FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission File Number 0-13283
REX Stores Corporation
(Exact name of registrant as specified in its charter)
Delaware 31-1095548
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2875 Needmore Road, Dayton, Ohio 45414
(Address of principal executive offices) (Zip Code)
(937) 276-3931
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for at least the
past 90 days. Yes (X) No ( )
At the close of business on September 10, 1998, the registrant had
7,179,222 shares of Common Stock, par value $.01 per share,
outstanding.
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Condensed Balance Sheets......... 3
Consolidated Statements of Income............. 5
Consolidated Statements of Shareholders'
Equity...................................... 6
Consolidated Statements of Cash Flows......... 7
Notes to Consolidated Financial Statements.... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 11
Item 3. Quantitative and Qualitative Disclosure About
Market Risk................................... 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders.............................. 14
Item 5. Other Information............................... 14
Item 6. Exhibits and Reports on Form 8-K................ 14
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
A S E T S
July 31 January 31 July 31
1998 1998 1997
(In Thousands)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 6,014 $ 16,937 $ 1,656
Short-term investments 1,744 1,637 1,647
Accounts receivable, net 518 2,775 808
Merchandise inventory 144,523 126,498 148,174
Prepaid expenses and other 2,833 2,078 5,121
Future income tax benefits 7,899 7,899 5,544
---------- --------- ---------
Total current assets 163,531 157,824 162,950
PROPERTY AND EQUIPMENT, NET 93,624 93,165 91,369
FUTURE INCOME TAX BENEFITS AND
OTHER NONCURRENT ASSETS 12,727 9,541 8,519
---------- --------- ---------
Total assets $ 269,882 $ 260,530 $ 262,838
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 13,618 $ - $ 28,152
Current portion of long-term debt 3,011 2,959 3,190
Accounts payable, trade 49,507 49,832 31,941
Accrued income taxes - 1,671 -
Current portion, deferred income
and deferred gain on sale and
leaseback 11,379 11,402 11,257
Accrued payroll 4,388 5,810 4,655
Other liabilities 10,612 7,263 5,758
--------- --------- ---------
Total current liabilities 92,515 78,937 84,953
--------- --------- ---------
<PAGE>
Liabilities and Shareholders' Equity (Continued)
LONG-TERM LIABILITIES:
Long-term debt 53,093 52,661 52,219
Deferred income 16,928 17,886 17,683
Deferred gain on sale and
leaseback 4,793 5,264 5,736
--------- --------- ---------
Total long-term liabilities 74,814 75,811 75,638
--------- --------- ---------
SHAREHOLDERS' EQUITY:
Common stock 97 97 97
Paid-in capital 58,403 57,896 57,672
Retained earnings 66,773 64,175 58,919
Treasury stock (22,720) (16,386) (14,441)
--------- --------- ---------
Total shareholders' equity 102,553 105,782 102,247
--------- --------- ---------
Total liabilities and
shareholders' equity $ 269,882 $ 260,530 $ 262,838
========= ========= =========
</TABLE>
[FN]
The accompanying notes are an integral part of
these unaudited consolidated statements.
<PAGE>
<TABLE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Six Months Ended
July 31 July 31
1998 1997 1998 1997
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
NET SALES $ 92,446 $ 89,899 $180,410 $178,164
COSTS AND EXPENSES:
Cost of merchandise sold 66,402 64,051 130,384 127,921
Selling, general and
administrative expenses 21,818 21,660 43,034 43,233
-------- -------- -------- --------
Total costs and expenses 88,220 85,711 173,418 171,154
-------- -------- -------- --------
INCOME FROM OPERATIONS 4,226 4,188 6,992 7,010
INVESTMENT INCOME 45 22 223 50
INTEREST EXPENSE 1,659 1,963 2,918 3,495
-------- -------- -------- --------
Income before income taxes 2,612 2,247 4,297 3,565
PROVISION FOR INCOME TAXES 1,033 888 1,699 1,409
-------- -------- -------- --------
NET INCOME $ 1,579 $ 1,359 $ 2,598 $ 2,156
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,644 7,885 7,670 7,940
======== ======== ======== ========
BASIC NET INCOME PER SHARE $ 0.21 $ 0.17 $ 0.34 $ 0.27
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVA-
LENT SHARES OUTSTANDING 8,011 8,144 8,034 8,181
======== ======== ======== ========
DILUTED NET INCOME
PER SHARE $ 0.20 $ 0.17 $ 0.32 $ 0.26
======== ======== ======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of
these unaudited consolidated statements.
