FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ending April 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
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Commission File Number 0-13283
REX Stores Corporation
(Exact name of registrant as specified in its charter)
Delaware No. 31-1095548
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2875 Needmore Road, Dayton, Ohio 45414
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 937-276-3931
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, and
(2) has been subject to such filing requirements for at least the
past 90 days. Yes (X) No ( )
At the close of business on June 12, 1997, the registrant had
7,897,139 shares of Common Stock, par value $.01 per share,
outstanding.
REX STORES CORPORATION AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Condensed Balance Sheets......... 3
Consolidated Statements of Income............. 5
Consolidated Statements of Shareholders'
Equity...................................... 6
Consolidated Statements of Cash Flows......... 7
Notes to Consolidated Financial Statements.... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................ 12
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
A S S E T S
April 30 January 31 April 30
1997 1997 1996
(In Thousands)
ASSETS:
Cash and cash equivalents $ 2,119 $ 3,959 $ 1,931
Short-term investments 1,633 1,645 1,565
Accounts receivable, net 542 1,477 408
Merchandise inventory 156,318 135,033 164,920
Prepaid expenses and other 3,861 2,219 1,997
Future income tax benefits 5,544 5,544 3,818
---------- --------- ---------
Total current assets 170,017 149,877 174,639
PROPERTY AND EQUIPMENT, NET 89,480 89,638 71,316
FUTURE INCOME TAX BENEFITS 8,519 8,519 8,269
---------- --------- ---------
Total assets $ 268,016 $ 248,034 $ 254,224
========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 25,816 $ 12,142 $ 27,150
Current portion of long-term debt 3,152 3,131 2,058
Current portion, deferred income
and deferred gain on
sale and leaseback 11,101 10,844 9,570
Accounts payable, trade 41,541 31,265 44,327
Accrued income taxes 0 1,077 789
Accrued payroll 4,361 4,866 4,696
Other liabilities 5,208 6,401 5,521
--------- --------- ---------
Total current liabilities 91,179 69,726 94,111
--------- --------- ---------
3
Liabilities and Shareholders' Equity (Continued)
LONG-TERM LIABILITIES:
Long-term debt 52,323 51,102 32,090
Deferred income 17,992 18,279 16,835
Deferred gain on sale and
leaseback 5,971 6,207 6,914
--------- --------- ---------
Total long-term liabilities 76,286 75,588 55,839
--------- --------- ---------
SHAREHOLDERS' EQUITY:
Common stock 96 96 96
Paid-in capital 57,336 57,229 56,903
Retained earnings 57,560 56,763 51,157
Treasury stock (14,441) (11,368) (3,882)
--------- --------- ---------
Total shareholders' equity 100,551 102,720 104,274
--------- --------- ---------
Total liabilities and
shareholders' equity $ 268,016 $ 248,034 $ 254,224
========= ========= =========
[FN]
The accompanying notes are an integral part of
these unaudited consolidated statements.
4
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
April 30
1997 1996
(In Thousands, Except Per Share Amounts)
NET SALES $ 88,265 $ 97,384
--------- ---------
COSTS AND EXPENSES:
Cost of merchandise sold 63,870 72,503
Selling, general and
administrative expenses 21,573 20,798
--------- ---------
Total costs and expenses 85,443 93,301
--------- ---------
INCOME FROM OPERATIONS 2,822 4,083
INVESTMENT INCOME 28 22
INTEREST EXPENSE 1,532 1,203
--------- ---------
Income before provision for
income taxes 1,318 2,902
PROVISION FOR INCOME TAXES 521 1,146
--------- ---------
NET INCOME $ 797 $ 1,756
========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVA-
LENT SHARES OUTSTANDING 8,276 9,389
========= =========
NET INCOME PER SHARE $ 0.10 $ 0.19
========= =========
[FN]
The accompanying notes are an integral part of
these unaudited consolidated statements.
5
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
In Thousands
Common Shares
-------------------------------
Issued Treasury Paid-in Retained
Shares Amount Shares Amount Capital Earnings
Balance at
April 30, 1996 9,568 $ 96 534 $3,882 $56,903 $51,157
Common stock
issued 34 - - - 326 -
Treasury stock
acquired - - 854 7,486 - -
Net income - - - - - 5,606
----- ------ ----- ------ ------- -------
Balance at
January 31, 1997 9,602 $ 96 1,388 11,368 $57,229 $56,763
Common stock
issued 13 - - - 107 -
Treasury stock
acquire - - 375 3,073 - -
Net income - - - - - 797
----- ------ ----- ------ ------- -------
Balance at
April 30, 1997 9,615 $ 96 1,763 $14,441 $57,336 $57,560
===== ====== ===== ====== ======= =======
[FN]
The accompanying notes are an integral part of
these unaudited consolidated statements.
