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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 COMMISSION FILE NO. 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 Identification No.)
incorporation or organization)
2875 Needmore Road, Dayton, Ohio 45414
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (937) 276-3931
------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $.01 par value New York Stock Exchange
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At the close of business on April 14, 1998 the aggregate market value of
the registrant's outstanding Common Stock held by non-affiliates of the
registrant (for purposes of this calculation, 1,933,181 shares beneficially
owned by directors and executive officers of the registrant were treated as
being held by affiliates of the registrant), was $84,100,490.
There were 7,708,322 shares of the registrant's Common Stock outstanding
as of April 14, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of REX Stores Corporation's definitive Proxy Statement for its
Annual Meeting of Shareholders on June 4, 1998 are incorporated by reference
into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
REX Stores Corporation (the "Company") is a leader in the consumer
electronics/appliance retailing industry, locating its stores in small to medium
sized markets. Since 1980, when its first four stores were acquired, the Company
has expanded into a national chain operating 222 stores in 35 states under the
trade name "REX." The stores are located predominately in the Midwest and
Southeast, with a recent expansion into the western region of the United States
through the opening of 16 stores in the Northwest during fiscal 1996, 1997 and
1998. The Company's stores average approximately 10,800 square feet and offer a
broad selection of brand name products within selected major product categories
including televisions, video and audio equipment and appliances.
The Company's business strategy emphasizes depth of selection within its
key product categories. Brand name products are offered at everyday low prices
combined with frequent special sales and promotions. The Company concentrates
its stores in small and medium sized markets where it believes that by
introducing a high volume, low price merchandising concept, it can become a
dominant retailer. The Company supports its merchandising strategy with
extensive newspaper advertising in each of its local markets and maintains a
knowledgeable sales force which focuses on customer service. The Company
believes its low price policy, attention to customer satisfaction and deep
product selection provide customers with superior value.
The Company's expansion strategy is to continue to open stores in small to
medium sized markets. The Company will focus on markets with a newspaper
circulation which can efficiently and cost-effectively utilize the Company's
print advertising materials and where the Company believes it can become a
dominant retailer.
The Company was incorporated in Delaware in 1984 under the name Audio/Video
Affiliates, Inc. as a holding company to succeed to the entire ownership of
three affiliated corporations, Rex Radio and Television, Inc. ("Rex Radio &
TV"), Stereo Town, Inc. ("Stereo Town") and Kelly & Cohen Appliances, Inc.
("Kelly & Cohen"), which were formed in 1980, 1981, and 1983, respectively.
Effective August 2, 1993, the Company's name was changed to REX Stores
Corporation to enable the investing and consuming public to identify the Company
more closely with its retail business. Unless the context otherwise requires,
the term "Company" as used in this report refers to REX Stores Corporation and
its three operating subsidiaries, and all references in this report to fiscal
years are to the Company's fiscal year ended January 31 of each year. The
Company's principal offices are located at 2875 Needmore Road, Dayton, Ohio
45414. Its telephone number is (937) 276-3931.
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BUSINESS STRATEGY
The Company's objective is to be a dominant consumer electronics and home
appliance retailer in each of its markets. The key elements of its business
strategy include:
Focus on Small and Medium Sized Markets. The Company concentrates its
stores in small and medium sized markets (generally with populations of 30,000
to 300,000) which enables it to operate on a low overhead basis and enhances its
ability to become a dominant retailer in an area.
Depth of Product Selection. The Company sells brand name products and
emphasizes depth of product selection within its key product categories. The
Company offers merchandise at a range of price points in each product category
and generally maintains sufficient product stock for immediate delivery to
customers.
Everyday Low Prices. The Company offers its products at everyday low prices
combined with frequent special sales and promotions. The Company monitors prices
at competing stores and adjusts its prices as necessary to meet or beat the
competition. The Company guarantees the lowest price on its products through a
policy of refunding 125% of the difference between the Company's price and a
competitor's price on the same item.
Price/Product Focused Advertising. The Company's advertising stresses the
offering of nationally recognized brands at significant savings and emphasizes
its low price guarantee. The Company supports its marketing strategy principally
with extensive newspaper advertising. The Company also utilizes in-store sales
promotions to provide shopping excitement and generate traffic.
Strong Operational Controls. The Company's information systems allow
management to monitor its merchandising programs, store operations and expenses.
The Company's operational controls provide it with cost efficiencies which
reduce overhead while allowing the Company to provide high levels of service.
Value Oriented Sales Format. The Company's knowledgeable sales force is
trained to provide professional, courteous service to all customers. The Company
believes its low price policy, attention to customer satisfaction and deep
product selection provide customers with superior value.
EXPANSION STRATEGY
When deciding whether to enter a new market or open another store in an
existing market, the Company evaluates a number of criteria, including: size and
growth pattern of the population, sales volume potential, and competition within
the market area, including size, strength and merchandising philosophy of
former, existing and potential competitors. In choosing specific sites, the
Company applies standardized site selection criteria taking into account
numerous factors, including: local demographics, real estate occupancy expense
based upon ownership and/or leasing, cost of advertising, traffic patterns and
overall retail activity.
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Stores typically are located on high traffic arteries, adjacent to or in major
shopping malls, with adequate and safe lighted parking to support high sales
volume.
The Company will either lease or purchase new store sites depending upon
opportunities available to it and relative costs. Of the 43 new stores opened in
fiscal 1997 and 1998, 20 were leased sites and 23 were Company purchased sites.
For leased stores, the Company anticipates per store capital expenditures of
approximately $75,000 to $225,000. This amount may increase significantly to the
extent the Company is responsible for the remodeling or renovation of the new
leased site. The Company anticipates expenditures of approximately $800,000 to
$1,200,000 when it purchases real estate, which include the cost of the land
purchased, building construction and fixtures. The purchase amount varies
depending upon the size and location of the store. Historically, the Company has
obtained long-term mortgage financing of approximately 75% of the cost of
opening owned stores. Mortgage financing is generally obtained after a store is
opened, either on a site by site or multiple store basis. The extent to which
the Company will seek mortgage financing for owned stores will be dependent upon
mortgage rates, terms and availability. The inventory requirements for new
stores are estimated at $350,000 to $500,000 per store depending upon the season
and store size. A portion of this inventory is financed through trade credit.
MERCHANDISING
Products
The Company offers a broad selection of brand name consumer electronics and
home appliance products at a range of price points. The Company emphasizes depth
of product selection within selected key product categories, with the greatest
depth in televisions, VCRs, camcorders and audio equipment. The Company sells
approximately 1,000 products produced by approximately 55 manufacturers. The
Company's product categories include:
<TABLE>
<CAPTION>
TELEVISIONS VIDEO AUDIO APPLIANCES OTHER
- ----------- ----- ----- ----------- ------
<S> <C> <C> <C> <C>
TVS VCRs Stereo Systems Air Conditioners Personal Computers
TV/VCR Camcorders Receivers Dehumidifiers Radar Detectors
Combos Digital Satellite Systems Compact Disc Players Microwave Ovens Tapes
Turntables Washers Stands
Tape Decks Dryers Telephones
Speakers Ranges Binoculars
Car Stereos Dishwashers Fax Machines
Portable Radios Refrigerators Extended Service Contracts
Freezers
Vacuum Cleaners
</TABLE>
The leading brands sold by the Company during fiscal 1998 (in alphabetical
order) were General Electric, Hitachi, Hotpoint, JVC, Magnavox, Panasonic,
Pioneer, RCA, Sharp, Toshiba, Whirlpool and Zenith.
All REX stores carry a full range of the Company's televisions, video and
audio products, microwave ovens and air conditioners and a limited line of home
office products, and 215 stores carry major appliances.
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The following table shows the approximate percent of net sales for each
major product group for the last three fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------
PRODUCT CATEGORY 1996 1997 1998
---------------- ---- ---- ----
<S> <C> <C> <C>
Televisions............................. 37% 36% 36%
Video................................... 20 18 19
Audio................................... 17 18 17
Appliances.............................. 17 18 20
Other................................... 9 10 8
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
Pricing
The Company's policy is to offer its products at everyday low prices
combined with frequent special sales and promotions. The Company's retail prices
are established by its merchandising department, but each district manager is
responsible for monitoring the prices offered by competitors and has authority
to adjust prices to meet local market conditions. The Company's commitment to
offer guaranteed lowest prices is supported by the Company's guarantee to refund
125% of the difference in price if, within 30 days of purchase, a customer can
locate the same item offered by a local competitor at a lower price.
Advertising
The Company uses a "price and item" approach in its advertising, stressing
the offering of nationally recognized brands at significant savings. The
emphasis of the Company's advertising is its "Guaranteed Lowest Price," which
states "Our prices are guaranteed in writing. If you find any other local store
stocking and offering to sell for less the identical item in a factory sealed
box within 30 days after your REX purchase, we'll refund the difference plus an
additional 25% of the difference." Advertisements are concentrated principally
in newspapers and preprinted newspaper inserts, which are produced for the
Company by an outside advertising agency and are supplemented by television and
radio in certain markets. Advertisements are also complemented by in-store
signage highlighting special values, including "Value Every Day," "Best Value,"
and "Top of the Line." The Company's advertising strategy includes preferred
customer private mailers, special events such as "Midnight Madness Sales" and
coupon sales to provide shopping excitement and generate traffic.
Purchasing
The Company's merchandise purchasing is performed predominantly by three
members of senior management. Each individual has responsibility for a specific
product category, and two share appliance buying responsibility. Because the
Company purchases complete product lines in large volume, the Company believes
it is able to obtain quality products at competitive prices and advertising
subsidies from vendors to promote the sale of their products. For fiscal 1998,
five vendors accounted for approximately 55% of the Company's purchases. The
Company
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typically does not maintain long-term purchase contracts with vendors and
operates principally on an order-by-order basis.
