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 October 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 December 12, 2002, the registrant had 11,681,390
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 Condensed Statements of Income.................. 4
Consolidated Condensed Statements of
Shareholders' Equity...................................... 5
Consolidated Condensed Statements of
Cash Flows................................................ 6
Notes to Consolidated Condensed Financial
Statements................................................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................... 11
Item 3. Quantitative and Qualitative Disclosure About
Market Risk.................................................. 16
Item 4. Controls and Procedures........................................ 16
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
October 31 January 31 October 31
2002 2002 2001
(In Thousands)
Unaudited Unaudited
--------- --------- ---------
ASSETS:
Cash and cash equivalents $ 1,495 $ 39,441 $ 2,440
Accounts receivable, net 626 1,120 1,149
Synthetic fuel receivable 5,592 1,545 --
Merchandise inventory 167,616 101,017 156,118
Prepaid expenses and other 3,282 2,554 4,029
Future income tax benefits 12,614 12,614 9,837
--------- --------- --------
Total current assets 191,225 158,291 173,573
PROPERTY AND EQUIPMENT, NET 136,280 139,496 134,803
FUTURE INCOME TAX BENEFITS 7,320 7,320 9,523
RESTRICTED INVESTMENTS 2,237 2,222 2,211
--------- --------- --------
Total assets $ 337,062 $ 307,329 $320,110
========= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 21,829 $ 66 $ 12,121
Current portion of long-term debt 4,845 5,012 5,319
Current portion of deferred income
and deferred gain on sale and
leaseback 11,154 11,790 11,385
Accounts payable, trade 46,075 32,619 40,484
Accrued income taxes 3,005 1,373 --
Accrued payroll 5,209 5,856 4,982
Other current liabilities 9,349 9,319 9,236
--------- --------- --------
Total current liabilities 101,466 66,035 83,527
--------- --------- --------
LONG-TERM LIABILITIES:
Long-term mortgage debt 66,493 77,203 85,039
Deferred income 13,679 15,173 15,036
Deferred gain on sale and
leaseback 497 945 1,511
--------- --------- --------
Total long-term liabilities 80,669 93,321 101,586
--------- --------- --------
SHAREHOLDERS' EQUITY:
Common stock 277 274 263
Paid-in capital 119,082 116,701 107,282
Retained earnings 148,557 134,708 123,812
Treasury stock (112,989) (103,710) (96,360)
--------- --------- --------
Total shareholders' equity 154,927 147,973 134,997
--------- --------- --------
Total liabilities and
shareholders' equity $ 337,062 $ 307,329 $320,110
========= ========= ========
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
3
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Unaudited
Three Months Ended Nine Months Ended
October 31 October 31
2002 2001 2002 2001
(In Thousands, Except Per Share Amounts)
NET SALES $95,743 $107,335 $282,349 $312,666
COSTS AND EXPENSES:
Cost of merchandise sold 66,825 76,220 196,847 222,701
Selling, general and
administrative expenses 25,716 27,265 76,733 80,530
------- -------- -------- --------
Total costs and expenses 92,541 103,485 273,580 303,231
------- -------- -------- --------
INCOME FROM OPERATIONS 3,202 3,850 8,769 9,435
INVESTMENT INCOME 16 23 299 117
INTEREST EXPENSE (1,388) (2,188) (3,990) (6,415)
INCOME FROM LIMITED
PARTNERSHIPS 3,854 4,232 13,494 12,081
------- -------- -------- --------
Income before provision for
income taxes 5,684 5,917 18,572 15,218
PROVISION FOR INCOME TAXES 1,410 1,479 4,632 3,805
------- -------- -------- --------
Income before extraordinary
item 4,274 4,438 13,940 11,413
Extraordinary loss from
extinguishment of debt,
net of tax -- -- 91 --
NET INCOME $ 4,274 $ 4,438 $ 13,849 $ 11,413
======= ======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING-BASIC 12,179 11,590 12,333 11,657
======= ======== ======== ========
Basic Net Income Per Share
Before Extraordinary Item 0.35 0.38 1.13 0.98
Extraordinary Item -- -- (0.01) --
------- -------- -------- --------
BASIC NET INCOME PER SHARE $ 0.35 $ 0.38 $ 1.12 $ 0.98
======= ======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING-DILUTED 13,791 13,340 14,482 13,271
======= ======== ======== ========
Diluted Net Income Per Share
Before Extraordinary Item 0.31 0.33 0.96 0.86
Extraordinary Item -- -- (0.01) --
------- -------- -------- --------
DILUTED NET INCOME
PER SHARE $ 0.31 $ 0.33 $ 0.95 $ 0.86
======= ======== ======== ========
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
4
