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 ended October 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission File Number 0-13283
REX Stores Corporation
(Exact name of registrant as specified in its charter)
Delaware 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)
513-276-3931
(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 ( )
At the close of business on December 10, 1996, the registrant had
8,841,731 shares of Common Stock, par value $.01 per share,
outstanding.<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. 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................ 13
2<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
A S S E T S
October 31 January 31 October 31
1996 1996 1995
(In Thousands)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 1,763 $ 685 $ 2,084
Short-term investments 1,625 1,525 1,525
Accounts receivable, net 1,073 1,604 713
Merchandise inventory 170,879 146,566 183,801
Prepaid expenses and other 4,889 1,825 2,519
Future income tax benefits 3,818 3,818 4,084
---------- --------- ---------
Total current assets 184,047 156,023 194,726
PROPERTY AND EQUIPMENT, NET 86,368 70,307 67,648
FUTURE INCOME TAX BENEFITS 8,269 8,269 7,619
---------- --------- ---------
Total assets $ 278,684 $ 234,599 $ 269,993
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 36,501 $ 9,327 $ 51,162
Current portion of long-term debt 2,595 2,050 1,963
Accounts payable, trade 50,356 39,525 50,059
Accrued income taxes - 4,121 -
Current portion, deferred income
and deferred gain on sale and
leaseback 10,442 9,083 8,521
Accrued payroll 4,961 6,570 5,826
Other liabilities 5,731 5,331 5,371
--------- --------- ---------
Total current liabilities 110,586 76,007 122,902
--------- --------- ---------
3<PAGE>
Liabilities and Shareholders' Equity (Continued)
LONG-TERM LIABILITIES:
Long-term debt 40,605 32,590 31,342
Deferred income 17,117 16,506 14,907
Deferred gain on sale and
leaseback 6,443 7,150 7,386
--------- --------- ---------
Total long-term liabilities 64,165 56,246 53,635
--------- --------- ---------
SHAREHOLDERS' EQUITY:
Common stock 96 95 95
Paid-in capital 57,141 56,732 56,386
Retained earnings 52,885 49,401 40,857
Treasury stock (6,189) (3,882) (3,882)
--------- --------- ---------
Total shareholders' equity 103,933 102,346 93,456
--------- --------- ---------
Total liabilities and
shareholders' equity $ 278,684 $ 234,599 $ 269,993
========= ========= =========
</TABLE>
[FN]
The accompanying notes are an integral part of
these unaudited consolidated statements.
4<PAGE>
<TABLE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Nine Months Ended
October 31 October 31
1996 1995 1996 1995
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
NET SALES $ 90,543 $ 94,914 $283,579 $278,799
COSTS AND EXPENSES:
Cost of merchandise sold 67,990 70,546 211,424 207,632
Selling, general and
administrative expenses 20,793 19,716 62,430 58,187
-------- -------- -------- --------
Total costs and expenses 88,783 90,262 273,854 265,819
-------- -------- -------- --------
INCOME FROM OPERATIONS 1,760 4,652 9,725 12,980
INVESTMENT INCOME 17 25 62 159
INTEREST EXPENSE 1,361 1,467 4,030 3,177
-------- -------- -------- --------
Income before income taxes 416 3,210 5,757 9,962
PROVISION FOR INCOME TAXES 164 1,268 2,273 3,933
-------- -------- -------- --------
NET INCOME $ 252 $ 1,942 $ 3,484 $ 6,029
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVA-
LENT SHARES OUTSTANDING 9,316 9,412 9,322 9,388
======== ======== ======== ========
NET INCOME PER SHARE $ 0.03 $ 0.21 $ 0.37 $ 0.64
======== ======== ======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of
these unaudited consolidated statements.
5<PAGE>
<TABLE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Common Shares
-------------------------------
Issued Treasury Paid-in Retained
Shares Amount Shares Amount Capital Earnings
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at
October 31, 1995 9,483 $ 95 534 $3,882 $56,386 $40,857
Common stock
issued 38 - - - 346 -
Net income - - - - - 8,544
----- ------ --- ------ ------- -------
Balance at
January 31, 1996 9,521 $ 95 534 $3,882 $56,732 $49,401
Common stock
issued 77 1 - - 409 -
Treasury stock
acquired - - 225 2,307 - -
Net income - - - - - 3,484
----- ------ --- ------ ------- -------
Balance at
October 31, 1996 9,598 $ 96 759 $6,189 $57,141 $52,885
===== ====== === ====== ======= =======
</TABLE>
[FN]
The accompanying notes are an integral part of
these unaudited consolidated statements.
