-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BLRt+vH/eSOnYy4HJgmoFoeWSl7lCBss077M68LpEKUtogCK5usqkELZnMyFSvMX AyYyqgQGSyQdgIfz9lI6eA== 0000950144-96-004300.txt : 19960716 0000950144-96-004300.hdr.sgml : 19960716 ACCESSION NUMBER: 0000950144-96-004300 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960715 SROS: CSX SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: RHODES INC CENTRAL INDEX KEY: 0000083679 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FURNITURE STORES [5712] IRS NUMBER: 580536190 STATE OF INCORPORATION: GA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09308 FILM NUMBER: 96595005 BUSINESS ADDRESS: STREET 1: 4370 PEACHTREE RD N E CITY: ATLANTA STATE: GA ZIP: 30319 BUSINESS PHONE: 4042644600 MAIL ADDRESS: STREET 1: 4370 PEACHTREE RD N E CITY: ATLANTA STATE: GA ZIP: 30319 10-Q 1 RHODES 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 1996 ------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-9308 -------------------------------------- RHODES, INC. -------------------------------------------------- (Exact name of registrant as specified in its charter) Georgia 58-0536190 -------------------- ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 4370 Peachtree Road, N.E. Atlanta, Georgia 30319 -------------------------------------------------- (Address of principal executive offices) (Zip Code) (404) 264-4600 -------------------------------------------------- (Registrant's telephone number, including area code) NONE -------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of June 30, 1996: 9,149,964 shares of common stock without par value. 2 RHODES, INC. INDEX Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets - - May 31, 1996 and February 29, 1996 Condensed Consolidated Statements of Operations for the Three Months Ended May 31, 1996 and May 31, 1995 Condensed Consolidated Statements of Cash Flows for the Three Months Ended May 31, 1996 and May 31, 1995 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information Item 6. Exhibits and Reports on Form 8-K I 3 RHODES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) (Unaudited)
MAY 31, FEBRUARY 29, ASSETS 1996 1996 - ------ ------------ ------------- CURRENT ASSETS: Cash $ 63 $ 312 Accounts receivable 5,249 5,212 Inventories at LIFO cost 90,343 87,965 Prepaid expenses and other 6,650 10,072 Deferred tax assets 4,052 2,157 ------------ ------------- Total Current Assets 106,357 105,718 ------------ ------------- PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation and amortization of $41,057 at May 31, 1996 and $39,007 at February 29, 1996. 80,284 75,951 ------------ ------------- CAPITALIZED REAL ESTATE LEASES, at cost, less accumulated amortization of $5,830 at May 31, 1996 and $5,641 at February 29, 1996. 6,114 6,304 ------------ ------------- INTANGIBLE ASSETS, net Goodwill 62,297 62,482 Favorable leases 2,799 2,962 Other intangibles 2,387 2,488 ------------ ------------- Total Intangible Assets 67,483 67,932 ------------ ------------- OTHER ASSETS 5,631 5,854 ------------ ------------- TOTAL ASSETS $ 265,869 $ 261,759 ============ ============= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Current maturities of long-term debt and capital lease obligations $ 14,445 $ 12,695 Accounts payable 44,121 47,745 Accrued interest 2,152 1,000 Accrued liabilities 25,689 25,912 Deferred income 12,396 11,247 Current portion deferred gain--sale/leasebacks 318 318 ------------ ------------- Total Current Liabilities 99,121 98,917 ------------ ------------- DEFERRED INCOME TAXES 6,862 6,862 ------------ ------------- LONG-TERM DEBT, less current maturities 77,454 70,642 ------------ ------------- OBLIGATIONS UNDER CAPITAL LEASES 12,659 12,928 ------------ ------------- DEFERRED GAIN--SALE/LEASEBACKS 2,283 2,390 ------------ ------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common Stock, no par value, 20,000 shares authorized and 9,150 and 9,134 outstanding at May 31, 1996 and February 29, 1996 --- --- Paid-in Capital 99,839 99,709 Accumulated deficit (32,349) (29,689) ------------ ------------- Total Shareholders' Equity (Deficit) 67,490 70,020 ------------ ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 265,869 $ 261,759 ============ =============
