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 March 31, 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 April 29, 1997, 5,964,830
common shares, without par value, were outstanding.
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ROBERDS, INC. AND SUBSIDIARY
INDEX
PAGE
NUMBER
PART 1. FINANCIAL INFORMATION:
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements Of
Earnings - Three Months Ended
March 31, 1997 and 1996 4
Condensed Consolidated Statements
of Cash Flows - Three Months Ended
March 31, 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
PART II. OTHER INFORMATION:
ITEMS 1-5. 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)
MARCH 31 DECEMBER 31
1997 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,702 $2,794
Receivables:
Customers 1,179 2,364
Vendors and other 1,918 4,028
Merchandise inventories 60,561 62,998
Prepaid expenses and other 1,660 1,857
Deferred tax assets 2,876 2,916
-------- --------
Total current assets 69,896 76,957
Property and equipment, net 105,054 104,953
Deferred tax assets 6,563 6,350
Certificates of deposit, restricted 2,345 2,293
Other assets 1,729 1,655
-------- --------
$185,587 $192,208
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $19,408 $17,640
Accrued expenses 7,305 9,244
Customer deposits 8,718 8,787
Litigation 2,600 2,943
Current maturities of long term debt 3,439 3,391
-------- --------
Total current liabilities 41,470 42,005
Construction payables 600
Long term debt including capital leases 83,487 90,365
Deferred warranty revenue and other 13,474 13,268
SHAREHOLDERS' EQUITY:
Common stock 596 595
Additional paid-in capital 31,927 31,797
Retained earnings 14,033 14,178
-------- --------
Total shareholders' equity 46,556 46,570
-------- --------
$185,587 $192,208
======== ========
See notes to condensed consolidated financial statements.
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ROBERDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
THREE MONTHS ENDED
MARCH 31
1997 1996
NET SALES AND SERVICE REVENUES $83,152 $70,664
COST OF SALES 56,511 49,750
------- -------
Gross profit 26,641 20,914
SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES 26,426 21,617
INTEREST EXPENSE, NET 1,873 1,259
FINANCE PARTICIPATION INCOME (592) (740)
OTHER INCOME, NET (851) (880)
------- -------
LOSS BEFORE INCOME TAX BENEFIT (215) (342)
INCOME TAX BENEFIT (70) (135)
------- -------
NET (LOSS) ($145) $(207)
======= =======
NET (LOSS) PER COMMON SHARE ($0.02) $(0.03)
======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,959 5,921
======= =======
See notes to condensed consolidated financial statements.
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ROBERDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS THREE MONTHS ENDED
MARCH 31
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ($145) $(207)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization 2,247 1,542
Gain on sales of fixed assets (2)
Changes in assets and liabilities, net 5,379 (386)
------ ------
Net cash provided by operating activities 7,479 949
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,745) (4,271)
Proceeds from sales of fixed assets 25
Other (152) 142
------ ------
Net cash (used in) investing activities (1,872) (4,129)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (6,830) (10,612)
Proceeds from long-term debt 13,000
Net proceeds from issuance of common shares 131 137
Debt issuance costs (45)
------ ------
Net cash (used in) provided by financing activities (6,699) 2,480
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,092) (700)
------ ------
CASH AND CASH EQUIVALENTS - Beginning of period 2,794 2,410
------ ------
CASH AND CASH EQUIVALENTS - End of period $1,702 $1,710
====== ======
CASH PAID FOR:
Interest, net of capitalized amounts of $38 in 1997
and $106 in 1996 $2,054 $1,280
====== ======
Income taxes $623 $415
====== ======
See notes to the condensed consolidated financial statements
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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 March 31, 1997, the condensed consolidated statements of
operations for the three months ended March 31, 1997 and 1996, and the
condensed consolidated statements of cash flows for the three months ended
March 31, 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 three months ended March 31, 1997 may not be indicative of the results for
the year ending December 31, 1997.
B. DEBT
MARCH 31 DECEMBER 31
1997 1996
Mortgage notes payable $39,763 $40,124
Revolving line of credit 31,000 37,000
Term loan agreement 3,850 4,200
Capital lease obligations 12,313 12,432
------- -------
86,926 93,756
Less current maturities 3,439 3,391
------- -------
$83,487 $90,365
======= =======
The revolving bank line of credit expires in January 2000. The amount available
under the line is limited to the lesser of: (a) $45,000 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 March 31, 1997, $45,000 was available under the line of which
$31,000 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 March 31, 1997) or one
of various LIBOR rates plus 1.55% (6.99% at March 31, 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.
