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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, 1999 COMMISSION FILE NO. 0-13283
REX STORES CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
------------------------
Registrant's telephone number, including area code (937) 276-3931
-------------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
Common Stock, $.01 par value New York Stock Exchange
</TABLE>
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 15, 1999 the aggregate market value
of the registrant's outstanding Common Stock held by non-affiliates of the
registrant (for purposes of this calculation, 2,428,527 shares beneficially
owned by directors and executive officers of the registrant were treated as
being held by affiliates of the registrant), was $76,263,759.
There were 7,625,376 shares of the registrant's Common Stock
outstanding as of April 15, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of REX Stores Corporation's definitive Proxy Statement for its
Annual Meeting of Shareholders on June 7, 1999 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 228 stores in 35 states under the
trade name "REX." The Company's stores average approximately 10,900 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.
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:
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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. 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.
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The Company will either lease or purchase new store sites depending upon
opportunities available to it and relative costs. Of the 20 new stores opened in
fiscal 1999 and 1998, ten were leased sites and ten were Company purchased
sites. For leased stores, the Company anticipates per store capital expenditures
of approximately $75,000 to $250,000. 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 50 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 Radar Detectors
TV/VCR Camcorders Receivers Dehumidifiers Tapes
Combos Digital Satellite System Compact Disc Players Microwave Ovens Ready to Assemble (RTA)
Digital Video Disc Turntables Washers Furniture
(DVD) Players Tape Decks Dryers Telephones
Speakers Ranges CB Radios
Car Stereos Dishwashers Fax Machines
Portable Radios Refrigerators Extended Service Contracts
Freezers
Vacuum Cleaners
</TABLE>
The leading brands sold by the Company during fiscal 1999 (in
alphabetical order) were General Electric, Hitachi, Hotpoint, JVC, Magnavox,
Panasonic, Pioneer, RCA, Sharp, 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 223 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 1997 1998 1999
---------------- ---- ---- ----
<S> <C> <C> <C>
Televisions............................................... 36% 36% 36%
Video..................................................... 18 19 17
Audio..................................................... 18 17 18
Appliances................................................ 18 20 21
Other..................................................... 10 8 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.
Subsequent to year end the Company has been testing in certain markets increased
television advertising and may use more television and radio advertising in the
future.
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 merchandise in large
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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 1999, six vendors accounted for approximately 55% of
the Company's purchases. The Company 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 150 stores are located in free-standing buildings, with
the balance situated in strip shopping centers and malls. In fiscal 1998 and
1999, eight of the Company's ten new leased stores were in mall locations that
provide exterior access and signage rights. The Company will select locations
for future stores based on its evaluation of individual site economic and market
conditions.
The Company's stores average approximately 10,900 square feet including
storage space, not including the two stores located in the Company's regional
distribution centers. Stores typically have, on average, approximately 7,600
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.
6
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The following table shows the Company's store locations as of January 31,
1999:
<TABLE>
<CAPTION>
STORE LOCATIONS
Alabama: (12) Idaho: (5) Massachusetts: (2) North Carolina: (5) South Carolina: (10)
- ------------- ---------- ------------------ ------------------- --------------------
<S> <C> <C> <C> <C>
Athens Coeur d'Alene Hadley Asheville Aiken
Auburn Idaho Falls Lanesborough Goldsboro Anderson
Daphne Lewiston Hendersonville Charleston
Decatur Pocatello Michigan: (3) Rocky Mount Florence
Florence Twin Falls ------------- Salisbury Greenwood
Gadsden Adrian Murrell's Inlet
Huntsville Iowa: (12) Bay City North Dakota: (3) North Myrtle Beach
Mobile (2) ---------- Benton Harbor ----------------- Orangeburg
Montgomery Burlington Bismarck Rock Hill
Oxford Council Bluffs Minnesota: (1) Grand Forks Sumter
Tuscaloosa Des Moines (2) -------------- Minot
Dubuque Willmar South Dakota: (3)
Arkansas: (1) Ft. Dodge Ohio: (17) -----------------
- ------------- Marshalltown Missouri: (3) ---------- Aberdeen
Springdale Mason City ------------- Ashtabula Rapid City
Ottumwa Jefferson City Beavercreek Watertown
Colorado: (3) Sioux City Joplin Dayton (2)
- ------------- Waterloo St. Joseph Defiance Tennessee: (6)
Grand Junction West Des Moines Kettering --------------
Greeley Mississippi: (11) Lima Bristol
Pueblo Illinois: (10) ----------------- Marion Chattanooga
-------------- Columbus Miamisburg Cleveland
Florida: (28) Alton Gautier Middletown Johnson City
- ------------- Bradley Greenville New Philadelphia Kingsport
Charlotte Harbor Carbondale Gulfport Piqua Morristown
Crystal River Danville Hattiesburg Sandusky
Ft. Pierce Decatur Jackson (2) St. Clairsville Texas: (10)
Gainesville Galesburg Meridian Springfield ------------
Hudson Pekin Ridgeland Wheelersburg Brownsville
Lake City Peru Tupelo Wooster Denton
Largo Quincy Vicksburg Harlingen
Leesburg Sterling Oklahoma: (2) Lake Jackson
Mary Esther Montana: (2) ------------- Longview
Melbourne Indiana: (3) ------------ Enid Midland
Merritt Island ------------ Butte Lawton Odessa
Naples (2) Anderson Great Falls San Angelo
Ocala Muncie Pennsylvania: (18) Sherman
Palm Harbor Richmond Nebraska: (3) ------------------ Victoria
Panama City ------------- Altoona
Pensacola (2) Kansas: (2) Grand Island Bloomsburg Virginia: (1)
Sarasota ----------- Norfolk Chambersburg -------------
St. Augustine Hutchinson North Platte Cranberry Danville
St. Petersburg Lawrence Erie (2)
Spring Hill New York: (20) Frackville Washington: (2)
Stuart Kentucky: (3) -------------- Greensburg ---------------
Tallahassee (2) ------------- Auburn Hanover Union Gap
Titusville Ashland Clifton Park Hazleton Wenatchee
Venice Hopkinsville Cortland Hermitage
Vero Beach Paducah Fredonia Indiana West Virginia: (5)
Geneva Johnstown ------------------
Georgia: (8) Louisiana: (6) Horseheads Lower Burrell Beckley
- ------------ -------------- Ithaca Meadville Bluefield
Albany Alexandria Kingston New Castle Bridgeport
Augusta Baton Rouge Lakewood Scranton Morgantown
Brunswick Houma Latham Wilkes-Barre Vienna
LaGrange Lake Charles Lockport
Macon New Iberia New Hartford Wisconsin: (4)
Rome Opelousas Niagara Falls --------------
Valdosta Olean Fond du Lac
Warner Robins Maryland: (2) Plattsburg Janesville
------------- Queensbury Manitowac
Cumberland Rome Oshkosh
Hagerstown Schenectady
Utica Wyoming: (2)
Watertown ------------
Casper
Cheyenne
</TABLE>
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In fiscal 1999, the Company opened 12 new stores, with three stores each
in Idaho and New York, two stores in Pennsylvania and one store each in Alabama,
Florida, Ohio and South Carolina.
