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, 2002
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 6, 2002, the registrant had 12,510,240 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............................................... 7
Consolidated Statements of Cash Flows.................. 8
Notes to Consolidated Financial Statements............. 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 12
Item 3. Quantitative and Qualitative Disclosure About
Market Risk............................................. 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders........................................ 17
Item 6. Exhibits and Reports on Form 8-K.......................... 17
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
2002 2002 2001
(In Thousands)
ASSETS:
Cash and cash equivalents $ 24,720 $ 39,441 $ 2,318
Accounts receivable, net 1,441 2,665 2,241
Merchandise inventory 116,902 101,017 152,128
Prepaid expenses and other 2,377 2,554 4,082
Future income tax benefits 12,614 12,614 9,837
-------- -------- --------
Total current assets 158,054 158,291 170,606
PROPERTY AND EQUIPMENT, NET 137,962 139,496 135,078
FUTURE INCOME TAX BENEFITS 7,320 7,320 9,523
RESTRICTED INVESTMENTS 2,227 2,222 2,185
-------- -------- --------
Total assets $305,563 $307,329 $317,392
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ -- $ 66 $ 6,587
Current portion of long-term debt 4,680 5,012 5,140
Current portion of deferred income and deferred gain
on sale and leaseback 11,486 11,790 11,456
Accounts payable, trade 37,710 32,619 52,856
Accrued income taxes 2,258 1,373 --
Accrued payroll 3,700 5,856 4,000
3
Liabilities and Shareholders' Equity (Continued)
Other current liabilities 9,021 9,319 8,560
-------- -------- --------
Total current liabilities 68,855 66,035 88,599
-------- -------- --------
LONG-TERM LIABILITIES:
Long-term mortgage debt 68,975 77,203 84,311
Deferred income 14,621 15,173 16,116
Deferred gain on sale and leaseback 796 945 1,923
-------- -------- --------
Total long-term liabilities 84,392 93,321 102,350
-------- -------- --------
SHAREHOLDERS' EQUITY:
Common stock 277 274 260
Paid-in capital 118,718 116,701 106,194
Retained earnings 138,892 134,708 115,504
Treasury stock (105,571) (103,710) (95,515)
-------- -------- --------
Total shareholders' equity 152,316 147,973 126,443
-------- -------- --------
Total liabilities and shareholders' equity $305,563 $307,329 $317,392
======== ======== ========
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
2002 2001
(In Thousands, Except Per Share Amounts)
NET SALES $93,536 $104,789
COSTS AND EXPENSES:
Cost of merchandise sold 66,282 75,514
Selling, general and administrative
expenses 25,005 26,325
------- --------
Total costs and expenses 91,287 101,839
------- --------
INCOME FROM OPERATIONS 2,249 2,950
INVESTMENT INCOME 150 63
INTEREST EXPENSE (1,335) (1,966)
INCOME FROM LIMITED PARTNERSHIPS 4,636 3,095
------- --------
Income before provision for income taxes 5,700 4,142
PROVISION FOR INCOME TAXES 1,425 1,037
------- --------
Income before extraordinary item 4,275 3,105
Extraordinary loss from extinguishment of debt,
net of income tax effect of $59 91 --
NET INCOME 4,184 3,105
======= ========
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 12,297 11,926
======= ========
Basic Earnings Before Extraordinary Item 0.35 0.26
Extraordinary Item (0.01) --
------- --------
5
BASIC NET INCOME PER SHARE $ 0.34 $ 0.26
======= ========
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 14,814 13,263
======= ========
Dilutive Earnings Before Extraordinary Item 0.29 0.24
Extraordinary Item (0.01) --
------- --------
DILUTED NET INCOME PER SHARE $ 0.28 $ 0.24
======= ========
The accompanying notes are an integral part of
these unaudited consolidated statements.
6
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, 2001 26,010 $260 14,616 $ 95,515 $106,194 $115,504
Net income -- -- -- -- -- 19,204
Treasury stock
acquired -- -- 576 8,710 -- --
Common stock
issued 1,348 14 (79) (515) 10,507 --
------ ---- ------ -------- -------- --------
Balance at
January 31, 2002 27,358 $274 15,113 $103,710 $116,701 $134,708
Net income -- -- -- -- -- 4,184
Treasury stock
acquired -- -- 121 2,031 -- --
Common stock
issued 312 3 (24) (170) 2,017 --
------ ---- ------ -------- -------- --------
Balance at
April 30, 2002 27,670 $277 15,210 $105,571 $118,718 $138,892
====== ==== ====== ======== ======== ========
The accompanying notes are an integral part of
these unaudited consolidated statements.