The accompanying notes are an integral part of these consolidated balance sheets. 1 4 RHODES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data) (Unaudited)
THREE MONTHS THREE MONTHS ENDED ENDED MAY 31, 1996 MAY 31, 1995 ------------ ------------ NET SALES $ 119,726 $ 89,439 COST OF GOODS SOLD 65,501 46,344 ------------ ------------- GROSS PROFIT 54,225 43,095 ------------ ------------- FINANCE CHARGES AND INSURANCE COMMISSIONS 1,797 1,684 ------------ ------------- OPERATING EXPENSES: Selling 19,994 14,770 General and administrative 37,291 24,580 Amortization of intangibles 714 722 Provision for credit losses 71 21 Other (income) expense, net (50) 91 ------------ ------------- 58,020 40,184 ------------ ------------- OPERATING INCOME (LOSS) (1,998) 4,595 Interest expense, net 2,510 1,532 ------------ ------------- INCOME (LOSS) BEFORE INCOME TAXES (4,508) 3,063 PROVISION (BENEFIT) FOR INCOME TAXES (1,848) 1,256 ------------ ------------- NET INCOME (LOSS) $ (2,660) $ 1,807 ============ ============= NET INCOME (LOSS) PER SHARE OF COMMON STOCK $ (0.29) $ 0.19 ============ ============= WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING 9,164 9,379 ============ =============
The accompanying notes are an integral part of these consolidated statements. 2 5 RHODES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
THREE MONTHS THREE MONTHS ENDED ENDED MAY 31, 1996 MAY 31, 1995 ------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (2,660) $ 1,807 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 2,741 1,766 Amortization of intangibles 714 722 Amortization of gain-sale/leasebacks (107) (79) Changes in current assets and liabilities: Receivables, net (37) (155) Inventories (2,378) 1,145 Prepaid expenses and other 3,323 1,938 Deferred tax assets (1,895) Accounts payable and accrued liabilities (2,695) (10,447) Deferred income on warranties, undelivered sales and credit commissions 1,149 1,297 ------------- -------------- Net cash used in operating activities $ (1,845) $ (2,006) ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Retirements of property and equipment, net 150 692 Additions to property and equipment (6,925) (8,398) Additions to intangible assets (264) --- Decrease in other assets, net 212 477 Decrease in obligations under capital leases (269) (311) ------------- -------------- Net cash used in investing activities $ (7,096) $ (7,540) ------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt --- (222) Proceeds from long-term debt 8,562 --- Purchase of stock-employee stock purchase plan 130 178 Repurchase of stock --- (1,313) Proceeds from short-term debt --- 8,209 ------------- -------------- Net cash provided by from financing activities $ 8,692 $ 6,852 ------------- -------------- DECREASE IN CASH (249) (2,694) CASH AT BEGINNING OF PERIOD 312 3,268 ------------- -------------- CASH AT END OF PERIOD $ 63 $ 574 ============= ============== SUPPLEMENTAL DISCLOSURE: CASH PAYMENTS FOR: Interest $ 2,510 $ 1,532 ============= ============== Income taxes (refund) $ (1,406) $ 583 ============= ==============
The accompanying notes are an integral part of these condensed consolidated statements. 3 6 RHODES, INC. PART I FINANCIAL INFORMATION RECENT DEVELOPMENTS On November 1, 1995 Rhodes, Inc. ("Rhodes" or the "Company") and Weberg Enterprises, Inc. ("Weberg") consummated the acquisition of 21 store operations and two distribution center operations from Weberg in the states of Colorado, Texas and Illinois. The store locations purchased recorded over $100 million in sales for the year ended December 31, 1994. The acquisition was accomplished through a purchase of the inventory and operating assets for approximately $31 million, assumption of operating leases on stores owned by third parties and the execution of new operating leases on stores owned by Weberg. Financing was provided primarily through bank credit lines. On December 15, 1995 Rhodes consummated the acquisition of the furniture store operations of The Glick Furniture Company ("Glick's") in Columbus, Ohio, consisting of seven stores and one distribution center. The store locations purchased recorded over $41 million in sales