FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
| ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 31, 2001
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
REX Stores Corporation
(Exact name of registrant as specified in its charter)
| Delaware | 31-1095548 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| 2875 Needmore Road, Dayton, Ohio | 45414 |
| (Address of principal executive offices) | (Zip Code) |
(937) 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, and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
At the close of business on September 13, 2001, the registrant had 7,729,514 shares of Common Stock, par value $.01 per share, outstanding.
REX STORES CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
| ASSETS | |||||||||||
| July 31 | January 31 | July 31 | |||||||||
| 2001 | 2001 | 2000 | |||||||||
| (In Thousands) | |||||||||||
| ASSETS: | |||||||||||
| Cash and cash equivalents | $ | 2,822 | $ | 687 | $ | 4,608 | |||||
| Accounts receivable, net | 2,730 | 4,707 | 924 | ||||||||
| Merchandise inventory | 160,235 | 144,150 | 181,167 | ||||||||
| Prepaid expenses and other | 3,752 | 4,173 | 4,823 | ||||||||
| Future income tax benefits | 9,837 | 9,837 | 9,837 | ||||||||
| Total current assets | 179,376 | 163,554 | 201,359 | ||||||||
| PROPERTY AND EQUIPMENT, NET | 134,118 | 135,643 | 124,558 | ||||||||
| FUTURE INCOME TAX BENEFITS | 9,523 | 9,523 | 8,835 | ||||||||
| RESTRICTED INVESTMENTS | 2,200 | 2,165 | 2,104 | ||||||||
| Total assets | $ | 325,217 | $ | 310,885 | $ | 336,856 | |||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Notes payable | $ | 9,448 | $ | 742 | $ | 46,416 | |||||
| Current portion of long-term debt | 5,272 | 4,923 | 3,576 | ||||||||
| Current portion, deferred income and deferred gain on sale and leaseback | 11,477 | 11,355 | 11,099 | ||||||||
| Accounts payable, trade | 52,223 | 47,680 | 59,664 | ||||||||
| Accrued payroll | 4,706 | 6,369 | 5,255 | ||||||||
| Other current liabilities | 9,246 | 8,737 | 9,270 | ||||||||
| Total current liabilities | 92,372 | 79,806 | 135,280 | ||||||||
| LONG-TERM LIABILITIES: | |||||||||||
| Long-term mortgage debt | 84,744 | 81,262 | 48,322 | ||||||||
| Deferred income | 15,525 | 16,494 | 16,056 | ||||||||
| Deferred gain on sale and leaseback | 1,716 | 2,129 | 2,541 | ||||||||
| Total long-term liabilities | 101,985 | 99,885 | 66,919 | ||||||||
| SHAREHOLDERS' EQUITY: | |||||||||||
| Common stock | 175 | 173 | 173 | ||||||||
| Paid-in capital | 107,338 | 106,248 | 105,799 | ||||||||
| Retained earnings | 119,374 | 112,399 | 100,889 | ||||||||
| Treasury stock | (96,027 | ) | (87,626 | ) | (72,204 | ) | |||||
| Total shareholders' equity | 130,860 | 131,194 | 134,657 | ||||||||
| Total liabilities and shareholders' equity | $ | 325,217 | $ | 310,885 | $ | 336,856 | |||||
The accompanying notes are an integral part of
these unaudited consolidated statements.
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended | Six Months Ended | ||||||||||||
| July 31 | July 31 | ||||||||||||
| 2001 | 2000 | 2001 | 2000 | ||||||||||
| (In Thousands, Except Per Share Amounts) | |||||||||||||
| NET SALES | $ | 99,867 | $ | 101,609 | $ | 204,030 | $ | 208,792 | |||||
| COSTS AND EXPENSES: | |||||||||||||
| Cost of merchandise sold | 70,967 | 72,822 | 146,481 | 151,271 | |||||||||
| Selling, general and administrative expenses | 26,265 | 24,823 | 51,964 | 49,472 | |||||||||
| Total costs and expenses | 97,232 | 97,645 | 198,445 | 200,743 | |||||||||
| INCOME FROM OPERATIONS | 2,635 | 3,964 | 5,585 | 8,049 | |||||||||
| INVESTMENT INCOME | 31 | 29 | 94 | 215 | |||||||||
| INTEREST EXPENSE | (2,261 | ) | (1,877 | ) | (4,227 | ) | (3,049 | ) | |||||
| INCOME FROM LIMITED PARTNERSHIPS | 4,754 | 3,190 | 7,849 | 4,419 | |||||||||
| Income before provision for income taxes | 5,159 | 5,306 | 9,301 | 9,634 | |||||||||
| PROVISION FOR INCOME TAXES | 1,289 | 1,326 | 2,326 | 2,408 | |||||||||
| NET INCOME | $ | 3,870 | $ | 3,980 | $ | 6,975 | $ | 7,226 | |||||
| WEIGHTED AVERAGE SHARES OUTSTANDING-BASIC | 7,641 | 9,816 | 7,793 | 10,229 | |||||||||
| BASIC NET INCOME PER SHARE | $ | 0.51 | $ | 0.41 | $ | .90 | $ | 0.71 | |||||
| WEIGHTED AVERAGE SHARES OUTSTANDING-DILUTED | 8,839 | 10,917 | 8,825 | 11,273 | |||||||||
| DILUTED NET INCOME PER SHARE | $ | 0.44 | $ | 0.37 | $ | 0.79 | $ | 0.64 | |||||
The accompanying notes are an integral part of
these unaudited consolidated statements.