7
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
April 30
2002 2001
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,184 $ 3,105
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization, net 1,087 1,054
(Gain) Loss on disposal of fixed assets 253 (35)
Deferred income (856) (277)
Income of limited partnerships (4,636) (3,095)
Changes in assets and liabilities:
Accounts receivable 1,224 2,466
Merchandise inventory (15,885) (7,978)
Other current assets 175 89
Accounts payable, trade 5,091 5,176
Other current liabilities (1,569) (2,546)
-------- -------
NET CASH USED IN OPERATING ACTIVITIES (10,932) (2,041)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (253) (904)
Proceeds from sale of real estate and fixed assets 300 246
Proceeds from sale of partnership interest 4,636 3,095
Restricted investments (5) (20)
-------- -------
NET CASH PROVIDED BY INVESTING ACTIVITIES 4,678 2,417
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable (66) 5,845
Payments of long-term debt (8,560) (1,089)
Proceeds from long-term debt -- 4,355
Common stock issued 2,020 33
Treasury stock issued 170 64
Treasury stock acquired (2,031) (7,953)
-------- -------
8
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (8,467) 1,255
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (14,721) 1,631
CASH AND CASH EQUIVALENTS, beginning of period 39,441 687
-------- -------
CASH AND CASH EQUIVALENTS, end of period $ 24,720 $ 2,318
======== =======
The accompanying notes are an integral part of
these unaudited consolidated statements.
9
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2002
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, 2002 (fiscal 2001).
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 2001 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 2002 presentation.
10
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, 2002:
Shares Under Stock
Option Plans
Outstanding at January 31, 2002 ($3.61 to $10.37 per share) 6,881,610
Granted ($14.745 per share) 329,000
Exercised ($3.61 to $10.14 per share) (336,000)
Canceled or expired ($4.61 to $10.14 per share) (20,250)
---------
Outstanding at April 30, 2002 ($3.61 to $14.745 per share) 6,854,360
=========
Note 4. Early Extinguishment of Debt
In the first quarter of fiscal 2002, the Company paid off approximately
$7.0 million in mortgage debt. As a result, the Company expensed unamortized
financing costs of approximately $150,000 as an extraordinary loss before an
income tax benefit of approximately $59,000.
11
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, 2002 we operated 255 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 2002" means the period
February 1, 2002 to January 31, 2003.
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
2002 2001
Net sales 100.0% 100.0%
Cost of merchandise sold 70.9 72.1
----- -----
Gross profit 29.1 27.9
Selling, general and administrative expenses 26.7 25.1
----- -----
Income from operations 2.4 2.8
Investment income 0.2 0.1
Interest expense (1.4) (1.9)
Income from limited partnerships 4.9 3.0
----- -----
Income before provision for income taxes 6.1 4.0
Provision for income taxes 1.5 1.0
----- -----
Income before extraordinary item 4.6 3.0
Extraordinary loss from early extinguishment of debt 0.1 --
----- -----
Net income 4.5 3.0
===== =====
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Comparison of Three Months Ended April 30, 2002 and 2001
Net sales in the first quarter ended April 30, 2002 were $93.5 million
compared to $104.8 million in the prior year's comparable period, representing a
decrease of $11.3 million or 10.7%. This decrease was primarily due to a decline
in comparable store sales of 8.8%. The decline was also partially caused by a
net reduction of nine stores since the end of the first quarter of last fiscal
year.
All major product categories contributed to the negative comparable
store sales. The video category contributed 4.9%, the audio category contributed
2.4%, the appliance category contributed 1.1% and the television category
contributed 0.7%. The other category positively impacted comparable store sales
by 0.3% primarily due to stronger sales of ready to assemble furniture.
As of April 30, 2002, we had 255 stores compared to 264 stores one year
earlier. We did not open any stores and closed seven stores during the first
quarter of fiscal 2002. There were four stores opened and two closed during the
first quarter of fiscal 2001.
Gross profit of $27.3 million (29.1% of net sales) in the first quarter
of fiscal 2002 was 6.9% lower than the $29.3 million (27.9% of net sales)
recorded in the first quarter of fiscal 2001. The increase in gross profit as a
percentage of sales was primarily caused by a shift in sales toward higher gross
profit margin products, more favorable pricing from vendors and less aggressive
retail pricing in the stores.
