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, 1998
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 23, 1998, 6,107,605
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 -
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of
Operations-Three and Nine Months Ended
September 30, 1998 and 1997 4
Condensed Consolidated Statements of
Cash Flows-Nine Months Ended
September 30, 1998 and 1997 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 14
PART II. OTHER INFORMATION
ITEMS 1-5. Inapplicable 15
ITEM 6. Exhibits and Reports
on Form 8-K 15
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ROBERDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30 DECEMBER 31
1998 1997
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 1,161 $ 2,494
Receivables:
Customers 1,069 1,311
Vendors and other 2,078 2,693
Merchandise inventories 43,615 51,173
Refundable income taxes 2,371 2,025
Prepaid expenses and other 2,292 1,792
Deferred tax assets 2,939 3,375
-------- --------
Total current assets 55,525 64,863
Property and equipment, net 93,959 99,364
Deferred tax assets 4,502 4,381
Certificates of deposit, restricted 2,322 2,541
Other assets 1,581 1,542
-------- --------
$157,889 $172,691
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,797 $ 16,871
Accrued expenses 8,435 8,885
Customer deposits 11,267 11,686
Litigation 2,478 2,992
Current maturities of long-term debt 2,890 2,731
-------- --------
Total current liabilities 38,867 43,165
Long-term debt including capital leases 69,522 73,309
Deferred warranty revenue and other 7,820 10,448
SHAREHOLDERS' EQUITY:
Common stock 611 601
Additional paid-in capital 32,332 32,091
Retained earnings 8,737 13,077
-------- --------
Total shareholders' equity 41,680 45,769
======== ========
$157,889 $172,691
======== ========
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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1998 1997 1998 1997
NET SALES AND SERVICE REVENUES $ 78,696 $ 83,928 $ 231,102 $ 247,315
COST OF SALES 53,236 56,184 157,865 166,324
--------------- --------------- --------------- ---------------
Gross profit 25,460 27,744 73,237 80,991
SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES 27,096 27,518 79,562 82,306
INTEREST EXPENSE, NET 1,794 1,860 5,278 5,694
FINANCE PARTICIPATION INCOME (816) (932) (2,359) (2,312)
OTHER INCOME, NET (884) (806) (2,634) (2,563)
--------------- --------------- --------------- ---------------
EARNINGS (LOSS) BEFORE TAXES (BENEFIT) (1,730) 104 (6,610) (2,134)
INCOME TAXES (BENEFIT) (580) 45 (2,270) (735)
--------------- --------------- --------------- ---------------
NET EARNINGS (LOSS) ($ 1,150) $ 59 ($ 4,340) ($ 1,399)
=============== =============== =============== ===============
BASIC AND DILUTED NET EARNINGS (LOSS)
PER COMMON SHARE ($ 0.19) $ 0.01 ($ 0.72) ($ 0.23)
=============== =============== =============== ===============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 6,076 5,985 6,050 5,970
=============== =============== =============== ===============
DILUTED 6,076 5,992 6,050 5,970
=============== =============== =============== ===============
See notes to condensed consolidated financial statements.
