<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2000 COMMISSION FILE NO. 0-13283
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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>
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Registrant's telephone number, including area code (937) 276-3931
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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 13, 2000 the aggregate market value
of the registrant's outstanding Common Stock held by non-affiliates of the
registrant (for purposes of this calculation, 1,226,549 shares beneficially
owned by directors and executive officers of the registrant were treated as
being held by affiliates of the registrant), was $143,352,350.
There were 6,726,879 shares of the registrant's Common Stock
outstanding as of April 13, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of REX Stores Corporation's definitive Proxy Statement for its
Annual Meeting of Shareholders on June 5, 2000 are incorporated by reference
into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
OVERVIEW
We are a leading specialty retailer in the consumer
electronics/appliance industry, serving over 200 small to medium-sized towns and
communities. Since 1980, when our first four stores were acquired, we have
expanded into a national chain operating 238 stores in 35 states under the "REX"
trade name. Our stores average approximately 10,900 square feet and offer a
broad selection of brand name products within selected major product categories,
including big screen and standard-sized televisions, video and audio equipment,
camcorders and major household appliances.
Our business strategy emphasizes depth of selection within key product
categories. Brand name products are offered at everyday low prices combined with
frequent special sales and promotions. We concentrate our stores in small and
medium sized markets where we believe that by introducing a high volume, low
price merchandising concept, we can become a dominant retailer. We support our
merchandising strategy with extensive newspaper advertising in each of our local
markets and maintain a knowledgeable sales force which focuses on customer
service. We believe our low price policy, attention to customer satisfaction and
deep product selection provide customers with superior value.
Our growth strategy is to continue to open stores in small to medium
sized markets. We will focus on markets with a newspaper circulation which can
efficiently and cost-effectively utilize our print advertising materials and
where we believe we can become a dominant retailer.
REX was incorporated in Delaware in 1984 as a holding company to
succeed to the entire ownership of three affiliated corporations, Rex Radio
and Television, Inc., Stereo Town, Inc. and Kelly & Cohen Appliances, Inc.,
which were formed in 1980, 1981 and 1983, respectively. Our principal offices
are located at 2875 Needmore Road, Dayton, Ohio 45414. Our telephone number is
(937) 276-3931.
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." To avoid confusion, we now refer to our fiscal year by reference
to the year immediately preceding the January 31 fiscal year end date.
BUSINESS STRATEGY
Our objective is to be the leading consumer electronics/appliance
retailer in each of our markets. The key elements of our business strategy
include:
FOCUSING ON SMALL MARKETS
We traditionally have concentrated our stores in markets with
populations of 20,000 to 300,000. We are currently focusing most of our new
store openings in markets with populations under 85,000, which generally are
underserved by our competitors. We believe our low-overhead store format and our
ability to operate in free-standing as well as strip shopping centers and
regional mall locations makes us well suited to these small markets.
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MAINTAINING GUARANTEED LOWEST PRICES
We actively monitor prices at competing stores and adjust our prices as
necessary to meet or beat the competition. We guarantee the lowest price on our
products through a policy of refunding 125% of the difference between our price
and a competitor's price on the same item.
OFFERING A BROAD SELECTION OF BRAND NAME PRODUCTS
We offer a broad selection of brand name products within key product
categories. We carry most major brands of consumer electronics and appliances,
having added Sony and Maytag products during fiscal 1999. We offer merchandise
in each of our product categories at a range of price points and generally
maintain sufficient product stock for immediate delivery to customers.
CAPITALIZING ON OUR OPPORTUNISTIC BUYING
We frequently purchase large quantities of products directly from
manufacturers on an opportunistic basis at favorable prices. We believe this
buying strategy makes us a unique and attractive customer for manufacturers
seeking to sell cancelled orders and excess inventory and enables us to develop
strong relationships and extended trade credit support with vendors.
STRIVING TO BE THE LOW COST OPERATOR IN OUR MARKETS
Our current prototype store is approximately 12,000 square feet and
provides us with cost and space efficiencies. Our market selection criteria and
operating philosophy allow us to minimize both occupancy and labor costs.
Generally, all of our store employees, including our store managers, sell
products, unload trucks, stock merchandise and process sales, which helps
minimize employee count and overhead within each store. Most stores are staffed
with between three and six employees.
LEVERAGING OUR STRONG OPERATIONAL CONTROLS
Our information systems and point-of-sale computer systems, which are
installed in every store, allow management to monitor our merchandising
programs, sales, employee productivity and in-store inventory levels on a daily
basis. Our operational controls provide us with cost efficiencies which reduce
overhead while allowing us to maintain high levels of in-stock merchandise. Our
three distribution centers, strategically located in Dayton, Ohio, Pensacola,
Florida and Cheyenne, Wyoming, reduce inventory requirements at individual
stores and facilitate centralized inventory and accounting controls.
GROWTH STRATEGY
We plan to accelerate our store expansion program by opening
approximately 30 to 35 new stores in fiscal 2000 and approximately 35 to 40 new
stores in fiscal 2001.
SITE SELECTION. We select locations for future stores based on our
evaluation of individual site economics and market conditions. When deciding
whether to enter a new market or open another store in an existing market, we
evaluate a number of criteria, including:
sales volume potential;
competition within the market area, including size, strength and
merchandising philosophy of former, existing and potential competitors;
cost of advertising;
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newspaper circulation; and
size and growth pattern of the population.
In choosing specific sites, we apply standardized site selection
criteria taking into account numerous factors, including:
local demographics;
real estate occupancy expense based upon ownership and/or leasing;
traffic patterns; and
overall retail activity.
Stores typically are located on high traffic arteries, adjacent to or
in major shopping malls, with adequate parking to support high sales volume.
We either lease or purchase new store sites depending upon
opportunities available to us and relative costs. Of the 26 new stores opened in
fiscal 1999 and 1998, 20 were purchased sites and six were leased sites.
STORE ECONOMICS. For leased stores, we anticipate per store capital
expenditures of $100,000 to $250,000. This amount may increase to the extent we
are responsible for the remodeling or renovation of the new leased site. We
anticipate expenditures of approximately $950,000 to $1,400,000 when we purchase
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. The purchase amount may be higher if we build or purchase a location
larger than our needs and attempt to lease a portion of the store. Historically,
we have obtained long-term mortgage financing of approximately 75% of the land
and building 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 we seek mortgage financing for owned stores is
dependent upon mortgage rates, terms and availability.
The gross inventory requirements for new stores are estimated at
$350,000 to $500,000 per store depending upon the season and store size.
STORE OPERATIONS
STORES. We locate our stores in the general vicinity of major retail
shopping districts and design our stores to generate their own traffic.
Currently, 160 stores are located in free-standing buildings, with the balance
situated in strip shopping centers and regional malls. Stores located in malls
have exterior access and signage rights.
Our stores are designed with minimal interior fixtures to provide an
open feeling and a view of all product categories upon entering the store. The
stores are generally equipped with neon signage above each product category to
further direct the customer to particular products. We believe the interior
layout of our stores provides an inviting and pleasant shopping environment for
the customer.
Our existing stores average approximately 10,900 square feet, including
approximately 7,600 square feet of selling space and approximately 3,300 square
feet of storage. New stores are planned to be approximately 12,000 square feet.
Stores are open seven days and six nights per week, except for certain holidays.
Hours of operation are 10:00 a.m. to 9:00 p.m. Monday through Saturday and 12:00
p.m. to 6:00 p.m., or 1:00 p.m. to 5:00 p.m. in some states, on Sunday.
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Our operations are divided into regional districts, containing from two
to 11 stores whose managers report to a district manager. Our 39 district
managers report to one of four regional vice presidents. Each store is staffed
with a full-time manager and one or two assistant managers, 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.
We evaluate the performance of our stores on a continuous basis and,
based on an assessment of overall profitability, future cash flows and other
factors we deem relevant, will close any store which is not adequately
contributing to our profitability. We closed 4, 6 and 8 stores during fiscal
1999, 1998 and 1997, respectively. Subsequent to January 31, 2000, we closed
four stores. In fiscal 1999, we opened 14 new stores: three stores in Ohio, two
stores each in Alabama and New York and one store each in Louisiana, Michigan,
Mississippi, Montana, North Carolina, South Carolina and Virginia.
STORE LOCATIONS. The following table shows the states in which we
operated stores and the number of stores in each state as of January 31, 2000:
<TABLE>
<CAPTION>
STATE NUMBER OF STORES STATE NUMBER OF STORES
- ----- ---------------- ----- ----------------
<S> <C> <C> <C>
Alabama 14 Montana 3
Arkansas 1 Nebraska 2
Colorado 3 New York 22
Florida 26 North Carolina 6
Georgia 7 North Dakota 3
Idaho 5 Ohio 20
Illinois 10 Oklahoma 2
Indiana 3 Pennsylvania 18
Iowa 12 South Carolina 11
Kansas 2 South Dakota 3
Kentucky 3 Tennessee 6
Louisiana 7 Texas 10
Maryland 2 Virginia 2
Massachusetts 2 Washington 2
Michigan 4 West Virginia 5
Minnesota 1 Wisconsin 4
Mississippi 12 Wyoming 2
Missouri 3
</TABLE>
PERSONNEL. We train our employees to explain and demonstrate to
customers the use and operation of our merchandise and to develop good sales
practices. Our 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. Management and sales personnel are
compensated on a commission basis.
We also have a manager-in-training program that consists of on-the-job
training of the assistant manager at the store. Our policy is to staff store
management positions with personnel promoted from within REX and to staff new
store management positions with existing managers or assistant managers.
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SERVICES. Virtually all of the products we sell carry manufacturers'
warranties. Except for our least expensive items, we offer extended service
contracts to customers, usually for an additional charge, which typically
provide one to five years of extended warranty coverage. We offer maintenance
and repair services for most of the products we sell. These services are
generally subcontracted to independent repair firms.
Our return policy provides that any merchandise may be returned for
exchange or refund within seven days of purchase if accompanied by original
packaging material and verification of sale.
We accept MasterCard, Visa and Discover. We estimate that, during
fiscal 1999, approximately 33.5% of our total sales were made on these credit
cards, and approximately 9.4% were made on installment credit contracts arranged
through banks or independent finance companies which bear the credit risk of
these contracts. We work with local consumer finance companies in each of our
markets in implementing these credit arrangements and are able to offer
competitive credit packages, generally including interest-free financing
options.
MERCHANDISING
PRODUCTS. We offer a broad selection of brand name consumer electronics
and home appliance products at a range of price points. We emphasize depth of
product selection within selected key product categories. We sell approximately
1,000 products produced by approximately 50 manufacturers. Our product
categories include:
<TABLE>
<CAPTION>
TELEVISIONS VIDEO AUDIO APPLIANCES OTHER
- ----------- ----- ----- ---------- -----
<S> <C> <C> <C> <C>
TVs VCRs Stereo Systems Air Conditioners Extended Service
Big Screen Camcorders Receivers Microwave Ovens Contracts
TVs Digital Satellite Compact Disc Washers Ready to Assemble
TV/VCR Systems Players Dryers Furniture
Combos DVD Players Tape Decks Ranges Recordable Tapes
Speakers Dishwashers Telephones
Car Stereos Refrigerators Fax Machines
Portable Radios Freezers Audio/Video
Turntables Vacuum Cleaners Accessories
Dehumidifiers Radar Detectors
Garbage Disposals CB Radios
Cellular Phones
</TABLE>
Among the leading brands sold by us during fiscal 1999, in alphabetical
order, were General Electric, Hitachi, Hotpoint, JVC, Maytag, Panasonic,
Phillips Magnavox, Pioneer, RCA, Roper, Sharp, Sony, Technics, Toshiba,
Whirlpool and Zenith. Sony and Maytag products were added during fiscal 1999.
All our stores carry a broad range of televisions, video and audio
products, microwave ovens and air conditioners and a limited line of home office
products. In addition, 234 stores carry major appliances. We began selling
cellular phones in 41 of our stores during fiscal 1999. We do not carry
computers, computer software or pre-recorded music.
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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 1999 1998 1997
---------------- ---- ---- ----
<S> <C> <C> <C>
Televisions ............................................ 38% 36% 36%
Video .................................................. 16 17 19
Audio................................................... 17 18 17
Appliances ............................................. 22 21 20
Other................................................... 7 8 8
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
PRICING. Our policy is to offer our products at guaranteed lowest
prices combined with frequent special sales and promotions. Our retail prices
are established by our 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. Our commitment to offer the
lowest prices is supported by our 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. We use a "price and item" approach in our advertising,
stressing the offering of nationally recognized brands at significant savings.
The emphasis of our advertising is our Guaranteed Lowest Price. Our guarantee
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 us by an outside
advertising agency. We supplement our newspaper advertising with television and
radio advertisements 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." Our advertising strategy includes preferred
customer private mailers, special events such as "Midnight Madness Sales" and
coupon sales to provide shopping excitement and generate traffic.
PURCHASING. Our merchandise purchasing and opportunistic buying are
performed predominantly by three members of senior management. Each individual
has responsibility for a specific product category, and two share appliance
buying responsibility. By purchasing merchandise in large volume, we are able to
obtain quality products at competitive prices and advertising subsidies from
vendors to promote the sale of their products. For fiscal 1999, seven vendors
accounted for approximately 63% of our purchases. We typically do not maintain
long-term purchase contracts with vendors and operate principally on an
order-by-order basis.
e-COMMERCE
In April 1999, we began selling selected televisions, audio and video
products and small appliances on our Web site at www.rexstores.com. We are an
Amazon.com Auctions Charter Merchant and also offer selected products on the
eBay and Yahoo! auction Web sites. In January 2000 we entered into an agreement
with Zengine, Inc. to develop our Web site. We believe the entry into e-commerce
offers us the opportunity to expand our sales into larger markets.