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
| Common Shares | ||||||||||||
| Issued | Treasury | Paid-in | Retained | |||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | |||||||
| (In Thousands) | ||||||||||||
| Balance at July 31, 2000 | 17,320 | $173 | 7,809 | $72,204 | $105,799 | $100,889 | ||||||
| Common stock issued | 14 | - | (2 | ) | (17 | ) | 449 | - | ||||
| Treasury stock acquired | - | - | 1,295 | 15,439 | - | - | ||||||
| Net income | - | - | - | - | - | 11,510 | ||||||
| Balance at January 31, 2001 | 17,334 | $173 | 9,102 | $87,626 | $106,248 | $112,399 | ||||||
| Common stock issued | 170 | 2 | (30 | ) | (292 | ) | 1,090 | - | ||||
| Treasury stock acquired | - | - | 709 | 8,693 | - | - | ||||||
| Net income | - | - | - | - | - | 6,975 | ||||||
| Balance at July 31, 2001 | 17,504 | $175 | 9,781 | $96,027 | $107,338 | $119,374 | ||||||
The accompanying notes are an integral part of
these unaudited consolidated statements.
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six Months Ended | ||||||||
| July 31 | ||||||||
| 2001 | 2000 | |||||||
| (In Thousands) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 6,975 | $ | 7,226 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization, net | 2,100 | 1,896 | ||||||
| Capital disposals | 802 | 79 | ||||||
| Deferred income | (848 | ) | (487 | ) | ||||
| Gain on sale of partnership interest | (7,849 | ) | (4,419 | ) | ||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 1,977 | 1,645 | ||||||
| Merchandise inventory | (16,085 | ) | (41,900 | ) | ||||
| Other current assets | 417 | (2,726 | ) | |||||
| Accounts payable, trade | 4,543 | 13,412 | ||||||
| Other current liabilities | (1,154 | ) | (3,324 | ) | ||||
| NET CASH USED IN OPERATING ACTIVITIES | (9,122 | ) | (28,598 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Capital expenditures | (1,785 | ) | (13,143 | ) | ||||
| Proceeds from sale of partnership interest | 7,849 | 4,419 | ||||||
| Restricted investments | (35 | ) | (84 | ) | ||||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | 6,029 | (8,808 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Increase in notes payable | 8,706 | 46,416 | ||||||
| Payments of long-term debt | (2,269 | ) | (2,213 | ) | ||||
| Proceeds from long-term debt | 6,100 | 4,608 | ||||||
| Common stock issued | 1,092 | 554 | ||||||
| Treasury stock issued | 292 | 113 | ||||||
| Treasury stock acquired | (8,693 | ) | (33,073 | ) | ||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 5,228 | 16,405 | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 2,135 | (21,001 | ) | |||||
| CASH AND CASH EQUIVALENTS, beginning of period | 687 | 25,609 | ||||||
| CASH AND CASH EQUIVALENTS, end of period | $ | 2,822 | $ | 4,608 | ||||
The accompanying notes are an integral part of
these unaudited consolidated statements.
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2001
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 accounting principles generally accepted in the United States 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, 2001 (fiscal 2000).
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 2000 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), management bonuses and the provision for income taxes. Any adjustments pursuant to such estimates during the quarter were of a normal recurring nature.
Certain reclassifications have been made to prior year amounts to conform with their fiscal 2001 presentation.
Note 3. Stock Option Plans
The following summarizes options granted, exercised and canceled or expired during the six months ended July 31, 2001:
| Shares Under Stock | ||
| Option Plans | ||
| Outstanding at January 31, 2001 ($5.42 to $15.21 per share) | 4,149,356 | |
| Granted ($12.01 to $15.56 per share) | 1,413,210 | |
| Exercised ($5.42 to $11.18 per share) | (200,436 | ) |
| Outstanding at July 31, 2001 ($5.42 to $15.56 per share) | 5,362,130 | |
Note 4. Investments in Limited Partnerships
Effective May 31, 2001, the Company sold its remaining 8% interest in one of its synthetic fuel limited partnership investments. The Company expects to receive cash payments from the sale on a quarterly basis through 2007. The payments will range from 74.25% to 82.5% of the federal income tax credits attributable to the 8% interest sold, calculated annually, depending upon synthetic fuel sales levels of the partnership.
