<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2000
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)
<TABLE>
<S> <C>
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)
</TABLE>
(937) 276-3931
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for at least the past 90 days. Yes (X) No ( )
At the close of business on September 13, 2000, the registrant had 5,937,372
shares of Common Stock, par value $.01 per share, outstanding.
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Condensed Balance Sheets................. 3
Consolidated Statements of Income..................... 4
Consolidated Statements of Shareholders'
Equity.............................................. 5
Consolidated Statements of Cash Flows................. 6
Notes to Consolidated Financial Statements............ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................... 9
Item 3. Quantitative and Qualitative Disclosure About
Market Risk.......................................... 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders..................................... 14
Item 6. Exhibits and Reports on Form 8-K....................... 14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
A S S E T S
July 31 January 31 July 31
2000 2000 1999
(In Thousands)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 4,608 $ 25,609 $ 9,734
Accounts receivable, net 924 2,569 1,414
Merchandise inventory 181,167 139,267 149,362
Prepaid expenses and other 4,823 2,097 2,177
Equity investment in limited
partnerships - - 781
Future income tax benefits 9,837 9,837 9,366
-------- -------- --------
Total current assets 201,359 179,379 172,834
PROPERTY AND EQUIPMENT, NET 124,558 113,802 101,716
FUTURE INCOME TAX BENEFITS 8,835 8,835 8,109
RESTRICTED INVESTMENTS 2,104 2,020 1,949
-------- -------- --------
Total assets $336,856 $304,036 $284,608
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 46,416 $ - $ -
Current portion of long-term debt 3,576 3,303 3,203
Current portion, deferred income
and deferred gain on sale and
leaseback 11,099 11,219 11,349
Accounts payable, trade 59,664 46,252 56,908
Accrued income taxes - 1,572 663
Accrued payroll 5,255 6,947 6,515
Other current liabilities 9,270 9,330 11,342
-------- -------- --------
Total current liabilities 135,280 78,623 89,980
-------- -------- --------
LONG-TERM LIABILITIES:
Long-term debt 48,322 46,200 58,708
Deferred income 16,056 16,423 16,038
Deferred gain on sale and
leaseback 2,541 2,953 3,365
-------- -------- --------
Total long-term liabilities 66,919 65,576 78,111
-------- -------- --------
SHAREHOLDERS' EQUITY:
Common stock 115 115 99
Paid-in capital 105,857 105,303 57,226
Retained earnings 100,889 93,663 81,555
Treasury stock (72,204) (39,244) (22,363)
-------- -------- --------
Total shareholders' equity 134,657 159,837 116,517
-------- -------- --------
Total liabilities and
shareholders' equity $336,856 $304,036 $284,608
======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these unaudited consolidated statements.
3
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31 July 31
2000 1999 2000 1999
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
NET SALES $101,609 $107,739 $208,792 $206,795
COSTS AND EXPENSES:
Cost of merchandise sold 72,822 76,870 151,271 149,483
Selling, general and
administrative expenses 24,823 24,509 49,472 47,294
-------- -------- -------- --------
Total costs and expenses 97,645 101,379 200,743 196,777
-------- -------- -------- --------
INCOME FROM OPERATIONS 3,964 6,360 8,049 10,018
INVESTMENT INCOME 29 41 215 190
INTEREST EXPENSE (1,877) (1,453) (3,049) (2,756)
INCOME FROM LIMITED
PARTNERSHIPS 3,190 516 4,419 796
-------- -------- --------- --------
INCOME BEFORE INCOME TAXES 5,306 5,464 9,634 8,248
PROVISION FOR INCOME TAXES 1,326 1,366 2,408 2,063
-------- -------- -------- --------
NET INCOME $ 3,980 $ 4,098 $ 7,226 $ 6,185
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,544 7,576 6,819 7,480
======== ======== ======== ========
BASIC NET INCOME PER SHARE $ 0.61 $ 0.54 $ 1.06 $ 0.83
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVA-
LENT SHARES OUTSTANDING 7,278 8,493 7,515 8,122
======== ======== ======== ========
DILUTED NET INCOME
PER SHARE $ 0.55 $ 0.48 $ 0.96 $ 0.76
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these unaudited consolidated statements.