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ROBERDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS SEPTEMBER 30
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ($ 4,340) ($ 1,399)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation and amortization 6,607 6,802
(Gain) loss on sales of fixed assets (19) 18
Changes in assets and liabilities, net 886 7,388
-------- --------
Net cash provided by operating activities 3,134 12,809
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,145) (3,123)
Proceeds from sales of fixed assets 47 50
Other 126 (237)
-------- --------
Net cash used in investing activities (972) (3,310)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (4,828) (17,294)
Proceeds from long-term debt 1,200 8,080
Net proceeds from issuance of common shares 164 220
Debt issuance costs (31) (166)
-------- --------
Net cash used in financing activities (3,495) (9,160)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,333) 339
CASH AND CASH EQUIVALENTS - Beginning of period 2,494 2,794
-------- --------
CASH AND CASH EQUIVALENTS - End of period $ 1,161 $ 3,133
======== ========
CASH PAID (REFUNDED) FOR:
Interest, net of $38 capitalized in 1997 $ 5,265 $ 5,812
======== ========
Income taxes $ (2,239) $ 867
======== ========
NON-CASH TRANSACTION:
Issuance of common shares to the Roberds Inc. Employee
Profit Sharing and Retirement Savings Plan $ 87 $ 80
======== ========
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, 1997 is condensed from the
audited financial statements. The accompanying unaudited condensed consolidated
balance sheet at September 30, 1998, the condensed consolidated statements of
operations for the three and nine months ended September 30, 1998 and 1997, and
the condensed consolidated statements of cash flows for the nine months ended
September 30, 1998 and 1997, 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, 1997 included in Form 10-K. The results of operations for the
nine months ended September 30, 1998 may not be indicative of the results for
the year ending December 31, 1998.
B. DEBT
SEPTEMBER 30 DECEMBER 31
1998 1997
Mortgage notes payable $44,694 $46,308
Revolving line of credit 16,200 15,000
Term loan agreement 2,800
Capital lease obligations 11,518 11,932
----------- -----------
72,412 76,040
Less current maturities 2,890 2,731
----------- -----------
$69,522 $73,309
=========== ===========
In February 1998, the Company utilized the revolving line of credit to repay the
balance outstanding under the term loan prior to its maturity.
The revolving bank line of credit, which was amended as of June 30, 1998,
expires in January 2000. The amount available under the line is limited to the
lesser of: (a) $30,000 or (b) an amount based upon a percentage of eligible
accounts receivable and inventory less excess customer deposits. At September
30, 1998, $25,041 was available under the line of which $16,200 was outstanding.
The line of credit bears interest at the prime rate plus 1% (9.25% at September
30, 1998).
The line of credit 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
revolving credit agreement become increasingly restrictive over time.
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C. INCOME TAXES
Income tax benefit consists of the following:
NINE MONTHS ENDED
SEPTEMBER 30
1998 1997
Currently payable (refundable):
Federal $(2,489) $(734)
State and local (96) 73
--------- -------
(2,585) (661)
Deferred 315 (74)
--------- -------
($2,270) ($735)
========= =======
The disproportionate provision for income taxes reflects minimum taxes imposed
by certain jurisdictions, and a valuation reserve for certain state operating
loss carryforwards for which the Company has determined that it is more likely
than not will not yield a benefit in the future. Included in long term deferred
tax assets is estimated benefit ($606) to be received from certain net operating
loss carryforwards.
D. LITIGATION
During 1994, the Ohio Bureau of Workers' Compensation ("Bureau") completed an
examination of the Company's 1992 and 1993 Ohio workers' compensation tax
returns. As a result of that audit, the Bureau issued an assessment against the
Company for approximately $1,000. As a result of the Company's appeals and an
adjustment received in 1995, the assessment was reduced to $871. The assessment
was based on the Bureau's reclassification of the majority of the Company's Ohio
employees into higher rate classifications. In January 1997, the Company lost
its appeal of the assessment in the Ohio Court of Appeals. The Company has filed
another appeal of right with the Ohio Supreme Court. If the Company is
unsuccessful in this final appeal, the Company would likely be liable not only
for the $871 assessment but also for a similar adjustment for the years
subsequent to 1993.
In May 1998, the Bureau declared a one-time refund of premiums to all
participants in the workers' compensation fund. As part of the refund process,
any outstanding balances due to the Bureau were set off against the refund,
including the $871 assessment against the Company. As a result, the amount
accrued by the Company for the 1992-1993 assessment has been paid. The Company
continues to accrue the estimated amount of additional taxes that would be
caused by a reclassification of employees for the periods subsequent to 1993.