STORE OPERATIONS
Stores
The Company designs its stores to be "destination stores," generating their
own traffic, but in the general vicinity of major retail shopping. Currently,
approximately 143 stores are located in free-standing buildings, with the
balance situated in strip shopping centers and malls. In fiscal 1997 and 1998,
18 of the Company's 20 new leased stores were in mall locations that provide
exterior access and signage rights. The Company will select locations for future
leased stores based on its evaluation of individual site economic and market
conditions.
The Company's stores average approximately 10,800 square feet including
storage space, not including the two stores located in the Company's regional
distribution centers. Stores typically have, on average, approximately 7,500
square feet of selling space and approximately 3,300 square feet of storage.
Stores are open seven days and six nights per week, except for certain holidays.
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The following table shows the Company's store locations as of January 31,
1998:
<TABLE>
<CAPTION>
STORE LOCATIONS
<S> <C> <C> <C> <C>
Alabama: (11) Idaho: (2) Michigan: (3) North Dakota: (3) Tennessee: (6)
- ------------ ---------- -------------- ----------------- --------------
Auburn Idaho Falls Adrian Bismarck Bristol
Daphne Pocatello Bay City Grand Forks Chattanooga
Decatur Benton Harbor Minot Cleveland
Florence Iowa: (12) Johnson City
Gadsden ---------- Minnesota: (1) Ohio: (16) Kingsport
Huntsville Burlington --------------- ------------ Morristown
Mobile (2) Council Bluffs Willmar Ashtabula
Montgomery Des Moines (2) Beavercreek Texas: (13)
Oxford Dubuque Missouri: (3) Dayton (2) -------------
Tuscaloosa Ft. Dodge ------------- Defiance Austin (2)
Marshalltown Jefferson City Kettering Brownsville
Arkansas: (1) Mason City Joplin Lima Denton
- ------------ Ottumwa St. Joseph Marion Harlingen
Springdale Sioux City Miamisburg Lake Jackson
Waterloo Mississippi: (11) Middletown Longview
Colorado: (3) West Des Moines ----------------- New Philadelphia Midland
- ------------- Columbus Piqua Odessa
Grand Junction Illinois: (11) Gautier Sandusky San Angelo
Greeley --------------- Greenville St. Clairsville Sherman
Pueblo Alton Gulfport Springfield Temple
Bradley Hattiesburg Wooster Victoria
Florida: (27) Carbondale Jackson (2)
- -------------- Champaign Meridian Oklahoma: (2) Virginia: (1)
Charlotte Harbor Danville Ridgeland -------------- --------------
Crystal River Decatur Tupelo Enid Danville
Ft. Pierce Galesburg Vicksburg Lawton
Gainesville Pekin Washington: (2)
Hudson Peru Montana: (2) Pennsylvania: (18) ---------------
Lake City Quincy ------------- ------------------- Union Gap
Largo Sterling Butte Altoona Wenatchee
Leesburg Great Falls Bloomsburg
Mary Esther Indiana: (3) Chambersburg West Virginia: (5)
Melbourne ------------- Nebraska: (3) Cranberry -------------------
Merritt Island Anderson ------------- Erie (2) Beckley
Naples Muncie Grand Island Greensburg Bluefield
Ocala Richmond Norfolk Hanover Bridgeport
Palm Harbor North Platte Hazleton Morgantown
Panama City Kansas: (2) Hermitage Vienna
Pensacola (2) ------------ New York: (17) Indiana
Sarasota Hutchinson --------------- Johnstown Wisconsin: (4)
St. Augustine Lawrence Auburn Lower Burrell ---------------
St. Petersburg Clifton Park Meadville Fond du Lac
Spring Hill Kentucky: (3) Cortland New Castle Janesville
Stuart -------------- Fredonia Scranton Manitowac
Tallahassee (2) Ashland Geneva Wilkes-Barre Oshkosh
Titusville Hopkinsville Horseheads York
Venice Paducah Kingston Wyoming: (2)
Vero Beach Lakewood South Carolina: (9) --------------
Louisiana: (6) Latham -------------------- Casper
Georgia: (9) ---------------- Lockport Aiken Cheyenne
- -------------- Alexandria New Hartford Anderson
Albany Baton Rouge Olean Charleston
Augusta Houma Plattsburg Florence
Brunswick Lake Charles Queensbury Greenwood
Columbus New Iberia Rome Murrell's Inlet
LaGrange Opelousas Schenectady Orangeburg
Macon Watertown Rock Hill
Rome Maryland: (2) Sumter
Valdosta -------------- North Carolina: (5)
Warner Robins Cumberland ------------------- South Dakota: (2)
Hagerstown Asheville -------------------
Goldsboro Aberdeen
Massachusetts: (2) Hendersonville Rapid City
------------------ Rocky Mount
Hadley Salisbury
Lanesborough
</TABLE>
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In fiscal 1998, the Company opened eight new stores, with one store each
opened in Florida, Illinois, New York, North Dakota, Ohio, Oklahoma, Texas and
Washington.
The Company's operations are divided into regional districts, containing
from two to 11 stores whose managers report to a district manager. The Company's
38 district managers report to one of four regional vice presidents. Each store
is staffed with a full-time manager and assistant manager, commissioned sales
personnel and, in higher-traffic stores, seasonal support personnel. Store
managers are paid on a commission basis and have the opportunity to earn bonuses
based upon their store's sales and gross margins. Sales personnel work on a
commission basis, or a combination of commissions and hourly wages.
The Company evaluates the performance of its stores on a continuous basis
and, based on an assessment of factors it deems relevant, will close any store
which is not adequately contributing to Company profitability. The Company
closed 12 and eight stores during fiscal 1997 and 1998, respectively. There were
no store closings during fiscal 1996.
Personnel
The Company trains its employees to explain and demonstrate to customers
the use and operation of the Company's merchandise and to develop good
salesmanship practices. The Company's in-house training program for new
employees combines on-the-job training with use of a detailed Company-developed
manual entitled "The REX Way." Sales personnel attend in-house training sessions
conducted by experienced salespeople or manufacturers' representatives and
receive sales, product and other information in meetings with managers.
The Company also has a manager-in-training program that consists of
on-the-job training of the assistant manager at the store. The Company's policy
is to staff store management positions with personnel promoted from within the
Company and to staff new stores with existing managers or assistant managers.
Services
Virtually all of the products sold by the Company carry manufacturers'
warranties and, except for its least expensive items, the Company offers
extended service contracts to customers usually for an additional charge which
typically provide one to five years of extended warranty coverage. The Company
offers maintenance and repair services for most of the products which it sells.
These services are generally subcontracted to independent repair firms.
The Company's return policy provides that any merchandise may be returned
for exchange or refund within seven days of purchase if accompanied by original
packaging material.
The Company accepts MasterCard, Visa and Discover. The Company estimates
that, during fiscal 1998, approximately 30% of its total sales were made on
these credit cards, and
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approximately 13% were made on installment credit contracts arranged through
banks or independent finance companies which bear the credit risk of these
contracts.
Distribution
The Company's stores are supplied by regional distribution centers which
consist of a 315,000 square foot leased facility in Dayton, Ohio and a 180,000
square foot owned facility in Pensacola, Florida, of which the Company leases
90,000 square feet to an outside company. The Company also leases a 67,000
square foot auxiliary warehouse in Pensacola, Florida. The Company purchased
land and during fiscal 1998 built a 145,000 square foot distribution center in
Cheyenne, Wyoming at a total cost of approximately $2.6 million. The Cheyenne
distribution center began operations in March 1998.
The regional distribution centers reduce inventory requirements at
individual stores, while preserving the benefits of volume purchasing and
facilitating centralized inventory and accounting controls. Virtually all of the
Company's merchandise is distributed through its distribution centers, with the
exception of major appliances which are often shipped directly by the vendor to
the retail location. All deliveries to stores are made by independent contract
carriers.
Management Information Systems
The Company has developed a computerized management information system
which operates an internally developed software package. The Company's computer
system provides management with the information necessary to manage inventory by
stock keeping unit ("SKU"), monitor sales and store activity on a daily basis,
capture marketing and customer information, track productivity by salesperson
and control the Company's accounting operations.
The host computer is integrated with the Company's point-of-sale system
which serves as the collection mechanism for all sales activity. The combined
system provides for next-day review of inventory levels, sales by store and by
SKU and commissions earned, assists in cash management and enables management to
track merchandise from receipt at the distribution center until time of sale.
As is the case with most business organizations, the Company utilizes
software and related technology that are date sensitive and may be affected by
the date change which will occur in the year 2000. Reference should be made to
Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for further discussion of the Year 2000 issue.
COMPETITION
The Company's business is characterized by substantial competition. The
Company's competitors include other specialty electronics retailers, department
stores, discount stores,
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furniture stores, warehouse clubs and catalog showrooms. Some of these
competitors have greater financial and other resources than the Company.
Competition within the Company's industry is based upon price, breadth of
product selection, product quality and customer service.
FACILITIES
One hundred and five of the Company's stores are located in buildings
owned by the Company, including two strip shopping centers in Austin, Texas of
60,000 and 40,000 square feet. The Company uses approximately 10,000 square feet
in each shopping center for a store and leases the remainder. The Company also
owns a 38,000 square foot shopping center in College Station, Texas in which it
does not operate a retail store. The strip shopping centers are professionally
managed by local real estate management firms.
