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, 1997
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)
(937)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 11, 1997, the registrant had
7,924,821 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.................................... 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................ 14
2<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
A S S E T S
October 31 January 31 October 31
1997 1997 1996
(In Thousands)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 1,836 $ 3,959 $ 1,763
Short-term investments 1,627 1,645 1,625
Accounts receivable, net 791 1,477 1,073
Merchandise inventory 169,345 135,033 170,879
Prepaid expenses and other 3,929 2,219 4,889
Future income tax benefits 6,624 5,544 3,818
---------- --------- ---------
Total current assets 184,152 149,877 184,047
PROPERTY AND EQUIPMENT, NET 93,676 89,638 86,368
FUTURE INCOME TAX BENEFITS 10,219 8,519 8,269
---------- --------- ---------
Total assets $ 288,047 $ 248,034 $ 278,684
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 29,861 $ 12,142 $ 36,501
Current portion of long-term debt 3,234 3,131 2,595
Accounts payable, trade 55,598 31,265 50,356
Accrued income taxes - 1,077 -
Current portion, deferred income
and deferred gain on sale and
leaseback 11,350 10,844 10,442
Accrued payroll 4,979 4,866 4,961
Other liabilities 5,868 6,401 5,731
--------- --------- ---------
Total current liabilities 110,890 69,726 110,586
--------- --------- ---------
3<PAGE>
Liabilities and Shareholders' Equity (Continued)
LONG-TERM LIABILITIES:
Long-term debt 51,499 51,102 40,605
Deferred income 17,364 18,279 17,117
Deferred gain on sale and
leaseback 5,500 6,207 6,443
--------- --------- ---------
Total long-term liabilities 74,363 75,588 64,165
--------- --------- ---------
SHAREHOLDERS' EQUITY:
Common stock 97 96 96
Paid-in capital 57,836 57,229 57,141
Retained earnings 59,302 56,763 52,885
Treasury stock (14,441) (11,368) (6,189)
--------- --------- ---------
Total shareholders' equity 102,794 102,720 103,933
--------- --------- ---------
Total liabilities and
shareholders' equity $ 288,047 $ 248,034 $ 278,684
========= ========= =========
</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
1997 1996 1997 1996
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
NET SALES $ 87,967 $ 90,543 $266,131 $283,579
COSTS AND EXPENSES:
Cost of merchandise sold 63,475 67,990 191,396 211,424
Selling, general and
administrative expenses 21,973 20,793 65,206 62,430
-------- -------- -------- --------
Total costs and expenses 85,448 88,783 256,602 273,854
-------- -------- -------- --------
INCOME FROM OPERATIONS 2,519 1,760 9,529 9,725
INVESTMENT INCOME 23 17 73 62
INTEREST EXPENSE 1,911 1,361 5,406 4,030
-------- -------- -------- --------
Income before income taxes 631 416 4,196 5,757
PROVISION FOR INCOME TAXES 248 164 1,657 2,273
-------- -------- -------- --------
NET INCOME $ 383 $ 252 $ 2,539 $ 3,484
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVA-
LENT SHARES OUTSTANDING 8,203 9,316 8,185 9,322
======== ======== ======== ========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.05 $ 0.03 $ 0.31 $ 0.37
======== ======== ======== ========
</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, 1996 9,598 $ 96 759 $6,189 $57,141 $52,885
Common stock
issued 4 - - - 88 -
Treasury stock
acquired - - 629 5,179 - -
Net income - - - - - 3,878
----- ------ --- ------ ------- -------
Balance at
January 31, 1997 9,602 $ 96 1,388 $11,368 $57,229 $56,763
Common stock
issued 83 1 - - 607 -
Treasury stock
acquired - - 375 3,073 - -
Net income - - - - - 2,539
----- ------ --- ------ ------- -------
Balance at
October 31, 1997 9,685 $ 97 1,763 $14,441 $57,836 $59,302
===== ====== ===== ======= ======= =======
</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
1997 1996
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,539 $ 3,484
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization, net 2,228 2,163
Deferred income (409) 1,657
Future income tax benefits (2,780) 0
Accounts receivable 686 531
Merchandise inventory (34,312) (24,313)
Other current assets (1,715) (3,068)
Accounts payable, trade 24,333 10,831
Other liabilities (1,497) (5,331)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (10,927) (14,046)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investments 18 (100)
Capital expenditures (6,975) (18,931)
Capital disposals 8 318
-------- --------
NET CASH USED IN INVESTING ACTIVITIE (6,949) (18,713)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 17,719 27,174
Payments of long-term debt (2,030) (1,674)
Long-term debt borrowings 2,530 10,234
Common stock issued 607 410
Treasury stock acquired (3,073) (2,307)
-------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 15,753 33,837
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,123) 1,078
CASH AND CASH EQUIVALENTS,
beginning of period 3,959 685
-------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 1,836 $1,763
</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, 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<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 canceled or expired at October 31, 1997:
<TABLE>
<CAPTION>
Shares Under Stock
Option Plans
<S> <C>
Outstanding at January 31, 1997
($3.375 to $18.975 per share) 2,119,227
Granted ($10.375 per share) 290,552
Exercised ($6.375 to $8.125 per share) (84,290)
Expired or canceled ($8.125 per share) (7,600)
---------
Outstanding at October 31, 1997
($3.375 to $18.975 per share) 2,317,889
=========
</TABLE>
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.