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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
The first nine months of 1998 resulted in a net loss of $(4,340), compared to a
net loss of $(1,399) for the first nine months of 1997. Sales for the three
months ended September 1998 declined to $78,696 from $83,928 for the three
months ended September 1997, a 6.2 percent decrease. Sales for the first nine
months of 1998 declined to $231,102 from $247,315 for the first nine months of
1997, a 6.6 percent decrease. The decline in total sales includes the effect of
closing the Decatur, Georgia store in December 1997 and, to a much lesser
extent, the withdrawal from the personal computer business in Dayton and
Cincinnati. These factors will continue to have an unfavorable effect on total
store sales throughout 1998.
Comparable store sales decreased 4.2 percent for the three months ended
September 1998, and decreased 4.6 percent for the first nine months of 1998. The
percentage increases (decreases) in sales by market area were as follows:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
TOTAL COMPARABLE TOTAL COMPARABLE
STORES STORES STORES STORES
Dayton (3)% (3)% (2)% (2)%
Cincinnati (16) (16) (16) (16)
Atlanta (4) 3 (4) 3
Tampa (4) (4) (7) (7)
Overall, 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.
Sales by major product category as a percentage of total sales follows:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
1998 1997 1998 1997
Furniture 39% 36% 40% 37%
Bedding 14 13 14 13
Major Appliances 25 28 25 26
Consumer Electronics 17 17 16 18
Extended Warranty Contracts and Other 5 6 5 6
========== ========== ========== ==========
100% 100% 100% 100%
========== ========== ========== ==========
In late 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
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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 0.7 percent during the first nine months of 1998. Sales of
third-party warranty contracts became comparable in the second quarter of 1998.
For the three months ended September 1998, gross profit was $25,460, or 32.4
percent of sales, as compared to $27,744, or 33.1 percent of sales, for the
three months ended September 1997. Gross profit for the nine months ended
September 1998 was $73,237, or 31.7 percent of sales, as compared to $80,991, or
32.8 percent of sales, for the nine months ended September 1997. The majority of
the decline in gross profit margin percentage in 1998 reflects the liquidation
at reduced selling prices of certain aged inventories and inventories from
certain vendors that are being de-emphasized or discontinued. Partially
offsetting the decline in gross margin percentage were the above-mentioned sales
of third-party extended warranty contracts, which favorably affected gross
margins as a percentage of sales by approximately 0.3 percent in the first nine
months of 1998. The effect of the sale of third-party warranty contracts on
gross margin as a percentage of sales became comparable in the second quarter of
1998.
Gross margin percentages for the first nine months of 1998 by category were
approximately 36 percent for furniture, 45 percent for bedding, 21 percent for
major appliances and 17 percent for consumer electronics. The gross margin
percentages for the first nine months of 1998, as compared to 1997, remained
steady for bedding, while furniture, major appliances and consumer electronics
gross margins declined. Contributing to the decline in gross margin percentage
for furniture and consumer electronics was the above mentioned liquidation of
certain aged and de-emphasized merchandise. The bulk of this liquidation is now
complete; however, the Company will be eliminating some remaining pockets of
unproductive inventory in the fourth quarter of 1998 at below-normal margins.
Product prices and margins in consumer electronics and appliances continued to
be under pressure during the first nine months of 1998, as a result of
competitive conditions in these categories.
For the three months ended September 1998, selling, delivery, and administrative
expenses, which include occupancy costs, were $27,096, or 34.4 percent of sales,
as compared to $27,518, or 32.8 percent of sales in 1997. Selling, delivery, and
administrative expenses for the nine months ended September 1998 were $79,562,
or 34.4 percent of sales, as compared to $82,306, or 33.3 percent of sales in
1997. The increase in expenses as a percentage of sales for the three months
ended September 30 1998, as compared to 1997, was primarily due to increases in
selling and warehouse expenses to support the clearance of aged and discontinued
merchandise. Selling, delivery and administrative expenses for the three months
ended September 1998 reflect reduced net advertising and the use of different
media mixes; reduced property taxes due to a reduction in the assessed value of
certain properties; a reduction in worker's compensation expense as a result of
a change to insured programs in Georgia and Florida; and a reduction in property
insurance expenses due to a change in insurance carriers. These decreases were
offset in part by increases in selling and warehouse expenses to support the
clearance of aged and discontinued merchandise and an increase in workers'
compensation costs in the Ohio market. Selling, delivery and administrative
expenses for the nine months ended September 1998 increased as a percentage of
sales due to the above mentioned selling and warehousing expenses. These
increases were offset in part by a one-time refund of premiums of $1,053 and a
75 percent rate reduction for the first half of 1998 to all participants in the
State of Ohio workers' compensation fund and a decrease in advertising and
promotion expenses.
