<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22702
ROBERDS, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-0801335
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1100 East Central Avenue
Dayton, Ohio 45449-1888
(Address of principal executive offices)
(937) 859-5127
(Registrant's telephone number, including area code)
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 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 the latest practicable date. On October 24, 1997, 6,006,041
common shares, without par value, were outstanding.
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ROBERDS, INC. AND SUBSIDIARY
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION:
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of
Operations - Three and Nine Months Ended
September 30, 1997 and 1996 4
Condensed Consolidated Statements
of Cash Flows - Nine Months Ended
September 30, 1997 and 1996 5
Notes to Condensed Consolidated
Financial Statements 6
ITEM 2. Management's Discussion
and Analysis of Financial
Condition and Results
of Operations 8
ITEM 3. Quantitative and Qualitative
Disclosures About Market Risk 12
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings 13
ITEMS 2-5. Inapplicable 13
ITEM 6. Exhibits and Reports
on Form 8-K 13
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ROBERDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $3,133 $2,794
Receivables:
Customers 1,099 2,364
Vendors and other 2,677 4,028
Merchandise inventories 51,372 62,998
Refundable income taxes 985
Prepaid expenses and other 2,075 1,857
Deferred tax assets 3,275 2,916
---------- -----------
Total current assets 64,616 76,957
Property and equipment, net 101,300 104,953
Deferred tax assets 6,065 6,350
Certificates of deposit, restricted 2,534 2,293
Other assets 1,723 1,655
---------- -----------
$176,238 $192,208
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $13,764 $17,640
Accrued expenses 8,211 9,244
Customer deposits 9,597 8,787
Litigation 3,185 2,943
Current maturities of long term debt 4,076 3,391
---------- -----------
Total current liabilities 38,833 42,005
Long term debt including capital leases 80,466 90,365
Deferred warranty revenue and other 11,468 13,268
SHAREHOLDERS' EQUITY:
Common stock 601 595
Additional paid-in capital 32,091 31,797
Retained earnings 12,779 14,178
---------- -----------
Total shareholders' equity 45,471 46,570
---------- -----------
$176,238 $192,208
========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
ROBERDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET SALES AND SERVICE REVENUES $83,928 $94,471 $247,315 $238,340
COST OF SALES 56,184 65,372 166,324 166,245
------------ ----------- ------------ -----------
Gross profit 27,744 29,099 80,991 72,095
SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES 27,518 27,654 82,306 72,550
INTEREST EXPENSE, NET 1,860 1,447 5,694 4,018
FINANCE PARTICIPATION INCOME (932) (532) (2,312) (1,886)
OTHER INCOME, NET (806) (915) (2,563) (2,581)
------------ ----------- ------------ -----------
EARNINGS (LOSS) BEFORE INCOME TAXES (BENEFIT) 104 1,445 (2,134) (6)
INCOME TAXES (BENEFIT) 45 560 (735) 35
------------ ----------- ------------ -----------
NET EARNINGS (LOSS) $59 $885 ($1,399) ($41)
============ =========== ============ ===========
NET EARNINGS (LOSS) PER COMMON SHARE $0.01 $0.15 ($0.23) ($0.01)
============ =========== ============ ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,985 5,940 5,970 5,929
============ =========== ============ ===========
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
ROBERDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS NINE MONTHS
ENDED SEPTEMBER 30
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ($1,399) ($41)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization 6,802 5,169
Loss on sales of fixed assets 18 102
Changes in assets and liabilities, net 7,388 (501)
----------- -----------
Net cash provided by operating activities 12,809 4,729
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,123) (27,593)
Proceeds from sales of fixed assets 50 154
Other (237) (155)
----------- -----------
Net cash used in investing activities (3,310) (27,594)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (17,294) (2,316)
Proceeds from long-term debt 8,080 28,700
Net proceeds from issuance of common shares 220 277
Debt issuance costs (166) (66)
----------- -----------
Net cash (used in) provided by financing activities (9,160) 26,595
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 339 3,730
----------- -----------
CASH AND CASH EQUIVALENTS - Beginning of period 2,794 2,410
----------- -----------
CASH AND CASH EQUIVALENTS - End of period $3,133 $6,140
=========== ===========
CASH PAID FOR:
Interest, net of capitalized amounts of $38 in 1997
and $540 in 1996 $5,812 $4,105
=========== ===========
Income taxes $867 $1,191
=========== ===========
NON-CASH TRANSACTION:
Issuance of common shares to the Roberds Inc. Employee
Profit Sharing and Retirement Savings Plan $80
===========
See notes to the condensed consolidated financial statements
</TABLE>
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ROBERDS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE DATA)
A. BASIS OF PRESENTATION
The consolidated balance sheet at December 31, 1996 is condensed from the
audited financial statements. The accompanying unaudited condensed consolidated
balance sheet at September 30, 1997, the condensed consolidated statements of
operations for the three and nine months ended September 30, 1997 and 1996, and
the condensed consolidated statements of cash flows for the nine months ended
September 30, 1997 and 1996, have been prepared by the Company in accordance
with generally accepted accounting principles and in the opinion of management
include all adjustments (which consist only of normal recurring adjustments)
necessary for a fair presentation of results of operations for the periods
presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted or condensed. These financial statements should be read in
conjunction with the financial statements and the notes thereto for the year
ended December 31, 1996 included in Form 10-K. The results of operations for the
nine months ended September 30, 1997 may not be indicative of the results for
the year ending December 31, 1997.
B. DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
<S> <C> <C>
Mortgage notes payable $46,829 $40,124
Revolving line of credit 22,500 37,000
Term loan agreement 3,150 4,200
Capital lease obligations 12,063 12,432
---------- -----------
84,542 93,756
Less current maturities 4,076 3,391
---------- -----------
$80,466 $90,365
========== ===========
</TABLE>
The revolving bank line of credit, which was amended in July 1997, expires in
January 2000. The amount available under the line is limited to the lesser of:
(a) $35,000 or (b) an amount based upon a percentage of eligible accounts
receivable, inventory and certain previously incurred leasehold improvements.
The agreement also provides that an additional amount is available for any
expenditures for leasehold improvements and store expansion for which the
Company has commitments for permanent financing. At September 30, 1997, $34,872
was available under the line of which $22,500 was outstanding. The interest rate
under the line is set monthly at the option of the Company at either the prime
rate (8.50% at September 30, 1997) or one of various LIBOR rates plus 1.55%
(7.21% at September 30, 1997).
The line and term loan agreements include certain restrictive covenants
including, among others, limitations on capital expenditures and the payment of
dividends, maintenance of minimum current, fixed charge coverage, funded debt to
earnings, and debt to tangible net worth ratios, which are described more fully
in the Liquidity and Capital Resources section of this Report.
C. INCOME TAXES
Deferred tax assets relate principally to the deferral of extended warranty
revenues over the lives of the contracts for financial reporting purposes versus
recognizing the revenues in the year of sale for income tax purposes.
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Income taxes (benefit) consist of the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30
1997 1996
<S> <C> <C>
Currently (refundable) payable:
Federal ($734) $1,406
State and local 73 294
---------- ----------
(661) 1,700
Deferred (74) (1,665)
---------- ----------
($735) $35
========== ==========
</TABLE>
The disproportionate provisions for income taxes for the nine months ended
September 30, 1997 and 1996, reflect minimum taxes imposed by certain
jurisdictions and the effect of items which are not deductible for income tax
purposes.
D. ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No.128, "Earnings Per Share." Under
this statement, the Company will be required to restate prior-period earnings
per share data to comply with SFAS 128, including interim periods, beginning
with the year ending December 31, 1997. The effect on previously reported
earnings per share data of the Company has not been determined.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which will require new segment information
in public companies' annual financial statements. Additionally, selected segment
information will be required in interim financial statements. The Statement
requires that comparative information for prior years to be restated. SFAS No.
131 is effective for financial statements for periods beginning after December
31, 1997. The effect on the Company's financial statements has not been
determined.
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ROBERDS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
RESULTS OF OPERATIONS
Total sales for the three months ended September 1997 were $83,928 compared to
$94,471 for the three months ended September 1996, a decline of 11.2 percent.
The decline in total sales for the three months ended September 1997, compared
to 1996, is partially the result of the comparison of sales in the Cincinnati
market to the very successful grand opening of that market in the third quarter
of 1996. Total sales for the first nine months of 1997 increased to $247,315
from $238,340 for the first nine months of 1996, an increase of 3.8 percent.
Total sales for the first nine months of 1997 were positively affected by the
Cincinnati megastore which opened in July 1996 and, to a lesser extent, the
opening of the Buckhead, Georgia store in November 1996.
Comparable store sales decreased 12.4 percent for the three months ended
September 1997 and decreased 11.5 percent for the first nine months of 1997. The
Company believes that a highly competitive retail environment for big ticket
goods, combined with an industry wide softness in consumer electronics and high
consumer debt, contributed to the decrease in comparable store sales.
Additionally, during 1997, the Company focused on improving its gross margin
percentage versus the very price-promotional approach taken during 1996. The
percentage decreases in sales in the Company's three established market areas
(excluding Cincinnati) were as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
TOTAL COMPARABLE TOTAL COMPARABLE
STORES STORES STORES STORES
<S> <C> <C> <C> <C>
Dayton (6)% (6)% (7)% (7)%
Atlanta (1) (9) (6) (14)
Tampa (9) (9) (9) (9)
</TABLE>
Total sales for the Cincinnati market decreased 30 percent for the three months
ended September 1997, compared to the same period in 1996. The Cincinnati market
became a comparable store in August 1997. Comparable store sales for the
Cincinnati market for the months of August and September 1997 decreased by 34
percent.
Sales by major product category as a percentage of total sales follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Furniture 36% 39% 37% 38%
Bedding 13 13 13 12
Major Appliances 28 25 26 26
Consumer Electronics 17 20 18 20
Extended Warranty Contracts and Other 6 3 6 4
------------ ----------- ----------- -----------
100% 100% 100% 100%
============ =========== =========== ===========
</TABLE>
Sales of furniture product as a percentage of total sales declined for the three
and nine months ended September 30, 1997. This decline is the result of the
decline in total sales in the Cincinnati market, as compared to its very
successful grand opening in the third quarter of 1996, when the Cincinnati
market generated a disproportionately high percentage of the Company's furniture
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sales. Sales of consumer electronics products have declined as a percentage of
total Company sales due to rapidly declining retail prices in that product
category, continued industry softness, a highly competitive retailing
environment, continuing technological advances, and the lack of new products, at
higher prices, to offset the effect of mature products with declining prices.
The Company expects those retail price declines in the electronics category to
continue for the foreseeable future.
