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, 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 September 11, 1997, the registrant had
7,918,621 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 4. Submission of Matters to a Vote of Security
Holders....................................... 14
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
1997 1997 1996
(In Thousands)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 1,656 $ 3,959 $ 2,028
Short-term investments 1,647 1,645 1,605
Accounts receivable, net 808 1,477 477
Merchandise inventory 148,174 135,033 148,850
Prepaid expenses and other 5,121 2,219 4,072
Future income tax benefits 5,544 5,544 3,818
---------- --------- ---------
Total current assets 162,950 149,877 160,850
PROPERTY AND EQUIPMENT, NET 91,369 89,638 76,525
FUTURE INCOME TAX BENEFITS 8,519 8,519 8,269
---------- --------- ---------
Total assets $ 262,838 $ 248,034 $ 245,644
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 28,152 $ 12,142 $ 19,487
Current portion of long-term debt 3,190 3,131 2,527
Accounts payable, trade 31,941 31,265 32,642
Accrued income taxes 0 1,077 0
Current portion, deferred income
and deferred gain on sale and
leaseback 11,257 10,844 10,055
Accrued payroll 4,655 4,866 4,701
Other liabilities 5,758 6,401 5,915
--------- --------- ---------
Total current liabilities 84,953 69,726 75,327
--------- --------- ---------
3<PAGE>
Liabilities and Shareholders' Equity (Continued)
LONG-TERM LIABILITIES:
Long-term debt 52,219 51,102 40,640
Deferred income 17,683 18,279 17,013
Deferred gain on sale and
leaseback 5,736 6,207 6,679
--------- --------- ---------
Total long-term liabilities 75,638 75,588 64,332
--------- --------- ---------
SHAREHOLDERS' EQUITY:
Common stock 97 96 96
Paid-in capital 57,672 57,229 57,138
Retained earnings 58,919 56,763 52,633
Treasury stock (14,441) (11,368) (3,882)
--------- --------- ---------
Total shareholders' equity 102,247 102,720 105,985
--------- --------- ---------
Total liabilities and
shareholders' equity $ 262,838 $ 248,034 $ 245,644
========= ========= =========
</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
1997 1996 1997 1996
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
NET SALES $ 89,899 $ 95,652 $178,164 $193,036
COSTS AND EXPENSES:
Cost of merchandise sold 64,051 70,931 127,921 143,434
Selling, general and
administrative expenses 21,660 20,839 43,233 41,636
-------- -------- -------- --------
Total costs and expenses 85,711 91,770 171,154 185,070
-------- -------- -------- --------
INCOME FROM OPERATIONS 4,188 3,882 7,010 7,966
INVESTMENT INCOME 22 23 50 45
INTEREST EXPENSE 1,963 1,466 3,495 2,670
-------- -------- -------- --------
Income before income taxes 2,247 2,439 3,565 5,341
PROVISION FOR INCOME TAXES 888 964 1,409 2,109
-------- -------- -------- --------
NET INCOME $ 1,359 $ 1,475 $ 2,156 $ 3,232
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVA-
LENT SHARES OUTSTANDING 8,127 9,401 8,183 9,347
======== ======== ======== ========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.17 $ 0.16 $ 0.26 $ 0.35
======== ======== ======== ========
</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, 1996 9,597 $ 96 534 $3,882 $57,138 $52,633
Common stock
issued 5 - - - 91 -
Treasury stock
acquired - - 854 7,486 - -
Net income - - - - - 4,130
----- ------ --- ------ ------- -------
Balance at
January 31, 1997 9,602 $ 96 1,388 $11,368 $57,229 $56,763
Common stock
issued 63 1 - - 443 -
Treasury stock
acquired - - 375 3,073 - -
Net income - - - - - 2,156
----- ------ --- ------ ------- -------
Balance at
July 31, 1997 9,665 $ 97 1,763 $14,441 $57,672 $58,919
===== ====== ===== ======= ======= =======
</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
1997 1996
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,156 $ 3,232
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization, net 1,481 1,471
Deferred income (182) 1,211
Accounts receivable 669 1,126
Merchandise inventory (13,141) (2,284)
Other current assets (2,906) (439)
Accounts payable, trade 676 (6,883)
Other liabilities (1,931) (7,215)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (13,178) (9,781)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investments (2) (80)
Capital expenditures (3,680) (7,974)
Capital disposals 1 85
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,681) (7,969)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 16,010 10,160
Payments of long-term debt (1,354) (1,062)
Long-term debt borrowings 2,530 9,589
Common stock issued 443 406
Treasury stock acquired (3,073) 0
------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 14,556 19,093
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,303) 1,343
CASH AND CASH EQUIVALENTS,
beginning of period 3,959 685
-------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 1,656 $ 2,028
</TABE> ======== ========
<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, 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 July 31, 1997:
</TABLE>
<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) (64,008)
Expired or canceled ($8.125 per share) (7,600)
---------
Outstanding at July 31, 1997
($3.375 to $18.975 per share) 2,338,171
=========
</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 Six Months Ended
July 31 July 31
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Basic $ .17 $ .16 $ .27 $ .36
===== ===== ===== =====
Diluted $ .17 $ .16 $ .26 $ .35
===== ===== ===== =====
</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 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
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 71.2 74.2 71.8 74.3
----- ----- ----- -----
Gross profit 28.8 25.8 28.2 25.7
Selling, general and
administrative expense 24.1 21.8 24.3 21.6
----- ----- ----- -----
Income from operations 4.7 4.0 3.9 4.1
Interest, net 2.2 1.5 1.9 1.3
----- ----- ----- -----
Income before income
taxes 2.5 2.5 2.0 2.8
Provision for income taxes 1.0 1.0 0.8 1.1
----- ----- ----- -----
Net income 1.5% 1.5% 1.2% 1.7%
===== ===== ===== =====
</TABLE>
11<PAGE>
Comparison of Six Months Ended July 31, 1997 and 1996
Net sales in the second quarter ended July 31, 1997 were $89.9
million compared to $95.7 million in the prior year's comparable
period, representing a decrease of $5.8 million or 6.1%. Net sales
for the first half of fiscal 1998 were $178.2 million compared to
$193.0 million in the first half of fiscal 1997, representing a
decrease of $14.8 million or 7.7%. These decreases are a result of
a decline in comparable store merchandise sales of 18.0% for the
three months and 19.2% for the six months ended July 31, 1997,
partially offset by sales from 21 net additional stores in the
current year compared to one year earlier.
