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 June 30, 1999
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 July 23, 1999, 6,159,311
common shares, without par value, were outstanding.
Page 1 of 27
2
ROBERDS, INC. AND SUBSIDIARY
INDEX
PAGE
NUMBER
------
PART 1. FINANCIAL INFORMATION:
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements Of
Operations - Three and Six Months Ended
June 30, 1999 and 1998 4
Condensed Consolidated Statements
of Cash Flows - Six Months Ended
June 30, 1999 and 1998 5
Notes to Condensed Consolidated
Financial Statements 6
ITEM 2. Management's Discussion
and Analysis of Financial
Condition and Results
of Operations 9
ITEM 3. Quantitative and Qualitative
Disclosures About Market Risk 14
PART II. OTHER INFORMATION:
ITEMS 1-3. Inapplicable 15
ITEM 4. Submission of Matters to Vote of Security Holders 15
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports
on Form 8-K 16
Page 2 of 27
3
ROBERDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30 DECEMBER 31
1999 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,559 $932
Receivables:
Customers 660 921
Vendors and other 1,548 2,390
Merchandise inventories 44,915 43,937
Refundable income taxes 58 2,360
Prepaid expenses and other 1,975 1,983
----------- ----------
Total current assets 50,715 52,523
Property and equipment, net 90,423 92,085
Certificates of deposit, restricted 2,346 2,331
Other assets 1,733 1,269
----------- ----------
$145,217 $148,208
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $11,926 $14,130
Accrued expenses 8,550 11,510
Customer deposits 11,793 11,573
Litigation 1,271 1,271
Deferred warranty revenue-current 2,069 2,580
Current maturities of long-term debt 3,536 2,945
----------- -----------
Total current liabilities 39,145 44,009
Long-term debt including capital leases 74,592 70,065
Deferred rent 1,858 1,831
Deferred warranty revenue 1,736 2,631
SHAREHOLDERS' EQUITY:
Common stock 616 611
Additional paid-in capital 32,407 32,332
Deficit (5,137) (3,271)
----------- -----------
Total shareholders' equity 27,886 29,672
----------- -----------
$145,217 $148,208
=========== ===========
See notes to condensed consolidated financial statements.
Page 3 of 27
4
ROBERDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
NET SALES AND SERVICE REVENUES $68,950 $73,894 $141,383 $152,406
COST OF SALES 43,636 50,798 90,474 104,629
----------- ----------- ----------- ----------
Gross profit 25,314 23,096 50,909 47,777
SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES 26,793 24,778 53,477 52,466
INTEREST EXPENSE, NET 1,747 1,799 3,436 3,484
FINANCE PARTICIPATION INCOME (736) (743) (1,413) (1,543)
OTHER INCOME, NET (834) (890) (2,725) (1,750)
----------- ----------- ----------- ----------
LOSS BEFORE TAX BENEFIT (1,656) (1,848) (1,866) (4,880)
INCOME TAX BENEFIT (630) (1,690)
----------- ----------- ----------- ----------
NET (LOSS) (1,656) ($1,218) (1,866) ($3,190)
=========== =========== =========== ==========
BASIC AND DILUTED NET (LOSS) PER COMMON SHARE ($0.27) ($0.20) ($0.30) ($0.53)
=========== =========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC AND DILUTED 6,159 6,044 6,151 6,037
=========== =========== =========== ==========
See notes to condensed consolidated financial statements.
Page 4 of 27
5
ROBERDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS JUNE 30
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,866) ($3,190)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 4,202 4,425
LIFO reserve 166 575
Changes in assets and liabilities, net (4,067) (2,290)
---------- ----------
Net cash used in operating activities (1,565) (480)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (939) (769)
Proceeds from sales of fixed assets 46 42
Other (279) (465)
---------- ----------
Net cash used in investing activities (1,172) (1,192)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (18,983) (4,139)
Proceeds from long-term debt 22,543 7,000
Net proceeds from issuance of common shares 80 89
Debt issuance costs (276) (31)
---------- ----------
Net cash provided by financing activities 3,364 2,919
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS
627 1,247
CASH AND CASH EQUIVALENTS - Beginning of period 932 2,494
---------- ----------
CASH AND CASH EQUIVALENTS - End of period $1,559 $3,741
========== ==========
CASH PAID (REFUNDED) FOR:
Interest $3,505 $3,506
========== ==========
Income taxes ($2,130) ($75)
========== ==========
NON-CASH TRANSACTION:
Capital Lease $1,558
==========
See notes to the condensed consolidated financial statements
Page 5 of 27
6
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, 1998 is condensed from the
audited financial statements. The accompanying unaudited condensed consolidated
balance sheet at June 30, 1999, the condensed consolidated statements of
operations for the three and six months ended June 30, 1999 and 1998, and the
condensed consolidated statements of cash flows for the six months ended June
30, 1999 and 1998, 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, 1998 included in Form 10-K. The results of operations for the
six months ended June 30, 1999 may not be indicative of the results for the year
ending December 31, 1999.