The Company's operations are divided into regional districts, containing
from two to 12 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, eight and six stores during fiscal 1997, 1998 and 1999, respectively.
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.
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The Company accepts MasterCard, Visa and Discover. The Company estimates
that, during fiscal 1999, approximately 31% of its total sales were made on
these credit cards, and approximately 11% 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 $3.0 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, furniture stores, warehouse clubs and catalog
showrooms. Some of these competitors have greater
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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 ten of the Company's stores are located in buildings
owned by the Company. The remaining 118 stores operate on leased premises, with
the unexpired terms of the leases ranging from one year to 26 years, inclusive
of options to renew, except for four month to month leases. For fiscal 1999, the
total net rent expense for the Company's leased facilities was approximately
$6,932,000.
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, 1999, the Company had 142 hourly and salaried employees
and 899 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.
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.
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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.............................. 44 Chairman of the Board and Chief Executive Officer*
Lawrence Tomchin ........................ 71 President and Chief Operating Officer*
Douglas Bruggeman ....................... 38 Vice President-Finance and Treasurer
Edward Kress ............................ 49 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, 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
April 30, 1998 15.75 9.88
July 31, 1998 15.25 10.88
October 31, 1998 12.75 9.81
January 31, 1999 14.13 10.88
</TABLE>
As of April 15, 1999, there were 275 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) 1999 1998 1997 1996 1995
- ----------------------------------------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $416,673 $411,005 $427,378 $442,217 $382,775
Net income $ 11,195 $ 7,412 $ 7,362 $ 14,573 $ 12,596
Basic net income per share $ 1.51 $ 0.94 $ 0.82 $ 1.62 $ 1.48
Diluted net income per share $ 1.43 $ 0.91 $ 0.80 $ 1.56 $ 1.40
Total assets $268,282 $260,530 $248,034 $234,599 $192,616
Long-term debt, net of current maturities $ 55,478 $ 52,661 $ 51,102 $ 32,590 $ 25,595
</TABLE>
(A) Per share amounts for the years ended January 31, 1995 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
----------------------------------------------------------------------
(In Thousands Except Per Share Amounts)
April 30, July 31, October 31, January 31,
1998 1998 1998 1999
--------- ------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $87,964 $92,446 $92,634 $143,629
Cost of merchandise sold 63,982 66,402 67,326 105,184
Net income 1,019 1,579 732 7,865
Basic net income per share (a) $.13 $.21 $.10 $1.10
Diluted net income per share (a) $.13 $.20 $.10 $1.04
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------------------------
(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>
(a) The total of the quarterly net income per share amounts is more than the
annual net income per share amounts due to 70% of the Company's net income
occurring in the fourth quarter of fiscal 1999. In addition, the fourth
quarter per share amounts reflect, for the entire quarter, the Company's
632,000 shares repurchased, while the annual per share amounts only reflect
the decreased outstanding shares for the average time held in treasury.
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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 under the
trade name "REX." Since acquiring its first four stores in 1980, the Company has
expanded into a national chain operating 228 stores in 35 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 1999, 1998 and 1997, the Company opened 12, eight, and 35
stores, respectively. The Company closed six, eight and 12 stores in fiscal
1999, 1998 and 1997, respectively. Comparable store sales were flat for fiscal
1999 after declining 10.5% and 17.5% in fiscal 1998 and 1997, respectively. 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
3.7%, 3.5% and 2.9% of net sales for fiscal 1999, 1998 and 1997, respectively.
Service contract costs are charged to operations as incurred. Gross profit
realized from extended service contract revenues was $10.3 million, $11.0
million and $9.6 million in fiscal 1999, 1998 and 1997, 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,
------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of merchandise sold 72.7 72.4 74.4
-------- -------- --------
Gross profit 27.3 27.6 25.6
Selling, general and administrative expenses 22.4 22.9 21.5
-------- -------- --------
Income from operations 4.9 4.7 4.1
Interest, net (1.5) (1.7) (1.3)
Gain on sale of real estate .6 - -
Equity in losses of limited partnerships (.3) - -
-------- -------- --------
Income before income taxes 3.7 3.0 2.8
Provision for income taxes 1.0 1.2 1.1
-------- -------- --------
Net income 2.7% 1.8% 1.7%
-------- -------- --------
-------- -------- --------
</TABLE>
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1999 AND 1998
Net sales in fiscal 1999 were $416.7 million, a 1.4% increase from the
$411.0 million achieved in fiscal 1998. This increase was caused by the addition
of 12 stores opened in the current fiscal year and the first full year of sales
for eight stores opened in the previous fiscal year. Comparable store sales for
fiscal 1999 were flat in comparison to fiscal 1998. During fiscal 1999, the
Company opened 12 stores and closed six, while during fiscal 1998 the Company
opened eight stores and closed eight. The Company had 228 and 222 stores open at
January 31, 1999 and 1998, respectively.
