FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
Commission file number: 1-5731
REXEL, INC.
(Exact name of registrant as
specified in its charter)
New York 13-1474527
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Alhambra Circle, Coral Gables, Florida 33134
(Address of principal executive offices) (Zip Code)
(305) 446-8000
(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
filing requirements for the past 90 days.
Yes |X| No ___
Indicate number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
DATE CLASS SHARES OUTSTANDING
---- ----- ------------------
<S> <C> <C>
MAY 1, 1997 COMMON STOCK 26,028,790
----------- ------------ ----------
</TABLE>
<PAGE>
REXEL, INC.
INDEX
-----
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C> <C>
Part I - Financial Information
Condensed Consolidated Balance Sheets (Unaudited) at
March 31, 1997 and December 31,
1996................................................... 1
Condensed Consolidated Statements of Income (Unaudited)
for the Three Months Ended March 31, 1997 and
1996................................................... 2
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Three Months Ended March 31, 1997
and 1996............................................... 3
Notes to Unaudited Condensed Consolidated Financial
Statements............................................. 4
Report of Independent Accountants........................ 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 7
Part II - Other Information........................................ 10
</TABLE>
<PAGE>
REXEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted, except for share amounts)
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
1997 1996
--------- ---------
(UNAUDITED)
ASSETS
- ------
<S> <C> <C>
Current Assets
Cash $ 18,867 $ 14,396
Accounts and Notes Receivable - Net 171,108 156,450
Inventories 124,091 117,657
Prepaid Expenses and Other Current Assets 9,002 10,423
Income Taxes Receivable 256 0
Deferred Income Taxes 3,968 3,747
--------- ---------
Total Current Assets 327,292 302,673
Investments and Noncurrent Receivables 876 814
Fixed Assets - Net 47,720 48,218
Other Assets 3,476 3,286
Goodwill - Net 87,913 73,947
--------- ---------
$ 467,277 $ 428,938
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Short-Term Debt $ 47,400 $ 25,500
Current Portion of Long-Term Debt 7,705 7,737
Accounts Payable - Trade and Other
Liabilities 174,451 161,377
Income Taxes Payable 0 2,186
--------- ---------
Total Current Liabilities 229,556 196,800
Long-Term Debt 22,205 29,582
Other Long-Term Liabilities 5,851 3,476
Deferred Income Taxes 2,894 2,973
Stockholders' Equity
Preferred Stock (Authorized 2,000,000
Shares, None Issued) 0 0
Common Stock (26,644,433 and 26,313,633
Shares Issued) 26,645 26,314
Capital Surplus 98,202 94,706
Retained Earnings 86,813 79,976
Treasury Stock, at Cost (621,243 Shares) (4,889) (4,889)
--------- ---------
206,771 196,107
--------- ---------
$ 467,277 $ 428,938
========= =========
</TABLE>
See accompanying report of independent accountants and notes
to unaudited condensed consolidated financial statements.
<PAGE>
REXEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(000's omitted, except for per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
Net Sales $318,666 $264,757
Cost Of Goods Sold 252,437 208,497
-------- --------
Gross Profit 66,229 56,260
Selling and Administrative Expenses 52,808 45,011
-------- --------
Operating Profit 13,421 11,249
-------- --------
Interest Expense 1,627 1,292
Other Income - Net 96 77
-------- --------
Income From Operations Before Income Taxes 11,890 10,034
Provision For Income Taxes 5,053 4,415
-------- --------
Net Income $ 6,837 $ 5,619
======== ========
Income Per Common Share $ .26 $ .22
======== ========
Average Number of Common and Common
Equivalent Shares $ 26,055 $ 26,076
======== ========
</TABLE>
See accompanying report of independent accountants and notes
to unaudited condensed consolidated financial statements.
<PAGE>
REXEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
--------- ----------
(UNAUDITED)
<S> <C> <C>
Net Cash Provided By (Used In) Operating Activities $ 8,595 $ (6,399)
--------- ----------
Cash Flows From Investing Activities:
Capital Expenditures (931) (1,583)
Cost of Acquisitions (20,160) 0
Other Investing Activities 16 (3)
--------- ----------
Net Cash Used In Investing Activities (21,075) (1,586)
--------- ----------
Cash Flows From Financing Activities:
Net Borrowings under Line of Credit Arrangements 21,900 9,500
Acquisition of Treasury Shares 0 (19)
Proceeds From Exercise of Stock Options 2,449 6
Other Debt Payments and Financing Activities (7,398) (7,457)
--------- ----------
Net Cash Provided By Financing Activities 16,951 2,030
--------- ----------
Net Increase (Decrease) In Cash 4,471 (5,955)
Cash and Cash Equivalents at Beginning of Period 14,396 10,013
--------- ----------
Cash and Cash Equivalents at End of Period $ 18,867 $ 4,058
========= ==========
Supplemental information of business acquired:
Fair value of assets acquired, other than cash $ 30,230
Liabilities assumed (5,342)
Liability issued to seller (4,728)
---------
Cash paid $ 20,160
=========
</TABLE>
See accompanying report of independent accountants and notes
to unaudited condensed consolidated financial statements.