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DISTRIBUTION
Our stores are supplied by three regional distribution centers. The
distribution centers consist of:
a 315,000 square foot leased facility in Dayton, Ohio;
a 180,000 square foot owned facility in Pensacola, Florida, of
which we lease 90,000 square feet to an outside company; and
a 145,000 square foot owned facility in Cheyenne, Wyoming.
We also lease a 67,000 square foot auxiliary warehouse in Pensacola,
Florida. In addition, we lease overflow warehouse space as needed to accommodate
seasonal inventory requirements and opportunistic purchases.
INVENTORY MANAGEMENT
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 our
merchandise is distributed through our 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
We have developed a computerized management information system which
operates an internally developed software package. Our 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 our
accounting operations.
Our mainframe computer is an IBM A/S 400E series model. The host
computer is integrated with our 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.
COMPETITION
Our business is characterized by substantial competition. Our
competitors include national and regional large format merchandisers and
superstores such as Best Buy Co., Inc. and Circuit City Stores, Inc., other
specialty electronics retailers including RadioShack, the retail operating
format of Tandy Corporation, department and discount stores such as Sears,
Roebuck and Co., Wal-Mart Stores, Inc. and Montgomery Ward Holding Corp.,
furniture stores, warehouse clubs, home improvement retailers and Internet and
store-based retailers who sell competitive products online. We also compete with
small chains and specialty single-store operators in some markets, as well as
Sears' dealer-operated units. Some of our competitors have greater financial and
other resources than us, which may increase their ability to purchase inventory
at a lower cost, better withstand economic downturns or engage in aggressive
price competition. Competition within the consumer electronics/appliance
retailing industry is based upon price, breadth of product selection, product
quality and customer service. We expect competition within the industry to
increase.
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FACILITIES
We own 128 of our stores. The remaining 110 stores operate on leased
premises, with the unexpired terms of the leases ranging from less than one year
to 25 years, inclusive of options to renew. For fiscal 1999, the total net rent
expense for our leased facilities was approximately $7,411,000.
To date, we have not experienced difficulty in securing leases or
purchasing sites for suitable store locations. We continue to remodel and
upgrade existing stores as appropriate. In addition, to minimize construction
costs, we have developed prototype formats for new store construction.
EMPLOYEES
At January 31, 2000, we had 150 hourly and salaried employees and 949
commission-based sales employees. We also employ additional personnel during
peak selling seasons. None of our employees are represented by a labor union. We
consider our relationship with our employees to be good.
SERVICE MARKS
We have registered our rights in our service mark "REX" with the United
States Patent and Trademark Office. We are not aware of any adverse claims
concerning our 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," "Distribution" and "Facilities" and is
incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal proceedings incidental to the conduct
of our business. We believe that these proceedings will not have a material
adverse effect on our financial condition or operations.
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 our executive
officers.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Stuart Rose.............................. 45 Chairman of the Board and Chief Executive Officer*
Lawrence Tomchin ........................ 72 President and Chief Operating Officer*
Douglas Bruggeman ....................... 39 Vice President-Finance and Treasurer
Edward Kress ............................ 50 Secretary*
</TABLE>
- ----------------
*Also serves as a director.
Stuart Rose has been our Chairman of the Board and Chief Executive
Officer since our incorporation in 1984 as a holding company to succeed to the
ownership of Rex Radio and Television, Inc., Kelly & Cohen Appliances, Inc. and
Stereo Town, Inc. Prior to 1984, Mr. Rose was Chairman of the Board and Chief
Executive Officer of Rex Radio and Television, Inc., which he founded in 1980 to
acquire the stock of a corporation which operated four retail stores.
Lawrence Tomchin has been our President and Chief Operating Officer
since 1990. From 1984 to 1990, he was our Executive Vice President and Chief
Operating Officer. Mr. Tomchin has been a director since 1984. Mr. Tomchin was
Vice President and General Manager of the corporation which was acquired by Rex
Radio and Television, Inc. in 1980 and served as Executive Vice President of Rex
Radio and Television, Inc. after the acquisition.
Douglas Bruggeman has been our Vice President - Finance and Treasurer
since 1989. From 1987 to 1989, Mr. Bruggeman was our Manager of Corporate
Accounting. Mr. Bruggeman was employed with the accounting firm of Ernst & Young
prior to joining us in 1986.
Edward Kress has been our Secretary since 1984 and a director since
1985. Mr. Kress has been a partner of the law firm of Chernesky, Heyman & Kress
P.L.L., our legal counsel, 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
Our 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, 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
April 30, 1999 $16.94 $11.13
July 31, 1999 39.06 15.75
October 31, 1999 42.38 24.88
January 31, 2000 39.81 13.31
</TABLE>
As of April 12, 2000, there were 235 holders of record
of our common stock, including shares held
in nominee or street name by brokers.
Dividend Policy
- ---------------
Our revolving credit agreement places restrictions on the payment of dividends.
We 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) 2000 1999 1998 1997 1996
- --------------------------------------------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $464,300 $416,673 $411,005 $427,378 $442,217
Net income $ 18,293 $ 11,195 $ 7,412 $ 7,362 $ 14,573
Basic net income per share $ 2.28 $ 1.51 $ 0.94 $ 0.82 $ 1.62
Diluted net income per share $ 2.06 $ 1.43 $ 0.91 $ 0.80 $ 1.56
Total assets $304,036 $268,282 $260,530 $248,034 $234,599
Long-term debt, net of current maturities $ 46,200 $ 55,478 $ 52,661 $ 51,102 $ 32,590
</TABLE>
(A) Per share amounts for the years ended January 31, 1997 and 1996 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,
1999 1999 1999 2000
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $99,056 $107,739 $102,432 $155,073
Cost of merchandise sold 72,613 76,870 74,651 113,284
Net income 2,087 4,098 2,464 9,644
Basic net income per
share (a) $0.28 $0.54 $0.30 $1.07
Diluted net income per share (a) $0.27 $0.48 $0.27 $0.97
</TABLE>
<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 (b) $0.13 $0.21 $0.10 $1.10
Diluted net income per share (b) $0.13 $0.20 $0.10 $1.04
</TABLE>
(a) The total of the quarterly net income per share amounts is less than the
annual net income per share amounts due to 53% of net income occurring in
the fourth quarter of fiscal 1999, whose per share amounts reflect, for the
entire quarter, our 1.5 million share offering in October 1999, while the
annual per share amounts only reflect the increased outstanding shares for
the four months since the issuance of the shares in October 1999.
(b) The total of the quarterly net income per share amounts is more than the
annual net income per share amounts due to 70% of our net income occurring
in the fourth quarter of fiscal 1998. In addition, the fourth quarter per
share amounts reflect, for the entire quarter, the 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
We are a leading specialty retailer in the consumer
electronics/appliance industry. Since acquiring our first four stores in 1980,
we have expanded into a national chain operating 238 stores in 35 states under
the "REX" trade name. By offering a broad selection of brand name products at
guaranteed lowest prices, we believe we have become a leading consumer
electronics/appliance retailer in our markets.
Our comparable store sales increased 8.2% for fiscal 1999. The
comparable stores sales increase was primarily driven by large screen television
sales throughout the year and strong air conditioner sales in the second quarter
due to warm weather conditions. Comparable stores sales had declined 0.1% and
10.5% for fiscal 1998 and 1997, respectively. Negative comparable store sales in
fiscal 1997 were primarily driven by increased competitor openings in certain of
our markets, a lack of new product introductions within the industry and our
decision to discontinue selling personal computers in fiscal 1997. We consider 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.
During fiscal 1999, 1998 and 1997 we opened 14, 12 and 8 stores, and
closed 4, 6 and 8 stores, respectively. We plan to accelerate our store openings
for fiscal 2000 and 2001, with 30 to 35 new store openings planned in fiscal
2000 and 35 to 40 in fiscal 2001. In March 1998, we opened a third distribution
center in Cheyenne, Wyoming, that will allow us to further expand in the western
part of the United States. Future store openings are expected to occur in our
existing geographical markets and selected new states. We are currently focusing
most of our new store openings in markets with populations under 85,000, which
we generally believe are underserved by our competitors.
EXTENDED SERVICE CONTRACTS
Our 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 3.3%, 3.7%
and 3.5% 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 $10.9 million, $10.3 million and $11.0
million in fiscal 1999, 1998 and 1997, respectively.
INVESTMENT IN LIMITED PARTNERSHIPS
In fiscal 1998, we invested $3.2 million in two limited partnerships
which own four facilities producing synthetic fuel from coal fines. The
partnerships earn federal income tax credits under Section 29 of the Internal
Revenue Code based on the tonnage and content of solid synthetic fuel sold to
unrelated parties. Our share of the credits generated may be used to reduce our
federal income tax liability down to the alternative minimum tax (AMT) rate.
Under current law, credits under Section 29 are available for qualified fuels
sold before January 1, 2008. The tax credits begin to phase out if the price of
a barrel of oil exceeds certain levels adjusted annually for inflation. The 1999
phase-out started at $47.90 per barrel.
We initially held a 30% interest in one partnership and an 18.75%
interest in the other. Effective February 1, 1999, we sold a portion of our
interest in one partnership, reducing our ownership percentage from 30% to 17%.
We will 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 and are subject to certain annual
limitations. The maximum amount of cash that can be received varies by year. The
maximum that could be received for calendar 1999 was approximately $6.7 million,
of which the actual amount earned and received was approximately $5.1 million.
The maximum that can be received for calendar 2000 is approximately $7.1
million.
14
<PAGE>
We are a limited partner in each partnership. We have no managerial
responsibility or liability for future working capital contributions, although
our interest in each partnership could be diluted if we choose not to pay our
share of necessary capital improvements to the partnerships' facilities. We
account for our ownership interest in the partnerships under the equity method.
The limited partnerships have received favorable private letter rulings
from the IRS that the synthetic fuel produced by their facilities and sold to
unrelated parties qualify for the tax credits under Section 29 of the Internal
Revenue Code.
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,
-------------------------------------------------------------
2000 1999 1998
--------------- ----------------- ----------------
<S> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0%
Cost of merchandise sold................ 72.7 72.7 72.4
Gross profit........................ 27.3 27.3 27.6
--------------- ----------------- ----------------
Selling, general and administrative
expenses............................ 21.6 22.4 22.9
Income from operations.............. 5.7 4.9 4.7
Interest, net........................... (1.0) (1.5) (1.7)
Gain on sale of real estate............. 0.2 0.6 --
Income (equity in losses) from limited
partnerships........................ 0.6 (0.3) --
--------------- ----------------- ----------------
Income before provision for income
taxes and extraordinary item.... 5.5 3.7 3.0
Provision for income taxes.............. 1.4 1.0 1.2
--------------- ----------------- ----------------
Income before extraordinary
item............................ 4.1 2.7 1.8
Extraordinary loss from early
extinguishment of debt.............. 0.2 -- --
--------------- ----------------- ----------------
Net income........................... 3.9% 2.7% 1.8%
=============== ================= ================
</TABLE>
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 2000 AND 1999
NET SALES. Net sales in fiscal 1999 were $464.3 million, an 11.4%
increase from the $416.7 million achieved in fiscal 1998. This increase was
primarily the result of an increase in comparable store sales of 8.2% for the
fiscal year. Sales also increased due to the opening of 14 new stores in fiscal
1999 and the first full year of sales from 12 stores opened in fiscal 1998.
During fiscal 1999, we opened 14 stores and closed four, while during fiscal
1998 we opened 12 stores and closed six. We had 238 and 228 stores open at
January 31, 2000 and 1999, respectively.
The largest contributor to the increased comparable store sales were
larger screen television sales which accounted for 6.5% of the increase.
Comparable store sales were also positively impacted by approximately 2.2% from
strong air conditioner sales during the second quarter and approximately 1.3%
and 1.1% from DVD players and appliances other than air conditioners,
respectively. DVD players were a relatively new product in fiscal 1999 and we
believe that sales of DVD players serve to replace certain VCR sales. The
increase in sales of appliances was a result of expanded product offerings.
15
<PAGE>
Comparable store sales were negatively impacted by approximately 1.5%
and 1.4% from smaller screen televisions and VCRs, respectively. The decline in
smaller screen televisions was primarily due to increased demand for larger
screen televisions and a reduction in average selling prices. The reduction in
VCR sales was also due to a decline in average selling prices and a shift in
demand toward DVD players.
GROSS PROFIT. Gross profit was $126.9 million in fiscal 1999 versus
$113.8 million for fiscal 1998. The gross profit margin was 27.3% for both
years. The gross profit margin was positively impacted by the improved sales of
larger screen televisions and air conditioners which have higher than average
gross profit margins. These improvements were offset by the recognition of a
lower percentage of extended service contract revenues relative to merchandise
sales. Sales of extended service contracts generally have a higher gross profit
margin in comparison to other product categories.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal 1999 were $100.6 million, or 21.6% of net
sales, a 7.5% increase from $93.6 million, or 22.4% of net sales, in fiscal
1998. The increase in expenses was primarily the result of increased incentive
commissions and other selling costs associated with the increased sales levels.
