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 April 30, 2001
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)
(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 (X) No ( )
At the close of business on June 12, 2001, the registrant had 5,079,890 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 .................... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................................ 11
Item 3. Quantitative and Qualitative Disclosure About
Market Risk ........................................... 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders ..................................... 15
Item 6. Exhibits and Reports on Form 8-K ................................. 15
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
A S S E T S
April 30 January 31 April 30
2001 2001 2000
(In Thousands)
ASSETS:
Cash and cash equivalents $ 2,318 $ 687 $ 3,963
Accounts receivable, net 2,241 4,707 2,013
Merchandise inventory 152,128 144,150 160,176
Prepaid expenses and other 4,082 4,173 3,236
Future income tax benefits 9,837 9,837 9,837
-------- -------- --------
Total current assets 170,606 163,554 179,225
PROPERTY AND EQUIPMENT, NET 135,078 135,643 116,942
FUTURE INCOME TAX BENEFITS 9,523 9,523 8,835
RESTRICTED INVESTMENTS 2,185 2,165 2,037
-------- -------- --------
Total assets $317,392 $310,885 $307,039
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 6,587 $ 742 $ 15,075
Current portion of long-term debt 5,140 4,923 3,458
Current portion, deferred income
and deferred gain on sale and
leaseback 11,456 11,355 11,151
Accounts payable, trade 52,856 47,680 58,559
Accrued payroll 4,000 6,369 4,668
3
Liabilities and Shareholders' Equity (Continued)
Other current liabilities 8,560 8,737 9,440
-------- -------- --------
Total current liabilities 88,599 79,806 102,351
-------- -------- --------
LONG-TERM LIABILITIES:
Long-term mortgage debt 84,311 81,262 46,717
Deferred income 16,116 16,494 16,368
Deferred gain on sale and
leaseback 1,923 2,129 2,747
-------- -------- --------
Total long-term liabilities 102,350 99,885 65,832
-------- -------- --------
SHAREHOLDERS' EQUITY:
Common stock 116 116 115
Paid-in capital 106,338 106,305 105,490
Retained earnings 115,504 112,399 96,909
Treasury stock (95,515) (87,626) (63,658)
-------- -------- --------
Total shareholders' equity 126,443 131,194 138,856
-------- -------- --------
Total liabilities and
shareholders' equity $317,392 $310,885 $307,039
======== ======== ========
The accompanying notes are an integral part of
these unaudited consolidated statements.
4
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
April 30
2001 2000
(In Thousands, Except Per Share Amounts)
NET SALES $ 104,163 $ 107,183
COSTS AND EXPENSES:
Cost of merchandise sold 75,514 78,449
Selling, general and
administrative expenses 25,699 24,649
--------- ---------
Total costs and expenses 101,213 103,098
--------- ---------
INCOME FROM OPERATIONS 2,950 4,085
INVESTMENT INCOME 63 185
INTEREST EXPENSE (1,966) (1,172)
INCOME FROM LIMITED PARTNERSHIPS 3,095 1,230
--------- ---------
Income before provision for
income taxes 4,142 4,328
PROVISION FOR INCOME TAXES 1,037 1,082
--------- ---------
NET INCOME $ 3,105 $ 3,246
========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 5,300 7,100
========= =========
BASIC NET INCOME PER SHARE $ 0.59 $ 0.46
========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 5,895 7,770
========= =========
DILUTED NET INCOME PER SHARE $ 0.53 $ 0.42
========= =========
The accompanying notes are an integral part of
these unaudited consolidated statements.
5
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
April 30, 2000 11,511 $ 115 4,782 $ 63,658 $105,490 $ 96,909
Common stock
issued 45 1 (9) (112) 815 --
Treasury stock
acquired -- -- 1,295 24,080 -- --
Net income -- -- -- -- -- 15,490
------ -------- ------ -------- -------- --------
Balance at
January 31, 2001 11,556 $ 116 6,068 $ 87,626 $106,305 $112,399
Common and treasury stock
issued 4 -- (5) (64) 33 --
Treasury stock
acquired -- -- 433 7,953 -- --
Net income -- -- -- -- -- 3,105
------ -------- ----- -------- -------- --------
Balance at
April 30, 2001 11,560 $ 116 6,496 $ 95,515 $106,338 $115,504
====== ======== ===== ======== ======== ========
The accompanying notes are an integral part of
these unaudited consolidated statements.
