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, 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 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) 513-276-3931 (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 ( ) At the close of business on December 10, 1996, the registrant had 8,841,731 shares of Common Stock, par value $.01 per share, outstanding.

REX STORES CORPORATION AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION Item 1. 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 October 31 January 31 October 31 1996 1996 1995 (In Thousands) ASSETS: Cash and cash equivalents $ 1,763 $ 685 $ 2,084 Short-term investments 1,625 1,525 1,525 Accounts receivable, net 1,073 1,604 713 Merchandise inventory 170,879 146,566 183,801 Prepaid expenses and other 4,889 1,825 2,519 Future income tax benefits 3,818 3,818 4,084 ---------- --------- --------- Total current assets 184,047 156,023 194,726 PROPERTY AND EQUIPMENT, NET 86,368 70,307 67,648 FUTURE INCOME TAX BENEFITS 8,269 8,269 7,619 ---------- --------- --------- Total assets $ 278,684 $ 234,599 $ 269,993 ========== ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 36,501 $ 9,327 $ 51,162 Current portion of long-term debt 2,595 2,050 1,963 Accounts payable, trade 50,356 39,525 50,059 Accrued income taxes - 4,121 - Current portion, deferred income and deferred gain on sale and leaseback 10,442 9,083 8,521 Accrued payroll 4,961 6,570 5,826 Other liabilities 5,731 5,331 5,371 --------- --------- --------- Total current liabilities 110,586 76,007 122,902 --------- --------- --------- 3

Liabilities and Shareholders' Equity (Continued) LONG-TERM LIABILITIES: Long-term debt 40,605 32,590 31,342 Deferred income 17,117 16,506 14,907 Deferred gain on sale and leaseback 6,443 7,150 7,386 --------- --------- --------- Total long-term liabilities 64,165 56,246 53,635 --------- --------- --------- SHAREHOLDERS' EQUITY: Common stock 96 95 95 Paid-in capital 57,141 56,732 56,386 Retained earnings 52,885 49,401 40,857 Treasury stock (6,189) (3,882) (3,882) --------- --------- --------- Total shareholders' equity 103,933 102,346 93,456 --------- --------- --------- Total liabilities and shareholders' equity $ 278,684 $ 234,599 $ 269,993 ========= ========= ========= [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 1996 1995 1996 1995 (In Thousands, Except Per Share Amounts) NET SALES $ 90,543 $ 94,914 $283,579 $278,799 COSTS AND EXPENSES: Cost of merchandise sold 67,990 70,546 211,424 207,632 Selling, general and administrative expenses 20,793 19,716 62,430 58,187 -------- -------- -------- -------- Total costs and expenses 88,783 90,262 273,854 265,819 -------- -------- -------- -------- INCOME FROM OPERATIONS 1,760 4,652 9,725 12,980 INVESTMENT INCOME 17 25 62 159 INTEREST EXPENSE 1,361 1,467 4,030 3,177 -------- -------- -------- -------- Income before income taxes 416 3,210 5,757 9,962 PROVISION FOR INCOME TAXES 164 1,268 2,273 3,933 -------- -------- -------- -------- NET INCOME $ 252 $ 1,942 $ 3,484 $ 6,029 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVA- LENT SHARES OUTSTANDING 9,316 9,412 9,322 9,388 ======== ======== ======== ======== NET INCOME PER SHARE $ 0.03 $ 0.21 $ 0.37 $ 0.64 ======== ======== ======== ======== [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 5

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, 1995 9,483 $ 95 534 $3,882 $56,386 $40,857 Common stock issued 38 - - - 346 - Net income - - - - - 8,544 ----- ------ --- ------ ------- ------- Balance at January 31, 1996 9,521 $ 95 534 $3,882 $56,732 $49,401 Common stock issued 77 1 - - 409 - Treasury stock acquired - - 225 2,307 - - Net income - - - - - 3,484 ----- ------ --- ------ ------- ------- Balance at October 31, 1996 9,598 $ 96 759 $6,189 $57,141 $52,885 ===== ====== === ====== ======= ======= [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 6

REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended October 31 1996 1995 (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,484 $ 6,029 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, net 2,163 1,610 Deferred income 1,657 2,390 Accounts receivable 531 364 Merchandise inventory (24,313) (68,454) Other current assets (3,068) (2,278) Accounts payable, trade 10,831 16,764 Other liabilities (5,331) (2,727) -------- -------- NET CASH USED IN OPERATING ACTIVITIES (14,046) (46,302) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Short-term investments (100) 30 Capital expenditures (18,931) (19,561) Capital disposals 318 29 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (18,713) (19,502) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in notes payable 27,174 51,162 Payments of long-term debt (1,674) (1,361) Long-term debt borrowings 10,234 7,391 Common stock issued 410 297 Treasury stock acquired (2,307) (2,264) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 33,837 55,225 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,078 (10,579) CASH AND CASH EQUIVALENTS, beginning of period 685 12,663 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 1,763 $ 2,084 ======== ======== [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 7

REX STORES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS October 31, 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 October 31, 1996: Shares Under Stock Option Plans Outstanding at January 31, 1996 ($3.25 to $18.975 per share) 2,068,558 Granted ($15.25 to $16.775 per share) 202,398 Exercised ($3.25 to $13.00 per share) (77,129) Expired or cancelled ($6.375 to $17.25 per share) (60,200) --------- Outstanding at October 31, 1996 ($3.375 to $18.975 per share) 2,133,627 ========= Note 4. Legal Matters The employment related lawsuit discussed in the Company's second quarter report was settled and dismissed with prejudice in November 1996 and the resolution of this matter did not have a material impact on the Company's financial position or results of operations. 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 results 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, Southeast and Northwest under the trade name "REX". Results of Operation 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 1996 1995 1996 1995 Net sales 100.0% 100.0% 100.0% 100.0% Cost of merchandise sold 75.1 74.3 74.6 74.5 ----- ----- ----- ----- Gross profit 24.9 25.7 25.4 25.5 Selling, general and administrative expense 23.0 20.8 22.0 20.8 ----- ----- ----- ----- Income from operations 1.9 4.9 3.4 4.7 Interest, net 1.4 1.5 1.4 1.1 ----- ----- ----- ----- Income before income taxes .5 3.4 2.0 3.6 Provision for income taxes .2 1.3 .8 1.4 ----- ----- ----- ----- Net income .3% 2.1% 1.2% 2.2% ===== ===== ===== ===== 10

Comparison of Nine Months Ended October 31, 1996 and 1995 Net sales in the third quarter ended October 31, 1996 were $90.5 million compared to $94.9 million in the prior year's comparable period, representing a decline of $4.4 million or 4.6%. This decrease is a result of a decline in comparable store merchandise sales of 18.9%, offset by sales from 29 net additional store locations in the current year. Net sales for the first nine months of fiscal 1997 were $283.6 million compared to $278.8 million for the first nine months of fiscal 1996, representing an increase of $4.8 million or 1.7%. This increase is primarily a result of 29 net additional store locations in the current year offset by a decline of 13.7% in comparable store merchandise sales for the year to date period. As of October 31, 1996, the Company had 204 stores compared to 175 stores one year earlier. The Company considers a store to be comparable after it has been open six full fiscal quarters. The Company opened 11 stores and closed six during the first nine months of fiscal 1997, compared to opening ten stores and closing none during the first nine months of fiscal 1996. During the fourth quarter of the current fiscal year, the Company has opened an additional 24 stores bringing the total opened for the year to 35 stores. The Company will continue to evaluate stores and markets and will close stores that are not adequately contributing to Company profitability. Gross profit of $22.6 million in the third quarter of fiscal 1997 (24.9% of net sales) was 7.4% lower than the $24.4 million gross profit (25.7% of net sales) recorded in the third quarter of the prior year. In the first nine months of fiscal 1997, gross profit was $72.2 million (25.4% of net sales), a 1.4% increase over the $71.2 million (25.5% of net sales) for the first nine months of fiscal 1996. The decline in gross profit, as a percent to net sales, is primarily due to increased promotional activity. The third quarter was also negatively impacted by lower air conditioner sales, which generally have a higher gross profit margin, and a higher percentage of appliance sales, which generally have a lower gross profit margin. Extended service contract revenues, which generally have a higher gross profit margin, increased as a percent to net sales in both fiscal 1997 periods due to the decline in comparable store sales. Selling, general and administrative expenses for the third quarter of fiscal 1997 were $20.8 million (23.0% of net sales), a 5.5% increase over the $19.8 million (20.8% of net sales) for the third quarter of fiscal 1996. Selling, general and administrative expenses for the first nine months of fiscal 1997 were $62.4 million (22.0% of net sales), a 7.3% increase over the $58.2 million (20.8% of net sales) for the first nine months of fiscal 1996. The increase in expenses is primarily attributable to higher advertising, occupancy and general costs associated with the net 11