B. DEBT
JUNE 30 DECEMBER 31
1999 1998
Mortgage notes payable $42,999 $44,138
Revolving line of credit 22,543 17,500
Capital lease obligations 12,586 11,372
----------- -----------
78,128 73,010
Less current maturities 3,536 2,945
----------- -----------
$74,592 $70,065
=========== ===========
During the second quarter of 1999, the Company took delivery of a new computer
hardware and software system, which was financed by a $1,558 capital lease. The
lease requires payments of $49 per month for 36 months.
In March 1999, the Company refinanced its revolving line of credit. The
refinanced line expires in February 2004. 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 inventory, which varies seasonally. At June 30, 1999, $24,997 was
available under the line, of which $22,543 was outstanding. The line of credit
bears interest at either the bank's base rate (7.75% at June 30, 1999) or LIBOR
plus 2.25% (7.30% at June 30, 1999) at the option of the Company.
The line of credit includes certain restrictive covenants including, among
others, limitations on capital expenditures, and the aggregate amount of funded
debt. The line prohibits the payment of dividends. The line also requires the
maintenance of a minimum fixed-charge-coverage ratio, which becomes increasingly
restrictive over time. In order to comply with this covenant, the Company must
improve operations significantly during 1999 over the actual results experienced
during 1998. Several of the Company's mortgage notes payable also include
restrictive covenants, including the maintenance of maximum debt to net worth
ratios and a requirement to maintain a minimum of $25,000 of tangible net worth.
Page 6 of 27
7
C. NET SALES AND SERVICE REVENUE
Net sales and service revenue includes the following products:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
Furniture $29,264 $28,137 $59,822 $59,070
Bedding 9,535 10,282 18,884 20,683
Appliances 15,690 19,928 30,552 37,790
Electronics 9,719 10,387 22,719 24,442
Other 4,742 5,160 9,406 10,421
============= ============== ================= ================
$68,950 $73,894 $141,383 $152,406
============= ============== ================= ================
D. BUSINESS SEGMENTS
The Company has identified the three geographic market areas in which it
operates as segments. A summary of the Company's operations by segment follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
EARNINGS NET SALES EARNINGS
(LOSS) BEFORE (LOSS)
NET SALES INCOME TAXES BEFORE
INCOME TAXES
1999
- ----
Ohio $32,280 $438 $65,658 $1,632
Georgia 22,392 (969) 45,777 (1,126)
Florida 14,278 (1,125) 29,948 (2,372)
------------------- --------------- ---------------- -------------
$68,950 ($1,656) $141,383 ($1,866)
=================== =============== ================ =============
1998
- ----
Ohio $36,607 $1,552 $75,343 $1,609
Georgia 22,557 (1,085) 46,025 (2,517)
Florida 14,730 (2,315) 31,038 (3,972)
------------------- --------------- ---------------- -------------
$73,894 ($1,848) $152,406 ($4,880)
=================== =============== ================ =============
Included in the operating results of the Company's segments are certain
corporate and non-segment expenses that have been allocated to the segments. For
the six months ended June 30, 1999, segment earnings (loss) before income taxes
include $1,102 of life insurance proceeds from the death of the Company's
chairman. The proceeds were allocated to each segment utilizing the same
methodology that is utilized to allocate corporate and non-segment expenses. For
the three and six months ended June 30, 1998, the Ohio segment earnings include
a refund of premiums of $1,053 to all participants in the State of Ohio's
workers' compensation fund.
Page 7 of 27
8
E. INCOME TAXES
Income tax benefit for the six months ended June 30, 1998 consists of the
following:
Currently refundable:
Federal $(2,016)
State and Local (70)
-----------
(2,086)
Deferred 396
===========
$(1,690)
===========
A tax benefit was not recognized on the loss for the three and six months ended
June 30, 1999 because a valuation reserve was provided for all deferred tax
benefits, including the net operating loss carryforward generated during 1999.
The reserve was deemed necessary as a result of the uncertainty of the
recoverability of such tax benefits.
