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, 1995 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) 513-276-3931 (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, 1995, the registrant had 8,984,202 shares of Common Stock, par value $.01 per share, outstanding.
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 6. Exhibits and Reports on Form 8-K................ 14 2
<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 October 31 January 31 October 31 1995 1995 1994 (In Thousands) <S> <C> <C> <C> ASSETS: Cash and cash equivalents $ 2,084 $ 12,663 $ 2,760 Short-term investments 1,525 1,555 630 Accounts receivable, net 713 1,077 245 Merchandise inventory 183,801 115,347 142,395 Prepaid expenses and other 2,519 1,470 1,059 Prepaid income taxes and future income tax benefits 4,084 2,860 4,128 ---------- --------- --------- Total current assets 194,726 134,972 151,217 NET LAND, BUILDINGS AND EQUIPMENT 67,648 50,025 43,429 FUTURE INCOME TAX BENEFIT 7,619 7,619 6,709 ---------- --------- --------- Total assets $ 269,993 $ 192,616 $ 201,355 ========== ========= ========= </TABLE> <TABLE> <CAPTION> LIABILITIES AND SHAREHOLDERS' EQUITY <S> <C> <C> <C> CURRENT LIABILITIES: Notes payable $ 51,162 $ 0 $ 33,528 Current portion of long-term debt 1,963 1,680 631 Accounts payable, trade 50,059 33,295 36,795 Accrued income taxes 0 3,343 0 Current portion, deferred income and gain on sale and leaseback 8,521 7,376 7,038 Accrued payroll and related 5,826 6,082 5,053 Other liabilities 5,371 4,499 4,605 --------- --------- --------- Total current liabilities 122,902 56,275 87,650 --------- --------- --------- 3
Liabilities and Shareholders' Equity (Continued) LONG-TERM LIABILITIES: Long-term debt 31,342 25,595 12,685 Deferred income 14,907 13,573 11,937 Deferred gain on sale and leaseback 7,386 7,779 7,881 --------- --------- --------- Total long-term liabilities 53,635 46,947 32,503 --------- --------- --------- SHAREHOLDERS' EQUITY: Common stock 95 94 94 Treasury stock (3,882) (1,618) (1,618) Paid-in capital 56,386 56,090 55,794 Retained earnings 40,857 34,828 26,932 --------- --------- --------- Total shareholders' equity 93,456 89,394 81,202 --------- --------- --------- Total liabilities and shareholders' equity $ 269,993 $ 192,616 $ 201,355 ========= ========= ========= </TABLE> [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 4
<TABLE> REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME <CAPTION> Three Months Ended Nine Months Ended October 31 October 31 1995 1994 1995 1994 (In Thousands, Except Per Share Amounts) <S> <C> <C> <C> <C> NET SALES $ 94,914 $ 80,160 $278,799 $230,416 COSTS AND EXPENSES: Cost of merchandise sold 70,546 60,066 207,632 170,778 Selling, general and administrative expenses 19,716 16,871 58,187 50,772 -------- -------- -------- -------- Total costs and expenses 90,262 76,937 265,819 221,550 -------- -------- -------- -------- INCOME FROM OPERATIONS 4,652 3,223 12,980 8,866 INVESTMENT INCOME 25 15 159 184 INTEREST EXPENSE 1,467 600 3,177 1,284 -------- -------- -------- -------- Income before income taxes 3,210 2,638 9,962 7,766 PROVISION FOR INCOME TAXES 1,268 1,039 3,933 3,066 -------- -------- -------- -------- NET INCOME $ 1,942 $ 1,599 $ 6,029 $ 4,700 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVA- LENT SHARES OUTSTANDING 9,412 9,532 9,388 8,895 ======== ======== ======== ======== NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.21 $ 0.17 $ 0.64 $ 0.53 ======== ======== ======== ======== </TABLE> [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 5
<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, 1994 9,372 $ 94 372 $1,618 $55,794 $26,932 Common stock issued 48 0 0 0 296 0 Net income 0 0 0 0 0 7,896 ----- ------ --- ------ ------- ------- Balance at January 31, 1995 9,420 $ 94 372 $1,618 $56,090 $34,828 Common stock issued 63 1 0 0 296 0 Treasury stock acquired 0 0 162 2,264 0 0 Net income 0 0 0 0 0 6,029 ----- ------ --- ------ ------- ------- Balance at October 31, 1995 9,483 $ 95 534 $3,882 $56,386 $40,857 ===== ====== === ====== ======= ======= </TABLE> [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 6
REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> Nine Months Ended October 31 1995 1994 (In Thousands) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,029 $ 4,700 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,610 1,040 Deferred income 2,390 593 Deferred income taxes and future income tax benefits 0 (1,565) Accounts receivable 364 429 Merchandise inventory (68,454) (67,433) Other current assets (2,278) 132 Accounts payable, trade 16,764 8,771 Other liabilities (2,727) (1,143) -------- -------- NET CASH USED IN OPERATING ACTIVITIES (46,302) (54,476) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Short-term investments 30 0 Capital expenditures (19,561) (19,675) Capital disposals 29 112 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (19,502) (19,563) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Notes payable 51,162 33,528 Payments of long-term debt (1,361) (421) Long-term debt borrowings 7,391 2,366 Common stock issued 297 20,908 Treasury stock acquired (2,264) 0 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 55,225 56,381 -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (10,579) (17,658) CASH AND CASH EQUIVALENTS, beginning of period 12,663 20,418 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 2,084 $ 2,760 </TABLE> ======== ======== [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 7
