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 March 26, 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 March 26, 1996.
<PAGE>
7,252,990 Shares
<TABLE>
<CAPTION>
TOPS APPLIANCE CITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 26, 1996 December 26, 1995
<S>
ASSETS
Current Assets: <C> <C>
Cash and cash equivalents $5,944 $8,289
Accounts receivable, net 918 1,452
Merchandise inventory 63,593 59,847
Prepaid expenses and other current assets 2,192 2,264
Total current assets 72,647 71,852
Property, equipment & leasehold 34,658 35,616
improvements, net
Deferred taxes 2,545 2,462
Other assets 4,094 3,622
$113,944 $113,552
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $27,933 $13,188
Accrued liabilities and income taxes payable 3,882 6,134
Sales tax payable 750 2,318
Customer deposits 4,666 3,930
Short-term borrowings 1,863 8,900
Current portion of long-term debt 555 645
Due to related parties 1,927 1,927
Deferred taxes 2,229 2,698
Total current liabilities 43,805 39,740
Long-term debt 49,127 49,201
net of current portion
Due to related parties 587 782
Deferred rent 2,902 2,792
Other liabilities 888 938
Shareholders' equity 16,635 20,099
$113,944 $113,552
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOPS APPLIANCE CITY, INC.
CONSOLIDATED STATEMENTS STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 26, 1995 AND MARCH 28, 1995
(Dollars in thousands except per share data)
(Unaudited)
1st Quarter 1st Quarter
1996 1995
<S> <C> <C>
Net sales and service revenues $68,671 $91,265
Cost of sales 53,331 70,202
Gross profit 15,340 21,063
Selling, general and administrative expenses 20,245 23,568
Loss from operations (4,905) (2,505)
Other income 271 241
Interest expense (1,123) (1,150)
Loss before benefit
for income taxes (5,757) (3,414)
Benefit for income taxes 2,293 1,367
Net loss ($3,464) ($2,047)
Net loss per common share ($0.48) ($0.28)
Weighted average shares outstanding 7,252,990 7,232,690
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOPS APPLIANCE CITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
For The Three Months Ended,
March 26, 1996 March 28, 1995
<S>
Cash flow from operating activities: <C> <C>
Net loss ($3,464) ($2,047)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization 1,345 1,696
Deferred rent 110 132
Amortization of deferred income (18) (235)
Accounts receivable, net 534 319
Inventory (3,746) (18,773)
Prepaid expenses and other current assets 72 640
Accounts payable 12,817 7,972
Sales tax payable (1,568) (2,059)
Accrued liabilities and income taxes payable (2,252) (1,879)
Customer deposits 736 (416)
Deferred taxes (552)
Other assets (557) (36)
Other liabilities (32) 274
Net cash provided by (used in)
operating activities 3,425 (14,412)
Cash flows from investing activities:
Capital expenditures, net of disposals (302) (581)
Net cash (used in) investing activities (302) (581)
Cash flows from financing activities:
Short-term borrowings (7,037) 2,600
Cash overdrafts 1,928 3,551
Notes payable (164) (213)
Related party repaymen (195) (195)
Net cash provided by (used in)
financing activities (5,468) 5,743
Decrease in cash and cash equivalents (2,345) (9,250)
Cash and cash equivalents, beginning of period 8,289 12,709
Cash and cash equivalents, end of period $5,944 $3,459
See accompanying notes.
</TABLE>
<PAGE>
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 months ended March 26, 1996 and March 28, 1995.
Included in accounts payable is a cash overdraft balance of $1,928,000 and
$4,398,000 at March 26, 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:
[CAPTION]
First Quarter Ended
March 26, 1996 March 28, 1995
[S] [C] [C]
Revenues $ 3,248,000 $ 5,057,000
Costs $ 1,404,000 $ 2,131,000
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. There was no cumulative effect on net income on adoption of
Statement No. 109, effective January 1, 1993. The components of net deferred
taxes at March 26, 1996 were:
<TABLE>
<CAPTION>
<S>
Current deferred tax assets:
Compensation not currently <C>
deductible $ 313,000
Inventory 422,000
Accrued liabilities 125,000
Federal and state loss
carryforwards 376,000
Alternative minimum tax and
jobs credit carryforwards 326,000
Warranty 7,000
Other 276,000
Valuation allowance ( 484,000)
Total current deferred tax assets 1,361,000
Current deferred tax liabilities:
Vendor allowances 2,726,000
Other 864,000
Total current deferred tax liabilities 3,590,000
Net current deferred tax liabilities $2,229,000
Non-current deferred tax assets:
Compensation not currently deductible 299,000
Rent 1,142,000
Depreciation $1,662,000
Warranty 405,000
Other (49,000)
Valuation allowance (908,000)
Total non-current deferred tax assets 2,551,000
Non-current deferred tax liabilities - other 6,000
Net non-current deferred tax assets $2,545,000
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Percentage of Net Sales and Service Revenues
Three Months Ended
March 26, 1996 March 28, 1995
<S> <C> <C>
Net sales and service revenues 100.0% 100.0%
Cost of sales 77.7 76.9
Gross profit 22.3 23.1
Selling, general and administrative expenses 29.5 25.8
Loss from operations (7.2) (2.7)
Other income 0.4 0.3
Interest expense (1.6) (1.3)
Loss before benefit for income taxes (8.4) (3.7)
Benefit for income taxes 3.4 1.5
Net loss (5.0)% (2.2)%
</TABLE>
Three Months Ended March 26, 1996 Compared to the Three Months Ended March
28, 1995.