As of July 31, 1997, the Company had 219 stores compared to
198 stores one year earlier. There was one store opened and four
closed during the first half of fiscal 1998. In the prior year's
first half there were two stores opened and three closed. 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 $25.8 million in the second quarter of fiscal
1998 (28.8% of net sales) was 4.6% higher than the $24.7 million
gross profit (25.8% of net sales) recorded in the second quarter of
fiscal 1997. In the first half of fiscal 1998 gross profit was
$50.2 million (28.2% of net sales), a 1.3% increase over the $49.6
million (25.7% of net sales) for the first half of fiscal 1997.
The improved gross profit margin, as a percent of sales, for the
second quarter and first half 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 second
quarter of fiscal 1998 were $21.7 million (24.1% of net sales), a
3.9% increase over the $20.8 million (21.8% of net sales) for the
second quarter of fiscal 1997. Selling, general and administrative
expenses for the first half of fiscal 1998 were $43.2 million
(24.3% of net sales), a 3.8% increase over the $41.6 million (21.6%
of net sales) for the first half of fiscal 1997. The increase in
expenses was primarily attributable to higher advertising costs and
operating expenses associated with more store locations. The
increase in expense as a percent of net sales resulted from the
decline in comparable store sales.
Interest expense increased to $2.0 million (2.2% of net sales)
for the quarter ended July 31, 1997 from $1.5 million (1.5% of net
sales) for the second quarter of fiscal 1997. Interest expense for
the first half of fiscal 1998 increased to $3.5 million (1.9% of
net sales) from $2.7 million (1.3% of net sales) for the first half
12<PAGE>
of fiscal 1997. This increase is primarily a result of additional
mortgage debt of approximately $12.2 million (at an average
interest rate of approximately 8.8%) since July 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 $28.8 million and
$21.5 million for the second quarter and first six months of fiscal
1998, respectively, versus average outstanding borrowings of $24.2
million and $20.9 million for the second quarter and first six
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 second
quarter of fiscal 1998 was $1.4 million, a 7.9% decline from $1.5
million for the second quarter of fiscal 1997. Net income for the
first half of fiscal 1998 was $2.2 million, a 33.3% decrease from
$3.2 million for the first half of fiscal 1997.
Liquidity and Capital Resources
Net cash used in operating activities was $13.2 million for
the six months ended July 31, 1997. Cash was provided by net
income of $2.2 million, adjusted for non-cash charges of $1.3
million. The primary use of cash was an increase in inventory of
$13.1 million primarily due to the addition of seasonal air
conditioner inventory and opportunistic purchases. Changes in
other working capital items also served to decrease cash by
approximately $3.6 million.
At July 31, 1997, working capital was $78.0 million compared
to $80.2 million at January 31, 1997. The ratio of current assets
to current liabilities was 1.9 to 1 at July 31, 1997 and 2.1 to 1
at January 31, 1997.
The Company had outstanding borrowings on its revolving line
of credit of $28.2 million at July 31, 1997 at an average interest
rate of 7.7%. At July 31, 1997, the Company had approximately
$64.7 million borrowing availability on the revolving line of
credit after reduction for the outstanding letter of credit.
13<PAGE>
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 6, 1997, 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 7,210,780 10,095 0
Lawrence Tomchin 7,210,780 10,095 0
Robert Davidoff 7,210,780 10,095 0
Tibor Fabian 7,210,780 10,095 0
Edward Kress 7,210,780 10,095 0
Lee Fisher 7,210,780 10,095 0
</TABLE>
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, 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
September 12, 1997 Stuart A. Rose
Stuart A. Rose
Chairman of the Board
(Chief Executive Officer)
September 12, 1997 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> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-1-1997
<PERIOD-END> JUL-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,656
<SECURITIES> 1,647
<RECEIVABLES> 1,154
<ALLOWANCES> 346
<INVENTORY> 148,174
<CURRENT-ASSETS> 162,950
<PP&E> 104,893
<DEPRECIATION> 13,524
<TOTAL-ASSETS> 262,838
<CURRENT-LIABILITIES> 84,953
<BONDS> 52,219
<COMMON> 97
0
0
<OTHER-SE> 102,150
<TOTAL-LIABILITY-AND-EQUITY> 262,838
<SALES> 178,164
<TOTAL-REVENUES> 178,164
<CGS> 127,921
<TOTAL-COSTS> 127,921
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,495
<INCOME-PRETAX> 3,565
<INCOME-TAX> 1,409
<INCOME-CONTINUING> 2,156
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,156
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
<PAGE>
</TABLE>