Page 8 of 27
9
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 six months of 1999 resulted in a loss before tax benefit of $(1,866)
as compared to a loss before tax benefit of $(4,880) for the first six months of
1998. Sales for the three months ended June 1999 declined to $68,950 from
$73,894 for the three months ended June 1998, a 6.7 percent decrease. Sales for
the first half of 1999 declined to $141,383 from $152,406 for the six months
ended June 1998, a 7.2 percent decrease. All stores were comparable in 1999.
The percentage decreases in total and comparable sales by market area were as
follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
Ohio (12%) (13%)
Georgia (1) (1)
Florida (3) (4)
Sales by major product category as a percentage of total sales were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
Furniture 42% 38% 42% 39%
Bedding 14 14 13 14
Appliances 23 27 22 25
Electronics 14 14 16 16
Other 7 7 7 6
============== ============= ============ =============
100% 100% 100% 100%
============== ============= ============ =============
Furniture sales continued to increase as a percentage of total sales as the
Company continued to increase its emphasis of this high margin category. The
major appliance decline as a percentage of total sales reflects a highly
competitive retailing environment and a lack of new products in this category.
Appliance sales may represent a reduced portion of its total sales for the
foreseeable future as the Company continues to focus on expanding the higher
margin furniture and bedding categories.
For the three months ended June 1999, gross profit was $25,314, or 36.7 percent
of sales, as compared to $23,096, or 31.3 percent of sales, for the three months
ended June 1998. For the six months ended June 1999, gross profit was $50,909,
or 36.0 percent of sales, as compared to $47,777, or 31.3 percent of sales, for
the six months ended June 1998. Gross margin percentages by category were as
follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
Furniture 42% 32% 41% 33%
Bedding 46 44 47 44
Appliances 24 22 23 21
Electronics 19 16 20 17
The increase in gross profit margin percentage of 5.4 and 4.7 percent of sales
for the three and six months ended June 1999, as
Page 9 of 27
10
compared to 1998, reflects the sales floor controls and disciplines that were
implemented during the first quarter of 1999, a focus on higher margin products,
a reduction in inventory shrinkage, and a decrease in the provision for LIFO.
The overall gross margin percentage in 1998, and the furniture category gross
margin in particular, was adversely affected by the aggressive liquidation at
reduced selling prices of certain aged inventories and inventories from vendors
that were being de-emphasized or discontinued. This liquidation was completed in
the fourth quarter of 1998. The Company expects that the increase in gross
margin as a percentage of sales will be maintained through 1999.
For the three months ended June 1999, selling, delivery, and administrative
expenses, which include occupancy costs, were $26,793, or 38.9 percent of sales,
as compared to $24,778, or 33.5 percent of sales, for the comparable period in
1998. Selling, delivery, and administrative expenses for the six months ended
June 1999 were $53,477, or 37.8 percent of sales, as compared to $52,466, or
34.4 percent of sales, for the comparable period in 1998. The increase in
expenses as a percentage of sales for the three and six months ended June 1999,
as compared to 1998, resulted from (a) increased workers compensation expense as
the result of a refund of premiums of $1,053 from the State of Ohio workers'
compensation fund in 1998, (b) increased advertising and promotional credit
expenses, (c) increased commissions to sales associates for sales of higher
margin products, (d) increased warehouse and store management salaries required
to institute various warehouse and store based initiatives and, (e) the effect
of fixed costs in light of the Company's decline in comparable store sales.
These increases were offset in part by an increase in the collection of delivery
fees and an overall expense reduction and containment program.
Interest expense, net of interest income, remained relatively steady for the
three and six months ended June 1999, as compared to 1998, as a result of the
average outstanding borrowings remaining relatively constant during those
periods.
Finance participation income, which consists of income from participation in the
Company's private label credit card program, was $736, or 1.1 percent of sales,
for the three months ended June 1999, as compared to $743, or 1.0 percent of
sales, for the comparable period in 1998, and was $1,413, or 1.0 percent of
sales, for the six months ended June 1999, as compared to $1,543, or 1.0 percent
of sales, for the comparable period in 1998. While participation for the three
and six months ended June 1999 as compared to 1998 remained constant, ongoing
changes in the use of income-generating finance programs compared to longer
- -term, same-as-cash programs that generate financing expense, may affect the
Company's finance participation income in the future.
Other income decreased to $834, or 1.2 percent of sales, for the three months
ended June 1999 as compared to $890, or 1.2 percent of sales, for the comparable
period in 1998. For the six months ended June 1999, other income increased to
$2,725 or 1.9 percent of sales, as compared to $1,750, or 1.1 percent of sales,
for the comparable period in 1998. The majority of other income for the three
months ended June 1999 and June 1998 consists of cash discounts and rental
income from tenants. Other income in the first six months of 1999 includes
$1,102 of life insurance proceeds received as a result of the death of the
Company's chairman.