for year ended December 31, 1994. The acquisition was accomplished through a purchase of the inventory and operating assets for approximately $11 million, assumption of operating leases on stores owned by third parties and the execution of new operating leases on stores owned by Glick's. Financing was provided through bank credit lines and a seller note in the amount of $2 million. For additional information concerning the acquisitions, see note 13 to the Company's Financial Statements for the year ended February 29, 1996. On April 29, 1996 the Company reported that it had retained Salomon Brothers Inc. to advise the Company concerning strategic alternatives, including a possible sale of the Company, with an objective of enhancing shareholder value. 4 7 RHODES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MAY 31, 1996 1. BASIS OF PRESENTATION The financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. This information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to a fair statement of the financial position of the Company as of May 31, 1996 and February 29, 1996, the results of operations for the three months ended May 31, 1996 and May 31, 1995, and cash flows for the three months ended May 31, 1996 and May 31, 1995. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. Certain reclassifications of prior years' amounts have been made to conform with fiscal 1997 amounts. These financial statements should be read in conjunction with the historical financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. 2. INTERIM LIFO PROVISIONS The actual valuation of inventory under the LIFO method can be made only at the end of each year based on inventory levels, price indices and costs at that time. Therefore, the interim provisions must be considered as estimates subject to a final year-end LIFO inventory calculation. 5 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED ------------------ (PERCENTAGE OF NET SALES) MAY 31, 1996 MAY 31, 1995 --------------------- --------------------- Net Sales 100.0% 100.0% Cost of Goods Sold 54.7 51.8 ----- ----- Gross Profit 45.3 48.2 ----- ----- Finance Charge and Insurance Commissions 1.5 1.9 ----- ----- Operating Expenses: Selling 16.7 16.6 General and administrative 31.1 27.5 Provision for credit losses 0.1 0.0 Amortization of intangibles 0.6 0.8 Other (income) expense, net (0.0) 0.1 ----- ---- Operating Income (Loss) (1.7) 5.1 Interest expense, net 2.1 1.7 ---- ---- Income (loss) before income taxes (3.8) 3.4 Provision (Benefit) for income taxes (1.5) 1.4 ----- ----- Net income (Loss) (2.2%) 2.0% ===== =====
6 9 OPERATING RESULTS THREE MONTHS ENDED MAY 31, 1996 AND 1995 - COMPARED Net sales increased 33.9% to $119,726,000 from $89,439,000 for the three months ended May 31, 1996 compared with the same period last year. Same store sales decreased 5.9% for the three months ended May 31, 1996. The net loss for the first quarter was $2,660,000, compared with earnings of $1,807,000, for the same quarter last year. The loss per share for the first quarter was $.29 compared with earnings of $.18 per share for the first quarter last year. During the quarter, one new store was opened in the Kansas City, Missouri market (our third store in Kansas City) and one of the Jacksonville, Florida stores was relocated. The Company has entered into leases for two new stores in Memphis, Tennessee, which will be a new market for the Company. There are plans to open one new Cincinnati, Ohio store in fiscal 1997, but no lease has been signed. A total of five new stores are planned and six stores are planned for relocation. The Company is also considering new markets for potential store additions in the future but will delay entering new markets until the recently acquired stores have been completely integrated into Rhodes. However, as part of its business strategy, the Company will continue to evaluate strategic acquisition opportunities. The Company cannot predict, however, if any transactions will be consummated, nor the terms or the form of consideration that may be required. The Company completed remodeling five stores and refurbishing one store during the first quarter, including four stores recently acquired