Interest expense, net of interest income, decreased to $1,794, or 2.3 percent of
sales, for the three months ended September 1998 compared to $1,860, or 2.2
percent of sales, for the comparable period in 1997. For the nine months ended
September 1998 and 1997, net interest expense was $5,278, or 2.3 percent of
sales, and $5,694 or 2.3 percent of sales. The decrease in interest expense in
1998 resulted primarily from a reduction in merchandise inventories, which
resulted in a decrease in the related indebtedness incurred to carry such
inventories. This decrease in interest expense as a result of the reduced
borrowings will be partially offset in the future by an increase in the interest
rate on the borrowings under the line of credit. The interest rate increased
from the lower of (a) the prime rate or (b) various LIBOR rates plus 1.55
percent, to prime plus 1% (9.25% at September 30, 1998).
Finance participation income, which consists of income from participation in the
Company's private label credit card program, was $816, or 1.0 percent of sales,
for the three months ended September 1998, as compared to $932, or 1.1 percent
of sales, for the comparable period in 1997, and was $2,359, or 1.0 percent of
sales, for the nine months ended September 1998, as compared to $2,312, or 0.9
percent of sales, for the comparable period in 1997. Finance participation
during the three and nine months ended September 1998 fluctuated from 1997 as a
result of ongoing changes in the relative mix of income-generating finance
programs compared to longer-term, same-as-cash programs that generate financing
expense. Such shifts may occur again in the future, thereby affecting the
Company's finance participation income.
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Other income increased to $884, or 1.1 percent of sales, for the three months
ended September 1998 as compared to $806, or 1.0 percent of sales, for the
comparable period in 1997. For the nine months ended September 1998, other
income increased to $2,634, or 1.1 percent of sales, as compared to $2,563, or
1.0 percent of sales, for the comparable period in 1997. The majority of other
income consists of cash discounts and rental income from tenants. The increase
in other income for the three and nine months ended September 1998 is a result
of the Company taking advantage of various cash discounts offered by its
vendors.
Income tax benefit for the nine months ended September 1998 was $2,270, or
approximately 34% of the loss before taxes, as compared to $735, or 34% of the
loss before taxes, in 1997. The disproportionate provision for income taxes
reflects minimum taxes imposed by certain jurisdictions and a valuation reserve
for certain state operating loss carryforwards for which the Company has
determined that it is more likely than not will not yield a benefit in the
future.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $3,134 of cash from operating activities during the first
nine months of 1998. Cash of $7,558 was provided from a reduction in merchandise
inventories as the Company continued to review its assortment and stocking
requirements in an effort to better match consumer demand and increase inventory
turns. Funds generated from the reduction of merchandise inventories were
utilized in part by declines of $2,987 in accounts payable and $2,711 in the
balance of deferred warranty revenue. The Company's accounts payable balance has
declined as the result of reduced levels of purchasing and as the Company has
taken advantage of various cash discounts offered by its vendors. As a result of
the Company's ability to generate cash flow from operating activities for the
first nine months of 1998, the Company was able to reduce its indebtedness by
$3,628.
During the first nine months of 1998, capital expenditures totaled $1,145. These
expenditures primarily represented normal replacement and upgrade projects. The
Company has no significant expansion or capital expenditure plans for the
balance of 1998 and for 1999 other than normal replacement, repair, and upgrade
projects, and existing store refurbishment.
