FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ending April 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
-------- --------
Commission File Number 0-13283
REX Stores Corporation
(Exact name of registrant as specified in its charter)
Delaware 31-1095548
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2875 Needmore Road, Dayton, Ohio 45414
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 937-276-3931
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for at least the
past 90 days. Yes (X) No ( )
At the close of business on June 14, 1999, the registrant had
7,523,676 shares of Common Stock, par value $.01 per share,
outstanding.
REX STORES CORPORATION AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Condensed Balance Sheets......... 3
Consolidated Statements of Income............. 5
Consolidated Statements of Shareholders'
Equity...................................... 6
Consolidated Statements of Cash Flows......... 7
Notes to Consolidated Financial Statements.... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................ 15
2
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
ASSETS
April 30 January 31 April 30
1999 1999 1998
(In Thousands)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 9,349 $ 11,912 $ 2,260
Accounts receivable, net 1,030 2,297 366
Merchandise inventory 144,827 132,002 142,737
Prepaid expenses and other 2,390 2,039 3,490
Equity investment in limited
partnerships 1,364 1,838 -
Future income tax benefits 9,366 9,366 7,899
--------- --------- --------
Total current assets 168,326 159,454 156,752
PROPERTY AND EQUIPMENT, NET 99,304 98,891 94,063
FUTURE INCOME TAX BENEFITS 8,109 8,109 9,541
RESTRICTED INVESTMENTS 1,919 1,828 1,700
--------- --------- --------
Total assets $ 277,658 $ 268,282 $262,056
========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable $ - $ - $ 11,608
Current portion of long-term debt 3,165 3,114 3,045
Current portion, deferred income
and deferred gain on
sale and leaseback 11,440 11,453 11,371
Accounts payable, trade 61,031 52,674 43,548
Accrued income taxes - 147 270
Accrued payroll 4,574 5,889 3,649
Other liabilities 9,639 8,817 7,237
--------- --------- --------
Total current liabilities 89,849 82,094 80,728
--------- --------- --------
3
Liabilities and Shareholders' Equity (Continued)
LONG-TERM LIABILITIES:
Long-term debt 55,904 55,478 52,490
Deferred income 16,263 16,723 17,426
Deferred gain on sale and
leaseback 3,571 3,777 5,028
--------- --------- ---------
Total long-term liabilities 75,738 75,978 74,944
--------- --------- ---------
SHAREHOLDERS' EQUITY:
Common stock 98 98 97
Paid-in capital 55,715 58,596 58,224
Retained earnings 77,457 75,370 65,194
Treasury stock (21,199) (23,854) (17,131)
--------- --------- ---------
Total shareholders' equity 112,071 110,210 106,384
--------- --------- ---------
Total liabilities and
shareholders' equity $ 277,658 $ 268,282 $ 262,056
========= ========= =========
</TABLE>
[FN]
The accompanying notes are an integral part of
these unaudited consolidated statements.
4
<PAGE>
<TABLE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended
April 30
1999 1998
(In Thousands, Except Per Share Amounts)
<S> <C> <C>
NET SALES $ 99,056 $ 87,964
--------- ---------
COSTS AND EXPENSES:
Cost of merchandise sold 72,613 63,982
Selling, general and
administrative expenses 22,785 21,216
--------- ---------
Total costs and expenses 95,398 85,198
--------- ---------
INCOME FROM OPERATIONS 3,658 2,766
INVESTMENT INCOME 149 178
INTEREST EXPENSE (1,303) (1,259)
INCOME FROM LIMITED PARTNERSHIPS 280 0
--------- ---------
Income before income taxes 2,784 1,685
PROVISION FOR INCOME TAXES 697 666
--------- ---------
NET INCOME $ 2,087 $ 1,019
========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,380 7,697
========= =========
BASIC NET INCOME PER SHARE $ 0.28 $ 0.13
========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 7,638 8,037
========= =========
DILUTED NET INCOME PER SHARE $ 0.27 $ 0.13
========= =========
</TABLE>
[FN]
The accompanying notes are an integral part of
these unaudited consolidated statements.
