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, 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 September 12, 2002, the registrant had 12,239,590
shares of Common Stock, par value $.01 per share, outstanding.
REX STORES CORPORATION AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets........................ 3
Consolidated Condensed Statements of Income.................. 5
Consolidated Condensed Statements of Shareholders' Equity.... 7
Consolidated Condensed Statements of Cash Flows.............. 8
Notes to Consolidated Condensed Financial Statements......... 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Item 3. Quantitative and Qualitative Disclosure About Market Risk...... 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 18
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
A S S E T S
July 31 January 31 July 31
2002 2002 2001
(In Thousands)
Unaudited Unaudited
ASSETS:
Cash and cash equivalents $ 10,039 $ 39,441 $ 2,822
Accounts receivable, net 548 1,120 1,605
Synthetic fuel receivable 3,327 1,545 1,125
Merchandise inventory 138,860 101,017 160,235
Prepaid expenses and other 3,073 2,554 3,752
Future income tax benefits 12,614 12,614 9,837
-------- -------- --------
Total current assets 168,461 158,291 179,376
PROPERTY AND EQUIPMENT, NET 136,940 139,496 134,118
FUTURE INCOME TAX BENEFITS 7,320 7,320 9,523
RESTRICTED INVESTMENTS 2,232 2,222 2,200
-------- -------- --------
Total assets $314,953 $307,329 $325,217
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 65 $ 66 $ 9,448
Current portion of long-term debt 4,783 5,012 5,272
Current portion of deferred income
and deferred gain on sale and
leaseback 11,096 11,790 11,477
Accounts payable, trade 41,138 32,619 52,223
Accrued income taxes 2,847 1,373 -
Accrued payroll 4,914 5,856 4,706
3
Liabilities and Shareholders' Equity (Continued)
Other current liabilities 9,454 9,319 9,246
-------- -------- --------
Total current liabilities 74,297 66,035 92,372
-------- -------- --------
LONG-TERM LIABILITIES:
Long-term mortgage debt 67,723 77,203 84,744
Deferred income 14,069 15,173 15,525
Deferred gain on sale and
leaseback 646 945 1,716
-------- -------- --------
Total long-term liabilities 82,438 93,321 101,985
-------- -------- --------
SHAREHOLDERS' EQUITY:
Common stock 277 274 263
Paid-in capital 119,026 116,701 107,250
Retained earnings 144,283 134,708 119,374
Treasury stock (105,368) (103,710) (96,027)
-------- -------- --------
Total shareholders' equity 158,218 147,973 130,860
-------- -------- --------
Total liabilities and
shareholders' equity $314,953 $307,329 $325,217
======== ======== ========
The accompanying notes are an integral part of
these unaudited consolidated statements.
4
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
UNAUDITED
Three Months Ended Six Months Ended
July 31 July 31
2002 2001 2002 2001
(In Thousands, Except Per Share Amounts)
NET SALES $93,070 $100,542 $186,606 $205,331
COSTS AND EXPENSES:
Cost of merchandise sold 63,740 70,967 130,022 146,481
Selling, general and
administrative expenses 26,012 26,940 51,017 53,265
------- -------- -------- --------
Total costs and expenses 89,752 97,907 181,039 199,746
------- -------- -------- --------
INCOME FROM OPERATIONS 3,318 2,635 5,567 5,585
INVESTMENT INCOME 133 31 283 94
INTEREST EXPENSE (1,267) (2,261) (2,602) (4,227)
INCOME FROM LIMITED
PARTNERSHIPS 5,004 4,754 9,640 7,849
------- -------- -------- --------
Income before provision for
income taxes 7,188 5,159 12,888 9,301
PROVISION FOR INCOME TAXES 1,797 1,289 3,222 2,326
------- -------- -------- --------
Income before extraordinary
item 5,391 3,870 9,666 6,975
Extraordinary loss from early
extinguishment of debt,
net of tax - - 91 -
NET INCOME $ 5,391 $ 3,870 $ 9,575 $ 6,975
======= ======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING-BASIC 12,522 11,462 12,411 11,690
5
Consolidated Statements of Income (Continued)
Basic Net Income Per Share Before
Extraordinary Item 0.43 0.34 0.78 0.60
Extraordinary Item - - (0.01) -
======= ======== ======== ========
BASIC NET INCOME PER SHARE $ 0.43 $ 0.34 $ 0.77 $ 0.60
======= ======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING-DILUTED 14,728 13,258 14,755 13,238
======= ======== ======== ========
Diluted Net Income Per Share Before
Extraordinary Item 0.37 0.29 0.66 0.53
Extraordinary Item - - (0.01) -
DILUTED NET INCOME
PER SHARE $ 0.37 $ 0.29 $ 0.65 $ 0.53
======= ======== ======== ========
The accompanying notes are an integral part of
these unaudited consolidated statements.
