SEC Filing - REX American Resources Corporation

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 July 31, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number 0-13283 REX Stores Corporation (Exact name of registrant as specified in its charter) Delaware 31-1095548 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2875 Needmore Road, Dayton, Ohio 45414 (Address of principal executive offices) (Zip Code) (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 at least the past 90 days. Yes (X) No ( ) At the close of business on September 13, 2000, the registrant had 5,937,372 shares of Common Stock, par value $.01 per share, outstanding.

REX STORES CORPORATION AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Condensed Balance Sheets................. 3 Consolidated Statements of Income..................... 4 Consolidated Statements of Shareholders' Equity.............................................. 5 Consolidated Statements of Cash Flows................. 6 Notes to Consolidated Financial Statements............ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... 9 Item 3. Quantitative and Qualitative Disclosure About Market Risk.......................................... 13 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders..................................... 14 Item 6. Exhibits and Reports on Form 8-K....................... 14 2

PART I. FINANCIAL INFORMATION Item 1. Financial Statements REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS A S S E T S July 31 January 31 July 31 2000 2000 1999 (In Thousands) ASSETS: Cash and cash equivalents $ 4,608 $ 25,609 $ 9,734 Accounts receivable, net 924 2,569 1,414 Merchandise inventory 181,167 139,267 149,362 Prepaid expenses and other 4,823 2,097 2,177 Equity investment in limited partnerships - - 781 Future income tax benefits 9,837 9,837 9,366 -------- -------- -------- Total current assets 201,359 179,379 172,834 PROPERTY AND EQUIPMENT, NET 124,558 113,802 101,716 FUTURE INCOME TAX BENEFITS 8,835 8,835 8,109 RESTRICTED INVESTMENTS 2,104 2,020 1,949 -------- -------- -------- Total assets $336,856 $304,036 $284,608 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 46,416 $ - $ - Current portion of long-term debt 3,576 3,303 3,203 Current portion, deferred income and deferred gain on sale and leaseback 11,099 11,219 11,349 Accounts payable, trade 59,664 46,252 56,908 Accrued income taxes - 1,572 663 Accrued payroll 5,255 6,947 6,515 Other current liabilities 9,270 9,330 11,342 -------- -------- -------- Total current liabilities 135,280 78,623 89,980 -------- -------- -------- LONG-TERM LIABILITIES: Long-term debt 48,322 46,200 58,708 Deferred income 16,056 16,423 16,038 Deferred gain on sale and leaseback 2,541 2,953 3,365 -------- -------- -------- Total long-term liabilities 66,919 65,576 78,111 -------- -------- -------- SHAREHOLDERS' EQUITY: Common stock 115 115 99 Paid-in capital 105,857 105,303 57,226 Retained earnings 100,889 93,663 81,555 Treasury stock (72,204) (39,244) (22,363) -------- -------- -------- Total shareholders' equity 134,657 159,837 116,517 -------- -------- -------- Total liabilities and shareholders' equity $336,856 $304,036 $284,608 ======== ======== ======== The accompanying notes are an integral part of these unaudited consolidated statements. 3

REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Six Months Ended July 31 July 31 2000 1999 2000 1999 (In Thousands, Except Per Share Amounts) NET SALES $101,609 $107,739 $208,792 $206,795 COSTS AND EXPENSES: Cost of merchandise sold 72,822 76,870 151,271 149,483 Selling, general and administrative expenses 24,823 24,509 49,472 47,294 -------- -------- -------- -------- Total costs and expenses 97,645 101,379 200,743 196,777 -------- -------- -------- -------- INCOME FROM OPERATIONS 3,964 6,360 8,049 10,018 INVESTMENT INCOME 29 41 215 190 INTEREST EXPENSE (1,877) (1,453) (3,049) (2,756) INCOME FROM LIMITED PARTNERSHIPS 3,190 516 4,419 796 -------- -------- --------- -------- INCOME BEFORE INCOME TAXES 5,306 5,464 9,634 8,248 PROVISION FOR INCOME TAXES 1,326 1,366 2,408 2,063 -------- -------- -------- -------- NET INCOME $ 3,980 $ 4,098 $ 7,226 $ 6,185 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 6,544 7,576 6,819 7,480 ======== ======== ======== ======== BASIC NET INCOME PER SHARE $ 0.61 $ 0.54 $ 1.06 $ 0.83 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVA- LENT SHARES OUTSTANDING 7,278 8,493 7,515 8,122 ======== ======== ======== ======== DILUTED NET INCOME PER SHARE $ 0.55 $ 0.48 $ 0.96 $ 0.76 ======== ======== ======== ======== The accompanying notes are an integral part of these unaudited consolidated statements. 4

REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Shares ------------------------------------ Issued Treasury Paid-in Retained Shares Amount Shares Amount Capital Earnings (In Thousands) Balance at July 31, 1999 9,934 $ 99 2,284 $22,363 $ 57,226 $ 81,555 Common stock issued 1,561 16 - - 48,077 - Treasury stock acquired - - 1,142 16,881 - - Net income - - - - - 12,108 ------ ---- ----- ------- -------- -------- Balance at January 31, 2000 11,495 115 3,426 39,244 105,303 93,663 Common stock issued 52 - (10) (113) 554 - Treasury stock acquired - - 1,790 33,073 - - Net income - - - - - 7,226 ------ ---- ----- ------- -------- -------- Balance at July 31, 2000 11,547 $115 5,206 $72,204 $105,857 $100,889 ====== ==== ===== ======= ======== ======== The accompanying notes are an integral part of these unaudited consolidated statements. 5

REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended July 31 2000 1999 (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 7,226 $ 6,185 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization, net 1,896 1,693 Equity in losses of limited partnerships - 1,057 Deferred income (487) (696) Changes in assets and liabilities: Accounts receivable 1,645 883 Merchandise inventory (41,900) (17,360) Other current assets (2,726) (141) Accounts payable, trade 13,412 4,234 Other liabilities (3,324) 3,574 -------- -------- NET CASH USED IN OPERATING ACTIVITIES (24,258) (571) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (13,143) (5,869) Capital disposals 79 943 Restricted investments (84) (121) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (13,148) (5,047) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in notes payable 46,416 - Payments of long-term debt (2,213) (2,003) Long-term debt borrowings 4,608 5,322 Common stock issued 554 1,623 Treasury stock issued 113 1,728 Treasury stock acquired (33,073) (3,230) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 16,405 3,440 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (21,001) (2,178) CASH AND CASH EQUIVALENTS, beginning of period 25,609 11,912 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 4,608 $ 9,734 ======== ======== The accompanying notes are an integral part of these unaudited consolidated statements. 6

REX STORES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 31, 2000 Note 1. Consolidated Financial Statements The consolidated financial statements included in this report have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments necessary to state fairly the information set forth therein. Any such adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these unaudited consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 31, 2000 (fiscal 1999). Note 2. Accounting Policies The interim consolidated financial statements have been prepared in accordance with the accounting policies described in the notes to the consolidated financial statements included in the Company's 1999 Annual Report on Form 10-K. While management believes that the procedures followed in the preparation of interim financial information are reasonable, the accuracy of some estimated amounts is dependent upon facts that will exist or calculations that will be accomplished at fiscal year end. Examples of such estimates include changes in the LIFO reserve (based upon the Company's best estimate of inflation to date), management bonuses and the provision for income taxes. Any adjustments pursuant to such estimates during the quarter were of a normal recurring nature. 7