5
<PAGE>
<TABLE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Common Shares
-------------------------------
Issued Treasury Paid-in Retained
Shares Amount Shares Amount Capital Earnings
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at
April 30, 1998 9,735 $ 97 2,025 $17,131 $58,224 $65,194
Common stock
issued 32 1 0 0 372 0
Treasury stock
acquired 0 0 562 6,723 0 0
Net income 0 0 0 0 0 10,176
----- ------ ----- ------ ------- -------
Balance at
January 31, 1999 9,767 $ 98 2,587 $23,854 $58,596 $75,370
Common stock
issued 14 0 (512) (4,721) (2,881) 0
Treasury stock
acquired 0 0 146 2,066 0 0
Net income 0 0 0 0 0 2,087
----- ------ ----- ------ ------- -------
Balance at
April 30, 1999 9,781 $ 98 2,221 $21,199 $55,715 $77,457
====== ====== ===== ======= ======= =======
</TABLE>
[FN]
The accompanying notes are an integral part of
these unaudited consolidated statements.
6
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
April 30
1999 1998
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,087 $ 1,019
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization, net 829 781
Equity in losses of limited
partnerships 474 -
Deferred income (1,136) (491)
Changes in assets and liabilities
Accounts receivable 1,267 2,409
Merchandise inventory (12,825) (16,239)
Other current assets (353) (1,414)
Accounts payable, trade 8,357 (6,284)
Other liabilities (733) (3,588)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (2,033) (23,807)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,713) (1,913)
Capital disposals 1,023 -
Restricted investments (91) (63)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (781) (1,976)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable - 11,608
Payments of long-term debt (1,203) (723)
Long-term debt borrowings 1,680 638
Common stock issued 112 328
Treasury stock issued 1,728 0
Treasury stock acquired (2,066) (745)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 251 11,106
-------- --------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (2,563) (14,677)
CASH AND CASH EQUIVALENTS,
beginning of period 11,912 16,937
-------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 9,349 $ 2,260
</TABLE> ======== ========
[FN] The accompanying notes are an integral part of
these unaudited consolidated statements.
7
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1999
Note 1. Consolidated Financial Statements
The consolidated financial statements included in this report
have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission and
include, in the opinion of management, all adjustments necessary to
state fairly the information set forth therein. Any such
adjustments were of a normal recurring nature. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is
suggested that these unaudited consolidated financial statements be
read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's Annual Report on Form
10-K for the year ended January 31, 1999.
Note 2. Accounting Policies
The interim consolidated financial statements have been
prepared in accordance with the accounting policies described in
the notes to the consolidated financial statements included in the
Company's 1999 Annual Report on Form 10-K. While management
believes that the procedures followed in the preparation of interim
financial information are reasonable, the accuracy of some
estimated amounts is dependent upon facts that will exist or
calculations that will be accomplished at fiscal year end. Examples
of such estimates include changes in the LIFO reserve (based upon
the Company's best estimate of inflation to date), management
bonuses and the provision for income taxes. Any adjustments
pursuant to such estimates during the quarter were of a normal
recurring nature.
Certain reclassifications have been made to prior year amounts
to conform with their fiscal 2000 presentation.
8
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Note 3. Stock Option Plans
The following summarizes options granted, exercised and
canceled or expired during the three months ended April 30, 1999:
<TABLE>
<CAPTION>
Shares Under Stock
Option Plans
<S> <C>
Outstanding at January 31, 1999
($3.375 to $18.975 per share) 3,194,951
Granted ($11.50 per share) 199,000
Exercised ($3.375 to $10.375 per share) (524,679)
Canceled or expired ($8.125 to $17.25 per share) (18,197)
---------
Outstanding at April 30, 1999
($8.125 to $18.975 per share) 2,851,075
---------
</TABLE>
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The Company is a leader in the consumer
electronics/appliance retailing industry with 227 stores in 35
states, operating predominantly in small to medium sized markets
under the trade name "REX".