9<PAGE>
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
dilutive EPS would have been as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31 October 31
1997 1996 1997 1996
<S> <C>
Basic $ .05 $ .03 $ .32 $ .39
===== ===== ===== =====
Diluted $ .05 $ .03 $ .31 $ .37
===== ===== ===== =====
</TABLE>
10<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 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 Nine Months Ended
October 31 October 31
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 72.2 75.1 71.9 74.6
----- ----- ----- -----
Gross profit 27.8 24.9 28.1 25.4
Selling, general and
administrative expense 25.0 23.0 24.5 22.0
----- ----- ----- -----
Income from operations 2.8 1.9 3.6 3.4
Interest, net 2.1 1.4 2.0 1.4
----- ----- ----- -----
Income before income
taxes 0.7 0.5 1.6 2.0
Provision for income taxes 0.3 0.2 0.6 0.8
----- ----- ----- -----
Net income 0.4% 0.3% 1.0% 1.2%
===== ===== ===== =====
</TABLE>
11<PAGE>
Comparison of Nine Months Ended October 31, 1997 and 1996
Net sales in the third quarter ended October 31, 1997 were
$87.9 million compared to $90.5 million in the prior year's
comparable period, representing a decrease of $2.6 million or 2.8%.
Net sales for the first nine months of fiscal 1998 were $266.1
million compared to $283.6 million for the first nine months of
fiscal 1997, representing a decrease of $17.5 million or 6.2%.
These decreases are a result of a decline in comparable store
merchandise sales of 11.1% for the third quarter and 16.4% for the
nine months ended October 31, 1997, partially offset by sales from
14 net additional stores in the current year compared to one year
earlier.
As of October 31, 1997 there were 218 stores compared to 204
stores one year earlier. There were three stores opened and seven
closed during the nine months ended October 31, 1997, compared to
opening 11 stores and closing six during the nine months ended
October 31, 1996. During the fourth quarter of the current fiscal
year the Company has opened an additional five stores bringing the
total opened for the year to eight stores. 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 $24.5 million (27.8% of net sales) in the
third quarter of fiscal 1998 was 8.6% higher than the $22.6 million
(24.9% of net sales) gross profit recorded in the third quarter of
fiscal 1997. For the first nine months of fiscal 1998, gross
profit was $74.7 million (28.1% of net sales), a 3.6% increase over
the $72.2 million (25.4% of net sales) for the first nine months of
fiscal 1997. The improved gross profit margin, as a percent of
sales, for the third quarter and first nine months of fiscal 1998
was 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 third
quarter of fiscal 1998 were $22.0 million (25.0% of net sales), a
5.7% increase over the $20.8 million (23.0% of net sales) for the
third quarter of fiscal 1997. Selling, general and administrative
expenses for the first nine months of fiscal 1998 were $65.2
million (24.5% of net sales), a 4.4% increase over the $62.4
million (22.0% of net sales) for the first nine months of fiscal
1997. The increase in expenses was primarily attributable to
higher advertising costs and operating expenses associated with
more store locations and increased incentive commissions for sales
personnel. The increase in expenses as a percent of net sales
resulted primarily from the decline in comparable store sales.
12<PAGE>
Interest expense increased to $1.9 million (2.1% of net sales)
for the third quarter ended October 31, 1997 from $1.4 million
(1.4% of net sales ) for the third quarter of fiscal 1997.
Interest expense for the first nine months of fiscal 1998 increased
to $5.4 million (2.0% of net sales) from $4.0 million (1.4% of net
sales) for the first nine months of fiscal 1997. This increase is
primarily a result of additional mortgage debt of approximately
$11.5 million (at an average interest rate of approximately 8.8%)
since October 31, 1996 associated with more Company owned store
locations. The increase in interest expense is also attributable
to additional borrowings on the line of credit (average outstanding
borrowings of $26.2 million and $23.1 million for the third quarter
and first nine months of fiscal 1998, respectively, versus average
outstanding borrowings of $20.1 million and $20.7 million for the
third quarter and first nine months of fiscal 1997, respectively).
The effective tax rate was approximately 39.5% for all periods
presented.
