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 ending April 30, 1996 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 No. 31-1095548 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2875 Needmore Road, Dayton, Ohio 45414 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 513-276-3931 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for at least the past 90 days. Yes (X) No ( ) At the close of business on June 13, 1996, the registrant had 9,051,031 shares of Common Stock, par value $.01 per share, outstanding.

REX STORES CORPORATION AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Condensed Balance Sheets......... 3 Consolidated Statements of Income............. 5 Consolidated Statements of Shareholders' Equity...................................... 6 Consolidated Statements of Cash Flows......... 7 Notes to Consolidated Financial Statements.... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................ 13 2

PART I. FINANCIAL INFORMATION Item 1. Financial Statements REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS A S S E T S April 30 January 31 April 30 1996 1996 1995 (In Thousands) ASSETS: Cash and cash equivalents $ 1,931 $ 685 $ 4,008 Short-term investments 1,565 1,525 1,555 Accounts receivable, net 408 1,604 495 Merchandise inventory 164,920 146,566 131,284 Prepaid expenses and other 1,997 1,825 1,722 Future income tax benefits 3,818 3,818 2,860 ---------- --------- --------- Total current assets 174,639 156,023 141,924 PROPERTY AND EQUIPMENT, NET 71,316 70,307 50,931 FUTURE INCOME TAX BENEFITS 8,269 8,269 7,619 ---------- --------- --------- Total assets $ 254,224 $ 234,599 $ 200,474 ========== ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 27,150 $ 9,327 $ 2,956 Current portion of long-term debt 2,058 2,050 1,687 Current portion, deferred income and deferred gain on sale and leaseback 9,570 9,083 7,670 Accounts payable, trade 44,327 39,525 42,931 Accrued income taxes 789 4,121 504 Accrued payroll 4,696 6,570 4,446 Other liabilities 5,521 5,331 4,758 --------- --------- --------- Total current liabilities 94,111 76,007 64,952 --------- --------- --------- 3

Liabilities and Shareholders' Equity (Continued) LONG-TERM LIABILITIES: Long-term debt 32,090 32,590 25,129 Deferred income 16,835 16,506 13,857 Deferred gain on sale and leaseback 6,914 7,150 7,678 --------- --------- --------- Total long-term liabilities 55,839 56,246 46,664 --------- --------- --------- SHAREHOLDERS' EQUITY: Common stock 96 95 95 Paid-in capital 56,903 56,732 56,243 Retained earnings 51,157 49,401 36,402 Treasury stock (3,882) (3,882) (3,882) --------- --------- --------- Total shareholders' equity 104,274 102,346 88,858 --------- --------- --------- Total liabilities and shareholders' equity $ 254,224 $ 234,599 $ 200,474 ========= ========= ========= [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 April 30 1996 1995 (In Thousands, Except Per Share Amounts) NET SALES $ 97,384 $ 87,427 --------- --------- COSTS AND EXPENSES: Cost of merchandise sold 72,503 65,602 Selling, general and administrative expenses 20,798 18,642 --------- --------- Total costs and expenses 93,301 84,244 --------- --------- INCOME FROM OPERATIONS 4,083 3,183 INVESTMENT INCOME 22 109 INTEREST EXPENSE 1,203 691 --------- --------- Income before provision for income taxes 2,902 2,601 PROVISION FOR INCOME TAXES 1,146 1,027 --------- --------- NET INCOME $ 1,756 $ 1,574 ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVA- LENT SHARES OUTSTANDING 9,389 9,429 ========= ========= NET INCOME PER SHARE $ 0.19 $ 0.17 ========= ========= [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 5

REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY In Thousands Common Shares ------------------------------- Issued Treasury Paid-in Retained Shares Amount Shares Amount Capital Earnings Balance at April 30, 1995 9,457 $ 95 534 $3,882 $56,243 $36,402 Common stock issued 64 - - - 489 - Net income - - - - - 12,999 ----- ------ --- ------ ------- ------- Balance at January 31, 1996 9,521 $ 95 534 $3,882 $56,732 $49,401 Common stock issued 47 1 - - 171 - Net income - - - - - 1,756 ----- ------ --- ------ ------- ------- Balance at April 30, 1996 9,568 $ 96 534 $3,882 $56,903 $51,157 ===== ====== === ====== ======= ======= [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 6

REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended April 30 1996 1995 (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,756 $ 1,574 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, net 717 502 Deferred income 683 579 Accounts receivable 1,196 582 Merchandise inventory (18,354) (15,937) Other current assets (173) (254) Accounts payable, trade 4,802 9,636 Other liabilities (5,016) (4,216) -------- -------- NET CASH USED IN OPERATING ACTIVITIES (14,389) (7,534) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Short-term investments (40) - Capital expenditures (1,830) (1,508) Capital disposals 2 - -------- -------- NET CASH USED IN INVESTING ACTIVITIES (1,868) (1,508) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in note payable 17,823 2,956 Payments of long-term debt (492) (459) Common stock issued 172 154 Treasury stock acquired - (2,264) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 17,503 387 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,246 (8,655) CASH AND CASH EQUIVALENTS, beginning of period 685 12,663 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 1,931 $ 4,008 ======== ======== [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 7

REX STORES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1996 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 generally accepted accounting principles 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, 1996. 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 1996 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) and management bonuses. Any adjustments pursuant to such estimates during the quarter were of a normal recurring nature. 8

Notes to Consolidated Financial Statements (Continued) Note 3. Equivalent Shares Outstanding The Company follows the treasury method of calculating common equivalent shares outstanding. The following summarizes options granted, exercised and cancelled or expired at April 30, 1996: Shares Under Stock Option Plans Outstanding at January 31, 1996 2,068,558 ($3.25 to $18.975 per share) Exercised ($3.25 to $13.00 per share) (46,969) Cancelled or expired ( 3,000) --------- Outstanding at April 30, 1996 ($3.25 to $18.975 per share) 2,018,589 --------- Note 4. Subsequent Events On June 10, 1996, the Company received $8.5 million in mortgage financing at an interest rate of 8.69%. The funds were used to pay down outstanding borrowings on the revolving line of credit. The mortgages are for a term of ten years, with a balloon payment at the end of the scheduled term. The interest rate is fixed for the first five years. Note 5. Accounting Change On February 1, 1996, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which addresses the identification and measurement of asset impairments and requires the recognition of impairment losses on long-lived assets when carrying values exceed expected future cash flows. The application of this accounting standard did not have a material impact on the Company's financial position or result of operations. 9

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company is a leader in the consumer electronics/appliance retailing industry, operating predominantly in small to medium sized markets in the Midwest and Southeast under the trade name "REX." Results of Operations The following table sets forth, for the periods indicated, the relative percentages that certain income and expense items bear to net sales: Three Months Ended April 30 1996 1995 Net sales 100.0% 100.0% Cost of merchandise sold 74.4 75.0 ----- ----- Gross profit 25.6 25.0 Selling, general and administrative expense 21.4 21.3 ----- ----- Income from operations 4.2 3.7 Interest, net 1.2 .7 ----- ----- Income before income taxes 3.0 3.0 Provision for income taxes 1.2 1.2 ----- ----- Net income 1.8% 1.8% ===== ===== 10