6
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
UNAUDITED
Common Shares
-----------------------------------------------------
Issued Treasury Paid-in Retained
Shares Amount Shares Amount Capital Earnings
(In Thousands)
Balance at
January 31, 2002 27,358 $274 15,113 $103,710 $116,701 $134,708
Net income -- -- -- -- -- 9,575
Treasury stock
acquired -- -- 121 2,031 -- --
Common stock
issued 368 3 (53) (373) 2,325 --
------ ---- ------ -------- -------- --------
Balance at
July 31, 2002 27,726 $277 15,181 $105,368 $119,026 $144,283
====== ==== ====== ======== ======== ========
The accompanying notes are an integral part of
these unaudited consolidated statements.
7
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
Six Months Ended
July 31
2002 2001
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,575 $ 6,975
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization, net 2,167 2,100
(Gain) Loss on disposal of fixed assets 262 (94)
Deferred income (1,798) (848)
Income of limited partnerships (9,640) (7,849)
Changes in assets and liabilities:
Accounts receivable 572 1,977
Merchandise inventory (37,843) (16,085)
Other current assets (522) 417
Accounts payable, trade 8,519 4,543
Other current liabilities 667 (1,154)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (28,041) (10,018)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (468) (1,785)
Proceeds from sale of real estate
and fixed assets 300 896
Proceeds from sale of partnership
interest 7,858 7,849
Restricted investments (10) (35)
-------- --------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 7,680 6,925
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable (1) 8,706
Payments of long-term debt (9,710) (2,269)
Proceeds from long-term debt - 6,100
Common stock issued 2,328 1,092
Treasury stock issued 373 292
Treasury stock acquired (2,031) (8,693)
-------- --------
8
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (9,041) 5,228
-------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (29,402) 2,135
CASH AND CASH EQUIVALENTS,
beginning of period 39,441 687
-------- -------
CASH AND CASH EQUIVALENTS,
end of period $ 10,039 $ 2,822
======== =======
The accompanying notes are an integral part of
these unaudited consolidated statements.
9
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 31, 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 of America 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). The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the year.
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 six months ended July 31, 2002:
Shares Under Stock
Option Plans
Outstanding at January 31, 2002
($3.61 to $10.37 per share) 6,881,610
Granted ($14.745 to $16.04 per share) 353,936
Exercised ($3.61 to $10.14 per share) (421,102)
Canceled or expired ($4.61 to $14.745 per share) (39,000)
---------
Outstanding at July 31, 2002
($3.61 to $16.04 per share) 6,775,444
=========
Note 4. Net Income Per Share
The following table reconciles the basic and diluted net income per
share computation for each period presented:
<Table>
<Caption>
July 31, 2002
---------------------------------------------------------------------
Three Months Ended Six Months Ended
--------------------------------- ---------------------------------
Income Shares Per Share Income Shares Per Share
------ ------ --------- ------ ------ ---------
Basic net income per share $5,391 12,522 $0.43 $ 9,575 12,411 $0.77
===== =====
Effect of stock options 2,206 2,344
------ ------- ------- -------
Diluted net income per share $5,391 14,728 $0.37 $ 9,575 14,755 $0.65
====== ======= ===== ======= ======= ======
</Table>
<Table>
<Caption>
July 31, 2001
---------------------------------------------------------------------
Three Months Ended Six Months Ended
--------------------------------- ---------------------------------
Income Shares Per Share Income Shares Per Share
------ ------ --------- ------ ------ ---------
Basic net income per share $3,870 11,462 $0.34 $ 6,975 11,690 $0.60
===== =====
Effect of stock options 1,796 1,548
------ ------- ------- -------
Diluted net income per share $3,870 13,258 $0.29 $ 6,975 13,238 $0.53
====== ======= ===== ======= ======= ======
</Table>
For the three months ended July 31, 2002 and 2001, a total of 349,936
and 38,565 shares, respectively, and for the six months ended July 31, 2002 and
2001, a total of 24,936 and 534,092 shares, respectively, subject to outstanding
options were not included in the common equivalent shares outstanding
calculation as the exercise prices were above the average trading price of the
Company's common stock for those periods.