The reduction in selling, general and administrative expenses as a percent of
net sales was primarily the result of the leveraging of store operating costs,
such as advertising and occupancy expenses, as a result of the increase in
comparable store sales of 8.2%.
INCOME FROM OPERATIONS. Income from operations was $26.3 million, or
5.7% of net sales, for fiscal 1999, a 30.2% increase from $20.2 million, or 4.9%
of net sales, in fiscal 1998. The increase was primarily due to increased
comparable store sales and the leveraging of store operating costs, such as
advertising and occupancy expenses.
INTEREST EXPENSE. Interest expense decreased to $5.1 million in fiscal
1999 from $6.4 million in fiscal 1998. The decrease in interest expense was
primarily attributable to lower borrowings under the line of credit. Average
outstanding borrowings under the line of credit were approximately $3.2 million
in fiscal 1999 versus approximately $15.8 million in fiscal 1998. We also had a
net reduction in mortgage debt of $9.1 million, due to paying off certain higher
rate mortgage debt with proceeds from our stock offering in October 1999.
GAIN ON SALE OF REAL ESTATE. During fiscal 1999, we sold a shopping
center in which we had previously operated a retail store. We recorded a gain of
approximately $787,000 from the sale of this real estate.
INCOME (EQUITY IN LOSSES) FROM LIMITED PARTNERSHIPS. Results for the
fiscal year ended January 31, 2000 also reflect the impact of our investment in
two synthetic fuel limited partnerships. We reported income from the limited
partnerships of approximately $3.0 million for fiscal 1999, which consisted of
$5.1 million generated by the sale of a portion of the interest in one of the
partnerships, partially offset by a charge of $2.1 million to reflect our equity
share of the partnerships' losses.
INCOME TAXES. Our effective tax rate was reduced to 25.0% in fiscal
1999 from 26.3% in fiscal 1998 as a result of our share of federal tax credits
earned by the limited partnerships.
EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT. We recorded an
extraordinary loss from the early extinguishment of debt of $717,000, net of the
income tax effect of $239,000, as a result of paying off approximately $18.9
million of mortgage debt with a portion of the proceeds from our stock offering
in October 1999.
NET INCOME. As a result of the foregoing, net income was $18.3 million
and $11.2 million for fiscal 1999 and 1998, respectively.
16
<PAGE>
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1999 AND 1998
NET SALES. Net sales in fiscal 1998 were $416.7 million, a 1.4%
increase from the $411.0 million achieved in fiscal 1997. This increase was
caused by the addition of 12 stores opened in fiscal 1998 and the first full
year of sales for eight stores opened in the previous fiscal year. During fiscal
1998, we opened 12 stores and closed six, while during fiscal 1997 we opened
eight stores and closed eight. We had 228 and 222 stores open at January 31,
1999 and 1998, respectively.
Comparable store sales declined by 0.1% in fiscal 1998. Comparable
store sales were positively impacted by approximately 1.4% and 1.3% by the audio
and appliance categories, respectively, as well as approximately 1.0% by ready
to assemble (RTA) furniture. The increase in sales of appliances and RTA
furniture was a result of expanded offerings in both categories.
Comparable store sales were negatively impacted by approximately 0.1%
and 2.7% by the television and video products categories, respectively, and by
approximately 1.0% by our decision to discontinue selling personal computers
during fiscal 1997. 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 1999 on comparable store sales
from personal computers as we sold a limited number of personal computers in
fiscal 1998.
GROSS PROFIT. Gross profit was $113.8 million in fiscal 1998, or 27.3%
of net sales, versus $113.2 million, or 27.6% of net sales, recorded the prior
year. The reduced gross profit margin was primarily the result of the changes in
merchandise sales mix discussed above and the continued decline in the average
selling prices of television and video products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal 1998 were $93.6 million, or 22.4% of net
sales, a 0.5% decline from $94.1 million, or 22.9% of net sales, in fiscal 1997.
The decrease in expenses was primarily due to lower advertising expenditures in
certain markets of approximately $2.3 million, partially offset by an increase
in compensation expense of approximately $1.2 million resulting from increased
total sales and profits.
INCOME FROM OPERATIONS. Income from operations was $20.2 million, or
4.9% of net sales, in fiscal 1998, a 5.2% increase from $19.2 million, or 4.7%
of net sales, for fiscal 1997. The increase was primarily due to increased total
sales and controls over advertising expenditures.
INTEREST EXPENSE. Interest expense decreased to $6.4 million in fiscal
1998 from $7.1 million in fiscal 1997. The decrease in interest expense was
primarily attributable to lower borrowings under the line of credit. Average
outstanding borrowings under the line of credit were approximately $15.8 million
in fiscal 1998 versus approximately $22.2 million in fiscal 1997.
GAIN ON SALE OF REAL ESTATE. During fiscal 1998, we sold two shopping
centers in which we had previously operated retail stores. We recorded a gain of
approximately $2.4 million from the sale of this real estate.
INCOME (EQUITY IN LOSSES) FROM LIMITED PARTNERSHIPS. Results for the
fiscal year ended January 31, 1999 also reflect the impact of our investment in
the two synthetic fuel limited partnerships. We recorded a pre-tax charge of
approximately $1.3 million to record our share of the partnerships' operating
losses, lowering our total investment in the partnerships to $1.8 million.
INCOME TAXES. Our effective tax rate was reduced to 26.3% in fiscal
1998 from 39.5% in fiscal 1997 as a result of our share of federal tax credits
earned by the limited partnerships.
NET INCOME. As a result of the foregoing, net income was $11.2 and $7.4
million for fiscal 1998 and 1997, respectively.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of financing have been cash flow provided by
operations, supplemented by mortgages on owned properties. We also use
borrowings under our revolving line of credit to fund our seasonal working
capital needs. In addition, during fiscal 1999 we received approximately $44.7
million after expenses from the sale of 1,500,000 shares of common stock.
OPERATING ACTIVITIES. Net cash provided by operating activities was
$10.3 million and $10.2 million for fiscal 1999 and 1998, respectively. For
fiscal 1999, operating cash flow was provided by net income of $18.3 million
adjusted for the net impact of non-cash items of $3.5 million, which consist of
deferred income, the gain on the sale of real estate, depreciation and
amortization, the deferred income tax provision and our equity interest in the
losses of the synthetic fuel limited partnerships. Cash of $3.0 million was also
provided by an increase in other liabilities primarily resulting from the timing
of tax payments and increased accrued wages resulting from higher sales levels.
The primary uses of cash were an increase in inventory of $7.3 million and a
decrease in accounts payable of $6.4 million primarily due to the timing of
purchases and terms of payment with vendors.
For fiscal 1998, 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
our equity interest in the losses of the synthetic fuel limited partnerships.
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.
INVESTING ACTIVITIES. Capital expenditures in fiscal 1999 totaled $20.2
million. Expenditures included approximately $15.3 million to open 14 stores,
approximately $1.2 million to purchase two previously leased stores and
approximately $2.6 million for stores we plan to open in fiscal 2000. We plan to
open 30 to 35 new stores in 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 from additional mortgage debt.
Capital expenditures in fiscal 1998 totaled $12.7 million. Expenditures
included approximately $7.9 million to open 12 stores, approximately $2.1
million to relocate two stores and approximately $2.1 million to purchase three
previously leased stores. In fiscal 1998, we also invested $3.2 million in the
synthetic fuel limited partnerships.
FINANCING ACTIVITIES. Cash provided by financing activities totaled
approximately $22.2 million for fiscal 1999. In October 1999, we completed the
sale of 1,500,000 shares of common stock with net proceeds to the Company of
approximately $44.7 million after expenses. We also received proceeds of
approximately $4.0 million from the exercise of stock options by employees and
directors. The exercise of non-qualified stock options resulted in a tax benefit
of approximately $2.7 million which was reflected as an increase to additional
paid-in capital.
During fiscal 1999, we purchased 1,351,325 shares of our common stock
for $20.1 million. During fiscal 1998, we purchased 632,000 shares of our common
stock for $7.5 million. At January 31, 2000 we had authorization from the Board
of Directors to purchase an additional 1,357,900 shares of our common stock, all
of which were purchased subsequent to January 31, 2000 for $24.4 million. These
shares will be held in treasury for possible future use. On March 22, 2000, we
received authorization from our Board of Directors to purchase an additional
1,000,000 shares of our common stock.
18
<PAGE>
At January 31, 2000, we had approximately $49.5 million of mortgage
debt outstanding at a weighted average interest rate of 8.04%, with maturities
from April 1, 2000 to October 1, 2019. We have balloon payments due totaling
approximately $2.2 million over the next two fiscal years, which we plan to
either refinance with long-term mortgage debt or satisfy through borrowings on
our revolving credit agreement. During fiscal 1999 we obtained mortgage
financing of approximately $13.2 million to finance 15 retail store locations.
We also paid off $22.3 million of long-term mortgage debt from scheduled
repayments and early extinguishment of debt with proceeds from our stock
offering.
During fiscal 1999 we renewed our revolving credit agreement. The
revolving credit agreement is with six banks through July 31, 2005 with interest
at prime or LIBOR plus 1.875% and commitment fees of 1/4% payable on the unused
portion. Amounts available for borrowing are equal to the lesser of (1) $100
million for the months of January through June and $130 million for the months
of July through December or (2) the sum of specific percentages of eligible
accounts receivable and eligible inventories, as defined. Amounts available for
borrowing are reduced by any letter of credit commitments outstanding.
Borrowings on the revolving credit agreement are secured by certain fixed
assets, accounts receivable, inventories and the capital stock of our
subsidiaries.
At January 31, 2000 and 1999, we had no borrowings outstanding on the
revolving credit agreement. A total of approximately $90 million was available
at January 31, 2000. Borrowing levels vary during the course of a year based
upon our seasonal working capital needs. The maximum direct borrowings
outstanding during fiscal 1999 were approximately $17.8 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 8.2%
(17.8% including commitment fees) for fiscal 1999. The revolving credit
agreement contains restrictive covenants which require us 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.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Our business is seasonal. As is the case with many other retailers, our
net sales and net income are greatest in our fourth fiscal quarter, which
includes the Christmas selling season. The fourth fiscal quarter accounted for
33.4% and 34.5% of net sales and 47.9% and 49.8% 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 our results of
operations for the past three fiscal years.
YEAR 2000
Certain software and hardware systems are date sensitive. Older date
sensitive systems often use a two digit dating convention ("00" rather than
"2000") that could have resulted in system failure and disruption of operations.
This is referred to as the "Year 2000" issue. We have not experienced any
significant disruptions to our business as a result of the Year 2000 issue.
To date, we have incurred approximately $176,000 in costs. These costs
were to replace existing hardware and third party software and professional fees
for external assistance. We estimate that our future cost to resolve remaining
Year 2000 issues will not be significant.
19
<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. We do not expect the adoption of
SFAS No. 133 to have a material impact on the consolidated financial statements
because we do not currently hold any derivative instruments. In June 1999, the
FASB issued Statement No. 137, which amended SFAS No. 133 such that the
effective date of adoption will be for fiscal quarters beginning after June 15,
2000. We do not intend to adopt SFAS No. 133 prior to its effective date.
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 REX 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, 2000, we 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.
The revolving credit agreement is with six banks through July 31, 2005,
with interest at prime or LIBOR plus 1.875% and commitment fees of 1/4% payable
on the unused portion. Amounts available for borrowing are equal to the lesser
of (1) $100 million for the months of January through June and $130 million for
the months of July through December or (2) the sum of specific percentages of
eligible accounts receivable and eligible inventories, as defined. Amounts
available for borrowing are reduced by any letter of credit commitments
outstanding. Borrowings on the revolving credit agreement are secured by certain
fixed assets, accounts receivable, inventories and the capital stock of our
subsidiaries. There were no borrowings outstanding at January 31, 2000.
