FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- -------- Commission File Number 0-13283 REX Stores Corporation (Exact name of registrant as specified in its charter) <TABLE> <S> <C> Delaware 31-1095548 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2875 Needmore Road, Dayton, Ohio 45414 (Address of principal executive offices) (Zip Code) </TABLE> (937) 276-3931 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At the close of business on June 6, 2002, the registrant had 12,510,240 shares of Common Stock, par value $.01 per share, outstanding.
REX STORES CORPORATION AND SUBSIDIARIES INDEX <TABLE> <CAPTION> Page <S> <C> PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Condensed Balance Sheets.................. 3 Consolidated Statements of Income...................... 5 Consolidated Statements of Shareholders' Equity............................................... 7 Consolidated Statements of Cash Flows.................. 8 Notes to Consolidated Financial Statements............. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 12 Item 3. Quantitative and Qualitative Disclosure About Market Risk............................................. 16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders........................................ 17 Item 6. Exhibits and Reports on Form 8-K.......................... 17 </TABLE> 2
PART I. FINANCIAL INFORMATION Item 1. Financial Statements REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS <TABLE> <CAPTION> A S S E T S April 30 January 31 April 30 2002 2002 2001 (In Thousands) <S> <C> <C> <C> ASSETS: Cash and cash equivalents $ 24,720 $ 39,441 $ 2,318 Accounts receivable, net 1,441 2,665 2,241 Merchandise inventory 116,902 101,017 152,128 Prepaid expenses and other 2,377 2,554 4,082 Future income tax benefits 12,614 12,614 9,837 -------- -------- -------- Total current assets 158,054 158,291 170,606 PROPERTY AND EQUIPMENT, NET 137,962 139,496 135,078 FUTURE INCOME TAX BENEFITS 7,320 7,320 9,523 RESTRICTED INVESTMENTS 2,227 2,222 2,185 -------- -------- -------- Total assets $305,563 $307,329 $317,392 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ -- $ 66 $ 6,587 Current portion of long-term debt 4,680 5,012 5,140 Current portion of deferred income and deferred gain on sale and leaseback 11,486 11,790 11,456 Accounts payable, trade 37,710 32,619 52,856 Accrued income taxes 2,258 1,373 -- Accrued payroll 3,700 5,856 4,000 </TABLE> 3
<TABLE> <S> <C> <C> <C> Liabilities and Shareholders' Equity (Continued) Other current liabilities 9,021 9,319 8,560 -------- -------- -------- Total current liabilities 68,855 66,035 88,599 -------- -------- -------- LONG-TERM LIABILITIES: Long-term mortgage debt 68,975 77,203 84,311 Deferred income 14,621 15,173 16,116 Deferred gain on sale and leaseback 796 945 1,923 -------- -------- -------- Total long-term liabilities 84,392 93,321 102,350 -------- -------- -------- SHAREHOLDERS' EQUITY: Common stock 277 274 260 Paid-in capital 118,718 116,701 106,194 Retained earnings 138,892 134,708 115,504 Treasury stock (105,571) (103,710) (95,515) -------- -------- -------- Total shareholders' equity 152,316 147,973 126,443 -------- -------- -------- Total liabilities and shareholders' equity $305,563 $307,329 $317,392 ======== ======== ======== </TABLE> The accompanying notes are an integral part of these unaudited consolidated statements. 4
REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> Three Months Ended April 30 2002 2001 (In Thousands, Except Per Share Amounts) <S> <C> <C> NET SALES $93,536 $104,789 COSTS AND EXPENSES: Cost of merchandise sold 66,282 75,514 Selling, general and administrative expenses 25,005 26,325 ------- -------- Total costs and expenses 91,287 101,839 ------- -------- INCOME FROM OPERATIONS 2,249 2,950 INVESTMENT INCOME 150 63 INTEREST EXPENSE (1,335) (1,966) INCOME FROM LIMITED PARTNERSHIPS 4,636 3,095 ------- -------- Income before provision for income taxes 5,700 4,142 PROVISION FOR INCOME TAXES 1,425 1,037 ------- -------- Income before extraordinary item 4,275 3,105 Extraordinary loss from extinguishment of debt, net of income tax effect of $59 91 -- NET INCOME 4,184 3,105 ======= ======== WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 12,297 11,926 ======= ======== Basic Earnings Before Extraordinary Item 0.35 0.26 Extraordinary Item (0.01) -- ------- -------- </TABLE> 5
