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, 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) <TABLE> <S> <C> 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) </TABLE> 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 September 13, 1995, the registrant had 8,942,573 shares of Common Stock, par value $.01 per share, outstanding.
REX STORES CORPORATION AND SUBSIDIARIES INDEX <TABLE> <CAPTION> Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements <S> <C> 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 4. Submission of Matters to a Vote of Security Holders.............................................. 14 Item 6. Exhibits and Reports on Form 8-K........................ 14 </TABLE> 2
PART I. FINANCIAL INFORMATION Item 1. Financial Statements REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS <TABLE> <CAPTION> A S S E T S July 31 January 31 July 31 1995 1995 1994 (In Thousands) <S> <C> <C> <C> ASSETS: Cash and cash equivalents $ 2,583 $ 12,663 $ 9,958 Short-term investments 1,555 1,555 630 Accounts receivable, net 668 1,077 291 Merchandise inventory 156,863 115,347 109,914 Prepaid expenses and other 2,610 1,470 2,659 Prepaid income taxes and future income tax benefits 2,860 2,860 2,563 ---------- --------- --------- Total current assets 167,139 134,972 126,015 NET LAND, BUILDINGS AND EQUIPMENT 56,676 50,025 35,123 FUTURE INCOME TAX BENEFIT 7,619 7,619 6,709 ---------- --------- --------- Total assets $ 231,434 $ 192,616 $ 167,847 ========== ========= ========= </TABLE> <TABLE> <CAPTION> LIABILITIES AND SHAREHOLDERS' EQUITY <S> <C> <C> <C> CURRENT LIABILITIES: Notes payable $ 15,098 $ 0 $ 0 Current portion of long-term debt 1,916 1,680 618 Accounts payable, trade 50,274 33,295 39,530 Accrued income taxes 0 3,343 0 Current portion, deferred income and gain on sale and leaseback 8,048 7,376 6,891 Accrued payroll and related 5,931 6,082 4,351 Other liabilities 5,559 4,499 4,633 --------- --------- --------- Total current liabilities 86,826 56,275 56,023 --------- --------- --------- </TABLE> 3
Liabilities and Shareholders' Equity (Continued) <TABLE> <CAPTION> LONG-TERM LIABILITIES: <S> <C> <C> <C> Long-term debt 31,147 25,595 12,840 Deferred income 14,442 13,573 11,421 Deferred gain on sale and leaseback 7,577 7,779 7,982 --------- --------- --------- Total long-term liabilities 53,166 46,947 32,243 --------- --------- --------- SHAREHOLDERS' EQUITY: Common stock 95 94 94 Treasury stock (3,882) (1,618) (1,618) Paid-in capital 56,314 56,090 55,772 Retained earnings 38,915 34,828 25,333 --------- --------- --------- Total shareholders' equity 91,442 89,394 79,581 --------- --------- --------- Total liabilities and shareholders' equity $ 231,434 $ 192,616 $ 167,847 ========= ========= ========= </TABLE> 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 Six Months Ended July 31 July 31 1995 1994 1995 1994 (In Thousands, Except Per Share Amounts) <S> <C> <C> <C> <C> NET SALES $ 96,459 $ 81,122 $183,885 $150,256 COSTS AND EXPENSES: Cost of merchandise sold 71,484 59,944 137,086 110,712 Selling, general and administrative expenses 19,829 17,647 38,471 33,901 -------- -------- -------- -------- Total costs and expenses 91,313 77,591 175,557 144,613 -------- -------- -------- -------- INCOME FROM OPERATIONS 5,146 3,531 8,328 5,643 INVESTMENT INCOME 25 68 134 169 INTEREST EXPENSE 1,018 362 1,709 684 -------- -------- -------- -------- Income before income taxes 4,153 3,237 6,753 5,128 PROVISION FOR INCOME TAXES 1,640 1,279 2,666 2,027 -------- -------- -------- -------- NET INCOME $ 2,513 $ 1,958 $ 4,087 $ 3,101 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVA- LENT SHARES OUTSTANDING 9,339 8,995 9,377 8,575 ======== ======== ======== ======== NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.27 $ 0.22 $ 0.44 $ 0.36 ======== ======== ======== ======== </TABLE> The accompanying notes are an integral part of these unaudited consolidated statements. 5
REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY <TABLE> <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, 1994 9,368 $ 94 372 $1,618 $55,772 $25,333 Common stock issued 52 0 0 0 318 0 Net income 0 0 0 0 0 9,495 ----- ------ --- ------ ------- ------- Balance at January 31, 1995 9,420 $ 94 372 $1,618 $56,090 $34,828 Common stock issued 52 1 0 0 224 0 Treasury stock acquired 0 0 162 2,264 0 0 Net income 0 0 0 0 0 4,087 ----- ------ --- ------ ------- ------- Balance at July 31, 1995 9,472 $ 95 534 $3,882 $56,314 $38,915 ===== ====== === ====== ======= ======= </TABLE> 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> Six Months Ended July 31 1995 1994 (In Thousands) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,087 $ 3,101 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,032 666 Deferred income 1,542 (70) Accounts