6<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
October 31
1996 1995
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,484 $ 6,029
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization, net 2,163 1,610
Deferred income 1,657 2,390
Accounts receivable 531 364
Merchandise inventory (24,313) (68,454)
Other current assets (3,068) (2,278)
Accounts payable, trade 10,831 16,764
Other liabilities (5,331) (2,727)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (14,046) (46,302)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investments (100) 30
Capital expenditures (18,931) (19,561)
Capital disposals 318 29
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (18,713) (19,502)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 27,174 51,162
Payments of long-term debt (1,674) (1,361)
Long-term debt borrowings 10,234 7,391
Common stock issued 410 297
Treasury stock acquired (2,307) (2,264)
-------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 33,837 55,225
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,078 (10,579)
CASH AND CASH EQUIVALENTS,
beginning of period 685 12,663
-------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 1,763 $ 2,084
</TABLE> ======== ========
[FN]
The accompanying notes are an integral part of
these unaudited consolidated statements.
7<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996
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, 1996.
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 1996 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<PAGE>
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 October 31, 1996:
<TABLE>
<CAPTION>
Shares Under Stock
Option Plans
<S> <C>
Outstanding at January 31, 1996
($3.25 to $18.975 per share) 2,068,558
Granted ($15.25 to $16.775 per share) 202,398
Exercised ($3.25 to $13.00 per share) (77,129)
Expired or cancelled ($6.375 to $17.25
per share) (60,200)
---------
Outstanding at October 31, 1996
($3.375 to $18.975 per share) 2,133,627
=========
</TABLE>
Note 4. Legal Matters
The employment related lawsuit discussed in the Company's
second quarter report was settled and dismissed with prejudice in
November 1996 and the resolution of this matter did not have a
material impact on the Company's financial position or results of
operations.
Note 5. Accounting Change
On February 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of," which addresses the identification
and measurement of asset impairments and requires the recognition
of impairment losses on long-lived assets when carrying values
exceed expected future cash flows. The application of this
accounting standard did not have a material impact on the Company's
financial position or results of operations.
9<PAGE>
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, Southeast and Northwest under the trade name
"REX".
Results of Operation
The following table sets forth, for the periods indicated, the
relative percentages that certain income and expense items bear to
net sales:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31 October 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 75.1 74.3 74.6 74.5
----- ----- ----- -----
Gross profit 24.9 25.7 25.4 25.5
Selling, general and
administrative expense 23.0 20.8 22.0 20.8
----- ----- ----- -----
Income from operations 1.9 4.9 3.4 4.7
Interest, net 1.4 1.5 1.4 1.1
----- ----- ----- -----
Income before income
taxes .5 3.4 2.0 3.6
Provision for income taxes .2 1.3 .8 1.4
----- ----- ----- -----
Net income .3% 2.1% 1.2% 2.2%
===== ===== ===== =====
</TABLE>
10<PAGE>
Comparison of Nine Months Ended October 31, 1996 and 1995
Net sales in the third quarter ended October 31, 1996 were
$90.5 million compared to $94.9 million in the prior year's
comparable period, representing a decline of $4.4 million or 4.6%.
This decrease is a result of a decline in comparable store
merchandise sales of 18.9%, offset by sales from 29 net additional
store locations in the current year. Net sales for the first nine
months of fiscal 1997 were $283.6 million compared to $278.8
million for the first nine months of fiscal 1996, representing an
increase of $4.8 million or 1.7%. This increase is primarily a
result of 29 net additional store locations in the current year
offset by a decline of 13.7% in comparable store merchandise sales
for the year to date period. As of October 31, 1996, the Company
had 204 stores compared to 175 stores one year earlier. The
Company considers a store to be comparable after it has been open
six full fiscal quarters.
The Company opened 11 stores and closed six during the first
nine months of fiscal 1997, compared to opening ten stores and
closing none during the first nine months of fiscal 1996. During
the fourth quarter of the current fiscal year, the Company has
opened an additional 24 stores bringing the total opened for the
year to 35 stores. The Company will continue to evaluate stores
and markets and will close stores that are not adequately
contributing to Company profitability.
Gross profit of $22.6 million in the third quarter of fiscal
1997 (24.9% of net sales) was 7.4% lower than the $24.4 million
gross profit (25.7% of net sales) recorded in the third quarter of
the prior year. In the first nine months of fiscal 1997, gross
profit was $72.2 million (25.4% of net sales), a 1.4% increase over
the $71.2 million (25.5% of net sales) for the first nine months of
fiscal 1996. The decline in gross profit, as a percent to net
sales, is primarily due to increased promotional activity. The
third quarter was also negatively impacted by lower air conditioner
sales, which generally have a higher gross profit margin, and a
higher percentage of appliance sales, which generally have a lower
gross profit margin. Extended service contract revenues, which
generally have a higher gross profit margin, increased as a percent
to net sales in both fiscal 1997 periods due to the decline in
comparable store sales.
Selling, general and administrative expenses for the third
quarter of fiscal 1997 were $20.8 million (23.0% of net sales), a
5.5% increase over the $19.8 million (20.8% of net sales) for the
third quarter of fiscal 1996. Selling, general and administrative
expenses for the first nine months of fiscal 1997 were $62.4
million (22.0% of net sales), a 7.3% increase over the $58.2
million (20.8% of net sales) for the first nine months of fiscal
1996. The increase in expenses is primarily attributable to higher
advertising, occupancy and general costs associated with the net
11<PAGE>
addition of 29 stores from a year ago. The increase in selling,
general and administrative expenses as a percent of net sales is
primarily the result of the decline in comparable store sales.
