SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 2005
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 001-09097
-----------------------
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 (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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes (X) No ( )
At the close of business on September 6, 2005 the registrant had 10,561,021
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 ................................................................ 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............................... 19
Item 4. Controls and Procedures .................................................................. 19
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .............................. 20
Item 6. Exhibits ................................................................................. 20
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REX STORES CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
July 31 January 31 July 31
2005 2005 2004
---- ---- ----
(In Thousands)
Unaudited Unaudited
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,744 $ 4,671 $ 1,202
Accounts receivable, net 3,458 5,460 3,929
Synthetic fuel receivable 786 1,675 2,288
Merchandise inventory 133,759 124,188 156,167
Prepaid expenses and other 2,807 1,230 1,670
Future income tax benefits 10,929 10,929 8,703
--------- -------- --------
Total current assets 153,483 148,153 173,959
PROPERTY AND EQUIPMENT, NET 128,700 129,723 132,953
ASSETS HELD FOR SALE 1,669 1,986 -
OTHER ASSETS 915 841 639
FUTURE INCOME TAX BENEFITS 27,978 27,978 16,082
RESTRICTED INVESTMENTS 2,290 2,270 2,262
--------- -------- --------
Total assets $ 315,035 $ 310,951 $325,895
========= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 4,031 $ - $ 11,560
Current portion of long-term debt 2,919 2,897 2,899
Current portion of deferred income
and deferred gain on sale and leaseback 9,920 10,432 10,348
Accounts payable, trade 35,599 32,842 57,522
Accrued income taxes - 1,567 575
Accrued payroll and related items 5,093 6,303 4,406
Other current liabilities 6,623 6,152 7,576
--------- -------- --------
Total current liabilities 64,185 60,193 94,886
--------- -------- --------
LONG-TERM LIABILITIES:
Long-term mortgage debt 28,490 30,501 32,406
Deferred income 11,387 11,703 11,809
--------- -------- --------
Total long-term liabilities 39,877 42,204 44,215
--------- -------- --------
SHAREHOLDERS' EQUITY:
Common stock 293 290 286
Paid-in capital 135,496 133,474 127,734
Retained earnings 227,450 212,629 192,449
Treasury stock (152,266) (137,839) (133,675)
--------- -------- --------
Total shareholders' equity 210,973 208,554 186,794
--------- -------- --------
Total liabilities and shareholders' equity $315,035 $ 310,951 $325,895
======== ========= ========
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
3
REX STORES CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements Of Income
Unaudited
Three Months Ended Six Months Ended
July 31 July 31
------- -------
2005 2004 2005 2004
---- ---- ---- ----
(In Thousands, Except Per Share Amounts)
NET SALES $84,693 $85,814 $174,272 $170,241
COSTS AND EXPENSES:
Cost of merchandise sold 59,698 61,483 124,754 121,179
------- ------- -------- --------
Gross profit 24,995 24,331 49,518 49,062
Selling, general and administrative expenses 24,248 23,530 47,055 46,976
------- ------- -------- --------
Operating income 747 801 2,463 2,086
INVESTMENT INCOME 58 58 132 145
INTEREST EXPENSE (714) (784) (1,330) (1,718)
LOSS ON EARLY TERMINATION OF DEBT - (592) - (614)
INCOME FROM SYNTHETIC FUEL INVESTMENTS 10,398 3,343 16,380 8,579
------- ------- -------- --------
Income from continuing operations before provision
(benefit) for income taxes and discontinued operations 10,489 2,826 17,645 8,478
PROVISION (BENEFIT) FOR INCOME TAXES 1,621 (762) 2,689 672
------- ------- -------- --------
Income from continuing operations 8,868 3,588 14,956 7,806
Loss from discontinued operations, net of tax (147) (304) (260) (437)
Gain on disposal of discontinued operations, net of tax - - 125 -
------- ------- -------- --------
Net Income $ 8,721 $ 3,284 $ 14,821 $ 7,369
======= ======= ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 10,871 11,225 11,011 11,190
======= ======= ======== ========
Basic income per share from continuing operations $ 0.81 $ 0.32 $ 1.36 $ 0.70
Basic loss per share from discontinued operations (0.01) (0.03) (0.02) (0.04)
Basic income per share on disposal of discontinued operations - - 0.01 -
------- ------- -------- --------
BASIC NET INCOME PER SHARE $ 0.80 $ 0.29 $ 1.35 $ 0.66
======= ======= ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 12,437 12,854 12,602 12,925
======= ======= ======= ======
Diluted income per share from continuing operations $0.71 $0.28 $1.19 $0.60
Diluted loss per share from discontinued operations (0.01) (0.02) (0.02) (0.03)
Diluted income per share on disposal of discontinued operations - - 0.01 -
------- ------- -------- --------
DILUTED NET INCOME PER SHARE $0.70 $0.26 $1.18 $0.57
======= ======= ======= ======
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
4
REX STORES CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements Of Shareholders' Equity
Unaudited
Common Shares
Issued Treasury Total
------ -------- Paid-in Retained Shareholders'
Shares Amount Shares Amount Capital Earnings Equity
------ ------ ------ ------ ------- -------- ------
(In Thousands)
Balance at January 31, 2005 29,038 $290 17,865 ($137,839) $133,474 $212,629 $208,554
Net income 14,821 14,821
Treasury stock acquired 1,199 (17,533) (17,533)
Stock options exercised
and related tax effects 274 3 (400) 3,106 2,022 5,131
------ ---- ------ --------- -------- -------- --------
Balance at July 31, 2005 29,312 $293 18,664 ($152,266) $135,496 $227,450 $210,973
====== ==== ====== ========== ======== ======== ========
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
5
REX STORES CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements Of Cash Flows
Unaudited
Six Months Ended
July 31
2005 2004
---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,821 $ 7,369
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization, net 2,174 1,989
Income from limited partnerships (16,380) (8,579)
Loss on disposal of fixed assets 185 291
Loss on early termination of debt - 273
Deferred income (828) (891)
Deferred income tax - (1,437)
Changes in assets and liabilities:
Accounts receivable 2,002 877
Merchandise inventory (9,571) (39,412)
Prepaid expenses and other (1,577) (463)
Other long term assets (74) 2,838
Accounts payable, trade 2,757 24,777
Other current liabilities (2,306) (2,065)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (8,797) (14,433)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,158) (4,082)
Proceeds from sale of partnership interest 17,269 9,389
Proceeds from sale of real estate and fixed assets 1,139 -
Sale of investments - 7,000
Restricted investments (20) (5)
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 16,230 12,302
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 4,031 11,560
Payments of long-term debt (1,989) (23,501)
Stock options exercised 706 555
Treasury stock issued 3,106 956
Treasury stock acquired (16,214) (6,017)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (10,360) (16,447)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,927) (18,578)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,671 19,780
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,744 $ 1,202
======== ========
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
6
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 31, 2005
Note 1. Consolidated Condensed Financial Statements
The consolidated condensed 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 condensed 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, 2005 (fiscal
2004). The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the year.