from Weberg. Ten more stores are scheduled for remodeling during this fiscal year, but all remodeling activity has been temporarily suspended to await Salomon Brothers' recommendation on strategic alternatives and to allow the stores acquired from Weberg and Glick's to be fully integrated into Rhodes' operations. Gross profit as a percentage of net sales for the three months ended May 31, 1996, decreased to 45.3% from 48.2%, compared with the same period last year. The decline in the gross profit percentage was due to the liquidation sale of inventory acquired from Weberg and Glick's and more aggressive price promotions during the quarter. The acquired stores will have lower gross profit in fiscal year 1997 than Rhodes has had historically as the inventories are liquidated and changed to Rhodes' line-up in the second quarter of fiscal 1997 and due to the accounting deferral of revenues from warranties sold for the first time in the acquired stores. The Texas and Colorado stores will continue to have lower gross profit due to higher freight costs. 7 10 Finance charge and insurance commission income derives from commissions earned under the Company's merchant agreement whereby all newly created accounts receivable are sold to Beneficial National Bank U.S.A. ("BNB") and from commissions on credit insurance on credit customer balances. The amounts earned increased for the three months ended May 31, 1996 due to an increase in the net insurance commissions collected on customers' accounts. Selling expense for the three months ended May 31, 1996 increased as a percentage of net sales to 16.7% this year, compared with 16.6%, for the same period last year. The increase as a percentage of net sales is due to a decrease in same store sales. General and administrative expenses for the quarter ended May 31, 1996 increased to $37,291,000 (31.1% of net sales) from $24,580,000 (27.5% of net sales) for the three months last year. The increased expense is due to increases in employee expenses and the cost of adding 35 new stores. The increase in the percentage of net sales is due primarily to a decline in same store sales this year compared with last year. In light of recent disappointing results the Company is reviewing expense saving measures. Interest expense on the Company's indebtedness is generally fixed and is expected to decline slightly in future periods as such debt is reduced from internal cash flow. LIQUIDITY AND CAPITAL RESOURCES Currently, the Company's principal sources of liquidity are cash flow from operations and additional borrowing capacity under its Revolving Credit Agreement described below. Net cash used in operating activities for the first quarter ended May 31, 1996 was approximately $1.8 million compared with $2.0 million cash used for the first quarter last year. The Company's principal uses of cash are debt service obligations, capital expenditures and working capital needs. For the three months ended May 31, 1996 FIFO inventory turns decreased to 2.9x compared with 3.5x for the same period last year. Inventories increased by $37.1 million at May 31, 1996 compared to May 31, 1995 due to the acquisition of approximately $30.3 million in inventory from Weberg and Glick's and the new larger stores. The Company has historically had low or negative working capital, primarily as a result of its tight inventory controls, low cash balances and the inclusion in current liabilities of deferred revenues, such as merchandise sold but not delivered and deferred warranty revenue. Working capital at May 31, 1996 was approximately $7.2 million. 