The remaining 117 stores operate on leased premises, with the unexpired
terms of the leases ranging from one year to 27 years, inclusive of options to
renew, except for three month to month leases. For fiscal 1998, the total net
rent expense for the Company's leased facilities was approximately $6,797,000.
To date, the Company has not experienced difficulty in securing leases or
purchasing sites for suitable locations for its stores. The Company continues to
remodel and upgrade existing stores as appropriate. In addition, to minimize
construction costs, the Company has developed prototype formats for new store
construction.
EMPLOYEES
At January 31, 1998, the Company had 146 hourly and salaried employees and
878 sales employees. The Company also employs additional personnel during peak
selling seasons. None of the Company's employees are represented by a labor
union. The Company considers its relationship with its employees to be
satisfactory.
SERVICE MARKS
The Company has registered its rights in its service mark "REX" with the
United States Patent and Trademark Office. The Company is not aware of any
adverse claims concerning its service mark.
ITEM 2. PROPERTIES
The information required by this Item 2 is set forth in Item 1 of this
report under "Store Operations--Stores," "Store Operations--Distribution" and
"Facilities" and is incorporated herein by reference.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings incidental to the
conduct of its business. The Company believes that these proceedings will not
have a material adverse effect on the financial condition or operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
---------------
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information about each of the Company's
executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Stuart Rose...................... 43 Chairman of the Board and Chief Executive Officer*
Lawrence Tomchin ................ 70 President and Chief Operating Officer*
Douglas Bruggeman ............... 37 Vice President-Finance and Treasurer
Edward Kress .................... 48 Secretary*
- ----------------
</TABLE>
*Also serves as a director of the Company.
Stuart Rose has been the Chairman of the Board and Chief Executive Officer
of the Company since its incorporation in 1984 as a holding company to succeed
to the ownership of Rex Radio & TV, Kelly & Cohen and Stereo Town. Prior to
1984, Mr. Rose was Chairman of the Board and Chief Executive Officer of Rex
Radio & TV, which he founded in 1980 to acquire the stock of a corporation which
operated four retail stores.
Lawrence Tomchin has been the President and Chief Operating Officer of the
Company since 1990. From 1984 to 1990, he was the Executive Vice President and
Chief Operating Officer of the Company. Mr. Tomchin has been a director of the
Company since 1984. Mr. Tomchin was Vice President and General Manager of the
corporation which was acquired by Rex Radio & TV in 1980 and served as Executive
Vice President of Rex Radio & TV after the acquisition.
Douglas Bruggeman has been Vice President - Finance and Treasurer of the
Company since 1989. From 1987 to 1989, Mr. Bruggeman was the Manager of
Corporate Accounting for the Company. Mr. Bruggeman was employed with the
accounting firm of Ernst & Young prior to joining the Company in 1986.
Edward Kress has been the Secretary of the Company since 1984 and a
director of the Company since 1985. Mr. Kress has been a partner of the law firm
of Chernesky, Heyman & Kress P.L.L., counsel for the Company, since 1988. From
1985 to 1988, Mr. Kress was a member of the law firm of Smith & Schnacke. Mr.
Kress has practiced law in Dayton, Ohio since 1974.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
SHAREHOLDER INFORMATION
Common Share Information and Quarterly Share Prices
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol RSC.
<TABLE>
<CAPTION>
Fiscal Quarter Ended High Low
- --------------------------------------------------------------------------
<S> <C> <C>
April 30, 1996 $15.88 $15.50
July 31, 1996 12.88 12.50
October 31, 1996 9.75 9.50
January 31, 1997 8.88 8.13
APRIL 30, 1997 $10.13 $ 8.13
JULY 31, 1997 10.75 8.88
OCTOBER 31, 1997 12.00 9.50
JANUARY 31, 1998 12.38 9.63
</TABLE>
As of April 14, 1998, there were 296 holders of record of the Company's
Common Stock, including shares held in nominee or street name by brokers.
Dividend Policy
The Company's revolving credit agreement places restrictions on the payment of
dividends. The Company did not pay dividends in the current or prior years.
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ITEM 6. SELECTED FINANCIAL DATA
Five Year Financial Summary
<TABLE>
<CAPTION>
January 31,
---------------------------------------------------------------------------------------
(In Thousands, Except
Per Share Amounts) (A) 1998 1997 1996 1995 1994
- ------------------------------------ -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $411,005 $427,378 $442,217 $382,775 $298,171
Net income $ 7,412 $ 7,362 $ 14,573 $ 12,596 $ 8,632
Basic net income per share $ 0.94 $ 0.82 $ 1.62 $ 1.48 $ 1.21
Diluted net income per share $ 0.91 $ 0.80 $ 1.56 $ 1.40 $ 1.10
Total assets $260,530 $248,034 $234,599 $192,616 $132,319
Long-term debt, net of current $ 52,661 $ 51,102 $ 32,590 $ 25,595 $ 10,879
maturities
</TABLE>
(A) Per share amounts for the years ended January 31, 1994 through January 31,
1997 have been restated to conform with the requirements of SFAS No. 128
"Earnings per Share".
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Quarterly Financial Data (Unaudited)
- ------------------------------------
<TABLE>
<CAPTION>
Quarters Ended (A)
------------------------------------------------------------------------------------
(In Thousands Except Per Share Amounts)
April 30, July 31, October 31, January 31,
1997 1997 1997 1998
---------- --------- -------- -----------
<S> <C> <C> <C> <C>
Net sales $ 88,265 $ 89,899 $ 87,967 $144,874
Cost of merchandise
sold 63,870 64,051 63,475 106,361
Net income 797 1,359 383 4,873
Basic net income per
share $ 0.10 $ 0.17 $ 0.05 $ 0.62
Diluted net income
per share $ 0.10 $ 0.17 $ 0.05 $ 0.60
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended (A)
----------------------------------------------------------------------------------
(In Thousands Except Per Share Amounts)
April 30, July 31, October 31, January 31,
1996 1996 1996 1997
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 97,383 $ 95,653 $ 90,543 $143,799
Cost of merchandise
sold 72,503 70,931 67,990 106,343
Net income 1,756 1,475 252 3,879
Basic net income per
share $ 0.19 $ 0.15 $ 0.03 $ 0.45
Diluted net income
per share $ 0.18 $ 0.15 $ 0.03 $ 0.44
</TABLE>
(A) Per share amounts for quarters ended prior to January 31, 1998 have been
restated to conform with the requirements of SFAS No. 128 "Earnings per
Share."
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leader in the consumer electronics/appliance retailing
industry, operating predominantly in small to medium sized markets in the
Midwest and Southeast under the trade name "REX." Since acquiring its first four
stores in 1980, the Company has expanded into a national chain operating 222
stores in 35 states. During fiscal 1996, 1997 and 1998, the Company expanded
into the western region of the United States by opening sixteen stores in seven
northwestern states.
The Company has focused on maintaining strict cost controls, offering
customers a broad selection of merchandise at "everyday low prices" and
expansion within small to medium sized markets where its low cost structure and
operating strategy enhance its ability to become a dominant retailer.
During fiscal 1998, 1997 and 1996, the Company opened eight, 35 and 34
stores, respectively. The Company closed eight stores in fiscal 1998 and twelve
stores in fiscal 1997. No stores were closed in fiscal 1996. Comparable store
sales declined 10.5%, 17.5% and 5.4% in fiscal 1998, 1997 and 1996,
respectively. The decrease in comparable store sales reflects an industry wide
decline in consumer demand for electronics and an intensely competitive retail
environment. The Company considers a store to be comparable after it has been
open six full fiscal quarters. Comparable store sales comparisons do not include
sales of extended service contracts.
EXTENDED SERVICE CONTRACTS
The Company's extended service contract revenues, net of sales commissions,
are deferred and amortized on a straight-line basis over the life of the
contracts after the expiration of applicable manufacturers' warranty periods.
Terms of coverage, including the manufacturers' warranty periods, are usually
for periods of 12 to 60 months. Extended service contract revenues represented
3.5%, 2.9% and 2.4% of net sales for fiscal 1998, 1997 and 1996, respectively.
Service contract costs are charged to operations as incurred. Gross profit
realized from extended service contract revenues was $11.0 million, $9.6 million
and $8.3 million in fiscal 1998, 1997 and 1996, respectively.
15
<PAGE>
<PAGE>
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:
<TABLE>
<CAPTION>
Fiscal Year Ended
January 31,
--------------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of merchandise sold 72.4 74.4 74.1
----- ----- -----
Gross profit 27.6 25.6 25.9
Selling, general and administrative expenses 22.9 21.5 19.4
----- ----- -----
Income from operations 4.7 4.1 6.5
Interest, net 1.7 1.3 1.1
----- ----- -----
Income before income taxes 3.0 2.8 5.4
Provision for income taxes 1.2 1.1 2.1
----- ----- -----
Net income 1.8% 1.7% 3.3%
===== ===== =====
</TABLE>
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1998 AND 1997
Net sales in fiscal 1998 were $411.0 million, a 3.8% decrease from the
$427.4 million achieved in fiscal 1997. This decrease was caused by a decline of
10.5% in comparable store sales, partially offset by the first full year of
sales for 35 stores opened in the previous fiscal year. During fiscal 1998, the
Company opened eight stores and closed eight, while during fiscal 1997 the
Company opened 35 stores and closed 12. The Company had 222 stores open at both
January 31, 1998 and 1997.
Gross profit of $113.2 million in fiscal 1998 (27.6% of net sales) was 3.3%
higher than the $109.6 million (25.6% of net sales) recorded the prior year. The
improved gross profit margin, as a percent of sales, was primarily the result of
lower merchandise cost on certain products due to opportunistic purchasing and
the recognition of a higher amount of extended service contract revenues, which
generally have a higher gross profit margin.