In order to extend the maturity and to reduce the rate of interest, the Company
refinanced the mortgage on its Vandalia, Ohio store in February 1998. The
refinanced amount requires monthly principal and interest payments of $29 over a
15 year period, and bears interest at 7.64%.
The revolving bank line of credit agreement, which was amended as of June 30,
1998, expires in January 2000. The amount available under the line is limited to
the lesser of: (a) $30,000, or (b) an amount based upon a percentage of eligible
accounts receivable and inventory less excess customer deposits. At September
30, 1998, $25,041 was available under the line of which $16,200 was outstanding.
The amendments to the bank line of credit relaxed certain covenants in order for
the Company to remain in compliance with those covenants. At the Company's
request, the maximum amount of the line was reduced from $35,000 to $30,000,
because the additional capacity was no longer needed in light of the Company's
reduced capital expenditures and it reduced the Company's fees on the unused
portion of the line. The Company believes that the amounts that will be
available under the line during the fourth quarter of 1998 will be sufficient to
finance its seasonal buying requirements.
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 become increasingly
restrictive over time. In order to remain in compliance with the covenants at
December 31, 1998, the Company's operations will need to be similar to those
experienced in the fourth quarter of 1997. The Company expects to sustain a loss
in the fourth quarter of 1998 as the Company makes adjustments to the business
and liquidates the remaining pockets of unproductive inventory. As a result, it
is likely that the Company will need to seek amended covenants in order to
remain in compliance. The Company has no assurance that such approvals, if
necessary, will be granted. If such approvals are not obtained, the Company will
seek alternative financing sources. While the Company believes that such
financing can be obtained, there can be no assurance that it can be obtained at
all, or that it can be obtained on terms or at rates comparable to those in the
existing agreement or acceptable to the Company.
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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. The
Company's operating results for the full year are highly dependent upon the
success of the Company's operations in the fourth quarter.
STRUCTURE OF THE BUSINESS
In October 1998, the Company announced a new management structure. Under the new
structure, the Company has been divided into two parts. The merchandising,
stores and marketing functions report to Mr. Melvin H. Baskin, the Company's
Chief Executive Officer. The support functions, which include accounting and
control, treasury, information systems, warehousing and distribution, and human
resources, report to Robert M. Wilson as the newly named President of the
Company.
OUTLOOK
The Company engaged one of the national management consulting firms to review
its operations and identify opportunities for performance improvement, and the
firm delivered its report in November 1997. Since then, the Company has devoted
considerable time and attention to the implementation of many of the
recommendations put forth in the report. A number of the initiatives have been
completed; however, the Company is still actively assessing many of the
recommendations and actively implementing many others. These efforts are
expected to continue into 1999.
Since there are no expansion plans for the balance of 1998 and 1999, the Company
will continue to focus on improving business operations and customer service.
Areas of focus include improving the management of inventory, improving
warehouse operations and reducing expenses, improving asset utilization,
reducing store operating expenses, and turning around comparable store sales.
Many of these efforts have required operating expenditures that adversely
affected the Company's financial results for the first nine months of 1998 and
will continue to affect them through the first half of 1999. The Company
believes these initiatives will eventually yield significant improvement in the
Company's operations and profitability and expects improvement in its operating
results as it moves into 1999. They will, however, take time to implement and
may require capital and operating expenditures to implement.
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. It is not clear how the
growing economic problems outside the United States will affect the economy and
consumer confidence. Although the Company has seen a modest reduction in
competitors' use of same-as-cash promotions, consumers continue to respond best
to deep-discount price and finance promotions. This competitive situation is
expected to continue to put pressure on comparable store sales, gross margins,
promotional finance expenses, and operating results. If the economy slows, the
competition can be expected to be even more aggressive.