4
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Shares
------------------------------------
Issued Treasury Paid-in Retained
Shares Amount Shares Amount Capital Earnings
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at
July 31, 1999 9,934 $ 99 2,284 $22,363 $ 57,226 $ 81,555
Common stock
issued 1,561 16 - - 48,077 -
Treasury stock
acquired - - 1,142 16,881 - -
Net income - - - - - 12,108
------ ---- ----- ------- -------- --------
Balance at
January 31, 2000 11,495 115 3,426 39,244 105,303 93,663
Common stock
issued 52 - (10) (113) 554 -
Treasury stock
acquired - - 1,790 33,073 - -
Net income - - - - - 7,226
------ ---- ----- ------- -------- --------
Balance at
July 31, 2000 11,547 $115 5,206 $72,204 $105,857 $100,889
====== ==== ===== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of
these unaudited consolidated statements.
5
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
July 31
2000 1999
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,226 $ 6,185
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization, net 1,896 1,693
Equity in losses of limited
partnerships - 1,057
Deferred income (487) (696)
Changes in assets and liabilities:
Accounts receivable 1,645 883
Merchandise inventory (41,900) (17,360)
Other current assets (2,726) (141)
Accounts payable, trade 13,412 4,234
Other liabilities (3,324) 3,574
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (24,258) (571)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,143) (5,869)
Capital disposals 79 943
Restricted investments (84) (121)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (13,148) (5,047)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 46,416 -
Payments of long-term debt (2,213) (2,003)
Long-term debt borrowings 4,608 5,322
Common stock issued 554 1,623
Treasury stock issued 113 1,728
Treasury stock acquired (33,073) (3,230)
-------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 16,405 3,440
-------- --------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (21,001) (2,178)
CASH AND CASH EQUIVALENTS,
beginning of period 25,609 11,912
-------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 4,608 $ 9,734
======== ========
</TABLE>
The accompanying notes are an integral part of
these unaudited consolidated statements.
6
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000
Note 1. Consolidated Financial Statements
The consolidated financial statements included in this report have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments necessary to state fairly the information set forth
therein. Any such adjustments were of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States 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, 2000 (fiscal 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.
7
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Note 3. Stock Option Plans
The following summarizes options granted, exercised and canceled or
expired during the six months ended July 31, 2000:
<TABLE>
<CAPTION>
Shares Under Stock
Option Plans
<S> <C>
Outstanding at January 31, 2000
($8.125 to $22.6875 per share) 2,649,517
Granted ($21.4063 to $22.8125 per share) 217,013
Exercised ($8.125 to $17.25 per share) (62,490)
Canceled ($10.375 to $22.8125 per share) (5,600)
---------
Outstanding at July 31, 2000
($8.125 to $22.8125 per share) 2,798,440
=========
</TABLE>
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
We are a leading specialty retailer in the consumer
electronics/appliance industry. As of July 31, 2000, we operated 242 stores in
36 states, predominantly in small to medium-sized markets under the trade name
"REX".
Fiscal Year
All references in this report to a particular fiscal year are to REX's
fiscal year ended January 31. For example, "fiscal 1999" means the period
February 1, 1999 to January 31, 2000. In the past, we referred to this period as
"fiscal 2000."
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 Six Months Ended
July 31 July 31
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 71.7 71.3 72.4 72.3
----- ----- ----- -----
Gross profit 28.3 28.7 27.6 27.7
Selling, general and
administrative expenses 24.4 22.8 23.7 22.9
----- ----- ----- -----
Income from operations 3.9 5.9 3.9 4.8
Interest, net (1.8) (1.3) (1.4) (1.2)
Income from limited partnerships 3.1 0.5 2.1 0.4
----- ----- ----- -----
Income before income
taxes 5.2 5.1 4.6 4.0
Provision for income taxes 1.3 1.3 1.1 1.0
----- ----- ----- -----
Net income 3.9% 3.8% 3.5% 3.0%
===== ===== ===== =====
</TABLE>
9
<PAGE>
Comparison of Three and Six Months Ended July 31, 2000 and 1999
Net sales in the second quarter ended July 31, 2000 were $101.6 million
compared to $107.7 million in the prior year's second quarter, representing a
decrease of $6.1 million or 5.7%. This decrease was caused by a decline of 12.8%
in comparable store sales, partially offset by sales from the net increase of 16
stores since the second quarter of fiscal 1999.
The decline in comparable store sales for the second quarter was
primarily caused by a decline in air conditioner and other appliance sales
largely due to unseasonably cool weather in the northeastern and midwestern
parts of the United States. The appliance category negatively impacted
comparable store sales by 15.5% for the second quarter. Excluding the appliance
category, comparable store sales would have increased by 4.5%. Our strongest
product categories were larger screen televisions (30 inch and larger) which
contributed 9.3% to the comparable store sales and DVD players which contributed
0.5%. We believe DVD players serve to replace certain VCR sales. As a result of
this and falling average selling prices, VCR sales negatively impacted
comparable store sales by approximately 2.1%. Other products which negatively
impacted comparable store sales for the second quarter were smaller screen
televisions (27 inches and smaller) by approximately 1.5%, camcorders by
approximately 1.1% and car stereos by approximately 0.7%.