Selling, general and administrative expenses for fiscal 1998 were $94.1
million (22.9% of net sales), a 2.4% increase over the $91.9 million (21.5% of
net sales) in fiscal 1997. The increase in expense was primarily due to an
increase in incentive commissions for sales personnel. Selling, general and
administrative expenses as a percent of net sales also increased due to the
decline in comparable store sales.
Income from operations was $19.2 million (4.7% of net sales) in fiscal 1998,
an 8.5% increase from $17.7 million (4.1% of net sales) for fiscal 1997. The
increase was primarily due to the improved gross profit margin.
16
<PAGE>
<PAGE>
Interest expense increased to $7.1 million in fiscal 1998 from $5.6 million
in fiscal 1997. The increase in interest expense is primarily attributable to
additional mortgage debt outstanding for the full fiscal year on stores opened
in fiscal 1997 (average outstanding borrowings of approximately $55.1 million in
fiscal 1998 compared to $40.8 million in fiscal 1997).
The effective tax rate was 39.5% for fiscal 1998 and 1997.
As a result of the foregoing, net income was $7.4 million for fiscal 1998
and 1997.
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1997 AND 1996
Net sales in fiscal 1997 were $427.4 million, a 3.4% decrease from the
$442.2 million achieved in fiscal 1996. This decrease was caused by a decline of
17.5% in comparable store sales, partially offset by the net addition of 23
stores in fiscal 1997 and the first full year of sales for 34 stores opened in
fiscal 1996. During fiscal 1997 the Company opened 35 stores and closed 12,
while during fiscal 1996 the Company opened 34 stores and closed none. The
number of stores open at January 31, 1997 was 222 compared to 199 at January 31,
1996.
Gross profit of $109.6 million in fiscal 1997 (25.6% of net sales) was 4.3%
lower than the $114.6 (25.9% of net sales) recorded the prior year. The lower
gross profit margin is primarily due to competitive pressures and an increase in
major appliance and computer sales, which generally have a lower gross profit
margin. This was partially offset by an increase in extended service contract
revenues, which generally have a higher gross profit margin.
Selling, general and administrative expenses for fiscal 1997 were $91.9
million (21.5% of net sales), a 5.7% increase over the $86.0 million (19.4% of
net sales) in fiscal 1996. The increase in expense was primarily attributable to
$3.5 million in increased advertising costs, $1.5 million in increased occupancy
and depreciation costs and $1.7 million in increased operating costs associated
with more store locations in the current year. Payroll costs decreased by
$800,000 due to a reduction in direct selling costs resulting from the decline
in sales. The increase in selling, general and administrative expenses as a
percentage of net sales is primarily the result of the decline in comparable
store sales.
Income from operations was $17.7 million (4.1% of net sales) in fiscal 1997,
a 38.1% decrease from $28.6 million (6.5% of net sales) for fiscal 1996. This
decline was primarily due to the 17.5% decline in comparable store sales and the
increased selling, general and administrative expenses associated with more
store locations.
17
<PAGE>
<PAGE>
Interest expense increased to $5.6 million in fiscal 1997 from $4.7 million
in fiscal 1996. The increase in interest expense is primarily attributable to
additional mortgage debt associated with more Company owned store locations
(average outstanding borrowings of approximately $40.8 million in fiscal 1997
compared to $31.5 million in fiscal 1996) and an increase of approximately $3.4
million in the average outstanding borrowings on the revolving line of credit.
The effective tax rate was 39.5% for fiscal 1997 and 1996.
As a result of the foregoing, net income for fiscal 1997 was $7.4 million,
a 49.5% decrease from $14.6 million in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of financing have been cash flow provided by
net income, mortgages on owned property and borrowings under its revolving line
of credit.
Net cash provided by operating activities was $35.5 million for fiscal 1998.
Operating cash flow was provided by net income of $7.4 million and $200,000 of
deferred income from sales of extended service contracts, adjusted for non-cash
charges of $2.0 million. Cash was also provided by a decrease in inventory of
$8.5 million and an increase in accounts payable of $18.6 million.
At January 31, 1998, working capital was $78.9 million compared to $80.2
million at January 31, 1997. The ratio of current assets to current liabilities
was 2.0 to 1 at January 31, 1998 compared to 2.1 to 1 at January 31, 1997.
Capital expenditures in fiscal 1998 totaled $8.0 million and were primarily
associated with the opening of eight stores and the construction of a
distribution center in Cheyenne, Wyoming.
During fiscal 1998, the Company purchased 567,000 shares of its common stock
for $5.0 million. Subsequent to the end of fiscal 1998 and through March 26,
1998, the Company purchased 70,000 shares of its common stock for $742,000. The
Company is authorized by its Board of Directors to purchase an additional
527,000 shares of its common stock and all shares purchased will be held in
treasury for possible future use.
18
<PAGE>
<PAGE>
The Company has a revolving credit agreement with seven banks through July
31, 2000, with interest at prime or LIBOR plus 1.875%. Amounts available for
borrowing are equal to the lesser of (i) $100 million for the months of January
through June and $150 million for the months of July through December or (ii)
the sum of specified percentages of eligible accounts receivable and eligible
inventories, as defined. Amounts available for borrowing are reduced by any
letter of credit commitments outstanding.
At January 31, 1998, no borrowings were outstanding on the revolving credit
agreement. A total of approximately $77.3 million was available at January 31,
1998. Borrowing levels vary during the course of a year based on the Company's
seasonal working capital needs. The maximum direct borrowings outstanding during
fiscal 1998 were approximately $37.2 million, which existed immediately prior to
the Christmas selling season due to the build-up of seasonal inventory
requirements. The weighted average interest rate was 9.11% for fiscal 1998. The
revolving credit agreement contains restrictive covenants which require the
Company to maintain specified levels of consolidated tangible net worth and
limit capital expenditures and the incurrence of additional indebtedness. The
revolving credit agreement also places restrictions on common stock repurchases
and the payment of dividends.
At January 31, 1998, the Company had approximately $55.6 million of mortgage
debt outstanding (including $4.5 million obtained in fiscal 1998 from mortgaging
seven stores) at a weighted average interest rate of 8.98%, with maturities from
2000 to 2012.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business is seasonal. As is the case with many other
retailers, the Company's net sales and net income are greatest in its fourth
fiscal quarter, which includes the Christmas selling season. The fourth fiscal
quarter accounted for 35.2% and 33.6% of net sales and 65.7% and 52.7% of net
income in fiscal 1998 and 1997, respectively. Year to year comparisons of
quarterly results of operations and comparable store sales can be affected by a
variety of factors, including the duration of the holiday selling season,
weather conditions and the timing of new store openings.
19
<PAGE>
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 31, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings per Share", which replaces the
calculation of primary and fully diluted earnings per share under previous
accounting standards with basic and diluted earnings per share. As a result, the
Company's reported net income per share amounts for the years ended January 31,
1997 and 1996 were restated as follows:
<TABLE>
<CAPTION>
PER SHARE AMOUNTS
------------------
1997 1996
----- -----
<S> <C> <C>
Primary net income per share, as reported $0.80 $1.56
Effect of SFAS No. 128 0.02 0.06
----- -----
Basic net income per share, as restated $0.82 $1.62
===== =====
<CAPTION>
1997 1996
----- -----
Fully diluted net income per share, as reported $0.80 $1.56
Effect of SFAS No. 128 - -
----- -----
Diluted net income per share, as restated $0.80 $1.56
===== =====
</TABLE>
In the first quarter of fiscal 1997, the Company adopted the provisions of
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," which addresses the identification and
measurement of asset impairments and requires recognition of impairment losses
on long-lived assets when book values exceed expected future cash flows. The
application of this standard did not have a material impact on the Company's
financial position or results of operations.
The Company adopted the provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation" in fiscal 1997, which established new accounting and
disclosure requirements for stock-based employee compensation plans. The Company
adopted this standard by continuing to follow the accounting prescribed by APB
Opinion No. 25 "Accounting for Stock Issued to Employees" and presenting the
required pro forma disclosures. Therefore, the application of this standard did
not have a material impact on the Company's financial position or results of
operations.
20
<PAGE>
<PAGE>
YEAR 2000 ISSUE
The Company is currently in the process of evaluating its information
technology infrastructure for Year 2000 compliance, including developing an
estimate of the total costs to be incurred to remediate any Year 2000 issues.
The Company believes that with modifications to existing software and conversion
to new software, the impact of the Year 2000 issue can be mitigated. However, if
such modifications and conversions are not made, or are not made in a timely
manner, the Year 2000 issue could have a material impact on the Company's
operations. Costs incurred to remediate the Year 2000 issue will be expensed as
incurred.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains 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 this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None.