Comparable store sales benefited from increases in the audio (approximately
1.4%) and appliance categories (approximately 1.3%), as well as ready to
assemble (RTA) furniture (approximately 1.0%). The increase in sales for
appliances and RTA furniture is a result of expanded offerings in both
categories. Subsequent to yearend, the Company added Maytag products to its
appliance line and as such would expect the appliance business to continue to
show improvement in the future.
Comparable store sales were negatively impacted by the television
(approximately 0.1%) and video products categories (approximately 2.7%) and the
Company's decision to discontinue selling personal computers during fiscal 1998
(approximately 1.0%). Television and video products were negatively impacted by
a continued decline in average selling prices. There was also a general softness
in demand for video products due to the pending transition to digital products.
There will not be a continuing effect in fiscal 2000 on
16
<PAGE>
<PAGE>
comparable store sales from personal computers as the Company sold a limited
number of personal computers in fiscal 1999.
Gross profit of $113.8 million in fiscal 1999 (27.3% of net sales) was 0.5%
higher than the $113.2 million (27.6% of net sales) recorded the prior year. The
reduced gross profit margin, as a percent of sales, was primarily the result of
the changes in merchandise sales mix discussed above.
Selling, general and administrative expenses for fiscal 1999 were $93.6
(22.4% of net sales), a 0.5% decline from $94.1 million (22.9% of net sales) in
fiscal 1998. The decrease in expense was primarily due to lower advertising
expenditures in certain markets (approximately $2.3 million), partially offset
by an increase in compensation expense (approximately $1.2 million) resulting
from increased total sales and profits.
Income from operations was $20.2 (4.9% of net sales) in fiscal 1999, a 5.2%
increase from $19.2 million (4.7% of net sales) for fiscal 1998. The increase
was primarily due to increased total sales and controls over advertising
expenditures.
Interest expense decreased to $6.4 million in fiscal 1999 from $7.1 million
in fiscal 1998. The decrease in interest expense is primarily attributable to
lower borrowings on the line of credit (average outstanding borrowings of
approximately $15.8 million in fiscal 1999 versus approximately $22.2 million in
fiscal 1998).
During fiscal 1999, the Company sold two shopping centers in which it had
previously operated retail stores. The Company recorded a gain of approximately
$2.4 million from the sale of this real estate.
Results for the fiscal year ended January 31, 1999 also reflect the impact
of the Company's $3.2 million equity investment in two limited partnerships
which produce synthetic fuels. The Company recorded a pre-tax charge of
approximately $1.3 million to record its share of the partnerships' operating
losses. The Company's effective tax rate was also reduced to 26.3% in fiscal
1999 from 39.5% in fiscal 1998, as a result of the Company's share of Federal
tax credits earned by the partnerships under Section 29 of the Internal Revenue
Code.
Effective February 1, 1999, the Company entered into an agreement to sell a
portion of its investment in one of the limited partnerships, which will result
in a reduction in the Company's ownership interest from 30% to 17%. The total
sales proceeds to be received by the Company are contingent upon the amount of
Federal income tax credits generated by the limited partnership attributable to
the 13% interest sold by the Company. The Company will receive cash proceeds on
a quarterly basis beginning in the first quarter of fiscal 2000 (April 30,
1999). The Company does not anticipate that the sale of this interest will
result in a loss.
17
<PAGE>
<PAGE>
As a result of the foregoing, net income was $11.2 and $7.4 million for
fiscal 1999 and 1998, respectively.
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1998 AND 1997
Net sales in fiscal 1998 were $411.0, 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.
Comparable stores sales were negatively impacted by the Company's decision
to discontinue selling personal computers (approximately 2.0%) and general
weakness in the video, audio and television categories partly due to the
approaching transition to digital technology, declining prices and increased
competition. The decision to discontinue selling personal computers will
continue to negatively impact comparable store sales in fiscal 1999. The
appliance category continued to expand (overall 4.1% increase) as the Company
had expanded its offering and marketing efforts of this category. The Company
also recognized a higher amount of extended service contract revenues on the
straight-line basis as higher sales levels from recent years began to amortize.
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 in 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 (approximately $2.6
million). 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 the $17.7 million (4.1% of net sales) for fiscal
1997. The increase was primarily due to the improved gross profit margin.
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 and fiscal 1997).
18
<PAGE>
<PAGE>
The effective tax rate was 39.5% for fiscal 1998 and 1997.
As a result of the foregoing, net income was $7.4 million in fiscal 1998
and 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of financing have been cash flow provided by
net income, mortgages on owned properties and borrowings under its revolving
line of credit.
Net cash provided by operating activities was $10.2 million and $35.5
million for fiscal 1999 and 1998, respectively. For fiscal 1999, operating cash
flow was provided by net income of $11.2 million adjusted for the net impact of
non-cash items of $1.0 million, which primarily consisted of depreciation, the
gain on sale of real estate and the Company's equity interest in the losses of
the limited partnership investments. Cash was also provided by an increase in
accounts payable of $2.8 million, primarily due to extended payment terms and
the timing of payments to vendors. Cash was used by an increase in inventory of
$5.5 million generally due to the timing of purchases.
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 other non-cash charges of $2.0 million. Cash was
provided by a decrease in inventory of $8.5 million, primarily as a result of
the discontinuation of the sale of personal computers and a general inventory
reduction in the consumer electronics categories due to lower demand. Cash was
also provided by an increase in accounts payable of $18.6 million due to the
timing of purchases and extended payment terms from various vendors.
At January 31, 1999, working capital was $77.4 million compared to $77.3
million at January 31, 1998. The ratio of current assets to current liabilities
was 1.9 to 1 at January 31, 1999 compared to 2.0 to 1 at January 31, 1998.
