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 ending April 30, 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 No. 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) Registrant's telephone number, including area code 937-276-3931 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, and (2) has been subject to such filing requirements for at least the past 90 days. Yes (X) No ( ) At the close of business on June 12, 1997, the registrant had 7,897,139 shares of Common Stock, par value $.01 per share, outstanding.
REX STORES CORPORATION AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION Item 1. Consolidated 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................ 12 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 April 30 January 31 April 30 1997 1997 1996 (In Thousands) <S> <C> <C> <C> ASSETS: Cash and cash equivalents $ 2,119 $ 3,959 $ 1,931 Short-term investments 1,633 1,645 1,565 Accounts receivable, net 542 1,477 408 Merchandise inventory 156,318 135,033 164,920 Prepaid expenses and other 3,861 2,219 1,997 Future income tax benefits 5,544 5,544 3,818 ---------- --------- --------- Total current assets 170,017 149,877 174,639 PROPERTY AND EQUIPMENT, NET 89,480 89,638 71,316 FUTURE INCOME TAX BENEFITS 8,519 8,519 8,269 ---------- --------- --------- Total assets $ 268,016 $ 248,034 $ 254,224 ========== ========= ========= </TABLE> <TABLE> <CAPTION> LIABILITIES AND SHAREHOLDERS' EQUITY <S> <C> <C> <C> CURRENT LIABILITIES: Notes payable $ 25,816 $ 12,142 $ 27,150 Current portion of long-term debt 3,152 3,131 2,058 Current portion, deferred income and deferred gain on sale and leaseback 11,101 10,844 9,570 Accounts payable, trade 41,541 31,265 44,327 Accrued income taxes 0 1,077 789 Accrued payroll 4,361 4,866 4,696 Other liabilities 5,208 6,401 5,521 --------- --------- --------- Total current liabilities 91,179 69,726 94,111 --------- --------- --------- 3
Liabilities and Shareholders' Equity (Continued) LONG-TERM LIABILITIES: Long-term debt 52,323 51,102 32,090 Deferred income 17,992 18,279 16,835 Deferred gain on sale and leaseback 5,971 6,207 6,914 --------- --------- --------- Total long-term liabilities 76,286 75,588 55,839 --------- --------- --------- SHAREHOLDERS' EQUITY: Common stock 96 96 96 Paid-in capital 57,336 57,229 56,903 Retained earnings 57,560 56,763 51,157 Treasury stock (14,441) (11,368) (3,882) --------- --------- --------- Total shareholders' equity 100,551 102,720 104,274 --------- --------- --------- Total liabilities and shareholders' equity $ 268,016 $ 248,034 $ 254,224 ========= ========= ========= </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 April 30 1997 1996 (In Thousands, Except Per Share Amounts) <S> <C> <C> NET SALES $ 88,265 $ 97,384 --------- --------- COSTS AND EXPENSES: Cost of merchandise sold 63,870 72,503 Selling, general and administrative expenses 21,573 20,798 --------- --------- Total costs and expenses 85,443 93,301 --------- --------- INCOME FROM OPERATIONS 2,822 4,083 INVESTMENT INCOME 28 22 INTEREST EXPENSE 1,532 1,203 --------- --------- Income before provision for income taxes 1,318 2,902 PROVISION FOR INCOME TAXES 521 1,146 --------- --------- NET INCOME $ 797 $ 1,756 ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVA- LENT SHARES OUTSTANDING 8,276 9,389 ========= ========= NET INCOME PER SHARE $ 0.10 $ 0.19 ========= ========= </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> In Thousands Common Shares ------------------------------- Issued Treasury Paid-in Retained Shares Amount Shares Amount Capital Earnings <S> <C> <C> <C> <C> <C> <C> Balance at April 30, 1996 9,568 $ 96 534 $3,882 $56,903 $51,157 Common stock issued 34 - - - 326 - Treasury stock acquired - - 854 7,486 - - Net income - - - - - 5,606 ----- ------ ----- ------ ------- ------- Balance at January 31, 1997 9,602 $ 96 1,388 11,368 $57,229 $56,763 Common stock issued 13 - - - 107 - Treasury stock acquire - - 375 3,073 - - Net income - - - - - 797 ----- ------ ----- ------ ------- ------- Balance at April 30, 1997 9,615 $ 96 1,763 $14,441 $57,336 $57,560 ===== ====== ===== ====== ======= ======= </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> Three Months Ended April 30 1997 1996 (In Thousands) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 797 $ 1,756 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, net 743 717 Deferred income (30) 683 Accounts receivable 935 1,196 Merchandise inventory (21,285) (18,354) Other current assets (1,644) (173) Accounts payable, trade 10,276 4,802 Other liabilities (2,775) (5,016) -------- -------- NET CASH USED IN OPERATING ACTIVITIES (12,983) (14,389) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Short-term investments 12 (40) Capital expenditures (819) (1,830) Capital disposals - 2 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (807) (1,868) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in note payable 13,674 17,823 Payments of long-term debt (680) (492) Long-term debt borrowings 1,922 - Common stock issued 107 172 Treasury stock acquired (3,073) - -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 11,950 17,503 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,840) 1,246 CASH AND CASH EQUIVALENTS, beginning of period 3,959 685 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 2,119 $ 1,931 </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 April 30, 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