Note 2. Reclassifications
Investments in auction rate securities have been reclassified from cash
and cash equivalents to investments available for sale on the Consolidated
Condensed Balance Sheet. The reclassification was effected because the
securities had stated maturities beyond three months. The amount of auction rate
securities was $7 million at April 30, 2004. There were no auction rate
securities at July 31, 2005 or 2004. The Company reclassified $2.2 million of in
transit credit card and finance contract settlements from cash to accounts
receivable as of July 31, 2004.
Note 3. Accounting Policies
The interim consolidated condensed 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 2004 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.
The provision for income taxes could vary based upon full year synthetic fuel
production levels, federal income tax law changes, the price of certain fuel
products adjusted for inflation and Internal Revenue Service audits.
7
The following table reflects the approximate percent of net sales for
each major product group for the periods presented.
Three Months Ended Six Months Ended
July 31 July 31
------- -------
Product Category 2005 2004 2005 2004
- ---------------- ---- ---- ---- ----
Televisions............................................... 49.1% 48.2% 52.2% 49.5%
Appliances................................................ 29.6 25.4 24.8 22.6
Audio..................................................... 8.8 11.3 10.1 12.8
Video..................................................... 5.0 6.5 5.1 6.7
Other..................................................... 7.5 8.6 7.8 8.4
------- ------ ------ ------
100.0% 100.0% 100.0% 100.0%
======= ====== ====== ======
The Company accounts for vendor allowances in accordance with Emerging
Issues Task Force (EITF) 02-16 "Accounting by a Customer for Certain
Consideration Received from a Vendor," which addresses how and when to reflect
consideration received from vendors in the consolidated financial statements.
Vendors often fund, up front, certain advertising costs and exposure to general
changes in pricing to customers due to technological change. Allowances are
deferred as received from vendors and recognized into income as an offset to the
cost of merchandise sold when the related product is sold or expense incurred.
Advertising costs are expensed as incurred.
Cost of merchandise sold includes the cost of merchandise, markdowns
and inventory shortage, receiving, warehousing and freight charges to deliver
merchandise to retail stores, service repair bills as well as cash discounts and
rebates. The Company classifies purchasing costs as selling, general and
administrative expenses. As a result of this classification, the Company's gross
margins may not be comparable to those of other retailers that include costs
related to their distribution network in selling, general and administrative
expense.
The Company includes stores expenses (such as payroll and occupancy
costs), advertising, purchasing, depreciation, insurance and overhead costs in
selling, general and administrative expenses.
Interest expense of $1,330,000 for the six months ended July 31, 2005
is net of approximately $15,000 of interest capitalized. Interest expense of
$1,718,000 for the six months ended July 31, 2004 is net of approximately
$11,000 of interest capitalized. Cash paid for interest for the six months ended
July 31, 2005 and 2004 was approximately $1,214,000 and $1,649,000,
respectively.
During the first six months of fiscal 2004, the Company completed the
early payoff of mortgages for 42 retail locations totaling approximately $21.6
million. The scheduled payment on these notes included approximately $1.2
million for the last six months of fiscal 2004, $6.2 million for fiscal 2005,
$6.9 million for fiscal 2006, $1.6 million for fiscal 2007, $1.4 million for
fiscal 2008 and $4.3 million thereafter. The Company incurred a charge of
approximately $614,000, including cash payments of approximately $341,000 for
the first six months of fiscal 2004 related to this termination of debt.
8
During the first half of fiscal 2005 the Company received 90,096 shares
of common stock into treasury with a market value of approximately $1.3 million
as payment for the exercise of options for 297,775 shares of common stock.
The Company applies an effective tax rate to interim periods that is
consistent with the Company's estimated annual tax rate. The tax credits
generated from synthetic fuel operations reduce the Company's overall effective
tax rate. Estimates of the effective tax rate may change based upon synthetic
fuel production and the Company's projected income. The Company provides for
deferred tax liabilities and assets for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis and operating loss and tax
credit carryforwards. The Company provides for a valuation allowance if, based
on the weight of available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized.
The Company paid income taxes of approximately $4,025,000 and
$2,139,000 for the six months ended July 31, 2005 and 2004, respectively.
In December 2004, The Financial Accounting Standards Board ("FASB")
issued a revision to Statement of Financial Accounting Standards 123,
"Share-Based Payment ("SFAS 123(R)"). The revision requires all entities to
recognize compensation expense in an amount equal to the fair value of
share-based payments granted to employees. SFAS 123(R) eliminates the
alternative method of accounting for employee share-based payments previously
available under Accounting Principles Board Opinion No. 25 ("APB 25"). In April
2005, the Securities and Exchange Commission delayed the effective date of SFAS
123(R) to fiscal years beginning after June 15, 2005. As a result, SFAS 123(R)
will be effective for the Company beginning in the first quarter of fiscal 2006.
The Company has not completed its evaluation of the impact that adopting SFAS
123(R) will have on the financial statements.