<PAGE>
<TABLE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Common Shares
-------------------------------
Issued Treasury Paid-in Retained
Shares Amount Shares Amount Capital Earnings
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at
July 31, 1997 9,665 $ 97 1,763 $14,441 $57,672 $58,919
Common stock
issued 23 - - - 224 -
Treasury stock
acquired - - 192 1,945 - -
Net income - - - - - 5,256
----- ------ --- ------ ------- -------
Balance at
January 31, 1998 9,688 $ 97 1,955 $16,386 $57,896 $64,175
Common stock
issued 68 - - - 507 -
Treasury stock
acquired - - 529 6,334 - -
Net income - - - - - 2,598
----- ------ --- ------ ------- -------
Balance at
July 31, 1998 9,756 $ 97 2,484 $22,720 $58,403 $66,773
===== ====== ===== ======= ======= =======
</TABLE>
[FN]
The accompanying notes are an integral part of
these unaudited consolidated statements.
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
July 31
1998 1997
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,598 $ 2,156
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization, net 1,573 1,481
Deferred income (981) (182)
Accounts receivable 2,258 669
Merchandise inventory (18,025) (13,141)
Other current assets (758) (2,906)
Accounts payable, trade (325) 676
Other liabilities 256 (1,931)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (13,404) (13,178)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investments and other
assets (3,293) (2)
Capital expenditures (4,175) (3,680)
Capital disposals 1,675 1
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (5,793) (3,681)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 13,618 16,010
Payments of long-term debt (2,224) (1,354)
Long-term debt borrowings 2,707 2,530
Common stock issued 507 443
Treasury stock acquired (6,334) (3,073)
-------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 8,274 14,556
-------- --------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (10,923) (2,303)
CASH AND CASH EQUIVALENTS,
beginning of period 16,937 3,959
-------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 6,014 $ 1,656
</TABLE> ======== ========
[FN]
The accompanying notes are an integral part of
these unaudited consolidated statements.
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1998
Note 1. Consolidated Financial Statements
The consolidated financial statements included in this report have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission and include, in the opinion of
management, all adjustments necessary to state fairly the information set
forth therein. Any such adjustments were of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these unaudited
consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended January 31, 1998.
Note 2. Accounting Policies
The interim consolidated financial statements have been prepared in
accordance with the accounting policies described in the notes to the
consolidated financial statements included in the Company's 1998 Annual
Report on Form 10-K. While management believes that the procedures followed
in the preparation of interim financial information are reasonable, the
accuracy of some estimated amounts is dependent upon facts that will exist or
calculations that will be accomplished at fiscal year end. Examples of such
estimates include changes in the LIFO reserve (based upon the Company's best
estimate of inflation to date) and management bonuses. Any adjustments
pursuant to such estimates during the quarter were of a normal recurring
nature.
Certain reclassifications have been made to prior year amounts to
conform with their fiscal 1999 presentation.