Capital expenditures in fiscal 1999 totaled $12.7 million. Expenditures
were primarily to open 12 retail stores (approximately $7.9 million), relocate
two stores (approximately $2.1 million) and the purchase of three previously
leased stores (approximately $2.1 million). In fiscal 1999, the Company also
invested $3.2 million in two synthetic fuel limited partnerships. 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 1999, the Company purchased 632,000 shares of its common
stock for $7.5 million. During fiscal 1998, the Company purchased 567,000 shares
of its common stock for $5.0 million. At January 31, 1999, the Company is
authorized by its Board of Directors to purchase an additional 465,000 shares of
its common stock and all shares purchased will be held in treasury for possible
future use.
19
<PAGE>
<PAGE>
Subsequent to January 31, 1999, the Company received total proceeds of
approximately $1.7 million from the exercise by employees of 512,079 of
non-qualified stock options at a price of $3.38 per share.
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, 1999 and 1998, no borrowings were outstanding on the
revolving credit agreement. A total of approximately $84.1 million was available
at January 31, 1999. 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 1999 were approximately $41.9 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 9.6%
(including commitment fees) for fiscal 1999. 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, 1999, the Company had approximately $58.6 million of
mortgage debt outstanding (including $7.0 million obtained in fiscal 1999 from
mortgaging eight properties) at a weighted average interest rate of 8.8%, with
maturities from 2000 to 2014. The Company has balloon payments due totaling
approximately $800,000 over the next two fiscal years, which the Company expects
to either refinance with long-term mortgage debt or satisfy through borrowings
on the revolving credit agreement.
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 34.5% and 35.2% of net sales and 49.8% and 50.4% of income
from operations in fiscal 1999 and 1998, 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.
IMPACT OF INFLATION
The impact of inflation has not been material to the Company's results of
operations for the past three fiscal years.
20
<PAGE>
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which requires companies to
recognize all derivative contracts at their fair values, as either assets or
liabilities on the balance sheet. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designed as part of a hedge transaction
and, if it is, the type of hedge transaction. The Company does not expect the
adoption of SFAS No. 133 to have a material impact on the consolidated financial
statements because the Company does not currently hold any derivative
instruments.
YEAR 2000 ISSUE
The statements in this section include "Year 2000 readiness disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
Certain software and hardware systems are time sensitive. Older time
sensitive systems often use a two digit dating convention ("00" rather than
"2000") that could result in system failure and disruption of operations as the
Year 2000 approaches. This is referred to as the Year 2000 issue. The Year 2000
issue will impact the Company, its suppliers, customers and other third parties
that transact business with the Company.
The Company has a staff of internal resources (the "Year 2000 Team") to
address Year 2000 issues. This team believes that it has identified
substantially all hardware and software systems within the Company which may be
susceptible to Year 2000 issues. Projects have been established to address all
significant Year 2000 issues. The Year 2000 Team reports regularly to senior
management on the progress of significant Year 2000 projects.
Most Year 2000 activities are to test hardware and software systems,
including non-information technology systems such as telephones and store
security systems. The Company has determined that it needs to modify some of its
software. The Company believes all hardware systems are Year 2000 compliant. The
Company is reprogramming all of the systems impacted by Year 2000 issues and
these efforts were substantially complete by January 31, 1999. The testing of
these reprogramming efforts is currently in process. The Company is also
currently working with outside vendors on the compliance status of telephones
and store security systems.
21
<PAGE>
<PAGE>
The Company has initiated communications with significant suppliers,
customers and other relevant third parties that transact business with the
Company to identify and minimize disruptions to the Company's operations and to
assist in resolving Year 2000 issues. However, there can be no certainty that
the impacted systems and products of other parties on which the Company relies
will be Year 2000 compliant.
The Company generally believes that its vendors who supply products to the
Company for resale are responsible for Year 2000 functionality of those
products. However, should product failures occur, the Company may be required to
address the administrative aspects of those failures, such as handling product
returns or repairs.
The estimated cost for resolving Year 2000 issues are approximately
$175,000. Most of these costs are labor related to reprogramming existing
software. Estimates of Year 2000 costs are based on numerous assumptions; actual
costs could be greater than estimates. Specific factors that might cause such
differences include, but are not limited to, the continuing availability of
personnel trained in this area and the ability to timely identify and correct
all relevant software and hardware systems.
While the Company believes it is diligently addressing the Year 2000 issues
to ensure Year 2000 readiness, there can be no absolute assurance that the
objective will be achieved either internally or as it relates to third parties.
The Company anticipates completing substantially all of its Year 2000 projects
by July 31, 1999. In the event the Company falls short of these milestones,
additional internal resources will be focused on completing these projects or
implementing contingency plans.
FORWARD-LOOKING STATEMENTS
This Form 10-K 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 this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of January 31, 1999, the Company had financial instruments which were
sensitive to changes in interest rates. These financial instruments consist of a
revolving credit agreement and various mortgage notes payable secured by certain
land, buildings and leasehold improvements.
22
<PAGE>
<PAGE>
The revolving credit agreement expires on July 31, 2000. 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 specified percentages of eligible accounts
receivable and eligible inventories, as defined. 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. There were no borrowings outstanding at January 31, 1999.
Substantially all of the mortgage notes payable consist of fixed rate debt.
The interest rates are fixed from two to 15 years and range from 6.9% 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. The fair value of the Company's long-term
mortgage debt at January 31, 1999 was approximately $60.9 million. The fair
value was estimated based on rates available to the Company for debt with
similar terms and maturities.