REX STORES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS October 31, 1995 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, 1995. 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 1995 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
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 October 31, 1995: <TABLE> <CAPTION> Shares Under Stock Option Plans <S> <C> Outstanding at January 31, 1995 ($3.25 to $18.975 per share) 1,421,574 Granted ($13.875 to $15.262 per share) 167,845 Exercised ($3.25 to $15.25 per share) (63,432) Expired or cancelled ($6.375 to $17.25 per share) (10,600) --------- Outstanding at October 31, 1995 ($3.25 to $18.975 per share) 1,515,387 --------- </TABLE> Effective June 2, 1995, shareholders of the Company approved an amendment and restatement of the Company's 1994 Incentive Stock Option Plan, renamed the 1995 Omnibus Stock Incentive Plan. Awards under the amended Plan may be made in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, other stock-based awards and cash incentive awards. The amended Plan also provides for automatic yearly grants of nonqualified stock options to nonemployee directors of the Company. The maximum number of shares issuable under the amended Plan was increased from 1,000,000 to 2,000,000 shares. Note 4. Revolving Line of Credit Effective July 31, 1995, the Company entered into an amended and restated revolving credit agreement with seven participating banks/lenders which expires July 31, 2000. Under the terms of the agreement, available revolving credit borrowings are equal to the lesser of: (i) $100 million for the months of January through June and $150 million for the months of July through December or (ii) the sum of specific percentages of eligible accounts receivable and eligible inventories. Borrowings available are reduced by any letter of credit commitments outstanding (see Note 7 of the Company's 1995 Annual Report on Form 10-K). At October 31, 1995, there was approximately $51.2 million outstanding on the line of credit with additional availability of approximately $61.5 million. The interest rate on borrowings is at prime or LIBOR plus 1.875% (approximately 7.8%) and commitment fees of 1/4% are payable 9
on the unused portion. Borrowings are secured by certain fixed assets, accounts receivable and inventories. The revolving credit agreement contains restrictive covenants which require the Company to maintain certain financial ratios, limit capital expenditures and limit the incurrence of additional indebtedness. The Company is also restricted on paying dividends. 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. The Company opened its first two stores in the West during the third quarter of fiscal 1996 and anticipates further expansion into this region in the future. 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 1995 1994 1995 1994 <S> <C> <C> <C> <C> Net sales 100.0% 100.0% 100.0% 100.0% Cost of merchandise sold 74.3 74.9 74.5 74.1 ----- ----- ----- ----- Gross profit 25.7 25.1 25.5 25.9 Selling, general and administrative expense 20.8 21.1 20.8 22.1 ----- ----- ----- ----- Income from operations 4.9 4.0 4.7 3.8 Interest, net 1.5 .7 1.1 .5 ----- ----- ----- ----- Income before income taxes 3.4 3.3 3.6 3.3 Provision for income taxes 1.3 1.3 1.4 1.3 ----- ----- ----- ----- Net income 2.1% 2.0% 2.2% 2.0% ===== ===== ===== ===== </TABLE> 10
Comparison of Nine Months Ended October 31, 1995 and 1994 Net sales in the third quarter ended October 31, 1995 were $94.9 million compared to $80.2 million in the prior year's comparable period, representing an increase of $14.7 million or 18.3%. This increase is primarily a result of 33 additional stores in the current year's third quarter compared to the prior year's third quarter, offset by a decline in comparable store merchandise sales of 4.1% for the quarter. Net sales for the first nine months of fiscal 1996 were $278.8 million compared to $230.4 million in the first nine months of fiscal 1995, representing an increase of $48.4 million or 21.0%. This increase is primarily a result of 33 additional store locations in the current year, offset by a decline in comparable store merchandise sales of 3.5% on a year to date basis. As of October 31, 1995, the Company had 175 stores compared to 142 stores one year earlier. The Company considers a store to be comparable after it has been open six fiscal quarters. The Company opened ten stores and closed none during the first nine months of fiscal 1996 and 1995. During the fourth quarter of the current fiscal year, the Company will open an additional 24 stores bringing the total opened for the year to 34 stores. The Company anticipates opening an additional 35 to 40 new stores in fiscal 1997 and will continue to evaluate stores and markets and will close store locations that are not adequately contributing to Company profitability. Gross profit of $24.4 million in the third quarter of fiscal 1996 (25.7% of net sales) was 21.3% higher than the $20.1 million gross profit (25.1% of net sales) recorded in the third quarter of fiscal 1995. The improved gross profit margin in the fiscal 1996 third quarter is primarily the result of lower merchandise cost on certain products due to opportunistic purchasing. In the first nine months of