In March 1997, the Company entered into an agreement to sell third-party
extended warranty contracts. Revenues and the related costs of the contracts
entered into after the effective date of the agreement are being recognized at
the time the third-party contracts are sold. Revenues and selling costs related
to contracts sold prior to the effective date of the agreement will be
recognized over the remaining lives of the contracts, and the expenses related
to service costs will be recognized as incurred. Total sales were positively
affected by this agreement by approximately 2.2 percent for the three months
ended September 30, 1997, and 1.7 percent for the nine months then ended. As a
result of the change in the extended warranty arrangement, extended warranty
contract revenue increased as a percentage of total sales for the three and nine
months ended September 30, 1997. The Company expects this trend to continue into
1998.
For the three months ended September 1997, gross profit was $27,744, or 33.1
percent of sales, as compared to $29,099, or 30.8 percent of sales, for the
three months ended September 1996. Gross profit for the nine months ended
September 1997 was $80,991, or 32.8 percent of sales, as compared to $72,095, or
30.3 percent of sales, for the nine months ended September 1996. Sales of
third-party extended warranty contracts favorably affected gross margins as a
percentage of sales by approximately 1.0 percent for the three months ended
September 30, 1997, and 0.7 percent for the nine months then ended.
Gross margin percentages for the first nine months of 1997 by category were
approximately 39 percent for furniture, 45 percent for bedding, 22 percent for
major appliances and 18 percent for consumer electronics. The gross margin
percentages for the three and nine months ended September 1997, as compared to
1996, increased for all product categories. The increase in the furniture gross
margin percentage reflects less aggressive pricing in this category in all
market areas, but particularly in the Cincinnati market where the furniture
category was heavily discounted during the grand opening of that market during
the third quarter of 1996. The gross margin percentage increase for appliances
and consumer electronics reflects a reduction in the use of the price-
promotional approach during 1997 as compared to 1996. Product prices and margins
in appliances and consumer electronics are likely to be under additional
pressure during the remainder of 1997, particularly in the Dayton market due to
the entry of a national retailer of these products near the end of the second
quarter of 1997.
For the three months ended September 1997, selling, delivery, and administrative
expenses, which include occupancy costs, were $27,518, or 32.8 percent of sales,
as compared to $27,654, or 29.3 percent of sales, for the comparable period in
1996. Selling, delivery, and administrative expenses for the nine months ended
September 1997 were $82,306, or 33.3 percent of sales, as compared to $72,550,
or 30.4 percent of sales, for the comparable period in 1996. The increase as a
percentage of sales for the three and nine months ended September 1997 is
primarily attributed to: (a) increased sales commissions as a result of a higher
percentage of revenue associated with warranty contracts and increased product
gross margins; (b) increased net advertising expenses, including a reduction in
vendor advertising support; (C) the effect of fixed occupancy costs in light of
the Company's declining comparable store sales; and (d) increased workers'
compensation costs. These increases were offset in part during the three and
nine months ended September 1997 by a decrease in finance charges for extended
financing programs offered to customers, and costs that were incurred in 1996 in
conjunction with the grand opening of the Cincinnati market.
Interest expense, net of interest income, increased to $1,860, or 2.2 percent of
sales, for the three months ended September 1997 compared to $1,447, or 1.5
percent of sales, for the comparable period in 1996. For the nine months ended
September 1997, net interest expense was $5,694, or 2.3 percent of sales,
compared to $4,018, or 1.7 percent of sales, in the first three quarters of
1996. Interest expense increased in 1997 primarily as the result of additional
indebtedness incurred to finance the Cincinnati megastore, the Buckhead
showroom, and increased merchandise inventory levels during the first half of
1997. No interest was capitalized during the three months ended September 1997,
while net interest expense for the three months ended September 1996 was
partially offset by the capitalization of $207. Net interest expense for the
first nine months of 1997 was reduced by $38 of capitalized interest, while
interest expense in the first nine months of 1996 was reduced by $540 of
capitalized interest.
Finance participation income, which consists of income from participation in the
Company's private label credit card program, was $932, or 1.1 percent of sales,
for the three months ended September 1997, as compared to $532, or 0.6 percent
of sales, for the comparable period in 1996, and was $2,312, or 0.9 percent of
sales, for the nine months ended September 1997, as compared to $1,886, or 0.8
percent of sales, for the comparable period in 1996. Finance participation for
three months ended September 1997 increased over the comparable period in 1996
as the result of finance participation being unfavorably impacted in 1996 by
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<PAGE> 10
the initial influx of non-interest-bearing accounts into the private-label
credit card program as part of the Cincinnati market entry. Additionally,
finance participation increased for the three and nine month periods ended
September 1997 as a result of the Company emphasizing its core and shorter
period finance programs during 1997, as compared to 1996 when it relied heavily
on twelve-months same-as-cash programs.
Other income decreased to $806, or 1.0 percent of sales, for the three months
ended September 1997 as compared to $915, or 1.0 percent of sales, for the
comparable period in 1996. For the nine months ended September 1997, other
income decreased to $2,563, or 1.0 percent of sales, as compared to $2,581, or
1.1 percent of sales, for the comparable period in 1996. The majority of other
income consists of cash discounts and rental income from tenants. Cash discounts
decreased in total and as a percentage of sales in 1997 as the Company reduced
its appliance and consumer electronics inventories to better match the consumer
demand for these products. Also included in other income during the nine months
ended September 1997 was $18 of losses on the disposal of fixed assets as
compared to $102 for the comparable period in 1996.
