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 July 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)
(Registrant's telephone number, including area code) 513-276-3931
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 (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 September 12, 1996, the registrant had
9,063,731 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 4. Submission of Matters to a Vote of Security
Holders....................................... 13
Item 6. Exhibits and Reports on Form 8-K................ 14
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
July 31 January 31 July 31
1996 1996 1995
(In Thousands)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 2,028 $ 685 $ 2,583
Short-term investments 1,605 1,525 1,555
Accounts receivable, net 477 1,604 668
Merchandise inventory 148,850 146,566 156,863
Prepaid expenses and other 4,072 1,825 2,610
Future income tax benefits 3,818 3,818 2,860
---------- --------- ---------
Total current assets 160,850 156,023 167,139
PROPERTY AND EQUIPMENT, NET 76,525 70,307 56,676
FUTURE INCOME TAX BENEFITS 8,269 8,269 7,619
---------- --------- ---------
Total assets $ 245,644 $ 234,599 $ 231,434
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 19,487 $ 9,327 $ 15,098
Current portion of long-term debt 2,527 2,050 1,916
Accounts payable, trade 32,642 39,525 50,274
Accrued income taxes 0 4,121 0
Current portion, deferred income
and deferred gain on sale and
leaseback 10,055 9,083 8,048
Accrued payroll 4,701 6,570 5,931
Other liabilities 5,915 5,331 5,559
--------- --------- ---------
Total current liabilities 75,327 76,007 86,826
--------- --------- ---------
3<PAGE>
Liabilities and Shareholders' Equity (Continued)
LONG-TERM LIABILITIES:
Long-term debt 40,640 32,590 31,147
Deferred income 17,013 16,506 14,442
Deferred gain on sale and
leaseback 6,679 7,150 7,577
--------- --------- ---------
Total long-term liabilities 64,332 56,246 53,166
--------- --------- ---------
SHAREHOLDERS' EQUITY:
Common stock 96 95 95
Paid-in capital 57,138 56,732 56,314
Retained earnings 52,633 49,401 38,915
Treasury stock (3,882) (3,882) (3,882)
--------- --------- ---------
Total shareholders' equity 105,985 102,346 91,442
--------- --------- ---------
Total liabilities and
shareholders' equity $ 245,644 $ 234,599 $ 231,434
========= ========= =========
</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 Six Months Ended
July 31 July 31
1996 1995 1996 1995
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
NET SALES $ 95,652 $ 96,459 $193,036 $183,885
COSTS AND EXPENSES:
Cost of merchandise sold 70,931 71,484 143,434 137,086
Selling, general and
administrative expenses 20,839 19,829 41,636 38,471
-------- -------- -------- --------
Total costs and expenses 91,770 91,313 185,070 175,557
-------- -------- -------- --------
INCOME FROM OPERATIONS 3,882 5,146 7,966 8,328
INVESTMENT INCOME 23 25 45 134
INTEREST EXPENSE 1,466 1,018 2,670 1,709
-------- -------- -------- --------
Income before income taxes 2,439 4,153 5,341 6,753
PROVISION FOR INCOME TAXES 964 1,640 2,109 2,666
-------- -------- -------- --------
NET INCOME $ 1,475 $ 2,513 $ 3,232 $ 4,087
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVA-
LENT SHARES OUTSTANDING 9,401 9,339 9,347 9,377
======== ======== ======== ========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.16 $ 0.27 $ 0.35 $ 0.44
======== ======== ======== ========
</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
July 31, 1995 9,472 $ 95 534 $3,882 $56,314 $38,915
Common stock
issued 49 - - - 418 -
Net income - - - - - 10,486
----- ------ --- ------ ------- -------
Balance at
January 31, 1996 9,521 $ 95 534 $3,882 $56,732 $49,401
Common stock
issued 76 1 - - 406 -
Net income - - - - - 3,232
----- ------ --- ------ ------- -------
Balance at
July 31, 1996 9,597 $ 96 534 $3,882 $57,138 $52,633
===== ====== === ====== ======= =======
</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>
Six Months Ended
July 31
1996 1995
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,232 $ 4,087
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization, net 1,471 1,032
Deferred income 1,211 1,542
Accounts receivable 1,126 409
Merchandise inventory (2,284) (41,516)
Other current assets (439) (614)
Accounts payable, trade (6,883) 16,979
Other liabilities (7,215) (2,964)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (9,781) (21,045)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investments (80) 0
Capital expenditures (7,974) (7,892)
Capital disposals 85 10
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (7,969) (7,882)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 10,160 15,098
Payments of long-term debt (1,062) (891)
Long-term debt borrowings 9,589 6,679
Common stock issued 406 225
Treasury stock acquired 0 (2,264)
-------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 19,093 18,847
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,343 (10,080)
