UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended June 25, 1996
( ) Transition Report pursuant to Section 13 or 15 (d) of the Securities and
Exchange Act of 1934 For the transition period from ___________ to
_____________
Commission File Number 0-20498
TOPS APPLIANCE CITY, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-3174554
(State or other jurisdictions of (I.R. Employer I.D. No.)
incorporated or organization)
45 Brunswick Avenue, Edison, New Jersey 08818
(Address of principal executive offices) (Zip Code)
(908) 248-2850
(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. ( X ) Yes ( ) No
Number of shares outstanding of each of the issuer's classes of common stock, as
of June 25, 1996.
7,265,698 Shares
<PAGE>
<TABLE>
<CAPTION>
TOPS APPLIANCE CITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
June 25, 1996 December 26, 1995
------------- -----------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,115 $ 8,289
Accounts receivable, net 1,442 1,452
Merchandise inventory 64,357 59,847
Prepaid exp & other current assets 1,441 2,264
------- --------
Total current assets 71,355 71,852
Property, equip & leasehold improv.,net 33,848 35,616
Deferred taxes 2,658 2,462
Other assets 4,081 3,622
------- --------
$111,942 $113,552
======= =======
</TABLE>
LIABILITIES & SHAREHOLDERS EQUITY
Current Liabilities:
Accounts payable $26,487 $13,188
Accrued liabilities and
income taxes 3,678 6,134
Sales tax payable 1,909 2,318
Customer deposits 4,258 3,930
Short-term borrowings 5,106 8,900
Current portion of long-term debt 481 645
Due to related parties 1,927 1,927
Deferred taxes 418 2,698
------- -------
Total current liabilities 44,264 39,740
Long-term debt, net of current portion 49,033 49,201
Due to related parties 391 782
Deferred rent 3,012 2,792
Other liabilities 774 938
Shareholders' equity 14,468 20,099
-------- -------
$111,942 $113,552
======= =======
See accompanying notes. 2
<PAGE>
TOPS APPLIANCE CITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SECOND QUARTER AND SIX MONTHS ENDED JUNE 25, 1996 AND JUNE 27, 1995
(Dollars in thousands except per share data)
(Unaudited)
2nd Qtr 2nd Qtr 6 Months 6 Months
1996 1995 1996 1995
------- -------- -------- --------
Net sales & service revenues $81,923 $112,266 $150,594 $203,531
Cost of sales 64,258 85,794 117,589 155,996
------- -------- -------- --------
Gross profit 17,665 26,472 33,005 47,535
Selling, general & admin exp 20,343 24,980 40,588 48,548
------- ------- ------- ------
Income (loss) from operations (2,678) 1,492 (7,583) (1,013)
Other income 213 197 484 438
Interest expense (1,202) (982) (2,325) (2,132)
-------- ------- ------- -------
Income (loss) before provision
(benefit) for income taxes (3,667) 707 (9,424) (2,707)
Provision (benefit) for
income taxes (1,478) 292 (3,771) (1,075)
-------- ------ -------- ---------
Net income (loss) ($2,189) $415 ($5,653) ($1,632)
======== ======== ======== ========
Net income (loss)
per common share ($0.30) $0.06 ($0.78) ($0.22)
======= ======== ======= ========
Weighted avg shares
outstanding 7,265,698 7,284,040 7,265,698 7,258,365
========= ========= ========= =========
See accompanying notes.
<PAGE>
TOPS APPLIANCE CITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 25, 1996 AND JUNE 27, 1995
(Amounts in thousands)
(Unaudited)
For the six months ended,
6/25/96 6/27/95
----------- -----------
Cash flow from operating activities:
Net loss ($5,653) ($1,632)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,651 3,388
Deferred rent 220 264
Amortization of deferred income (73) (108)
Accounts receivable, net 10 (631)
Inventory (4,510) (20,183)
Prepaid expenses and other current assets 823 1,626
Accounts payable 10,833 22,321
Sales tax payable (409) (1,329)
Accrued liabilities and income
taxes payable (2,456) (206)
Customer deposits 328 806
Deferred taxes (2,476) (104)
Other assets (641) (181)
Other liabilities (91) 165
--------- --------
Net cash provided by (used in)
operating activities (1,444) 4,196
Cash flows from investing activities:
Capital expenditures, net of disposals (701) (1,208)
--------- ---------
Net cash (used in) investing activities (701) (1,208)
Cash flows from financing activities:
Short-term borrowings (3,794) (9,600)
Cash overdrafts 2,466 4,233
Notes payable (332) (431)
Due to related parties (391) (391)
Proceeds from Employee Stock Purchase Plan 22 46
--------- ---------
Net cash provided by (used in) financing
activities: (2,029) (6,143)
--------- ---------
Decrease in cash and cash equivalents (4,174) (3,155)
Cash and cash equivalents, beginning
of period 8,289 12,709
--------- ---------
Cash and cash eqivalents, end of period $4,115 $9,554
========= ========
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TOPS APPLIANCE CITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1.