Income tax benefit for the nine months ended September 1997 was $735, or
approximately 34% of the loss before taxes, as compared to a provision for
income taxes of $35 in 1996. The disproportionate provisions for income taxes
for both 1997 and 1996 reflect minimum taxes imposed by certain jurisdictions
and the effect of items which are not deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased to $3,133 at September 30, 1997, compared to $2,794 at December
31, 1996. During the first nine months of 1997, the Company generated $12,809 of
cash from operating activities. Cash of $2,616 was generated from a reduction of
customer and vendor receivables, primarily as a result of fewer outstanding
balances from second-source financing providers and the collection of year-end
vendor incentives. During the first nine months of 1997, inventories decreased
$11,626, primarily in the appliance and consumer electronics product categories
to better march consumer demand for these products. A portion of the cash
generated from operations was utilized to reduce the balance outstanding under
the Company's revolving bank line of credit.
During the first nine months of 1997, the Company's capital expenditures totaled
$3,123. These expenditures related primarily to the expansion of the West
Carrollton, Ohio store into space that was formerly used for warehousing. This
completed the Company's major expansion plans for 1997. As a result, capital
expenditures for the balance of 1997 are expected to be minimal. The Company has
no significant expansion or capital expenditure plans for 1998 other than normal
replacement, repair, and upgrade projects and existing store refurbishment.
In July 1997, the Company amended its revolving bank line of credit agreement
which expires in January 2000. The amendment relaxed certain covenants in order
for the Company to remain in compliance with those covenants. Additionally, the
maximum amount available under the line was reduced since the facility was no
longer needed to finance capital expenditures. The amount available under the
line is limited to the lesser of: (a) $35,000, or (b) an amount based upon a
percentage of eligible accounts receivable, inventory and certain previously
incurred leasehold improvements. The agreement also provides that an additional
amount is available for any expenditures for leasehold improvements and store
expansion for which the Company has commitments for permanent financing. At
September 30, 1997, $34,872 was available under the line, of which $22,500 was
outstanding.
The line includes certain restrictive covenants including, among others,
limitations on capital expenditures and the payment of dividends, maintenance of
minimum current, fixed-charge-coverage, funded-debt-to-earnings, and
debt-to-tangible-net-worth ratios. Certain of the covenants contained in the
Company's revolving credit agreement become increasingly restrictive through
1997 and 1998. In order to remain in compliance with those amended covenants,
the Company's operations and cash flow will have to improve through 1998 over
the actual results experienced during the first nine months of 1997.
In April 1997, the Company closed a $8,080 mortgage loan to finance the
expenditures associated with the acquisition and renovation of its showroom in
the Buckhead area of Atlanta, Georgia. The loan requires monthly principal
payments of $45 with the balance due at the end of the fifth year. The loan
bears interest at 9.03%. Proceeds from the loan were used to reduce the
outstanding balance on the Company's revolving line of credit.
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<PAGE> 11
In November 1998, the Company's mortgage on its Vandalia, Ohio store will mature
with a balance due of $3,024. The Company is seeking long-term mortgage
refinancing for the facility.
The Company's lease on its Decatur, Georgia store expires in January 1998. The
area surrounding the store, and the shopping center in which it is located, have
deteriorated since the store opened in 1989. As a result, the Company will
abandon the store after the 1997 holiday selling season. There are no immediate
plans to locate another store in that area, though long-term, the Company will
explore other locations on the east side of Atlanta.
The Company has announced plans to enter the Columbus, Ohio market with a
facility similar in size and design to the Cincinnati store. The Columbus market
would enable the further utilization of the Fairborn, Ohio warehouse facility.
Management does not believe that the Company should take on the additional debt
obligations necessary to enter the Columbus market without additional equity. As
a result, the Company does not plan to move forward with the Columbus entry
until it has identified a source for that additional equity.
SEASONALITY
The Company typically experiences an increase in overall sales in the fourth
quarter. This increase is driven by an increase in the sales of consumer
electronics and furniture products associated with the holiday season. At the
same time, major appliance sales typically decline in the fourth quarter. As a
result, operating results for the full year are highly dependent upon the
success of the Company's operations in the fourth quarter.
OUTLOOK
The Company intends to focus the majority of its resources over the next several
quarters on refining its overall operations. The Company's financial performance
is influenced by consumer confidence, interest rates, consumer debt, the general
level of housing activity, and the general level of economic activity in the
United States. Consumer demand has continued to be sluggish, and retailers have
stepped up their use of price, same-as-cash, and other promotions, in an effort
to find sales volume. In response, the Company has reduced operating expenses in
an effort to reduce its break-even point. This competitive situation is expected
to continue to put pressure on comparable store sales, product prices and
margins, and operating results.
FORWARD-LOOKING STATEMENTS
In the interest of providing the Company's shareholders and potential investors
with information concerning management's assessment of the outlook for the
Company, this report contains certain "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Readers should bear in
mind that statements relating to the Company's business prospects, as distinct
from historical facts, are forward-looking statements which, by their very
nature, involve numerous risks and uncertainties. Factors that could cause the
Company's actual results to differ materially from management's expectations
include, but are not limited to:
Changes in economic conditions in the United States, including but not limited
to the general level of economic activity, levels of housing activity, interest
rates, the availability of consumer credit, consumer confidence, and inflation.
Changes in the economic conditions in the market areas in which the Company
operates, such as a strike or shutdown of a major employer or industry.
Unusual weather patterns, such as unusually hot or cool summers, which can
affect the sale of refrigeration products, or unusually cold winters, which can
affect consumers' desire and ability to shop for the Company's products. Acts of
God, such as floods, hurricanes, or tornados, that interrupt the Company's
ability to sell or deliver merchandise, interrupt consumers' ability to shop, or
destroy a major Company facility, in particular a warehouse or computer
facility.
