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 October 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 the past 90 days. Yes (X) No ( ) At the close of business on December 12, 2000, the registrant had 5,591,172 shares of Common Stock, par value $.01 per share, outstanding.

REX STORES CORPORATION AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Condensed Balance Sheets......... 3 Consolidated Statements of Income............. 5 Consolidated Statements of Shareholders' Equity...................................... 7 Consolidated Statements of Cash Flows......... 8 Notes to Consolidated Financial Statements.... 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 12 Item 3. Quantitative and Qualitative Disclosure About Market Risk................................... 17 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 2000 2000 1999 (In Thousands) ASSETS: Cash and cash equivalents $ 3,661 $ 25,609 $ 4,915 Accounts receivable, net 1,256 2,569 1,864 Merchandise inventory 185,358 139,267 172,712 Prepaid expenses and other 6,089 2,097 1,767 Equity investment in limited partnerships -- -- 407 Future income tax benefits 9,837 9,837 9,366 -------- -------- -------- Total current assets 206,201 179,379 191,031 PROPERTY AND EQUIPMENT, NET 134,645 113,802 110,386 FUTURE INCOME TAX BENEFITS 8,835 8,835 8,109 RESTRICTED INVESTMENTS 2,143 2,020 1,962 -------- -------- -------- Total assets $351,824 $304,036 $311,488 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 77,958 $ -- $ 295 Current portion of long-term debt 3,895 3,303 2,278 Current portion, deferred income and deferred gain on sale and leaseback 11,158 11,219 11,201 Accounts payable, trade 44,111 46,252 54,910 Accrued income taxes -- 1,572 748 Accrued payroll 5,318 6,947 5,658 3

Liabilities and Shareholders' Equity (Continued) Other current liabilities 9,372 9,330 10,594 -------- -------- -------- Total current liabilities 151,812 78,623 85,684 -------- -------- -------- LONG-TERM LIABILITIES: Long-term debt 55,837 46,200 42,756 Deferred income 15,971 16,423 15,904 Deferred gain on sale and leaseback 2,335 2,953 3,159 -------- -------- -------- Total long-term liabilities 74,143 65,576 61,819 -------- -------- -------- SHAREHOLDERS' EQUITY: Common stock 115 115 115 Paid-in capital 105,892 105,303 102,214 Retained earnings 103,750 93,663 84,019 Treasury stock (83,888) (39,244) (22,363) -------- -------- -------- Total shareholders' equity 125,869 159,837 163,985 -------- -------- -------- Total liabilities and shareholders' equity $351,824 $304,036 $311,488 ======== ======== ======== [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 4

REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Nine Months Ended October 31 October 31 2000 1999 2000 1999 (In Thousands, Except Per Share Amounts) NET SALES $105,144 $102,432 $313,935 $309,227 COSTS AND EXPENSES: Cost of merchandise sold 76,611 74,651 227,881 224,134 Selling, general and administrative expenses 25,149 24,088 74,621 71,382 -------- -------- -------- -------- Total costs and expenses 101,760 98,739 302,502 295,516 -------- -------- -------- -------- INCOME FROM OPERATIONS 3,384 3,693 11,433 13,711 INVESTMENT INCOME 34 60 249 249 INTEREST EXPENSE (2,609) (1,471) (5,658) (4,226) INCOME FROM LIMITED PARTNERSHIPS 3,006 1,173 7,425 1,969 GAIN ON SALE OF REAL ESTATE -- 787 -- 787 -------- -------- -------- -------- Income before provision for income taxes and extraordinary item 3,815 4,242 13,449 12,490 PROVISION FOR INCOME TAXES 954 1,061 3,362 3,124 -------- -------- -------- -------- Income before extraordinary item 2,861 3,181 10,087 9,366 Extraordinary loss from extinguishment of debt, net of income tax effect of $239 -- 717 -- 717 NET INCOME $ 2,861 $ 2,464 $ 10,087 $ 8,649 ======== ======== ======== ======== 5