21
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
ASSETS (In Thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 16,937 $ 3,959
Short-term investments 1,637 1,645
Accounts receivable, net of allowance for
doubtful accounts of $428 and $376 in 1998
and 1997, respectively (Note 4) 2,775 1,477
Merchandise inventory (Note 4) 126,498 135,033
Prepaid expenses and other 2,078 2,219
Future income tax benefits 7,899 5,544
----------- -----------
Total current assets 157,824 149,877
PROPERTY AND EQUIPMENT, NET (Notes 1, 4 and 5) 93,165 89,638
FUTURE INCOME TAX BENEFITS 9,541 8,519
----------- -----------
Total assets $260,530 $248,034
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable (Note 4) $ - $ 12,142
Current portion of long-term debt (Note 5) 2,959 3,131
Current portion of deferred income and
deferred gain on sale and leaseback (Notes 1 and 7) 11,402 10,844
Accounts payable, trade 49,832 31,265
Accrued income taxes 1,671 1,077
Accrued payroll 5,810 4,866
Other current liabilities 7,263 6,401
----------- -----------
Total current liabilities 78,937 69,726
LONG-TERM LIABILITIES:
Long-term debt (Note 5) 52,661 51,102
Deferred income (Note 1) 17,886 18,279
Deferred gain on sale and leaseback (Note 7) 5,264 6,207
----------- -----------
Total long-term liabilities 75,811 75,588
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
SHAREHOLDERS' EQUITY (Notes 3, 4, and 6):
Common stock, 45,000 shares authorized, 9,688
and 9,602 shares issued, at par 97 96
Paid-in capital 57,896 57,229
Retained earnings 64,175 56,763
Treasury stock, 1,955 and 1,388 shares (16,386) (11,368)
----------- -----------
Total shareholders' equity 105,782 102,720
----------- -----------
Total liabilities and shareholders'
equity $260,530 $248,034
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
22
<PAGE>
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
(In Thousands,
Except Per Share Amounts)
<S> <C> <C> <C>
NET SALES $411,005 $427,378 $442,217
--------- --------- ----------
COSTS AND EXPENSES:
Cost of merchandise sold 297,757 317,767 327,636
Selling, general and administrative expenses 94,055 91,905 85,981
--------- --------- ----------
Total costs and expenses 391,812 409,672 413,617
--------- --------- ----------
INCOME FROM OPERATIONS 19,193 17,706 28,600
INVESTMENT INCOME 202 85 182
INTEREST EXPENSE 7,143 5,624 4,707
--------- --------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 12,252 12,167 24,075
PROVISION FOR INCOME TAXES 4,840 4,805 9,502
--------- --------- ----------
NET INCOME $ 7,412 $ 7,362 $ 14,573
========= ========= ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,919 8,948 8,970
--------- --------- ----------
BASIC NET INCOME PER SHARE $ 0.94 $ 0.82 $ 1.62
========= ========= ==========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 8,178 9,219 9,365
--------- --------- ----------
DILUTED NET INCOME PER SHARE $ 0.91 $ 0.80 $ 1.56
========= ========= ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
23
<PAGE>
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 7,412 $ 7,362 $ 14,573
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities-
Depreciation and amortization, net 2,979 2,943 2,357
Deferred income 165 3,221 4,415
Deferred income tax provision (1,015) (2,054) (1,608)
Accounts receivable (1,298) 127 (527)
Merchandise inventory 8,535 11,533 (31,219)
Other current assets (2,228) (323) (361)
Accounts payable, trade 18,567 (8,260) 6,230
Other current liabilities 2,400 (3,678) 2,098
------------ ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 35,517 10,871 (4,042)
------------ ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Short-term investments 8 (120) 30
Capital expenditures (8,015) (23,448) (23,080)
Capital disposals 573 552 43
------------ ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (7,434) (23,016) (23,007)
------------ ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Increase (decrease) in note payable (12,142) 2,815 9,327
Proceeds from long-term debt 4,473 21,911 9,201
Payments of long-term debt (3,086) (2,318) (1,836)
Common stock issued 668 497 643
Treasury stock acquired (5,018) (7,486) (2,264)
------------ ----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (15,105) 15,419 15,071
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 12,978 3,274 (11,978)
CASH AND CASH EQUIVALENTS, beginning of year 3,959 685 12,663
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 16,937 $ 3,959 $ 685
============ =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
24
<PAGE>
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------
Issued Treasury
------------------- ---------------- Paid-In Retained
Shares Amount Shares Amount Capital Earnings
------- ------- ------- ------- ------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 31, 1995 9,420 $94 372 $ 1,618 $56,090 $34,828
Net income - - - - - 14,573
Treasury stock acquired - - 162 2,264 - -
Common stock issued 101 1 - - 642 -
------- ------- ------- ------- ------- --------
BALANCE, January 31, 9,521 95 534 3,882 56,732 49,401
1996
Net income - - - - - 7,362
Treasury stock acquired - - 854 7,486 - -
Common stock issued 81 1 - - 497 -
------- ------- ------- ------- ------- --------
BALANCE, January 31, 9,602 96 1,388 11,368 57,229 56,763
1997
Net income - - - - - 7,412
Treasury stock acquired - - 567 5,018 - -
Common stock issued 86 1 - - 667 -
------- ------- ------- ------- ------- --------
BALANCE, January 31, 1998 9,688 $97 1,955 $16,386 $57,896 $64,175
======= ======= ======= ======= ======= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
25
<PAGE>
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-
(a) Principles of Consolidation--The accompanying financial statements
consolidate the operating results and financial position of REX
Stores Corporation and its wholly-owned subsidiaries (the Company).
All significant intercompany balances and transactions have been
eliminated. The Company operates 222 retail consumer electronics and
appliance stores under the REX name in 35 states, predominantly in
the Midwest and Southeast.
(b) Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Cash Equivalents and Short-term Investments--Cash equivalents are
principally short-term investments with original maturities of less
than three months. Short-term investments, which are principally
marketable securities, are stated at cost plus accrued interest,
which approximates market. The carrying amount of cash equivalents
and short-term investments is a reasonable estimate of fair value.
Short-term investments at January 31, 1998 and 1997 are restricted by
two states to cover possible future claims under product service
contracts.
(d) Merchandise Inventory--Substantially all inventory is valued at the
lower of average cost or market, which approximates cost on a
first-in, first-out (FIFO) basis, including certain costs associated
with purchasing, warehousing and transporting merchandise. The
inventory of an acquired subsidiary, Kelly & Cohen Appliances, Inc.
(K&C), is valued at the lower of last-in, first-out (LIFO) cost or
market. The K&C inventory value using the FIFO method ($30,203,000
and $38,437,000 at January 31, 1998 and 1997, respectively)
approximates the LIFO value in all years presented. Five suppliers
accounted for approximately 55% of the Company's purchases in 1998.
26
<PAGE>
<PAGE>
(e) Property and Equipment--Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method. Estimated
useful lives are 15 to 40 years for buildings and improvements, and 3
to 12 years for fixtures and equipment. Leasehold improvements are
depreciated over 10-12 years. The components of cost at January 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(In thousands)
<S> <C> <C>
Land $ 24,779 $ 23,530
Buildings and improvements 59,006 53,890
Fixtures and equipment 14,615 14,386
Leasehold improvements 9,747 9,409
---------- ----------
108,147 101,215
Less: accumulated depreciation (14,982) (11,577)
---------- ----------
$ 93,165 $ 89,638
========== ==========
</TABLE>
In accordance with SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", the
carrying value of long-lived assets is assessed for recoverability by
management when changes in circumstances indicate that the carrying
amount may not be recoverable, based on an analysis of undiscounted
future expected cash flows from the use and ultimate disposition of
the asset.
(f) Deferred Income On Service Contracts--The Company sells product
service contracts covering periods beyond the normal manufacturers'
warranty periods, usually with terms of coverage (including
manufacturers' warranty periods) of between 12 to 60 months. Revenues
net of sales commissions are deferred and amortized on a
straight-line basis over the life of the contracts after the
expiration of applicable manufacturers' warranty periods. Service
contract costs are charged to operations as incurred.
(g) Interest Cost--Interest expense of $7,143,000, $5,624,000 and
$4,707,000 for the years ended January 31, 1998, 1997 and 1996,
respectively, is net of approximately $33,000, $193,000 and $207,000
of interest capitalized related to store construction. Total interest
expense approximates interest paid for all years presented.
(h) Loan Acquisition Costs--Direct expenses and fees associated with
obtaining notes payable or long-term debt are capitalized and
amortized to interest expense over the life of the loan.
(i) Advertising Costs--Advertising costs are expensed as incurred.
Advertising expense was approximately $32,813,000, $33,473,000 and
$29,989,000 in 1998, 1997 and 1996, respectively.
27
<PAGE>
<PAGE>
(j) Store Opening and Closing Costs--Store opening costs are expensed as
incurred. The costs associated with closing stores are accrued when
the decision is made to close a location.
(2) NET INCOME PER SHARE-
Effective January 31, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings per Share," which replaces
the calculation of primary and fully diluted earnings per share under
previous accounting standards with basic and diluted earnings per share.
As a result, the Company's reported net income per share amounts for the
years ended January 31, 1997 and 1996 were restated as follows:
<TABLE>
<CAPTION>
Per Share Amounts
-------------------
1997 1996
------- ------
<S> <C> <C>
Primary net income per share, as reported $0.80 $1.56
Effect of SFAS 128 0.02 0.06
------- ------
Basic net income per share, as restated $0.82 $1.62
======= ======
<CAPTION>
1997 1996
------- ------
Fully diluted net income per share, as reported $0.80 $1.56
Effect of SFAS 128 - -
------- -------
Diluted net income per share, as restated $0.80 $1.56
======= =======
</TABLE>
Basic net income per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares
outstanding during the year.
Diluted net income per share is computed by dividing net income available
to common shareholders by the weighted average number of common and common
equivalent shares outstanding during the year. Common share equivalents
include the number of shares issuable upon the exercise of outstanding
options, less the shares that could be purchased with the proceeds from
the exercise of the options, based on the average trading price of the
Company's common stock for 1998, 1997 and 1996.
