10-Q 1 0001.txt REX STORES CORPORATION 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ending April 30, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to -------- -------- Commission File Number 0-13283 REX Stores Corporation (Exact name of registrant as specified in its charter) Delaware 31-1095548 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2875 Needmore Road, Dayton, Ohio 45414 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 937-276-3931 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) At the close of business on June 8, 2000, the registrant had 6,499,779 shares of Common Stock, par value $.01 per share, outstanding. REX STORES CORPORATION AND SUBSIDIARIES INDEX
Page PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Condensed Balance Sheets.................. 3 Consolidated Statements of Income...................... 5 Consolidated Statements of Shareholders' Equity............................................. 6 Consolidated Statements of Cash Flows.................. 7 Notes to Consolidated Financial Statements............. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.......................... 14
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS April 30 January 31 April 30 2000 2000 1999 (In Thousands) ASSETS: Cash and cash equivalents $ 3,963 $ 25,609 $ 9,349 Accounts receivable, net 2,013 2,569 1,030 Merchandise inventory 160,176 139,267 144,827 Prepaid expenses and other 3,236 2,097 2,390 Equity investment in limited partnerships -- -- 1,364 Future income tax benefits 9,837 9,837 9,366 -------- -------- -------- Total current assets 179,225 179,379 168,326 PROPERTY AND EQUIPMENT, NET 116,942 113,802 99,304 FUTURE INCOME TAX BENEFITS 8,835 8,835 8,109 RESTRICTED INVESTMENTS 2,037 2,020 1,919 -------- -------- -------- Total assets $307,039 $304,036 $277,658 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 15,075 $ -- $ -- Current portion of long-term debt 3,458 3,303 3,165 Current portion, deferred income and deferred gain on sale and leaseback 11,151 11,219 11,440 Accounts payable, trade 58,559 46,252 61,031 Accrued income taxes -- 1,572 -- Accrued payroll 4,668 6,947 4,574 Other current liabilities 9,440 9,330 9,639 -------- -------- -------- Total current liabilities 102,351 78,623 89,849 -------- -------- --------
3 Liabilities and Shareholders' Equity (Continued) LONG-TERM LIABILITIES: Long-term debt 46,717 46,200 55,904 Deferred income 16,368 16,423 16,263 Deferred gain on sale and leaseback 2,747 2,953 3,571 -------- -------- -------- Total long-term liabilities 65,832 65,576 75,738 -------- -------- -------- SHAREHOLDERS' EQUITY: Common stock 115 115 98 Paid-in capital 105,490 105,303 55,715 Retained earnings 96,909 93,663 77,457 Treasury stock (63,658) (39,244) (21,199) -------- -------- -------- Total shareholders' equity 138,856 159,837 112,071 -------- -------- -------- Total liabilities and shareholders' equity $307,039 $304,036 $277,658 ======== ======== ========
The accompanying notes are an integral part of these unaudited consolidated statements. 4 REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended April 30 2000 1999 (In Thousands, Except Per Share Amounts) NET SALES $ 107,183 $ 99,056 --------- --------- COSTS AND EXPENSES: Cost of merchandise sold 78,449 72,613 Selling, general and administrative expenses 24,649 22,785 --------- --------- Total costs and expenses 103,098 95,398 --------- --------- INCOME FROM OPERATIONS 4,085 3,658 INVESTMENT INCOME 185 149 INTEREST EXPENSE (1,172) (1,303) INCOME FROM LIMITED PARTNERSHIPS 1,230 280 --------- --------- Income before income taxes 4,328 2,784 PROVISION FOR INCOME TAXES 1,082 697 --------- --------- NET INCOME $ 3,246 $ 2,087 ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,100 7,380 ========= ========= BASIC NET INCOME PER SHARE $ 0.46 $ 0.28 ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 7,770 7,638 ========= ========= DILUTED NET INCOME PER SHARE $ 0.42 $ 0.27 ========= =========
The accompanying notes are an integral part of these unaudited consolidated statements. 5 REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Shares ---------------------------------------------------- Issued Treasury Paid-in Retained Shares Amount Shares Amount Capital Earnings (In Thousands) Balance at April 30, 1999 9,781 $ 98 2,221 $21,199 $ 55,715 $77,457 Common stock issued 1,714 17 -- -- 49,588 -- Treasury stock acquired -- -- 1,205 18,045 -- -- Net income -- -- -- -- -- 16,206 -------- -------- -------- -------- -------- ------- Balance at January 31, 2000 11,495 115 3,426 39,244 105,303 93,663 Common stock issued 16 -- (2) (18) 187 -- Treasury stock acquired -- -- 1,358 24,432 -- -- Net income -- -- -- -- -- 3,246 -------- -------- -------- ------- -------- ------- Balance at April 30, 2000 11,511 $115 4,782 $63,658 $105,490 $96,909 ======== ======== ======== ======= ======== =======