6
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
April 30
2001 2000
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,105 $ 3,246
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization, net 1,054 942
Deferred income (277) (123)
Gain on sale of partnership interest (3,095) (1,230)
Changes in assets and liabilities:
Accounts receivable 2,466 556
Merchandise inventory (7,978) (20,909)
Other current assets 89 (1,139)
Accounts payable, trade 5,176 12,307
Other current liabilities (2,546) (3,741)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (2,006) (10,091)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (849) (4,350)
Capital disposals 156 62
Proceeds from sale of
partnership interest 3,095 1,230
Restricted investments (20) (17)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 2,382 (3,075)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 5,845 15,075
Payments of long-term debt (1,089) (1,512)
Proceeds from long-term debt 4,355 2,184
Common stock issued 33 187
Treasury stock issued 64 18
Treasury stock acquired (7,953) (24,432)
-------- --------
7
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,255 (8,480)
-------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,631 (21,646)
CASH AND CASH EQUIVALENTS,
beginning of period 687 25,609
-------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 2,318 $ 3,963
======== ========
The accompanying notes are an integral part of
these unaudited consolidated statements.
8
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 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.
9
Notes to Consolidated Financial Statements (Continued)
Note 3. Stock Option Plans
The following summarizes options granted, exercised and canceled or
expired during the three months ended April 30, 2001:
Shares Under Stock
Option Plans
Outstanding at January 31, 2001
($8.125 to $22.8125 per share) 2,766,240
Granted ($18.015 per share) 925,000
Exercised ($10.375 to $11.50 per share) (8,600)
---------
Outstanding at April 30, 2001
($8.125 to $22.8125 per share) 3,682,640
=========
Note 4. Subsequent Event
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.
10
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 April 30, 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 2001" means the period
February 1, 2001 to January 31, 2002.
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
April 30
2001 2000
Net sales 100.0% 100.0%
Cost of merchandise sold 72.5 73.2
----- -----
Gross profit 27.5 26.8
Selling, general and
administrative expenses 24.7 23.0
----- -----
Income from operations 2.8 3.8
Investment income 0.1 0.2
Interest expense (1.9) (1.1)
Income from limited partnerships 3.0 1.1
----- -----
Income before provision for
income taxes 4.0 4.0
Provision for income taxes 1.0 1.0
----- -----
Net income 3.0% 3.0%
===== =====
11
Comparison of Three Months Ended April 30, 2001 and 2000
Net sales in the first quarter ended April 30, 2001 were $104.2 million
compared to $107.2 million in the prior year's comparable period, representing a
decrease of $3.0 million or 2.8%. This decrease was caused by a decline in
comparable store sales of 13.3%, partially offset by the sales contributed from
the 29 net additional stores since the end of the first quarter of fiscal 2000.
We believe the decline in comparable store sales was largely caused by
the slowing of the economy. All product categories contributed to the negative
comparable store sales. The television category contributed 6.8%, the appliance
category contributed 3.1%, the video and audio categories each contributed 1.4%
and the other category contributed 0.6%.
As of April 30, 2001, we had 264 stores compared to 235 stores one year
earlier. We opened four stores and closed two during the first quarter of fiscal
2001. There was one store opened and four closed during the first quarter of
fiscal 2000.
Gross profit of $28.6 million (27.5% of net sales) in the first quarter
of fiscal 2001 was 0.3% lower than the $28.7 million (26.8% of net sales)
recorded in the first quarter of fiscal 2000. The improved gross profit margin
percentage is primarily due to better buying opportunities and a continued shift
in product mix to the higher gross profit margin categories such as large screen
televisions.