Comparison of Three Months Ended April 30, 1996 and 1995 Net sales in the first quarter ended April 30, 1996 were $97.4 million compared to $87.4 million in the prior year's comparable period, representing an increase of $10.0 million or 11.4%. This increase is a result of 32 net additional stores in the current quarter compared to the prior year's first quarter which was partially offset by a decline of 5% in comparable store merchandise sales for the quarter. The Company considers a store to be comparable after it has been open six fiscal quarters. As of April 30, 1996, the Company had 197 stores compared to 165 stores one year earlier. There were no stores opened and two closed during the first quarter of fiscal 1997. The Company anticipates opening 35 to 40 new stores in fiscal 1997. The Company evaluates the performance of its stores on a continuous basis and, based on an assessment of factors it deems relevant, will close any store which is not adequately contributing to company profitability. Gross profit of $24.9 million in the first quarter of fiscal 1997 (25.6% of net sales) was 14.0% higher than the $21.8 million gross profit (25.0% of net sales) recorded in the first quarter of fiscal 1996. The improved gross profit margin for the first quarter of fiscal 1997 is primarily the result of lower merchandise cost on certain products due to opportunistic purchasing. Extended service contract revenues, which generally have a higher gross profit margin, were consistent as a percent of net sales. Selling, general and administrative expenses for the quarter ended April 30, 1996 were $20.8 million (21.4% of net sales), an 11.6% increase over the $18.6 million (21.3% of net sales) for the quarter ended April 30, 1995. The increase in expenses was primarily attributable to higher payroll costs related to the increased number of stores and increased sales, higher advertising costs and general costs associated with more store locations. As a percent of net sales, selling, general and administrative expenses were consistent between periods. Income from operations was $4.1 million (4.2% of net sales) in the first quarter of fiscal 1997, a 28.3% increase over $3.2 million (3.7% of net sales) for the first quarter of fiscal 1996. This improvement was primarily a result of increased sales volume from new stores and an improved gross profit margin resulting from opportunistic purchasing. Interest expense increased to $1.2 million in the first quarter of fiscal 1997 from $0.7 million in the first quarter of fiscal 1996. This increase is primarily a result of additional 11

borrowings on the revolving line of credit (average outstanding borrowings of approximately $17.0 million for the first quarter of fiscal 1997 compared to $0.4 million for the first quarter of fiscal 1996) to support higher inventory levels associated with store expansion and opportunistic purchasing and for fixed asset additions. The increase in interest expense is also attributable to additional mortgage debt of approximately $7.3 million (at an average interest rate of approximately 9.1%) since April 30, 1995 associated with more Company owned store locations. The effective tax rate was approximately 39.5% in the first quarter of fiscal 1997 and 1996. As a result of the foregoing, net income for the first quarter of fiscal 1997 was $1.8 million, an 11.6% increase over $1.6 million for the first quarter of fiscal 1996. Liquidity and Capital Resources Net cash used in operating activities was $14.4 million for the first quarter of fiscal 1997. Operating cash flow was provided by net income of $1.8 million adjusted for non-cash charges of $1.4 million. The primary use of cash was an increase in inventory of $18.4 million primarily due to the addition of seasonal air conditioner inventory. This increase was partially offset by increased accounts payable of $4.8 million. Changes in other working capital items also served to decrease cash by approximately $4.0 million. At April 30, 1996, working capital was $80.5 million compared to $80.0 million at January 31, 1996. The ratio of current assets to current liabilities was 1.9 to 1 at April 30, 1996, and 2.1 to 1 at January 31, 1996. The Company had outstanding borrowings of $27.1 million on its revolving line of credit at April 30, 1996 at an average interest rate of 7.7%. At April 30, 1996, the Company had approximately $68.6 million borrowing availability on the revolving line of credit after reduction for the outstanding letter of credit. During fiscal 1997, the Company plans to open 35 to 40 REX stores with anticipated capital expenditures of approximately $20 to $24 million. Capital expenditures for the first quarter of fiscal 1997 were $1.8 million and were primarily in-process store construction costs. The Company believes it will be able to obtain long-term mortgage financing on a site-by-site basis for Company built or Company purchased store locations. Accounting Standards During the first quarter of fiscal 1997, the Company adopted the provisions of SFAS No. 121 "Accounting for the Impairment of 12

Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The application of this accounting standard did not have a material impact on the Company's financial position or results of operations. 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...................... 15 (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended April 30, 1996. 13

SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REX STORES CORPORATION Registrant June 14, 1996 Stuart A. Rose Stuart A. Rose Chairman of the Board (Chief Executive Officer) June 14, 1996 Douglas L. Bruggeman Douglas L. Bruggeman Vice President, Finance and Treasurer (Principal Financial and Chief Accounting Officer) 14

5 0000744187 REX STORES CORPORATION 1,000 U.S. DOLLARS 3-MOS JAN-31-1997 FEB-1-1996 APR-30-1996 1 1,931 1,565 810 402 164,920 174,639 80,752 9,436 254,224 94,111 32,090 96 0 0 104,178 254,224 97,384 97,384 72,503 72,503 0 0 1,203 2,902 1,146 1,756 0 0 0 1,756 .19 .19