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 October 31, 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) 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) (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 December 12, 2002, the registrant had 11,681,390 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 Condensed Statements of Income.................. 4 Consolidated Condensed Statements of Shareholders' Equity...................................... 5 Consolidated Condensed Statements of Cash Flows................................................ 6 Notes to Consolidated Condensed Financial Statements................................................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................... 11 Item 3. Quantitative and Qualitative Disclosure About Market Risk.................................................. 16 Item 4. Controls and Procedures........................................ 16 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................... 18 2
PART I. FINANCIAL INFORMATION Item 1. Financial Statements REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS A S S E T S October 31 January 31 October 31 2002 2002 2001 (In Thousands) Unaudited Unaudited --------- --------- --------- ASSETS: Cash and cash equivalents $ 1,495 $ 39,441 $ 2,440 Accounts receivable, net 626 1,120 1,149 Synthetic fuel receivable 5,592 1,545 -- Merchandise inventory 167,616 101,017 156,118 Prepaid expenses and other 3,282 2,554 4,029 Future income tax benefits 12,614 12,614 9,837 --------- --------- -------- Total current assets 191,225 158,291 173,573 PROPERTY AND EQUIPMENT, NET 136,280 139,496 134,803 FUTURE INCOME TAX BENEFITS 7,320 7,320 9,523 RESTRICTED INVESTMENTS 2,237 2,222 2,211 --------- --------- -------- Total assets $ 337,062 $ 307,329 $320,110 ========= ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 21,829 $ 66 $ 12,121 Current portion of long-term debt 4,845 5,012 5,319 Current portion of deferred income and deferred gain on sale and leaseback 11,154 11,790 11,385 Accounts payable, trade 46,075 32,619 40,484 Accrued income taxes 3,005 1,373 -- Accrued payroll 5,209 5,856 4,982 Other current liabilities 9,349 9,319 9,236 --------- --------- -------- Total current liabilities 101,466 66,035 83,527 --------- --------- -------- LONG-TERM LIABILITIES: Long-term mortgage debt 66,493 77,203 85,039 Deferred income 13,679 15,173 15,036 Deferred gain on sale and leaseback 497 945 1,511 --------- --------- -------- Total long-term liabilities 80,669 93,321 101,586 --------- --------- -------- SHAREHOLDERS' EQUITY: Common stock 277 274 263 Paid-in capital 119,082 116,701 107,282 Retained earnings 148,557 134,708 123,812 Treasury stock (112,989) (103,710) (96,360) --------- --------- -------- Total shareholders' equity 154,927 147,973 134,997 --------- --------- -------- Total liabilities and shareholders' equity $ 337,062 $ 307,329 $320,110 ========= ========= ======== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3
REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME Unaudited Three Months Ended Nine Months Ended October 31 October 31 2002 2001 2002 2001 (In Thousands, Except Per Share Amounts) NET SALES $95,743 $107,335 $282,349 $312,666 COSTS AND EXPENSES: Cost of merchandise sold 66,825 76,220 196,847 222,701 Selling, general and administrative expenses 25,716 27,265 76,733 80,530 ------- -------- -------- -------- Total costs and expenses 92,541 103,485 273,580 303,231 ------- -------- -------- -------- INCOME FROM OPERATIONS 3,202 3,850 8,769 9,435 INVESTMENT INCOME 16 23 299 117 INTEREST EXPENSE (1,388) (2,188) (3,990) (6,415) INCOME FROM LIMITED PARTNERSHIPS 3,854 4,232 13,494 12,081 ------- -------- -------- -------- Income before provision for income taxes 5,684 5,917 18,572 15,218 PROVISION FOR INCOME TAXES 1,410 1,479 4,632 3,805 ------- -------- -------- -------- Income before extraordinary item 4,274 4,438 13,940 11,413 Extraordinary loss from extinguishment of debt, net of tax -- -- 91 -- NET INCOME $ 4,274 $ 4,438 $ 13,849 $ 11,413 ======= ======== ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING-BASIC 12,179 11,590 12,333 11,657 ======= ======== ======== ======== Basic Net Income Per Share Before Extraordinary Item 0.35 0.38 1.13 0.98 Extraordinary Item -- -- (0.01) -- ------- -------- -------- -------- BASIC NET INCOME PER SHARE $ 0.35 $ 0.38 $ 1.12 $ 0.98 ======= ======== ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING-DILUTED 13,791 13,340 14,482 13,271 ======= ======== ======== ======== Diluted Net Income Per Share Before Extraordinary Item 0.31 0.33 0.96 0.86 Extraordinary Item -- -- (0.01) -- ------- -------- -------- -------- DILUTED NET INCOME PER SHARE $ 0.31 $ 0.33 $ 0.95 $ 0.86 ======= ======== ======== ======== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4
REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY Unaudited Common Shares ----------------------------------------------- Issued Treasury ------------------- ---------------------- Paid-in Retained Shares Amount Shares Amount Capital Earnings (In Thousands) Balance at January 31, 2002 27,358 $274 15,113 $103,710 $116,701 $134,708 Net income -- -- -- -- -- 13,849 Treasury stock acquired -- -- 855 9,651 -- -- Common stock issued 380 3 (53) (372) 2,381 -- ------ ---- ------ -------- -------- -------- Balance at October 31, 2002 27,738 $277 15,915 $112,989 $119,082 $148,557 ====== ==== ====== ======== ======== ======== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5
REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Unaudited Nine Months Ended October 31 2002 2001 (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 13,849 $ 11,413 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, net 3,246 3,141 (Gain) Loss on disposal of fixed assets 81 (111) Deferred income (2,130) (1,428) Income of limited partnerships (13,494) (12,081) Changes in assets and liabilities: Accounts receivable 493 3,558 Merchandise inventory (66,599) (11,968) Other current assets (732) 139 Accounts payable, trade 13,457 (7,196) Other current liabilities 1,015 (888) -------- -------- NET CASH USED IN OPERATING ACTIVITIES (50,814) (15,421) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (1,663) (3,717) Proceeds from sale of real estate and fixed assets 1,108 914 Income from sale of partnership interest 9,448 12,081 Restricted investments (15) (46) -------- -------- NET CASH PROVIDED BY INVESTING ACTIVITIES 8,878 9,232 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in notes payable 21,763 11,379 Payments of long-term debt (10,878) (4,027) Proceeds from long-term debt -- 8,200 Common stock issued 2,384 1,124 Treasury stock issued 372 307 Treasury stock acquired (9,651) (9,041) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 3,990 7,942 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (37,946) 1,753 CASH AND CASH EQUIVALENTS, beginning of period 39,441 687 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 1,495 $ 2,440 ======== ======== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6
REX STORES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS October 31, 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 of America 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). The results of operations for the interim periods are not necessarily indicative of the results to be expected for the year. 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. 7
Note 3. Stock Option Plans The following summarizes options granted, exercised and canceled or expired during the nine months ended October 31, 2002: Shares Under Stock Option Plans Outstanding at January 31, 2002 ($3.61 to $10.37 per share) 6,881,610 Granted ($14.745 to $16.04 per share) 353,936 Exercised ($3.61 to $10.14 per share) (432,952) Canceled or expired ($4.61 to $14.745 per share) (39,000) --------- Outstanding at October 31, 2002 ($3.61 to $16.04 per share) 6,763,594 ========= Note 4. Net Income Per Share The following table reconciles the basic and diluted net income per share computation for each period presented: October 31, 2002 ------------------------------------------------------------------------------- Three Months Ended Nine Months Ended ----------------------------------- ----------------------------------- Per Per Income Shares Share Income Shares Share ------ ------ ------ ------- ------ ----- Basic net income per share $4,274 12,179 $0.35 $13,849 12,333 $1.12 ===== ===== Effect of stock options 1,612 2,149 ------ ------ ------- ------ Diluted net income per share $4,274 13,791 $0.31 $13,849 14,482 $0.95 ====== ====== ===== ======= ====== ===== 8
October 31, 2001 -------------------------------------------------------------------------------- Three Months Ended Nine Months Ended ----------------------------------- ----------------------------------- Per Per Income Shares Share Income Shares Share ------ ------ ------ ------- ------ ----- Basic net income per share $4,438 11,590 $0.38 $11,413 11,657 $0.98 ===== ===== Effect of stock options 1,750 1,614 ------ ------ ------- ------ Diluted net income per share $4,438 13,340 $0.33 $11,413 13,271 $0.86 ====== ====== ===== ======= ====== ===== For the three and nine months ended October 31, 2002, a total of 349,936 shares, and for the three and nine months ended October 31, 2001, a total of 497,157 shares, 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. On both August 10, 2001 and February 11, 2002, the Company effected a 3-for-2 stock split. All per share data shown above has been retroactively restated to reflect these splits. Note 5. 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. Note 6. Synthetic Fuel Net income for the 2002 third quarter and first nine months reflect approximately $3.8 million and $13.1 million, respectively, of pre-tax investment income from the sales of the Company's entire Partnership interest in a synthetic fuel limited partnership. The IRS is presently auditing this limited partnership. Approximately $2.5 million and $5.0 million of the payment due the Company and reported as income during the fiscal 2002 third quarter and nine month period, respectively, relating to sales of certain portions of the limited partnership interest is being held in escrow pending the results of the IRS audit. Subsequent payments relating to certain of these sales will also be held in escrow pending the results of the IRS audit. Prior to the sales of the 9