Selling, general and administrative expenses for the quarter ended
April 30, 2001 were $25.7 million (24.7% of net sales), a 4.2% increase from
$24.6 million (23.0% of net sales) for the first quarter of fiscal 2000. The
increase in expense is primarily caused by the increased advertising and store
expenses associated with the net increase of 29 stores since April 30, 2000.
Interest expense was $2.0 million for the first quarter of fiscal 2001
versus $1.2 million for the first quarter of fiscal 2000. The increase in
expense is primarily due to an increased amount of mortgage debt outstanding on
company owned store locations.
We reported investment income of $3.1 million for the first quarter of
fiscal 2001 versus $1.2 million for the prior year comparable period from our
investment in two synthetic fuel limited partnerships. During the first quarter
of the current year we reported income of $1.8 million from the 1999 sale of a
portion of our interest in one partnership and $1.3 million from the 2000 sale
of an additional portion of the interest. During the first quarter of fiscal
2000 we reported income of $1.2 million from the 1999 sale.
12
Our effective tax rate was 25% for the first quarter of fiscal 2001 and
2000 after reflecting our share of federal income tax credits earned by the
limited partnerships.
As a result of the foregoing, net income was $3.1 million for the first
quarter of fiscal 2001, versus $3.2 million for the first quarter of fiscal
2000.
Liquidity and Capital Resources
Net cash used in operating activities was $2.0 million for the first
quarter of fiscal 2001, compared to usage of $10.1 million for the first quarter
of fiscal 2000. For the first quarter of fiscal 2001, cash was provided by net
income of $3.1 million, adjusted for the impact of a $3.1 million gain on our
installment sales of the limited partnership interest and non-cash items of
$777,000 which consisted of deferred income and depreciation and amortization.
Cash was also provided by an increase of $5.2 million in accounts payable and
a decrease of $2.5 million in accounts receivable. The primary uses of cash
were an increase of $8.0 million in inventory due to seasonal air conditioner
purchases and other inventory purchases and a decrease of $2.5 million in
other liabilities primarily due to the timing of payment for compensation and
taxes.
At April 30, 2001, working capital was $82.0 million compared to $83.7
million at January 31, 2001. The ratio of current assets to current liabilities
was 1.9 to 1 at April 30, 2001 and 2.0 to 1 at January 31, 2001.
Capital expenditures through April 30, 2001 totaled $849,000 and
primarily relate to the construction expenditures associated with planned fiscal
2001 store openings. We received proceeds of $3.1 million during the first
quarter of fiscal 2001 from installment sales of a portion of our ownership
interest in a limited partnership.
Cash provided by financing activities totaled approximately $1.3
million. Cash was provided by borrowings of $5.8 million on the line of credit
during the first quarter of fiscal 2001 and proceeds of $4.4 million from
long-term debt borrowings related to mortgage financing for five stores. A
total of approximately $90.8 million was available for borrowing on the line
of credit as of April 30, 2001. Cash was used to purchase 433,000 shares of
our common stock for approximately $8.0 million during the first quarter of
fiscal 2001. As of April 30, 2001 we had authorization from our board of
directors to purchase an additional 271,800 shares. Cash was also used for
payments on long-term debt of $1.1 million.
13
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.
14
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 4, 2001, at which the following matter was submitted to a vote of
shareholders:
1. Election of six directors.
Nominee For Withheld
Stuart Rose 4,057,192 249,795
Lawrence Tomchin 4,057,192 249,795
Robert Davidoff 4,231,812 75,175
Edward Kress 4,231,152 75,835
Lee Fisher 4,230,812 76,175
Alexander Schwartz, Jr. 4,228,412 78,575
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 April 30, 2001.
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
June 13, 2001 STUART A. ROSE
Stuart A. Rose
Chairman of the Board
(Chief Executive Officer)
June 13, 2001 DOUGLAS L. BRUGGEMAN
Douglas L. Bruggeman
Vice President, Finance and
Treasurer
(Principal Financial and
Chief Accounting Officer)
16