Notes to Consolidated Financial Statements (Continued) Note 3. Stock Option Plans The following summarizes options granted, exercised and canceled or expired during the six months ended July 31, 2000: Shares Under Stock Option Plans Outstanding at January 31, 2000 ($8.125 to $22.6875 per share) 2,649,517 Granted ($21.4063 to $22.8125 per share) 217,013 Exercised ($8.125 to $17.25 per share) (62,490) Canceled ($10.375 to $22.8125 per share) (5,600) --------- Outstanding at July 31, 2000 ($8.125 to $22.8125 per share) 2,798,440 ========= 8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. We are a leading specialty retailer in the consumer electronics/appliance industry. As of July 31, 2000, we operated 242 stores in 36 states, predominantly in small to medium-sized markets under the trade name "REX". Fiscal Year All references in this report to a particular fiscal year are to REX's fiscal year ended January 31. For example, "fiscal 1999" means the period February 1, 1999 to January 31, 2000. In the past, we referred to this period as "fiscal 2000." Results of Operations The following table sets forth, for the periods indicated, the relative percentages that certain income and expense items bear to net sales: Three Months Ended Six Months Ended July 31 July 31 2000 1999 2000 1999 Net sales 100.0% 100.0% 100.0% 100.0% Cost of merchandise sold 71.7 71.3 72.4 72.3 ----- ----- ----- ----- Gross profit 28.3 28.7 27.6 27.7 Selling, general and administrative expenses 24.4 22.8 23.7 22.9 ----- ----- ----- ----- Income from operations 3.9 5.9 3.9 4.8 Interest, net (1.8) (1.3) (1.4) (1.2) Income from limited partnerships 3.1 0.5 2.1 0.4 ----- ----- ----- ----- Income before income taxes 5.2 5.1 4.6 4.0 Provision for income taxes 1.3 1.3 1.1 1.0 ----- ----- ----- ----- Net income 3.9% 3.8% 3.5% 3.0% ===== ===== ===== ===== 9

Comparison of Three and Six Months Ended July 31, 2000 and 1999 Net sales in the second quarter ended July 31, 2000 were $101.6 million compared to $107.7 million in the prior year's second quarter, representing a decrease of $6.1 million or 5.7%. This decrease was caused by a decline of 12.8% in comparable store sales, partially offset by sales from the net increase of 16 stores since the second quarter of fiscal 1999. The decline in comparable store sales for the second quarter was primarily caused by a decline in air conditioner and other appliance sales largely due to unseasonably cool weather in the northeastern and midwestern parts of the United States. The appliance category negatively impacted comparable store sales by 15.5% for the second quarter. Excluding the appliance category, comparable store sales would have increased by 4.5%. Our strongest product categories were larger screen televisions (30 inch and larger) which contributed 9.3% to the comparable store sales and DVD players which contributed 0.5%. We believe DVD players serve to replace certain VCR sales. As a result of this and falling average selling prices, VCR sales negatively impacted comparable store sales by approximately 2.1%. Other products which negatively impacted comparable store sales for the second quarter were smaller screen televisions (27 inches and smaller) by approximately 1.5%, camcorders by approximately 1.1% and car stereos by approximately 0.7%. Net sales for the first half of fiscal 2000 were $208.8 million compared to $206.8 million for the first half of fiscal 1999, representing an increase of $2.0 million or 1.0%. This increase was caused by a net increase of 16 stores since the second quarter of fiscal 1999, partially offset by a decline of 4.9% in comparable store sales for the first half of fiscal 2000. The decline in comparable store sales for the first half of the year was largely caused by a decline in air conditioner and other appliance sales largely due to unseasonably cool weather during the summer months in the northeastern and midwestern parts of the United States. The appliance category negatively impacted comparable store sales by 8.8% for the first half of fiscal 2000. Excluding the appliance category, comparable store sales would have increased by 5.6%. Our strongest product categories were larger screen televisions (30 inches and larger) which contributed 10.6% to comparable store sales and DVD players which contributed 1.0%. Other than appliances, the largest contributors to the negative comparable store sales were VCR sales by approximately 2.8%, smaller screen televisions (27 inches and smaller) by approximately 2.1%, camcorders by approximately 1.2% and car stereos by approximately 0.7%. As of July 31, 2000, we had 242 stores compared to 226 stores one year earlier. There were nine stores opened and five closed in the first half of fiscal 2000. In the prior year's first half there was one store opened and three closed. 10