On both August 10, 2001 and February 11, 2002, the Company effected a
3-for-2 stock split. All per share data shown above has been retroactively
restated to reflect these splits.
Note 5. 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.
Note 6. Synthetic Fuel
Net income for the 2002 second quarter and first half periods reflect
approximately $4.6 million and $9.3 million, respectively, of pre-tax investment
income from the sales of the Company's entire Partnership interest in a
synthetic fuel limited partnership. The IRS is presently auditing this limited
partnership. Approximately $2.5 million of the payment due to the Company during
the fiscal 2002 second quarter relating to sales of certain portions of the
limited partnership interest is being held in escrow pending the results of the
IRS audit. Subsequent payments relating to certain of these sales will also be
held in escrow pending the results of the IRS audit. Prior to the sales of the
Company's interest in the partnership, the Company had been allocated in
aggregate approximately $19.0 million in tax credits from this synthetic fuel
limited partnership. In the Company's opinion, the Partnership is complying
with all the necessary requirements to be allowed such credits and believes
it is likely, although not certain, that the Partnership will prevail if
challenged by the IRS on any
11
credits taken. The timing of the completion of the audit has not been
determined. To date the Company has received approximately $36.8 million in
payments with respect to its sales of its Partnership interests, which payments
are non-refundable irrespective of the outcome of the audit.
Net income for the 2002 second quarter and first half periods also
reflects pre-tax income, net of litigation expenses, of approximately $0.4
million from the settlement of a previously filed lawsuit relating to its
participation as a limited partner in a second limited partnership formed to
produce synthetic fuel which qualifies for tax credits under Section 29 of the
Internal Revenue Code. As part of the settlement, which was effected without the
admission of liability by any party, the Company entered into an Amended and
Restated Agreement of Limited Partnership which facilitates future production of
synthetic fuel.
Note 7. Subsequent Events
On September 5, 2002, the Company closed on its purchase of a plant
located in Gillette, Wyoming designed and constructed for the production of
synthetic fuel which qualifies for tax credits under Section 29 of the Internal
Revenue Code. The Company has obtained a Private Letter Ruling from the Internal
Revenue Service which would allow the disassembly, and reconstruction, of the
facility at a yet to be determined host site. The Company is presently searching
for potential partners as to the relocation and commercialization of the plant
and limiting the Company's maximum financial investment in the venture. If the
plant cannot be relocated on terms acceptable to the Company, the Company is
obligated to remove the plant from its existing site at a currently estimated
cost to the Company of up to $2 million. While this acquisition may result in
the future production of synthetic fuel, there can be no assurances that this
facility will ever be placed into commercial operation.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
We are a specialty retailer in the consumer electronics/appliance
industry. As of July 31, 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 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 Six Months Ended
July 31 July 31
2002 2001 2002 2001
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 68.5 70.6 69.7 71.3
----- ----- ----- -----
Gross profit 31.5 29.4 30.3 28.7
Selling, general and
administrative expenses 27.9 26.8 27.3 26.0
----- ----- ----- -----
Income from operations 3.6 2.6 3.0 2.7
Investment income 0.1 -- 0.1 0.1
Interest expense (1.4) (2.2) (1.4) (2.1)
Income from limited partnerships 5.4 4.7 5.2 3.8
----- ----- ----- -----
Income before provision
for income taxes 7.7 5.1 6.9 4.5
Provision for income taxes 1.9 1.3 1.7 1.1
----- ----- ----- -----
Income before extraordinary item 5.8 3.8 5.2 3.4
Extraordinary loss from early
extinguishment of debt -- -- 0.1 --
----- ----- ----- -----
13
Net income 5.8% 3.8% 5.1% 3.4%
===== ===== ===== =====
Comparison of Three and Six Months Ended July 31, 2002 and 2001
Net sales in the second quarter ended July 31, 2002 were $93.1 million
compared to $100.5 million in the prior year's second quarter, representing a
decrease of $7.4 million or 7.4%. This decrease was primarily due to a decline
in comparable store sales of 5.6%. The decline was also partially caused by a
net reduction of nine stores since the end of the second quarter of fiscal 2001.