The accompanying condensed consolidated financial statements (unaudited)
should be read in conjunction with the consolidated financial statements and
disclosures included in the Company's 1995 Annual Report on Form 10-K.
The condensed consolidated financial statements (unaudited) include all
adjustments (consisting of normal recurring items) which management considers
necessary to present fairly the financial position and results of operations
of the Company for the three and six months ended June 25, 1996 and June 27,
1995.
Included in accounts payable is a cash overdraft balance of $2,466,000 and
$4,398,000 at June 25, 1996 and December 26, 1995, respectively.
The results for the interim periods presented may not be indicative of results
for the full year.
NOTE 2.
The Company purchases product protection plans on a non-recourse basis from
a third party who performs the obligations of the Company under these plans
through factory authorized service centers. The revenues and related costs
associated with the sale of these product protection plans are as follows:
Three Months Ended Six Months Ended
--------------------------- -------------------------
6/25/96 6/27/95 6/25/96 6/27/95
------------- ------------- ----------- ------------
Revenues $3,629,000 $6,233,000 $6,877,000 $11,290,000
Costs $1,497,000 $2,477,000 $2,901,000 $ 4,608,000
<PAGE>
TOPS APPLIANCE CITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3.
FASB Statement No. 109, "Accounting for Income Taxes" requires recognition
of deferred income taxes using the liability method, whereby tax rates are
applied to cumulative temporary differences based on when and how they are
expected to affect the tax return. Deferred tax assets and liabilities are
adjusted for tax rate changes. The components of net deferred taxes at
June 25, 1996 were:
Current deferred tax assets:
Compensation not currently deductible $ 313,000
Inventory 429,000
Accrued liabilities 102,000
Federal and state loss carryforwards 2,376,000
Alternative minimum tax and jobs credit carryforwards 326,000
Warranty 10,000
Other 429,000
Valuation allowance ( 468,000)
-----------
Total current deferred tax assets 3,517,000
Current deferred tax liabilities:
Vendor allowances 3,062,000
Other 873,000
----------
Total current deferred tax liabilities 3,935,000
----------
Net current deferred tax liabilities $ 418,000
==========
Non-current deferred tax assets:
Compensation not currently deductible $ 211,000
Rent 1,191,000
Depreciation 1,769,000
Warranty 355,000
Other ( 41,000)
Valuation allowance ( 821,000)
------------
Total non-current deferred tax assets 2,664,000
Non-current deferred tax liabilities - other 6,000
----------
Net non-current deferred tax assets $ 2,658,000
==========
<PAGE>
NOTE 4.
In the first quarter of 1996, the Company adopted Statement No. 121,
Accounting for the Impairment of Long-Lived Assets to Be Disposed Of.
Based on current circumstances, the Company believes there is no effect on
the financial statements with the adoption of this accounting standard.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and disclosures included in the Company's
Annual Report on Form 10-K.
Results of Operations
The following table sets forth certain items in the Company's Condensed
Consolidated Statements of Operations expressed as a percentage of net sales
and service revenues:
Percentage of Net Sales and Service Revenues
Three Months Ended Six Months Ended
6/25/96 6/27/95 6/25/96 6/27/95
--------- --------- --------- --------
Net sales and service revenues 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 78.4 76.4 78.1 76.6
-------- -------- ------- -------
Gross profit 21.6 23.6 21.9 23.4
Selling, general and administrative
expenses 24.8 22.3 26.9 23.9
------- ------- ------- -------
Income (loss) from operations (3.2) 1.3 (5.0) (0.5)
Other income 0.3 0.2 0.3 0.2
Interest expense (1.5) (0.9) (1.5) (1.0)
------- ------- ------- -------
Income (loss) before provision
(benefit) for income taxes (4.4) 0.6 (6.2) (1.3)
Provision (benefit) for income taxes (1.7) 0.2 (2.4) (0.5)
------- ------- ------- -------
Net income (loss) (2.7) % 0.4 % (3.8)% (0.8) %
======== ======= ======= =======
<PAGE>
Three Months Ended June 25, 1996 Compared to the Three Months Ended
June 27, 1995.