Changes in the competitive environment in the Company's market areas, including
the bankruptcy or liquidation of existing competitors.
The entry into the Company's lines of business and market areas by new, larger,
well-financed competitors, which may have the ability to withstand intense price
competition over extended periods of time.
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<PAGE> 12
The availability and cost of adequate, appropriate newspaper, television, and
pre-printed advertising. A strike or work stoppage affecting the Company's media
outlets.
Adverse results in litigation matters.
Difficulties in hiring, training, and retaining a capable work force at
reasonable levels of compensation, in both existing market areas and in
expansion locations. Difficulties in hiring and retaining an effective senior
management group, particularly as the Company expands. An attempt to organize a
significant portion of the Company's work force.
The availability of appropriate sites for expansion, on favorable terms, and the
long-term receptivity of consumers to new store formats and locations.
Access to bank lines of credit and real estate mortgage financing sources at
favorable rates of interest, terms, and conditions.
Access to additional equity capital to fund the Company's long-term expansion.
Access to extended-payment financing sources (e.g., "twelve months same as
cash") at a favorable cost to the Company and with favorable rates of approval
by the financing source. Access to private-label financing sources (e.g.,
"Roberds charge card") that provide favorable rates of interest to the customer,
favorable rates of return to the Company, and favorable rates of approval by the
financing source.
Rapid changes in products, particularly electronics products, such that the
Company bears the risk of obsolescence or the consumer withdraws from the market
until such time as the product category has stabilized.
Shifts in the mix of the Company's sales between its higher-margin products
(bedding and furniture) and its lower-margin products (electronics and
appliances), which may result from changes in consumer priorities, competitive
factors, or other factors.
The absence of new products in the Company's product categories that would drive
additional consumer interest and purchases.
Adverse changes in the cost or availability of the products the Company sells.
Rapid increases in the price of the Company's products, which cannot be passed
on to consumers as the result of competitive pressures.
The loss, or significant reduction in the availability, of certain key
name-brand products. Decisions by vendors to curtail the availability of certain
product presently sold by the Company, or to make products that are presently
sold by the Company available to certain competitors that do not presently have
access to such products. Changes in import duties or restrictions affecting the
Company's ability to import certain products.
Changes in income tax rates or structures that may affect the Company's tax
burden or consumers' ability to purchase or finance big-ticket goods or new
housing. Significant increases in real estate tax rates affecting the Company's
properties.
Changes in government regulations affecting the Company, its products, its
advertising, or its work force, including changes in the minimum wage. Changes
in government regulations affecting the Company's employee benefit plans.
New competition from alternative sales media and channels of distribution, such
as catalog mail order, telemarketing, television shopping services, and online
media.
Changes in highway or street configurations such that the Company's stores
become less accessible to consumers. Changes in consumer use or ownership of
"second homes," particularly in the Tampa, Florida market.
Changes in the cost or availability of liability, property, or health insurance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
12
<PAGE> 13
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS In May 1997, one of the Company's former Market
Presidents filed suit in United States District Court, Middle District of
Florida, Bernucca v. Roberds, Inc., Case No. 97-1311-CIV-T-24B, alleging, among
other things, that the Company violated the Age Discrimination in Employment Act
of 1964 and the Florida Civil Rights Act in connection with its termination of
plaintiff. The Company and plaintiff have informally agreed that the complaint
can be amended to include plaintiff's additional allegation that the Company
breached an alleged contractual obligation to pay a bonus to plaintiff for his
final year of employment. The complaint does not specify the amount of damages
sustained by plaintiff. The Company has answered in the suit, and is in the
early stages of discovery. At this time, it is not possible to predict the
outcome of the suit or to estimate the Company's liability, if any.
In the ordinary course of its business, the Company is from time to time a party
in certain legal proceedings. In the opinion of management, the Company is not a
party to any litigation, other than as described above, that would have a
material adverse effect on its operations or financial condition if the
proceeding was determined adversely to the Company.
ITEM 2. CHANGES IN SECURITIES None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None.
ITEM 5. OTHER INFORMATION None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See exhibit index.
(b) There were no reports filed by the Company on Form 8-K during the
quarter ended September 30, 1997.
13
<PAGE> 14
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.
Roberds, Inc., by
(Registrant)
Date October 24, 1997 /s/ Robert M. Wilson
---------------------------- ---------------------
Robert M. Wilson
Executive Vice President
Chief Financial Officer
Date October 24, 1997 /s/ Michael A. Bruns
---------------------------- ---------------------
Michael A. Bruns
Vice President
Controller
Chief Accounting Officer
14
<PAGE> 15
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10. Amendment to credit agreement
27.1 Financial data schedule
15
<PAGE> 1
Exhibit 10
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED
-----------------------------------------------
BUSINESS LOAN AGREEMENT
-----------------------
This Amendment ("Amendment") is made as of the 30th day of June, 1997,
by and between Roberds, Inc. (the "Borrower") and Bank One, NA successor by
merger of Bank One, Dayton, NA (the "Bank").
WHEREAS, the Borrower and the Bank entered into a Second Amended and
Restated Business Loan Agreement dated December 31, 1996, as amended (if
applicable) (the "Credit Agreement"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth below:
NOW, THEREFORE, the parties hereto agree as follows:
1. Capitalized terms not defined herein shall have the meaning
ascribed in the Credit Agreement.