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 -- -- -- -- -- 13,849
Treasury stock
acquired -- -- 855 9,651 -- --
Common stock
issued 380 3 (53) (372) 2,381 --
------ ---- ------ -------- -------- --------
Balance at
October 31, 2002 27,738 $277 15,915 $112,989 $119,082 $148,557
====== ==== ====== ======== ======== ========
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
5
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Unaudited
Nine Months Ended
October 31
2002 2001
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,849 $ 11,413
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization, net 3,246 3,141
(Gain) Loss on disposal of fixed assets 81 (111)
Deferred income (2,130) (1,428)
Income of limited partnerships (13,494) (12,081)
Changes in assets and liabilities:
Accounts receivable 493 3,558
Merchandise inventory (66,599) (11,968)
Other current assets (732) 139
Accounts payable, trade 13,457 (7,196)
Other current liabilities 1,015 (888)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (50,814) (15,421)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,663) (3,717)
Proceeds from sale of real estate
and fixed assets 1,108 914
Income from sale of partnership
interest 9,448 12,081
Restricted investments (15) (46)
-------- --------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 8,878 9,232
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 21,763 11,379
Payments of long-term debt (10,878) (4,027)
Proceeds from long-term debt -- 8,200
Common stock issued 2,384 1,124
Treasury stock issued 372 307
Treasury stock acquired (9,651) (9,041)
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 3,990 7,942
-------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (37,946) 1,753
CASH AND CASH EQUIVALENTS,
beginning of period 39,441 687
-------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 1,495 $ 2,440
======== ========
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
6
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
October 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.
7
Note 3. Stock Option Plans
The following summarizes options granted, exercised and canceled or
expired during the nine months ended October 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) (432,952)
Canceled or expired ($4.61 to $14.745 per share) (39,000)
---------
Outstanding at October 31, 2002
($3.61 to $16.04 per share) 6,763,594
=========
Note 4. Net Income Per Share
The following table reconciles the basic and diluted net income per
share computation for each period presented:
October 31, 2002
-------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
Per Per
Income Shares Share Income Shares Share
------ ------ ------ ------- ------ -----
Basic net income
per share $4,274 12,179 $0.35 $13,849 12,333 $1.12
===== =====
Effect of stock options 1,612 2,149
------ ------ ------- ------
Diluted net income per share $4,274 13,791 $0.31 $13,849 14,482 $0.95
====== ====== ===== ======= ====== =====
8
October 31, 2001
--------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
Per Per
Income Shares Share Income Shares Share
------ ------ ------ ------- ------ -----
Basic net income
per share $4,438 11,590 $0.38 $11,413 11,657 $0.98
===== =====
Effect of stock options 1,750 1,614
------ ------ ------- ------
Diluted net income
per share $4,438 13,340 $0.33 $11,413 13,271 $0.86
====== ====== ===== ======= ====== =====
For the three and nine months ended October 31, 2002, a total of
349,936 shares, and for the three and nine months ended October 31, 2001, a
total of 497,157 shares, 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 third quarter and first nine months reflect
approximately $3.8 million and $13.1 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 and $5.0 million of the payment due the
Company and reported as income during the fiscal 2002 third quarter and nine
month period, respectively, 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
9
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 credits taken. The timing of the completion of the audit has not
been determined. To date the Company has received approximately $38.5 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 first nine months of fiscal 2002 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. This
facility is now operational and producing synthetic fuel.
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. Through October 31, 2002, approximately
$550,000 had been spent and capitalized on this project, with an additional
$500,000 being held in escrow to guarantee the Company's future performance.
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.