Net sales for the first half of fiscal 2000 were $208.8 million
compared to $206.8 million for the first half of fiscal 1999, representing an
increase of $2.0 million or 1.0%. This increase was caused by a net increase of
16 stores since the second quarter of fiscal 1999, partially offset by a decline
of 4.9% in comparable store sales for the first half of fiscal 2000. The decline
in comparable store sales for the first half of the year was largely caused by a
decline in air conditioner and other appliance sales largely due to unseasonably
cool weather during the summer months in the northeastern and midwestern parts
of the United States. The appliance category negatively impacted comparable
store sales by 8.8% for the first half of fiscal 2000. Excluding the appliance
category, comparable store sales would have increased by 5.6%. Our strongest
product categories were larger screen televisions (30 inches and larger) which
contributed 10.6% to comparable store sales and DVD players which contributed
1.0%. Other than appliances, the largest contributors to the negative comparable
store sales were VCR sales by approximately 2.8%, smaller screen televisions
(27 inches and smaller) by approximately 2.1%, camcorders by approximately 1.2%
and car stereos by approximately 0.7%.
As of July 31, 2000, we had 242 stores compared to 226 stores one year
earlier. There were nine stores opened and five closed in the first half of
fiscal 2000. In the prior year's first half there was one store opened and three
closed.
10
<PAGE>
Gross profit of $28.8 million (28.3% of net sales) in the second
quarter of fiscal 2000 was $2.1 million lower than the $30.9 million (28.7% of
net sales) recorded in the second quarter of fiscal 1999. Gross profit in the
first half of fiscal 2000 was $57.5 million (27.6% of net sales), a $200,000
increase from $57.3 million (27.7% of net sales) in the first half of fiscal
1999. The decline in gross profit margin is primarily due to the slower air
conditioner sales, which generally have a higher gross profit margin, and the
overall competitive retail environment in consumer electronics and appliances.
Selling, general and administrative expenses for the second quarter of
fiscal 2000 were $24.8 million (24.4% of net sales), a 1.3% increase over the
$24.5 million (22.8% of net sales) for the second quarter of fiscal 1999.
Selling, general and administrative expenses for the first half of fiscal 2000
were $49.5 million (23.7% of net sales), a 4.6% increase from $47.3 million
(22.9% of net sales)for the first half of fiscal 1999. The increase in expense
is primarily attributable to an increase in advertising cost for new stores and
increased expenditures for radio and television advertising.
Interest expense increased to $1.9 million (1.8% of net sales) for the
second quarter of fiscal 2000 from $1.5 million (1.3% of net sales) for the
second quarter of fiscal 1999. Interest expense for the first half of fiscal
2000 was $3.0 million (1.4% of net sales) compared to $2.8 million (1.2% of net
sales) for the first half of fiscal 1999. The increase in interest expense is
due to higher borrowings on our line of credit to fund higher inventory levels
and the stock buyback program.
Results for the second quarter and first half of fiscals 2000 and 1999
also reflect the impact of our equity investment in two limited partnerships
which produce synthetic fuels. Effective February 1, 1999, we entered into an
agreement to sell a portion of our investment in one of the limited
partnerships, which resulted in the reduction in our ownership interest from 30%
to 17%. We expect to receive cash payments from the sale on a quarterly basis
through 2007. These payments are contingent upon and equal to 75% of the federal
income tax credits attributable to the 13% interest sold, subject to certain
annual maximums.
Effective July 31, 2000, we sold an additional portion of our
investment in the above limited partnership, reducing our ownership interest
from 17% to 8%. We received and reported income of $1.5 million from the sale in
the second quarter of fiscal 2000. We also expect to receive cash payments from
the sale on a quarterly basis through 2007. These payments are contingent upon
and equal to 82.5% of the federal income tax credits attributable to the 9%
interest sold, subject to certain annual maximums.