Net sales and service revenues for the three months ended June 25,
1996 decreased 27.0% to $81,923,000 from $112,266,000 for the three months
ended June 27, 1995. This decrease is attributable to the highly competive
and continuing slow retail environment in the Northeast. In addition, room
air conditioner sales were 29.5% less than last year due to cooler weather
for the quarter. Total comparable store sales were 27.3% lower than last
year. The decrease in room air conditioner sales accounted for approximately
6.0% of the total comparable store sales decline. Sales from the commercial
division decreased 25.1% or $3,452,000.
Gross revenues from the sale of product protection plans for the three
months ended June 25, 1996 decreased 41.8% to $3,629,000 from $6,233,000 for
the three months ended June 27, 1995. Incremental costs related to these
sales totaled $1,497,000 and $2,477,000 respectively, for the comparable
periods.
Gross profit as a percentage of net sales and service revenues for the
three months ended June 25, 1996 decreased to 21.6% from 23.6% last year.
This decrease was due in part to lower sales of higher margined air
conditioners and gross margin pressure caused by the generally weak retailing
environment in a highly promotional metro New York/New Jersey marketplace.
Gross margins in the commercial sales division increased to 8.6% from
8.1% for the comparable periods. Gross margins in the commercial sales
division tend to be lower than gross margins on retail sales.
Selling, general and administrative expenses for the three months ended
June 25, 1996 decreased 18.6% to $20,343,000 from $24,980,000 for the three
months ended June 27, 1995. This net decrease was achieved primarily by
reducing payroll and related expenses, advertising, other cost-cutting
measures and reduced variable selling expenses. Selling, general and
administrative expenses as a percentage of net sales and service revenues
increased to 24.8% from 22.3% for the comparable periods. This increase was
due primarily to the decreased sales levels.
Interest expense increased to $1,202,000 from $982,000 for the comparable
periods as the interest on the July 1995 Queens mortgage which was entered
into in July 1995, offset in part by lower average borrowings on the
revolving credit facility.
The Company's net loss for the three months ended June 25, 1996 was
$2,189,000 ($.30 per share) compared to a net income of $415,000 ($.06 per
share) for the three months ended June 27, 1995.
Six Months Ended June 25, 1996 Compared to the Six Months Ended June 27, 1995.
Net sales and service revenues for the six months ended June 25, 1996
decreased 26.0% to $150,594,000 from $203,531,000 for the six months ended
June 27, 1995. This decrease is attributable to a continuing slow retail
environment in the Northeast. Room air conditioner sales were 29.5% less
than last year due to cooler weather through June. Total comparable store
sales were 26.4% lower than last year. The decrease in room air conditioner
sales accounted for approximately 3.2% of the total comparable store sales
decline.
Gross revenues from the sale of product protection plans for the six months
ended June 25, 1996 decreased 39.1% to $6,877,000 from $11,290,000 for the six
months ended June 27, 1995. Incremental costs related to these sales totaled
$2,901,000 and $4,608,000 respectively, for the comparable periods.
Gross profit as a percentage of net sales and service revenues for the
six months ended June 25, 1996 decreased to 21.9% from 23.4% last year. This
decrease was caused by competitive pricing pressure in the generally weak
retailing environment in a highly promotional metro New York / New Jersey
marketplace, a shift in the sales mix to home office products and lower
sales of higher margined room air conditioners in the second quarter due to
cooler weather through June. Gross margins in the commercial sales division
increased to 9.5% from 8.5% for the comparable periods. Gross margins in
the commercial sales division tend to be lower than gross margins on retail
sales.
Selling, general and administrative expenses for the six months ended
June 25, 1996 decreased 16.4% to $40,588,000 from $48,548,000 for the six
months ended June 27, 1995. This net decrease was achieved primarily by
reducing payroll and related expenses, advertising, other cost-cutting
measures and reduced variable selling expenses. Selling, general and
administrative expenses as a percentage of net sales and service revenues
increased to 26.9% from 23.9% for the comparable periods. This increase
was due primarily to the decreased sales levels.
Interest expense increased to $2,325,000 from $2,132,000 for the
comparable periods as the interest on the July 1995 Queens mortgage, which was
entered into in July 1995, offset in part by lower average borrowings on the
revolving credit facility.
The Company's net loss for the six months ended June 25, 1996 was
$5,653,000 ($.78 per share) compared to a net loss of $1,632,000 ($.22
per share) for the six months ended June 26, 1995.