In May 2005, the FASB issued SFAS 154, "Accounting Changes and Error
Corrections - A Replacement of Accounting Principles Board (APB) Opinion No. 20
and SFAS 3." SFAS 154 requires retrospective application to prior periods'
financial statements for a change in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. Additionally, retrospective application is not required
when explicit transition requirements specific to newly adopted accounting
principles exist. Retrospective application requires the cumulative effect of
the change on periods prior to those presented to be reflected in the carrying
amounts of assets and liabilities as of the beginning of the first period
presented and the offsetting adjustments to be recorded to opening retained
earnings. SFAS 154 retains the guidance contained in APB No. 20 for reporting
both the correction of an error in previously issued financial statements and a
change in accounting estimate. SFAS 154 will become effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005. The Company is required to adopt the provisions of SFAS 154, as
applicable, beginning in the first quarter of fiscal 2006.
9
Note 4. Stock Option Plans
The Company has stock-based compensation plans under which stock
options have been granted to directors, officers and key employees at the market
price on the date of the grant.
The following summarizes options granted, exercised and canceled or
expired during the six months ended July 31, 2005:
Outstanding at January 31, 2005 ($3.61 to $16.04 per share)............................. 5,751,308
Exercised ($3.61 to $14.745 per share).................................................. (673,853)
Canceled or expired ($8.01 to $14.745 per share)........................................ (41,450)
--------
Outstanding at July 31, 2005 ($3.61 to $16.04 per share)................................ 5,036,005
=========
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company has elected to account for its employee stock option plans under APB
Opinion No. 25, "Accounting for Stock Issued to Employees," which recognizes
expense based on the intrinsic value at date of grant. As stock options have
been issued with exercise prices equal to grant date fair value, no compensation
cost has resulted.
Had compensation cost for all options granted been determined based on
the fair value at grant date consistent with SFAS No. 123, the Company's net
earnings and earnings per share would have been as follows (in thousands, except
per share amounts):
Three Months Ended Six Months Ended
July 31 July 31
------- -------
2005 2004 2005 2004
---- ---- ---- ----
Net Income As Reported $8,721 $3,284 $14,821 $7,369
Compensation Cost, net of tax 1,502 787 2,340 1,540
Pro forma 7,219 2,497 12,481 5,829
Basic net income per share As Reported $ 0.80 $ 0.29 $ 1.35 $ 0.66
Compensation Cost, net of tax .14 .07 .22 .14
Pro forma 0.66 0.22 1.13 0.52
Diluted net income per share As Reported $ 0.70 $ 0.26 $ 1.18 $ 0.57
Compensation Cost, net of tax .12 .06 .19 .12
Pro forma 0.58 0.20 0.99 0.45
The compensation cost, net of tax for the three and six months ended
July 31, 2005 includes approximately $766,000 related to the accelerated vesting
of certain options granted to non-director employees.
10
The assumptions used to calculate the fair value of options granted are
evaluated and revised, as necessary, to reflect market conditions and
experience.
Note 5. Income Per Share from Continuing Operations
The following table reconciles the basic and diluted net income per
share from continuing operations computation for each period presented (in
thousands, except per share amounts):
Three Months Ended Six Months Ended
July 31, 2005 July 31, 2005
------------- -------------
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Basic income per share from
continuing operations $8,868 10,871 $0.81 $14,956 11,011 $1.36
===== =====
Effect of stock options 1,566 1,591
------ ------ ------- ------
Diluted income per share from
continuing operations $8,868 12,437 $0.71 $14,956 12,602 $1.19
====== ====== ===== ======= ====== =====
Three Months Ended Six Months Ended
July 31, 2004 July 31, 2004
------------- -------------
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Basic income per share from
continuing operations $3,588 11,225 $0.32 $7,806 11,190 $0.70
===== =====
Effect of stock options 1,629 1,735
------ ------ ------ ------
Diluted income per share from
continuing operations $3,588 12,854 $0.28 $7,806 12,925 $0.60
====== ====== ===== ====== ====== =====
For the three months ended July 31, 2005 and 2004, a total of 314,336
shares and 656,736 shares, respectively, and for the six months ended July 31,
2005 and 2004, a total of 314,336 and 334,736 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 that period.
Note 6. Synthetic Fuel
Income from continuing operations for the second quarter and first six
months of fiscal 2005 includes approximately $6.1 million and $12.1 million,
respectively, of pre-tax investment income from the sales of the Company's
entire Partnership interest in Colona SynFuel Limited Partnership, L.L.L.P., a
synthetic fuel limited partnership. Of the $12.1 million for the first six
months of fiscal 2005, approximately $448,000 relates to a payment received for
2004 production. The 2004
11
production payments made to the Company were based upon estimated income tax
credits per ton of coal produced. The $448,000 payment was made to the Company
after the Internal Revenue Service published the 2004 income tax credit per ton
amount in April 2005.
On March 30, 2004 the Company also sold its entire ownership interest
in a limited liability company that owned a synthetic fuel facility in Gillette,
Wyoming. The Company received $2.8 million at closing along with a secured
contingent payment note that could provide additional investment income to the
Company. The facility resumed commercial operations during the second quarter of
fiscal 2005; as such, we received $3.5 million as a one-time payment per the
terms of the purchase agreement. In addition, we are eligible to receive $1.50
per ton of "qualified production" produced and sold by the facility through
2007. During the second quarter of fiscal 2005, we recognized approximately $0.8
million of additional income from the qualified production.
The Company remains a limited partner in Somerset SynFuel, L.P. This
partnership is operational and producing synthetic fuel. The Company is
receiving Section 29 federal income tax credits in connection with production
and sales of synthetic fuel from the Somerset facility.