Gross profit of $28.8 million (28.3% of net sales) in the second quarter of fiscal 2000 was $2.1 million lower than the $30.9 million (28.7% of net sales) recorded in the second quarter of fiscal 1999. Gross profit in the first half of fiscal 2000 was $57.5 million (27.6% of net sales), a $200,000 increase from $57.3 million (27.7% of net sales) in the first half of fiscal 1999. The decline in gross profit margin is primarily due to the slower air conditioner sales, which generally have a higher gross profit margin, and the overall competitive retail environment in consumer electronics and appliances. Selling, general and administrative expenses for the second quarter of fiscal 2000 were $24.8 million (24.4% of net sales), a 1.3% increase over the $24.5 million (22.8% of net sales) for the second quarter of fiscal 1999. Selling, general and administrative expenses for the first half of fiscal 2000 were $49.5 million (23.7% of net sales), a 4.6% increase from $47.3 million (22.9% of net sales)for the first half of fiscal 1999. The increase in expense is primarily attributable to an increase in advertising cost for new stores and increased expenditures for radio and television advertising. Interest expense increased to $1.9 million (1.8% of net sales) for the second quarter of fiscal 2000 from $1.5 million (1.3% of net sales) for the second quarter of fiscal 1999. Interest expense for the first half of fiscal 2000 was $3.0 million (1.4% of net sales) compared to $2.8 million (1.2% of net sales) for the first half of fiscal 1999. The increase in interest expense is due to higher borrowings on our line of credit to fund higher inventory levels and the stock buyback program. Results for the second quarter and first half of fiscals 2000 and 1999 also reflect the impact of our equity investment in two limited partnerships which produce synthetic fuels. Effective February 1, 1999, we entered into an agreement to sell a portion of our investment in one of the limited partnerships, which resulted in the reduction in our ownership interest from 30% to 17%. We expect to receive cash payments from the sale on a quarterly basis through 2007. These payments are contingent upon and equal to 75% of the federal income tax credits attributable to the 13% interest sold, subject to certain annual maximums. Effective July 31, 2000, we sold an additional portion of our investment in the above limited partnership, reducing our ownership interest from 17% to 8%. We received and reported income of $1.5 million from the sale in the second quarter of fiscal 2000. We also expect to receive cash payments from the sale on a quarterly basis through 2007. These payments are contingent upon and equal to 82.5% of the federal income tax credits attributable to the 9% interest sold, subject to certain annual maximums. 11

Income from the limited partnerships was $3.2 million for the second quarter of fiscal 2000, which consisted of $1.7 million of income from the 1999 sale and $1.5 million from the 2000 sale, net of certain expenses. Income from the limited partnerships was $516,000 for the second quarter of fiscal 1999, which consisted of $1,119,000 of income generated from the 1999 sale, partially offset by a charge of $603,000 to reflect our equity share of the partnerships' losses. For the first half of fiscal 2000, we reported income from the limited partnerships of $4.4 million, which consisted of $2.9 million of income from the 1999 sale and $1.5 million from the 2000 sale, net of certain expenses. Income from the limited partnerships was $796,000 for the first half of fiscal 1999, which consisted of $1,853,000 of income generated by the 1999 sale, partially offset by a charge of $1,057,000 to reflect our equity share of the partnerships' losses. Our initial investment was reduced to zero as of January 31, 2000 because of cumulative losses recorded using the equity method of accounting. Consequently, we have ceased recording our share of equity losses beginning in fiscal 2000. Our effective tax rate was 25% for 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 second quarter of fiscal 2000 was $4.0 million, a 2.9% decrease from $4.1 million for the second quarter of fiscal 1999. Net income for the first half of fiscal 2000 was $7.2 million, a 16.8% increase from $6.2 million for the first half of fiscal 1999. Liquidity and Capital Resources Net cash used in operating activities was $24.3 million for the first six months of fiscal 2000, compared to $0.6 million for the first six months of fiscal 1999. For the first six months of fiscal 2000, operating cash flow was provided by net income of $7.2 million, adjusted for the net impact of non-cash items of $1.4 million which consist primarily of depreciation and deferred income. The primary use of cash was an increase in inventory of $41.9 million due to slow summer air conditioner sales and increased inventories to support our store expansion program. The other uses of cash were a decrease in other liabilities of $3.3 million and an increase in other assets of $2.7 million primarily due to timing of payments of income taxes and compensation. Cash was also provided by a decrease in accounts receivable of $1.6 million and an increase in accounts payable of $13.4 million primarily due to the increase in inventory and timing of payments to vendors. At July 31, 2000, working capital was $66.1 million compared to $100.8 million at January 31, 2000. The ratio of current assets to current liabilities 12