<PAGE>
REXEL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying financial information should be read in conjunction with
the consolidated financial statements, including the notes thereto, for the
year ended December 31, 1996. The condensed consolidated balance sheet as
of December 31, 1996 has been summarized from the Company's audited
consolidated balance sheet as of that date but does not include all
disclosures required by generally accepted accounting principles.
2. Results for interim periods are not necessarily indicative of the results
to be expected for the year. The accompanying financial information
reflects all adjustments which are, in the opinion of Management, of a
normal, recurring nature and necessary for a fair presentation of the
results for the periods.
3. Inventories are stated at the lower of LIFO cost or market.
4. Primary income per common share is computed by dividing net income by the
weighted average number of common and common equivalent shares outstanding
during the periods.
5. On August 7, 1996, the Company acquired the common stock of Utility
Products Supply Co. of Denver, Colorado, a distributor of electrical
products to the utility industries with locations in Colorado, Arizona,
California and Kansas, for cash and deferred payments totaling $5.6
million. The acquisition has been recorded as a purchase and the excess of
the total purchase price over the fair value of the net assets acquired
($3.1 million) is being amortized over 40 years. Utility Products Supply's
results of operations are included in the Company's financial statements
from the date of acquisition.
On November 12, 1996, the Company acquired the common stock of Cable &
Connector Warehouse, Inc. of Dallas, Texas ("CCW"), a distributor of
electronic wire, cable, connectors and related apparatus to manufacturers
of data and telecommunications products with locations in Louisiana, Texas,
Colorado, California, Oregon and Kansas, for cash consideration of $20.2
million (including $0.2 million of acquisition costs), plus contingent
consideration of up to $4.0 million based upon achieving certain operating
results in 1997. Any contingent payments will be recorded as additional
purchase price.
Effective January 1, 1997, the Company acquired the assets of Southland
Electrical Supply Company, a distributor of electrical parts and supplies
with eight locations in Kentucky for a cash purchase price of approximately
$25.0 million.
Each of these acquisitions has been recorded as a purchase, and the excess
of the total purchase price over the fair value of the net assets acquired
<PAGE>
is being amortized over 40 years. Results of operations of the companies
are included in the Company's financial statements from the respective
dates of acquisition. The following table summarizes the effect on
consolidated sales and income of the Company for the three months ended
March 31, 1996 on an unaudited pro forma basis, assuming the acquisitions
had been consummated as of January 1, 1996:
<TABLE>
<CAPTION>
<S> <C>
Net sales $294,593
========
Net income $ 5,690
========
Net income per share $ .22
========
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been in effect at the beginning of
the period or are they necessarily indicative of future consolidated
results.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of
Rexel, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of Rexel,
Inc. (the "Company") as of March 31, 1997, and the related condensed
consolidated statements of income and cash flows for the three-month periods
ended March 31, 1997 and 1996. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the year then ended (not presented herein), and in our report
dated February 14, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 1996,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
COOPERS & LYBRAND L.L.P.
Miami, Florida
April 18, 1997
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Earnings per share for the first quarter of 1997 increased to $.26 per share
from $.22 per share in the first quarter of 1996 on a 21.7% increase in net
income from $5.6 million to $6.8 million.
Sales for the first quarter ended March 31, 1997 were up 20.4% (8.1% on same
branch sales) to $318.7 million compared to first quarter 1996 sales of $264.8
million. Sales for the first quarter of 1997 include those of Utility Products
Supply, Cable & Connector Warehouse and Southland Electrical acquired on August
7, 1996, November 12, 1996 and January 1, 1997, respectively.
The following table sets forth the percentage which certain income and expense
items bear to net sales:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
------ ------
<S> <C> <C>
Net Sales 100.0% 100.0%
====== ======
Gross Margin 20.8% 21.2%
Selling and Administrative
Expense 16.6 17.0
------ ------
Operating Profit 4.2 4.2
Interest Expense 0.5 0.4
Other Income - -
Income Before Taxes 3.7% 3.8%
====== ======
</TABLE>
The acquisitions referred to above account for 12.5% of the overall 20.4%
increase in sales. The 8.1% increase in same store sales noted above occurred
mainly in the Company's California, Arizona, North Texas and Florida markets.