Substantially all of the mortgage notes payable consist of fixed rate
debt. The interest rates are fixed from one to 12 years and range from 6.89% to
8.90%. 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 our
long-term mortgage debt at January 31, 2000 was approximately $48.5 million. The
fair value was estimated based on rates available to us 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>
2001 $ 3,303
2002 3,375
2003 4,115
2004 4,187
2005 7,926
Thereafter 26,597
-------
$49,503
=======
</TABLE>
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REX Stores Corporation and Subsidiaries
Consolidated Balance Sheets
January 31, 2000 and 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---- ----
(In Thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 25,609 $ 11,912
Accounts receivable, net of allowance for doubtful accounts of $483
and $430 at January 31, 2000 and 1999, respectively (Note 5) 2,569 2,297
Merchandise inventory (Note 5) 139,267 132,002
Prepaid expenses and other 2,097 2,039
Equity investment in limited partnerships (Note 2) -- 1,838
Future income tax benefits (Note 9) 9,837 9,366
-------- --------
Total current assets 179,379 159,454
PROPERTY AND EQUIPMENT, NET (Notes 1, 5 and 6) 113,802 98,891
FUTURE INCOME TAX BENEFITS (Note 9) 8,835 8,109
RESTRICTED INVESTMENTS (Note 1) 2,020 1,828
-------- --------
Total assets $304,036 $268,282
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 6) $ 3,303 $ 3,114
Current portion of deferred income and deferred gain on sale and
leaseback (Notes 1 and 8) 11,219 11,453
Accounts payable, trade 46,252 52,674
Accrued income taxes 1,572 147
Accrued payroll 6,947 5,889
Other current liabilities 9,330 8,817
-------- --------
Total current liabilities 78,623 82,094
LONG-TERM LIABILITIES:
Long-term mortgage debt (Note 6) 46,200 55,478
Deferred income (Note 1) 16,423 16,723
Deferred gain on sale and leaseback (Note 8) 2,953 3,777
-------- --------
Total long-term liabilities 65,576 75,978
COMMITMENTS AND CONTINGENCIES (Notes 8 and 10)
SHAREHOLDERS' EQUITY (Notes 4, 5, and 7):
Common stock, 45,000 shares authorized, 11,495 and 9,767 shares
issued, at par 115 98
Paid-in capital 105,303 58,596
Retained earnings 93,663 75,370
Treasury stock, 3,426 and 2,587 shares (39,244) (23,854)
-------- --------
Total shareholders' equity 159,837 110,210
-------- --------
Total liabilities and shareholders' equity $304,036 $268,282
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
21
<PAGE>
REX Stores Corporation and Subsidiaries
Consolidated Statements of Income
For the Years Ended January 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(In Thousands,
Except Per Share Amounts)
<S> <C> <C> <C>
NET SALES $464,300 $416,673 $411,005
-------- -------- --------
COSTS AND EXPENSES:
Cost of merchandise sold 337,418 302,894 297,757
Selling, general and administrative expenses 100,589 93,578 94,055
-------- -------- --------
Total costs and expenses 438,007 396,472 391,812
-------- -------- --------
INCOME FROM OPERATIONS 26,293 20,201 19,193
INVESTMENT INCOME 420 347 202
INTEREST EXPENSE (5,136) (6,448) (7,143)
GAIN ON SALE OF REAL ESTATE 787 2,410 --
INCOME (EQUITY IN LOSSES) FROM LIMITED PARTNERSHIPS 2,996 (1,312) --
-------- -------- --------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM 25,360 15,198 12,252
PROVISION FOR INCOME TAXES 6,350 4,003 4,840
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 19,010 11,195 7,412
EXTRAORDINARY LOSS FROM EARLY
EXTINGUISHMENT OF DEBT, NET OF INCOME
TAX EFFECT OF $239 (717) -- --
-------- -------- --------
NET INCOME $ 18,293 $ 11,195 $ 7,412
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 8,022 7,427 7,919
-------- -------- --------
BASIC NET INCOME PER SHARE BEFORE
EXTRAORDINARY ITEM $ 2.37 $ 1.51 $ 0.94
EXTRAORDINARY ITEM (0.09) -- --
-------- -------- --------
BASIC NET INCOME PER SHARE $ 2.28 $ 1.51 $ 0.94
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 8,897 7,833 8,178
-------- -------- --------
DILUTIVE NET INCOME PER SHARE BEFORE
EXTRAORDINARY ITEM $ 2.14 $ 1.43 $ 0.91
EXTRAORDINARY ITEM (0.08) -- --
-------- -------- --------
DILUTED NET INCOME PER SHARE $ 2.06 $ 1.43 $ 0.91
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
22
<PAGE>
REX Stores Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended January 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $18,293 $11,195 $ 7,412
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization, net 3,469 3,194 2,979
Gain on sale of real estate (787) (2,410) --
Equity in losses of limited partnerships 2,100 1,312 --
Deferred income (534) (993) 165
Deferred income tax provision (770) (137) (1,015)
Changes in assets and liabilities:
Accounts receivable (272) 478 (1,298)
Merchandise inventory (7,265) (5,504) 8,535
Other current assets (485) 131 (2,228)
Accounts payable, trade (6,422) 2,842 18,567
Other current liabilities 2,996 109 2,400
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,323 10,217 35,517
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (20,213) (12,736) (8,015)
Proceeds from sale of real estate and capital disposals 1,796 4,630 573
Equity investment in limited partnerships (262) (3,150) --
Restricted investments (192) (191) 8
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (18,871) (11,447) (7,434)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in note payable -- -- (12,142)
Proceeds from long-term debt 13,192 7,003 4,473
Payments of long-term debt (22,281) (4,031) (3,086)
Common stock issued 49,717 701 668
Treasury stock issued 1,728 -- --
Treasury stock acquired (20,111) (7,468) (5,018)
------- ------- -------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 22,245 (3,795) (15,105)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 13,697 (5,025) 12,978
CASH AND CASH EQUIVALENTS, beginning of year 11,912 16,937 3,959
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year $25,609 $11,912 $16,937
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
23
<PAGE>
REX Stores Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
For the Years Ended January 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
<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, 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
Net income -- -- -- -- -- 18,293
Treasury stock acquired -- -- 1,351 20,111 -- --
Common stock issued 1,728 17 (512) (4,721) 46,707 --
------ ---- ----- ------- -------- -------
BALANCE, January 31, 2000 11,495 $115 3,426 $39,244 $105,303 $93,663
====== ==== ===== ======= ======== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
24
<PAGE>
REX Stores Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000 and 1999
- --------------------------------------------------------------------------------
(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 238 retail consumer
electronics and appliance stores under the REX name in 35 states.
(b) Fiscal Year--All references in these financial statements to a
particular fiscal year are to the Company's fiscal year ended
January 31. For example, "fiscal 1999" means the period February
1, 1999 to January 31, 2000. In the past, the Company referred to
this period as "fiscal 2000."
(c) Use of Estimates--The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States 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.
(d) 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.
(e) 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 ($34,096,000 and $32,405,000 at January 31, 2000
and 1999, respectively) is equivalent to the FIFO value for all
years presented. Seven suppliers accounted for approximately 63%
of the Company's purchases in fiscal 1999.
(f) 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, 2000 and 1999
are as follows:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
Land $ 30,588 $ 26,716
Buildings and improvements 77,645 64,586
Fixtures and equipment 17,213 15,477
Leasehold improvements 10,378 10,217
--------- ---------
135,824 116,996
Less: accumulated depreciation (22,022) (18,105)
--------- ---------
$113,802 $ 98,891
========= =========
</TABLE>
25
<PAGE>
REX Stores Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000 and 1999
- --------------------------------------------------------------------------------
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,
2000, 1999 and 1998.
(g) 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, 2000 and 1999 are restricted by two
states to cover possible future claims under product service
contracts.
(h) 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.
(i) Interest Cost--Interest expense of $5,136,000, $6,448,000 and
$7,143,000 for the years ended January 31, 2000, 1999 and 1998,
respectively, is net of approximately $310,000, $238,000 and
$33,000 of interest capitalized related to store construction.
Total interest expense approximates interest paid for all years
presented.
(j) 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.
(k) Advertising Costs--Advertising costs are expensed as incurred.
Advertising expense was approximately $31,914,000, $30,468,000 and
$32,813,000 for the years ended January 31, 2000, 1999 and 1998,
respectively.
(l) 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, 2000, 1999 and 1998
were not material.
(2) Investments In Limited Partnerships--
During fiscal 1998, the Company invested $3,150,000 in two limited
partnerships which produce synthetic fuels. The Company currently holds a
17% ownership in one partnership and an 18.75% ownership in the other,
which are accounted for under the equity method. 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
as a reduction of the income tax provision in the period earned and such
credits totaled approximately $3,800,000 and $2,000,000 in fiscal 1999
and 1998, respectively (see Note 9).
26
<PAGE>
REX Stores Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000 and 1999
- --------------------------------------------------------------------------------
Effective February 1, 1999, the Company sold a 13% interest in one of the
limited partnerships reducing its initial 30% ownership interest to 17%.
The Company will receive cash payments from the sale on a quarterly basis
through December 31, 2007. These payments are contingent upon and equal
to 75% of the Federal income tax credits attributable to the 13% interest
sold and are subject to certain annual limitations, as specified in the
sale agreement. The maximum amount that could be received for calendar
1999 was approximately $6,700,000, of which the Company earned and
received $5,100,000. The maximum that can be received for calendar 2000
is approximately $7,100,000. Income from the limited partnership
investments reflected in the Consolidated Statements of Income totaled
approximately $3,000,000 for fiscal 1999, consisting of $5,100,000 of
income generated by the sale of the partnership interest, partially
offset by a charge of $2,100,000 to reflect the Company's share of the
partnerships' losses. The Company recorded a charge of approximately
$1,300,000 in fiscal 1998 to reflect the Company's share of the
partnerships' losses
(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 fiscal 1999,
1998 and 1997.
The following table reconciles the basic and diluted net income per share
computations for each year presented:
<TABLE>
<CAPTION>
2000
----------------------------------------------
Income Shares Per Share
------- ------- ---------
<S> <C> <C> <C>
Basic net income per share $18,293 8,022 $2.28
Effect of stock options -- 875 ---------
------- -------
Diluted net income per share $18,293 8,897 $2.06
------- ------- ---------
1999
----------------------------------------------
Income Shares Per Share
------- ------- ---------
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
------- ------- ---------
1998
----------------------------------------------
Income Shares Per Share
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>
27
<PAGE>
REX Stores Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000 and 1999
- --------------------------------------------------------------------------------
For the year ended January 31, 2000, all outstanding options were
included in the common equivalent shares outstanding calculation. For the
years ended January 31, 1999 and 1998, a total of 1,164,000 and 1,413,000
shares, respectively, subject to outstanding options were not included in
the common equivalent shares outstanding calculation as the exercise
prices were above the average trading price of the Company's common stock
for those periods.
(4) Common Stock Transactions--
In October 1999, the Company completed the sale of 1,500,000 shares of
common stock and received net proceeds of approximately $44.7 million,
net of expenses.
During the years ended January 31, 2000, 1999 and 1998, the Company
purchased 1,351,000, 632,000 and 567,000 shares of its common stock for
$20,111,000, $7,468,000 and $5,018,000, respectively. At January 31,
2000, the Company was authorized by its Board of Directors to purchase an
additional 1,357,900 shares of its common stock. All of these shares were
purchased subsequent to January 31, 2000 for approximately $24.4 million
and will be held in treasury for possible future use. On March 22, 2000,
the Company received authorization from its Board of Directors to
purchase an additional 1,000,000 shares of its common stock.
(5) Revolving Line Of Credit--
The Company has a revolving credit agreement with six banks which expires
on July 31, 2005. 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 $130 million for the months of July
through December or (ii) the sum of specific percentages of eligible
accounts receivable and eligible inventories, as defined. Borrowings
available are reduced by any letter of credit commitments outstanding.
The Company had no outstanding borrowings under the revolving credit
agreement at January 31, 2000 and January 31, 1999. At January 31, 2000,
a total of approximately $90.0 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
6.89% to 8.90%. 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.
28
<PAGE>
REX Stores Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000 and 1999
- --------------------------------------------------------------------------------
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending
January 31, Amount
----------- -------
<S> <C>
2001 .................................. $ 3,303
2002 .................................. 3,375
2003 .................................. 4,115
2004 .................................. 4,187
2005 .................................. 7,926
Thereafter ............................ 26,597
-------
$49,503
=======
</TABLE>
A portion of the proceeds from the October 1999 stock offering were used
to extinguish approximately $18.9 million of higher interest rate
mortgage debt (see Note 4). As a result of the early extinguishment of
mortgage debt, the Company paid prepayment penalties of approximately
$643,000 and expensed unamortized financing costs of approximately
$313,000. The Company recorded an extraordinary loss of $717,000, net of
an income tax effect of $239,000.
The fair value of the Company's long-term debt at January 31, 2000 and
1999 was approximately $48.5 million and $60.9 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, 2000, 33,405 shares remained
available for issuance. At January 31, 2000, 10,797 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, 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, 2000.
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.
29
<PAGE>
REX Stores Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000 and 1999
- --------------------------------------------------------------------------------
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 for the years ended January 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
------- -------- --------
<S> <C> <C> <C> <C>
Net income (000's): As reported $18,293 $11,195 $7,412
Pro forma 16,428 9,370 6,167
Basic net income per share: As reported $2.28 $1.51 $0.94
Pro forma 2.05 1.26 0.78
Diluted net income per share: As reported $2.06 $1.43 $0.91
Pro forma 1.99 1.25 0.79
</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 the fiscal years ended January 31,
2000, 1999 and 1998, respectively: risk-free interest rate of 5.4%, 5.7%
and 5.7%; expected volatility of 55.6%, 39.2% and 41.5%; and a weighted
average stock option life of 9 years, 9 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, 2000, 1999 and 1998 (options granted and cancelled during the
fiscal year ended January 31, 1998 include the effect of the February 26,
1997 re-pricing):
<TABLE>
<CAPTION>
2000 1999 1998
-------------------- ---------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
(000's) (000's) (000's)
--------- --------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 3,195 $10.98 2,288 $11.06 2,119 $12.15
Granted 212 12.20 997 10.54 653 9.13
Exercised (740) 5.28 (79) 7.54 (86) 7.20
Canceled or expired (17) 12.88 (11) 13.18 (398) 14.54
--------- ----------- ---------- --------- ---------- -----------
Outstanding at end of year 2,650 $12.65 3,195 $10.98 2,288 $11.06
========= =========== ========== ========= ========== ===========
Exercisable at end of year 1,278 $14.84 1,639 $11.10 1,368 $10.62
========= =========== ========== ========= ========== ===========
Weighted average fair value of
options granted $7.30 $6.46 $4.68
========= ========== ==========
</TABLE>
30
<PAGE>
REX Stores Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000 and 1999
- --------------------------------------------------------------------------------
Price ranges and other information for stock options outstanding as of
January 31, 2000 were as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------------------- ------------------------------
Weighted Weighted Weighted
Average Average Average
Range of Exercise Shares Exercise Remaining Shares Exercise
Prices (000's) Price Life (000's) Price
------------------------------ --------- ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
$8.13 to $11.50 1,499 $10.31 7.8 yrs. 177 $ 9.63
$12.50 to $18.13 1,138 15.62 4.6 yrs. 1,101 15.68
$22.69 13 22.69 9.4 yrs. -- --
--------- ---------- ------------ -------- -------------
2,650 $12.65 6.4 yrs. 1,278 $14.84
========= ========== ============ ======== =============
</TABLE>
Profit Sharing Plan--The Company has a qualified, noncontributory profit
sharing plan covering full-time employees who meet certain eligibility
requirements. The Plan also allows 401(k) savings contributions by
participants with certain Company matching contributions. Aggregate
contributions to the Plan are determined annually by the Board of
Directors and are not to exceed 15% of total compensation paid to all
participants during such year. The Company contributed matching amounts of
approximately $36,000, $36,000 and $31,000 for the years ended January 31,
2000, 1999 and 1998, 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, 2000 was approximately $3.8
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 associated with the
sale/leaseback being recorded as a reduction in the carrying value of
properties purchased.