As provided by the current Internal Revenue Code, the Code Section 29
tax credit program is expected to continue through December 31, 2007. Recent
increases in the price of oil could limit the amount of those credits or
eliminate them altogether for 2005 and one or more of the years following fiscal
2005. This possibility is due to a provision of Section 29 that provides that if
the average wellhead price per barrel for unregulated domestic crude oil for the
year (the "Annual Average Price") exceeds a certain threshold value (the
"Threshold Price"), the Section 29 tax credits are subject to phase out. For
calendar year 2004, the Threshold Price was $51.34 per barrel and the Phase Out
Price was $64.47 per barrel. The Threshold Price and the Phase Out Price are
adjusted annually as a result of inflation and are published by the Internal
Revenue Service in April of the following year.
The Company cannot predict with any certainty the Annual Average Price
for 2005 or beyond. Therefore, it cannot predict whether the price of oil will
have a material effect on its synthetic fuel business after 2004. However, if
during 2005, or in subsequent years, oil prices remain at historically high
levels or increase, the Company's synthetic fuel business may be adversely
affected for those years, and, depending on the magnitude of such increases in
oil prices, the adverse affect for those years could be material and could have
an impact on the Company's synthetic fuel results of operations and related
income tax benefits.
Note 7. Discontinued Operations and Assets Held for Sale
During the first six months of fiscal 2005 the Company closed five
stores in which the Company vacated the market. Those stores and certain other
stores closed in previous periods were classified as discontinued operations for
all periods presented. Two of the closed stores are classified as held for sale.
The net assets of those stores at July 31, 2005 were approximately $1,669,000.
The Company expects to sell the assets related to these stores within the next
12 months through normal real estate channels. No loss has been recognized as
the estimated net realizable values exceed the carrying values of these assets.
12
Below is a table reflecting certain items of the income statement that
were reclassified as discontinued operations for the period indicated.
Three Months Ended Six Months Ended
July 31 July 31
------- -------
2005 2004 2005 2004
---- ---- ---- ----
(In Thousands)
Net sales...................................................... $121 $3,412 $1,602 $7,185
Cost of merchandise sold ...................................... 143 2,730 1,423 5,467
Loss before benefit for income taxes .......................... 225 467 400 673
Benefit for income taxes....................................... 78 163 140 236
Net loss....................................................... $147 $304 $260 $437
Note 8. Subsequent Event
On August 30, 2005, Hurricane Katrina caused damage to a minimum of
three of our stores. We are evaluating the related damage to other stores in
the area. We do not believe that the impact of business interruption or
required repairs to damaged stores will have a material impact on future
results of operations or require material capital expenditures. However, until
we are able to complete a thorough evaluation of storm damage to all of our
stores, we cannot estimate the impact of the storm damage on our financial
statements.
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 July 31, 2005 we operated 228 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 2005" means the period
February 1, 2005 to January 31, 2006.
13
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 Six Months
Ended Ended
July 31 July 31
------- -------
2005 2004 2005 2004
---- ---- ---- ----
Net sales...................................................... 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold....................................... 70.5 71.6 71.6 71.2
----- ----- ----- -----
Gross profit................................................ 29.5 28.4 28.4 28.8
Selling, general and administrative expenses................... 28.6 27.5 27.0 27.6
----- ----- ----- -----
Operating income............................................... 0.9 0.9 1.4 1.2
Investment income.............................................. 0.1 - 0.1 -
Interest expense............................................... (0.8) (0.9) (0.8) (1.0)
Loss on early termination of debt.............................. - (0.6) - (0.3)
Income from limited partnerships............................... 12.2 3.9 9.4 5.0
----- ----- ----- -----
Income from continuing operations before provision
(benefit) for income taxes and discontinued operations... 12.4 3.3 10.1 4.9
Provision (benefit) for income taxes.......................... 1.9 (0.9) 1.5 0.3
----- ----- ----- -----
Income from continuing operations.............................. 10.5 4.2 8.6 4.6
Loss from discontinued operations, net of tax.................. (0.2) (0.4) (0.1) (0.3)
Gain on disposal of discontinued operations, net of tax........ - - - -
----- ----- ----- -----
Net income..................................................... 10.3% 3.8% 8.5% 4.3%
===== ===== ===== =====
Comparison of Three Months and Six Months Ended July 31, 2005 and 2004
Net sales in the quarter ended July 31, 2005 were $84.7 million compared to
$85.8 million in the prior year's second quarter, representing a decrease of
$1.1 million or 1.3%. Net sales do not include sales from stores closed and
classified as discontinued operations.
This decrease was primarily caused by a decrease in comparable store
sales of 0.5% for the second quarter of fiscal 2005. We consider a store to be
comparable after it has been open six full fiscal quarters. Comparable store
sales do not include sales of extended service contracts. We had a net reduction
of eleven stores (ten of which were classified as discontinued operations) since
the end of the second quarter of fiscal 2004.
Our strongest product category for the second quarter of fiscal 2005
was the appliance category which positively impacted comparable store sales by
4.2%. This increase is primarily related to higher demand for air conditioners
based upon a warmer June and July in many of our markets. The video category
negatively impacted comparable store sales by 1.8%. The audio category
14
negatively impacted comparable store sales by 2.6%. Both the audio and video
categories have been impacted by lower price points of their respective products
and these products becoming more of a commodity item with very high levels of
competition.
Net sales for the first half of fiscal 2005 were $174.3 million
compared to $170.2 million for the first half of fiscal 2004. This represents an
increase of $4.0 million or 2.4%. Comparable store sales increased by
approximately 3.2% for the first half of fiscal 2005.
The television and appliance product categories positively impacted
comparable store sales for the first half of fiscal 2005 with the television
category impact being 4.1% and the appliance category impact being 3.3%. Strong
demand for plasma and LCD televisions contributed to the television category
increase while strong air conditioner sales accounted for the majority of the
increase in the appliance comparable store sales performance. The audio and
video categories negatively impacted comparable store sales for the first half
of fiscal 2005 by 2.4% and 1.8% respectively reflecting a continuing trend of
lower price points of the respective products and these products becoming more
of a commodity item with very high levels of competition.
The following table reflects the approximate percent of net sales for
each major product group for the periods presented.