<TABLE> <S> <C> <C> BASIC NET INCOME PER SHARE $ 0.34 $ 0.26 ======= ======== WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 14,814 13,263 ======= ======== Dilutive Earnings Before Extraordinary Item 0.29 0.24 Extraordinary Item (0.01) -- ------- -------- DILUTED NET INCOME PER SHARE $ 0.28 $ 0.24 ======= ======== </TABLE> The accompanying notes are an integral part of these unaudited consolidated statements. 6
REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY <TABLE> <CAPTION> Common Shares ------------------------------------------ Issued Treasury Paid-in Retained Shares Amount Shares Amount Capital Earnings (In Thousands) <S> <C> <C> <C> <C> <C> <C> Balance at April 30, 2001 26,010 $260 14,616 $ 95,515 $106,194 $115,504 Net income -- -- -- -- -- 19,204 Treasury stock acquired -- -- 576 8,710 -- -- Common stock issued 1,348 14 (79) (515) 10,507 -- ------ ---- ------ -------- -------- -------- Balance at January 31, 2002 27,358 $274 15,113 $103,710 $116,701 $134,708 Net income -- -- -- -- -- 4,184 Treasury stock acquired -- -- 121 2,031 -- -- Common stock issued 312 3 (24) (170) 2,017 -- ------ ---- ------ -------- -------- -------- Balance at April 30, 2002 27,670 $277 15,210 $105,571 $118,718 $138,892 ====== ==== ====== ======== ======== ======== </TABLE> The accompanying notes are an integral part of these unaudited consolidated statements. 7
REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> Three Months Ended April 30 2002 2001 (In Thousands) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,184 $ 3,105 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, net 1,087 1,054 (Gain) Loss on disposal of fixed assets 253 (35) Deferred income (856) (277) Income of limited partnerships (4,636) (3,095) Changes in assets and liabilities: Accounts receivable 1,224 2,466 Merchandise inventory (15,885) (7,978) Other current assets 175 89 Accounts payable, trade 5,091 5,176 Other current liabilities (1,569) (2,546) -------- ------- NET CASH USED IN OPERATING ACTIVITIES (10,932) (2,041) -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (253) (904) Proceeds from sale of real estate and fixed assets 300 246 Proceeds from sale of partnership interest 4,636 3,095 Restricted investments (5) (20) -------- ------- NET CASH PROVIDED BY INVESTING ACTIVITIES 4,678 2,417 -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (Decrease) in notes payable (66) 5,845 Payments of long-term debt (8,560) (1,089) Proceeds from long-term debt -- 4,355 Common stock issued 2,020 33 Treasury stock issued 170 64 Treasury stock acquired (2,031) (7,953) -------- ------- </TABLE> 8
<TABLE> <S> <C> <C> CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (8,467) 1,255 -------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (14,721) 1,631 CASH AND CASH EQUIVALENTS, beginning of period 39,441 687 -------- ------- CASH AND CASH EQUIVALENTS, end of period $ 24,720 $ 2,318 ======== ======= </TABLE> The accompanying notes are an integral part of these unaudited consolidated statements. 9
REX STORES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2002 Note 1. Consolidated Financial Statements The consolidated financial statements included in this report have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments necessary to state fairly the information set forth therein. Any such adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these unaudited consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 31, 2002 (fiscal 2001). Note 2. Accounting Policies The interim consolidated financial statements have been prepared in accordance with the accounting policies described in the notes to the consolidated financial statements included in the Company's 2001 Annual Report on Form 10-K. While management believes that the procedures followed in the preparation of interim financial information are reasonable, the accuracy of some estimated amounts is dependent upon facts that will exist or calculations that will be accomplished at fiscal year end. Examples of such estimates include changes in the LIFO reserve (based upon the Company's best estimate of inflation to date), management bonuses and the provision for income taxes. Any adjustments pursuant to such estimates during the quarter were of a normal recurring nature. Certain reclassifications have been made to prior year amounts to conform with their fiscal 2002 presentation. 10