There are a number of changes occurring in the competitive situation in the
Company's market areas. A national retailer of furniture has completed its
withdrawal from the Cincinnati and Atlanta markets, and is withdrawing from the
Tampa market. A regional furniture retailer has announced its expansion in the
Cincinnati market and entry into the Dayton market during the fourth quarter of
1998. These expansions will likely continue to put pressure on sales and gross
margins.
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YEAR 2000 ISSUE
The Company has reviewed its primary and secondary information systems for Year
2000 issues. The Company's primary management information and credit-card
processing systems are provided by third-party vendors that have assured the
Company that their systems will be Year 2000 compliant by the end of 1998. The
Company believes that the costs related to the conversion of the credit-card
processing system will be insignificant. The Company expects the costs to
upgrade the software and hardware for its primary management information system
to be less than $200,000. The majority of the expenditures will be for hardware
upgrades to accommodate new software. No expenditures have occurred to date. The
Company expects to make all of the expenditures by the end of the first quarter
of 1999.
The Company has identified several secondary information systems, such as
payroll, delivery, telephone, personal computer, and service department systems,
that will require software and hardware upgrades and conversions to be Year 2000
compliant. The Company expects these costs to be less than $400,000. The
majority of the costs are expected to be incurred on software to incorporate the
Company's service departments into the primary management information system.
Only a minor portion of these expenditures has occurred to date. The Company
expects to make all such expenditures by mid-1999.
Because the Company is engaged in the sale of consumer products, it does not
believe that it has any material risk with respect to Year 2000 issues for its
customers. The Company has not assessed the impact of Year 2000 issues on its
merchandise suppliers; however, the Company is not aware of any material Year
2000 risks with respect to them. The Company does not rely on electronic data
interchange ("EDI") systems to deal with its suppliers. Because no single
merchandise supplier represents more than approximately nine percent of the
Company's purchases, the Company does not believe that there is any material
Year 2000 risk with respect to its suppliers, but is assessing its suppliers'
compliance activities.
The capital expenditures described above will be funded from the Company's
on-going maintenance and replacements budget, and are not expected to result in
the deferral of any planned expenditures. Based on its assessment of the Year
2000 issue to date, the Company has not developed any contingency plans for the
failure of major or secondary information systems. In the event one or more
merchandise suppliers are not Year 2000 compliant, the Company would shift its
purchasing to those suppliers that are compliant.
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:
A. 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.
B. 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.
C. 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 tornadoes, 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.
D. Changes in the competitive environment in the Company's market areas,
including the bankruptcy or liquidation of existing competitors.
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E. 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.
F. The availability and cost of adequate, appropriate newspaper, television, and
pre-printed advertising. A strike or work stoppage affecting the Company's media
outlets.
G. Adverse results in litigation matters.
H. 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.
I. The availability of appropriate sites for expansion, on favorable terms, and
the long-term receptivity of consumers to new store formats and locations.
J. Access to bank lines of credit and real estate mortgage financing sources at
favorable rates of interest, terms, and conditions.
K. Access to additional equity capital to fund the Company's long-term
expansion.
L. 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.
M. 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.
N. 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.
O. The absence of new products in the Company's product categories that would
drive additional consumer interest and purchases.
P. 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.
Q. 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.
R. 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.
S. 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 or
workers' compensation arrangements.
T. New competition from alternative sales media and channels of distribution,
such as catalog mail order, telemarketing, television shopping services, and
online media.
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U. 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.
V. Changes in the cost or availability of liability, property, and health
insurance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not
applicable.
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PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 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, 1998.
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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 October 23, 1998 /s/ Robert M. Wilson
---------------- ----------------------------
Robert M. Wilson
President
Chief Financial Officer
Date October 23, 1998 /s/ Michael A. Bruns
---------------- ------------------------
Michael A. Bruns
Vice President
Controller
Chief Accounting Officer
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EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10.1 Employment Agreement, dated July 6, 1998, between the
Registrant and Melvin H. Baskin, Chief Executive
Officer
27.1 Financial data schedule
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