The strongest product category for the Company for the second quarter
of fiscal 2002 was appliances which positively impacted comparable store sales
by 1.6%. This was due to strong air conditioner sales for the quarter due to
warmer summer conditions compared to the prior year. The remaining major product
categories contributed to our negative comparable store sales with the audio
category contributing 3.1%, the video category contributing 2.1% and the
television category contributing 2.0%.
Net sales for the first half of fiscal 2002 were $186.6 million
compared to $205.3 million for the first half of fiscal 2001, representing a
decrease of $18.7 million or 9.1%. This decrease was primarily due to a decline
in comparable store sales of 7.2%. The decline was also partially caused by a
net reduction of nine stores since the end of the second quarter of fiscal 2001.
The only major product category which positively impacted comparable
store sales was the appliance category which positively contributed 0.3% to
comparable store sales due to strong air conditioner sales in the second
quarter. The remaining major product categories contributed to the negative
comparable store sales with the video category contributing 3.5%, the audio
category contributing 2.7% and the television category contributing 1.3%.
As of July 31, 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
half of fiscal 2002. There were six stores opened and four closed in the first
half of fiscal 2001.
Gross profit of $29.3 million (31.5% of net sales) in the second
quarter of fiscal 2002 was $0.3 million lower than the $29.6 million (29.4% of
net sales) recorded in the second quarter of fiscal 2001. Gross profit for the
first half of fiscal 2002 was $56.6 million (30.3% of net sales) compared to
$58.8 million (28.7% of net sales) for the first half of fiscal 2001. The gross
profit margin for the second quarter of fiscal 2002 was positively impacted from
stronger air conditioner sales which had a high gross profit margin due to
14
opportunistic purchases. Overall the gross profit margin has been positively
impacted by a shift in sales toward higher gross profit margin products and more
favorable pricing from vendors.
Selling, general and administrative expenses for the second quarter of
fiscal 2002 were $26.0 million (27.9% of net sales) compared to $26.9 million
(26.8% of net sales) for the second quarter of fiscal 2001. This represents a
decrease of $0.9 million or 3.4%. Selling, general and administrative expenses
for the first half of fiscal 2002 were $51.0 million (27.3% of net sales), a
4.2% decrease from $53.3 million (26.0% of net sales) for the first half 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 decreased to $1.3 million (1.4% of net sales) for the
second quarter of fiscal 2002 from $2.3 million (2.2% of net sales) for the
second quarter of fiscal 2001. Interest expense for the first half of fiscal
2002 was $2.6 million (1.4% of net sales) compared to $4.2 million (2.1% of net
sales) for the first half of fiscal 2001. The decline in interest expense 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 second quarter and first half 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 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 installment income from these sales on a quarterly basis. Below
is a table summarizing the income from the sales, net of certain expenses.
Three Months Ended Six Months Ended
July 31 July 31
2002 2001 2002 2001
(In Thousands)
February 1, 1999 sale $1,850 $1,780 $3,699 $3,587
July 31, 2000 sale 1,350 1,626 2,700 2,914
May 31, 2001 sale 1,436 1,347 2,873 1,347
15
------ ------ ------ ------
$4,636 $4,753 $9,272 $7,848
====== ====== ====== ======
The Internal Revenue Service (IRS) is presently auditing this limited
partnership. Approximately $2.5 million of the payment due to the Company during
the fiscal 2002 second quarter relating to sales of certain portions of the
limited partnership interest is being held in escrow pending the results of the
IRS audit. Subsequent payments relating to certain of these sales will also be
held in escrow pending the results of the IRS audit. The timing of the
completion of the audit has not been determined.
Net income for the 2002 second quarter and first half periods also
reflects pre-tax income, net of litigation expenses, of approximately $0.4
million from the settlement of a previously filed lawsuit relating to our
participation as a limited partner in a second limited partnership formed to
produce synthetic fuel which qualifies for tax credits under Section 29 of the
Internal Revenue Code. As part of the settlement, which was effected without the
admission of liability by any party, the Company entered into an Amended and
Restated Agreement of Limited Partnership which facilitates future production of
synthetic fuel.
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 2002 was $5.4 million, a 39.3% increase from $3.9 million for the second
quarter of fiscal 2001. Net income for the first half of fiscal 2002 was $9.6
million, a 37.3% increase from $7.0 million for the first half of fiscal 2001.