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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.
Income tax benefit consists of the following:
THREE MONTHS
ENDED
MARCH 31
1997 1996
Currently payable:
Federal $62 $293
State and local 41 70
---- ----
103 363
Deferred (173) (498)
---- ----
($70) ($135)
==== ====
The disproportionate income tax benefit for the three months ended March 31,
1997 reflects 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 issued Statement of
Financial Accounting Standards No.128 (SFAS 128), "Earnings Per Share." Under
this statement, the Company will be required to restate prior-period earnings
per share data to comply with the 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.
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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
For the first three months of 1997, sales increased by 17.7 percent over the
comparable period in 1996. Operations for the first three months of 1997
resulted in a net loss of $(145) as compared to net loss of $(207) for the
first three months of 1996.
Sales for the three months ended March 1997 increased to $83,152 from $70,664
for the three months ended March 1996. Sales in 1997 were positively affected
by the opening of the new Cincinnati megastore in July 1996 and, to a lesser
extent, the opening of the Buckhead, Georgia store in November 1996. A highly
competitive retail environment for big ticket goods continued, and contributed
to the decrease in comparable store sales. To a lesser extent, sales were
adversely affected by the withdrawal from the home office product category in
the Company's Atlanta and Tampa markets. Additionally, during the first quarter
of 1997, the Company focused on improving its gross margin percentage versus
the very promotional approach taken during the first quarter of 1996.
Comparable store sales decreased 9.4 percent for the first three months of
1997. For the first three months of 1997, the percentage decreases in sales in
the Company's three established market areas (excluding Cincinnati) were as
follows:
TOTAL COMPARABLE
STORES STORES
------ ----------
Dayton (4)% (4)%
Atlanta (7) (15)
Tampa (8) (8)
Sales by major product category as a percentage of total sales for the three
months ended March 31 follows:
1997 1996
Furniture...................................................... 39% 39%
Bedding........................................................ 13 12
Major appliances............................................... 24 25
Consumer electronics........................................... 20 21
Extended warranty contracts and other......................... 4 3
--- ---
100% 100%
In March 1997, the Company entered into an agreement to sell third party
extended warranty contracts. As a result of this agreement, revenues and the
related costs of the contracts will be recognized at the time the third-party
contracts are sold. Revenues related to contracts sold prior to this agreement
will continue to be deferred and recognized over the lives of the contracts,
and the expenses related to service costs will be recognized as incurred.
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For the three months ended March 1997, gross profit was $26,641, or 32.0
percent of sales, as compared to $20,914, or 29.6 percent of sales, for the
three months ended March 1996. The increase in gross profit margin percentage
for the three months ended March 1997 resulted from the Company emphasizing a
heavily price-promotional merchandising strategy combined with extended
financing during 1996 in an attempt to attract additional store traffic and to
respond to competitive conditions, particularly in the consumer electronics and
appliance categories. Additionally, gross margin was affected favorably by a
somewhat larger portion of total sales from the higher-margin furniture
category, primarily as the result of a higher percentage of furniture sales in
the Cincinnati megastore, and the higher-margin extended warranty category.
Gross margin percentages for the first three months of 1997 by category were
approximately 39 percent for furniture, 44 percent for bedding, 22 percent for
major appliances and 19 percent for consumer electronics. The gross margin
percentages for the first quarter of 1997, as compared to the first quarter of
1996, increased slightly for furniture and bedding and increased significantly
for appliances and consumer electronics. The gross margin percentage increase
for appliances and consumer electronics reflects a less price-promotional
approach during the first three months of 1997 as compared to 1996.
For the three months ended March 1997, selling, delivery, and administrative
expenses, which include occupancy costs, were $26,426, or 31.8 percent of
sales, as compared to $21,617, or 30.6 percent of sales, for the comparable
period in 1996. The increase as a percentage of sales is primarily attributed
to increases in advertising, promotion, and sales commissions expenses, and the
effect of fixed occupancy costs in light of the Company's declining comparable
store sales. These increases were offset in part by a decrease in finance
charges for extended financing programs offered to customers.