Three Months Ended Six Months Ended
July 31 July 31
------- -------
Product Category 2005 2004 2005 2004
- ---------------- ---- ---- ---- ----
Televisions............................................... 49.1% 48.2% 52.2% 49.5%
Appliances................................................ 29.6 25.4 24.8 22.6
Audio..................................................... 8.8 11.3 10.1 12.8
Video..................................................... 5.0 6.5 5.1 6.7
Other..................................................... 7.5 8.6 7.8 8.4
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
As of July 31, 2005, we had 228 stores compared to 239 stores one year
earlier. We did not open any stores and closed six stores during the first half
of fiscal 2005. We did not open any stores and closed three stores during the
first half of fiscal 2004.
Gross profit of $25.0 million (29.5% of net sales) in the second
quarter of fiscal 2005 was approximately $0.7 million higher than the $24.3
million (28.4% of net sales) recorded in the second quarter of fiscal 2004.
Gross profit for the first half of fiscal 2005 was $49.5 million (28.4% of net
sales) compared to $49.1 million (28.8% of net sales) for the first half of
fiscal 2004. Gross profit margin for the second quarter of fiscal 2005 was
positively impacted by air conditioner sales which tend to have higher gross
profit margins than our other core products. Gross profit margin for the first
half of fiscal 2005 was negatively impacted by recognition of a lower amount of
extended service contract sales which generally have a higher gross profit
margin associated with it.
Selling, general and administrative expenses for the second quarter of
fiscal 2005 were $24.2 million (28.6% of net sales), an increase of $0.7 million
or 3.1% from $23.5 million (27.5% of net sales) for the second quarter of fiscal
2004. Selling, general and administrative expenses were $47.1
15
million (27.0% of net sales) for the first six months of fiscal 2005
representing an increase of $0.1 million or 0.2% from $47.0 million (27.6% of
net sales) for the first six months of fiscal 2004. The increase in expenditures
was primarily a result of higher payroll costs associated with higher
commissions paid to sales personnel as well as accruals for executive incentive
pay associated with higher corporate profitability. These increases were late
partially offset by a corresponding decrease in advertising expenditures.
Operating income in the second quarter of fiscal 2005 was $0.7 million
(0.9% of net sales), a decrease of $0.1 million (6.7%) from the $0.8 million
(0.9% of net sales) for the second quarter of fiscal 2004. Operating income in
the first half of fiscal 2005 was $2.5 million (1.4% of net sales), an increase
of $0.4 million (18.1%) over the $2.1 million (1.2% of net sales) for the first
six months of fiscal 2004.
Investment income for the second quarter of fiscal 2005 was $0.1
million (0.1 % of net sales), unchanged from the second quarter of fiscal 2004.
Investment income for the first half of fiscal 2005 was $0.1 million (0.1 % of
net sales), unchanged from the first six months of fiscal 2004.
Interest expense was $0.7 million (0.8% of net sales) for the second
quarter of fiscal 2005 compared to $0.8 million (0.9% of net sales) for the
second quarter of fiscal 2004. Interest expense was $1.3 million (0.8% of net
sales) for the first six months of fiscal 2005 compared to $1.7 million (1.0% of
net sales) for the first six months of fiscal 2004. Interest expense for the
current year has been lowered due to lower average borrowings on the line of
credit and the pay-off of approximately $25.4 million in mortgage debt in the
prior year.
During the first six months of fiscal 2004 the Company completed the
early payoff of mortgages for 42 retail locations totaling approximately $21.6
million. The Company incurred a charge of approximately $0.6 million including
cash payments of approximately $0.3 million, for the first six months of fiscal
2004 related to this termination of debt. There were no early terminations of
debt in fiscal 2005.
Results for the second quarter of fiscals 2005 and 2004 also reflect
the impact of our equity investment in two limited partnerships, Colona SynFuel
Limited Partnership, L.L.L.P., and Somerset SynFuel, L.P., which produce
synthetic fuels. We remain a limited partner in the Somerset limited partnership
but have sold our ownership interest in the Colona limited partnership through a
series of three sales. We expect to receive payments from the sales 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.
16
Below is a table summarizing the income from the sales, net of certain
expenses. The higher income for the current year generally reflects higher
production levels compared to the previous year.
Three Months Ended Six Months Ended
July 31 July 31
------- -------
2005 2004 2005 2004
---- ---- ---- ----
(In Thousands)
February 1, 1999 sale....................................... $2,148 $1,331 $4,522 $3,178
July 31, 2000 sale.......................................... 2,106 1,078 4,020 2,637
May 31, 2001 sale........................................... 1,872 944 3,574 2,296
------ ------ ------- ------
$6,126 $3,353 $12,116 $8,111
====== ====== ======= ======
Income from synthetic fuel investments for the second quarter of fiscal
2005 also includes income related to our sale of our membership interest in the
limited liability company that owned a synthetic fuel facility in Gillette,
Wyoming. We received $2.8 million at the time of sale on March 30, 2004 along
with a secured contingent payment note that could provide additional investment
income to the Company. The facility resumed commercial operations during the
second quarter of fiscal 2005; as such, we received $3.5 million as a one-time
payment per the terms of the purchase agreement. In addition, we are eligible to
receive $1.50 per ton of "qualified production" produced by the facility and
sold through 2007. During the second quarter of fiscal 2005, we recognized
approximately $0.8 million of additional income from the qualified production.
Our effective tax rate was 15.5% and (27.0%) for the second quarter of
fiscals 2005 and 2004, respectively, after reflecting our share of federal
income tax credits earned by the limited partnerships under Section 29 of the
Internal Revenue Code. Our effective tax rate for fiscal 2005 will depend on the
level of federal income tax credits generated by the limited partnerships, which
we do not control, and any limitations on those credits under the Internal
Revenue Code. Our effective tax rate was 15.2% and 7.9% for the first six months
of fiscals 2005 and 2004, respectively. Our effective tax was reduced for the
quarter and six months ended July 31, 2004 as a result of a $1.4 million
reduction in our valuation allowance for the alternative minimum tax credit
carryforwards resulting from the conclusion in June 2004 of the Internal Revenue
Service audit of the Somerset partnership for certain years. The audit resulted
in no change to the tax credits for the period audited.