Most of the increase is attributable to the commercial construction segment of
the Company's markets, which has shown a positive trend since mid-year 1996. All
divisions of the Company registered increases in same store sales with the
exception of the Midwest. Midwest sales reflect a reduction in industrial
activity in that area. Sales of the Utility Products division were negatively
impacted by bad weather during the first quarter of 1997. During the first
quarter of 1997, the Company opened one new branch and closed two branches.
<PAGE>
For the first quarter of 1997, gross margins increased $10.0 million or 17.7%
over the same period of the prior year. As a percentage of sales, gross profit
was 20.8% in the first quarter of 1997 compared to 20.7% in the fourth quarter
of 1996 and 21.2% in the first quarter of 1996. Excluding LIFO, the gross profit
percentage in 1997 was 20.8% compared to 20.1% in the fourth quarter of 1996 and
21.2% in the first quarter of 1996. The deterioration in gross profit percentage
points between the first quarter of 1997 and the first quarter of 1996 can be
analyzed as follows:
<TABLE>
<CAPTION>
<S> <C>
Sales mix 0.2%
Utility contracts (0.1)
Trading margin (0.5)
-------------- -----
(0.4)%
=====
</TABLE>
Compared to the first quarter of 1996, the percentage of total sales from
inventory in 1997 increased by two percentage points.
Inventory sales have historically had a gross margin percentage roughly twice
the gross margin percentage attributable to direct sales.
The deterioration in trading margin from the first quarter of 1996 is driven by
lower cooper prices and aggressive pricing to drive sales. The improvement in
margins before LIFO from the fourth quarter of 1996 is attributable to continued
focus on improving margins and some inflation in commodity product prices,
particularly copper wire.
For the quarter ended March 31, 1997, selling and administrative expenses
increased by $7.8 million or 17.3% compared to the first quarter of 1996. As a
percentage of sales, expenses were 16.6% in the first quarter of 1997 compared
to 17.0% for the same period a year ago. Compared to the fourth quarter of 1996,
selling and administrative expenses in 1997 were up 11.3%. Excluding
acquisitions and new and closed branches, selling and administrative expenses in
the first quarter of 1997 were up $2.3 million compared to the first quarter of
1996 and $1.6 million when compared with the fourth quarter of 1996. The
increase reflects increased levels of advertising and special promotions,
acquisition activities, travel costs relating to the appointment of a new chief
executive officer and other management changes, an increase in bad debt expense
relative to last year due to higher recoveries in the first quarter of 1996 and
increased labor expenses due to higher headcount and new incentive programs to
drive sales. Labor, as a percentage of gross profit, was 52.5% for the first
quarter of 1997 compared to 53.3% for the first quarter of 1996.
The increase in interest expense for the quarter ended March 31, 1997 reflects
an increased level of debt related to acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Total assets at March 31, 1997 increased $38.3 million or 8.9% compared to
year-end 1996, of which approximately $28.0 million was attributable to the
acquisition of Southland. Cash increased $4.5 million to $18.9 million from
$14.4 million at December 31, 1996, primarily as a result of cash provided by
operating activities ($8.6 million) and the exercise of stock options ($2.4
million) offset by the paydown of long-term debt ($7.4 million). For the first
quarter of 1996, $6.4 million of cash was used in operating activities, driven
mainly by the payment of year-end 1995 compensation and bonuses.
Accounts and notes receivable, excluding acquisitions, increased by $6.1 million
at March 31, 1997 compared to December 31, 1996 with the number of days sales
<PAGE>
represented by accounts receivable at 48 days at March 31, 1997 compared to 46
days at December 31, 1996. Inventory, excluding acquisitions, increased $1.7
million with inventory days improving to 71 days at March 31, 1997 from 74 days
at December 31, 1996. Excluding acquisitions, capital expenditures were $0.9
million in the first quarter of 1997, mainly for the upgrade of computer
systems.
Total liabilities increased by $27.7 million. Short-term debt increased $21.9
million, primarily as a result of the Southland acquisition. Trade accounts
payable and other liabilities, excluding acquisitions, increased $5.4 million,
with trade accounts payable days improving from 42 days at December 31, 1996 to
49 days at March 31, 1997. The reduction in long-term debt of $7.4 million
includes the March 1997 installment of $7.1 million on the 9.78% Senior Notes.