8 11 The Company's capital expenditures for equipment and expansion and remodeling or refurbishing of stores are estimated at $27.0 million for fiscal 1997 compared with $23.5 million for fiscal 1996, not including $6.3 million in capital additions related to the Weberg and Glick's acquisitions. The increase reflects the cost of the Company's plan to remodel or refurbish 16 stores and open 11 new stores during fiscal 1997, including six planned store relocations. The Company plans to spend approximately $25.0 million in 1998. However, capital expenditures in excess of $18.0 million in any year after 1996 will require approval under the Revolving Credit Agreement. Although the Company still plans to remodel or refurbish 16 stores in fiscal 1997, it has for the present temporarily suspended the remodeling program with completion of six stores both to await the results of the Salomon Brothers' recommendations on strategic alternatives and to allow the stores acquired from Weberg and Glick's to be fully integrated into Rhodes' operations. The Company maintains a Revolving Credit Agreement with Wachovia National Bank and Fleet Credit Corporation for the lesser of $45.0 million or 50% of eligible inventory plus a three year term loan of $20.0 million. The loan agreement expires on January 12, 1999 and therefore has been classified in the financial statements as long term debt. The agreement is secured by substantially all of the inventory of the Company. As of July 10, 1996, there was $37.6 million outstanding under the Revolving Credit Agreement and approximately $5.0 million remains available under the Agreement and other arrangements described below. In June, 1996 the Company arranged a bridge loan of $9.0 million for 60 days as an amendment to the Revolving Credit Agreement. Green Capital, L.P., an affiliate of the Company, participated in the extension of the loan to the Company in the amount of $3 million. Proceeds of the loan were used to make a mandatory prepayment on the Company's senior secured notes in the amount of $7.5 million and for working capital purposes. The Company expects to repay the bridge loan with cash flow from operations. ---------------------------------- The foregoing discussion contains forward-looking statements with respect to the Company's sales, cash flow, capital expenditures and gross profit. The Company's ability to meet these projections will be subject to general economic trends, the Company's ability to increase same store sales, and sales trends for the Company and the industry, which may deviate substantially from the Company's expectations. 9 12 RHODES, INC. PART II Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 4.1 Subordinated Promissory Note Dated June 12, 1996 from Rhodes, Inc. Payable to Green Capital Investors, L.P. 4.2 Waiver and Amendment dated as of May 31, 1996 to Note Purchase Agreement Dated as of June 13, 1993 by and among the Company and the Lenders Named Therein. 27 Financial Data Schedule (for SEC use only). (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the quarter ended May 31, 1996. 10 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RHODES, INC. --------------------- (Registrant) DATE: July 15, 1996 By: /s/Joel H. Dugan ------------- -------------------- Joel H. Dugan Senior Vice President-- Finance and Administration 14 INDEX TO EXHIBITS 4.1 Subordinated Promissory Note dated June 12, 1996 from Rhodes, Inc. Payable to Green Capital Investors, L.P. 4.2 Waiver and Amendment dated as of May 31, 1996 to Note Purchase Agreement Dated as of June 13, 1996 by and among the Company and the Lenders Named Therein 27 Financial Data Schedules (for SEC use only). EX-4.1 2 SUBORDINATED PROMISSORY NOTE, 6-12-96 1 EXHIBIT 4.1 SUBORDINATED PROMISSORY NOTE DATED JUNE 12, 1996 FROM RHODES, INC. PAYABLE TO GREEN CAPITAL INVESTORS, L.P. 2 NATIONSBANK, N.A. PROMISSORY NOTE Private Client Group ESTOPPEL CERTIFICATE 600 Peachtree St., Suite 1100 GREEN CAPITAL INVESTORS, L.P. Atlanta, Georgia 30308 WHEREAS, on this 14th of June, 1996, GREEN CAPITAL INVESTORS, L.P. the "Assignor" has assigned to NationsBank, N.A. (the "Bank") a promissory note in the original principal amount of $3,000,000.00 dated June 14, 1996 (the "Collateral Note") from Rhodes, Inc. (the "Maker") to the Assignor and various other documents executed in connection with the Collateral Note (collectively the "Loan Documents"), and, in connection therewith, the Bank has requested the Maker to certify to the Bank the following facts which may be relied upon by the Bank in accepting the assignment of the Collateral Note and the Loan Documents. 1. The principal amount of $3,000,000.00 evidenced by the Collateral Note has been duly and fully disbursed to and received by the Maker, and there have been no modifications, amendments or extensions of the Collateral Note or the other Loan Documents. 