During the quarter and six months ended July 31, 2005 we closed one and
five stores, respectively, that were classified as discontinued operations. As a
result of these closings and certain other store closings from prior periods, we
had a loss from discontinued operations, net of tax benefit, of $0.1 million for
the second quarter of fiscal 2005, compared to a loss of $0.3 million for the
second quarter of fiscal 2004. We had a loss from discontinued operations, net
of tax benefit, of $0.3 million for the first half of fiscal 2005 compared to
$0.4 million for the first half of fiscal 2004.
We sold one property during the first half of fiscal 2005 that had been
previously closed. As a result, we had a gain, net of tax expense, of $0.1
million.
17
As a result of the foregoing, net income for the second quarter of
fiscal 2005 was $8.7 million, a 165.6% increase from $3.3 million for the second
quarter of fiscal 2004. Net income for the first half of fiscal 2005 was $14.8
million, a 101.1% increase from $7.4 million for the first six months of fiscal
2004.
Liquidity and Capital Resources
Net cash used in operating activities was approximately $8.8 million
for the first six months of fiscal 2005, compared to $14.4 million used in
operating activities for the first six months of fiscal 2004. For the first half
of fiscal 2005, cash was provided by net income of $14.8 million, adjusted for
the impact of $16.4 million for gains on our installment sales of the limited
partnership interests, non-cash items of $2.0 million, which consisted of
depreciation and amortization, accounts receivable, deferred income, prepaid
expenses and loss on disposal of fixed assets. In addition, accounts payable
provided cash of $2.8 million, primarily a result of changes in inventory
levels. The primary use of cash was an increase in inventory of $9.6 million
primarily due to seasonal fluctuations. The other use of cash was a decrease in
other current liabilities of $2.3 million.
At July 31, 2005, working capital was $89.3 million compared to $88.0
million at January 31, 2005. This increase is primarily a result of greater cash
proceeds from our synthetic fuel investments. The ratio of current assets to
current liabilities was 2.4 to 1 at July 31, 2005 and 2.5 to 1 at January 31,
2005. We received our $9.0 million escrow deposit, in the second quarter of
fiscal 2005, related to our post due diligence termination of the escrow as to
our proposed investment in an ethanol production facility.
During the first half of fiscal 2005, we received proceeds of $17.3
million from installment sales of our ownership interests in synthetic fuel
entities. We had capital expenditures of approximately $2.2 million during the
first six months of fiscal 2005, primarily related to the relocation of a store,
the purchase of a store previously leased and improvements to a distribution
center. We received proceeds of approximately $1.1 million from the sale of a
store previously closed and reported as discontinued operations.
Cash used in financing activities totaled approximately $10.4 million
for the first six months of fiscal 2005. Cash was provided by stock option
activity of $3.8 million. We also recorded a tax benefit of approximately $1.6
million during the first half of fiscal 2005 from the exercise of non-qualified
stock options as an increase in additional paid-in capital. Cash of $4.0 million
was provided by an increase in the line of credit. Cash of $2.0 million was used
for scheduled payments of mortgage debt. Cash of approximately $16.2 million was
also used to acquire approximately 1.0 million shares of our common stock. On
August 30, 2005, the Company's Board of Directors increased the Company's share
repurchase authorization by an additional 1 million shares. We currently have
approximately 1,256,000 authorized shares remaining available for purchase under
the stock buy-back program.
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",
18
"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.
These risks and uncertainties include among other things: the highly competitive
nature of the consumer electronics retailing industry, changes in the national
or regional economies, weather, the effects of terrorism or acts of war on
consumer spending patterns, the availability of certain products, technological
changes, new regulatory restrictions or tax law changes relating to the
Company's synthetic fuel investments, the fluctuating amount of quarterly
payments received by the Company with respect to sales of its partnership
interests in synthetic fuel investments, the uncertain amount of synthetic fuel
production and tax credits received from time to time from the Company's
synthetic fuel investments, and the potential for Section 29 tax credits to
phase out based on the price of crude oil adjusted for inflation. Other 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, 2005 (File No.
001-09097).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
No material changes since January 31, 2005.
Item 4. Controls and Procedures
The Company's management evaluated, with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, the effectiveness
of the Company's disclosure controls and procedures, as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief 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 changes in the Company's internal control over financial
reporting that occurred during the Company's last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
19
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Total Number of Shares Maximum Number
Purchased of Shares that May Yet
Total Number as Part of Publicly Be Purchased Under the
of Shares Average Price Announced Plans Plans
Period Purchased (1) Paid per Share or Programs (2)(3) or Programs (2)(3)
- ------ ------------- -------------- ------------------- ------------------
May 1-31, 2005 146,300 $13.63 146,300 1,186,945
June 1-30, 2005 781,677 $14.81 707,300 479,645
July 1-31, 2005 151,719 $15.10 136,000 343,645
------- ------ ------- -------
Total 1,079,696 $ 14.69 989,600 343,645
========= ===== ======= =======
- ------------------------
(1) A total of 30,759, 43,618 and 15,719 shares of common stock were
purchased by the Company other than through a publicly announced
plan or program. These shares were acquired on June 6, June 28,
and July 14, 2005, respectively in payment of the exercise price
of stock options exercised by Stuart A. Rose, Chairman, President
and Chief Executive Officer of the Company all pursuant to the
Company's Stock-for-Stock and Cashless Option Exercise Rules and
Procedures, adopted on June 4, 2001. The purchase price was
$14.75, $14.44 and $14.98 per share, respectively.
(2) On May 26, 2005, the Company's Board of Directors authorized the
purchase of up to 1,000,000 shares of its common stock from time
to time in private or market transactions at prevailing market
prices. At July 31, 2005, a total of 343,645 shares remained
available to purchase under this plan.
(3) On August 30, 2005, the Company's Board of Directors increased
the Company's share repurchase authorization by an additional
1,000,000 shares.