addition of 29 stores from a year ago. The increase in selling, general and administrative expenses as a percent of net sales is primarily the result of the decline in comparable store sales. Income from operations was $1.8 million (1.9% of net sales) in the third quarter of fiscal 1997, a 62.2% decrease from $4.7 million (4.9% of net sales) for the third quarter of fiscal 1996. Income from operations was $9.7 million (3.4% of net sales) for the first nine months of fiscal 1997, a 25.1% decrease from $13.0 million (4.7% of net sales) for the first nine months of fiscal 1996. Interest expense was $1.4 million (1.4% of net sales) for the quarter ended October 31, 1996 and $1.5 million (1.5% of net sales) for the previous year's third quarter. This decline is due to lower borrowings on the line of credit for the current year's third quarter, partially offset by additional mortgage debt on Company owned store locations. Average borrowings on the line of credit for the third quarter of fiscal 1997 were approximately $20.1 million compared to approximately $31.5 million in the third quarter of fiscal 1996. Interest expense for the first nine months of fiscal 1997 increased to $4.0 million (1.4% of net sales) from $3.2 million (1.1% of net sales) for the first nine months of fiscal 1996. This increase is primarily a result of additional mortgage debt of $9.9 million (at an average interest rate of approximately 8.75%) since October 31, 1995 associated with more Company owned store locations and higher average borrowings on the line of credit for the nine months ended October 31, 1996 (average outstanding borrowings of approximately $20.7 million for the first nine months of fiscal 1997 compared to $14.3 million for the first nine months of fiscal 1996). The effective tax rate was approximately 39.5% for all years presented. As a result of the foregoing, net income for the third quarter of fiscal 1997 was $252,000, an 87% decline from $1.9 million for the third quarter of fiscal 1996. Net income for the first nine months of fiscal 1997 was $3.5 million, a 42.2% decrease from $6.0 million for the first nine months of fiscal 1996. Liquidity and Capital Resources Net cash used in operating activities was $14.0 million for the nine months ended October 31, 1996. The primary use of cash was an increase in inventory of $24.3 million in preparation for new store openings and the Christmas selling season. This was partially offset by an increase in trade payables of $10.8 million. Other liabilities decreased by $5.3 million primarily due to the timing of income tax payments. 12

At October 31, 1996, working capital was $73.5 million compared to $80.0 million at January 31, 1996. The ratio of current assets to current liabilities was 1.7 to 1 at October 31, 1996 and 2.1 to 1 at January 31, 1996. The Company had outstanding borrowings of $36.5 million on its revolving line of credit at October 31, 1996 at an average interest rate of 7.5%. At October 31, 1996, the Company had approximately $71.4 million additional borrowing availability on the revolving line of credit. During fiscal 1997, the Company has opened 35 new REX stores. Capital expenditures for the first nine months of fiscal 1997 were $18.9 million with additional expenditures of approximately $6 million expected in the fourth quarter. The Company has closed long-term mortgage financing of $10.2 million for 17 stores during the first nine months of fiscal 1997 and anticipates obtaining approximately $10 million of additional mortgage financing for fiscal 1997 stores. The Company believes it will be able to secure 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 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 October 31, 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 December 11, 1996 Stuart A. Rose Stuart A. Rose Chairman of the Board (Chief Executive Officer) December 11, 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 9-MOS JAN-31-1997 FEB-1-1996 OCT-31-1996 1 1,763 1,625 1,476 403 170,879 184,047 97,159 10,791 278,684 110,586 40,605 96 0 0 103,837 278,684 283,579 283,579 211,424 211,424 0 0 4,030 5,757 2,273 3,484 0 0 0 3,484 .37 .37