2. Sections 6.2, 6.3, and 6.5 bearing the headings Funded Debt to
Tangible Net Worth, Funded Debt to EBITDA, Current Ratio and Fixed Charge
Coverage of the Credit Agreement is hereby amended and restated to read as
follows:
6.2 FUNDED DEBT TO TANGIBLE NET WORTH Borrower agrees to maintain a
ratio of Funded Debt to Tangible Net Worth of not more than the ratios
set forth for the following periods measured at each quarter's end on
a rolling four quarter basis:
Periods Ratios
------- ------
06/30/97 2.10:1.00
07/01/97 through 09/30/97 2.30:1.00
10/01/97 through 03/31/98 2.20:1.00
04/01/98 and thereafter 2.10:1.00
"Tangible Net Worth" shall be determined in accordance with GAAP and
shall be deemed to include the amount of total assets of Borrower
excluding the amount of Intangible Assets of Borrower plus
$2,600,000.00 related to the exposure with the Ohio Bureau of Workers'
Compensation that was recorded by the Borrower the fourth quarter of
1996 minus the amount of total liabilities of Borrower, exclusive of
Subordinated Debt, if any.
"Intangible Assets" shall be determined in accordance with GAAP and be
deemed to include at book value, without limitation, goodwill, patents,
copyrights, secret processes, deferred expenses relating to sales,
general administrative, research and development expense. "Funded Debt"
shall be determined in accordance with GAAP and shall be deemed to
include all interest bearing borrowings plus capitalized leases.
6.3 FUNDED DEBT TO EBITDA. Borrower agrees to maintain a ratio of
Funded Debt to EBITDA of not more than the ratios set forth for the
following periods measured at each quarter's end on a rolling four
quarter basis.
16
<PAGE> 2
Periods Ratios
------- ------
06/30/97 6.00:1.00
07/01/97 through 09/30/97 7.50:1.00
10/01/97 through 12/31/97 7.00:1.00
01/01/98 through 03/31/98 6.25:1.00
04/01/98 through 06/30/98 5.50:1.00
07/01/98 through 09/30/98 4.75:1.00
10/01/98 through 12/31/98 4.00:1.00
"EBITDA" shall be defined as earnings before interest expense, taxes
and depreciation/amortization plus $2,600,000.00 related to the
exposure with the Ohio Bureau of Workers' Compensation that was
recorded by the Borrower the fourth quarter of 1996.
6.5 FIXED CHARGE COVERAGE. Borrower agrees to maintain a Fixed Charge
Coverage (net income after taxes minus dividends plus $2,600,000.00
related to the exposure with the Ohio Bureau of Workers' Compensation
that was recorded by the Borrower the fourth quarter of 1996 plus
interest expense plus rent expense plus depreciation/amortization
divided by current maturities of long-term debt (including capitalized
leases but not including any amount outstanding on the $35,000,000.00
(as amended) Amended and Restated Business Purpose Revolving Promissory
Note dated December 31, 1996 from Borrower to the order of Bank One
which may be considered current due to the maturity date of such
promissory note) plus interest expense plus rent expense of not less
than 1.20 to 1.0 at fiscal quarter-end June 30, 1997, of not less than
1.10 to 1.00 at fiscal quarter-end September 30, 1997 and December 31,
1997, of not less than 1.15 to 1.00 at fiscal quarter-end March 31,
1998 and June 30, 1998 and beginning fiscal quarter ending September
30, 1998 and at each fiscal quarter-end thereafter of not less than
1.20 to 1.00 measured on a rolling four quarter basis.
3. The Business Loan Agreement "Borrowing Base" Addendum attached to
the Credit Agreement is hereby amended and restated in its entirety to read as
follows in Exhibit "A" attached hereto and made a part hereof.
4. The Borrower represents and warrants that (a) the representations
and warranties contained in the Credit Agreement are true and correct in all
material respects as of the date of this Amendment, (b) no condition, act or
event which could constitute an Event of Default under the Credit Agreement
exists, and (C) no condition, event, act or omission has occurred, which, with
the giving of notice or passage of time, would constitute an Event of Default
under the Credit Agreement.
5. The Borrower agrees to pay all fees and out-of-pocket disbursements
incurred by the Bank in connection with this Agreement, as set forth in section
5.3.2 of that certain Promissory Note Modification Agreement executed on even
date herewith, including legal fees incurred by the Bank in the preparation,
consummation, administration and enforcement of this Amendment.
6. This Amendment shall become effective only after it is fully
executed by the Borrower and the Bank. Except as amended by this Amendment, the
Credit Agreement shall remain in full force and effect in accordance with its
terms.
17
<PAGE> 3
7. This Amendment is a modification only and not a novation. Except
for the above-quoted modification(s), the Credit Agreement, any agreement or
security document, and all the terms and conditions thereof, shall be and
remain in full force and effect with the changes herein deemed to be
incorporated herein. This Amendment is to be considered attached to the Credit
Agreement and made a part hereof. This Amendment shall not release or affect
the liability of any guarantor, surety or endorser of the Credit Agreement or
release any owner of collateral securing the Credit Agreement. The validity,
priority and enforceability of the Credit Agreement shall not be impaired
hereby. To the extent that any provision of this Amendment conflicts with any
term or condition set forth in the Credit Agreement, or any agreement or
security document executed in conjunction therewith, the provisions of this
Amendment shall supersede and control. Borrower acknowledged that as of the
date of this Amendment it has no offsets with respect to all amounts owned by
Borrower to Bank and Borrower waives and releases all claims which it may have
against Bank arising under the Credit Agreement on or prior to the date of this
Amendment.