Notes to Consolidated Financial Statements (Continued) Note 3. Stock Option Plans The following summarizes options granted, exercised and canceled or expired during the three months ended April 30, 2002: <TABLE> <CAPTION> Shares Under Stock Option Plans <S> <C> Outstanding at January 31, 2002 ($3.61 to $10.37 per share) 6,881,610 Granted ($14.745 per share) 329,000 Exercised ($3.61 to $10.14 per share) (336,000) Canceled or expired ($4.61 to $10.14 per share) (20,250) --------- Outstanding at April 30, 2002 ($3.61 to $14.745 per share) 6,854,360 ========= </TABLE> Note 4. Early Extinguishment of Debt In the first quarter of fiscal 2002, the Company paid off approximately $7.0 million in mortgage debt. As a result, the Company expensed unamortized financing costs of approximately $150,000 as an extraordinary loss before an income tax benefit of approximately $59,000. 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. We are a leading specialty retailer in the consumer electronics/appliance industry. As of April 30, 2002 we operated 255 stores in 37 states, predominantly in small to medium sized markets under the trade name "REX". Fiscal Year All references in this report to a particular fiscal year are to REX's fiscal year ended January 31. For example, "fiscal 2002" means the period February 1, 2002 to January 31, 2003. Results of Operations The following table sets forth, for the periods indicated, the relative percentages that certain income and expense items bear to net sales: <TABLE> <CAPTION> Three Months Ended April 30 2002 2001 <S> <C> <C> Net sales 100.0% 100.0% Cost of merchandise sold 70.9 72.1 ----- ----- Gross profit 29.1 27.9 Selling, general and administrative expenses 26.7 25.1 ----- ----- Income from operations 2.4 2.8 Investment income 0.2 0.1 Interest expense (1.4) (1.9) Income from limited partnerships 4.9 3.0 ----- ----- Income before provision for income taxes 6.1 4.0 Provision for income taxes 1.5 1.0 ----- ----- Income before extraordinary item 4.6 3.0 Extraordinary loss from early extinguishment of debt 0.1 -- ----- ----- Net income 4.5 3.0 ===== ===== </TABLE> 12
Comparison of Three Months Ended April 30, 2002 and 2001 Net sales in the first quarter ended April 30, 2002 were $93.5 million compared to $104.8 million in the prior year's comparable period, representing a decrease of $11.3 million or 10.7%. This decrease was primarily due to a decline in comparable store sales of 8.8%. The decline was also partially caused by a net reduction of nine stores since the end of the first quarter of last fiscal year. All major product categories contributed to the negative comparable store sales. The video category contributed 4.9%, the audio category contributed 2.4%, the appliance category contributed 1.1% and the television category contributed 0.7%. The other category positively impacted comparable store sales by 0.3% primarily due to stronger sales of ready to assemble furniture. As of April 30, 2002, we had 255 stores compared to 264 stores one year earlier. We did not open any stores and closed seven stores during the first quarter of fiscal 2002. There were four stores opened and two closed during the first quarter of fiscal 2001. Gross profit of $27.3 million (29.1% of net sales) in the first quarter of fiscal 2002 was 6.9% lower than the $29.3 million (27.9% of net sales) recorded in the first quarter of fiscal 2001. The increase in gross profit as a percentage of sales was primarily caused by a shift in sales toward higher gross profit margin products, more favorable pricing from vendors and less aggressive retail pricing in the stores. Selling, general and administrative expenses for the quarter ended April 30, 2002 were $25.0 million (26.7% of net sales), a 5.0% decrease from $26.3 million (25.1% of net sales) for the first quarter of fiscal 2001. The reduction in expenditures primarily relates to less advertising dollars spent due to limited expenditures on radio and television advertising in the current year and the reduction in the number of stores in operation. Interest expense was $1.3 million (1.4% of net sales) for the first quarter of fiscal 2002 versus $2.0 million (1.9% of net sales) for the first quarter of fiscal 2001. This decline was primarily caused by a reduction in the amount of mortgage debt outstanding and restructuring a large portion of the remaining mortgage debt to lower floating interest rates. Results for the first quarter of fiscals 2002 and 2001 also reflect the impact of our equity investment in two limited partnerships which produce synthetic fuels. Effective February 1, 1999, we entered into an agreement to sell a portion of our investment in one of the limited partnerships, which resulted in the reduction in our ownership interest from 30% to 17%. Effective July 13