11
<PAGE>
Income from the limited partnerships was $3.2 million for the second
quarter of fiscal 2000, which consisted of $1.7 million of income from the 1999
sale and $1.5 million from the 2000 sale, net of certain expenses. Income from
the limited partnerships was $516,000 for the second quarter of fiscal 1999,
which consisted of $1,119,000 of income generated from the 1999 sale, partially
offset by a charge of $603,000 to reflect our equity share of the partnerships'
losses. For the first half of fiscal 2000, we reported income from the limited
partnerships of $4.4 million, which consisted of $2.9 million of income from the
1999 sale and $1.5 million from the 2000 sale, net of certain expenses. Income
from the limited partnerships was $796,000 for the first half of fiscal 1999,
which consisted of $1,853,000 of income generated by the 1999 sale, partially
offset by a charge of $1,057,000 to reflect our equity share of the
partnerships' losses. Our initial investment was reduced to zero as of
January 31, 2000 because of cumulative losses recorded using the equity method
of accounting. Consequently, we have ceased recording our share of equity losses
beginning in fiscal 2000.
Our effective tax rate was 25% for all periods presented after
reflecting our share of federal income tax credits earned by the limited
partnerships under Section 29 of the Internal Revenue Code.
As a result of the foregoing, net income for the second quarter of
fiscal 2000 was $4.0 million, a 2.9% decrease from $4.1 million for the second
quarter of fiscal 1999. Net income for the first half of fiscal 2000 was $7.2
million, a 16.8% increase from $6.2 million for the first half of fiscal 1999.
Liquidity and Capital Resources
Net cash used in operating activities was $24.3 million for the first
six months of fiscal 2000, compared to $0.6 million for the first six months of
fiscal 1999. For the first six months of fiscal 2000, operating cash flow was
provided by net income of $7.2 million, adjusted for the net impact of non-cash
items of $1.4 million which consist primarily of depreciation and deferred
income. The primary use of cash was an increase in inventory of $41.9 million
due to slow summer air conditioner sales and increased inventories to support
our store expansion program. The other uses of cash were a decrease in other
liabilities of $3.3 million and an increase in other assets of $2.7 million
primarily due to timing of payments of income taxes and compensation. Cash was
also provided by a decrease in accounts receivable of $1.6 million and an
increase in accounts payable of $13.4 million primarily due to the increase in
inventory and timing of payments to vendors.
At July 31, 2000, working capital was $66.1 million compared to $100.8
million at January 31, 2000. The ratio of current assets to current liabilities
12
<PAGE>
was 1.5 to 1 at July 31, 2000 and 2.3 to 1 at January 31, 2000.
Capital expenditures through July 31, 2000 totaled $13.1 million and
primarily relate to the acquisition of store sites and other construction
expenditures associated with planned fiscal 2000 store openings. We plan to open
30 to 35 new stores for fiscal 2000 with anticipated capital expenditures of
approximately $25.0 to $30.0 million. We plan to fund the new store openings
with cash generated from operations and investments and additional mortgage
debt.
Cash provided by financing activities totaled approximately $16.4
million for the first six months of fiscal 2000. The primary source of cash was
borrowings of $46.4 million on the line of credit. A total of approximately
$69.9 million was available for borrowings on the line of credit as of July 31,
2000. We also received proceeds of $4.6 million from long-term debt borrowings
related to mortgage financing for five store locations. The primary use of cash
was for the acquisition of treasury stock. We purchased a total of 1,789,600
shares of our common stock for $33.1 million during the first half of fiscal
2000. As of July 31, 2000, we had authorization to purchase an additional
568,300 shares. Subsequent to the end of the quarter, we purchased an additional
406,800 shares for $7.5 million and our board of directors authorized the
purchase of an additional 1,000,000 shares.
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 Annual Report on Form 10-K for the
fiscal year ended January 31, 2000 (File No. 0-13283).
Item 3. Quantitative and Qualitative Disclosure About Market Risk
No material changes since January 31, 2000.
13
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of shareholders of REX Stores Corporation was held
on June 5, 2000, at which the following matter was submitted to a vote of
shareholders:
1. Election of five directors.
<TABLE>
<CAPTION>
Nominee For Withheld
<S> <C> <C>
Stuart Rose 6,042,499 63,375
Lawrence Tomchin 6,042,499 63,375
Robert Davidoff 6,042,499 63,375
Edward Kress 6,042,439 63,435
Lee Fisher 6,042,499 63,375
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed with this report:
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the quarter ended July 31, 2000.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REX STORES CORPORATION
Registrant
September 13, 2000 STUART A. ROSE
Stuart A. Rose
Chairman of the Board
(Chief Executive Officer)
September 13, 2000 DOUGLAS L. BRUGGEMAN
Douglas L. Bruggeman
Vice President, Finance and
Treasurer
(Principal Financial and
Chief Accounting Officer)
15