Company's interest in the Partnership, the Company had been allocated in aggregate approximately $19.0 million in tax credits from this synthetic fuel limited partnership. In the Company's opinion, the Partnership is complying with all the necessary requirements to be allowed such credits and believes it is likely, although not certain, that the Partnership will prevail if challenged by the IRS on any credits taken. The timing of the completion of the audit has not been determined. To date the Company has received approximately $38.5 million in payments with respect to its sales of its Partnership interests, which payments are non-refundable irrespective of the outcome of the audit. Net income for the first nine months of fiscal 2002 also reflects pre-tax income, net of litigation expenses, of approximately $0.4 million from the settlement of a previously filed lawsuit relating to its participation as a limited partner in a second limited partnership formed to produce synthetic fuel which qualifies for tax credits under Section 29 of the Internal Revenue Code. As part of the settlement, which was effected without the admission of liability by any party, the Company entered into an Amended and Restated Agreement of Limited Partnership which facilitates future production of synthetic fuel. This facility is now operational and producing synthetic fuel. On September 5, 2002, the Company closed on its purchase of a plant located in Gillette, Wyoming designed and constructed for the production of synthetic fuel which qualifies for tax credits under Section 29 of the Internal Revenue Code. The Company has obtained a Private Letter Ruling from the Internal Revenue Service which would allow the disassembly, and reconstruction, of the facility at a yet to be determined host site. The Company is presently searching for potential partners as to the relocation and commercialization of the plant and limiting the Company's maximum financial investment in the venture. If the plant cannot be relocated on terms acceptable to the Company, the Company is obligated to remove the plant from its existing site at a currently estimated cost to the Company of up to $2 million. Through October 31, 2002, approximately $550,000 had been spent and capitalized on this project, with an additional $500,000 being held in escrow to guarantee the Company's future performance. While this acquisition may result in the future production of synthetic fuel, there can be no assurances that this facility will ever be placed into commercial operation. 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. We are a specialty retailer in the consumer electronics/appliance industry. As of October 31, 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: Three Months Ended Nine Months Ended October 31 October 31 2002 2001 2002 2001 Net sales 100.0% 100.0% 100.0% 100.0% Cost of merchandise sold 69.8 71.0 69.7 71.2 ----- ----- ----- ----- Gross profit 30.2 29.0 30.3 28.8 Selling, general and administrative expenses 26.9 25.4 27.2 25.8 ----- ----- ----- ----- Income from operations 3.3 3.6 3.1 3.0 Investment income -- -- 0.1 -- Interest expense (1.4) (2.0) (1.4) (2.0) Income from limited partnerships 4.0 4.0 4.8 3.9 ----- ----- ----- ----- Income before provision for income taxes 5.9 5.6 6.6 4.9 Provision for income taxes 1.4 1.4 1.7 1.2 ----- ----- ----- ----- Income before extraordinary item 4.5 4.2 4.9 3.7 Extraordinary loss from early extinguishment of debt -- -- -- -- ----- ----- ----- ----- Net income 4.5% 4.2% 4.9% 3.7% ===== ===== ===== ===== 11
Comparison of Three and Nine Months Ended October 31, 2002 and 2001 Net sales in the third quarter ended October 31, 2002 were $95.7 million compared to $107.3 million in the prior year's third quarter, representing a decrease of $11.6 million or 10.8%. This decrease was primarily due to a decline in comparable store sales of 7.8%. The decline was also partially caused by a net reduction of nine stores since the end of the third quarter of fiscal 2001. The strongest product category for the Company for the third quarter of fiscal 2002 was televisions which overall was flat on comparable store sales compared to the third quarter of fiscal 2001. Television sales benefited from stronger sales of large screen high definition ready televisions. The remaining major product categories contributed to our negative comparable store sales with the appliance category contributing 2.9%, the video category contributing 2.5% and the audio category contributing 2.3% Net sales for the first nine months of fiscal 2002 were $282.3 million compared to $312.7 million for the first nine months of fiscal 2001, representing a decrease of $30.3 million or 9.7%. This decrease was primarily due to a decline in comparable store sales of 7.4%. The decline was also partially caused by a net reduction of nine stores since the end of the third quarter of fiscal 2001. All of the major product categories contributed to the negative comparable store sales with the video