fiscal 1996 gross profit was $71.2 million (25.5% of net sales), a 19.3% increase over gross profit of $59.6 million (25.9% of net sales) for the first nine months of fiscal 1995. The lower gross profit margin for the first nine months of fiscal 1996 is primarily a result of increased competition in certain markets, the introduction of personal computers into 94 stores, which have a lower gross profit margin, and a decline in extended service contract revenues as a percentage of net sales, which generally have a higher gross profit margin. Selling, general and administrative expenses for the third quarter of fiscal 1996 were $19.7 million (20.8% of net sales), a 16.9% increase over the $16.9 million (21.1% of net sales) for the third quarter of fiscal 1995. Selling, general and administrative expenses for the first nine months of fiscal 1996 were $58.2 million (20.8% of net sales), a 14.6% increase over the $50.8 million (22.1% of net sales) for the first nine months of fiscal 1995. The increase in expense was primarily attributable to higher payroll costs related to the increased number of stores and increased sales, and higher advertising and general costs 11
associated with more store locations. The reduction of selling, general and administrative expense as a percent of net sales was primarily a result of more efficient advertising for existing stores and lower occupancy cost as a result of the increased number of owned stores versus leased stores. As a result of the foregoing, income from operations was $4.7 million (4.9% of net sales) in the third quarter of fiscal 1996, a 44.3% increase over $3.2 million (4.0% of net sales) for the third quarter of fiscal 1995. Income from operations was $13.0 million (4.7% of net sales) for the first nine months of fiscal 1996, a 46.4% increase over $8.9 million (3.8% of net sales) for the first nine months of fiscal 1995. Interest expense increased to $1.5 million (1.5% of net sales) for the quarter ended October 31, 1995 from $600,000 (.7% of net sales) for the previous year's third quarter. Interest expense for the first nine months of fiscal 1996 increased to $3.2 million (1.1% of net sales) from $1.3 million (.5% of net sales) for the first nine months of fiscal 1995. This increase is primarily a result of additional mortgage debt of $20.0 million (at an average interest rate of approximately 9.5%) since October 31, 1994 and higher borrowings on the line of credit during the current fiscal year. The effective tax rate approximates 39.5% for all periods presented. As a result of the foregoing, net income for the third quarter of fiscal 1996 was $1.9 million, a 21.5% increase over $1.6 million for the third quarter of fiscal 1995. Net income for the first nine months of fiscal 1996 was $6.0 million, a 28.3% increase over $4.7 million for the first nine months of fiscal 1995. Liquidity and Capital Resources Net cash used in operating activities was $46.3 million for the nine months ended October 31, 1995. The primary use of cash was an increase in inventory of $68.5 million due to preparations for additional store locations and the Christmas selling season, as well as opportunistic buying. This was partially offset by an increase in trade payables of $16.8 million. At October 31, 1995, working capital was $71.9 million compared to $78.7 million at January 31, 1995. The ratio of current assets to current liabilities was 1.6 to 1 at October 31, 1995, and 2.4 to 1 at January 31, 1995. Effective July 31, 1995, the Company entered into an amended and restated revolving credit agreement with seven participating banks/lenders which expires July 31, 2000. Under the terms of the agreement, available revolving credit borrowings are equal to the lesser of: (i) $100 million for the months of January through June 12
and $150 million for the months of July through December or (ii) the sum of specific percentages of eligible accounts receivable and eligible inventories. The Company had outstanding borrowings of $51.2 million on its revolving line of credit at October 31, 1995 at an average interest rate of 7.8%. At October 31, 1995, the Company had approximately $61.5 million borrowing availability on the revolving line of credit after reduction for outstanding letters of credit. During fiscal 1996, the Company has opened 34 new REX stores. Capital expenditures for the first nine months of fiscal 1996 were $19.6 million with additional expenditures of approximately $2 million to $3 million expected in the fourth quarter. The Company has obtained long-term mortgage financing of $7.4 million for 13 stores during the nine months ended October 31, 1995. 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. 13
PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. The following exhibits are filed with this report: 10(a) Employment Agreement dated September 1, 1995 between Rex Radio and Television, Inc. and Stuart A. Rose 10(b) Employment Agreement dated September 1, 1995 between Rex Radio and Television, Inc. and Lawrence Tomchin 27 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended October 31, 1995. 14
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, 1995 Stuart A. Rose Stuart A. Rose Chairman of the Board (Chief Executive Officer) December 11, 1995 Douglas L. Bruggeman Douglas L. Bruggeman Vice President, Finance and Treasurer (Principal Financial and Chief Accounting Officer) 15