Item 6. Exhibits.
The following exhibits are filed with this report:
4(a) First Amendment to Amended and Restated Loan Agreement and
Consent Under Amended and Restated Parent Guaranty dated as of
August 5, 2005 among the Borrowers, REX Stores Corporation, the
Lenders named therein, Fleet Retail Group, LLC as agent for the
Lenders and KeyBank National Association as syndication agent
31 Rule 13a-14(a)/15d-14(a) Certifications
20
32 Section 1350 Certifications
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
Signature Title Date
--------- ----- ----
STUART A. ROSE Chairman of the Board September 7, 2005
-------------- (Chief Executive Officer)
(Stuart A. Rose)
DOUGLAS L. BRUGGEMAN Vice President, Finance and Treasurer September 7, 2005
-------------------- (Chief Financial Officer)
(Douglas L. Bruggeman)
21
Exhibit 4(a)
FIRST AMENDMENT TO
AMENDED AND RESTATED LOAN AGREEMENT AND CONSENT UNDER
AMENDED AND RESTATED PARENT GUARANTY
This First Amendment to Amended and Restated Loan Agreement and Consent
Under Amended and Restated Parent Guaranty (the "First Amendment and Consent")
is made as of the 5th day of August, 2005 by and among
REX RADIO AND TELEVISION, INC., an Ohio corporation ("Rex Radio"), as
lead borrower (in such capacity, "Lead Borrower"), for itself and the
other Borrowers being
KELLY & COHEN APPLIANCES, INC., an Ohio corporation ("Kelly"),
REX ALABAMA, INC., an Ohio corporation ("Rex Alabama"),
REX KANSAS, INC., a Kansas corporation ("Rex Kansas"),
REXSTORES.COM, INC., an Ohio corporation ("Rex Internet"), and
STEREO TOWN, INC., a Georgia corporation ("Stereo Town"); and
REX STORES CORPORATION, a Delaware corporation (the "Parent"); and
the LENDERS party hereto; and
FLEET RETAIL GROUP, LLC (f/k/a Fleet Retail Group, Inc.), as agent for
the Lenders, a Delaware corporation, having a place of business at 40
Broad Street, Boston, Massachusetts 02109; and
KEYBANK NATIONAL ASSOCIATION, as Syndication Agent;
in consideration of the mutual covenants herein contained and benefits to be
derived herefrom.
WITNESSETH
WHEREAS, the Lead Borrower, the other Borrowers, the Agent, the
Lenders, and the Syndication Agent have entered into an Amended and Restated
Loan Agreement dated as of September 14, 2004 (as amended and in effect, the
"Loan Agreement"); and
WHEREAS, the Parent has executed and delivered to the Agent and the
Lenders an Amended and Restated Parent Guaranty dated as of September 14, 2004
(the "Parent Guaranty"),
1
pursuant to which the Parent guaranteed the payment and performance of all
Obligations (as therein defined); and
WHEREAS, the Borrowers, the Agent, the Parent, the Lenders, and the
Syndication Agent have agreed to amend certain provisions of the Loan Agreement
and to consent to certain transactions which are otherwise prohibited under the
Parent Guaranty, all as set forth herein.
NOW THEREFORE, it is hereby agreed as follows:
1. Amendments to Loan Agreement.
a. Definitions: All capitalized terms used herein and not otherwise
defined shall have the same meaning herein as in the Loan
Agreement.
b. Amendments to Article 9. The provisions of Article 9 of the Loan
Agreement are hereby amended as follows:
(A) The provisions of Section 9.05 of the Loan Agreement are
hereby amended by deleting the word "and" at the end of
Section 9.05(d), by deleting the period at the end of
Section 9.05(e) and substituting "; and" in its stead, and
adding the following new clause (f) to Section 9.05:
(f) Loans or dividends to the Parent for the purpose of the
Parent's purchasing investments in readily marketable,
direct obligations of the Government of the United
States of America or direct obligations of any federal
agency which obligations represent the full faith and
credit of the United States of America or senior debt
obligations of the Federal Home Loan Bank System, for a
purchase price (excluding accrued interest on such
obligations not then due and payable by the obligor) not
to exceed $100,000,000, which are callable at par on or
before May 31, 2007; provided that the aggregate
principal amount of all such investments held by the
Parent at any one time shall not exceed $100,000,000,
and further provided that such loans and dividends shall
not exceed 10% of the aggregate purchase price of each
such investment.
(B) The provisions of Section 9.06 of the Loan Agreement are
hereby amended by deleting the word "and" at the end of
Section 9.06(h), by deleting the period at the end of
Section 9.06(i) and substituting "; and" in its stead, and
adding the following new clause (j) to Section 9.06:
2
(j) loans by the Borrowers to the Parent permitted by
Section 9.05(f).
2. Consent Under Parent Guaranty. Notwithstanding limitations contained in
Paragraph 14(g) of the Parent Guaranty, the Agent and the Required
Lenders hereby consent to the following transactions:
a. The incurrence by the Parent of purchase money Indebtedness in
connection with the acquisition of investments pursuant to clause
(d) hereof in an amount not to exceed 100% of the purchase price
of such investment, and any extensions, renewals or refinancings
thereof.
b. The granting of Liens by the Parent to secure Indebtedness
permitted pursuant to clause (a) hereof, so long as (i) any such
Lien does not extend to or cover any asset of any Loan Party
other than the investment made with the proceeds of such
Indebtedness, and (ii) such Lien secures the obligation to pay
the purchase price of such investment only.
c. The sale or other disposition of investments permitted under
clause (d) hereof for cash and for fair market value and the
repayment of Indebtedness described in clause (a) hereof with the
net proceeds of any such sale or disposition.
d. The making of investments by the Parent in readily marketable,
direct obligations of the Government of the United States of
America or direct obligations of any federal agency which
obligations represent the full faith and credit of the United
States of America or senior debt obligations of the Federal Home
Loan Bank System, for a purchase price not to exceed $100,000,000
(excluding accrued interest on such obligations not then due and
payable by the obligor), which are callable at par on or before
May 31, 2007; provided that the aggregate principal amount of all
investments permitted pursuant to this clause (d) held by the
Parent at any one time shall not exceed $100,000,000.