31
<PAGE>
REX Stores Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000 and 1999
- --------------------------------------------------------------------------------
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>
2000 $10,679 $(824) $(2,444) $7,411
1999 9,729 (943) (1,854) 6,932
1998 9,453 (943) (1,713) 6,797
</TABLE>
Future minimum annual rentals and gain amortization on non-cancelable
leases as of January 31, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
Minimum Gain
Years ended January 31, Rentals Amortization
-------------------------------- ------------ -----------------
<S> <C> <C>
2001 $8,670 $ 824
2002 7,898 824
2003 6,633 824
2004 5,776 824
2005 3,480 481
Thereafter 875 --
------- ------
$33,332 $3,777
======= ======
</TABLE>
(9) Income Taxes-
The provision for income taxes for the years ended January 31, 2000, 1999
and 1998 consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------------------------------
2000 1999 1998
-------------- ---------------- ------------
<S> <C> <C> <C>
Federal:
Current $6,114 $3,304 $5,007
Deferred (887) (217) (957)
------ ------ ------
5,227 3,087 4,050
------ ------ ------
State and Local:
Current 1,006 836 848
Deferred 117 80 (58)
------ ------ ------
1,123 916 790
------ ------ ------
$6,350 $4,003 $4,840
====== ====== ======
</TABLE>
32
<PAGE>
REX Stores Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000 and 1999
- --------------------------------------------------------------------------------
The tax effects of significant temporary differences representing
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------------
2000 1999
-------------- -------------
<S> <C> <C>
Assets:
Deferral of service contract income $ 9,666 $ 9,853
Sale and leaseback deferred gain 1,322 1,842
Accrued liabilities 3,037 2,757
Inventory accounting 1,280 762
AMT credit carryforwards 3,842 --
Other items 573 3,291
-------------- -------------
19,720 18,505
Liabilities:
Depreciation (1,048) (1,030)
-------------- -------------
Total net future income tax benefits $18,672 $17,475
============== =============
</TABLE>
For the fiscal year ended January 31, 2000, the Company was subject to
the alternative minimum tax (AMT) rules due to the Section 29 tax credits
generated from the limited partnerships (see Note 2). The Company's
payment required under the AMT rules was approximately $3.8 million for
the year ended January 31, 2000. Amounts paid under the AMT rules can be
used to offset future regular income tax, subject to certain limitations.
Therefore, for financial statement purposes, the required AMT payment has
been recorded as an AMT credit carryforward. The AMT credit carryforwards
have no expiration date.
The Company paid income taxes of $3,235,000, $5,633,000 and $7,604,000 in
the years ended January 31, 2000, 1999 and 1998, 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,
-----------------------------------------
2000 1999 1998
------------ ----------- ------------
<S> <C> <C> <C>
Federal income tax at statutory rate 35.0% 35.0% 35.0%
Tax credits from investment in limited partnerships (15.0) (13.2) --
State and local taxes, net of federal tax benefit 2.9 3.9 4.2
Other 2.1 0.6 0.3
----- ----- ----
25.0% 26.3% 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.
33
<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, 2000 and
1999, 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, 2000. 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 auditing standards generally accepted
in the United States. 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, 2000 and 1999, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 31, 2000, in conformity with accounting principles
generally accepted in the United States.
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.
/s/ ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
March 23, 2000.
34
<PAGE>
REX Stores Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Years Ended January 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands)
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>
2000
Allowance for doubtful
accounts $430 $500 $447 $483
==== ==== ==== ====
1999
Allowance for doubtful
accounts $428 $300 $298 $430
==== ==== ==== ====
1998
Allowance for doubtful
accounts $376 $474 $422 $428
==== ==== ==== ====
</TABLE>
35
<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 Proxy Statement for our Annual Meeting of Shareholders on June
5, 2000, except for certain information concerning our executive officers 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 Proxy
Statement for our Annual Meeting of Shareholders on June 5, 2000 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 Proxy
Statement for our Annual Meeting of Shareholders on June 5, 2000 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 Proxy
Statement for our Annual Meeting of Shareholders on June 5, 2000 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 REX Stores
Corporation and subsidiaries are incorporated by reference as part of this
report at Item 8 hereof.
Consolidated Balance Sheets as of January 31, 2000 and 1999
Consolidated Statements of Income for the years ended January 31,
2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended January 31,
2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity for the years ended
January 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(a)(2) Financial Statement Schedules.
36
<PAGE>
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 39 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 during the quarter ended January 31,
2000.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REX STORES CORPORATION
By /s/ STUART ROSE
---------------------
Stuart Rose
Chairman of the Board and
Chief Executive Officer
Date: April 14, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
/s/ STUART ROSE Chairman of the Board )
- ---------------------------- and Chief Executive )
Stuart Rose Officer (principal )
executive officer) )
)
/s/ 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 14, 2000
)
/s/ EDWARD KRESS Secretary and Director )
- --------------------------- )
Edward Kress )
)
ROBERT DAVIDOFF* Director )
______________________________ )
Robert Davidoff )
)
)
LEE FISHER* Director )
______________________________ )
Lee Fisher )
)
*By /s/ STUART ROSE )
_____________________________ )
(Stuart Rose, Attorney-in-Fact) )
</TABLE>
38
<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)
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)
4(i) Amendment No. 2 dated October 19, 1999 to Amended and
Restated Loan Agreement dated July 31, 1995 among the
Borrowers, the registrant, the lenders
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C>
named therein and Fleet Bank, N.A. (as successor to
NatWest Bank N.A.) as agent (incorporated by reference
to Exhibit 4(i) to Form 10-Q for quarter ended October
31, 1999, File No. 0-13283)
4(j) Amendment No. 3 dated January 11, 2000 to Amended and
Restated Loan Agreement 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...................................................
4(k) Amendment No. 4 dated March 10, 2000 to Amended and
Restated Loan Agreement 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...................................................
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 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(b)* 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(c)* 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(d)* 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(e)* Subscription Agreement dated December 1, 1989 from
Stuart Rose to purchase 300,000 shares of registrant's
Common Stock (incorporated by reference to Exhibit 6.5
to Form 10-Q for quarter ended October 31, 1989, File
No. 0-13283)
10(f)* 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(g)* 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(h)* 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(i) Real Estate Purchase and Sale Agreement (the
"Agreement") dated March 8, 1989 between registrant as
Guarantor, four of its subsidiaries (Rex Radio and
</TABLE>
40
<PAGE>
<TABLE>
<S> <C> <C>
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(j) 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(l) 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(m) 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(n) 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(o) Agreement Regarding Leases and Amending Amended and
Restated Real Property Purchase and Sale Agreement dated
May 17, 1990 among Shidler/West Finance Partners I
(Limited Partnership); Rex Radio and Television, Inc.,
Stereo Town, Inc., Kelly & Cohen Appliances, Inc. and
Rex Radio Warehouse Corporation; and registrant
(incorporated by reference to Exhibit (a)(10) to Form
10-Q for quarter ended April 30, 1990, File No. 0-13283)
10(p) 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..............................
(23) Consents of experts and counsel:
23(a) Consent of Arthur Andersen LLP to use its report dated
March 23, 2000 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)................................
(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................................................
(27) Financial data schedule:
Financial data schedule.................................
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
(99) Additional exhibits:
Risk Factors............................................
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.
42
<PAGE>
AMENDMENT NO. 3 TO AMENDED AND RESTATED LOAN AGREEMENT
AND TO OTHER LOAN DOCUMENTS
AMENDMENT AGREEMENT, dated as of January 11, 2000, to the
Amended and Restated Loan Agreement, dated as of July 31, 1995 (as the same has
been or may be further amended, supplemented, modified or restated in accordance
with its terms, the "Loan Agreement") among REX RADIO AND TELEVISION, INC., an
Ohio corporation ("Rex Radio"), KELLY & COHEN APPLIANCES, INC., an Ohio
corporation ("Kelly"), STEREO TOWN, INC., a Georgia corporation ("Stereo Town"),
REX KANSAS, INC., a Kansas corporation ("Rex Kansas"), REX ALABAMA, INC., an
Ohio corporation ("Rex Alabama"), REXSTORES.COM, INC., an Ohio corporation ("Rex
Internet"), those financial institutions named as lenders on Schedule 2.01
thereto (the "Lenders") and FLEET BANK, N.A. (as successor to NatWest Bank
N.A.), in its capacity as agent (the "Agent") for itself and the Lenders.
Capitalized terms used herein and not otherwise defined shall have the meanings
attributed to them in the Loan Agreement.
SECTION I. AMENDMENTS TO LOAN AGREEMENT
1. Section 1.01 of the Loan Agreement is amended by deleting
the definitions of "Acquisition Standards" and "Expiration Date" set forth
therein and substituting the following therefor:
"'Acquisition Standards' shall mean the following:
(i) In the event that a proposed acquisition is to be
on a "hostile" rather than a "friendly" basis, the Parent or the
Borrower, as the case may be, shall so state in the notice of proposed
acquisition it sends to the Agent in accordance with Section 14(g)(II)
of the Parent Guaranty or the definition of Borrower Acquisition, as
applicable, and the Agent or any Lender may disapprove such proposed
hostile acquisition if the Agent or any Lender, or any Person related
to the Agent or any Lender, or any participant of the Agent or any
Lender in connection with the Obligations, shall object to the proposed
acquisition because the target business is, or is affiliated with, a
customer of the Agent or such Lender, a Person related to the Agent or
such Lender, or any participant of the Lender; and
(ii) The nature of the target business shall not be
illicit or illegal, shall not subject the Agent or any Lender to
embarrassment or adverse publicity and shall not subject the Agent or
any Lender to any litigation, claim or other proceeding."
"'Expiration Date' shall mean July 31, 2005."
<PAGE>
2. The definition of "Permitted Capital Expenditure Amount" in
Section 1.01 of the Loan Agreement is hereby amended by (a) deleting
"15,000,000" where it appears in clause (i) and substituting "$30,000,000"
therefor and (b) deleting "25,000,000" where it appears in clause (ii) and
substituting "50,000,000" therefor.
3. Section 1.01 of the Loan Agreement is further amended by
adding the following defined terms in the correct alphabetical order:
"'Availability' shall mean at any time the Borrowing Base
minus the sum at such time of (i) the unpaid principal balance of, and
accrued interest and fees on, the Revolving Credit Loans and (ii) the
Letter of Credit Usage."
"'Borrower Acquisition' shall mean the purchase by a Borrower
of (x) assets of any Person which constitute an operating unit or
business of such Person or (y) the capital stock or other beneficial
ownership interests in another Person; provided that (i) no Default or
Event of Default shall have occurred and be continuing on the date of
any such acquisition or would occur after giving effect thereto, (ii)
at all times during the twelve month period immediately preceding any
such acquisition, and after giving effect thereto, Availability shall
be equal to or greater than $25,000,000, (iii) the Borrower shall have
notified the Agent not less than 10 days prior to the proposed closing
date for any such acquisition, and the Agent shall have confirmed
within 5 days after Agent's receipt of such notice that the proposed
acquisition complies with the Acquisition Standards, and the Agent's
decision thereon shall be final and binding, (iv) the Borrowers shall
take or cause to be taken such actions as the Agent shall reasonably
request in order that the Agent be granted a first priority security
interest in all assets acquired, including, without limitation, all
assets of any target company and the pledge of any stock purchased or
of any Subsidiary formed and (v) any new Subsidiary shall issue a
Guaranty of the Obligations; provided further that the Borrowers and
the Parent may assume, for all Borrower Acquisitions and Permitted
Acquisitions in the aggregate, not more than $10,000,000 in
liabilities, contingent and actual and, in any event, including,
without limitation, lease obligations with respect to real property."
"'Borrower Stock Repurchase' shall mean the repurchase from
time to time by a Borrower of its issued and outstanding common stock;
provided that (i) no Default or Event of Default shall have occurred
and be continuing on the date of any such stock repurchase or would
occur after giving effect thereto, (ii) at all times during the twelve
month period immediately preceding any such stock repurchase, and after
giving effect thereto, Availability shall be equal to or greater than
$25,000,000."
"'Third Amendment Date' shall mean January 11, 2000."
<PAGE>
4. Section 2.01 of the Loan Agreement is hereby amended by
deleting "$150,000,000" where it appears in paragraph (vi) and substituting
"$130,000,000" therefor.