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Note 3. Stock Option Plans
The following summarizes options granted, exercised and canceled or
expired during the six months ended July 31, 1998:
<TABLE>
<CAPTION>
Shares Under Stock
Option Plans
<S> <C>
Outstanding at January 31, 1998
($3.375 to $18.975 per share) 2,287,464
Granted ($11.50 to $12.50 per share) 346,625
Exercised ($6.875 to $10.375 per share) 68,145
Canceled or expired ($14.30 per share) 6,993
---------
Outstanding at July 31, 1998
($3.375 to $18.975 per share) 2,558,951
=========
</TABLE>
Note 4. Net Income Per Share
Effective January 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS 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 three
and six month periods ended July 31, 1997 have been restated as follows:
<TABLE>
<CAPTION>
Per Share Amounts
Three Months Six Months
Ended Ended
July 31, 1997 July 31, 1997
<S> <C> <C>
Primary net income per share,
as reported $0.17 $0.26
Effect of SFAS 128 - 0.01
----- -----
Basic net income per share,
as restated $0.17 $0.27
===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The following table reconciles the basic and diluted net income per
share computations for each period presented:
Three Months Ended
July 31, 1998 July 31, 1997
Per Per
Income Shares Share Income Shares Share
<S> <C> <C> <C> <C> <C> <C>
Basic net income
per share $1,579 7,644 $0.21 $1,359 7,885 $0.17
===== =====
Effect of stock
options - 367 - 259
------ ----- ------ -----
Diluted net income
per share $1,579 8,011 $0.20 $1,359 8,144 $0.17
====== ===== ===== ====== ===== =====
Six Months Ended
July 31, 1998 July 31, 1997
Per Per
Income Shares Share Income Shares Share
<S> <C> <C> <C> <C> <C> <C>
Basic net income
per share $2,598 7,670 $0.34 $2,156 7,940 $0.27
===== =====
Effect of stock
options - 364 - 241
------ ----- ------ -----
Diluted net income
per share $2,598 8,034 $0.32 $2,156 8,181 $0.26
====== ===== ===== ====== ===== =====
As of July 31, 1998, a total of 1,139,967 shares subject to outstanding
options at exercise prices ranging from $13.00 to $18.975 per share were not
included in the common equivalent shares outstanding calculation as the
exercise prices were above the average trading price of the Company's stock
for the three and six months ended July 31, 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Company is a leader in the consumer electronics/appliance
retailing industry with 220 stores in 35 states, operating predominantly
in small to medium sized markets under the trade name "REX".
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>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31 July 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 71.8 71.2 72.3 71.8
----- ----- ----- -----
Gross profit 28.2 28.8 27.7 28.2
Selling, general and
administrative expense 23.6 24.1 23.8 24.3
----- ----- ----- -----
Income from operations 4.6 4.7 3.9 3.9
Interest, net 1.8 2.2 1.5 1.9
----- ----- ----- -----
Income before income
taxes 2.8 2.5 2.4 2.0
Provision for income taxes 1.1 1.0 1.0 .8
----- ----- ----- -----
Net income 1.7% 1.5% 1.4% 1.2%
===== ===== ===== =====
</TABLE>
<PAGE>
Comparison of Three and Six Months Ended July 31, 1998 and 1997
Net sales in the second quarter ended July 31, 1998 were $92.4
million compared to $89.9 million in the prior year's comparable period,
representing an increase of $2.5 million or 2.8%. This increase is
primarily a result of an increase in comparable store sales of 2.0%,
along with increased sales at non-comparable stores. Net sales for the
first half of fiscal 1999 were $180.4 million compared to $178.2 million
in the first half of fiscal 1998, representing an increase of $2.2
million or 1.3%. This increase is primarily a result of an increase in
non-comparable store sales, as comparable store sales were flat for the
first half of fiscal 1999. The Company considers a store to be
comparable after it has been open six fiscal quarters.
As of July 31, 1998, the Company had 220 stores compared to 219
stores one year earlier. There were two stores opened and four closed
in the first half of fiscal 1999. In the prior year's first half there
were two stores opened and three closed. 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.
Gross profit of $26.0 million in the second quarter of fiscal 1999
(28.2% of net sales) was 0.8% higher than the $25.8 million gross profit
(28.8% of net sales) recorded in the second quarter of fiscal 1998. In
the first half of fiscal 1999 gross profit was $50.0 million (27.7% of
net sales), a 0.4% decrease from $50.2 million (28.2% of net sales) for
the first half of fiscal 1998. The reduced gross profit margin, as a
percent of net sales, for the first half of fiscal 1999 is primarily the
result of a change in the merchandise mix, partially offset by 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 the second quarter
of fiscal 1999 were $21.8 million (23.6% of net sales), a 0.7% increase
over the $21.7 million (24.1% of net sales) for the second quarter of
fiscal 1998. Selling, general and administrative expenses for the first
half of fiscal 1999 were $43.0 million (23.8% of net sales), a 0.5%
decrease from $43.2 million (24.3% of net sales)for the first half of
fiscal 1998. The decrease in expense, as a percent of net sales, is
primarily attributable to lower advertising expenditures in certain
markets, partially offset by an increase in incentive commissions for
sales personnel.