2. The current outstanding principal balance under the Collateral Note is $3,000,000.00 as of the date hereof. Interest accrues on the outstanding principal balance of the Collateral Note at the rate specified therein. 3. There exists no default under the Collateral Note or the other Loan Documents, and no event has occurred and no condition exists which, with the giving of notice or passage of time, or both, would constitute a default under the Collateral Note or the other Loan Documents. 4. No event has occurred and no condition exists which could give rise to a right of set-off or a defense of any kind or description, and the Maker hereby waives against the Bank any future right of set-off or defense of any kind to an action for repayment of the Collateral Note against the Assignor under the Collateral Note or the other Loan Documents. 5. The maker hereby consents to the endorsement and transfer of the Collateral Note by the Assignor to the Bank as collateral and security for the aforementioned financial accommodations provided by the Bank, and agrees with respect thereto: (i) to make all payments of principal and/or interest as and when due directly to the Bank at the above address upon demand by Bank; (ii) to make no prepayments of principal to the Assignor; and (iii) to make no modification, amendment or extension of the Collateral Note or the other Loan Documents without the prior written consent of the Bank. IN WITNESS WHEREOF, and intending to create an instrument executed under seal, the Maker has executed this instrument under seal as of the day and year first above written. Maker: RHODES, INC. /s/ JOEL DUGAN ------------------------------ By: Joel Dugan Sr. V.P. of Finance & Administration EX-4.2 3 WAIVER AND AMENDMENT, 5-31-96 1 EXHIBIT 4.2 WAIVER AND AMENDMENT DATED AS OF MAY 31, 1996 TO NOTE PURCHASE AGREEMENT DATED AS OF JUNE 13, 1996 BY AND AMONG THE COMPANY AND THE LENDERS NAMED THEREIN 2 RHODES, INC. 4370 PEACHTREE ROAD ATLANTA, GEORGIA 30319 JOEL H. DUGAN SENIOR VICE PRESIDENT DIRECT: 404/264-4622 FINANCE & ADMINISTRATION FAX: 404/364-3970 July 2, 1996 VIA TELEFAX 212 969 1529 Alliance Corporate Finance Group, Incorporated 1345 Avenue of the Americas New York, NY 10105 ATTN: Peter Gummeson RE: Note Purchase Agreement, Dated as of June 17, 1993, as Amended, Among Rhodes, Inc., You and the Other Purchasers Named Therein (the "Agreement") Dear Mr. Gummeson: Financial statements for the first quarter ending May 31, 1996 were released on June 28, 1996 by press release, a copy of which is attached. The statements reflect a quarterly loss, the first since Rhodes became a public company on June 18, 1993. The loss was caused by liquidating inventories that came with the recent acquisitions of Weberg and Glick's. The core stores of Rhodes would have had a small profit without the acquisitions. Under the Agreement the Fixed Charge Coverage Ratio test (Section 8.2) increased from 1.90 to 2.25 on May 31, 1996. Rhodes' Fixed Charge Coverage for the four quarters ended May 31, 1996, achieved a ratio of 2.00, sufficient to meet the previous requirement of 1.90 but not enough to meet the new requirement of 2.25. Also, if the third quarter fiscal 1996 non-cash charge of $2.4 million to reserve for the name changes and store closings are added back, the May 31, 1996 ratio improves to 2.16. Our calculations indicate that the first quarter loss this year will adversely affect the covenant calculations through the third quarter this year, ending on November 30, 1996; therefore we request that Fixed Charge Coverage Ratio covenants be modified effective May 31, 1996 from 2.25 as follows: May 31, 1996 1.90 August 31, 1996 1.70 November 30, 1996 1.90 February 28, 1997 2.25 Thereafter 2.25 We do not expect to request relief on any other covenants and the quarterly covenant calculations for May 31, 1996 are attached. 