5. Schedules 2.01, 2.02 and 2.03 to the Loan Agreement are
hereby deleted and the Schedules 2.01, 2.02 and 2.03 attached hereto as Annex A
are substituted therefor.
6. Paragraph (a) of Section 3.03 of the Loan Agreement is
hereby amended by deleting clause (iii) thereof in its entirety and substituting
the following therefor:
"(iii) the Borrowers shall pay to the Agent on behalf
of the Lenders a fee equal to (x) three-quarters of one percent (3/4%)
of the amount of such prepayment if such prepayment is made on or prior
to the first anniversary of the Third Amendment Date, (y) one-half of
one percent (1/2%) of the amount of such prepayment if such prepayment
is made after the first anniversary of the Third Amendment Date and on
or prior to the second anniversary of the Third Amendment Date and (z)
one-quarter of one percent (1/4%) of the amount of such prepayment if
such prepayment is made after the second anniversary of the Third
Amendment Date and on or prior to the third anniversary of the Third
Amendment Date."
7. Section 9.01 of the Loan Agreement is hereby amended by
deleting paragraph (b) thereof in its entirety and substituting the following
therefor:
"(b) Fixed Charge Coverage Ratio. Permit or suffer
the ratio (the "FC Ratio") of (i) EBITDA to (ii) the sum of (w)
scheduled principal payments on Indebtedness, (x) capital expenditures
made or committed (less any such expenditures made with Capex Financing
Proceeds), (y) tax expense and (z) Interest Expense, each for the
Parent and its Subsidiaries on a Consolidated basis, at any time to be
less than 1.00:1.00; provided, however, that the Borrowers shall not be
required to comply with the FC Ratio set forth above in the event that:
(A) Undrawn Availability at all times is greater than $25,000,000;
provided, that if Undrawn Availability at any time shall be $25,000,000
or less, then compliance with the FC Ratio shall be required at all
times thereafter unless Undrawn Availability shall subsequently
increase to more than $25,000,000 and shall remain at more than
$25,000,000 for twelve consecutive months, in which event compliance
with the FC Ratio shall not be required commencing with the end of such
twelve consecutive month period and shall not be required again until
such time, if any, as Undrawn Availability shall decrease to
$25,000,000 or less; or (B) EBITDA of the Parent and its Subsidiaries
on a Consolidated basis is not less than the aggregate amounts
specified below for the four fiscal quarters ending on the dates
indicated:
<PAGE>
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
January 31, 2000 21,000,000
April 30, 2000 21,000,000
July 31, 2000 21,000,000
October 31, 2000 21,000,000
January 31, 2001 23,000,000
April 30, 2001 23,000,000
July 31, 2001 23,000,000
October 31, 2001 23,000,000
January 31, 2002 26,000,000
April 30, 2002 26,000,000
July 31, 2002 26,000,000
October 31, 2002 26,000,000
January 31, 2003 29,000,000
April 30, 2003 29,000,000
July 31, 2003 29,000,000
October 31, 2003 29,000,000
January 31, 2004 33,000,000
April 30, 2004 33,000,000
July 31, 2004 33,000,000
October 31, 2004 33,000,000"
</TABLE>
8. Section 9.02 of the Loan Agreement is hereby amended by (a)
deleting "$25,000,000" where it appears in clause (iii) thereof and substituting
"$50,000,000" therefor, (b) deleting the word "and" at the end of clause (iv)
thereof, (c) deleting the period at the end of clause (v) and substituting ";
and" therefor and (d) adding a new clause (vi) which reads as follows:
"(vi) Unsecured Indebtedness incurred solely to finance a
Borrower Acquisition or Borrower Stock Repurchase."
9. Section 9.03 of the Loan Agreement is hereby amended by
deleting the proviso in clause (ii) thereof in its entirety and substituting the
following therefor:
"provided, however, that no Liens (except in favor of the
Agent) shall be permitted on any stock or assets acquired or on any
asset of any target company acquired in a Permitted Acquisition or in a
Borrower Acquisition;"
<PAGE>
10. Section 9.04 of the Loan Agreement is hereby amended by
deleting clause (a) thereof in its entirety and substituting the following
therefor:
"(a) Merge or consolidate with, or permit any of its
Subsidiaries to merge or consolidate with, any other Person, except
that a Subsidiary organized solely for the purpose of consummating a
Borrower Acquisition may merge or consolidate with another Person in
accordance with such Borrower Acquisition,"
11. Section 9.06 of the Loan Agreement is hereby amended by
(a) deleting the word "and" at the end of clause (ix) thereof, (b) deleting the
period at the end of clause (x) and substituting "; and" therefor and (c) adding
a new clause (xi) which reads as follows:
"(xi) Borrower Acquisitions and Borrower Stock Repurchases up
to an aggregate, during the remaining term of the Loan Agreement,
together with all Stock Repurchases and Permitted Acquisitions made on
or after the Third Amendment Date by the Parent in accordance with
Section 14(g) of the Parent Guaranty, of $40,000,000; provided that, to
the extent not used to finance Borrower Acquisitions, Borrower Stock
Repurchases, Stock Repurchases and Permitted Acquisitions included in
such $40,000,000 aggregate, Borrower Acquisitions, Borrower Stock
Repurchases, Stock Repurchases and Permitted Acquisitions may be
financed with proceeds of equity offerings by the Parent made after the
Third Amendment Date in an aggregate amount not to exceed 50% of such
proceeds."
12. Section 10.01 of the Loan Agreement is hereby amended by
(a) adding the word "or" at the end of clause (i) thereof and (b) adding a new
clause (j) which reads as follows:
"(j) if Availability shall be less than $25,000,000 at any
time during the twelve month period immediately subsequent to any Stock
Repurchase, Permitted Acquisition, Borrower Stock Repurchase or
Borrower Acquisition;"
SECTION II. AMENDMENT TO PARENT GUARANTY
Section 14(g) of the Parent Guaranty is hereby amended by (i)
deleting the phrase "except that for the period from and including April 1, 1997
through and including the remaining term of the Loan Agreement the Guarantor
shall be permitted up to an aggregate of $20,000,000 for any combination of the
following" and substituting therefor the phrase "except that for the period from
and including the Third Amendment Date through and including the remaining term
of the Loan Agreement the Guarantor shall be permitted up to an aggregate of
$40,000,000, together with all Borrower Stock Repurchases and Borrower
Acquisitions, for any combination of the following", (ii) adding at the end of
clause (C) in paragraph (II) thereof the phrase "and the Agent's decision
thereon shall be final and binding,", (iii) deleting the phrase "for all
Permitted Acquisitions in the aggregate, not more than $10,000,000" and
substituting therefor the phrase
<PAGE>
"for all Permitted Acquisitions and Borrower Acquisitions in the aggregate, not
more than $10,000,000", (iv) deleting the phrase "in all assets purchased
including, without limitation, the pledge of any stock" and substituting
therefor the phrase "in all assets acquired including, without limitation, all
assets of any target company and the pledge of any stock" and (v) by adding a
new paragraph at the end thereof as follows:
"In addition, to the extent not used to finance Borrower
Acquisitions, Borrower Stock Repurchases, Stock Repurchases and
Permitted Acquisitions included in the $40,000,000 aggregate set forth
above, Borrower Acquisitions, Borrower Stock Repurchases, Stock
Repurchases and Permitted Acquisitions may be financed with
proceeds of equity offerings by the Parent made after the Third
Amendment Date in an aggregate amount not to exceed 50% of such
proceeds."
SECTION III. AMENDMENT TO PARENT SECURITY AGREEMENT
Paragraph 1 of the Parent Security Agreement is hereby amended
by (i) deleting the phrase "all Obligations including, without limitation,"
where it appears therein, (ii) inserting the word "Parent" immediately preceding
the word "Guaranty" where it appears therein and (iii) deleting the
parenthetical at the end thereof in its entirety and substituting the following
therefor:
"and all Obligations (as such term is defined in the Loan
Agreement; all of the foregoing are referred to hereinafter
collectively as the "Obligations")."
SECTION IV. CONDITIONS PRECEDENT
This Amendment Agreement shall become effective upon the
execution and delivery of counterparts hereof by the Borrowers, the Parent, the
Agent and the Required Lenders and the fulfillment of the following conditions:
1. No unwaived event has occurred and is continuing which
constitutes a Default or an Event of Default.
2. All representations and warranties made by the Borrowers
and the Parent in this Amendment Agreement shall be true and correct.
3. The Agent shall have received, for the ratable benefit of
the Lenders, an amendment and extension fee in the amount of $225,000.
4. All required corporate actions in connection with the
execution and delivery of this Amendment Agreement shall have been taken, and
each shall be satisfactory in form and substance to the Agent, and the Agent
shall have received all information and copies of
<PAGE>
all documents, including, without limitation, records of requisite corporate
action that the Agent may reasonably request, to be certified by the appropriate
corporate person or governmental authorities.
5. All of the conditions subsequent set forth in Amendment
No. 2 to Amended and Restated Loan Agreement and to Other Loan Documents,
dated as of October 19, 1999, shall have been satisfied or waived by the Agent.
6. The Agent shall have received any promissory notes issued
to any Borrower or any Subsidiary of any Borrower in connection with any
Permitted Agreements, duly endorsed to the Agent.
7. The Agent shall have received acknowledgment copies of
financing statements (showing the Agent as assignee) duly filed in all
jurisdictions deemed necessary to perfect the security interests granted under
the Permitted Agreements.
SECTION V. MISCELLANEOUS
1. By its signature below, each of the Borrowers reaffirms and
restates the representations and warranties set forth in Article VII of the Loan
Agreement, and all such representations and warranties are true and correct on
the date hereof with the same force and effect as if made on such date (except
to the extent that they relate expressly to an earlier date). The Parent
reaffirms and restates the representations and warranties set forth in Section
14 of the Parent Guaranty, and all such representations and warranties are true
and correct on the date hereof with the same force and effect as if made on such
date (except to the extent that they relate expressly to an earlier date). In
addition, each of the Borrowers and the Parent represents and warrants (which
representations and warranties shall survive the execution and delivery hereof)
to the Agent and the Lenders that:
(a) it has the power and authority to execute, deliver and
carry out the terms and provisions of this Amendment Agreement and the
transactions contemplated hereby, and has taken or caused to be taken all
necessary actions to authorize the execution, delivery and performance of this
Amendment Agreement and the transactions contemplated hereby;
(b) no consent of any other Person (including, without
limitation, shareholders or creditors of the Borrowers or the Parent) and no
action of, or filing with any governmental or public body or authority is
required to authorize, or is otherwise required in connection with the
execution, delivery and performance of this Amendment Agreement, or consummation
of the transactions contemplated hereby;
(c) this Amendment Agreement has been duly executed and
delivered by or on behalf of the Borrowers and the Parent and constitutes a
legal, valid and binding obligation of
<PAGE>
each of the Borrowers and the Parent enforceable in accordance with its terms,
subject as to enforceability to bankruptcy, reorganization, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally and the exercise of judicial discretion in accordance with general
principles of equity;
(d) the execution, delivery and performance of this Amendment
Agreement will not violate any law, statute or regulation, or any order or
decree of any court or governmental instrumentality, or conflict with, or result
in the breach of, or constitute a default under any contractual obligation of
any Borrower or the Parent; and
(e) as of the date hereof (after giving effect to the
consummation of the transactions contemplated under this Amendment Agreement)
there exists no Default or Event of Default.
By its signature below, each of the Borrowers and the Parent agree that
it shall constitute an Event of Default if any representation or warranty made
above should be false or misleading in any material respect.
2. Each of the Loan Agreement, the Parent Guaranty and the
Parent Security Agreement is hereby ratified and confirmed in all respects and,
except as expressly amended or waived hereby, all of the representations,
warranties, terms, covenants and conditions of the Loan Agreement, the Parent
Guaranty and the Parent Security Agreement shall remain unamended, unwaived and
in effect in accordance with their respective terms. The amendments and waivers
set forth herein shall be limited precisely as provided for herein and shall not
be deemed to be amendments or consents to, or waivers of modifications of, any
term or provision of the Loan Documents or any other document or instrument
referred to herein or therein or of any transaction or further or future action
on the part of any Borrower or the Parent requiring the consent of the Agent or
any Lender, except to the extent specifically provided for herein.
3. Each Borrower and the Parent confirms in favor of the Agent
and each Lender that it agrees that it has no defense, offset, claim,
counterclaim or recoupment with respect to any of its obligations or liabilities
under the Loan Agreement, the Borrowers Guaranty, the Parent Guaranty, the
Borrowers Security Agreement, the Parent Security Agreement, the Borrowers
Pledge Agreement, the Parent Pledge Agreement, the Security Agreement-Patents
and Trademarks or any other Loan Document and that, except as herein provided,
all terms of the Loan Agreement, the Borrowers Guaranty, the Parent Guaranty,
the Borrowers Security Agreement, the Parent Security Agreement, the Borrowers
Pledge Agreement, the Parent Pledge Agreement, the Security Agreement-Patents
and Trademarks and the other Loan Documents shall continue in full force and
effect.
4. This Amendment Agreement may be executed by the parties
hereto individually or in combination, in one or more counterparts, each of
which shall be an original
<PAGE>
and all of which shall constitute one and the same agreement.
5. Delivery of an executed counterpart of a signature page by
telecopier shall be effective as delivery of a manually executed counterpart.
6. THIS AMENDMENT AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE (WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF).
"BORROWERS"
REX RADIO AND TELEVISION, INC.