was 1.5 to 1 at July 31, 2000 and 2.3 to 1 at January 31, 2000. Capital expenditures through July 31, 2000 totaled $13.1 million and primarily relate to the acquisition of store sites and other construction expenditures associated with planned fiscal 2000 store openings. We plan to open 30 to 35 new stores for fiscal 2000 with anticipated capital expenditures of approximately $25.0 to $30.0 million. We plan to fund the new store openings with cash generated from operations and investments and additional mortgage debt. Cash provided by financing activities totaled approximately $16.4 million for the first six months of fiscal 2000. The primary source of cash was borrowings of $46.4 million on the line of credit. A total of approximately $69.9 million was available for borrowings on the line of credit as of July 31, 2000. We also received proceeds of $4.6 million from long-term debt borrowings related to mortgage financing for five store locations. The primary use of cash was for the acquisition of treasury stock. We purchased a total of 1,789,600 shares of our common stock for $33.1 million during the first half of fiscal 2000. As of July 31, 2000, we had authorization to purchase an additional 568,300 shares. Subsequent to the end of the quarter, we purchased an additional 406,800 shares for $7.5 million and our board of directors authorized the purchase of an additional 1,000,000 shares. Forward-Looking Statements This Form 10-Q contains or may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The words "believes", "estimates", "plans", "expects", "intends", "anticipates" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties. Factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in Exhibit 99 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2000 (File No. 0-13283). Item 3. Quantitative and Qualitative Disclosure About Market Risk No material changes since January 31, 2000. 13

PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The annual meeting of shareholders of REX Stores Corporation was held on June 5, 2000, at which the following matter was submitted to a vote of shareholders: 1. Election of five directors. Nominee For Withheld Stuart Rose 6,042,499 63,375 Lawrence Tomchin 6,042,499 63,375 Robert Davidoff 6,042,499 63,375 Edward Kress 6,042,439 63,435 Lee Fisher 6,042,499 63,375 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. The following exhibits are filed with this report: 27 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended July 31, 2000. 14

SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REX STORES CORPORATION Registrant September 13, 2000 STUART A. ROSE Stuart A. Rose Chairman of the Board (Chief Executive Officer) September 13, 2000 DOUGLAS L. BRUGGEMAN Douglas L. Bruggeman Vice President, Finance and Treasurer (Principal Financial and Chief Accounting Officer) 15

5 0000744187 REX STORES CORPORATION 1,000 6-MOS JAN-31-2001 FEB-1-2000 JUL-31-2000 4,608 0 1,382 458 181,167 201,359 148,686 24,128 336,856 135,280 48,322 115 0 0 134,542 336,856 208,792 208,792 151,271 151,271 0 0 3,049 9,634 2,408 7,226 0 0 0 7,226 1.06 .96