Interest expense, net of interest income, increased to $1,873 for the three
months ended March 1997 compared to $1,259 for the comparable period in 1996.
Interest expense increased in 1997 primarily as the result of additional
indebtedness incurred to finance the Cincinnati megastore, the Buckhead
showroom, and the increase in merchandise inventory levels, primarily related
to the Cincinnati market entry. The increase in net expense was partially
offset by the capitalization of $38 of interest during 1997, compared to $106
in 1996.
Finance participation income, which consists of income from participation in
the Company's private label credit card program, was $592, or 0.7 percent of
sales, for the three months ended March 1997, as compared to $740, or 1.0
percent of sales, for the comparable period in 1996. The reduction in
participation resulted from the initial influx of deferred-interest-bearing
accounts into the private-label credit card program generated from the
Cincinnati market entry, coupled with an increase in the use of core financing
programs offered to customers in all market areas, which do not yield income
during the initial grace period. The balances on the accounts related to the
Cincinnati entry, which are part of the core finance program, result in costs
to the Company but do not yield participation to the Company during an initial
interest-free period, resulting in a decrease in the Company's participation
during the first quarter of 1997.
Other income decreased to $851 for the three months ended March 1997 as
compared to $880 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 contracted its appliance and consumer electronics inventories to better
match the consumer demand for these products.
Loss before income taxes was ($145) in 1997, compared to a loss of ($207) in
1996. Income tax benefit for 1997 was $70, or approximately 33% of the loss
before taxes, as compared to $135, or 39% of the loss before taxes, in 1996.
The lower effective tax rate in 1997 reflects minimum taxes imposed by certain
jurisdictions and the effect of items which are not deductible for income tax
purposes.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased to $1,702 at March 31, 1997 as compared to $2,794 at December
31, 1996. During the first three months of 1996, the Company generated $7,479
of cash from operating activities. Cash of $3,295 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 three months of 1997,
inventories decreased $2,437 primarily
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in the appliance and consumer electronics product categories. 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 three months of 1997, the Company's capital expenditures
totaled $1,745. These expenditures related primarily to the expansion of the
West Carrollton, Ohio store into space that was formally used for warehousing.
This expansion was completed early in April, 1997, and completes the Company's
expansion plans for 1997. As a result, capital expenditures for the balance of
1997 are expected to be significantly less than the Company incurred over the
last several years.
The Company's revolving bank line of credit agreement expires in January 2000.
The amount available under the line is limited to the lesser of: (a) $45,000,
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 March 31, 1997, $45,000 was available
under the line, of which $31,000 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 into 1998. In order
to remain in compliance with those covenants, the Company's profitability and
cash flow will have to improve over the actual results experienced in 1996.
In April 1997, the Company closed a mortgage loan for $8,080 to finance the
expenditures associated with its showroom located in the Buckhead area of
Atlanta, Georgia. The loan is payable based upon a 15-year amortization 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.
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, which would represent the Company's fifth marketing area, would enable
the further utilization of the Fairborn, Ohio warehouse facility. The Company
has identified a number of suitable sites in Columbus; however, it has not made
any commitments for a site. 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 to refining its overall operations in preparation for future
expansion. Additionally, it plans to continue to refine its product mix and
the staffing and systems in the Cincinnati megastore, in order to serve the
customer more effectively.
The Company's financial performance is influenced by consumer confidence,
interest rates, the general level of housing activity, and the general level of
economic activity in the United States. Consumers continue to buy big ticket
goods very cautiously. This has led to a very sharp competitive situation, as
the major retailers have struggled to maintain volume in a difficult retailing
environment. This situation is expected to continue to put pressure on
comparable store sales, product prices and margins, and operating results.
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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.
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.
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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.
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PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS Not applicable.
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
There were no reports filed by the Company on Form 8-K during the quarter ended
March 31, 1997.
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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.
(Registrant)
Date April 30, 1997 /s/ ROBERT M. WILSON
Robert M. Wilson
Executive Vice President
Chief Financial Officer
Date April 30, 1997 /s/ MICHAEL A. BRUNS
Michael A. Bruns
Vice President
Controller
Chief Accounting Officer
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