category contributing 3.1%, the audio category contributing 2.6%, the appliance category contributing 0.9% and the television category contributing 0.8%. As of October 31, 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 nine months of fiscal 2002. There were six stores opened and four closed in the first nine months of fiscal 2001. Gross profit of $28.9 million (30.2% of net sales) in the third quarter of fiscal 2002 was $2.2 million lower than the $31.1 million (29.0% of net sales) recorded in the third quarter of fiscal 2001. Gross profit for the first nine months of fiscal 2002 was $85.5 million (30.3% of net sales) compared to $90.0 million (28.8% of net sales) for the first nine months of fiscal 2001. The gross profit margin has been positively impacted by a shift in sales mix toward higher gross profit margin categories and more favorable pricing from vendors on certain products. The shift in mix includes recognizing a higher mix of service contracts, which generally have a higher gross profit margin, compared to last year. 12
Selling, general and administrative expenses for the third quarter of fiscal 2002 were $25.7 million (26.9% of net sales) compared to $27.3 million (25.4% of net sales) for the third quarter of fiscal 2001. This represents a decrease of $1.6 million or 5.7%. Selling, general and administrative expenses for the first nine months of fiscal 2002 were $76.7 million (27.2% of net sales), a 4.7% decrease from $80.5 million (25.8% of net sales) for the first nine months of fiscal 2001. The reduction in expenditures for the third quarter and first nine months of fiscal 2002 primarily relates to the reduction in the number of stores in operation and lower sales commission costs related to lower sales. The Company also reduced radio and television advertising in the first half of fiscal 2002. Interest expense decreased to $1.4 million (1.4% of net sales) for the third quarter of fiscal 2002 from $2.2 million (2.0% of net sales) for the third quarter of fiscal 2001. Interest expense for the first nine months of fiscal 2002 was $4.0 million (1.4% of net sales) compared to $6.4 million (2.0% of net sales) for the first nine months of fiscal 2001. The decline in interest expense 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 third quarter and first nine months 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 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 report the installment income from these sales on a quarterly basis. Below is a table summarizing the income from the sales, net of certain expenses. Three Months Ended Nine Months Ended October 31 October 31 2002 2001 2002 2001 (In Thousands) February 1, 1999 sale $1,666 $1,765 $ 5,365 $ 5,352 July 31, 2000 sale 1,350 1,030 4,050 3,944 May 31, 2001 sale 838 1,437 3,711 2,785 ------ ------ ------- ------- $3,854 $4,232 $13,126 $12,081 ====== ====== ======= ======= 13
The Internal Revenue Service (IRS) is presently auditing this limited partnership. Approximately $2.5 million and $5.0 million of the payment due the Company and reported as income during the fiscal 2002 third quarter and nine month period, respectively, relating to sales of certain portions of the limited partnership interest is being held in escrow pending the results of the IRS audit. Subsequent payments relating to certain of these sales will also be held in escrow pending the results of the IRS audit. The timing of the completion of the audit has not been determined. Net income for the third quarter and first nine months of fiscal 2002 also reflects pre-tax income, net of litigation expenses, of approximately $0.4 million from the settlement of a previously filed lawsuit relating to our participation as a limited partner in a second limited partnership formed to produce synthetic fuel which qualifies for tax credits under Section 29 of the Internal Revenue Code. As part of the settlement, which was effected without the admission of liability by any party, the Company entered into an Amended and Restated Agreement of Limited Partnership which facilitates future production of synthetic fuel. Our effective tax rate was 25% for all periods presented after reflecting our share of federal income tax credits earned by the limited partnerships under Section 29 of the Internal Revenue Code. As a result of the foregoing, net income for the third quarter of fiscal 2002 was $4.3 million, a 3.7% decrease from $4.4 million for the third quarter of fiscal 2001. Net income for the first nine months of fiscal 2002 was $13.8 million, a 21.3% increase from $11.4 million for the first nine months of fiscal 2001. Liquidity and Capital Resources Net cash used in operating activities was $50.8 million for the first nine months of fiscal 2002, compared to $15.4 million for the first nine months of fiscal 2001. For the first nine months of fiscal 2002, cash was provided by net income of $13.8 million, adjusted for the impact of $13.5 million for gains on our installment sales of the limited partnership interest, non-cash items of $1.1 million which consisted of deferred income and depreciation and amortization and $0.1 million loss from disposal of fixed assets. Cash was also provided by an increase of $13.5 million in accounts payable, an increase of $1.0 million in other liabilities and a decrease of $0.5 million in accounts receivable. The primary use of cash was an increase of $66.6 million in inventory due to the timing of purchases for the holiday season. Cash was also used by an increase in other assets of $0.7 million. At October 31, 2002, working capital was $89.8 million compared to $92.3 million at January 31, 2002. The ratio of current assets to 14