[FN] The accompanying notes are an integral part of these unaudited consolidated statements. 6 REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended April 30 2000 1999 (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,246 $ 2,087 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization, net 942 829 Equity in losses of limited partnerships -- 474 Deferred income (123) (1,136) Changes in assets and liabilities: Accounts receivable 556 1,267 Merchandise inventory (20,909) (12,825) Other current assets (1,139) (353) Accounts payable, trade 12,307 8,357 Other current liabilities (3,741) (733) ------- ------- NET CASH USED IN OPERATING ACTIVITIES (8,861) (2,033) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,350) (1,713) Capital disposals 62 1,023 Restricted investments (17) (91) ------- ------- NET CASH USED IN INVESTING ACTIVITIES (4,305) (781) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in notes payable 15,075 -- Payments of long-term debt (1,512) (1,203) Proceeds from long-term debt 2,184 1,680 Common stock issued 187 112 Treasury stock issued 18 1,728 Treasury stock acquired (24,432) (2,066) ------- ------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (8,480) 251 ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS (21,646) (2,563) CASH AND CASH EQUIVALENTS, beginning of period 25,609 11,912 ------- ------- CASH AND CASH EQUIVALENTS, end of period $ 3,963 $ 9,349 ======= =======
The accompanying notes are an integral part of these unaudited consolidated statements. 7 REX STORES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2000 Note 1. Consolidated Financial Statements The consolidated financial statements included in this report have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments necessary to state fairly the information set forth therein. Any such adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these unaudited consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2000 (fiscal 1999). Note 2. Accounting Policies The interim consolidated financial statements have been prepared in accordance with the accounting policies described in the notes to the consolidated financial statements included in the Company's 1999 Annual Report on Form 10-K. While management believes that the procedures followed in the preparation of interim financial information are reasonable, the accuracy of some estimated amounts is dependent upon facts that will exist or calculations that will be accomplished at fiscal year end. Examples of such estimates include changes in the LIFO reserve (based upon the Company's best estimate of inflation to date), management bonuses and the provision for income taxes. Any adjustments pursuant to such estimates during the quarter were of a normal recurring nature. Certain reclassifications have been made to prior year amounts to conform with their fiscal 2000 presentation. 8 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, 2000:
Shares Under Stock Option Plans Outstanding at January 31, 2000 ($8.125 to $22.6875 per share) 2,649,517 Granted ($22.8125 per share) 203,000 Exercised ($8.125 to $17.25 per share) (18,097) --------- Outstanding at April 30, 2000 ($8.125 to $22.8125 per share) 2,834,420 =========
9 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, 2000 we operated 235 stores in 35 states, predominantly in small to medium sized markets under the trade name "REX". Fiscal Year All references in this report to a particular fiscal year are to REX's fiscal year ended January 31. For example, "fiscal 1999" means the period February 1, 1999 to January 31, 2000. In the past, we referred to this period as "fiscal 2000." Results of Operations The following table sets forth, for the periods indicated, the relative percentages that certain income and expense items bear to net sales:
Three Months Ended April 30 2000 1999 Net sales 100.0% 100.0% Cost of merchandise sold 73.2 73.3 ----- ----- Gross profit 26.8 26.7 Selling, general and administrative expenses 23.0 23.0 ----- ----- Income from operations 3.8 3.7 Interest, net (0.9) (1.2) Income from limited partnerships 1.1 0.3 ----- ----- Income before income taxes 4.0 2.8 Provision for income taxes 1.0 0.7 ----- ----- Net income 3.0% 2.1% ===== =====
10 Comparison of Three Months Ended April 30, 2000 and 1999 Net sales in the first quarter ended April 30, 2000 were $107.2 million compared to $99.1 million in the prior year's comparable period, representing an increase of $8.1 million or 8.2%. This increase is due to the sales contribution from 14 new stores opened in fiscal 1999 and an increase in comparable store sales of 3.6%. Fiscal 2000 includes a leap year and therefore sales for the first quarter of fiscal 2000 were positively impacted by including one additional day. The largest product contributors to the increase in comparable store sales were large screen televisions (30 inch and larger) by approximately 11.0% and DVD players by approximately 1.5%. Offsetting the increase was smaller screen television sales (27 inch and smaller) which negatively impacted comparable store sales by approximately 2.9%. We believe DVD players serve to replace certain VCR sales. As a result of this and falling average selling prices, VCR sales negatively impacted comparable store sales by approximately 3.6%. Other products negatively impacting comparable store sales were car stereos and microwaves, each by approximately 0.8%. As of April 30, 2000 we had 235 stores compared to 227 stores one year earlier. There was one store opened and four closed during the first quarter of fiscal 2000. During the first quarter of fiscal 1999 no stores were opened and one was closed. Gross profit of $28.7 million (26.8% of net sales) in the first quarter of fiscal 2000 was 8.7% higher than the $26.4 million (26.7% of net sales) recorded in the first quarter of fiscal 1999. The improvement in gross profit margin is a result of the shift of merchandise sales into more large screen televisions which generally have a higher gross profit margin than smaller screen televisions. This was slightly offset by the recognition of a smaller percentage of extended service contract revenues, which generally have a higher gross profit margin. Selling, general and administrative expenses for the quarter ended April 30, 2000 were $24.6 