Note 5. Stock Split
On July 12, 2001, the Company's Board of Directors declared a three-for-two stock split in the form of a 50% stock dividend, payable on August 10, 2001 to shareholders of record on July 31, 2001. The stock split has been retroactively reflected in the accompanying consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
We are a leading specialty retailer in the consumer electronics/appliance industry. As of July 31, 2001 we operated 264 stores in 37 states, predominantly in small to medium-sized markets under the trade name "REX".
Fiscal Year
All references in this report to a particular fiscal year are to REX's fiscal year ended January 31. For example, "fiscal 2000" means the period February 1, 2000 to January 31, 2001.
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:
| Three Months Ended | Six Months Ended | ||||||||
| July 31 | July 31 | ||||||||
| 2001 | 2000 | 2001 | 2000 | ||||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |
| Cost of merchandise sold | 71.1 | 71.7 | 71.8 | 72.4 | |||||
| Gross profit | 28.9 | 28.3 | 28.2 | 27.6 | |||||
| Selling, general and administrative expenses | 26.3 | 24.4 | 25.5 | 23.7 | |||||
| Income from operations | 2.6 | 3.9 | 2.7 | 3.9 | |||||
| Investment income | 0.1 | - | 0.1 | 0.1 | |||||
| Interest expense | (2.3 | ) | (1.8 | ) | (2.1 | ) | (1.5 | ) | |
| Income from limited partnerships | 4.8 | 3.1 | 3.8 | 2.1 | |||||
| Income before provision for income taxes | 5.2 | 5.2 | 4.5 | 4.6 | |||||
| Provision for income taxes | 1.3 | 1.3 | 1.1 | 1.1 | |||||
| Net income | 3.9 | % | 3.9 | % | 3.4 | % | 3.5 | % | |
Comparison of Three and Six Months Ended July 31, 2001 and 2000
Net sales in the second quarter ended July 31, 2001 were $99.9 million compared to $101.6 million in the prior year's second quarter, representing a decrease of $1.7 million or 1.7%. This decrease was caused by a decline of 8.4% in comparable store sales, partially offset by sales from the net increase of 22 stores since the second quarter of fiscal 2000.
All product categories contributed to the decline in comparable store sales for the quarter. The television category contributed 3.5%, the video category contributed 1.7%, the appliance category contributed 1.6%, the audio category contributed 1.2% and the other category contributed 0.4%.
Net sales for the first half of fiscal 2001 were $204.0 million compared to $208.8 million for the first half of fiscal 2000, representing a decrease of $4.8 million or 2.3%. This decrease was caused by a decline in comparable store sales of 11.0% for the first half of fiscal 2001, partially offset by sales from the net increase of 22 stores since the second quarter of fiscal 2000.
All product categories contributed to the decline in comparable store sales for the first six months of fiscal 2001. The television category contributed 5.1%, the video category contributed 2.1%, the appliance category contributed 1.9%, the audio category contributed 1.3% and the other category contributed 0.6%.
As of July 31, 2001, we had 264 stores compared to 242 stores one year earlier. There were six stores opened and four closed in the first half of fiscal 2001. In the prior year's first half there were nine stores opened and five closed.
Gross profit of $28.9 million (28.9% of net sales) in the second quarter of fiscal 2001 was $100,000 higher than the $28.8 million (28.3% of net sales) recorded in the second quarter of fiscal 2000. Gross profit for the first half of fiscal 2001 and fiscal 2000 was $57.5 million for each year. However, the gross profit margin percentage increased to 28.2% for fiscal 2001 from 27.6% for fiscal 2000. The improvement in the gross profit margin percentage is primarily due to opportunistic inventory purchases available from our vendors.
Selling, general and administrative expenses for the second quarter of fiscal 2001 were $26.3 million (26.3% of net sales) compared to $24.8 million (24.4% of net sales) for the second quarter of fiscal 2000. This represents an increase of $1.5 million or 6.0%. Selling, general and administrative expenses for the first half of fiscal 2001 were $52.0 million (25.5% of net sales), a 5.0% increase from $49.5 million (23.7% of net sales) for the first half of fiscal 2000. The increase in expense is primarily caused by the increased advertising and store expenses associated with the net increase of 22 stores since July 31, 2000.