current liabilities was 1.9 to 1 at October 31, 2002 and 2.4 to 1 at January 31, 2002. We received proceeds of approximately $9.4 million and $12.1 million during the first nine months of fiscals 2002 and 2001, respectively, from installment sales of our ownership interest in a limited partnership. Cash used in financing activities totaled $4.0 million for the first nine months of fiscal 2002. The primary uses of cash were for payments on long-term mortgage debt of approximately $10.9 million for the early extinguishment of debt for eight retail store locations and scheduled repayments and $9.7 million to acquire 855,130 shares of our common stock. Cash was provided by borrowings of $21.8 million on the line of credit and $2.8 million from the exercise of employee stock options. Cash provided by financing activities totaled approximately $7.9 million of the first nine months of fiscal 2001. Cash was provided by borrowings of $11.4 million on the line of credit during the first nine months of fiscal 2001 and proceeds of $8.2 million from long-term debt borrowings related to mortgage financing of nine stores. We also received proceeds of $1.4 million from the exercise of employee stock options. Cash was used to purchase 1,102,950 shares (split adjusted) of our common stock for approximately $9.0 million during the first nine months of fiscal 2001. Cash was also used for payments on long-term debt of $4.0 million. We currently have under construction a 156,500 square foot addition to our warehouse facility in Dayton, Ohio at an estimated cost of approximately $3.4 million. At October 31, 2002 we had authorization from our Board of Directors to purchase 424,400 shares of our common stock. Subsequent to the end of the third quarter we have purchased 149,550 shares of our common stock. Recently Issued Accounting Standards In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated assets retirement costs. It applies to all legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. We believe that the implementation of the statement will not have a material impact on our results of operations and financial position. In May 2002, the FASB issued SFAS 145, "Recision of SFAS Nos. 4, 44, and 64, Amendment of SFAS 13, and Technical Corrections." For most 15
companies, SFAS No. 145 will require gains and losses on extinguishment of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under SFAS No. 4. Extraordinary treatment will be required for certain extinguishments as provided in APB No. 30. The provisions of SFAS No. 145 related to the SFAS No. 4 revision are effective for financial statements issued for fiscal years beginning after May 15, 2002, however, early adoption is encouraged. Once adopted, any gain or loss on extinguishment of debt that was classified as an extraordinary item should be reclassified. In addition, SFAS 145 amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. We have not yet assessed the impact of the adoption of this standard on our consolidated financial position, results of operations or cash flows. In July 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring or other exit or disposal activity. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. We have not yet assessed the impact of the adoption of this standard on our consolidated financial position, results of operations or cash flows. 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(a) 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. Item 4. Controls and Procedures Within 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the 16
participation of the Company's management, including the Company's Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation. 17
PART II. OTHER INFORMATION 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 October 31, 2002. 18
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 December 13, 2002 STUART A. ROSE Stuart A. Rose Chairman of the Board (Chief Executive Officer) December 13, 2002 DOUGLAS L. BRUGGEMAN Douglas L. Bruggeman Vice President, Finance and Treasurer (Principal Financial and Chief Accounting Officer) 19
CERTIFICATIONS I, Stuart A. Rose, certify that: 1. I have reviewed this quarterly report on Form 10-Q of REX Stores Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 13, 2002 STUART A. ROSE Stuart A. Rose Chairman of the Board and Chief Executive Officer 20
I, Douglas L. Bruggeman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of REX Stores Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 13, 2002 DOUGLAS L. BRUGGEMAN Douglas L. Bruggeman Vice President, Finance and Treasurer Principal Financial Officer 21