8. The Borrower acknowledges and agrees that this Amendment is limited
to the terms outlined above, and shall not be construed as an amendment of any
other terms or provisions of the Credit Agreement; the Borrower hereby
specifically ratifies and affirms the terms and provisions of the Credit
Agreement. Borrower releases Bank from any and all claims which may have
arisen, known or unknown, in connection with the Credit Agreement on or prior
to the date hereof. This Amendment shall not establish a course of dealing or
be construed as evidence of any willingness on the Bank's part to grant other
or future amendments, should any be requested.
IN WITNESS WHEREOF, the parties have entered into the Agreement as of
the day and year first above written.
BANK ONE, NA successor by BORROWER
merger of Bank One, Dayton, NA
ROBERDS, INC.
By: R. Michael Dunlavey By: /s/ Wayne B. Hawkins
Title: Vice President Title: Treasurer
18
<PAGE> 4
EXHIBIT "A"
BUSINESS LOAN AGREEMENT
"BORROWING BASE" ADDENDUM
This "Borrowing Base" Addendum to the Business Loan Agreement additionally
governs the $35,000,000.00, as amended, Promissory Note ("Note") of Borrower,
set forth in the Agreement as an Obligation.
Borrower agrees so long as the Note or the indebtedness represented thereby is
outstanding or so long as the Agreement is in effect, the following shall apply:
1. Note Advancement Formula. The proceeds of the Note may be advanced,
repaid and readvanced an unlimited number of times with Borrower's
right to borrowing under the Note limited in that the total
principal balance at any time outstanding on the Note shall not
exceed, prior to request for a draw or advance or after a draw or
advance, the borrowing base formula as hereinafter set forth. The
"Borrowing Base" formula as of any date shall mean the lesser of:
(a) the Note amount, or
(b) the total amount of one or more of the following:
(a) 80% of Borrower's Eligible Accounts Receivable
(b) 50% of Borrower's Eligible Inventory
(C) 100% of LHI for the quarter ending March 31,
1997, and reducing by 5.00% (of the original
LHI amount) on June 30, 1997 and further
reducing by 7.50% beginning September 30, 1997
and on each calendar quarter thereafter
2. "Eligible Account Receivable" means an account receivable of
Borrower from a party (the "Account Debtor"), now existing or
hereafter arising, which meets all the following requirements at
the time it came into existence and continues to meet the same
until it is collected in full:
The account is due and payable in full and is less than ninety (90)
days old from the due date shown on the original invoice date
(which first due date is not to be greater than sixty (60) days
from invoice date); The account arose in the ordinary course of
Borrower's business from the performance of services or any
outright and lawful sale of goods by Borrower. If goods are
involved, all such goods having been lawfully shipped to Account
Debtor, and Borrower has possession of (and will deliver as
required hereunder within thirty (30) days of receipt of written
request, but no more than once each calendar year. Notwithstanding
the foregoing to the contrary, Bank One has the right to make this
request upon the occurrence of an event of default.) or has
delivered to Bank One copies of all invoices, shipping documents
and delivery receipts evidencing such shipments; The right to
payment has been fully earned by completed performance; There has
not been a progress billing nor has Borrower extended the time for
payment without the consent of Bank One; for the purposes hereof,
"progress billing" means any invoice for goods sold or leased or
services rendered under a contract or agreement pursuant to which
the Account Debtor's obligation to pay such invoice is conditioned
upon the Borrower's completion of any further performance under the
contract or agreement; The account is not subject to any prior
assignment, claim, lien or security interest; The true record of
the amount owed is reflected on Borrower's books and on any invoice
or statement delivered to Bank One
19
<PAGE> 5
relating to the account is owing to Borrower; The account is not
subject to any setoff, counterclaim, credit, allowance,
adjustment or discount (excepting only any applicable discount
for prompt payment); Borrower has not received any notice of nor
of any liquidation, reorganization, dissolution, termination of
existence, insolvency, business failure, appointment of a
receiver for all or any part of the property of, assignment for
the benefit of creditors mde by, or filing of a petition under
any bankruptcy or insolvency statute by or against, Account
Debtor; The account did not arise from a transaction with a
Person, or entity affiliated with Borrower; The account is not
owed by the government of the United States of America, or any
department, agency, public corporation, or other instrumentality
thereof, unless the Federal Assignment of Claims Act of 1940, as
amended, and any other steps necessary to perfect Bank One's
security interest therein, have been complied with to the Bank
One's satisfaction with respect to such account; The account(s)
in amount(s) which exceeds $500,000.00 is not owed by any state,
municipality or other political subdivision of the United States
of America, or any department, agency, public corporation or
other instrumentality thereof and as to which Bank One determines
that its security interest therein is not or cannot be perfected;
Bank One has not informed Borrower that in Bank One's reasonable
credit judgment that the prospect of collection of such account
is impaired or that the Account may not be paid by reason of the
Account Debtor's financial inability to pay or which is owed by
an Account Debtor which Bank One, in its reasonable credit
judgment, otherwise deems to be uncreditworthy; The account did
not arise out of a contract or purchase order prohibiting any
assignment thereof or the creation of any security interest
therein and Borrower has not received any account acceptance,
chattel paper, promissory note, trade, payment instrument, draft
or written agreement (other than invoices, shipping documents and
delivery receipts) with respect to such account or payment
thereof; and The account did not arise from an Account Debtor
whose mailing address or executive offices are located outside
the United States or is not organized under the laws of the
United States or any state, unless the obligation is secured or
payable by an irrevocable letter of credit or acceptance in form
and substance satisfactory to Bank One.