6
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
April 30
1997 1996
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 797 $ 1,756
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization, net 743 717
Deferred income (30) 683
Accounts receivable 935 1,196
Merchandise inventory (21,285) (18,354)
Other current assets (1,644) (173)
Accounts payable, trade 10,276 4,802
Other liabilities (2,775) (5,016)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (12,983) (14,389)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investments 12 (40)
Capital expenditures (819) (1,830)
Capital disposals - 2
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (807) (1,868)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in note payable 13,674 17,823
Payments of long-term debt (680) (492)
Long-term debt borrowings 1,922 -
Common stock issued 107 172
Treasury stock acquired (3,073) -
-------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 11,950 17,503
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,840) 1,246
CASH AND CASH EQUIVALENTS,
beginning of period 3,959 685
-------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 2,119 $ 1,931
======== ========
[FN] The accompanying notes are an integral part of
these unaudited consolidated statements.
7
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997
Note 1. Consolidated Financial Statements
The consolidated financial statements included in this report
have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission and
include, in the opinion of management, all adjustments necessary to
state fairly the information set forth therein. Any such
adjustments were of a normal recurring nature. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is
suggested that these unaudited consolidated financial statements be
read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's Annual Report on Form
10-K for the year ended January 31, 1997.
Note 2. Accounting Policies
The interim consolidated financial statements have been
prepared in accordance with the accounting policies described in
the notes to the consolidated financial statements included in the
Company's 1997 Annual Report on Form 10-K. While management
believes that the procedures followed in the preparation of interim
financial information are reasonable, the accuracy of some
estimated amounts is dependent upon facts that will exist or
calculations that will be accomplished at fiscal year end.
Examples of such estimates include changes in the LIFO reserve
(based upon the Company's best estimate of inflation to date) and
management bonuses. Any adjustments pursuant to such estimates
during the quarter were of a normal recurring nature.
8
Notes to Consolidated Financial Statements (Continued)
Note 3. Equivalent Shares Outstanding
The Company follows the treasury method of calculating common
equivalent shares outstanding. The following summarizes options
granted, exercised and cancelled or expired at April 30, 1997:
Shares Under Stock
Option Plans
Outstanding at January 31, 1997 2,119,227
($3.375 to $18.975 per share)
Exercised ($6.375 to $7.5625 per share) (14,223)
---------
Outstanding at April 30, 1997
($3.375 to $18.975 per share) 2,105,004
---------
On February 26, 1997, the Company's Board of Directors approved a
re-pricing of 362,035 stock options, with exercise prices ranging
from $13.00 to $18.975 per share, to the market price as of the
date of approval of $8.125 per share. Stock options held by
employees who are members of the Board of Directors and stock
options held by Non-Employee Directors were not re-priced.
Note 4. Earnings Per Share
In February 1997, the Financial Accounting Standards Board
Issued Statement of Financial Accounting Standards No. 128 (SFAS
No. 128) "Earnings per Share," which establishes standards for
computing and presenting earnings per share (EPS) for all publicly
held companies. SFAS No. 128 replaces the presentation of primary
EPS with a presentation of basic EPS and requires the presentation
of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures. Basic EPS excludes
all dilution, while diluted EPS reflects the potential dilution
that could occur if securities, stock options or other contracts to
issue common stock were exercised resulting in the issuance of
common stock.
The adoption of SFAS No. 128 is required for financial
statements issued after December 15, 1997 and requires restatement
of all prior period EPS data. Under SFAS No. 128, basic EPS and
diluted EPS would have been $.10 for the quarter ending April 30,
1997. Basic EPS and diluted EPS would have been $.20 and $.19,
respectively, for the quarter ending April 30, 1996.
9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The Company is a leader in the consumer electronics/appliance
retailing industry, operating predominantly in small to medium sized
markets in the Midwest and Southeast under the trade name "REX".