Seasonality
Sales and income levels are generally highest in the fourth quarter as
a result of increased demand for consumer electronics during the Christmas
season and higher during either the second or third quarter, depending on
weather conditions, as a result of demand for air conditioners during the
summer months. The Company's net sales and service revenues are also
generally lowest in the first quarter and the Company has experienced net
losses in the first quarter of certain years including the first quarters
of 1996 and 1995. Except for 1995, the last half of each fiscal year
generally accounts for a major portion of the Company's annual operating
profit. The Company experiences a buildup of inventory during its first
quarter due to the purchase of room air conditioners in anticipation of
the May through August selling season and the third and fourth quarters
in anticipation of the Christmas season.
Liquidity and Capital Resources
The Company relies primarily upon net cash from operations, a
revolving credit facility with institutional lenders and inventory floor plan
financing to finance its operations and growth. In July 1995 the Company
obtained a $9,200,000 8.75% fixed rate mortgage for the Queens, New York
property. At June 25, 1996, the Company had working capital of $27,091,000,
which represented a decrease of $5,021,000 from December 26, 1995. During
the six months ended June 25, 1996, the Company incurred capital expenditures
of $701,000, increased inventories by $4,510,000, reduced short term borrowing
by $3,794,000 and increased trade payables by $13,299,000.
The Company had a $20,000,000 secured revolving credit
facility expiring May 31, 1997. On March 22, 1996, the line was fully repaid
with the proceeds of a new $35,000,000 secured facility, expiring March 22,
1999 which bears interest at the bank's base rate plus 1 1/2%. All of the
Company's unencumbered cash, equipment, inventory and accounts receivable are
pledged as collateral for the new facility. The outstanding borrowings under
this credit facility were $5,106,000 at June 25, 1996. The loan agreement
contains certain quarterly financial covenants.
Short-term trade credit represents a significant source of financing for
inventory. Trade credit arises from the willingness of the Company's vendors
to grant extended payment terms for inventory purchases and is financed
either by the vendor or by third-party floor-planning sources. The Company
currently utilizes four floor-planning companies which in the aggregate at
any one time provide financing for approximately 25% to 45% of the Company's
inventory purchases. Payment terms generally vary up to 150 days, depending
upon the inventory product. The Company typically grants the floor-planning
companies a security interest in those products financed together with the
proceeds from the sales of such products.
The Company believes that its borrowings under existing credit
facilities and inventory floor plan arrangements will be sufficient to
fund the Company's operations.
Part II
Other Information:
ITEM 1. Legal Procedures
Not applicable
ITEM 2. Changes in Securities
Not applicable
ITEM 3. Default Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
The Registrant's Annual Meeting of Shareholders for 1996 was
held on May 24, 1996. At the meeting, the Shareholders elected Leslie S.
Turchin and Robert G. Gross to serve as Directors through the 1999 Annual
Meeting. The following directors continue in office through the Annual
Meeting in the year indicated: Philip M. Schmidt (1998), Anthony L. Formica
(1998) and John H. Hollands (1997).
The Shareholders approved the Registrant's 1995 Incentive and
Non-Qualified Stock Option Plan. The Shareholders also ratified the
appointment of Ernst & Young, LLP as the Registrant's independent auditors
for 1996.
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
Not applicable
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.
Dated:
TOPS APPLIANCE CITY, INC.
BY: /s/ Robert G. Gross
______________________
Robert G. Gross
Vice Chairman and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> JUN-25-1996 JUN-25-1996
<CASH> 4,115 4,115
<SECURITIES> 0 0
<RECEIVABLES> 1,442 1,442
<ALLOWANCES> 0 0
<INVENTORY> 64,357 64,357
<CURRENT-ASSETS> 71,335 71,335
<PP&E> 33,848 33,848
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 111,942 111,942
<CURRENT-LIABILITIES> 44,264 44,264
<BONDS> 49,033 49,033
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 14,468 14,468
<TOTAL-LIABILITY-AND-EQUITY> 111,942 111,942
<SALES> 150,594 81,923
<TOTAL-REVENUES> 150,594 81,923
<CGS> 117,589 64,258
<TOTAL-COSTS> 117,589 64,258
<OTHER-EXPENSES> 40,588 20,343
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,325 1,202
<INCOME-PRETAX> (9,424) (3,667)
<INCOME-TAX> (3,771) (1,478)
<INCOME-CONTINUING> (5,353) (2,189)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,353) (2,189)
<EPS-PRIMARY> (0.78) (0.30)
<EPS-DILUTED> 0 0
</TABLE>