Selling, general and administrative expenses for the quarter ended
April 30, 2002 were $25.0 million (26.7% of net sales), a 5.0% decrease from
$26.3 million (25.1% of net sales) for the first quarter of fiscal 2001. The
reduction in expenditures primarily relates to less advertising dollars spent
due to limited expenditures on radio and television advertising in the current
year and the reduction in the number of stores in operation.
Interest expense was $1.3 million (1.4% of net sales) for the first
quarter of fiscal 2002 versus $2.0 million (1.9% of net sales) for the first
quarter of fiscal 2001. This decline was primarily caused by a reduction in the
amount of mortgage debt outstanding and restructuring a large portion of the
remaining mortgage debt to lower floating interest rates.
Results for the first quarter of fiscals 2002 and 2001 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
13
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 expect to receive cash
payments from the sale on a quarterly basis through 2007 which will range from
74.25% to 82.5% of the federal income tax credits attributable to the interest
sold. Below is a table summarizing the income from the sales, net of certain
expenses.
Three Months Ended
April 30
2002 2001
(In thousands)
February 1, 1999 sale 1,850 1,807
July 31, 2000 sale 1,350 1,288
May 31, 2001 sale 1,436 --
----- -----
4,636 3,095
===== =====
Our effective tax rate was 25% for the first quarter of fiscal 2002 and
2001 after reflecting our share of federal income tax credits earned by the
limited partnerships.
In the first quarter of fiscal 2002, we recorded an extraordinary loss
from the early extinguishment of debt of $91,000, net of the income tax effect
of $59,000 as a result of paying off mortgage loans totaling $7.0 million.
As a result of the foregoing, for the first quarter of fiscal 2002 net
income was $4.2 million, a 34.7% increase from $3.1 million for the first
quarter of fiscal 2001.
Liquidity and Capital Resources
Net cash used in operating activities was $10.9 million for the first
quarter of fiscal 2002, compared to usage of $2.0 million for the first quarter
of fiscal 2001. For the first quarter of fiscal 2002, cash was provided by net
income of $4.2 million, adjusted for the impact of a $4.6 million gain on our
installment sales of the limited partnership interest and non-cash items of
$231,000 which consisted of deferred income and depreciation and amortization.
Cash was also provided by an increase of $5.1 million in accounts payable and a
decrease of $1.2 million in accounts receivable. The primary
14
uses of cash were an increase of $15.9 million in inventory due to seasonal air
conditioner purchases and other inventory purchases and a decrease of $1.6
million in other liabilities primarily due to the timing of payment for
compensation and taxes.
At April 30, 2002, working capital was $89.2 million compared to $92.3
million at January 31, 2002. The ratio of current assets to current liabilities
was 2.3 to 1 at April 30, 2002 and 2.4 to 1 at January 31, 2002.
We received proceeds of $4.6 million during the first quarter of fiscal
2002 from installment sales of a portion of our ownership interest in a limited
partnership.
Cash used in financing activities totaled $8.5 million for the first
quarter of fiscal 2002. The primary use of cash was for payments on long-term
mortgage debt of approximately $8.6 million for the early extinguishment of debt
for eight retail store locations and scheduled repayments.
At April 30, 2002 we had authorization from the Board of Directors to
purchase 1,158,300 shares of our common stock.
15
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, 2002 (File No. 0-13283).
Item 3. Quantitative and Qualitative Disclosure About Market Risk
No material changes since January 31, 2002.
16
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 3, 2002, at which the following matter was submitted to a vote of
shareholders:
1. Election of six directors.
Nominee For Withheld
Stuart Rose 10,094,252 1,478,262
Lawrence Tomchin 9,968,052 1,604,462
Robert Davidoff 11,489,467 83,047
Edward Kress 11,474,789 97,725
Lee Fisher 11,489,467 83,047
Alexander Schwartz, Jr 11,489,467 83,047
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, 2002.
17
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 6, 2002 STUART A. ROSE
Stuart A. Rose
Chairman of the Board
(Chief Executive Officer)
June 6, 2002 DOUGLAS L. BRUGGEMAN
Douglas L. Bruggeman
Vice President, Finance and
Treasurer
(Principal Financial and
Chief Accounting Officer)
18