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31, AMOUNT
----------------------- ------
<S> <C>
2000 $ 3,114
2001 4,060
2002 6,166
2003 5,067
2004 5,325
Thereafter 34,860
---------
$58,592
=========
</TABLE>
23
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
ASSETS (In Thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,912 $ 16,937
Accounts receivable, net of allowance for doubtful accounts of $430 and
$428 in 1999 and 1998, respectively (Note 5) 2,297 2,775
Merchandise inventory (Note 5) 132,002 126,498
Prepaid expenses and other 2,039 2,078
Equity investment in limited partnerships (Note 2) 1,838 --
Future income tax benefits 9,366 7,899
----------- ----------
Total current assets 159,454 156,187
PROPERTY AND EQUIPMENT, NET (Notes 1, 5 and 6) 98,891 93,165
FUTURE INCOME TAX BENEFITS 8,109 9,541
RESTRICTED INVESTMENTS (Note 1) 1,828 1,637
----------- ----------
Total assets $ 268,282 $ 260,530
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term mortgage debt (Note 6) $ 3,114 $ 2,959
Current portion of deferred income and deferred gain on sale
and leaseback (Notes 1 and 8) 11,453 11,402
Accounts payable, trade 52,674 49,832
Accrued income taxes 147 1,671
Accrued payroll 5,889 5,810
Other current liabilities 8,817 7,263
----------- ----------
Total current liabilities 82,094 78,937
LONG-TERM LIABILITIES:
Long-term mortgage debt (Note 6) 55,478 52,661
Deferred income (Note 1) 16,723 17,886
Deferred gain on sale and leaseback (Note 8) 3,777 5,264
----------- ----------
Total long-term liabilities 75,978 75,811
COMMITMENTS AND CONTINGENCIES (Notes 8 and 10)
SHAREHOLDERS' EQUITY (Notes 4, 5, and 7):
Common stock, 45,000 shares authorized, 9,767 and 9,688
shares issued, at par 98 97
Paid-in capital 58,596 57,896
Retained earnings 75,370 64,175
Treasury stock, 2,587 and 1,955 shares (23,854) (16,386)
----------- ----------
Total shareholders' equity 110,210 105,782
----------- ----------
Total liabilities and shareholders' equity $ 268,282 $ 260,530
=========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
24
<PAGE>
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(In Thousands,
Except Per Share Amounts)
<S> <C> <C> <C>
NET SALES $ 416,673 $ 411,005 $ 427,378
--------- --------- ---------
COSTS AND EXPENSES:
Cost of merchandise sold 302,894 297,757 317,767
Selling, general and administrative expenses 93,578 94,055 91,905
--------- --------- ---------
Total costs and expenses 396,472 391,812 409,672
--------- --------- ---------
INCOME FROM OPERATIONS 20,201 19,193 17,706
INVESTMENT INCOME 347 202 85
INTEREST EXPENSE (6,448) (7,143) (5,624)
GAIN ON SALE OF REAL ESTATE 2,410 -- --
EQUITY IN LOSSES OF LIMITED PARTNERSHIPS (1,312) -- --
--------- --------- ---------
Income before provision for
income taxes 15,198 12,252 12,167
PROVISION FOR INCOME TAXES 4,003 4,840 4,805
--------- --------- ---------
NET INCOME $ 11,195 $ 7,412 $ 7,362
========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 7,427 7,919 8,948
--------- --------- ---------
BASIC NET INCOME PER SHARE $ 1.51 $ 0.94 $ 0.82
========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 7,833 8,178 9,219
--------- --------- ---------
DILUTED NET INCOME PER SHARE $ 1.43 $ 0.91 $ 0.80
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
25
<PAGE>
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,195 $ 7,412 $ 7,362
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization, net 3,194 2,979 2,943
Gain on sale of real estate (2,410) -- --
Equity in losses of limited partnerships 1,312 -- --
Deferred income (993) 165 3,221
Deferred income tax provision (137) (1,015) (2,054)
Changes in assets and liabilities -
Accounts receivable 478 (1,298) 127
Merchandise inventory (5,504) 8,535 11,533
Other current assets 131 (2,228) (323)
Accounts payable, trade 2,842 18,567 (8,260)
Other current liabilities 109 2,400 (3,678)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,217 35,517 10,871
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,736) (8,015) (23,448)
Proceeds from sale of real estate and capital disposals 4,630 573 552
Equity investment in limited partnerships (3,150) -- --
Restricted investments (191) 8 (120)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (11,447) (7,434) (23,016)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in note payable -- (12,142) 2,815
Proceeds from long-term debt 7,003 4,473 21,911
Payments of long-term debt (4,031) (3,086) (2,318)
Common stock issued 701 668 497
Treasury stock acquired (7,468) (5,018) (7,486)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (3,795) (15,105) 15,419
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (5,025) 12,978 3,274
CASH AND CASH EQUIVALENTS, beginning of year 16,937 3,959 685
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ 11,912 $ 16,937 $ 3,959
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
26
<PAGE>
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
<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, 1996 9,521 $ 95 534 $ 3,882 $56,732 $49,401
Net income -- -- -- -- -- 7,362
Treasury stock acquired -- -- 854 7,486 -- --
Common stock issued 81 1 -- -- 497 --
----- ------- ----- ------- ------- -------
BALANCE, January 31, 1997 9,602 96 1,388 11,368 57,229 56,763
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
Net income -- -- -- -- -- 11,195
Treasury stock acquired -- -- 632 7,468 -- --
Common stock issued 79 1 -- -- 700 --
----- ------- ----- ------- ------- -------
BALANCE, January 31, 1999 9,767 $ 98 2,587 $23,854 $58,596 $75,370
===== ======= ===== ======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
27
<PAGE>
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1999 AND 1998
(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 228 retail consumer
electronics and appliance stores under the REX name in 35 states.
(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--Cash equivalents are principally short-term
investments with original maturities of less than three months.
The carrying amount of cash equivalents is a reasonable estimate
of fair value.
(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 cost or
market using the last-in, first-out (LIFO) method. Following the
lower of cost or market principle, the K&C inventory value using
the LIFO method ($32,405,000 and $30,203,000 at January 31, 1999
and 1998, respectively) is equivalent to the FIFO value for all
years presented. Six suppliers accounted for approximately 55% of
the Company's purchases in 1999.