3. Conditions to Effectiveness. This First Amendment shall not be
effective until each of the following conditions precedent have been
fulfilled to the satisfaction of the Agent:
a. This First Amendment shall have been duly executed and delivered
by the Borrowers, the Parent, the Agent and the Required Lenders.
The Agent shall have received a fully executed copy hereof and of
each other document required hereunder.
3
b. All action on the part of the Borrowers and the Parent necessary
for the valid execution, delivery and performance by the
Borrowers and the Parent of this First Amendment shall have been
duly and effectively taken.
c. The Borrowers shall have reimbursed the Agent for all fees and
expenses due and payable in connection herewith, including,
without limitation, its reasonable attorneys' fees.
d. No Default or Event of Default shall have occurred and be
continuing.
e. The Borrowers and the Parent shall have provided such additional
instruments, documents, and opinions of counsel to the Agent as
the Agent and its counsel may have reasonably requested.
4. Miscellaneous.
a. Except as provided herein, all terms and conditions of the Loan
Agreement and the other Loan Documents remain in full force and
effect. The Borrowers and the Parent each hereby ratifies,
confirms, and reaffirms all of the representations, warranties
and covenants therein contained. Without limiting the generality
of the foregoing, the Borrowers and the Parent each hereby
acknowledges, confirms and agrees that all Collateral shall
continue to secure the Obligations as modified and amended
pursuant to this First Amendment, and any future modifications,
amendments, substitutions or renewals thereof.
b. This First Amendment may be executed in several counterparts and
by each party on a separate counterpart, each of which when so
executed and delivered, shall be an original, and all of which
together shall constitute one instrument. Delivery of an executed
counterpart of a signature page hereto by telecopy shall be
effective as delivery of a manually executed counterpart hereof.
c. This First Amendment expresses the entire understanding of the
parties with respect to the matters set forth herein and
supersedes all prior discussions or negotiations hereon. Any
determination that any provision of this First Amendment or any
application hereof is invalid, illegal or unenforceable in any
respect and in any instance shall not effect the validity,
legality, or enforceability of such provision in any other
instance, or the validity, legality or enforceability of any
other provisions of this First Amendment.
[SIGNATURE PAGES TO FOLLOW]
4
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed and their seals to be hereto affixed as the date first above
written.
REX RADIO AND TELEVISION, INC., as Lead Borrower
By: /S/ Douglas Bruggeman
-------------------------
Name: Douglas Bruggeman
Title: Vice President - Finance
KELLY & COHEN APPLIANCES, INC., as a Borrower
By: /S/ Douglas Bruggeman
-------------------------
Name: Douglas Bruggeman
Title: Vice President - Finance
REX ALABAMA, INC., as a Borrower
By: /S/ Douglas Bruggeman
-------------------------
Name: Douglas Bruggeman
Title: Vice President - Finance
REX KANSAS, INC., as a Borrower
By: /S/ Douglas Bruggeman
-------------------------
Name: Douglas Bruggeman
Title: Vice President - Finance
REXSTORES.COM, INC., as a Borrower
By: /S/ Douglas Bruggeman
-------------------------
Name: Douglas Bruggeman
Title: Vice President - Finance
S/1
STEREO TOWN, INC., as a Borrower
By: /S/ Douglas Bruggeman
-------------------------
Name: Douglas Bruggeman
Title: Vice President - Finance
REX STORES CORPORATION., as Parent
By: /S/ Douglas Bruggeman
-------------------------
Name: Douglas Bruggeman
Title: Vice President - Finance
S/2
FLEET RETAIL GROUP, LLC, as Agent
By: /S/ Peter Foley
-------------------------
Name: Peter Foley
Title: Vice President
FLEET RETAIL GROUP, LLC, as a Lender
By: /S/ Peter Foley
-------------------------
Name: Peter Foley
Title: Vice President
S/3
JPMORGAN CHASE BANK, N.A. (as successor in
interest to BANK ONE, DAYTON, N.A.), as a Lender
By: /S/ Stephen Christ
-------------------------
Name: Stephen Christ
-----------------------
Title: Account Executive
---------------------
S/4
KEYBANK NATIONAL ASSOCIATION, as a Lender
By: /S/ John P. Dunn
-------------------------
Name: John P. Dunn
----------------------
Title: Vice President
----------------------
KEYBANK NATIONAL ASSOCIATION, as Syndication Agent
By: /S/ John P. Dunn
-------------------------
Name: John P. Dunn
----------------------
Title: Vice President
----------------------
S/5
NATIONAL CITY BANK, DAYTON, as a Lender
By:
--------------------------------
Name:
-----------------------------
Title:
----------------------------
S/6
Exhibit 31
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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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 report is being
prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: September 7, 2005
STUART A. ROSE
Stuart A. Rose
Chairman of the Board, President and
Chief Executive Officer
CERTIFICATIONS
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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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 report is being
prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: September 7, 2005
DOUGLAS L. BRUGGEMAN
Douglas L. Bruggeman
Vice President, Finance, Treasurer and
Chief Financial Officer
Exhibit 32
REX Stores Corporation
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officers of REX Stores Corporation (the "Company")
hereby certify, to their knowledge, that the Company's Quarterly Report on Form
10-Q for the period ended July 31, 2005, which this certificate accompanies,
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained therein fairly presents,
in all material respects, the financial condition and results of operations of
the Company.
A signed original of this written statement required by Section 906, or
other document authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this
written statement required by Section 906, has been provided to the Company and
will be retained by the Company and furnished to the Securities and Exchange
Commission or its staff upon request.
STUART A. ROSE
Stuart A. Rose
DOUGLAS L. BRUGGEMAN
Douglas L. Bruggeman
Dated: September 7, 2005