Net sales and service revenues for the three months ended March 26, 1996
decreased 24.8% to $68,671,000 from $91,265,000 for the three months ended March
28, 1995. This decrease is attributable to record snow storms during the first
half of the quarter, a weak Metro New York economic climate and sluggish
appliance and consumer electronics sales.
Gross revenues from the sale of product protection plans for the three months
ended March 26, 1996 decreased 35.8% to $3,248,000 from $5,057,000 for the three
months ended March 28, 1995. Incremental costs related to these sales totaled
$1,404,000 and $2,131,000 respectively, for the comparable periods.
Gross profit as a percentage of net sales and service revenues for the three
months ended March 26, 1996 decreased to 22.3% from 23.1% last year. This
decrease was caused by competitive pricing pressure and a shift in the sales mix
to home office products which have relatively lower margins. The commercial
division gross margins increased to 10.4% from 9.1% 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
March 26, 1996 decreased 14.1% to $20,245,000 from $23,568,000 for the three
months ended March 28, 1995. This net decrease was achieved primarily by
reducing payroll and related expenses, 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 29.5% from 25.8%
for the comparable periods. This was due primarily to the decreased sales
levels.
Interest expense was slightly lower than last year as the interest on the
July 1995 Queens mortgage was more than offset by decreased borrowings on the
revolving credit facility.
The Company's net loss for the three months ended March 26, 1996 was $3,464,000
($.48 per share) compared to a net loss of $2,047,000 ($.28 per share) for the
three months ended March 28, 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 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
In the past, the Company has relied primarily upon net cash from operations,
a revolving credit facility with institutional lenders and inventory floor
plan financing to finance its operations and growth. During 1993, the Company
issued $40,000,000 convertible subordinated debentures due 2003 at an annual
interest rate of 6-1/2%. Interest is payable semi-annually. The net proceeds
were used to fund new store openings, repay certain indebtedness and for
general corporate purposes. In July 1995 the Company obtained a $9,200,000
8.75% fixed rate mortgage for the Queens, New York property. At March 26,
1996, the Company had working capital of $28,842,000, which represented a
decrease of $3,270,000 from December 26, 1995. During the three months
ended March 26, 1996, the Company incurred capital expenditures of $302,000,
increased inventories by $3,746,000, reduced short term borrowing by $7,037,000
and increased trade payables by $16,368,000.
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.
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 from 30 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 available credit facilities and
inventory floor plan arrangements will be sufficient to fund the Company's
operations and to fund its anticipated expansion for the foreseeable future.
Part II
Other Information:
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: May 10, 1996
TOPS APPLIANCE CITY, INC.
BY: /s/William J. Tennant
_____________________
William J. Tennant
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1996
<PERIOD-END> MAR-26-1996
<CASH> 5,944
<SECURITIES> 0
<RECEIVABLES> 918
<ALLOWANCES> 0
<INVENTORY> 63,593
<CURRENT-ASSETS> 72,647
<PP&E> 34,658
<DEPRECIATION> 0
<TOTAL-ASSETS> 113,944
<CURRENT-LIABILITIES> 43,805
<BONDS> 49,127
0
0
<COMMON> 0
<OTHER-SE> 16,635
<TOTAL-LIABILITY-AND-EQUITY> 113,944
<SALES> 68,671
<TOTAL-REVENUES> 68,671
<CGS> 53,331
<TOTAL-COSTS> 53,331
<OTHER-EXPENSES> 20,245
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,123
<INCOME-PRETAX> (5,757)
<INCOME-TAX> (2,293)
<INCOME-CONTINUING> (3,464)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,464)
<EPS-PRIMARY> (.48)
<EPS-DILUTED> 0
</TABLE>