Liquidity and Capital Resources
Net cash used in operating activities was $28.0 million for the first
six months of fiscal 2002, compared to $10.0 million for the first six months of
fiscal 2001. For the first half of fiscal 2002, cash was provided by net income
of $9.6 million, adjusted for the impact of $9.6 million for gains on our
installment sales of the limited partnership interest, non-cash items of $0.4
million which consisted of deferred income and depreciation and amortization and
$0.3 million loss from disposal of fixed assets. Cash was also provided by an
increase of $8.5 million in accounts payable, an increase of $0.7 million in
other liabilities and a decrease of $0.6 million in accounts receivable. The
primary use of cash was an increase of $37.8 million in inventory due to the
timing of purchases. Cash was also used by
16
an increase in other assets of $0.5 million.
At July 31, 2002, working capital was $94.2 million compared to $92.3
million at January 31, 2002. The ratio of current assets to current liabilities
was 2.3 to 1 at July 31, 2002 and 2.4 to 1 at January 31, 2002.
We received proceeds of approximately $7.9 million and $7.8 million
during the first half of fiscals 2002 and 2001, respectively, from installment
sales of our ownership interest in a limited partnership.
Cash used in financing activities totaled $9.0 million for the first
half of fiscal 2002. The primary use of cash was for payments on long-term
mortgage debt of approximately $9.7 million for the early extinguishment of debt
for eight retail store locations and scheduled repayments.
Cash provided by financing activities totaled approximately $5.2
million of the first half of fiscal 2001. 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. We also received proceeds of $1.4 million from the
exercise of employee stock options. Cash was used to purchase 1,064,700
shares (split adjusted) of our common stock for approximately $8.7 million
during the first half of fiscal 2001. Cash was also used for payments on
long-term debt of $2.3 million.
At July 31, 2002 we had authorization from our Board of Directors to
purchase 1,158,300 shares of our common stock. Subsequent to the end of the
second quarter we have purchased 308,400 shares of our common stock.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for
Asset Retirement Obligations". SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated assets retirement costs. It applies to all legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and/or the normal operation of a
long-lived asset. This Statement is effective for financial statements issued
for fiscal years beginning after June 15, 2002. We believe that the
implementation of the statement will not have a material impact on our results
of operations and financial position.
In May 2002, the FASB issued SFAS 145, "Recission of SFAS Nos. 4, 44,
and 64, Amendment of SFAS 13, and Technical Corrections." For most companies,
SFAS No. 145 will require gains and losses on extinguishment of debt to be
classified as income or loss from continuing operations rather than as
extraordinary items as previously required under SFAS No. 4. Extraordinary
treatment will be required for certain extinguishments as provided in
APB No. 30. The provisions of SFAS No. 145 related to the SFAS No. 4
revision are effective for financial statements issued for fiscal years
beginning after May 15, 2002, however, early adoption is encouraged.
Once adopted, any gain or loss on extinguishment of debt that was
classified as an extraordinary item in prior periods presented that
does not meet the criteria in APB No. 30 for classification as an
extraordinary item should be reclassified. In addition, SFAS 145 amends
FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the
required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. We have not yet
assessed the impact of the adoption of this standard on our consolidated
financial position, results of operations or cash flows.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring or
other exit or disposal activity. Statement 146 is to be applied prospectively
to exit or disposal activities initiated after December 31, 2002. We have
not yet assessed the impact of the adoption of this standard on our
consolidated financial position, results of operations or cash flows.
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(a) 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.
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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. During the quarter ended July 31, 2002,
the Company filed a report on Form 8-K dated June 13, 2002,
reporting under Item 4. "Changes in Registrant's Certifying
Accountant," that on June 13, 2002, the Board of Directors
of the Company approved the engagement of Deloitte & Touche LLP
as its independent auditor for the year ending January 31, 2003
and dismissed the firm of Arthur Andersen LLP.
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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 13, 2002 STUART A. ROSE
Stuart A. Rose
Chairman of the Board
(Chief Executive Officer)
September 13, 2002 DOUGLAS L. BRUGGEMAN
Douglas L. Bruggeman
Vice President, Finance and
Treasurer
(Principal Financial and
Chief Accounting Officer)
CERTIFICATIONS
I, Stuart A. Rose, certify that:
1. I have reviewed this quarterly report on Form 10-Q of REX Stores
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly
19
present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 13, 2002
STUART A. ROSE
Stuart A. Rose
Chairman of the Board and
Chief Executive Officer
I, Douglas L. Bruggeman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of REX Stores
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 13, 2002
DOUGLAS L. BRUGGEMAN
Douglas L. Bruggeman
Vice President, Finance and Treasurer
Principal Financial Officer
20