By: EDWARD M. KRESS
--------------------------
Name: Edward M. Kress
Title: Secretary
KELLY & COHEN APPLIANCES, INC.
By: EDWARD M. KRESS
--------------------------
Name: Edward M. Kress
Title: Secretary
STEREO TOWN, INC.
By: EDWARD M. KRESS
--------------------------
Name: Edward M. Kress
Title: Secretary
REX KANSAS, INC.
By: EDWARD M. KRESS
--------------------------
Name: Edward M. Kress
Title: Secretary
<PAGE>
REX ALABAMA, INC.
By: EDWARD M. KRESS
-------------------------
Name: Edward M. Kress
Title: Secretary
REXSTORES.COM, INC.
By: EDWARD M. KRESS
--------------------------
Name: Edward M. Kress
Title: Secretary
"PARENT"
REX STORES CORPORATION
By: EDWARD M. KRESS
--------------------------
Name: Edward M. Kress
Title: Secretary
"LENDERS"
FLEET BANK, N.A.,
Individually
By: THOMAS MAIALE
--------------------------
Name: Thomas Maiale
Title: Vice President
<PAGE>
BANK ONE, N.A. (successor to Bank One,
Dayton, N.A.)
By: MICHAEL R. ZAKSHESKE
-------------------------------
Name: Michael R. Zaksheske
Title: Vice President
KEY BANK NATIONAL ASSOCIATION
By: R. MICHAEL DUNLAVEY
-------------------------------
Name: R. Michael Dunlavey
Title: Vice President
NATIONAL CITY BANK (as successor by
merger to National City Bank, Dayton)
By: SHEILA J. PETTERUTI
------------------------------
Name: Sheila J. Petteruti
Title: Vice President
THE PROVIDENT BANK
By: JEROME BRUNSWICK
------------------------------
Name: Jerome Brunswick
Title: Vice President
THE FIFTH THIRD BANK
By:______________________________
Name:
Title:
<PAGE>
FIRSTAR BANK, N.A. (as successor to
Star Bank, N.A.)
By: THOMAS D. GIBBONS
------------------------------
Name: Thomas D. Gibbons
Title: Senior Vice President
"AGENT"
FLEET BANK, N.A.,
As Agent
By: THOMAS MAIALE
-------------------------------
Name: Thomas Maiale
Title: Vice President
<PAGE>
ANNEX A
SCHEDULE 2.01
Revolving Credit Commitments
<TABLE>
<CAPTION>
Approximate
Revolving Percentage of
Credit Total Revolving
Lender Commitment Credit Commitment
- ----------------- ----------------- --------------------
<S> <C> <C>
Fleet Bank N.A. $45,000,000 34.6154%
60 East 42nd Street
New York, New York 10017
Fax: (212) 885-8829
Bank One, N.A. $20,000,000 15.3846%
100 East Broad Street
7th Floor
Columbus, Ohio 43215
Fax: (614) 248-5518
Key Bank National Association $15,000,000 11.5385%
34 North Main Street
Dayton, Ohio 45402
Fax: (937) 586-7695
National City Bank $25,000,000 19.2308%
6 North Main Street
Dayton, Ohio 45412-2200
Fax: (937) 226-2058
The Provident Bank $15,000,000 11.5385%
Courthouse Plaza Northeast
10 West 2nd Street
Dayton, Ohio 45402
Fax: (937) 223-3522
Firstar Bank, N.A. $10,000,000 7.6923%
425 Walnut Street
P.O. Box 1038
Cincinnati, Ohio 45201-1038
Fax: (513) 632-2068
</TABLE>
<PAGE>
SCHEDULE 2.02
Domestic Lending Office
<TABLE>
<CAPTION>
Lender Domestic Lending Office
- ------ -----------------------
<S> <C>
Fleet Bank N.A. 60 East 42nd Street
New York, NY 10017
Bank One, N.A. Kettering Tower
40 North Main Street
Dayton, OH 45423
Key Bank National Association 34 North Main Street
Dayton, OH 45402
National City Bank 6 North Main Street
Dayton, OH 45412
The Provident Bank Courthouse Plaza Northeast
10 West 2nd Street
Dayton, OH 45402
Firstar Bank, N.A. 425 Walnut Street
P.O. Box 1038
Cincinnati, OH 45201-1038
</TABLE>
<PAGE>
SCHEDULE 2.03
Eurodollar Lending Office
<TABLE>
<CAPTION>
Lender Eurodollar Lending Office
- ------ -------------------------
<S> <C>
Fleet Bank N.A. 60 East 42nd Street
New York, NY 10017
Bank One, N.A. Kettering Tower
40 North Main Street
Dayton, OH 45423
Key Bank National Association 34 North Main Street
Dayton, OH 45402
National City Bank 6 North Main Street
Dayton, OH 45412
The Provident Bank Courthouse Plaza Northeast
10 West 2nd Street
Dayton, OH 45402
Firstar Bank, N.A. 425 Walnut Street
P.O. Box 1038
Cincinnati, OH 45201
</TABLE>
<PAGE>
AMENDMENT NO. 4 TO AMENDED AND RESTATED LOAN AGREEMENT
AND TO OTHER LOAN DOCUMENTS
AMENDMENT AGREEMENT, dated as of March 10, 2000, to the Amended and
Restated Loan Agreement, dated as of July 31, 1995 (as the same has been or may
be further amended, supplemented, modified or restated in accordance with its
terms, the "Loan Agreement") among REX RADIO AND TELEVISION, INC., an Ohio
corporation ("Rex Radio"), KELLY & COHEN APPLIANCES, INC., an Ohio corporation
("Kelly"), STEREO TOWN, INC., a Georgia corporation ("Stereo Town"), REX KANSAS,
INC., a Kansas corporation ("Rex Kansas"), REX ALABAMA, INC., an Ohio
corporation ("Rex Alabama"), REXSTORES.COM, INC., an Ohio corporation ("Rex
Internet"), those financial institutions named as lenders on Schedule 2.01
thereto (the "Lenders") and FLEET BANK, N.A. (as successor to NatWest Bank
N.A.), in its capacity as agent (the "Agent") for itself and the Lenders.
Capitalized terms used herein and not otherwise defined shall have the meanings
attributed to them in the Loan Agreement.
SECTION I. AMENDMENTS TO LOAN AGREEMENT
1. Section 1.01 of the Loan Agreement is further amended by adding the
following defined term in the correct alphabetical order:
"'Fourth Amendment Date' shall mean March 10, 2000."
2. Section 9.06 of the Loan Agreement is hereby amended by deleting
"Third Amendment Date" where it appears in clause (xi) thereof and substituting
"Fourth Amendment Date" therefor.
SECTION II. AMENDMENT TO PARENT GUARANTY
Section 14(g) of the Parent Guaranty is hereby amended by deleting each
reference to "Third Amendment Date" in such section and substituting therefor
"Fourth Amendment Date".
SECTION III. CONDITIONS PRECEDENT
This Amendment Agreement shall become effective upon the execution and
delivery of counterparts hereof by the Borrowers, the Parent, the Agent and the
Required Lenders and the fulfillment of the following conditions:
1. No unwaived event has occurred and is continuing which constitutes a
<PAGE>
Default or an Event of Default.
2. All representations and warranties made by the Borrowers and the
Parent in this Amendment Agreement shall be true and correct.
3. All required corporate actions in connection with the execution and
delivery of this Amendment Agreement shall have been taken, and each shall be
satisfactory in form and substance to the Agent, and the Agent shall have
received all information and copies of all documents, including, without
limitation, records of requisite corporate action that the Agent may reasonably
request, to be certified by the appropriate corporate person or governmental
authorities.
SECTION IV. MISCELLANEOUS
1. By its signature below, each of the Borrowers reaffirms and restates
the representations and warranties set forth in Article VII of the Loan
Agreement, and all such representations and warranties are true and correct on
the date hereof with the same force and effect as if made on such date (except
to the extent that they relate expressly to an earlier date). The Parent
reaffirms and restates the representations and warranties set forth in Section
14 of the Parent Guaranty, and all such representations and warranties are true
and correct on the date hereof with the same force and effect as if made on such
date (except to the extent that they relate expressly to an earlier date). In
addition, each of the Borrowers and the Parent represents and warrants (which
representations and warranties shall survive the execution and delivery hereof)
to the Agent and the Lenders that:
(a) it has the power and authority to execute, deliver and carry out
the terms and provisions of this Amendment Agreement and the transactions
contemplated hereby, and has taken or caused to be taken all necessary actions
to authorize the execution, delivery and performance of this Amendment Agreement
and the transactions contemplated hereby;
(b) no consent of any other Person (including, without limitation,
shareholders or creditors of the Borrowers or the Parent) and no action of, or
filing with any governmental or public body or authority is required to
authorize, or is otherwise required in connection with the execution, delivery
and performance of this Amendment Agreement, or consummation of the transactions
contemplated hereby;
(c) this Amendment Agreement has been duly executed and delivered by or
on behalf of the Borrowers and the Parent and constitutes a legal, valid and
binding obligation of each of the Borrowers and the Parent enforceable in
accordance with its terms, subject as to enforceability to bankruptcy,
reorganization, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and the exercise of judicial
discretion in accordance with general principles of equity;
<PAGE>
(d) the execution, delivery and performance of this Amendment Agreement
will not violate any law, statute or regulation, or any order or decree of any
court or governmental instrumentality, or conflict with, or result in the breach
of, or constitute a default under any contractual obligation of any Borrower or
the Parent; and
(e) as of the date hereof (after giving effect to the consummation of
the transactions contemplated under this Amendment Agreement) there exists no
Default or Event of Default.
By its signature below, each of the Borrowers and the Parent agree that
it shall constitute an Event of Default if any representation or warranty made
above should be false or misleading in any material respect.
2. Each of the Loan Agreement and the Parent Guaranty is hereby
ratified and confirmed in all respects and, except as expressly amended or
waived hereby, all of the representations, warranties, terms, covenants and
conditions of the Loan Agreement and the Parent Guaranty shall remain unamended,
unwaived and in effect in accordance with their respective terms. The amendments
and waivers set forth herein shall be limited precisely as provided for herein
and shall not be deemed to be amendments or consents to, or waivers of
modifications of, any term or provision of the Loan Documents or any other
document or instrument referred to herein or therein or of any transaction or
further or future action on the part of any Borrower or the Parent requiring the
consent of the Agent or any Lender, except to the extent specifically provided
for herein.
3. Each Borrower and the Parent confirms in favor of the Agent and each
Lender that it agrees that it has no defense, offset, claim, counterclaim or
recoupment with respect to any of its obligations or liabilities under the Loan
Agreement, the Borrowers Guaranty, the Parent Guaranty, the Borrowers Security
Agreement, the Parent Security Agreement, the Borrowers Pledge Agreement, the
Parent Pledge Agreement, the Security Agreement-Patents and Trademarks or any
other Loan Document and that, except as herein provided, all terms of the Loan
Agreement, the Borrowers Guaranty, the Parent Guaranty, the Borrowers Security
Agreement, the Parent Security Agreement, the Borrowers Pledge Agreement, the
Parent Pledge Agreement, the Security Agreement-Patents and Trademarks and the
other Loan Documents shall continue in full force and effect.
4. This Amendment Agreement may be executed by the parties hereto
individually or in combination, in one or more counterparts, each of which shall
be an original and all of which shall constitute one and the same agreement.
5. Delivery of an executed counterpart of a signature page by
telecopier shall be effective as delivery of a manually executed counterpart.
<PAGE>
6. THIS AMENDMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN SAID STATE (WITHOUT GIVING EFFECT TO THE CONFLICTS OF
LAWS PRINCIPLES THEREOF).
"BORROWERS"
REX RADIO AND TELEVISION, INC.
By: EDWARD M. KRESS
------------------------------
Name: Edward M. Kress
Title: Secretary
KELLY & COHEN APPLIANCES, INC.
By: EDWARD M. KRESS
------------------------------
Name: Edward M. Kress
Title: Secretary
STEREO TOWN, INC.
By: EDWARD M. KRESS
------------------------------
Name: Edward M. Kress
Title: Secretary
REX KANSAS, INC.
By: EDWARD M. KRESS
------------------------------
Name: Edward M. Kress
Title: Secretary
<PAGE>
REX ALABAMA, INC.
By: EDWARD M. KRESS
------------------------------
Name: Edward M. Kress
Title: Secretary
REXSTORES.COM, INC.
By: EDWARD M. KRESS
------------------------------
Name: Edward M. Kress
Title: Secretary
"PARENT"
REX STORES CORPORATION
By: EDWARD M. KRESS
------------------------------
Name: Edward M. Kress
Title: Secretary
"LENDERS"
FLEET BANK, N.A.,
Individually
By: THOMAS MAIALE
------------------------------
Name: Thomas Maiale
Title: Vice President
BANK ONE, N.A. (successor to Bank One,
Dayton, N.A.)
By: PAUL A. HARRIS
------------------------------
Name: Paul A. Harris
Title: Managing Director
Ohio Large Corporate
<PAGE>
KEY BANK NATIONAL ASSOCIATION
By: R. MICHAEL DUNLAVEY
------------------------------
Name: R. Michael Dunlavey
Title: Vice President
NATIONAL CITY BANK (as successor by merger
to National City Bank, Dayton)
By: DAVID A. DENNY
------------------------------
Name: David A. Denny
Title: Vice President
THE PROVIDENT BANK
By: JEROME J. BRUNSWICK
------------------------------
Name: Jerome J. Brunswick
Title: Senior Vice President
FIRSTAR BANK, N.A. (as successor to Star
Bank, N.A.)