3 - 2 - We request your approval as soon as practical so that we may file our Form 10-Q with the SEC on July 14, 1996 without a default disclosure. If you are agreeable to this request, kindly countersign below in the spaces provided. When sufficient of your signatures are received, the waiver and amendment will be effective retroactive to May 31, 1996. Very truly yours, /s/Joel H. Dugan Joel H. Dugan JHD:eeg Enclosures Approved: Alliance Corporate Finance Group [The Equitable Private Income and Equity Partnership II, L.P.] /s/ Peter Gummeson - ------------------------- By: Peter Gummeson - ------------------------- Title: Investment Officer ------------------- 4 RHODES, INC. 4370 PEACHTREE ROAD ATLANTA, GEORGIA 30319 JOEL H. DUGAN SENIOR VICE PRESIDENT DIRECT: 404/264-4622 FINANCE & ADMINISTRATION FAX: 404/364-3970 July 2, 1996 VIA TELEFAX 206 516 4841 G N A Corp. 601 Union Street Suite 1500 2 Union Square Seattle, WA 98101 2336 ATTN: Ms. Tami Hendrickson RE: Note Purchase Agreement, Dated June 17, 1993, as Amended, Among Rhodes, Inc., You and the Other Purchasers Named Therein (the "Agreement") Dear Ms. Hendrickson: Financial statements for the first quarter ending May 31, 1996 were released on June 28, 1996 by press release, a copy of which is attached. The statements reflect a quarterly loss, the first since Rhodes became a public company on June 18, 1993. The loss was caused by liquidating inventories that came with the recent acquisitions of Weberg and Glick's. The core stores of Rhodes would have had a small profit without the acquisitions. Under the Agreement the Fixed Charge Coverage Ratio test (Section 8.2) increased from 1.90 to 2.25 on May 31, 1996. Rhodes' Fixed Charge Coverage for the four quarters ended May 31, 1996, achieved a ratio of 2.00, sufficient to meet the previous requirement of 1.90 but not enough to meet the new requirement of 2.25. Also, if the third quarter fiscal 1996 non-cash charge of $2.4 million to reserve for the name changes and store closings are added back, the May 31, 1996 ratio improves to 2.16. Our calculations indicate that the first quarter loss this year will adversely affect the covenant calculations through the third quarter this year, ending on November 30, 1996; therefore we request that Fixed Charge Coverage Ratio covenants be modified effective May 31, 1996 from 2.25 as follows: May 31, 1996 1.90 August 31, 1996 1.70 November 30, 1996 1.90 February 28, 1997 2.25 Thereafter 2.25 We do not expect to request relief on any other covenants and the quarterly covenant calculations for May 31, 1996 are attached. 5 - 2 - We request your approval as soon as practical so that we may file our Form 10-Q with the SEC on July 14, 1996 without a default disclosure. If you are agreeable to this request, kindly countersign below in the spaces provided. When sufficient of your signatures are received, the waiver and amendment will be effective retroactive to May 31, 1996. Very truly yours, /s/ Joel H. Dugan Joel H. Dugan JHD:eeg Enclosures Approved: G N A Corp. LIFE OF VIRGINIA - ---------------- /s/ Charles Kaminski - -------------------- By: Charles Kaminski Title: Senior Vice President --------------------- 6 RHODES, INC. 4370 PEACHTREE ROAD ATLANTA, GEORGIA 30319 JOEL H. DUGAN SENIOR VICE PRESIDENT DIRECT: 404/264-4622 FINANCE & ADMINISTRATION FAX: 404/364-3970 July 2, 1996 VIA TELEFAX 205 868 3609 Protective Life Insurance Company 2801 Highway 280 South Birmingham, AL 35223 ATTN: Mr. Richard Beilen RE: Note Purchase Agreement, Dated June 17, 1993, as Amended, Among Rhodes, Inc., You and the Other Purchasers Named Therein (the "Agreement") Dear Mr. Beilen: Financial statements for the first quarter ending May 31, 1996 were released on June 28, 1996 by press release, a copy of which is attached. The statements reflect a quarterly loss, the first since Rhodes became a public company on June 18, 1993. The loss was caused by liquidating inventories that came with the recent acquisitions of Weberg and Glick's. The core stores of Rhodes would have had a small profit without the acquisitions. Under the Agreement the Fixed Charge Coverage Ratio test (Section 8.2) increased from 1.90 to 2.25 on May 31, 1996. Rhodes' Fixed Charge Coverage for the four quarters ended May 31, 1996, achieved a ratio of 2.00, sufficient to meet the previous requirement of 1.90 but not enough to meet the new requirement of 2.25. Also, if the third quarter fiscal 1996 non-cash charge of $2.4 million to reserve for the name changes and store closings are added back, the May 31, 1996 ratio improves to 2.16. Our calculations indicate that the first quarter loss this year will adversely affect the covenant calculations through the third quarter this year, ending on November 30, 1996; therefore we request that Fixed Charge Coverage Ratio covenants be modified effective May 31, 1996 from 2.25 as follows: May 31, 1996 1.90 August 31, 1996 1.70 November 30, 1996 1.90 February 28, 1997 2.25 Thereafter 2.25 We do not expect to request relief on any other covenants and the quarterly covenant calculations for May 31, 1996 are attached. 