Income from operations was $1.8 million (1.9% of net sales) in
the third quarter of fiscal 1997, a 62.2% decrease from $4.7
million (4.9% of net sales) for the third quarter of fiscal 1996.
Income from operations was $9.7 million (3.4% of net sales) for the
first nine months of fiscal 1997, a 25.1% decrease from $13.0
million (4.7% of net sales) for the first nine months of fiscal
1996.
Interest expense was $1.4 million (1.4% of net sales) for the
quarter ended October 31, 1996 and $1.5 million (1.5% of net sales)
for the previous year's third quarter. This decline is due to
lower borrowings on the line of credit for the current year's third
quarter, partially offset by additional mortgage debt on Company
owned store locations. Average borrowings on the line of credit
for the third quarter of fiscal 1997 were approximately $20.1
million compared to approximately $31.5 million in the third
quarter of fiscal 1996. Interest expense for the first nine months
of fiscal 1997 increased to $4.0 million (1.4% of net sales) from
$3.2 million (1.1% of net sales) for the first nine months of
fiscal 1996. This increase is primarily a result of additional
mortgage debt of $9.9 million (at an average interest rate of
approximately 8.75%) since October 31, 1995 associated with more
Company owned store locations and higher average borrowings on the
line of credit for the nine months ended October 31, 1996 (average
outstanding borrowings of approximately $20.7 million for the first
nine months of fiscal 1997 compared to $14.3 million for the first
nine months of fiscal 1996).
The effective tax rate was approximately 39.5% for all years
presented.
As a result of the foregoing, net income for the third quarter
of fiscal 1997 was $252,000, an 87% decline from $1.9 million for
the third quarter of fiscal 1996. Net income for the first nine
months of fiscal 1997 was $3.5 million, a 42.2% decrease from $6.0
million for the first nine months of fiscal 1996.
Liquidity and Capital Resources
Net cash used in operating activities was $14.0 million for
the nine months ended October 31, 1996. The primary use of cash
was an increase in inventory of $24.3 million in preparation for
new store openings and the Christmas selling season. This was
partially offset by an increase in trade payables of $10.8 million.
Other liabilities decreased by $5.3 million primarily due to the
timing of income tax payments.
12<PAGE>
At October 31, 1996, working capital was $73.5 million
compared to $80.0 million at January 31, 1996. The ratio of
current assets to current liabilities was 1.7 to 1 at October 31,
1996 and 2.1 to 1 at January 31, 1996.
The Company had outstanding borrowings of $36.5 million on its
revolving line of credit at October 31, 1996 at an average interest
rate of 7.5%. At October 31, 1996, the Company had approximately
$71.4 million additional borrowing availability on the revolving
line of credit.
During fiscal 1997, the Company has opened 35 new REX stores.
Capital expenditures for the first nine months of fiscal 1997 were
$18.9 million with additional expenditures of approximately $6
million expected in the fourth quarter. The Company has closed
long-term mortgage financing of $10.2 million for 17 stores during
the first nine months of fiscal 1997 and anticipates obtaining
approximately $10 million of additional mortgage financing for
fiscal 1997 stores. The Company believes it will be able to secure
long-term mortgage financing on a site-by-site basis for Company
built or Company purchased store locations.
Accounting Standards
During the first quarter of fiscal 1997, the Company adopted
the provisions of SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The application of this accounting standard did not have a material
impact on the Company's financial position or results of
operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed with this
report:
27 Financial Data Schedule...................... 15
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter ended October 31, 1996.
13<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 the undersigned, thereunto duly authorized.
REX STORES CORPORATION
Registrant
December 11, 1996 Stuart A. Rose
Stuart A. Rose
Chairman of the Board
(Chief Executive Officer)
December 11, 1996 Douglas L. Bruggeman
Douglas L. Bruggeman
Vice President, Finance and
Treasurer
(Principal Financial and
Chief Accounting Officer)
14<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000744187
<NAME> REX STORES CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-1-1996
<PERIOD-END> OCT-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,763
<SECURITIES> 1,625
<RECEIVABLES> 1,476
<ALLOWANCES> 403
<INVENTORY> 170,879
<CURRENT-ASSETS> 184,047
<PP&E> 97,159
<DEPRECIATION> 10,791
<TOTAL-ASSETS> 278,684
<CURRENT-LIABILITIES> 110,586
<BONDS> 40,605
<COMMON> 96
0
0
<OTHER-SE> 103,837
<TOTAL-LIABILITY-AND-EQUITY> 278,684
<SALES> 283,579
<TOTAL-REVENUES> 283,579
<CGS> 211,424
<TOTAL-COSTS> 211,424
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,030
<INCOME-PRETAX> 5,757
<INCOME-TAX> 2,273
<INCOME-CONTINUING> 3,484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,484
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
<PAGE>
</TABLE>