(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 to 12 years. The
components of property and equipment at January 31, 1999 and 1998
are as follows:
28
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1999 1998
---- ----
( In thousands)
<S> <C> <C>
Land $ 26,716 $ 24,779
Buildings and improvements 64,586 59,006
Fixtures and equipment 15,477 14,615
Leasehold improvements 10,217 9,747
--------- -------
116,996 108,147
Less: accumulated depreciation (18,105) (14,982)
--------- ---------
$ 98,891 $ 93,165
========= =========
</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. There were no material
impairment losses incurred in the fiscal years ended January 31,
1999, 1998 and 1997.
(f) Restricted Investments--Restricted investments, which are
principally marketable securities, are stated at cost plus accrued
interest, which approximates market. The carrying amount of
restricted investments approximates fair value. Restricted
investments at January 31, 1999 and 1998 are restricted by two
states to cover possible future claims under product service
contracts.
(g) Revenue Recognition--The Company recognizes sales of products upon
receipt by the customer. The Company will honor returns from
customers within seven days from the date of sale. The Company
establishes liabilities for estimated returns at the point of
sale.
The Company also 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. 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. The Company retains the
obligation to perform warranty services and such costs are charged
to operations as incurred.
29
<PAGE>
<PAGE>
(h) Interest Cost--Interest expense of $6,448,000, $7,143,000 and
$5,624,000 for the years ended January 31, 1999, 1998 and 1997,
respectively, is net of approximately $238,000, $33,000 and
$193,000 of interest capitalized related to store construction.
Total interest expense approximates interest paid for all years
presented.
(i) Loan Acquisition Costs--Direct expenses and fees associated with
obtaining notes payable or long-term mortgage debt are capitalized
and amortized to interest expense over the life of the loan.
(j) Advertising Costs--Advertising costs are expensed as incurred.
Advertising expense was approximately $30,468,000, $32,813,000 and
$33,473,000 in 1999, 1998 and 1997, respectively.
(k) 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. Store closing costs
incurred in the fiscal years ended January 31, 1999, 1998 and 1997
were not material.
(2) INVESTMENT IN LIMITED PARTNERSHIPS-
During fiscal 1999, the Company invested $3,150,000 in two limited
partnerships which produce synthetic fuels. The Company accounts for its
ownership interest in the limited partnerships, which approximates 30%,
under the equity method. The Company recorded a pre-tax charge of
$1,312,000 in fiscal 1999 to reflect its equity in the losses of the
limited partnerships. The limited partnerships also earn Federal income
tax credits under Section 29 of the Internal Revenue Code based upon the
quantity and content of synthetic fuel production. The Company accounts
for its share of the income tax credits (approximately $2,000,000 earned
in fiscal 1999) as a reduction of the income tax provision in the period
earned (See Note 9).
(3) NET INCOME PER SHARE-
The Company reports net income per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings per Share."
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 1999, 1998
and 1997.
30
<PAGE>
<PAGE>
The following table reconciles the basic and diluted net income per share
computations for each year presented:
<TABLE>
<CAPTION>
1999
---------------------------------
Income Shares Per Share
------ -------- ----------
<S> <C> <C> <C>
Basic net income per share $11,195 7,427 $1.51
=====
Effect of stock options -- 406
------- -----
Diluted net income per share $11,195 7,833 $1.43
======= ===== =====
</TABLE>
<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
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
1997
---------------------------------
Income Shares Per Share
------ -------- ----------
<S> <C> <C> <C>
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
====== ===== =====
</TABLE>
For the years ended January 31, 1999, 1998 and 1997, a total of
1,164,000, 1,413,000, and 1,509,000 shares, subject to outstanding
options were not included in the common equivalent shares calculation as
the exercise prices were above the average trading price of the Company's
common stock for those periods.
SFAS No. 128 replaced the calculation of primary and fully diluted net
income per share under previous accounting standards with basic and
diluted net income per share. As a result of adopting SFAS No. 128, the
Company restated primary net income per share of $0.80 to basic net
income per share of $0.82 for the year ended January 31, 1997. There was
no impact of restating fully diluted net income per share to diluted net
income per share for the year ended January 31, 1997.
(4) COMMON STOCK TRANSACTIONS-
During the years ended January 31, 1999, 1998 and 1997, the Company
purchased 632,000, 567,000 and 854,000 shares of its common stock for
$7,468,000, $5,018,000 and $7,486,000, respectively. The Company is
authorized by its Board of Directors to purchase an additional 465,000
shares of its common stock and all shares purchased will be held in
treasury for possible future use.
31
<PAGE>
<PAGE>
(5) REVOLVING LINE OF CREDIT-
The Company has a revolving credit agreement with seven banks which
expires on 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 specified 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, 1999 and January 31, 1998. At
January 31, 1999, a total of approximately $84.1 million 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.
(6) LONG-TERM MORTGAGE DEBT-
Long-term mortgage debt consists of notes payable secured by certain
land, buildings and leasehold improvements. Interest rates range from
6.9% 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>
2000 $ 3,114
2001 4,060
2002 6,166
2003 5,067
2004 5,325
Thereafter 34,860
-------
$58,592
=======
</TABLE>
32
<PAGE>
<PAGE>
The fair value of the Company's long-term debt at January 31, 1999 and
1998 was approximately $60.9 million and $56.6 million, respectively. The
fair value was estimated based on rates available to the Company for debt
with similar terms and maturities.
(7) EMPLOYEE BENEFITS-
Stock Option Plans--The Company maintains the REX Stores Corporation 1995
Omnibus Stock Incentive Plan (the Omnibus 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, 1999, 21,405 shares remained
available for issuance. At January 31, 1999, 91,559 stock options also
remained outstanding under the 1984 Incentive Stock Option Plan which
expired in fiscal 1995.
