file our Form
10-Q with the SEC on July 14, 1996 without a default disclosure.
If you are agreeable to this request, kindly countersign below in the
spaces provided. When sufficient of your signatures are received, the waiver
and amendment will be effective retroactive to May 31, 1996.
Very truly yours,
/s/ Joel H. Dugan
Joel H. Dugan
JHD:eeg
Enclosures
Approved:
Protective Life Insurance Company
/s/ Richard Beilen
- -----------------------------------
By: Richard Beilen
-------------------------------
Title:
-----------------------------
<PAGE> 8
RHODES, INC.
4370 PEACHTREE ROAD
ATLANTA, GEORGIA 30319
JOEL H. DUGAN
SENIOR VICE PRESIDENT DIRECT: 404/264-4622
FINANCE & ADMINISTRATION FAX: 404/364-3970
July 2, 1996
VIA TELEFAX
310 772 6030
Sun Life Insurance Center of America
One Sun America Center
Los Angles, CA 90067
ATTN: Kevin Buckle
RE: Note Purchase Agreement, Dated June 17, 1993, as Amended, Among Rhodes,
Inc., You and the Other Purchasers Named Therein (the "Agreement")
Dear Mr. Buckle:
Financial statements for the first quarter ending May 31, 1996 were
released on June 28, 1996 by press release, a copy of which is attached. The
statements reflect a quarterly loss, the first since Rhodes became a public
company on June 18, 1993. The loss was caused by liquidating inventories that
came with the recent acquisitions of Weberg and Glick's. The core stores of
Rhodes would have had a small profit without the acquisitions.
Under the Agreement the Fixed Charge Coverage Ratio test (Section 8.2)
increased from 1.90 to 2.25 on May 31, 1996. Rhodes' Fixed Charge Coverage for
the four quarters ended May 31, 1996, achieved a ratio of 2.00, sufficient to
meet the previous requirement of 1.90 but not enough to meet the new
requirement of 2.25. Also, if the third quarter fiscal 1996 non-cash charge of
$2.4 million to reserve for the name changes and store closings are added back,
the May 31, 1996 ratio improves to 2.16.
Our calculations indicate that the first quarter loss this year will
adversely affect the covenant calculations through the third quarter this year,
ending on November 30, 1996; therefore we request that Fixed Charge Coverage
Ratio covenants be modified effective May 31, 1996 from 2.25 as follows:
May 31, 1996 1.90
August 31, 1996 1.70
November 30, 1996 1.90
February 28, 1997 2.25
Thereafter 2.25
We do not expect to request relief on any other covenants and the
quarterly covenant calculations for May 31, 1996 are attached.
<PAGE> 9
- 2 -
We request your approval as soon as practical so that we may file our Form
10-Q with the SEC on July 14, 1996 without a default disclosure.
If you are agreeable to this request, kindly countersign below in the
spaces provided. When sufficient of your signatures are received, the waiver
and amendment will be effective retroactive to May 31, 1996.
Very truly yours,
/s/ Joel H. Dugan
Joel H. Dugan
JHD:eeg
Enclosures
Approved:
SunAmerica Life Insurance Company
fka Sun Life Insurance Company of America
/s/ Kevin J. Buckle
- -------------------------
By: Kevin J. Buckle
---------------------
Title: Authorized Agent
------------------
<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, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 63
<SECURITIES> 0
<RECEIVABLES> 5,249
<ALLOWANCES> 0
<INVENTORY> 90,343
<CURRENT-ASSETS> 106,357
<PP&E> 121,341
<DEPRECIATION> 41,057
<TOTAL-ASSETS> 265,869
<CURRENT-LIABILITIES> 99,121
<BONDS> 77,454
0
0
<COMMON> 0
<OTHER-SE> 67,490
<TOTAL-LIABILITY-AND-EQUITY> 265,869
<SALES> 119,726
<TOTAL-REVENUES> 119,726
<CGS> 65,501
<TOTAL-COSTS> 65,501
<OTHER-EXPENSES> 57,949
<LOSS-PROVISION> 71
<INTEREST-EXPENSE> 2,510
<INCOME-PRETAX> (4,508)
<INCOME-TAX> (1,848)
<INCOME-CONTINUING> (2,660)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,660)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