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 April 30, 1997: <TABLE> <CAPTION> Shares Under Stock Option Plans <S> <C> Outstanding at January 31, 1997 2,119,227 ($3.375 to $18.975 per share) Exercised ($6.375 to $7.5625 per share) (14,223) --------- Outstanding at April 30, 1997 ($3.375 to $18.975 per share) 2,105,004 --------- </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. 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 diluted EPS would have been $.10 for the quarter ending April 30, 1997. Basic EPS and diluted EPS would have been $.20 and $.19, respectively, for the quarter ending April 30, 1996. 9
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 April 30 1997 1996 <S> <C> <C> Net sales 100.0% 100.0% Cost of merchandise sold 72.4 74.4 ----- ----- Gross profit 27.6 25.6 Selling, general and administrative expense 24.4 21.4 ----- ----- Income from operations 3.2 4.2 Interest, net 1.7 1.2 ----- ----- Income before income taxes 1.5 3.0 Provision for income taxes .6 1.2 ----- ----- Net income .9% 1.8% ===== ===== </TABLE> 10
Comparison of Three Months Ended April 30, 1997 and 1996 Net sales in the first quarter ended April 30, 1997 were $88.3 million compared to $97.4 million in the prior year's comparable period, representing a decrease of $9.1 million or 9.4%. This decrease is the result of a 20.4% decline in comparable store sales for the quarter, partially offset by sales from 25 net additional stores in the current quarter compared to the prior year's first quarter. The Company considers a store to be comparable after it has been open six fiscal quarters. As of April 30, 1997, the Company had 222 stores compared to 197 stores one year earlier. There were no stores opened or closed during the first quarter of fiscal 1998. 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 $24.4 million in the first quarter of fiscal 1998 (27.6% of net sales) was 2.0% lower than the $24.9 million gross profit (25.6% of net sales) recorded in the first quarter of fiscal 1997. The improved gross profit margin, as a percent of net sales, for the first quarter of fiscal 1998 is 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 quarter ended April 30, 1997 were $21.6 million (24.4% of net sales), a 3.7% increase over the $20.8 million (21.4% of net sales) for the quarter ended April 30, 1996. The increase in expenses was primarily attributable to higher advertising costs and operating expenses associated with more store locations. The increase in expenses as a percent of net sales results from the decline in comparable store sales. Interest expense increased to $1.5 million in the first quarter of fiscal 1998 from $1.2 million in the first quarter of fiscal 1997. This increase is primarily a result of additional mortgage debt of approximately $21.3 million (at an average interest rate of approximately 8.8%) since April 30, 1996 associated with more Company owned store locations. The effective tax rate was approximately 39.5% in the first quarter of fiscal 1998 and 1997. As a result of the foregoing, net income for the first quarter of fiscal 1997 was $797,000, a 54.6% decrease from $1.8 million for the first quarter of fiscal 1997. 11
Liquidity and Capital Resources Net cash used in operating activities was $13.0 million for the first quarter of fiscal 1998. Cash flow was provided by net income of $797,000 adjusted for non-cash charges of $713,000. The primary use of cash was an increase in inventory of $21.3 million primarily due to the addition of seasonal air conditioner inventory and opportunistic purchases. This increase was partially offset by increased accounts payable of $10.3 million. Changes in other working capital items also served to decrease cash by approximately $3.5 million. At April 30, 1997, working capital was $78.8 million compared to $80.2 million at January 31, 1997. The ratio of current assets to current liabilities was 1.9 to 1 at April 30, 1997, and 2.1 to 1 at January 31, 1997. The Company had outstanding borrowings of $25.8 million on its revolving line of credit at April 30, 1997 at a average interest rate of 8.06%. At April 30, 1997, the Company had approximately $72.0 million borrowing availability on the revolving line of credit after reduction for the outstanding letter of credit. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are filed with this report: 4(h) Amendment Agreement dated April 1, 1997 to Amended and Restated Loan Agreement dated July 31, 1995 and to Guaranty of registrant dated July 31, 1995 among the Borrowers, the registrant, the lenders named therein, and Fleet Bank, N.A. (as successor to NatWest Bank N.A.) as agent 27 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended April 30, 1997. 12
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 June 12, 1997 Stuart A. Rose Stuart A. Rose Chairman of the Board (Chief Executive Officer) June 12, 1997 Douglas L. Bruggeman Douglas L. Bruggeman Vice President, Finance and Treasurer (Principal Financial and Chief Accounting Officer) 13