Consolidated Statements of Income (continued) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 5,944 8,110 6,525 7,692 ======== ======== ======== ======== Basic Net Income Per Share Before Extraordinary Item 0.48 0.39 1.55 1.22 Extraordinary Item -- (0.09) -- (0.09) -------- -------- -------- -------- BASIC NET INCOME PER SHARE $ 0.48 $ 0.30 $ 1.55 $ 1.13 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVA- LENT SHARES OUTSTANDING 6,498 9,224 7,173 8,551 ======== ======== ======== ======== Diluted Net Income Per Share Before Extraordinary Item $ 0.44 $ 0.35 $ 1.41 $ 1.10 Extraordinary Item -- (0.08) -- (0.08) -------- -------- -------- -------- DILUTED NET INCOME PER SHARE $ 0.44 $ 0.27 $ 1.41 $ 1.02 ======== ======== ======== ======== [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 6

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 October 31, 1999 11,467 $ 115 2,284 $22,363 $102,214 $ 84,019 Common stock issued 28 -- -- -- 3,089 -- Treasury stock acquired -- -- 1,142 16,881 -- -- Net income -- -- -- -- -- 9,644 ------ ----- ----- ------- -------- -------- Balance at January 31, 2000 11,495 $ 115 3,426 $39,244 $105,303 $ 93,663 Common stock issued 56 -- (10) (121) 589 -- Treasury stock acquired -- -- 2,430 44,765 -- -- Net income -- -- -- -- -- 10,087 ------ ----- ----- ------- -------- -------- Balance at October 31, 2000 11,551 $ 115 5,846 $83,888 $105,892 $103,750 ====== ===== ===== ======= ======== ======== [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 7

REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended October 31 2000 1999 (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $10,087 $8,649 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization, net 2,893 2,556 Equity in losses of limited partnerships -- 1,431 Deferred income (513) (1,733) Changes in assets and liabilities: Accounts receivable 1,313 433 Merchandise inventory (46,091) (40,710) Other current assets (3,997) 267 Accounts payable, trade (2,141) 2,236 Other liabilities (3,160) 2,054 -------- -------- NET CASH USED IN OPERATING ACTIVITIES (41,609) (24,817) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures 25,205) (14,852) Capital disposals 856 943 Restricted investments (123) (134) -------- ------- NET CASH USED IN INVESTING ACTIVITIES (24,472) (14,043) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in notes payable 77,958 295 Payments of long-term debt (3,393) (21,641) Long-term debt borrowings 13,623 8,083 Common stock issued 589 46,628 Treasury stock issued 121 1,728 Treasury stock acquired (44,765) (3,230) -------- -------- 8

NET CASH PROVIDED BY FINANCING ACTIVITIES 44,133 31,863 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (21,948) (6,997) CASH AND CASH EQUIVALENTS, beginning of period 25,609 11,912 -------- ------- CASH AND CASH EQUIVALENTS, end of period $ 3,661 $4,915 ======= ====== [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 9

REX STORES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS October 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. 10

Notes to Consolidated Financial Statements (Continued) Note 3. Stock Option Plans The following summarizes options granted, exercised and canceled or expired during the nine months ended October 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) (66,690) Canceled ($10.375 to $22.8125 per share) (21,600) ---------- Outstanding at October 31, 2000 ($8.125 to $22.8125 per share) 2,778,240 ========== 11

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. We are a leading specialty retailer in the consumer electronics/appliance industry. As of October 31, 2000, we operated 251 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 Nine Months Ended October 31 October 31 2000 1999 2000 1999 Net sales 100.0% 100.0% 100.0% 100.0% Cost of merchandise sold 72.9 72.9 72.6 72.5 ----- ----- ----- ----- Gross profit 27.1 27.1 27.4 27.5 Selling, general and administrative expenses 23.9 23.5 23.8 23.1 ----- ----- ----- ----- Income from operations 3.2 3.6 3.6 4.4 Interest, net (2.5) (1.4) (1.7) (1.3) Income from limited partnerships 2.9 1.1 2.4 0.6 Gain on sale of real estate -- 0.8 -- 0.3 ----- ----- ----- ----- Income before income taxes 3.6 4.1 4.3 4.0 Provision for income taxes 0.9 1.0 1.1 1.0 ----- ----- ----- ----- 12