7 - 2 - We request your approval as soon as practical so that we may file our Form 10-Q with the SEC on July 14, 1996 without a default disclosure. If you are agreeable to this request, kindly countersign below in the spaces provided. When sufficient of your signatures are received, the waiver and amendment will be effective retroactive to May 31, 1996. Very truly yours, /s/ Joel H. Dugan Joel H. Dugan JHD:eeg Enclosures Approved: Protective Life Insurance Company /s/ Richard Beilen - ----------------------------------- By: Richard Beilen ------------------------------- Title: ----------------------------- 8 RHODES, INC. 4370 PEACHTREE ROAD ATLANTA, GEORGIA 30319 JOEL H. DUGAN SENIOR VICE PRESIDENT DIRECT: 404/264-4622 FINANCE & ADMINISTRATION FAX: 404/364-3970 July 2, 1996 VIA TELEFAX 310 772 6030 Sun Life Insurance Center of America One Sun America Center Los Angles, CA 90067 ATTN: Kevin Buckle RE: Note Purchase Agreement, Dated June 17, 1993, as Amended, Among Rhodes, Inc., You and the Other Purchasers Named Therein (the "Agreement") Dear Mr. Buckle: Financial statements for the first quarter ending May 31, 1996 were released on June 28, 1996 by press release, a copy of which is attached. The statements reflect a quarterly loss, the first since Rhodes became a public company on June 18, 1993. The loss was caused by liquidating inventories that came with the recent acquisitions of Weberg and Glick's. The core stores of Rhodes would have had a small profit without the acquisitions. Under the Agreement the Fixed Charge Coverage Ratio test (Section 8.2) increased from 1.90 to 2.25 on May 31, 1996. Rhodes' Fixed Charge Coverage for the four quarters ended May 31, 1996, achieved a ratio of 2.00, sufficient to meet the previous requirement of 1.90 but not enough to meet the new requirement of 2.25. Also, if the third quarter fiscal 1996 non-cash charge of $2.4 million to reserve for the name changes and store closings are added back, the May 31, 1996 ratio improves to 2.16. Our calculations indicate that the first quarter loss this year will adversely affect the covenant calculations through the third quarter this year, ending on November 30, 1996; therefore we request that Fixed Charge Coverage Ratio covenants be modified effective May 31, 1996 from 2.25 as follows: May 31, 1996 1.90 August 31, 1996 1.70 November 30, 1996 1.90 February 28, 1997 2.25 Thereafter 2.25 We do not expect to request relief on any other covenants and the quarterly covenant calculations for May 31, 1996 are attached. 9 - 2 - We request your approval as soon as practical so that we may file our Form 10-Q with the SEC on July 14, 1996 without a default disclosure. If you are agreeable to this request, kindly countersign below in the spaces provided. When sufficient of your signatures are received, the waiver and amendment will be effective retroactive to May 31, 1996. Very truly yours, /s/ Joel H. Dugan Joel H. Dugan JHD:eeg Enclosures Approved: SunAmerica Life Insurance Company fka Sun Life Insurance Company of America /s/ Kevin J. Buckle - ------------------------- By: Kevin J. Buckle --------------------- Title: Authorized Agent ------------------ EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENT OF RHODES, INC. FOR THE YEAR/QUARTER ENDED MAY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS FEB-28-1997 MAR-01-1996 MAY-31-1996 63 0 5,249 0 90,343 106,357 121,341 41,057 265,869 99,121 77,454 0 0 0 67,490 265,869 119,726 119,726 65,501 65,501 57,949 71 2,510 (4,508) (1,848) (2,660) 0 0 0 (2,660) (0.29) (0.29)
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