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, 1997 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 (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 September 11, 1997, the registrant had 7,918,621 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.................................... 11 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 1997 1997 1996 (In Thousands) ASSETS: Cash and cash equivalents $ 1,656 $ 3,959 $ 2,028 Short-term investments 1,647 1,645 1,605 Accounts receivable, net 808 1,477 477 Merchandise inventory 148,174 135,033 148,850 Prepaid expenses and other 5,121 2,219 4,072 Future income tax benefits 5,544 5,544 3,818 ---------- --------- --------- Total current assets 162,950 149,877 160,850 PROPERTY AND EQUIPMENT, NET 91,369 89,638 76,525 FUTURE INCOME TAX BENEFITS 8,519 8,519 8,269 ---------- --------- --------- Total assets $ 262,838 $ 248,034 $ 245,644 ========== ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 28,152 $ 12,142 $ 19,487 Current portion of long-term debt 3,190 3,131 2,527 Accounts payable, trade 31,941 31,265 32,642 Accrued income taxes 0 1,077 0 Current portion, deferred income and deferred gain on sale and leaseback 11,257 10,844 10,055 Accrued payroll 4,655 4,866 4,701 Other liabilities 5,758 6,401 5,915 --------- --------- --------- Total current liabilities 84,953 69,726 75,327 --------- --------- --------- 3

Liabilities and Shareholders' Equity (Continued) LONG-TERM LIABILITIES: Long-term debt 52,219 51,102 40,640 Deferred income 17,683 18,279 17,013 Deferred gain on sale and leaseback 5,736 6,207 6,679 --------- --------- --------- Total long-term liabilities 75,638 75,588 64,332 --------- --------- --------- SHAREHOLDERS' EQUITY: Common stock 97 96 96 Paid-in capital 57,672 57,229 57,138 Retained earnings 58,919 56,763 52,633 Treasury stock (14,441) (11,368) (3,882) --------- --------- --------- Total shareholders' equity 102,247 102,720 105,985 --------- --------- --------- Total liabilities and shareholders' equity $ 262,838 $ 248,034 $ 245,644 ========= ========= ========= [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 Six Months Ended July 31 July 31 1997 1996 1997 1996 (In Thousands, Except Per Share Amounts) NET SALES $ 89,899 $ 95,652 $178,164 $193,036 COSTS AND EXPENSES: Cost of merchandise sold 64,051 70,931 127,921 143,434 Selling, general and administrative expenses 21,660 20,839 43,233 41,636 -------- -------- -------- -------- Total costs and expenses 85,711 91,770 171,154 185,070 -------- -------- -------- -------- INCOME FROM OPERATIONS 4,188 3,882 7,010 7,966 INVESTMENT INCOME 22 23 50 45 INTEREST EXPENSE 1,963 1,466 3,495 2,670 -------- -------- -------- -------- Income before income taxes 2,247 2,439 3,565 5,341 PROVISION FOR INCOME TAXES 888 964 1,409 2,109 -------- -------- -------- -------- NET INCOME $ 1,359 $ 1,475 $ 2,156 $ 3,232 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVA- LENT SHARES OUTSTANDING 8,127 9,401 8,183 9,347 ======== ======== ======== ======== NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.17 $ 0.16 $ 0.26 $ 0.35 ======== ======== ======== ======== [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 July 31, 1996 9,597 $ 96 534 $3,882 $57,138 $52,633 Common stock issued 5 - - - 91 - Treasury stock acquired - - 854 7,486 - - Net income - - - - - 4,130 ----- ------ --- ------ ------- ------- Balance at January 31, 1997 9,602 $ 96 1,388 $11,368 $57,229 $56,763 Common stock issued 63 1 - - 443 - Treasury stock acquired - - 375 3,073 - - Net income - - - - - 2,156 ----- ------ --- ------ ------- ------- Balance at July 31, 1997 9,665 $ 97 1,763 $14,441 $57,672 $58,919 ===== ====== ===== ======= ======= ======= [FN] The accompanying notes are an integral part of these unaudited consolidated statements. 6

REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended July 31 1997 1996 (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,156 $ 3,232 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, net 1,481 1,471 Deferred income (182) 1,211 Accounts receivable 669 1,126 Merchandise inventory (13,141) (2,284) Other current assets (2,906) (439) Accounts payable, trade 676 (6,883) Other liabilities (1,931) (7,215) -------- -------- NET CASH USED IN OPERATING ACTIVITIES (13,178) (9,781) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Short-term investments (2) (80) Capital expenditures (3,680) (7,974) Capital disposals 1 85 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (3,681) (7,969) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in notes payable 16,010 10,160 Payments of long-term debt (1,354) (1,062) Long-term debt borrowings 2,530 9,589 Common stock issued 443 406 Treasury stock acquired (3,073) 0 ------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 14,556 19,093 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,303) 1,343 CASH AND CASH EQUIVALENTS, beginning of period 3,959 685 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 1,656 $ 2,028 ======== ======== The accompanying notes are an integral part of these unaudited consolidated statements. 7