Results of Operation (continued) Income before extraordinary item 2.7% 3.1% 3.2% 3.0% Extraordinary loss from early extinguishment of debt -- 0.7 -- 0.2 ----- ----- ----- ----- Net Income 2.7% 2.4% 3.2% 2.8% ===== ===== ===== ===== Comparison of Three and Nine Months Ended October 31, 2000 and 1999 Net sales in the third quarter ended October 31, 2000 were $105.1 million compared to $102.4 million in the prior year's third quarter, representing an increase of $2.7 million or 2.6%. This increase was primarily due to sales from the net increase of 23 stores since the third quarter of fiscal 1999, partially offset by a decline of 7.0% in comparable store sales. The leading contributors to the decline in comparable store sales for the third quarter were the appliance category which negatively impacted comparable store sales by 3.8%, and the video category which negatively impacted comparable store sales by 3.4%. The appliance category has been impacted by an increasingly competitive environment. The video category has been impacted by declining average selling prices and increased competition from other retail stores. Other categories which also contributed to the negative comparable store sales for the quarter were the audio category and smaller screen televisions (27 inch and smaller), which negatively impacted comparable store sales by 1.7% and 1.2%, respectively. Our strongest product category for the third quarter of fiscal 2000 was larger screen televisions (30 inch and larger), which positively impacted comparable store sales by 3.0% Net sales for the first nine months of fiscal 2000 were $313.9 million compared to $309.2 million for the first nine months of fiscal 1999, representing an increase of $4.7 million or 1.5%. This increase was caused by a net increase of 23 stores since the third quarter of fiscal 1999, partially offset by a decline of 5.6% in comparable store sales for the first nine months of fiscal 2000. The decline in comparable store sales for the first nine months of fiscal 2000 was largely caused by the appliance category, which negatively impacted comparable store sales by 7.1%. The decline in appliance sales was primarily caused by unseasonably cool weather during the summer months in the northeastern and midwestern parts of the United States which depressed air conditioner sales and an increasingly competitive environment. Other categories which negatively impacted comparable store sales for the first nine months were video by 3.0%, audio by 1.5% and smaller screen televisions (27 inch and smaller) by 1.3%. These categories have been impacted by declining average selling prices and increased competition. Our strongest product category for the first nine months was larger screen televisions (30 inch and larger), which positively impacted comparable store sales by 7.3% 13

As of October 31, 2000, we had 251 stores compared to 228 stores one year earlier. For the first nine months of fiscal 2000 there were 18 stores opened and five closed. In the prior year's comparable period there were three stores opened and three closed. Gross profit of $28.5 million (27.1% of net sales) in the third quarter of fiscal 2000 was $700,000 higher than the $27.8 million (27.1% of net sales) recorded in the third quarter of fiscal 1999. Gross profit for the first nine months of fiscal 2000 was $86.1 million (27.4%), a $1.0 million increase from $85.1 million (27.5% of net sales) for the comparable period of fiscal 1999. Selling, general and administrative expenses for the third quarter of fiscal 2000 were $25.1 million (23.9% of net sales), a 4.4% increase over the $24.1 million (23.5% of net sales) for the third quarter of fiscal 1999. Selling, general and administrative expenses for the first nine months of fiscal 2000 were $74.6 million (23.8% of net sales), a 4.5% increase from $71.4 million (23.1% of net sales)for the first nine months 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. Expenses also increased for occupancy and other store costs related to the additional store locations over the prior year. Interest expense increased to $2.6 million (2.5% of net sales) for the third quarter of fiscal 2000 from $1.5 million (1.4% of net sales) for the third quarter of fiscal 1999. Interest expense for the first nine months of fiscal 2000 was $5.7 million (1.8% of net sales) compared to $4.2 million (1.4% of net sales) for the first nine months of fiscal 1999. The increase in interest expense is primarily due to higher borrowings on the line of credit to fund higher inventory levels, store construction costs and the stock buyback program. Results for the third quarter and first nine months 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 14