28
<PAGE>
<PAGE>
The following table reconciles the basic and diluted net income per share
computations for each year presented:
<TABLE>
<CAPTION>
1998
----------------------------------
Income Shares Per Share
------- ------- ---------
<S> <C> <C> <C>
Basic net income per share $7,412 7,919 $0.94
=========
Effect of stock options - 259
------- -------
Diluted net income per share $7,412 8,178 $0.91
======= ======= =======
<CAPTION>
1997
---------------------------------
Income Shares Per Share
------- ------- ---------
Basic net income per share $7,362 8,948 $0.82
=========
Effect of stock options - 271
-------- -------
Diluted net income per share $7,362 9,219 $0.80
======= ======= =======
<CAPTION>
1996
---------------------------------
Income Shares Per Share
------- ------- ---------
Basic net income per share $14,573 8,970 $1.62
=========
Effect of stock options - 395
------- -------
Diluted net income per share $14,573 9,365 $1.56
======= ======= =======
</TABLE>
(3) COMMON STOCK TRANSACTIONS-
During the years ended January 31, 1998, 1997 and 1996, the Company
purchased 567,000, 854,000 and 162,000 shares of its common stock for
$5,018,000, $7,486,000 and $2,264,000, respectively. Subsequent to January
31, 1998 and through March 26, 1998, the Company purchased 70,000 shares
of its common stock for $742,000. The Company is authorized by its Board
of Directors to purchase an additional 527,000 shares of its common stock
and all shares purchased will be held in treasury for possible future use.
29
<PAGE>
<PAGE>
(4) REVOLVING LINE OF CREDIT-
The Company has a revolving credit agreement with seven banks which
expires July 31, 2000. Under the terms of the agreement, available
revolving credit borrowings are equal to the lesser of: (i) $100 million
for the months of January through June and $150 million for the months of
July through December or (ii) the sum of specific percentages of eligible
accounts receivable and eligible inventories, as defined. Borrowings
available are reduced by any letter of credit commitments outstanding. The
Company had no outstanding borrowings under the revolving credit agreement
at January 31, 1998. Outstanding borrowings under the revolving credit
agreement totaled $12,142,000 at January 31, 1997. The carrying amount of
the borrowings at January 31, 1997 approximates fair value as the
revolving credit agreement bears a current market rate of interest. At
January 31, 1998, a total of approximately $77,300,000 was available for
borrowings under the revolving credit agreement.
The interest rate charged on borrowings is prime or LIBOR plus 1.875% and
commitment fees of 1/4% are payable on the unused portion. Borrowings are
secured by certain fixed assets, accounts receivable and inventories.
The revolving credit agreement contains restrictive covenants which
require the Company to maintain specified levels of consolidated tangible
net worth and limit capital expenditures and the incurrence of additional
indebtedness. The revolving credit agreement also places restrictions on
the amount of common stock repurchases and the payment of dividends.
(5) LONG-TERM DEBT-
Long-term debt consists of notes payable secured by certain land,
buildings and leasehold improvements. Interest rates range from 7.00% to
9.95%. Principal and interest are payable monthly over terms which
generally range from 10 to 15 years. Substantially all of the notes
payable require balloon payments at the end of the scheduled term.
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending
January 31, Amount
------------ -------
<S> <C>
1999 $ 2,959
2000 3,052
2001 3,944
2002 6,035
2003 4,918
2004 and thereafter 34,712
-------
$55,620
=======
</TABLE>
30
<PAGE>
<PAGE>
The fair value of the Company's long-term debt at January 31, 1998 and
1997 was approximately $56.6 million and $56.1 million, respectively. The
fair value was estimated based on rates available to the Company for debt
with similar terms and maturities.
(6) EMPLOYEE BENEFITS-
Stock Option Plans--Effective June 2, 1995, the Company adopted the REX
Stores Corporation 1995 Omnibus Stock Incentive Plan (the Omnibus Plan),
which amended and restated the 1994 Incentive Stock Option Plan. Under the
Omnibus Plan, the Company may grant to officers and key employees awards
in the form of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock, other stock-based awards and cash
incentive awards. The Omnibus Plan also provides for yearly grants of
non-qualified stock options to directors who are not employees of the
Company. The exercise price of each stock based award must be at least
100% of the fair market value of the Company's common stock on the date of
grant. A maximum of 2,000,000 shares of common stock are authorized for
issuance under the Omnibus Plan and at January 31, 1998, 364,430 shares
remained available for issuance. At January 31, 1998, 158,697 stock
options also remained outstanding under the 1984 Incentive Stock Option
Plan which expired in fiscal 1995.
In November 1989, non-qualified executive stock options were issued to two
key executives under a separate plan for 600,000 shares at the
then-current market price of $3.38 per share. No additional shares are
available for grant under this plan. At January 31, 1998, 512,079 of these
options remained outstanding and exercisable.
On February 26, 1997, the Company's Board of Directors approved a
re-pricing of 362,035 stock options, with exercise prices ranging from
$13.00 to $18.98 per share, to the market price as of the date of approval
of $8.13 per share. Stock options held by employees who are members of the
Board of Directors and stock options held by Non-Employee Directors were
not re-priced.
The Company accounts for its stock-based compensation plans under APB
Opinion No. 25, "Accounting for Stock Issued to Employees", under which no
compensation cost has been recognized. Had compensation cost for these
plans been determined at fair value consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company's net income and
net income per share would have been reduced to the following pro forma
amounts:
31
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
<S> <C> <C> <C> <C>
Net income (000's): As reported $7,412 $7,362 $14,573
Pro forma 6,167 5,932 13,923
Basic net income per share: As reported 0.94 0.82 1.62
Pro forma 0.78 0.66 1.55
Diluted net income per share: As reported 0.91 0.80 1.56
Pro forma 0.79 0.72 1.54
</TABLE>
The fair values of options granted were estimated as of the date of grant
using a Black-Scholes option pricing model with the following weighted
average assumptions used for grants in fiscal 1998, 1997 and 1996,
respectively: risk-free interest rate of 5.7%, 6.3% and 6.3%; expected
volatility of 41.5%, 46.7% and 46.7%; and a weighted average stock option
life of 5 years. In accordance with the provisions of SFAS No. 123, the
fair value method of accounting was not applied to options granted prior
to February 1, 1995 in estimating the pro forma amounts. Therefore, the
pro forma effect on net income and net income per share may not be
representative of that to be expected in future years.
The following summarizes stock option activity for the years ended January
31, 1998, 1997 and 1996 (options granted and cancelled during fiscal 1998
include the effect of the February 26, 1997 re-pricing):
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- ------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000's) Price (000's) Price (000's) Price
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 2,119 $12.15 2,069 $ 11.60 1,422 $ 9.93
Granted 653 9.13 202 15.47 768 13.90
Exercised (86) 7.20 (81) 5.34 (101) 4.32
Canceled or expired (398) 14.54 (71) 14.62 (20) 14.07
--------- --------- --------- --------- --------- ---------
Outstanding at
end of year 2,288 $11.06 2,119 $ 12.15 2,069 $11.60
========= ========= ========= ========= ========= =========
Exercisable at
end of year 1,368 $10.62 1,143 $ 10.37 997 $ 8.67
========= ========= ========= ========= ========= =========
Weighted
average fair
value of options
granted $4.68 $ 8.30 $9.02
========= ========= =========
</TABLE>
32
<PAGE>
<PAGE>
Price ranges and other information for stock options outstanding as of
January 31, 1998 were as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Range of Shares Exercise Remaining Shares Exercise
Exercise Prices (000's) Price Life (000's) Price
- -------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$3.38 512 $ 3.38 1.8 yrs. 512 $ 3.38
$6.88 to $8.13 363 7.98 2.9 yrs. 171 7.81
$10.38 to $15.26 928 12.84 7.7 yrs. 224 13.90
$16.75 to $18.98 485 18.06 5.5 yrs. 461 18.11
-------- ------- --------- -------- --------
2,288 $11.06 5.2 yrs. 1,368 $10.62
======== ======= ========= ======== ========
</TABLE>
Profit Sharing Plan--The Company has a qualified, noncontributory profit
sharing plan covering full-time employees who meet certain eligibility
requirements. The Plan also allows 401(k) savings contributions by
participants with certain Company matching contributions. Aggregate
contributions to the Plan are determined annually by the Board of Directors
and are not to exceed 15% of total compensation paid to all participants
during such year. The Company contributed matching amounts of approximately
$31,000, $28,000 and $36,000 for the years ended January 31, 1998, 1997 and
1996, respectively, under the Plan.
(7) LEASES AND COMMITMENTS-
The Company is committed under operating leases for certain warehouse and
retail store locations. The lease agreements are for varying terms through
2007 and contain renewal options for additional periods. Real estate
taxes, insurance and maintenance costs are generally paid by the Company.
Contingent rentals based on sales volume are not significant. Certain
leases contain scheduled rent increases and rent expense is recognized on
a straight-line basis over the term of the leases.
On August 30, 1989, the Company completed a transaction for the sale and
leaseback of certain stores and warehouse facilities under an initial
15-year lease term. This transaction resulted in pre-tax financial
statement gain of $15.6 million, which was deferred and is being amortized
as a reduction to lease expense over the term of the leases. The
unamortized deferred gain at January 31, 1998 was approximately $6.2
million.