Results of Operations
The following table sets forth, for the periods indicated, the
relative percentages that certain income and expense items bear to
net sales:
<TABLE>
<CAPTION>
Three Months Ended
April 30
1999 1998
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of merchandise sold 73.3 72.7
----- -----
Gross profit 26.7 27.3
Selling, general and
administrative expenses 23.0 24.1
----- -----
Income from operations 3.7 3.2
Interest, net (1.2) (1.2)
Income from limited partnerships 0.3 -
----- -----
Income before income
taxes 2.8 2.0
Provision for income taxes 0.7 0.8
----- -----
Net income 2.1% 1.2%
===== =====
</TABLE>
10
<PAGE>
Comparison of Three Months Ended April 30, 1999 and 1998
Net sales in the first quarter ended April 30, 1999 were $99.1
million compared to $88.0 million in the prior year's comparable
period, representing an increase of $11.1 million or 12.6%. This
increase is primarily the result of a 11.9% increase in comparable
store sales for the quarter. The Company considers a store to be
comparable after it has been open six fiscal quarters.
All product categories experienced positive contributions to
comparable store sales with particular strength shown by
televisions (approximately 3.6%), audio (approximately 3.2%) and
appliances (approximately 3.0%). During the first quarter the
Company introduced Maytag products to its appliance line and
believes this will continue to benefit this category. The Company
also added Sony products to its stores, which the Company believes
will benefit the audio, video and television categories.
As of April 30, 1999, the Company had 227 stores compared to
223 stores one year earlier. There were no stores opened and one
closed during the first quarter of fiscal 2000. During the first
quarter of fiscal 1999 the Company opened one store and closed
none.
Gross profit of $26.4 million in the first quarter of fiscal
2000 (26.7% of net sales) was 10.3% higher than the $24.0 million
gross profit (27.3% of net sales) recorded in the first quarter of
fiscal 1999. The reduced gross profit margin, as a percent of net
sales, for the first quarter of fiscal 2000 is primarily the result
of the recognition of a lower amount of extended service contract
revenues, which generally have a higher gross profit margin, and a
change in merchandise mix.
Selling, general and administrative expenses for the quarter
ended April 30, 1999 were $22.8 million (23.0% of net sales), a
7.4% increase from $21.2 million (24.1% of net sales) for the first
quarter of fiscal 1999. The increase in expense is primarily the
result of increased incentive commissions and other selling costs
associated with increased sales. The reduction in selling, general
and administrative expense as a percent of net sales is primarily
the result of the leveraging of store costs on an increase in
comparable store sales of 11.9%.
Interest expense was $1.3 million for the first quarter of
fiscal 2000 and 1999.
Results for the first quarter of fiscal 2000 also reflect the
impact of the Company's equity investment in two limited
partnerships which produce synthetic fuels. The Company reported
11
<PAGE>
income from the limited partnerships of $280,000 for the first
quarter of fiscal 2000, which consisted of a pre-tax charge of
$454,000 to reflect its equity share in the losses of the
partnerships, offset by $734,000 of income generated from the sale
of a portion of one of the investments. Effective February 1,
1999, the Company entered into an agreement to sell a portion of
its investment in one of the limited partnerships, which resulted
in the reduction in the Company's ownership interest from 30% to
17%. The Company will receive cash proceeds on a quarterly basis
and the total sales proceeds to be received are contingent upon the
amount of Federal income tax credits attributable to the 13%
interest sold by the Company.
The Company's effective tax rate was reduced to 25% for the
first quarter of fiscal 2000 from 39.5% for the first quarter of
fiscal 1999 as a result of the Company's share of Federal income
tax credits earned by the limited partnerships under Section 29 of
the Internal Revenue Code.