Loss before income taxes was $1,866 for the first six months of 1999, compared
to a loss before income taxes of $4,880 in 1998. No income tax benefit was
provided for 1999, compared to $1,690, or 35% of the loss before taxes, in 1999.
A tax benefit was not recognized on the loss for 1999 because a valuation
reserve was provided for all deferred tax benefits, including the net operating
loss carryforward generated during 1999. The reserve was deemed necessary as
result of the uncertainty of the recoverability of such tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased to $1,559 at June 30, 1999, compared to $932 at December 31,
1998. The Company utilized $1,565 of cash for operating activities during the
first six months of 1999. Cash of $2,204 was utilized to reduce the outstanding
accounts payable balance as the Company reduced levels of purchasing and took
advantage of various cash discounts offered by its vendors. Additionally, $2,960
was utilized to reduce accrued liabilities, reflecting the payment of a portion
of the disputed premiums to the Ohio Bureau of Workers Compensation, lower
premium rates for Ohio workers compensation for the first six months of 1999,
and a seasonal reduction in accrued sales tax. Seasonal purchases of air
conditioning inventories also utilized $1,144. Cash flow from operating
activities benefited by the receipt of $2,302 of refundable income taxes in the
first six months of 1999. Cash utilized in operating activities in the first six
months of 1999 was financed through the Company's revolving line of credit.
Based on the Company's operating plan, the Company expects to generate positive
cash flow from operating activities for the remaining portion of 1999.
Page 10 of 27
11
During the first six months of 1999, the Company's capital expenditures,
excluding capitalized leases, totaled $939. These expenditures primarily
represented normal replacement and upgrade projects. During the second quarter
of 1999, the Company took delivery of a new computer hardware and software
system, which was financed by a $1,558 capital lease. The installation of that
system is approaching completion. The lease requires payments of $49 per month
for 36 months. The Company also has outstanding commitments to acquire delivery
vehicles and warehouse equipment totaling approximately $3,400. A majority of
these vehicles were received during the first half of 1999 with the balance to
be received in the third quarter of 1999. These vehicles and equipment will be
financed through operating leases. The Company has no other significant
expansion or capital expenditure plans for 1999 other than normal replacement,
repair, and upgrade projects, and existing store refurbishment.
In March 1999, the Company refinanced its revolving line of credit. The
refinanced line expires in February 2004. 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 inventory, which varies seasonally. At June 30, 1999, $24,997 was
available under the line, of which $22,543 was outstanding. The line of credit
bears interest at either the bank's base rate (7.75% at June 30, 1999) or LIBOR
plus 2.25% (7.30% at June 30, 1999).
The line of credit includes certain restrictive covenants including, among
others, limitations on capital expenditures and the aggregate amount of funded
debt. The line prohibits the payment of dividends. The line also requires the
maintenance of a minimum fixed-charge-coverage ratio, which becomes increasingly
restrictive over time. In order to comply with this covenant, the Company must
improve operations significantly during 1999 over the actual results experienced
during 1998. Such improvements in operations are expected based upon the
Company's 1999 business plan. If such improvements are not achieved, the Company
will have to renegotiate the covenants in order to remain in compliance.
Several of the Company's mortgage notes payable also include restrictive
covenants, including the maintenance of maximum debt to net worth ratios and a
requirement to maintain a minimum of $25,000 of tangible net worth. If these
covenants can not maintained, the Company will have to renegotiate the covenants
in order to remain in compliance.
The Company has no assurance that the renegotiations discussed above, if
necessary, will be successful. If such renegotiations are not successful, 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.
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
During 1999, the Company will continue to focus on improving business operations
and customer service. Areas of focus include imposing new selling-floor
disciplines, improving warehouse operations and delivery performance, improving
the management of inventory, improving asset utilization, reducing store
operating expenses, and turning around comparable store sales. The Company
believes these initiatives will yield improvement in the Company's operations
during 1999 and beyond.
The Company's principal focus during the second half of 1999 will be the
strengthening of its sales force. The Company believes that an experienced,
professional sales force is one of the primary elements necessary for its
success, and will be a long-term competitive advantage. Therefore the Company
will be focussing its efforts on implementing sales-floor disciplines that will
attract, support, motivate, and retain professional sales associates. These
changes are planned to occur throughout 1999.