33
<PAGE>
<PAGE>
The following is a summary of rent expense under operating leases (in
thousands):
<TABLE>
<CAPTION>
Years ended Minimum Gain Sublease
January 31, Rentals Amortization Income Total
------------ --------- ------------ --------- ------
<S> <C> <C> <C> <C>
1998 $9,453 $(943) $(1,713) $6,797
1997 9,076 (629) (1,503) 6,944
1996 8,383 (405) (1,475) 6,503
</TABLE>
Future minimum annual rentals and gain amortization on non-cancelable
leases as of January 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Minimum Gain
Years ended January 31, Rentals Amortization
----------------------- -------- -------------
<S> <C> <C>
1999 $ 8,591 $ 943
2000 7,995 943
2001 7,433 943
2002 6,456 943
2003 5,347 943
2004 and thereafter 8,786 1,492
------- ------
$44,608 $6,207
======= ======
</TABLE>
(8) INCOME TAXES-
The provision for income taxes for the years ended January 31, 1998, 1997
and 1996 consists of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended January 31,
-----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Federal:
Current $5,007 $ 5,803 $ 9,264
Deferred (957) (1,824) (1,358)
-------- -------- --------
4,050 3,979 7,906
-------- -------- --------
State and Local:
Current 848 1,056 1,846
Deferred (58) (230) (250)
-------- -------- --------
790 826 1,596
-------- -------- --------
$4,840 $ 4,805 $ 9,502
======== ======== ========
</TABLE>
34
<PAGE>
<PAGE>
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
January 31,
--------------------------------
1998 1997
---------- -----------
<S> <C> <C>
Assets:
Deferral of service contract income $ 9,991 $ 9,933
Sale and leaseback deferred gain 2,172 2,502
Accrued liabilities 2,257 957
Other items 4,355 3,117
---------- -----------
18,775 16,509
Liabilities:
Inventory accounting (1,064) (1,064)
Depreciation (271) (1,332)
Other items - (50)
---------- -----------
(1,335) (2,446)
---------- -----------
Total net future income tax benefits $17,440 $14,063
========== ===========
</TABLE>
The Company paid income taxes of $7,604,000, $9,801,000 and $10,100,000 in
the years ended January 31, 1998, 1997 and 1996, respectively.
The effective income tax rate on consolidated pre-tax income differs from
the Federal income tax statutory rate as follows:
<TABLE>
<CAPTION>
Years Ended January 31,
----------------------------------
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Federal income tax at statutory rate 35.0% 35.0% 35.0%
State and local taxes, net of federal tax
benefit 4.2 4.1 4.2
Other .3 .4 .3
------- ------- --------
39.5% 39.5% 39.5%
======= ======= ========
</TABLE>
(9) CONTINGENCIES-
The Company is involved in various legal actions arising in the normal
course of business. After taking into consideration legal counsels'
evaluation of such actions, management is of the opinion that their
outcome will not have a significant effect on the Company's consolidated
financial statements.
35
<PAGE>
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors
of REX Stores Corporation:
We have audited the accompanying consolidated balance sheets of REX
Stores Corporation (a Delaware corporation) and subsidiaries as of January 31,
1998 and 1997, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three fiscal years in the period ended
January 31, 1998. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of REX Stores
Corporation and subsidiaries as of January 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 31, 1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed under
Part IV, Item 14(a)(2) is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Cincinnati, Ohio, ARTHUR ANDERSEN LLP
March 26, 1998
36
<PAGE>
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
(In Thousands)
<TABLE>
<CAPTION>
Additions Deductions
----------- ------------------
Balance Charges for Which
Beginning Charged Cost Reserves Were Balance End
of Year and Expenses Created of Year
----------- ------------ ----------------- ------------
<S> <C> <C> <C> <C>
1998
- ----
Allowance for doubtful accounts $376 $474 $422 $428
==== ==== ==== ====
1997
- ----
Allowance for doubtful accounts $638 $146 $408 $376
==== ==== ==== ====
1996
- ----
Allowance for doubtful accounts $784 $287 $433 $638
==== ==== ==== ====
</TABLE>
37
<PAGE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated herein by
reference to the Company's Proxy Statement for its Annual Meeting of
Shareholders on June 4, 1998, except for certain information concerning the
executive officers of the Company which is set forth in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in the Company's
Proxy Statement for its Annual Meeting of Shareholders on June 4, 1998 and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is set forth in the Company's
Proxy Statement for its Annual Meeting of Shareholders on June 4, 1998 and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is set forth in the Company's
Proxy Statement for its Annual Meeting of Shareholders on June 4, 1998 and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following consolidated financial statements of the Company and its
subsidiaries are incorporated by reference as part of this report at Item 8
hereof.
Consolidated Balance Sheets as of January 31, 1998 and 1997
Consolidated Statements of Income for the years ended January 31, 1998,
1997 and 1996
Consolidated Statements of Cash Flows for the years ended January 31, 1998,
1997 and 1996
38
<PAGE>
<PAGE>
Consolidated Statements of Shareholders' Equity for the years ended January
31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(a)(2) Financial Statement Schedules.
The following financial statement schedule is incorporated by reference as
part of this report at Item 8 hereof.
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
(a)(3) Exhibits.
See Exhibit Index at page 42 of this report.
Management Contracts and Compensatory Plans and Arrangements
Employment Agreement dated September 1, 1995 between Rex Radio and
Television, Inc. and Stuart Rose -- Form 10-Q for quarter ended October 31,
1995, exhibit 10(a).
Employment Agreement dated September 1, 1995 between Rex Radio and
Television, Inc. and Lawrence Tomchin -- Form 10-Q for quarter ended
October 31, 1995, exhibit 10(b).
Executive Stock Option dated September 22, 1993 to Stuart Rose -- Form 10-Q
for quarter ended October 31, 1993, exhibit 10(a).
Executive Stock Option dated September 22, 1993 to Lawrence Tomchin -- Form
10-Q for quarter ended October 31, 1993, exhibit 10(b).
Executive Stock Option dated November 20, 1989 to Stuart Rose -- Form 10-Q
for quarter ended October 31, 1989, exhibit 6.3.
Executive Stock Option dated November 20, 1989 to Lawrence Tomchin -- Form
10-Q for quarter ended October 31, 1989, exhibit 6.4.
Subscription Agreement dated December 1, 1989 from Stuart Rose -- Form 10-Q
for quarter ended October 31, 1989, exhibit 6.5.
39
<PAGE>
<PAGE>
Subscription Agreement dated December 1, 1989 from Lawrence Tomchin -- Form
10-Q for quarter ended October 31, 1989, exhibit 6.6.
1984 Incentive Stock Option Plan -- Form 10-K for fiscal year ended January
31, 1992, exhibit 10(a).
1995 Omnibus Stock Incentive Plan -- Post-effective amendment No. 1 to
Form S-8 registration statement (No. 33-81706), exhibit 4(c).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter ended
January 31, 1998.
40
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ STUART ROSE
--------------------------
Stuart Rose
Chairman of the Board and
Chief Executive Officer
Date: April 17, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
/s/ STUART ROSE
- ------------------------ Chairman of the Board )
Stuart Rose and Chief Executive )
Officer (principal )
executive officer) )
)
/s/ DOUGLAS BRUGGEMAN )
- ------------------------ Vice President-Finance )
Douglas Bruggeman and Treasurer (principal )
financial and accounting )
officer) )
)
LAWRENCE TOMCHIN* President, Chief Operating )
- ------------------------- Officer and Director )
Lawrence Tomchin )
)
/s/ EDWARD KRESS ) April 17, 1998
- ------------------------- Secretary and Director )
Edward Kress )
)
)
ROBERT DAVIDOFF* Director )
- ----------------------- )
Robert Davidoff )
)
)
LEE FISHER* Director )
- ----------------------- )
Lee Fisher )
*By /s/ STUART ROSE
-----------------------------------
(Stuart Rose, Attorney-in-Fact)
</TABLE>
41
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(3) Articles of incorporation and by-laws:
3(a) Certificate of Incorporation, as amended (incorporated by reference to
Exhibit 3(a) to Form 10-K for fiscal year ended January 31, 1994, File
No. 0-13283)
3(b)(1) By-Laws, as amended (incorporated by reference to Registration
Statement No. 2-95738, Exhibit 3(b), filed February 8, 1985)
3(b)(2) Amendment to By-Laws adopted June 29, 1987 (incorporated by
reference to Exhibit 4.5 to Form 10-Q for quarter ended July 31, 1987,
File No. 0-13283)
(4) Instruments defining the rights of security holders, including indentures:
4(a) Amended and Restated Loan Agreement dated July 31, 1995 among
Rex Radio and Television, Inc., Kelly & Cohen Appliances, Inc.,
Stereo Town, Inc. and Rex Kansas, Inc. (the "Borrowers"), the lenders
named therein, and NatWest Bank N.A. as agent (incorporated by
reference to Exhibit 4(a) to Form 10-Q for quarter ended July 31,
1995, File No. 0-13283)
4(b) Form of Amended and Restated Revolving Credit Note (incorporated
by reference to Exhibit 4(b) to Form 10-Q for quarter ended July 31,
1995, File No. 0-13283)
4(c) Guaranty of registrant dated July 31, 1995 (incorporated by reference
to Exhibit 4(c) to Form 10-Q for quarter ended July 31, 1995,
File No. 0-13283)
4(d) Borrowers Pledge Agreement as amended and restated through July 31,
1995 (incorporated by reference to Exhibit 4(d) to Form 10-Q for quarter
ended July 31, 1995, File No. 0-13283)
4(e) Borrowers General Security Agreement as amended and restated through July
31, 1995 (incorporated by reference to Exhibit 4(e) to Form 10-Q for
quarter ended July 31, 1995, File No. 0-13283)
4(f) Parent Pledge Agreement as amended and restated through July 31, 1995
(incorporated by reference to Exhibit 4(f) to Form 10-Q for quarter ended
July 31, 1995, File No. 0-13283)
4(g) Parent General Security Agreement as amended and restated through July 31,
1995 (incorporated by reference to Exhibit 4(g) to Form 10-Q for quarter
ended July 31, 1995, File No. 0-13283)
</TABLE>
42
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
4(h) Amendment Agreement dated April 1, 1997 to Amended and Restated Loan
Agreement dated July 31, 1995 and to Guaranty of registrant dated July 31,
1995 among the Borrowers, the registrant, the lenders named therein and
Fleet Bank, N.A. (as successor to NatWest Bank N.A.) as agent
(incorporated by reference to Exhibit 4(h) to Form 10-Q for quarter ended
April 30, 1997, File No. 0-13283)
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the registrant
has not filed as an exhibit to this Form 10-K certain instruments with
respect to long-term debt where the total amount of securities authorized
thereunder does not exceed 10% of the total assets of the registrant and
its subsidiaries on a consolidated basis. The registrant agrees to furnish
a copy of such instruments to the Commission upon request.