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. Income from the limited partnerships was $3.0 million for the third quarter of fiscal 2000, which consisted of $1.8 million of income from the 1999 sale and $1.5 million from the 2000 sale, partially offset by a charge of $256,000 to reflect our equity share of the partnerships' losses. Income from the limited partnerships was $1.2 million for the third quarter of fiscal 1999, which consisted of $1.5 million of income generated from the 1999 sale, partially offset by a charge of $374,000 to reflect our equity share of the partnerships' losses. For the first nine months of fiscal 2000, we reported income from the limited partnerships of $7.4 million, which consisted of $4.7 million of income from the 1999 sale and $3.0 million from the 2000 sale, partially offset by a charge of $300,000 to reflect our equity share of the partnerships' losses. Income from the limited partnerships was $2.0 million for the first nine months of fiscal 1999, which consisted of $3.4 million of income generated by the 1999 sale, partially offset by a charge of $1.4 million to reflect our equity share of the partnerships' losses. Our initial investment has been reduced to zero as of January 31, 2000 because of cumulative losses recorded using the equity method of accounting. Consequently, beginning in fiscal 2000 we only record our share of equity losses to the extent we make capital call contributions. During the third quarter of fiscal 1999, we reported the sale of a shopping center in which we had previously operated a retail store. We recorded a gain of $787,000 from the sale of this real estate. Our effective 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. During the third quarter of fiscal 1999, we recorded an extraordinary loss from the early extinguishment of debt of $717,000, net of the income tax effect of $239,000. In October 1999, we paid off approximately $18.9 million of mortgage debt with proceeds from a secondary stock offering completed September 29, 1999. As a result of the foregoing, net income for the third quarter of fiscal 2000 was $2.9 million, a 16.1% increase from $2.5 million 15

for the third quarter of fiscal 1999. Net income for the first nine months of fiscal 2000 was $10.1 million, a 16.6% increase from $8.6 million for the first nine months of fiscal 1999. Liquidity and Capital Resources Net cash used in operating activities was $41.6 million for the first nine months of fiscal 2000, compared to $24.8 million for the first nine months of fiscal 1999. For the first nine months of fiscal 2000, operating cash flow was provided by net income of $10.1 million, adjusted for the net impact of non-cash items of $2.4 million which consist primarily of depreciation and deferred income. The primary use of cash was an increase in inventory of $46.1 million due to seasonal inventory needs and to support our store expansion program. Cash was also used by a reduction in accounts payable of $2.1 million due to the timing of inventory purchases and payments to vendors. The other uses of cash were an increase in other assets of $4.0 million and a decrease in other liabilities of $3.2 million primarily due to the timing of payments of income taxes and compensation. Cash was also provided by a decrease in accounts receivables of $1.3 million. At October 31, 2000, working capital was $54.4 million compared to $100.8 million at January 31, 2000. The ratio of current assets to current liabilities was 1.4 to 1 at October 31, 2000 and 2.3 to 1 at January 31, 2000. Capital expenditures through October 31, 2000 totaled $25.2 million and primarily relate to the acquisition of store sites and other construction expenditures associated with planned fiscal 2000 store openings and for three stores to be opened in fiscal 2001. We opened 30 new stores in fiscal 2000, including 12 stores subsequent to October 31, 2000. We expect to expend approximately an additional $2.0 to $2.5 million for these store sites during the remainder of this fiscal year. For fiscal 2001 we plan to open approximately 10 to 15 new stores as opposed to the previously planned 35 to 40 stores. We expect capital expenditures for these 10 to 15 stores to be approximately an additional $4.0 to $8.0 million depending upon the number of leased or owned locations. 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 $44.1 million for the first nine months of fiscal 2000. The primary source of cash was borrowings of $78.0 million on the line of credit. A total of approximately $41.1 million was available for borrowings on the line of credit as of October 31, 2000. We also received proceeds of $13.6 million from long-term debt borrowings related to mortgage financing for 18 store locations. The primary use of cash was for the acquisition of treasury stock. We purchased a total of 2,430,000 shares of our common stock for $44.8 million during the first nine months of fiscal 2000. As of October 31, 2000, we had 16

authorization to purchase an additional 927,900 shares. Subsequent to the end of the quarter, we purchased an additional 116,200 shares for $2.0 million. 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. 17

PART II. OTHER INFORMATION 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 October 31, 2000. 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 12, 2000 STUART A. ROSE Stuart A. Rose Chairman of the Board (Chief Executive Officer) December 12, 2000 DOUGLAS L. BRUGGEMAN Douglas L. Bruggeman Vice President, Finance and Treasurer (Principal Financial and Chief Accounting Officer) 19

5 0000744187 REX STORES CORPORATION 1,000 U.S. DOLLARS 9-MOS JAN-31-2001 FEB-1-2000 OCT-31-2000 1 3,661 0 1,723 467 185,358 206,201 159,734 25,089 351,824 151,812 55,837 115 0 0 125,754 351,824 313,935 313,935 227,881 227,881 0 0 5,658 13,449 3,362 10,087 0 0 0 10,087 1.55 1.41