As a result of the foregoing, net income was $2.1 million for
the first quarter of fiscal 2000, versus $1.0 million for the first
quarter of fiscal 1999.
Liquidity and Capital Resources
Net cash used in operating activities was $2.0 million for the
first quarter of fiscal 2000, compared to usage of $23.8 million
for the first quarter of fiscal 1999. For the first quarter of
fiscal 2000, operating cash flow was provided by net income of $2.1
million adjusted for the net impact of non-cash items of $167,000,
which primarily consist of deferred income, depreciation and the
Company's equity interest in the losses of the synthetic fuel
limited partnership investments. Cash was also provided by an
increase in accounts payable of $8.4 million, primarily due to an
increase in inventory and extended payment terms from certain
vendors, and a decrease in accounts receivable of $1.3 million. The
primary use of cash was an increase in inventory of $12.8 million
primarily due to an increase of seasonal air conditioner
inventories.
For the first quarter of fiscal 1999 cash flow was provided by
net income of $1.0 million adjusted for non-cash charges of
$290,000 and a decrease in accounts payable of $6.3 million due to
the timing of payments to vendors. The primary use of cash was an
increase in inventory of $16.2 million primarily due to the
addition of seasonal air conditioner inventory. Changes in other
working capital items also served to decrease cash by approximately
$2.6 million.
12
<PAGE>
At April 30, 1999, working capital was $78.5 million compared
to $77.4 million at January 31, 1999. The ratio of current assets
to current liabilities was 1.9 to 1 at April 30, 1999 and January
31, 1999.
The Company had approximately $91 million borrowing
availability on its line of credit at April 30, 1999, with no
outstanding borrowings on that date.
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 critical 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 the outside
vendors on the compliance status of the telephones and store
security systems.
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
13
<PAGE>
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 internal 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-Q contains or may contain forward-looking
statements as defined in the Private Securities Litigation Reform
Act of 1995. The words "believes", "estimates", "plans",
"expects", "intends", "anticipates" and similar expressions as they
relate to the Company or its management are intended to identify
such forward-looking statements. Forward-looking statements are
inherently subject to risks and uncertainties. Factors that could
cause actual results to differ materially from those in the
forward-looking statements are set forth in Exhibit 99 to the
Company's Form 10-Q for the quarter ended October 31, 1997 (File
No. 0-13283).
Item 3. Quantitative and Qualitative Disclosure About Market Risk
No material changes since January 31, 1999.
14
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed with this
report:
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter ended April 30, 1999.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REX STORES CORPORATION
Registrant
June 14, 1999 /s/ Stuart A. Rose
Stuart A. Rose
Chairman of the Board
(Chief Executive Officer)
June 14, 1999 /s/ Douglas L. Bruggeman
Douglas L. Bruggeman
Vice President, Finance and
Treasurer
(Principal Financial and
Chief Accounting Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000744187
<NAME> REX STORES CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-1-1999
<PERIOD-END> APR-30-1999
<EXCHANGE-RATE> 1
<CASH> 9,349
<SECURITIES> 0
<RECEIVABLES> 1,565
<ALLOWANCES> 535
<INVENTORY> 144,827
<CURRENT-ASSETS> 168,326
<PP&E> 118,159
<DEPRECIATION> 18,855
<TOTAL-ASSETS> 277,658
<CURRENT-LIABILITIES> 89,849
<BONDS> 55,904
<COMMON> 98
0
0
<OTHER-SE> 111,973
<TOTAL-LIABILITY-AND-EQUITY> 277,658
<SALES> 99,056
<TOTAL-REVENUES> 99,056
<CGS> 72,613
<TOTAL-COSTS> 72,613
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,303
<INCOME-PRETAX> 2,784
<INCOME-TAX> 697
<INCOME-CONTINUING> 2,087
<DISCONTINUED> 0
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<EPS-BASIC> .28
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</TABLE>