Interest expense decreased to $1.7 million (1.8% of net sales) for
the quarter ended July 31, 1998 from $2.0 million (2.2% of net sales)
for the second quarter of fiscal 1998. Interest expense for the first
half of fiscal 1999 decreased to $2.9 million (1.5% of net sales) from
$3.5 million (1.9% of net sales) for the first half of fiscal 1998. The
decrease in interest expense is a result of lower borrowings on the line
of credit primarily due to lower inventory levels during the first half
of fiscal 1999 compared to fiscal 1998.
<PAGE>
The effective tax rate was approximately 39.5% for all periods
presented.
As a result of the foregoing, net income for the second quarter of
fiscal 1999 was $1.6 million, a 16.2% increase from $1.4 million for the
second quarter of fiscal 1998. Net income for the first half of fiscal
1999 was $2.6 million, a 20.5% increase from $2.2 million for the first
half of fiscal 1998.
Liquidity and Capital Resources
Net cash used in operating activities was $13.4 million for the
first half of fiscal 1999, compared to $13.2 million for the prior
year's first half. Cash was provided by net income of $2.6 million,
adjusted for non-cash charges of $592,000. The primary use of cash was
an increase in inventory of $18.0 million primarily due to seasonal
fluctuations. Changes in other working capital items provided cash of
approximately $1.4 million.
At July 31, 1998, working capital was $71.0 million compared to
$78.9 million at January 31, 1998. The ratio of current assets to
current liabilities was 1.8 to 1 at July 31, 1998 and 2.0 to 1 at
January 31, 1998.
The Company had outstanding borrowings on its revolving line of
credit of $13.6 million at July 31, 1998 at an average interest rate of
approximately 7.75%. At July 31, 1998, the Company had approximately
$76.7 million borrowing availability on the revolving line of credit.
Forward-Looking Statements
This Form 10-Q contains or may contain forward-looking statements
as defined in the Private Securities Litigation Reform Act of 1995. The
words "believes", "estimates", "plans", "expects", "intends",
"anticipates" and similar expressions as they relate to the Company or
its management are intended to identify such forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties. Factors that could cause actual results to differ
materially from those in the forward-looking statements are set forth in
Exhibit 99 to the Company's Form 10-Q for the quarter ended October 31,
1997 (File No. 0-13283).
Item 3. Quantitative and Qualitative Disclosure About Market Risk
None.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of shareholders of REX Stores Corporation was
held on June 4, 1998, at which the following matter was submitted to a
vote of shareholders:
1. Election of five directors. The vote on this matter was as
follows:
Broker
Nominee For Withheld Nonvotes
Stuart Rose 6,742,495 6,770 0
Lawrence Tomchin 6,742,495 6,770 0
Robert Davidoff 6,742,495 6,770 0
Edward Kress 6,742,435 6,830 0
Lee Fisher 6,742,495 6,770 0
Item 5. Other Information.
Shareholder proposals intended to be submitted at the Company's
1999 annual meeting of shareholders outside the processes of Rule 14a-8
will be considered untimely under Rule 14a-4(c)(1) if not received by
the Company at its principal offices on or before March 17, 1999.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed with this report:
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the quarter ended July 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REX STORES CORPORATION
Registrant
September 10, 1998 STUART A. ROSE
Stuart A. Rose
Chairman of the Board
(Chief Executive Officer)
September 10, 1998 DOUGLAS L. BRUGGEMAN
Douglas L. Bruggeman
Vice President, Finance and
Treasurer
(Principal Financial and
Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000744187
<NAME> REX STORES CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-1-1998
<PERIOD-END> JUL-31-1998
<EXCHANGE-RATE> 1
<CASH> 6,014
<SECURITIES> 1,744
<RECEIVABLES> 993
<ALLOWANCES> 475
<INVENTORY> 144,523
<CURRENT-ASSETS> 166,717
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<CURRENT-LIABILITIES> 92,515
<BONDS> 53,093
<COMMON> 97
0
0
<OTHER-SE> 102,456
<TOTAL-LIABILITY-AND-EQUITY> 269,882
<SALES> 180,410
<TOTAL-REVENUES> 180,410
<CGS> 130,384
<TOTAL-COSTS> 130,384
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<LOSS-PROVISION> 0
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</TABLE>