CASH AND CASH EQUIVALENTS,
beginning of period 685 12,663
-------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 2,028 $ 2,583
</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
July 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 July 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) (76,729)
Expired or cancelled ($6.375 to $17.25
per share) (22,600)
---------
Outstanding at July 31, 1996
($3.375 to $18.975 per share) 2,171,627
=========
</TABLE>
Note 4. Contingencies
On July 19, 1996, a judgment on a jury verdict was entered
against the Company in an employment related lawsuit awarding the
plaintiff $141,000 in compensatory damages and $1,500,000 in
punitive damages. The Company has filed a motion for judgment
notwithstanding the verdict and, if unsuccessful, will file an
appeal of the verdict. The Company intends to vigorously pursue a
reversal of this verdict and after taking into consideration legal
counsel's evaluation of this matter, management is of the opinion
that its outcome will not have a material adverse effect 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 result 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 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31 July 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 74.2 74.1 74.3 74.6
----- ----- ----- -----
Gross profit 25.8 25.9 25.7 25.4
Selling, general and
administrative expense 21.8 20.6 21.6 20.9
----- ----- ----- -----
Income from operations 4.0 5.3 4.1 4.5
Interest, net 1.5 1.0 1.3 .9
----- ----- ----- -----
Income before income
taxes 2.5 4.3 2.8 3.6
Provision for income taxes 1.0 1.7 1.1 1.4
----- ----- ----- -----
Net income 1.5% 2.6% 1.7% 2.2%
===== ===== ===== =====
</TABLE>
10<PAGE>
Comparison of Six Months Ended July 31, 1996 and 1995
Net sales in the second quarter ended July 31, 1996 were $95.7
million compared to $96.5 million in the prior year's comparable
period, representing a decrease of $0.8 million or 0.8%. This
decrease is due to a decline in comparable store merchandise sales
of 15.5%, partially offset by the sales of 30 net additional stores
in the current year's second quarter compared to the prior year's
second quarter. Net sales for the first half of fiscal 1997 were
$193.0 million compared to $183.9 million in the first half of
fiscal 1996, representing an increase of $9.1 million or 5.0%.
This increase is primarily a result of 30 net additional store
locations in the current year partially offset by a decline in
comparable store merchandise sales of 10.6% for the first half of
fiscal 1997. The Company considers a store to be comparable after
it has been open six fiscal quarters.
As of July 31, 1996, the Company had 198 stores compared to
168 stores one year earlier. There were two stores opened and
three closed during the first half of fiscal 1997. In the prior
year's first half there were three stores opened and none closed.
The Company anticipates opening 35 to 40 new stores in fiscal 1997.
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 $24.7 million in the second quarter of fiscal
1997 (25.8% of net sales) was 1.0% lower than the $25.0 million
gross profit (25.9% of net sales) recorded in the second quarter of
fiscal 1996. The slightly lower gross profit margin for the second
quarter of fiscal 1997 was primarily due to increased competition
in certain markets and slower air conditioner sales, which
generally carry a higher gross profit margin. In the first half of
fiscal 1997 gross profit was $49.6 million (25.7% of net sales), a
6.0% increase over the $46.8 million (25.4% of net sales) for the
first half of fiscal 1996. The improved gross profit margin for
the first half of fiscal 1997 was primarily the result of lower
merchandise cost on certain products due to opportunistic
purchasing. 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 second
quarter of fiscal 1997 were $20.8 million (21.8% of net sales), a
5.1% increase over the $19.8 million (20.6% of net sales) for the
second quarter of fiscal 1996. Selling, general and administrative
expenses for the first half of fiscal 1997 were $41.6 million
(21.6% of net sales), an 8.2% increase over the $38.5 million
(20.9% of net sales) for the first half of fiscal 1996. The
increase in expenses is primarily attributable to increased
11<PAGE>
advertising, occupancy and general costs associated with the net
addition of 30 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 $3.9 million (4.0% of net sales) in
the second quarter of fiscal 1997, a 24.6% decline from $5.1
million (5.3% of net sales) for the second quarter of fiscal 1996.
Income from operations was $8.0 million (4.1% of net sales) for the
first half of fiscal 1997, a 4.3% decrease from $8.3 million (4.5%
of net sales) for the first half of fiscal 1996. This decrease is
primarily due to the decline in comparable store sales and the
additional expense of 30 net additional new stores.