Results of Operations
The following table sets forth, for the periods indicated, the
relative percentages that certain income and expense items bear to
net sales:
Three Months Ended
April 30
1997 1996
Net sales 100.0% 100.0%
Cost of merchandise sold 72.4 74.4
----- -----
Gross profit 27.6 25.6
Selling, general and
administrative expense 24.4 21.4
----- -----
Income from operations 3.2 4.2
Interest, net 1.7 1.2
----- -----
Income before income
taxes 1.5 3.0
Provision for income taxes .6 1.2
----- -----
Net income .9% 1.8%
===== =====
10
Comparison of Three Months Ended April 30, 1997 and 1996
Net sales in the first quarter ended April 30, 1997 were $88.3
million compared to $97.4 million in the prior year's comparable
period, representing a decrease of $9.1 million or 9.4%. This
decrease is the result of a 20.4% decline in comparable store sales
for the quarter, partially offset by sales from 25 net additional
stores in the current quarter compared to the prior year's first
quarter. The Company considers a store to be comparable after it
has been open six fiscal quarters.
As of April 30, 1997, the Company had 222 stores compared to
197 stores one year earlier. There were no stores opened or closed
during the first quarter of fiscal 1998. The Company evaluates the
performance of its stores on a continuous basis and, based on an
assessment of factors it deems relevant, will close any store which
is not adequately contributing to Company profitability.
Gross profit of $24.4 million in the first quarter of fiscal
1998 (27.6% of net sales) was 2.0% lower than the $24.9 million
gross profit (25.6% of net sales) recorded in the first quarter of
fiscal 1997. The improved gross profit margin, as a percent of net
sales, for the first quarter of fiscal 1998 is primarily the result
of lower merchandise cost on certain products due to opportunistic
purchasing and the recognition of a higher amount of extended
service contract revenues, which generally have a higher gross
profit margin.
Selling, general and administrative expenses for the quarter
ended April 30, 1997 were $21.6 million (24.4% of net sales), a
3.7% increase over the $20.8 million (21.4% of net sales) for the
quarter ended April 30, 1996. The increase in expenses was
primarily attributable to higher advertising costs and operating
expenses associated with more store locations. The increase in
expenses as a percent of net sales results from the decline in
comparable store sales.
Interest expense increased to $1.5 million in the first
quarter of fiscal 1998 from $1.2 million in the first quarter of
fiscal 1997. This increase is primarily a result of additional
mortgage debt of approximately $21.3 million (at an average
interest rate of approximately 8.8%) since April 30, 1996
associated with more Company owned store locations.
The effective tax rate was approximately 39.5% in the first
quarter of fiscal 1998 and 1997.
As a result of the foregoing, net income for the first quarter
of fiscal 1997 was $797,000, a 54.6% decrease from $1.8 million for
the first quarter of fiscal 1997.
11
Liquidity and Capital Resources
Net cash used in operating activities was $13.0 million for
the first quarter of fiscal 1998. Cash flow was provided by net
income of $797,000 adjusted for non-cash charges of $713,000. The
primary use of cash was an increase in inventory of $21.3 million
primarily due to the addition of seasonal air conditioner inventory
and opportunistic purchases. This increase was partially offset by
increased accounts payable of $10.3 million. Changes in other
working capital items also served to decrease cash by approximately
$3.5 million.
At April 30, 1997, working capital was $78.8 million compared
to $80.2 million at January 31, 1997. The ratio of current assets
to current liabilities was 1.9 to 1 at April 30, 1997, and 2.1 to
1 at January 31, 1997.
The Company had outstanding borrowings of $25.8 million on its
revolving line of credit at April 30, 1997 at a average interest
rate of 8.06%. At April 30, 1997, the Company had approximately
$72.0 million borrowing availability on the revolving line of
credit after reduction for the outstanding letter of credit.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed with this
report:
4(h) Amendment Agreement dated April 1, 1997 to
Amended and Restated Loan Agreement dated July
31, 1995 and to Guaranty of registrant dated
July 31, 1995 among the Borrowers, the
registrant, the lenders named therein, and
Fleet Bank, N.A. (as successor to NatWest Bank
N.A.) as agent
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter ended April 30, 1997.
12
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.
REX STORES CORPORATION
Registrant
June 12, 1997 Stuart A. Rose
Stuart A. Rose
Chairman of the Board
(Chief Executive Officer)
June 12, 1997 Douglas L. Bruggeman
Douglas L. Bruggeman
Vice President, Finance and
Treasurer
(Principal Financial and
Chief Accounting Officer)
13