Interest expense increased to $2.3 million (2.3% of net sales) for the second quarter from $1.9 million (1.8% of net sales) for the second quarter of fiscal 2000. Interest expense for the first half of fiscal 2001 was $4.2 million (2.1% of net sales) compared to $3.0 million (1.5% of net sales) for the first half of fiscal 2000. The increase in expense is primarily due to an increased amount of mortgage debt outstanding on company-owned store locations.
Results for the second quarter and first half of fiscals 2001 and 2000 also reflect the impact of our equity investment in two limited partnerships which produce synthetic fuels. Effective February 1, 1999, we entered into an agreement to sell a portion of our investment in one of the limited partnerships, which resulted in the reduction in our ownership interest from 30% to 17%. Effective July 31, 2000, we sold an additional portion of our ownership interest in that partnership, reducing our ownership percentage from 17% to 8%. Effective May 31, 2001, we sold our remaining 8% ownership interest. We report the income from these sales on a quarterly basis as payments are received. Below is a table summarizing the income from the sales, net of certain expenses.
| Three Months Ended | Six Months Ended | |||||||||||
| July 31 | July 31 | |||||||||||
| 2001 | 2000 | 2001 | 2000 | |||||||||
| (In Thousands) | ||||||||||||
| February 1, 1999 sale | $ | 1,780 | $ | 1,706 | $ | 3,587 | $ | 2,946 | ||||
| July 31, 2000 sale | 1,626 | 1,515 | 2,914 | 1,515 | ||||||||
| May 31, 2001 sale | 1,347 | - | 1,347 | - | ||||||||
| Cash contribution | - | (31 | ) | - | (42 | ) | ||||||
| $ | 4,753 | $ | 3,190 | $ | 7,848 | $ | 4,419 | |||||
Our effective tax rate was 25% for all periods presented after reflecting our share of federal income tax credits earned by the limited partnerships under Section 29 of the Internal Revenue Code.
As a result of the foregoing, net income for the second quarter of fiscal 2001 was $3.9 million, a 2.5% decrease from $4.0 million for the second quarter of fiscal 2000. Net income for the first half of fiscal 2001 was $7.0 million, a 2.8% decrease from $7.2 million for the first half of fiscal 2000.
Liquidity and Capital Resources
Net cash used in operating activities was $9.9 million for the first six months of fiscal 2001, compared to $28.7 million for the first six months of fiscal 2000. For the first half of fiscal 2001, cash was provided by net income of $7.0 million, adjusted for the impact of $7.8 million for gains on our installment sales of the limited partnership interest and non-cash items of $1.3 million which consisted of deferred income and depreciation and amortization. Cash was also provided by an increase of $4.5 million in accounts payable, a decrease of $2.0 million in accounts receivable and a decrease of $417,000 in other assets. The primary use of cash was an increase of $16.1 million in inventory due to the timing of purchases and a decrease in other liabilities of $1.2 million.
At July 31, 2001, working capital was $87.0 million compared to $83.7 million at January 31, 2001. The ratio of current assets to current liabilities was 1.9 to 1 at July 31, 2001 and 2.0 to 1 at January 31, 2001.
Capital expenditures through July 31, 2001 totaled $1.8 million and primarily relate to the construction expenditures associated with planned fiscal 2001 store openings. We received proceeds of $7.8 million during the first half of fiscal 2001 from installment sales of our ownership interest in a limited partnership.
Cash provided by financing activities totaled approximately $5.2 million. Cash was provided by borrowings of $8.7 million on the line of credit during the first half of fiscal 2001 and proceeds of $6.1 million from long-term debt borrowings related to mortgage financing of seven stores. A total of approximately $102.3 million was available for borrowings on the line of credit as of July 31, 2001. We also received proceeds of $1.4 million from the exercise of 200,437 shares (split adjusted) of employee stock options. Cash was used to purchase 709,800 shares (split adjusted) of our common stock for approximately $8.7 million during the first half of fiscal 2001. As of July 31, 2001, we had authorization from our board of directors to purchase an additional 797,700 shares. Cash was also used for payments on long-term debt of $2.3 million.
Forward-Looking Statements
This Form 10-Q contains or may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The words "believes", "estimates", "plans", "expects", "intends", "anticipates" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties. Factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in Exhibit 99 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2001 (File No. 0-13283).
Item 3. Quantitative and Qualitative Disclosure About Market Risk
No material changes since January 31, 2001.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. No exhibits are filed with this report.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended July 31, 2001.
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, 2001 | STUART A. ROSE |
| Stuart A. Rose | |
| Chairman of the Board | |
| (Chief Executive Officer) | |
| September 14, 2001 | DOUGLAS L. BRUGGEMAN |
| Douglas L. Bruggeman | |
| Vice President, Finance and Treasurer | |
| (Principal Financial and Chief Accounting Officer) |