Interest expense increased to $1.5 million (1.5% of net sales)
for the quarter ended July 31, 1996 from $1.0 million (1.0% of net
sales) for the previous year's second quarter. Interest expense
for the first half of fiscal 1997 increased to $2.7 million (1.3%
of net sales) from $1.7 million (0.9% of net sales) for the first
half of fiscal 1996. This increase is primarily a result of
additional borrowings on the line of credit (average outstanding
borrowings of approximately $20.9 million for the first half of
fiscal 1997 compared to $5.7 million for the first half of fiscal
1996) to support higher inventory levels during the first half of
the year and fixed asset additions. The increase in interest
expense is also attributable to additional mortgage debt of
approximately $10.1 million (at an average interest rate of
approximately 8.75%) since July 31, 1995 associated with more
Company owned store locations.
The effective tax rate was approximately 39.5% for all periods
presented.
As a result of the foregoing, net income for the second
quarter of fiscal 1997 was $1.5 million, a 41.3% decline from $2.5
million for the second quarter of fiscal 1996. Net income for the
first half of fiscal 1997 was $3.2 million, a 20.9% decrease from
$4.1 million for the first half of fiscal 1996.
Liquidity and Capital Resources
Net cash used in operating activities was $9.8 million for the
six months ended July 31, 1996. Operating cash flow was provided
by net income of $3.2 million adjusted for non-cash charges of $2.7
million. The primary use of cash was a reduction in trade payables
and other liabilities of approximately $14.1 million due to the
timing of vendor and income tax payments. The increase in
inventory also resulted in a use of cash of approximately $2.3
million.
At July 31, 1996, working capital was $85.5 million compared
to $80.0 million at January 31, 1996. The ratio of current assets
12<PAGE>
to current liabilities was 2.1 to 1 at July 31, 1996 and January
31, 1996.
The Company had outstanding borrowings of $19.5 million on its
revolving line of credit at July 31, 1996 at an average interest
rate of 7.5%. At July 31, 1996, the Company had approximately
$70.2 million borrowing availability on the revolving line of
credit after reduction for the outstanding letter of credit.
During fiscal 1997, the Company plans to open 35 to 40 REX
stores with anticipated capital expenditures of approximately $20
to $24 million. Capital expenditures for the first half of fiscal
1997 were $8.0 million and were primarily in-process store
construction costs and the purchase of two existing stores for $1.6
million. The Company believes it will be able to obtain long term
mortgage financing on a site-by-site basis for Company built or
Company purchased store locations as stores are completed.
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 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of shareholders of REX Stores Corporation
was held on June 7, 1996, at which the following matter was
submitted to a vote of shareholders:
1. Election of six directors. The vote on this matter was
as follows:
<TABLE>
<CAPTION>
Broker
Nominee For Withheld Nonvotes
<S> <C> <C> <C>
Stuart Rose 8,011,187 245,854 0
Lawrence Tomchin 8,011,012 246,029 0
Robert Davidoff 8,251,412 5,629 0
Tibor Fabian 8,251,299 5,762 0
Edward Kress 8,015,687 241,354 0
Lee Fisher 8,250,837 6,204 0
</TABLE>
13<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed with this
report:
27 Financial Data Schedule...................... 16
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter ended July 31, 1996.
14
<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
September 12, 1996 Stuart A. Rose
Stuart A. Rose
Chairman of the Board
(Chief Executive Officer)
September 12, 1996 Douglas L. Bruggeman
Douglas L. Bruggeman
Vice President, Finance and
Treasurer
(Principal Financial and
Chief Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000744187
<NAME> REX STORES CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-1-1996
<PERIOD-END> JUL-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,028
<SECURITIES> 1,605
<RECEIVABLES> 785
<ALLOWANCES> 308
<INVENTORY> 148,850
<CURRENT-ASSETS> 160,850
<PP&E> 86,790
<DEPRECIATION> 10,265
<TOTAL-ASSETS> 245,644
<CURRENT-LIABILITIES> 75,327
<BONDS> 40,640
<COMMON> 96
0
0
<OTHER-SE> 105,889
<TOTAL-LIABILITY-AND-EQUITY> 245,644
<SALES> 193,036
<TOTAL-REVENUES> 193,036
<CGS> 143,434
<TOTAL-COSTS> 143,434
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,670
<INCOME-PRETAX> 5,341
<INCOME-TAX> 2,109
<INCOME-CONTINUING> 3,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,232
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