receivable 409 383 Merchandise inventory (41,516) (34,952) Other current assets (614) (173) Accounts payable, trade 16,979 11,506 Other liabilities (2,964) (3,110) -------- -------- NET CASH USED IN OPERATING ACTIVITIES (21,045) (22,649) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (7,892) (10,893) Capital disposals 10 109 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (7,882) (10,784) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Notes payable 15,098 0 Payments of long-term debt (891) (278) Long-term debt borrowings 6,679 2,366 Common stock issued 225 20,885 Treasury stock acquired (2,264) 0 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 18,847 22,973 -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (10,080) (10,460) CASH AND CASH EQUIVALENTS, beginning of period 12,663 20,418 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 2,583 $ 9,958 ======== ======== </TABLE> The accompanying notes are an integral part of these unaudited consolidated statements. 7
REX STORES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 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 July 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 $13.00 per share) (52,632) Expired or cancelled ($6.875 to $17.25 per share) (2,800) --------- Outstanding at July 31, 1995 ($3.25 to $18.975 per share) 1,533,987 --------- </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 July 31, 1995, there was approximately $15.1 million outstanding on the line of credit with additional availability of approximately $78.2 million. The interest rate on borrowings is at prime or LIBOR plus 1.875% and commitment fees of 1/4% are payable 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. 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. 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 1995 1994 1995 1994 <S> <C> <C> <C> <C> Net sales 100.0% 100.0% 100.0% 100.0% Cost of merchandise sold 74.1 73.9 74.6 73.7 ----- ----- ----- ----- Gross profit 25.9 26.1 25.4 26.3 Selling, general and administrative expense 20.6 21.7 20.9 22.6 ----- ----- ----- ----- Income from operations 5.3 4.4 4.5 3.7 Interest, net 1.0 .4 .9 .3 ----- ----- ----- ----- Income before income taxes 4.3 4.0 3.6 3.4 Provision for income taxes 1.7 1.6 1.4 1.3 ----- ----- ----- ----- Net income 2.6% 2.4% 2.2% 2.1% ===== ===== ===== ===== </TABLE> 10
Comparison of Six Months Ended July 31, 1995 and 1994 Net sales in the second quarter ended July 31, 1995 were $96.5 million compared to $81.1 million in the prior year's comparable period, representing an increase of $15.3 million or 18.9%. This increase is primarily a result of 34 additional stores in the current year second quarter compared to the prior year's second quarter, offset by a decline in comparable store merchandise sales of 6.4% for the quarter. Net sales for the first half of fiscal 1996 were $183.9 million compared to $150.3 million in the first half of fiscal 1995, representing an increase of $33.6 million or 22.4%. This increase is primarily a result of 34 additional store locations in the current year as comparable store merchandise sales declined 3.1% on a year to date basis. The Company considers a store to be comparable after it has been open six fiscal quarters. As of July 31, 1995, the Company had 168 stores compared to 134 stores one year earlier. There were three stores opened and none closed during the first half of fiscal 1996. In the prior year's first half there were two stores opened and none closed. The Company anticipates opening 30 to 35 new stores in fiscal 1996. 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 $25.0 million in the second quarter of fiscal 1996 (25.9% of net sales) was 17.9% higher than the $21.2 million gross profit (26.1% of net sales) recorded in the second quarter of fiscal 1995. The lower gross profit margin is primarily a result of a decline in extended service contract revenues as a percentage of net sales, which generally have a higher gross profit margin. In the first half of fiscal 1996 gross profit was $46.8 million (25.4% of net sales), an 18.3% increase over $39.5 million (26.3% of net sales) for the first half of fiscal 1995. The lower gross profit margin for the first half 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 second quarter of fiscal 1996 were $19.8 million (20.6% of net sales), a 12.4% increase over the $17.6 million (21.7% of net sales) for the second quarter of fiscal 1995. Selling, general and administrative expenses for the first half of fiscal 1996 were $38.5 million (20.9% of net sales), a 13.5% increase over the $33.9 million (22.6% of net sales) for the first half of fiscal 1995. The 11