31, 2000, we sold an additional portion of our ownership interest in that partnership, reducing our ownership percentage from 17% to 8%. Effective May 31, 2001, we sold our remaining 8% ownership interest. We expect to receive cash payments from the sale on a quarterly basis through 2007 which will range from 74.25% to 82.5% of the federal income tax credits attributable to the interest sold. Below is a table summarizing the income from the sales, net of certain expenses. <TABLE> <CAPTION> Three Months Ended April 30 2002 2001 (In thousands) <S> <C> <C> February 1, 1999 sale 1,850 1,807 July 31, 2000 sale 1,350 1,288 May 31, 2001 sale 1,436 -- ----- ----- 4,636 3,095 ===== ===== </TABLE> Our effective tax rate was 25% for the first quarter of fiscal 2002 and 2001 after reflecting our share of federal income tax credits earned by the limited partnerships. In the first quarter of fiscal 2002, we recorded an extraordinary loss from the early extinguishment of debt of $91,000, net of the income tax effect of $59,000 as a result of paying off mortgage loans totaling $7.0 million. As a result of the foregoing, for the first quarter of fiscal 2002 net income was $4.2 million, a 34.7% increase from $3.1 million for the first quarter of fiscal 2001. Liquidity and Capital Resources Net cash used in operating activities was $10.9 million for the first quarter of fiscal 2002, compared to usage of $2.0 million for the first quarter of fiscal 2001. For the first quarter of fiscal 2002, cash was provided by net income of $4.2 million, adjusted for the impact of a $4.6 million gain on our installment sales of the limited partnership interest and non-cash items of $231,000 which consisted of deferred income and depreciation and amortization. Cash was also provided by an increase of $5.1 million in accounts payable and a decrease of $1.2 million in accounts receivable. The primary 14
uses of cash were an increase of $15.9 million in inventory due to seasonal air conditioner purchases and other inventory purchases and a decrease of $1.6 million in other liabilities primarily due to the timing of payment for compensation and taxes. At April 30, 2002, working capital was $89.2 million compared to $92.3 million at January 31, 2002. The ratio of current assets to current liabilities was 2.3 to 1 at April 30, 2002 and 2.4 to 1 at January 31, 2002. We received proceeds of $4.6 million during the first quarter of fiscal 2002 from installment sales of a portion of our ownership interest in a limited partnership. Cash used in financing activities totaled $8.5 million for the first quarter of fiscal 2002. The primary use of cash was for payments on long-term mortgage debt of approximately $8.6 million for the early extinguishment of debt for eight retail store locations and scheduled repayments. At April 30, 2002 we had authorization from the Board of Directors to purchase 1,158,300 shares of our common stock. 15
Forward-Looking Statements This Form 10-Q contains or may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The words "believes", "estimates", "plans", "expects", "intends", "anticipates" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties. Factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in Exhibit 99 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2002 (File No. 0-13283). Item 3. Quantitative and Qualitative Disclosure About Market Risk No material changes since January 31, 2002. 16
PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The annual meeting of shareholders of REX Stores Corporation was held on June 3, 2002, at which the following matter was submitted to a vote of shareholders: 1. Election of six directors. <TABLE> <CAPTION> Nominee For Withheld <S> <C> <C> Stuart Rose 10,094,252 1,478,262 Lawrence Tomchin 9,968,052 1,604,462 Robert Davidoff 11,489,467 83,047 Edward Kress 11,474,789 97,725 Lee Fisher 11,489,467 83,047 Alexander Schwartz, Jr 11,489,467 83,047 </TABLE> Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. No exhibits are filed with this report. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended April 30, 2002. 17
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REX STORES CORPORATION Registrant June 6, 2002 STUART A. ROSE Stuart A. Rose Chairman of the Board (Chief Executive Officer) June 6, 2002 DOUGLAS L. BRUGGEMAN Douglas L. Bruggeman Vice President, Finance and Treasurer (Principal Financial and Chief Accounting Officer) 18