(10) Material contracts:
10(a) Employment Agreement dated September 1, 1995 between Rex Radio and
Television, Inc. and Stuart Rose (incorporated by reference to Exhibit
10(a) to Form 10-Q for quarter ended October 31, 1995, File No. 0-13283)
10(b) Employment Agreement dated September 1, 1995 between Rex Radio and
Television, Inc. and Lawrence Tomchin (incorporated by reference to
Exhibit 10(b) to Form 10-Q for quarter ended October 31, 1995,
File No. 0-13283)
10(c) Executive Stock Option dated September 22, 1993 granting Stuart Rose an
option to purchase 300,000 shares of registrant's Common Stock
(incorporated by reference to Exhibit 10(a) to Form 10-Q for quarter ended
October 31, 1993, File No. 0-13283)
10(d) Executive Stock Option dated September 22, 1993 granting Lawrence Tomchin
an option to purchase 150,000 shares of registrant's Common Stock
(incorporated by reference to Exhibit 10(b) to Form 10-Q for quarter ended
October 31, 1993, File No. 0-13283)
10(e) Executive Stock Option dated November 20, 1989 granting Stuart Rose an
option to purchase 300,000 shares of registrant's Common Stock
(incorporated by reference to Exhibit 6.3 to Form 10-Q for quarter ended
October 31, 1989, File No. 0-13283)
10(f) Executive Stock Option dated November 20, 1989 granting Lawrence Tomchin
an option to purchase 300,000 shares of registrant's Common Stock
(incorporated by reference to Exhibit 6.4 to Form 10-Q for quarter ended
October 31, 1989, File No. 0-13283)
</TABLE>
43
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
10(g) Subscription Agreement dated December 1, 1989 from Stuart Rose to purchase
300,000 shares of registrant's Common Stock (incorporated by reference to
Exhibit 6.5 to Form 10-Q for quarter ended October 31, 1989, File No.
0-13283)
10(h) Subscription Agreement dated December 1, 1989 from Lawrence Tomchin to
purchase 140,308 shares of registrant's Common Stock (incorporated by
reference to Exhibit 6.6 to Form 10-Q for quarter ended October 31, 1989,
File No. 0-13283)
10(i) 1984 Incentive Stock Option Plan, as amended effective February 6, 1992
(incorporated by reference to Exhibit 10(a) to Form 10-K for fiscal year
ended January 31, 1992, File No. 0-13283)
10(j) 1995 Omnibus Stock Incentive Plan, as amended and restated effective June
2, 1995 (incorporated by reference to Exhibit 4(c) to Post- Effective
Amendment No. 1 to Form S-8 Registration Statement No. 33-81706)
10(k) Real Estate Purchase and Sale Agreement (the "Agreement") dated March 8,
1989 between registrant as Guarantor, four of its subsidiaries (Rex Radio
and Television, Inc., Stereo Town, Inc., Kelly & Cohen Appliances, Inc.,
and Rex Radio Warehouse Corporation) as Sellers and Holman/Shidler
Investment Corporation as Buyer (incorporated by reference to Exhibit
(b)(5)(1) to Amendment No. 1 to Schedule 13E-4 filed March 15, 1989, File
No. 5-35828)
The Table of Contents to the Agreement lists Exhibits A through P to the
Agreement. Each of the following listed Exhibits to the Agreement is
incorporated herein by reference as indicated below. The registrant will,
upon request of the Commission, provide any of the additional Exhibits to
the Agreement.
10(l) Form of Full Term Lease (incorporated by reference to Exhibit (b)(5)(2) to
Amendment No. 1 to Schedule 13E-4 filed March 15, 1989, File No. 5-35828)
10(m) Form of Divisible Lease (incorporated by reference to Exhibit (b)(5)(3) to
Amendment No. 1 to Schedule 13E-4 filed March 15, 1989, File No. 5-35828)
10(n) Form of Terminable Lease (incorporated by reference to Exhibit (b)(5)(4)
to Amendment No. 1 to Schedule 13E-4 filed March 15, 1989, File
No. 5-35828)
10(o) Continuing Lease Guaranty (incorporated by reference to Exhibit (b)(5)(5)
to Amendment No. 1 to Schedule 13E-4 filed March 15, 1989, File
No. 5-35828)
</TABLE>
44
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
10(p) Agreement Regarding Leases and Amending Amended and Restated Real Property
Purchase and Sale Agreement dated May 17, 1990 among Shidler/West Finance
Partners I (Limited Partnership); Rex Radio and Television, Inc., Stereo
Town, Inc., Kelly & Cohen Appliances, Inc. and Rex Radio Warehouse
Corporation; and registrant (incorporated by reference to Exhibit (a)(10)
to Form 10-Q for quarter ended April 30, 1990, File No. 0-13283)
10(q) Lease dated December 12, 1994 between Stuart Rose/Beavercreek, Inc. and
Rex Radio and Television, Inc. (incorporated by reference to Exhibit 10(q)
to Form 10-K for fiscal year ended January 31, 1995, File No. 0-13283)
(21) Subsidiaries of the registrant:
21(a) Subsidiaries of registrant.............................................. 46
(23) Consents of experts and counsel:
23(a) Consent of Arthur Andersen LLP to use its report dated March 26, 1998
included in this annual report on Form 10-K into registrant's Registration
Statements on Form S-8 (Registration Nos. 33-3836, 33-81706 and
33-62645)................................................................. 47
(24) Power of attorney:
Powers of attorney of each person whose name is signed to this report on
Form 10-K pursuant to a power of attorney.................................. 48-50
(27) Financial data schedule:
Financial data schedule.................................................... 51
(99) Additional exhibits:
Cautionary Statement under the Safe Harbor for Forward-Looking Statements
in the Private Securities Litigation Reform Act of 1995 (incorporated by
reference to Exhibit 99 to Form 10-Q for quarter ended October 31, 1997,
File No. 0-13283)
</TABLE>
45
<PAGE>
<PAGE>
EXHIBIT 21(a)
SUBSIDIARIES OF REX STORES CORPORATION
<TABLE>
<CAPTION>
State of
Name Incorporation
---- -------------
<S> <C>
Rex Radio and Television, Inc. Ohio
Stereo Town, Inc. Georgia
Kelly & Cohen Appliances, Inc. Ohio
Rex Kansas, Inc.(1) Kansas
AVA Acquisition Corp.(2) Delaware
A.V. Compadres, Inc.(2) Ohio
</TABLE>
- --------------------
(1) Wholly-owned subsidiary of Rex Radio and Television, Inc.
(2) Non-operating subsidiary
<PAGE>
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K into the Company's previously filed
Registration Statements on Form S-8 (No. 33-3836, No. 33-81706 and No.
33-62645).
Arthur Andersen LLP
Cincinnati, Ohio,
April 14, 1998
<PAGE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as
a director or officer, or both, of REX Stores Corporation, a Delaware
corporation (the "Company"), hereby constitutes and appoints Stuart A. Rose and
Edward M. Kress, or any one of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign the Company's Annual
Report on Form 10-K for the Fiscal Year Ended January 31, 1998 and to sign any
and all amendments thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and any one of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents or any one of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
15th day of April, 1998.
/s/ LAWRENCE TOMCHIN
--------------------------------
Lawrence Tomchin
<PAGE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as
a director or officer, or both, of REX Stores Corporation, a Delaware
corporation (the "Company"), hereby constitutes and appoints Stuart A. Rose and
Edward M. Kress, or any one of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign the Company's Annual
Report on Form 10-K for the Fiscal Year Ended January 31, 1998 and to sign any
and all amendments thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and any one of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents or any one of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
13th day of April, 1998.
/s/ ROBERT DAVIDOFF
--------------------------------
Robert Davidoff
<PAGE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as
a director or officer, or both, of REX Stores Corporation, a Delaware
corporation (the "Company"), hereby constitutes and appoints Stuart A. Rose and
Edward M. Kress, or any one of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign the Company's Annual
Report on Form 10-K for the Fiscal Year Ended January 31, 1998 and to sign any
and all amendments thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and any one of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents or any one of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
13th day of April, 1998.
/s/ LEE FISHER
--------------------------------
Lee Fisher
<PAGE>
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0
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<CGS> 127,921
<TOTAL-COSTS> 127,921
<OTHER-EXPENSES> 0
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<SECURITIES> 1,633
<RECEIVABLES> 880
<ALLOWANCES> 338
<INVENTORY> 156,318
<CURRENT-ASSETS> 170,017
<PP&E> 102,034
<DEPRECIATION> 12,554
<TOTAL-ASSETS> 268,016
<CURRENT-LIABILITIES> 91,179
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<CGS> 63,870
<TOTAL-COSTS> 63,870
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 1,532
<INCOME-PRETAX> 1,318
<INCOME-TAX> 521
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<INCOME-TAX> 4,805
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