million (23.0% of net sales), an 8.2% increase from $22.8 million (23.0% of net sales) for the first quarter of fiscal 1999. The increase in expense is primarily due to increased advertising, compensation and other expenses associated with increased sales and earnings. Interest expense was $1.2 million for the first quarter of fiscal 2000 versus $1.3 million for the first quarter of fiscal 1999. This reduction reflects the benefit of lower outstanding mortgage debt as a result of paying 11 off certain higher rate mortgage debt in the third quarter of fiscal 1999. Results for the first quarter of fiscals 2000 and 1999 also reflect the impact of our equity investment in two limited partnerships which produce synthetic fuels. Effective February 1, 1999, we entered into an agreement to sell a portion of our investment in one of the limited partnerships, which resulted in the reduction in our ownership interest from 30% to 17%. We expect to receive cash payments from the sale on a quarterly basis through 2007. These payments are contingent upon and equal to 75% of the federal income tax credits attributable to the 13% interest sold. Income from the limited partnerships was $1.2 million for the first quarter of fiscal 2000, all of which was income generated from the above identified sale. We reported income from the limited partnerships of $280,000 for the first quarter of fiscal 1999, which consisted of $734,000 of income generated from the above identified sale, partially offset by a pre-tax charge of $454,000 to reflect our equity share in the losses of the partnerships. Our initial investment has been reduced to zero as of January 31, 2000 because of cumulative losses recorded using the equity method of accounting. Consequently, we have ceased recording our share of equity losses beginning in fiscal 2000. Our effective tax rate was 25% for the first quarter of fiscal 2000 and 1999 after reflecting our share of federal income tax credits earned by the limited partnerships under Section 29 of the Internal Revenue Code. As a result of the foregoing, net income was $3.2 million for the first quarter of fiscal 2000, versus $2.1 million for the first quarter of fiscal 1999. Liquidity and Capital Resources Net cash used in operating activities was $8.9 million for the first quarter of fiscal 2000, compared to usage of $2.0 million for the first quarter of fiscal 1999. For the first quarter of fiscal 2000, operating cash flow was provided by net income of $3.2 million adjusted for the net impact of non-cash items of $819,000, which consist primarily of depreciation and deferred income. The primary use of cash was an increase in inventory of $20.9 million primarily due to an increase of seasonal air conditioner inventories and to support planned store openings. The other uses of cash were a decrease in other liabilities and an increase in other assets due to timing of payments of income taxes and compensation. Cash was also provided by a decrease in receivables of $556,000 and an increase in accounts payable of $12.3 million primarily due to the increase in inventory and timing of payments to vendors. 12 At April 30, 2000, working capital was $76.9 million compared to $100.8 million at January 31, 2000. The ratio of current assets to current liabilities was 1.8 to 1 at April 30, 2000 and 2.3 to 1 at January 31, 2000. Capital expenditures through April 30, 2000 totaled $4.4 million and primarily relate to the acquisition of store sites and other construction expenditures associated with planned fiscal 2000 store openings. We plan to open 30 to 35 new stores for fiscal 2000 with anticipated capital expenditures of approximately $25.0 to $30.0 million. We plan to fund the new store openings with cash generated from operations and additional mortgage debt. Cash used in financing activities totaled approximately $8.5 million for the first three months of fiscal 2000. We purchased a total of 1,358,000 shares of our common stock for $24.4 million during the first quarter of fiscal 2000. As of April 30, 2000 we had authorization from our board of directors to purchase an additional 1,000,000 shares. Cash was provided by borrowings of $15.1 million on the line of credit during the first quarter of fiscal 2000. A total of approximately $84.9 million was available for borrowings on the line of credit as of April 30, 2000. We also received proceeds of $2.2 million from long-term debt borrowings related to mortgage financing for two stores. Cash was used for payments on long-term debt of $1.5 million, including a $770,000 balloon payment on one mortgage. Forward-Looking Statements This Form 10-Q contains or may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The words "believes", "estimates", "plans", "expects", "intends", "anticipates" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties. Factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in Exhibit 99 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2000 (File No. 0-13283). Item 3. Quantitative and Qualitative Disclosure About Market Risk No material changes since January 31, 2000. 13 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are filed with this report: 10(a) 1999 Omnibus Stock Incentive Plan 27 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended April 30, 2000. 14 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 9, 2000 /s/ Stuart A. Rose Stuart A. Rose Chairman of the Board (Chief Executive Officer) June 9, 2000 /s/ Douglas L. Bruggeman Douglas L. Bruggeman Vice President, Finance and Treasurer (Principal Financial and Chief Accounting Officer) 15