As a result of the foregoing, net income for the third quarter
of fiscal 1998 was $383,000, an 52% increase over $252,000 for the
third quarter of fiscal 1997. Net income for the first nine months
of fiscal 1998 was $2.5 million, a 27.1% decrease from $3.5 million
for the first nine months of fiscal 1997.
Liquidity and Capital Resources
Net cash used in operating activities was $10.9 million for
the nine months ended October 31, 1997. Cash was provided by net
income of $2.5 million, adjusted for non-cash charges of $1.8
million. The primary use of cash was an increase in inventory of
$34.3 million due to preparations for the Christmas selling season
and opportunistic purchases. This was partially offset by an
increase in trade payables of $24.3 million. Changes in other
working capital items also served to decrease cash by approximately
$5.3 million.
At October 31, 1997, working capital was $73.3 million
compared to $80.2 million at January 31, 1997. The ratio of
current assets to current liabilities was 1.7 to 1 at October 31,
1997 and 2.1 to 1 at January 31, 1997.
The Company had outstanding borrowings on its revolving line
of credit of $29.9 million at October 31, 1997 at an average
interest rate of 7.8%. At October 31, 1997, the Company had
approximately $76.1 million borrowing availability on the revolving
line of credit.
Forward-Looking Statements
This Form 10-Q contains forward-looking statements as defined
in the Private Securities Litigation Reform Act of 1995. The words
13<PAGE>
"believes", "estimates", "plans", "expects", "intends",
"anticipates" and similar expressions as they relate to the Company
or its management are intended to identify such forward-looking
statements. Forward-looking statements are inherently subject to
risks and uncertainties. Factors that could cause actual results
to differ materially from those in the forward-looking statements
are set forth in Exhibit 99 to this report.
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...................... 17
99 Cautionary Statement under the Safe Harbor
for Forward-Looking Statements in the Private
Securities Litigation Reform Act of 1995..... 18
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter ended October 31, 1997.
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
December 11, 1997 /s/Stuart A. Rose
Stuart A. Rose
Chairman of the Board
(Chief Executive Officer)
December 11, 1997 /s/Douglas L. Bruggeman
Douglas L. Bruggeman
Vice President, Finance and
Treasurer
(Principal Financial and
Chief Accounting Officer)
15<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-31-1998
<PERIOD-START> FEB-1-1997
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,836
<SECURITIES> 1,627
<RECEIVABLES> 1,228
<ALLOWANCES> 437
<INVENTORY> 169,345
<CURRENT-ASSETS> 184,152
<PP&E> 107,855
<DEPRECIATION> 14,179
<TOTAL-ASSETS> 288,047
<CURRENT-LIABILITIES> 110,890
<BONDS> 51,499
<COMMON> 97
0
0
<OTHER-SE> 102,697
<TOTAL-LIABILITY-AND-EQUITY> 288,047
<SALES> 266,131
<TOTAL-REVENUES> 266,131
<CGS> 191,396
<TOTAL-COSTS> 191,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,406
<INCOME-PRETAX> 4,196
<INCOME-TAX> 1,657
<INCOME-CONTINUING> 2,539
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,539
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
<PAGE>
</TABLE>
Exhibit 99
Certain statements in filings by REX Stores Corporation (the
"Company") with the Securities and Exchange Commission, in the
Company's press releases and in oral statements made by or with the
approval of an authorized executive officer of the Company
constitute forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. The words "believes",
"estimates", "plans", "expects", "intends", "anticipates" and
similar expressions as they relate to the Company or its management
are intended to identify such forward-looking statements. Forward-
looking statements are inherently subject to risks and uncertainties.
Factors that could cause actual results to differ materially from those
in the forward-looking statements include, but are not limited to, the
following:
* Demand for the Company's products, which is dependent upon
factors such as general economic conditions, availability
of consumer credit, consumer confidence, consumer spending
patterns and preferences, introduction and acceptance of
new products and product features and the continued
popularity of existing products in the Company's product
categories;
* Changes in the level of competition from current
competitors and potential new competition from both retail
stores and alternative methods of distribution such as
electronic and telephone shopping services and mail order;
* Availability of working capital financing from lending
institutions and vendors and availability of long-term
financing to support development of stores and distribution
facilities;
* The Company's ability to identify additional market areas
in which it can successfully compete, locate suitable store
sites and hire and train qualified personnel;
* Loss of a significant vendor(s) or prolonged disruptions
in product supply;
* Changes in the cost of the Company's advertising or in
support from vendors for co-op advertising and promotional
programs;
* Additional governmental or manufacturers restrictions or
regulations on the sale of products or services by the
Company;
* Adverse results in significant litigation matters (if any);
and
* Seasonality of the Company's business and its dependence
on the Christmas selling season.
<PAGE>