On October 14, 1998, the Company's Board of Directors approved a grant of
non-qualified stock options to two key executives for 650,000 shares at
an exercise price of $9.94 per share, which represented the market price
on the date of grant. These options vest over a three-year period
commencing on December 31, 2000, and all of these options remained
outstanding at January 31, 1999. At January 31, 1999, non-qualified stock
options awarded in 1989 also remained outstanding and exercisable for
512,079 shares at an exercise price of $3.38 per share, which represented
the market price on the date of grant. All 512,079 of these non-qualified
stock options were exercised subsequent to year-end on March 23, 1999.
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:
33
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C>
Net income (000's): As reported $ 11,195 $ 7,412 $ 7,362
Pro forma 9,370 6,167 5,932
Basic net income per share: As reported $ 1.51 $ 0.94 $ 0.82
Pro forma 1.26 0.78 0.66
Diluted net income per share: As reported $ 1.43 $ 0.91 $ 0.80
Pro forma 1.25 0.79 0.72
</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 1999, 1998 and 1997,
respectively: risk-free interest rate of 5.7%, 5.7% and 6.3%; expected
volatility of 39.2%, 41.5% and 46.7%; and a weighted average stock option
life of 9 years, 5 years and 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, 1999, 1998 and 1997 (options granted and cancelled during
fiscal 1998 include the effect of the February 26, 1997 re-pricing):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- ---------------------- ----------------------
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 2,288 $11.06 2,119 $12.15 2,069 $11.60
Granted 997 10.54 653 9.13 202 15.47
Exercised (79) 7.54 (86) 7.20 (81) 5.34
Canceled or expired (11) 13.18 (398) 14.54 (71) 14.62
----- ------ ----- ----- ----- ------
Outstanding at end of year 3,195 $10.98 2,288 $11.06 2,119 $12.15
===== ====== ===== ====== ===== ======
Exercisable at end of year 1,639 $11.10 1,368 $10.62 1,143 $10.37
===== ====== ===== ====== ===== ======
Weighted average fair
value of options granted $6.46 $4.68 $8.30
===== ===== =====
</TABLE>
34
<PAGE>
<PAGE>
Price ranges and other information for stock options outstanding as of
January 31, 1999 were as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------------- -------------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Shares Exercise Remaining Shares Exercise
Prices (000's) Price Life (000's) Price
------------------ --------- ------------ ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
$3.38 512 $3.38 0.8 yrs. 512 $3.38
$8.13 to $11.50 1,519 9.98 8.0 yrs. 225 8.69
$12.50 to $18.13 1,159 15.60 5.5 yrs. 898 16.07
$18.98 5 18.98 0.2 yrs. 4 18.98
----- ------ ------- ----- ------
3,195 $10.98 5.9 yrs. 1,639 $11.10
===== ====== ======= ===== ======
</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 provides for 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 $36,000, $31,000 and
$28,000 for the years ended January 31, 1999, 1998 and 1997,
respectively, under the Plan.
(8) 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 a 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, 1999 was approximately $4.6
million.
During the year ended January 31, 1999, the Company purchased three store
locations that were leased pursuant to the sale/leaseback. For financial
statement purposes, the purchase of these three stores resulted in
approximately $660,000 of the deferred gain
35
<PAGE>
<PAGE>
associated with the sale/leaseback being recorded as a reduction in the
carrying value of properties purchased.
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>
1999 $9,729 $(943) $(1,854) $6,932
1998 9,453 (943) (1,713) 6,797
1997 9,076 (629) (1,503) 6,944
</TABLE>
Future minimum annual rentals and gain amortization on non-cancelable
leases as of January 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Minimum Gain
Years ended January 31, Rentals Amortization
--------------------------- --------- ----------------
<S> <C> <C>
2000 $ 8,663 $ 824
2001 8,113 824
2002 7,102 824
2003 5,924 824
2004 5,384 824
2005 and thereafter 3,981 481
------- ------
$39,167 $4,601
======= ======
</TABLE>
(9) INCOME TAXES-
The provision for income taxes for the years ended January 31, 1999, 1998
and 1997 consists of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended January 31,
-------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal:
Current $3,304 $5,007 $ 5,803
Deferred (217) (957) (1,824)
------ ------ ------
3,087 4,050 3,979
------ ------ ------
State and Local:
Current 836 848 1,056
Deferred 80 (58) (230)
------ ------ ------
916 790 826
------ ------ ------
$4,003 $4,840 $4,805
====== ====== ======
</TABLE>
36
<PAGE>
<PAGE>
The tax effects of significant temporary differences representing
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
January 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
Assets:
Deferral of service contract income $9,853 $ 9,991
Sale and leaseback deferred gain 1,842 2,172
Accrued liabilities 2,757 2,257
Other items 4,053 3,291
------ -------
18,505 17,711
Liabilities:
Depreciation (1,030) (271)
-------- --------
Total net future income tax benefits $ 17,475 $ 17,440
======== ========
</TABLE>
The Company paid income taxes of $5,633,000, $7,604,000 and $9,801,000 in
the years ended January 31, 1999, 1998 and 1997, 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,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory rate 35.0% 35.0% 35.0%
Tax credits from investment in limited partnerships (See Note 2) (13.2) -- --
State and local taxes, net of federal tax benefit 3.9 4.2 4.1
Other 0.6 0.3 0.4
---- ---- ----
26.3% 39.5% 39.5%
==== ==== ====
</TABLE>
(10) 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.
37
<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, 1999 and
1998, 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, 1999. 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, 1999 and 1998, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 31, 1999, 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, /s/ Arthur Andersen LLP
March 24, 1999
38
<PAGE>
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
(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>
1999
- ----
Allowance for doubtful
accounts
$428 $300 $298 $430
==== ==== ==== ====
1998
- ----
Allowance for doubtful
accounts $376 $474 $422 $428
==== ==== ==== ====
1997
- ----
Allowance for doubtful
accounts $638 $146 $408 $376
==== ==== ==== ====
</TABLE>
39
<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 7, 1999, 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 7, 1999 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 7, 1999 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 7, 1999 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, 1999 and 1998
Consolidated Statements of Income for the years ended January 31, 1999,
1998 and 1997
Consolidated Statements of Cash Flows for the years ended January 31, 1999,
1998 and 1997
40
<PAGE>
<PAGE>
Consolidated Statements of Shareholders' Equity for the years ended January
31, 1999, 1998 and 1997
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 43 of this report.