In May 1999 the commissioned sales associates in the Company's Ohio region voted
to be represented by the United Food and Commercial Workers, Local 1099
("UFCW"), at an election supervised by the National Labor Relations Board. The
Company and the UFCW are bargaining toward an agreement. It is not possible to
predict when an agreement might be reached with the employees and the effect, if
any, on the Company's financial position, operating results, or the plans to
strengthen the sales force described above.
Page 11 of 27
12
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. Consumers continue to
respond best to deep-discount price and finance promotions. This situation is
expected to continue to put pressure on comparable store sales, 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. During the first quarter of 1999, a regional furniture
retailer has entered the Dayton market and a regional appliance and electronics
retailer entered the Cincinnati market area. These expansions will likely
continue to put pressure on comparable store sales.
YEAR 2000 READINESS DISCLOSURE
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. The Company believes
that its costs related to the conversion of the credit-card processing system
will be insignificant. The costs to upgrade the software and hardware for its
primary management information system will be approximately $1,700, of which
$1,558 was expended in the second quarter of 1999. This expenditure was financed
through a capital lease. The majority of the expenditures are for hardware
upgrades to accommodate new software. The Company expects to make all of the
expenditures by the third 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 $600. 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 small
portion of these expenditures has occurred to date. The Company expects to make
all such expenditures by late 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 transact business 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 monitoring its suppliers'
compliance activities.
The expenditures for the hardware upgrades to the primary management information
system will be financed through leasing arrangements. The remaining 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 most
likely worst case scenario 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 can
supply the Company.
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.
Page 12 of 27
13
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.
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.
Page 13 of 27
14
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.
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.
Page 14 of 27
15
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
The annual meeting of the Company's shareholders was held on April 30, 1999.
Three of the Company's directors were re-elected to two-year terms ending in
2001 upon a vote as follows:
NAME FOR AGAINST ABSTAIN
Melvin H. Baskin 4,971,236 1,325 454,057
Robert M. Wilson 4,972,136 1,325 453,157
Dr. James F. Robeson 4,974,736 1,325 450,557
The following directors' terms of office continue until the annual meeting of
the Company's shareholders to be held in 2000: Messrs. Jerry L. Kirby, Howard W.
Smith, Gilbert P. Williamson, and Donald C. Wright. Additionally, an amendment
to the Roberds Inc. Stock Incentive Plan to increase the number of shares
subject to the plan was approved upon a vote as follows:
For 3,765,951
Against 593,245
Abstain 23,770
Broker Non-Vote 1,043,652
ITEM 5. OTHER INFORMATION
In October 1998, The Nasdaq Stock Market ("Nasdaq") informed the Company that it
failed to meet one of the requirements for continued listing on the Nasdaq
National Market tier, specifically the requirement that at least $5 million of
stock be held by individuals other than officers, directors, and those who own
more than ten percent of the Company's outstanding shares. The Company appealed
the Nasdaq's determination, and requested additional time to meet the
requirement. On June 21, 1999, Nasdaq ruled that the Company failed to present a
definitive plan that will enable it to regain compliance with the market value
of public float requirements within a reasonable period of time. As a result of
Nasdaq's determination, trading of the Company's stock was moved from the Nasdaq
National Market tier to the Nasdaq SmallCap Market. In order to remain listed on
that market, the Company was required to complete an application for listing and
demonstrate to Nasdaq that the Company meets the SmallCap requirements. The
Company has submitted the required application and believes that it meets the
requirements for continued listing on the SmallCap Market, though Nasdaq has not
yet ruled on the application.
On May 15, 1999 the commissioned sales associates in the Company's Ohio region
voted to be represented by the United Food and Commercial Workers, Local 1099
("UFCW"), at an election supervised by the National Labor Relations Board. The
Company and the UFCW are bargaining toward an agreement. It is not possible to
predict when an agreement might be reached with the employees and the effect, if
any, on the Company's financial position or operating results.
Page 15 of 27
16
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 June 30, 1999.
Page 16 of 27
17
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 July 29, 1999 /s/ Robert M. Wilson
----------------------------- ---------------------
Robert M. Wilson
President
Chief Administrative Officer
Date July 29, 1999 /s/ Michael A. Bruns
----------------------------- ---------------------
Michael A. Bruns
Vice President
Controller
Chief Accounting Officer
Page 17 of 27
18
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10.1 First Amendment to Loan and Security Agreement
10.11 Amended and Restated Employment Agreement, dated as of April 30, 1999, between
Registrant and Billy D. Benton, Executive Vice President - General Merchandise
Manager
27.1 Financial data schedule
Page 18 of 27