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 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 (39% of the store locations were owned at July 31, 1995 versus 31% at July 31, 1994). Income from operations was $5.1 million (5.3% of net sales) in the second quarter of fiscal 1996, a 45.7% increase over $3.5 million (4.4% of net sales) for the second quarter of fiscal 1995. Income from operations was $8.3 million (4.5% of net sales) for the first half of fiscal 1996, a 47.6% increase over $5.6 million (3.7% of net sales) for the first half of fiscal 1995. This improvement was primarily a result of increased sales volume and lower advertising and occupancy costs relative to sales. Interest expense increased to $1.0 million (1.1% of net sales) for the quarter ended July 31, 1995 from $362,000 (.4% of net sales) for the previous year's second quarter. Interest expense for the first half of fiscal 1996 increased to $1.7 million (.9% of net sales) from $684,000 (.5% of net sales) for the first half of fiscal 1995. This increase is primarily a result of additional mortgage debt of $19.6 million (at an average interest rate of approximately 9.5%) since July 31, 1994 associated with more Company owned store locations and additional borrowings on the line of credit for the second quarter of fiscal 1996. As a result of the foregoing, net income for the second quarter of fiscal 1996 was $2.5 million, a 28.3% increase over $2.0 million for the second quarter of fiscal 1995. Net income for the first half of fiscal 1996 was $4.1 million, a 31.8% increase over $3.1 million for the first half of fiscal 1995. Liquidity and Capital Resources Net cash used in operating activities was $21.0 million for the six months ended July 31, 1995. The primary use of cash was an increase in inventory of $41.5 million due to opportunistic buying and purchases for planned store openings. This increase was partially offset by increased accounts payable of $17.0 million. At July 31, 1995, working capital was $80.3 million compared to $78.7 million at January 31, 1995. The ratio of current assets 12
to current liabilities was 1.9 to 1 at July 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 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 $15.1 million on its revolving line of credit at July 31, 1995 at an interest rate of 8.75%. At July 31, 1995, the Company had approximately $78.2 million borrowing availability on the revolving line of credit after reduction for outstanding letters of credit. During fiscal 1996, the Company plans to open 30 to 35 REX stores with anticipated capital expenditures of $16 to $20 million. Capital expenditures for the first half of fiscal 1996 were $7.9 million and were primarily in-process store construction costs and the purchase of one existing store location for $800,000. 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 as stores are completed. 13
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 2, 1995, at which the following two matters were submitted to a vote of shareholders: 1. Election of five directors. The vote on this matter was as follows: <TABLE> <CAPTION> Broker Nominee For Withheld Nonvotes <S> <C> <C> <C> Stuart Rose 7,200,409 389,389 0 Lawrence Tomchin 7,199,910 389,888 0 Robert Davidoff 7,199,910 389,888 0 Tibor Fabian 7,199,910 389,888 0 Edward Kress 7,200,409 389,389 0 </TABLE> 2. Proposal to approve the amendment and restatement of the REX Stores Corporation 1994 Incentive Stock Option Plan, renamed the 1995 Omnibus Stock Incentive Plan. The vote on this matter was as follows: <TABLE> <CAPTION> Broker For Against Abstain Nonvotes <S> <C> <C> <C> 3,884,530 3,010,449 9,184 685,635 </TABLE> Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. The following exhibits are filed with this report: 4(a) Amended and Restated Loan Agreement dated July 31, 1995 among Rex Radio and Television, Inc., Kelly & Cohen Appliances, Inc., Stereo 14
Town, Inc. and Rex Kansas, Inc. (the 'Borrowers'), the lenders named therein, and Natwest Bank N.A. as agent 4(b) Form of Amended and Restated Revolving Credit Note 4(c) Guaranty of registrant dated July 31, 1995 4(d) Borrowers Pledge Agreement as amended and restated through July 31, 1995 4(e) Borrowers General Security Agreement as amended and restated through July 31, 1995 4(f) Parent Pledge Agreement as amended and restated through July 31, 1995 4(g) Parent General Security Agreement as amended and restated through July 31, 1995 27 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended July 31, 1995. 15
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 14, 1995 Stuart A. Rose Stuart A. Rose Chairman of the Board (Chief Executive Officer) September 14, 1995 Douglas L. Bruggeman Douglas L. Bruggeman Vice President, Finance and Treasurer (Principal Financial and Chief Accounting Officer) 16 STATEMENT OF DIFFERENCES The section symbol shall be expressed as ............ 'ss'