Management contracts and compensatory plans and arrangements filed as
exhibits to this report are identified by an asterisk in the exhibit index.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter ended
January 31, 1999.
41
<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 STUART ROSE
-----------------------
Stuart Rose
Chairman of the Board and
Chief Executive Officer
Date: April 15, 1999
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>
STUART ROSE Chairman of the Board )
- --------------------- and Chief Executive )
Stuart Rose Officer (principal )
executive officer) )
)
)
DOUGLAS BRUGGEMAN Vice President-Finance )
- --------------------- and Treasurer (principal )
Douglas Bruggeman financial and accounting )
officer) )
)
)
LAWRENCE TOMCHIN* President, Chief Operating )
- --------------------- Officer and Director )
Lawrence Tomchin ) April 15, 1999
)
)
EDWARD KRESS Secretary and Director )
- --------------------- )
Edward Kress )
)
ROBERT DAVIDOFF* Director )
- --------------------- )
Robert Davidoff )
)
)
LEE FISHER* Director )
- --------------------- )
Lee Fisher )
)
*By STUART ROSE )
------------------ )
(Stuart Rose,
Attorney-in-Fact)
</TABLE>
42
<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>
43
<PAGE>
<PAGE>
<TABLE>
<S> <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 October 14, 1998 between Rex Radio and
Television, Inc. and Stuart Rose (incorporated by reference to
Exhibit 10.1 to Form 10-Q for quarter ended October 31, 1998,
File No. 0-13283)
10(c)* 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(d)* Employment Agreement dated October 14, 1998 between Rex Radio and
Television, Inc. and Lawrence Tomchin (incorporated by reference to
Exhibit 10.2 to Form 10-Q for quarter ended October 31, 1998, File
No. 0-13283)
10(e)* Executive Stock Option dated October 14, 1998 granting Stuart Rose
an option to purchase 500,000 shares of registrant's Common Stock
(incorporated by reference to Exhibit 10.3 to Form 10-Q for quarter
ended October 31, 1998, File No. 0-13283)
10(f)* Executive Stock Option dated October 14, 1998 granting Lawrence
Tomchin an option to purchase 150,000 shares of registrant's Common
Stock (incorporated by reference to Exhibit 10.4 to Form 10-Q for
quarter ended October 31, 1998, File No. 0-13283)
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)
</TABLE>
44
<PAGE>
<PAGE>
<TABLE>
<S> <C>
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)
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)
</TABLE>
45
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
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.......................................................47
(23) Consents of experts and counsel:
23(a) Consent of Arthur Andersen LLP to use its report dated March 24, 1999
included in this annual report on Form 10-K into registrant's
Registration Statements on Form S-8 (Registration Nos. 33-3836,
33-81706, 33-62645, 333-69081 and
333-69089).......................................................................48
(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..................................49-51
(27) Financial data schedule:
Financial data schedule..........................................................52
(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)
COPIES OF THE EXHIBITS NOT CONTAINED HEREIN MAY BE OBTAINED BY
WRITING TO EDWARD M. KRESS, SECRETARY, REX STORES CORPORATION,
2875 NEEDMORE ROAD, DAYTON, OHIO 45414.
- -----------
</TABLE>
Those exhibits marked with an asterisk (*) above are management contracts
or compensatory plans or arrangements for directors or executive officers of the
registrant.
46
<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) (3) Delaware
Rex Louisiana, Inc.(3) Ohio
Rex Alabama, Inc.(1) Ohio
REX Investment, LLC (4) Ohio
</TABLE>
- --------------------
(1) Wholly-owned subsidiary of Rex Radio and Television, Inc.
(2) Wholly-owned subsidiary of Kelly & Cohen Appliances, Inc.
(3) Non-operating subsidiary.
(4) Kelly & Cohen Appliances, Inc. owns a 98.032% Class A interest and a 95%
Class C interest. AVA Acquisition Corp. owns a 95% Class B interest.
47
<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, No. 33-62645,
333-69081 and 333-69089).
Cincinnati, Ohio /s/ Arthur Andersen LLP
April 15, 1999
48
<PAGE>
<PAGE>
EXHIBIT 24.1
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, 1999 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 8th day of April, 1999.
LAWRENCE TOMCHIN
Lawrence Tomchin
49
<PAGE>
<PAGE>
EXHIBIT 24.2
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, 1999 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 6th day of April, 1999.
ROBERT DAVIDOFF
Robert Davidoff
50
<PAGE>
<PAGE>
EXHIBIT 24.3
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, 1999 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 14th day of April, 1999.
LEE FISHER
Lee Fisher
51
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000744187
<NAME> REX STORES CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-1-1998
<PERIOD-END> JAN-31-1999
<EXCHANGE-RATE> 1
<CASH> 11,912
<SECURITIES> 0
<RECEIVABLES> 2,727
<ALLOWANCES> 430
<INVENTORY> 132,002
<CURRENT-ASSETS> 159,454
<PP&E> 116,996
<DEPRECIATION> 18,105
<TOTAL-ASSETS> 268,282
<CURRENT-LIABILITIES> 82,094
<BONDS> 55,478
0
0
<COMMON> 98
<OTHER-SE> 110,112
<TOTAL-LIABILITY-AND-EQUITY> 268,282
<SALES> 416,673
<TOTAL-REVENUES> 416,673
<CGS> 302,894
<TOTAL-COSTS> 302,894
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,448
<INCOME-PRETAX> 15,198
<INCOME-TAX> 4,003
<INCOME-CONTINUING> 11,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,195
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.43
</TABLE>