The increase in other long-term obligations includes $2.4 million of the
Southland purchase price.
Equity increased $10.7 million as a result of first quarter 1997 earnings of
$6.8 million, proceeds from the exercise of non-qualified stock options of $2.4
million and a tax benefit of approximately $1.5 million associated with the
exercise of the options.
The Company's debt to equity ratio (defined as the ratio of debt including
capital lease obligations to total stockholders' equity) was 0.4 to 1 at March
31, 1997 compared to 0.3 to 1 at December 31, 1996. The current ratio was 1.4 at
March 31, 1997 compared to 1.5 at December 31, 1996
On April 29, 1997, the Company acquired the common stock of Chemco Electric
Supply, Inc., a distributor of electrical parts and supplies with three
distribution centers located in Tampa, Bartow and Pinellas Park, Florida for a
total consideration of approximately $7.4 million consisting of cash of $6.9
million ($1.1 million of which was paid to Chemco as payment for a selling
shareholder's debt to Chemco and purchase of a life insurance policy) and a
future obligation of $0.5 million. Chemco had sales of approximately $23 million
for its fiscal year ended December 31, 1996.
The Company's working capital requirements are generally met by internally
generated funds and short-term borrowings under the Company's credit agreement.
Management believes sufficient cash resources will be available to support its
long-term growth strategies through internally generated funds, credit
arrangements and the ability of the Company to obtain additional financing.
However, no assurance can be given that financing will continue to be available
on terms attractive to the Company.
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) EXHIBITS
--------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
11.1 Computation of net income per common and
common equivalent shares.
15.1 Awareness letter of independent accountants.
27.1 Financial Data Schedule (Filed with EDGAR
filing only)
</TABLE>
(b) REPORTS ON FORM 8-K
-------------------
During the quarter ended March 31, 1997 the Company did not file
any Current Reports on Form 8-K.
<PAGE>
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 undersigned
thereunto duly authorized.
REXEL, INC.
Date: May 14, 1997 By:/S/ALLAN GONOPOLSKY
------------------------
Allan Gonopolsky
Vice President and
Chief Accounting Officer
<PAGE>
Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
11.1 Computation of net income per common and
common equivalent shares.
15.1 Awareness letter of independent accountants.
27.1 Financial Data Schedule (Filed with EDGAR
filing only)
</TABLE>
EXHIBIT 11.1
------------
REXEL, INC.
COMPUTATION OF NET INCOME PER
COMMON AND COMMON EQUIVALENT SHARE
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
------- -------
(UNAUDITED)
<S> <C> <C>
Income applicable to primary common and common
equivalent shares $ 6,837 $ 5,619
======= =======
Weighted average number of common shares and common
share equivalents outstanding during the year
Common (net of treasury stock) 25,763 25,649
Options 292 427
------- -------
26,055 26,076
======= =======
</TABLE>
EXHIBIT 15.1
------------
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: REXEL, INC. REGISTRATION ON FORM S-8
----------------------------------------
We are aware that our report dated April 18, 1997 on our review of the condensed
consolidated balance sheet of Rexel, Inc. as of March 31, 1997, and the related
condensed consolidated statements of income and cash flows for the three-month
periods ended March 31, 1997 and 1996 included in the Company's Form 10-Q for
the quarter ended March 31, 1997 is incorporated by reference in Registration
No. 33-32648 on Form S-8. Pursuant to Rule 436(c) under the Securities Act of
1933, this report should not be considered a part of such registration statement
prepared or certified by us within the meaning of Sections 7 and 11 of the Act.
COOPERS & LYBRAND L.L.P.
Miami, Florida
April 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REXEL, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 18,867
<SECURITIES> 0
<RECEIVABLES> 174,465
<ALLOWANCES> 3,357
<INVENTORY> 124,091
<CURRENT-ASSETS> 327,292
<PP&E> 83,330
<DEPRECIATION> 35,611
<TOTAL-ASSETS> 467,277
<CURRENT-LIABILITIES> 229,556
<BONDS> 22,205
0
0
<COMMON> 26,645
<OTHER-SE> 180,126
<TOTAL-LIABILITY-AND-EQUITY> 467,277
<SALES> 318,666
<TOTAL-REVENUES> 318,666
<CGS> 252,437
<TOTAL-COSTS> 252,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 260
<INTEREST-EXPENSE> 1,627
<INCOME-PRETAX> 11,890
<INCOME-TAX> 5,053
<INCOME-CONTINUING> 6,837
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,837
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