In the event that more than ten percent (10%) of the accounts
receivable from any one Account Debtor shall at any time become
more than ninety (90) days past due, none of the accounts
receivable outstanding from that Account Debtor shall be included
in calculating Borrower's Eligible Accounts Receivable, until
such time, if any, as Bank One may, in its sole discretion,
determine otherwise.
3. "Eligible Inventory" means all tangible personal property, goods,
merchandise and other personal property now owned or hereafter
acquired by Borrower, wheresoever located in the United States,
which is leased or furnished, or held to be furnished, under
contracts of sale or service, and all finished goods which meet
all of the following specifications: (a) the inventory is
lawfully owned by Borrower, is not subject to any lien, claim,
consignment, security interest or prior assignment; (b) Borrower
has the right of assignment thereof and the power to grant
security interests therein; (c) the inventory arose or was
acquired in the ordinary course of Borrower's business and no
substantial portion thereof represents returned, rejected or
damaged goods; (d) no account receivable or document of title has
been created or issued with respect to such inventory; (e) the
inventory does not represent work-in-process, spare parts,
packaging and shipping materials, supplies, or returned or
defective inventory; and (f) the inventory is not otherwise
regarded by Bank One as unsuitable collateral; "Eligible
Inventory" shall be valued in accordance with GAAP based on FIFO
cost or lower of cost or market, excluding, however, (g) the
amount of progress payments, predelivery payments, deposits and
any other sums received by the Borrower in anticipation of the
sale and delivery of Eligible Inventory, and (h) all Eligible
Inventory on lease to others.
20
<PAGE> 6
4. "Eligible Leasehold Improvements" ("LHI") shall be valued in
accordance with GAAP. The original LHI amount shall be TEN
MILLION AND NO/100 DOLLARS ($10,000,000.00)
5. "Eligible Collateral" shall mean all Eligible Accounts
Receivable, Eligible Leasehold Improvements and Eligible
Inventory.
6. Reporting. Borrower will supply no later than thirty (30)
calendar days from the end of each quarter until April 30, 1997
and no later than thirty (30) calendar days from the end of each
month thereafter or more frequently, if requested by Bank One a
compliance certificate in a form and format accept able to Bank
One, certifying Borrower's compliance and the requirements
hereof.
7. Borrowing Base Deficiency. In the event the amount outstanding
under the Note exceeds the Borrowing Base at any time, then
Borrower shall be required to immediately reduce the outstanding
principal balance to comply with the Borrowing Base. Borrower
shall pay to Bank One with its compliance certificate by
certified check, cashier's check or cash, the deficiency. If the
deficiency is not paid down as herein called for, the Note may be
declared in default, cancelled and terminated.
8. Notwithstanding anything in the foregoing Paragraph 7 to the
contrary, Borrower may be permitted to be out-of-compliance with
the Borrowing Base Advancement Formula (paragraph 1 hereof) in an
amount not to exceed TEN MILLION AND NO/100 DOLLARS
($10,000,000.00) (the " Non-Compliance Amount") provided that the
Borrower (a) has expended funds up to the Non-Compliance Amount
for real estate and (b) to Bank One's satisfaction that it has a
commitment for permanent financing and scheduled for closing
within six (6) months with respect to real estate.
9. Change of Note Advancement Formula. In the event of a covenant
breach Bank One retains the sole discretion to reduce the
allowable percentage of any Eligible Collateral to be used in
calculating the Borrowing Base formula based upon the Eligible
Collateral changing in length, type or term from the Eligible
Collateral originally presented to and agreed upon between Bank
One and Borrower prior to the signing of this Agreement and/or
based upon the present or projected operating or financial
condition of Borrower.
10. Audits. Borrower agrees that Bank One shall have the right to
make audits to verify the Eligible Collateral reports that have
been submitted to Bank One from time to time. Such audits will be
reasonably made at the request of Bank One and shall be
determined as to frequency solely by Bank One. Borrower also
agrees to make copies available to Bank One of all audits
performed by state or federal regulatory agencies. Audit costs,
expenses and monitoring costs will be either paid directly by
Borrower or reimbursed to Bank One if Bank One has paid such
costs and expenses.
11. Draws by Borrower. No draw or advance shall be permitted unless
Borrower shall have timely provided Bank One with additional
information and certifications required hereunder, and unless
Borrower shall be in compliance with all terms of this Agreement.
However, failure to provide on a timely basis that information
requested in paragraph number 2 shall only cause the total
Eligible Account Receivable to reduce to a $0 (zero) amount.
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,133
<SECURITIES> 0
<RECEIVABLES> 3,776
<ALLOWANCES> 0
<INVENTORY> 51,372
<CURRENT-ASSETS> 64,616
<PP&E> 130,691
<DEPRECIATION> 29,391
<TOTAL-ASSETS> 176,238
<CURRENT-LIABILITIES> 38,833
<BONDS> 80,466
0
0
<COMMON> 601
<OTHER-SE> 44,870
<TOTAL-LIABILITY-AND-EQUITY> 176,238
<SALES> 247,315
<TOTAL-REVENUES> 247,315
<CGS> 166,324
<TOTAL-COSTS> 166,324
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,694
<INCOME-PRETAX> (2,134)
<INCOME-TAX> (735)
<INCOME-CONTINUING> (1,399)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,399)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