By: THOMAS D. GIBBONS
------------------------------
Name: Thomas D. Gibbons
Title: Senior Vice President
"AGENT"
FLEET BANK, N.A.,
As Agent
By: THOMAS MAIALE
------------------------------
Name: Thomas Maiale
Title: Vice President
<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
rexstores.com, Inc. 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 95.46% Class B interest and
a 5% Class C interest.
<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,
No. 333-69081 and No. 333-69089).
/s/ Arthur Andersen LLP
Cincinnati, Ohio
April 14, 2000
<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, 2000 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 5th day of April, 2000.
LAWRENCE TOMCHIN
Lawrence Tomchin
<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, 2000 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 5th day of April, 2000.
ROBERT DAVIDOFF
Robert Davidoff
<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, 2000 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 5th day of April, 2000.
LEE FISHER
Lee Fisher
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000744187
<NAME> REX STORES CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 25,609
<SECURITIES> 0
<RECEIVABLES> 3,052
<ALLOWANCES> 483
<INVENTORY> 139,267
<CURRENT-ASSETS> 179,379
<PP&E> 135,824
<DEPRECIATION> 22,022
<TOTAL-ASSETS> 304,036
<CURRENT-LIABILITIES> 78,623
<BONDS> 46,200
<COMMON> 115
0
0
<OTHER-SE> 159,722
<TOTAL-LIABILITY-AND-EQUITY> 304,036
<SALES> 464,300
<TOTAL-REVENUES> 464,300
<CGS> 337,418
<TOTAL-COSTS> 337,418
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,136
<INCOME-PRETAX> 25,360
<INCOME-TAX> 6,350
<INCOME-CONTINUING> 19,010
<DISCONTINUED> 0
<EXTRAORDINARY> 717
<CHANGES> 0
<NET-INCOME> 18,293
<EPS-BASIC> 2.28
<EPS-DILUTED> 2.06
<PAGE>
EXHIBIT 99
RISK FACTORS
You should carefully consider the risk factors described below as well
as the other information in our SEC filings before making an investment in REX
common stock.
WE FACE SIGNIFICANT COMPETITION FROM OTHER RETAILERS MANY OF WHOM HAVE GREATER
FINANCIAL RESOURCES.
We face significant competition from a diverse group of retailers. Our
competitors include national and regional large format merchandisers and
superstores such as Best Buy Co., Inc. and Circuit City Stores, Inc., other
specialty electronics retailers including RadioShack, the retail operating
format of Tandy Corporation, department and discount stores such as Sears,
Roebuck and Co., Wal-Mart Stores, Inc. and Montgomery Ward Holding Corp.,
furniture stores, warehouse clubs and home improvement retailers. In addition,
we compete with small chains and specialty single-store operators in some
markets, as well as Sears' dealer-operated units. We also face additional
competition from Internet and store-based retailers who sell consumer
electronics and home appliance products online. Some of our competitors have
greater financial resources than us, which may increase their ability to
purchase inventory at a lower cost, better withstand economic downturns or
engage in aggressive price competition.
We expect competition within the consumer electronics/appliance
retailing industry to increase. National merchandisers are expanding their
geographic markets and entering markets traditionally served by us. In the event
that competitors enter markets we serve, we may experience pricing pressures,
reduced gross margins and declines in same store sales.
WE MAY BE UNABLE TO FULLY EXERCISE OUR NEW STORE EXPANSION PLAN AND CANNOT
ASSURE YOU THAT OUR NEWLY OPENED STORES WILL BE PROFITABLE.
Our success depends, in part, on our ability to open and operate new
stores profitably. Several factors could affect achievement of our planned store
expansion or could adversely impact new store sales and profitability. These
factors include:
identifying new geographic markets in which we can successfully
compete;
identifying and acquiring or leasing suitable new store sites at
an acceptable cost;
obtaining governmental and other third-party consents, permits
and licenses needed to operate new stores;
securing favorable economic terms for newspaper, television and
radio advertising;
hiring, promoting and training qualified personnel, including new
store managers;
integrating new stores into our existing operations;
adapting our existing information systems and distribution
infrastructure to our growing number of stores; and
having adequate financial resources available to us.
<PAGE>
Although we believe that we have the management, operational and
information systems, distribution infrastructure and other resources required to
implement our store expansion goals, we may not be able to execute our new store
expansion within the expected time frame, if at all. To meet our store expansion
goals over the next three years, we may need to expend significant effort and
additional managerial and financial resources to ensure the continuing adequacy
of our financial controls, operating procedures, information systems, product
purchasing and distribution systems and employee training programs.
A DECLINE IN ECONOMIC CONDITIONS COULD LEAD TO REDUCED CONSUMER DEMAND FOR THE
PRODUCTS WE SELL.
Demand for consumer electronics and home appliance products is
dependent upon various economic factors outside of our control. These factors
include:
general economic conditions;
consumer confidence;
consumer spending patterns and preferences; and
new housing starts.
A slowdown in the national or regional economies or an uncertain
economic outlook could adversely affect discretionary consumer spending habits
and negatively impact our sales and operating results.
IF NEW PRODUCTS ARE NOT INTRODUCED OR CONSUMERS DO NOT ACCEPT NEW PRODUCTS OUR
SALES MAY DECLINE.
We rely upon the periodic introduction of new products to help
stimulate consumer demand. The lack of new products could reduce consumer
interest and lower our sales.
In addition, many products which incorporate the newest technologies,
such as DVD players and high definition television, are subject to technological
and pricing limitations and may not achieve widespread or rapid consumer
acceptance in the markets we serve. If these new products do not meet with
widespread or rapid market acceptance, our results of operations may be
impaired.
Furthermore, the introduction or expected introduction of new products
may depress sales of existing products and technologies.
IF WE DO NOT ADEQUATELY ANTICIPATE AND RESPOND TO CHANGING CONSUMER DEMAND AND
PREFERENCES OUR RESULTS OF OPERATIONS MAY BE IMPAIRED.
Our success depends, in part, on our ability to anticipate and respond
in a timely manner to changing consumer demand and preferences regarding
consumer electronics and home appliances. Our failure to adequately anticipate
and respond to these changes could have a material adverse effect on our
business, results of operation and financial condition either from lost sales or
lower margins due to the need to mark down excess inventory.
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OUR OPPORTUNISTIC PRODUCT BUYING STRATEGY COULD NEGATIVELY IMPACT OUR SALES AND
GROSS MARGINS.
We frequently purchase large quantities of merchandise on an
opportunistic or when-available basis at favorable prices. Our inability to find
suitable opportunistic product buying opportunities could negatively impact our
sales and gross margins.
Products purchased on an opportunistic basis generally are held in
inventory longer than our other products. This can result in increased inventory
levels and lower inventory turnover, which increase our working capital
requirements and inventory carrying costs. Increased inventory levels and lower
turnover rates also increase the risk of inventory mark-downs.
THE LOSS OF TAX CREDITS RESULTING FROM OUR INVESTMENT IN SYNTHETIC FUEL LIMITED
PARTNERSHIPS COULD SIGNIFICANTLY INCREASE OUR EFFECTIVE TAX RATE AND REDUCE OUR
NET INCOME.
Our net income for fiscal 1998 and 1999 was positively impacted by our
equity investment in two limited partnerships which produce solid synthetic
fuels from four facilities. As a result of our share of the federal income tax
credits earned by the partnerships under Section 29 of the Internal Revenue
Code, our effective tax rate for fiscal 1998 and 1999 was reduced to 26.3% and
25.0%, respectively, versus 39.5% for fiscal 1997. Loss of these tax credits
could significantly increase our effective tax rate and reduce our net income.
The limited partnerships earn tax credits based upon the tonnage and
content of solid synthetic fuel sold to unrelated parties. As production and
sales levels change, so will the amount of tax credits available to us. This
could result in fluctuations in our effective tax rate and net income.
THE LOSS OF THE SERVICES OF OUR CHIEF EXECUTIVE OFFICER, OUR PRESIDENT OR OUR
OTHER KEY EMPLOYEES COULD JEOPARDIZE OUR ABILITY TO MAINTAIN OUR COMPETITIVE
POSITION.
We believe that our success depends on the continued service of our key
executive management personnel. Loss of the services of Stuart Rose, our
Chairman and Chief Executive Officer, Lawrence Tomchin, our President and Chief
Operating Officer, or other key employees could jeopardize our ability to
maintain our competitive position in the industry. We have entered into
employment agreements with Mr. Rose and Mr. Tomchin which run through December
31, 2002, but we do not have employment agreements with any other members of our
executive management team.
FLUCTUATIONS IN OUR COMPARABLE STORE SALES MAY CAUSE THE PRICE OF OUR COMMON
STOCK TO FLUCTUATE SUBSTANTIALLY.
A number of factors have historically affected and will continue to
affect our comparable store sales, including the following:
competition;
national and regional economic conditions;
consumer trends;
new product introductions;
weather conditions which can impact store traffic as well as
sales of seasonal products such as air conditioners;
changes in our product mix;
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duration of the holiday selling season; and
timing of promotional events.
Comparable store sales are often followed closely by the investment
community and significant fluctuations in these results could cause the price of
our common stock to fluctuate substantially.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SEASONALITY.
Our business is seasonal. Our net sales and net income historically
have been highest in our fourth fiscal quarter, which includes the Christmas
selling season. The fourth quarter accounted for approximately 34% and 33% of
our net sales, 50% and 48% of our income from operations, and 70% and 53% of our
net income in fiscal 1998 and 1999, respectively. Our annual financial results
would be adversely impacted if our sales were to fall substantially below what
we normally expect during this period.
WE DEPEND ON OUR SUPPLIERS FOR PRODUCTS AND OUR BUSINESS COULD BE ADVERSELY
AFFECTED IF WE DO NOT MAINTAIN RELATIONSHIPS WITH OUR KEY VENDORS.
Our success depends to a significant degree upon our suppliers of
consumer electronics and home appliance products. We do not have any long-term
supply agreements or exclusive arrangements with vendors. We typically order
merchandise by issuing individual purchase orders to vendors. We rely
significantly on a few suppliers. Our seven largest suppliers accounted for
approximately 63% of our purchases during fiscal 1999. The loss of any of these
key vendors, our failure to establish and maintain relationships with our
vendors, or any prolonged disruptions in product supply, could have a material
adverse impact on our business.
WE MAY INCUR HIGHER COSTS OR DECREASED SALES AND GROSS MARGINS BECAUSE WE
PURCHASE IMPORTED PRODUCTS.
A significant portion of our inventory is manufactured outside the
United States. Changes in trade regulations, currency fluctuations or other
factors may increase the cost of items manufactured outside the United States or
create shortages of those items. We purchase all of our products in U.S.
dollars. Significant reductions in the cost of such items in U.S. dollars may
cause a significant reduction in retail price levels of those products, which
could adversely effect our sales and gross margins.
OUR MANAGEMENT, INCLUDING OUR PRINCIPAL SHAREHOLDER, OWNS A SIGNIFICANT PORTION
OF OUR COMMON STOCK AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER OUR
AFFAIRS.
As of April 13, 2000, Stuart Rose, our Chairman and Chief Executive
Officer, owned approximately 14.5% of our outstanding common stock and held
options to acquire an additional 1,327,513 shares. In addition, our directors
and executive officers as a group owned approximately 18.2% of our common stock
as of April 13, 2000 and held options to acquire an additional 2,042,708 shares.
As a result of this share ownership, our management, and in particular Mr. Rose,
will be able to exert significant influence on corporate action requiring
shareholder approval, including the election of directors. This share ownership
could delay or prevent a change in control. It could also prevent our
shareholders from realizing a premium over the market price for their common
stock or effecting a change in management.
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WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS ON OUR COMMON STOCK IN THE
FORESEEABLE FUTURE.
We have not paid cash dividends on our common stock in prior years. We
currently intend to retain all of our earnings for use in our business and do
not anticipate paying any cash dividends in the foreseeable future. Our
revolving credit agreement limits and potentially prohibits the payment of
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" in our Annual Report on
Form 10-K for a description of the revolving credit agreement.
THE SUBSTANTIAL NUMBER OF SHARES THAT ARE ELIGIBLE FOR PUBLIC SALE MAY ADVERSELY
AFFECT OUR STOCK PRICE.
As of April 13, 2000, there were 6,726,879 shares of our common stock
outstanding. Of these outstanding shares, 5,500,330 shares are freely tradable
without restriction or registration under the Securities Act. The remaining
1,226,549 shares are currently eligible for public sale under Rule 144 of the
Securities Act.
As of April 13, 2000, 2,633,020 shares of common stock were issuable
pursuant to options granted under our stock option plans. Of these option
shares, 1,301,516 shares are currently exercisable. All shares issuable under
our stock option plans have been registered under the Securities Act.
Sales of substantial amounts of common stock in the public market,
including shares issued upon the exercise of stock options, or the perception
that such sales could occur, could adversely impact the market price for our
common stock.
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY AND YOU COULD LOSE A SIGNIFICANT
PART OF YOUR INVESTMENT AS A RESULT.
The trading price of our common stock has been volatile and is likely
to continue to be volatile. Our stock price could be subject to wide
fluctuations in response to a variety of factors. The stock market has
experienced significant price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of particular
companies. Broad market factors may have a material adverse effect on our stock
price, regardless of our actual operating performance.
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