10
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 October 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 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 Nine Months Ended
October 31 October 31
2002 2001 2002 2001
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 69.8 71.0 69.7 71.2
----- ----- ----- -----
Gross profit 30.2 29.0 30.3 28.8
Selling, general and
administrative expenses 26.9 25.4 27.2 25.8
----- ----- ----- -----
Income from operations 3.3 3.6 3.1 3.0
Investment income -- -- 0.1 --
Interest expense (1.4) (2.0) (1.4) (2.0)
Income from limited partnerships 4.0 4.0 4.8 3.9
----- ----- ----- -----
Income before provision
for income taxes 5.9 5.6 6.6 4.9
Provision for income taxes 1.4 1.4 1.7 1.2
----- ----- ----- -----
Income before extraordinary item 4.5 4.2 4.9 3.7
Extraordinary loss from early
extinguishment of debt -- -- -- --
----- ----- ----- -----
Net income 4.5% 4.2% 4.9% 3.7%
===== ===== ===== =====
11
Comparison of Three and Nine Months Ended October 31, 2002 and 2001
Net sales in the third quarter ended October 31, 2002 were $95.7
million compared to $107.3 million in the prior year's third quarter,
representing a decrease of $11.6 million or 10.8%. This decrease was primarily
due to a decline in comparable store sales of 7.8%. The decline was also
partially caused by a net reduction of nine stores since the end of the third
quarter of fiscal 2001.
The strongest product category for the Company for the third quarter of
fiscal 2002 was televisions which overall was flat on comparable store sales
compared to the third quarter of fiscal 2001. Television sales benefited from
stronger sales of large screen high definition ready televisions. The remaining
major product categories contributed to our negative comparable store sales with
the appliance category contributing 2.9%, the video category contributing 2.5%
and the audio category contributing 2.3%
Net sales for the first nine months of fiscal 2002 were $282.3 million
compared to $312.7 million for the first nine months of fiscal 2001,
representing a decrease of $30.3 million or 9.7%. This decrease was primarily
due to a decline in comparable store sales of 7.4%. The decline was also
partially caused by a net reduction of nine stores since the end of the third
quarter of fiscal 2001. All of the major product categories contributed to the
negative comparable store sales with the video category contributing 3.1%, the
audio category contributing 2.6%, the appliance category contributing 0.9% and
the television category contributing 0.8%.
As of October 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 nine months of fiscal 2002. There were six stores opened and four closed
in the first nine months of fiscal 2001.
Gross profit of $28.9 million (30.2% of net sales) in the third quarter
of fiscal 2002 was $2.2 million lower than the $31.1 million (29.0% of net
sales) recorded in the third quarter of fiscal 2001. Gross profit for the first
nine months of fiscal 2002 was $85.5 million (30.3% of net sales) compared to
$90.0 million (28.8% of net sales) for the first nine months of fiscal 2001. The
gross profit margin has been positively impacted by a shift in sales mix toward
higher gross profit margin categories and more favorable pricing from vendors on
certain products. The shift in mix includes recognizing a higher mix of service
contracts, which generally have a higher gross profit margin, compared to last
year.
12
Selling, general and administrative expenses for the third quarter of
fiscal 2002 were $25.7 million (26.9% of net sales) compared to $27.3 million
(25.4% of net sales) for the third quarter of fiscal 2001. This represents a
decrease of $1.6 million or 5.7%. Selling, general and administrative expenses
for the first nine months of fiscal 2002 were $76.7 million (27.2% of net
sales), a 4.7% decrease from $80.5 million (25.8% of net sales) for the first
nine months of fiscal 2001. The reduction in expenditures for the third quarter
and first nine months of fiscal 2002 primarily relates to the reduction in the
number of stores in operation and lower sales commission costs related to lower
sales. The Company also reduced radio and television advertising in the first
half of fiscal 2002.
Interest expense decreased to $1.4 million (1.4% of net sales) for the
third quarter of fiscal 2002 from $2.2 million (2.0% of net sales) for the third
quarter of fiscal 2001. Interest expense for the first nine months of fiscal
2002 was $4.0 million (1.4% of net sales) compared to $6.4 million (2.0% of net
sales) for the first nine months 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 third quarter and first nine months 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 Nine Months Ended
October 31 October 31
2002 2001 2002 2001
(In Thousands)
February 1, 1999 sale $1,666 $1,765 $ 5,365 $ 5,352
July 31, 2000 sale 1,350 1,030 4,050 3,944
May 31, 2001 sale 838 1,437 3,711 2,785
------ ------ ------- -------
$3,854 $4,232 $13,126 $12,081
====== ====== ======= =======
13
The Internal Revenue Service (IRS) is presently auditing this limited
partnership. Approximately $2.5 million and $5.0 million of the payment due the
Company and reported as income during the fiscal 2002 third quarter and nine
month period, respectively, 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 third quarter and first nine months of fiscal 2002
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 third quarter of
fiscal 2002 was $4.3 million, a 3.7% decrease from $4.4 million for the third
quarter of fiscal 2001. Net income for the first nine months of fiscal 2002 was
$13.8 million, a 21.3% increase from $11.4 million for the first nine months of
fiscal 2001.
Liquidity and Capital Resources
Net cash used in operating activities was $50.8 million for the first
nine months of fiscal 2002, compared to $15.4 million for the first nine months
of fiscal 2001. For the first nine months of fiscal 2002, cash was provided by
net income of $13.8 million, adjusted for the impact of $13.5 million for gains
on our installment sales of the limited partnership interest, non-cash items of
$1.1 million which consisted of deferred income and depreciation and
amortization and $0.1 million loss from disposal of fixed assets. Cash was also
provided by an increase of $13.5 million in accounts payable, an increase of
$1.0 million in other liabilities and a decrease of $0.5 million in accounts
receivable. The primary use of cash was an increase of $66.6 million in
inventory due to the timing of purchases for the holiday season. Cash was also
used by an increase in other assets of $0.7 million.
At October 31, 2002, working capital was $89.8 million compared to
$92.3 million at January 31, 2002. The ratio of current assets to
14
current liabilities was 1.9 to 1 at October 31, 2002 and 2.4 to 1 at January 31,
2002.
We received proceeds of approximately $9.4 million and $12.1 million
during the first nine months of fiscals 2002 and 2001, respectively, from
installment sales of our ownership interest in a limited partnership.
Cash used in financing activities totaled $4.0 million for the first
nine months of fiscal 2002. The primary uses of cash were for payments on
long-term mortgage debt of approximately $10.9 million for the early
extinguishment of debt for eight retail store locations and scheduled repayments
and $9.7 million to acquire 855,130 shares of our common stock. Cash was
provided by borrowings of $21.8 million on the line of credit and $2.8 million
from the exercise of employee stock options.
Cash provided by financing activities totaled approximately $7.9
million of the first nine months of fiscal 2001. Cash was provided by borrowings
of $11.4 million on the line of credit during the first nine months of fiscal
2001 and proceeds of $8.2 million from long-term debt borrowings related to
mortgage financing of nine stores. We also received proceeds of $1.4 million
from the exercise of employee stock options. Cash was used to purchase 1,102,950
shares (split adjusted) of our common stock for approximately $9.0 million
during the first nine months of fiscal 2001. Cash was also used for payments on
long-term debt of $4.0 million.
We currently have under construction a 156,500 square foot addition to
our warehouse facility in Dayton, Ohio at an estimated cost of approximately
$3.4 million.
At October 31, 2002 we had authorization from our Board of Directors to
purchase 424,400 shares of our common stock. Subsequent to the end of the third
quarter we have purchased 149,550 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, "Recision of SFAS Nos. 4, 44,
and 64, Amendment of SFAS 13, and Technical Corrections." For most
15
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 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.
Item 4. Controls and Procedures
Within 90 days prior to the filing date of this report, the Company
carried out an evaluation, under the supervision and with the
16
participation of the Company's management, including the Company's Chief
Executive Officer and Principal Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on that evaluation, the Chief Executive Officer and Principal Financial Officer
concluded that the Company's disclosure controls and procedures are effective
to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of their evaluation.
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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. No reports on Form 8-K were filed during the
quarter ended October 31, 2002.
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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
December 13, 2002 STUART A. ROSE
Stuart A. Rose
Chairman of the Board
(Chief Executive Officer)
December 13, 2002 DOUGLAS L. BRUGGEMAN
Douglas L. Bruggeman
Vice President, Finance and
Treasurer
(Principal Financial and
Chief Accounting Officer)
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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;
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;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: December 13, 2002
STUART A. ROSE
Stuart A. Rose
Chairman of the Board and
Chief Executive Officer
20
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;
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;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: December 13, 2002
DOUGLAS L. BRUGGEMAN
Douglas L. Bruggeman
Vice President, Finance and Treasurer
Principal Financial Officer
21