REX STORES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 31, 1997 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, 1997. 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 1997 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 canceled or expired at July 31, 1997: Shares Under Stock Option Plans Outstanding at January 31, 1997 ($3.375 to $18.975 per share) 2,119,227 Granted ($10.375 per share) 290,552 Exercised ($6.375 to $8.125 per share) (64,008) Expired or canceled ($8.125 per share) (7,600) --------- Outstanding at July 31, 1997 ($3.375 to $18.975 per share) 2,338,171 ========= On February 26, 1997, the Company's Board of Directors approved a re-pricing of 362,035 stock options, with exercise prices ranging from $13.00 to $18.975 per share, to the market price as of the date of approval of $8.125 per share. Stock options held by employees who are members of the Board of Directors and stock options held by Non-Employee Directors were not re-priced. Note 4. Earnings Per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS No. 128) "Earnings per Share," which establishes standards for computing and presenting earnings per share (EPS) for all publicly held companies. SFAS No. 128 replaces the presentation of primary EPS with a presentation of basic EPS and requires the presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures. Basic EPS excludes all dilution, while diluted EPS reflects the potential dilution that could occur if securities, stock options or other contracts to issue common stock were exercised resulting in the issuance of common stock. 9

The adoption of SFAS No. 128 is required for financial statements issued after December 15, 1997 and requires restatement of all prior period EPS data. Under SFAS No. 128, basic EPS and dilutive EPS would have been as follows: Three Months Ended Six Months Ended July 31 July 31 1997 1996 1997 1996 Basic $ .17 $ .16 $ .27 $ .36 ===== ===== ===== ===== Diluted $ .17 $ .16 $ .26 $ .35 ===== ===== ===== ===== 10

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 Six Months Ended July 31 July 31 1997 1996 1997 1996 Net sales 100.0% 100.0% 100.0% 100.0% Cost of merchandise sold 71.2 74.2 71.8 74.3 ----- ----- ----- ----- Gross profit 28.8 25.8 28.2 25.7 Selling, general and administrative expense 24.1 21.8 24.3 21.6 ----- ----- ----- ----- Income from operations 4.7 4.0 3.9 4.1 Interest, net 2.2 1.5 1.9 1.3 ----- ----- ----- ----- Income before income taxes 2.5 2.5 2.0 2.8 Provision for income taxes 1.0 1.0 0.8 1.1 ----- ----- ----- ----- Net income 1.5% 1.5% 1.2% 1.7% ===== ===== ===== ===== 11

Comparison of Six Months Ended July 31, 1997 and 1996 Net sales in the second quarter ended July 31, 1997 were $89.9 million compared to $95.7 million in the prior year's comparable period, representing a decrease of $5.8 million or 6.1%. Net sales for the first half of fiscal 1998 were $178.2 million compared to $193.0 million in the first half of fiscal 1997, representing a decrease of $14.8 million or 7.7%. These decreases are a result of a decline in comparable store merchandise sales of 18.0% for the three months and 19.2% for the six months ended July 31, 1997, partially offset by sales from 21 net additional stores in the current year compared to one year earlier. As of July 31, 1997, the Company had 219 stores compared to 198 stores one year earlier. There was one store opened and four closed during the first half of fiscal 1998. In the prior year's first half there were two stores opened and three closed. 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 $25.8 million in the second quarter of fiscal 1998 (28.8% of net sales) was 4.6% higher than the $24.7 million gross profit (25.8% of net sales) recorded in the second quarter of fiscal 1997. In the first half of fiscal 1998 gross profit was $50.2 million (28.2% of net sales), a 1.3% increase over the $49.6 million (25.7% of net sales) for the first half of fiscal 1997. The improved gross profit margin, as a percent of sales, for the second quarter and first half of fiscal 1998 was primarily the result of lower merchandise cost on certain products due to opportunistic purchasing and the recognition of a higher amount of extended service contract revenues, which generally have a higher gross profit margin. Selling, general and administrative expenses for the second quarter of fiscal 1998 were $21.7 million (24.1% of net sales), a 3.9% increase over the $20.8 million (21.8% of net sales) for the second quarter of fiscal 1997. Selling, general and administrative expenses for the first half of fiscal 1998 were $43.2 million (24.3% of net sales), a 3.8% increase over the $41.6 million (21.6% of net sales) for the first half of fiscal 1997. The increase in expenses was primarily attributable to higher advertising costs and operating expenses associated with more store locations. The increase in expense as a percent of net sales resulted from the decline in comparable store sales. Interest expense increased to $2.0 million (2.2% of net sales) for the quarter ended July 31, 1997 from $1.5 million (1.5% of net sales) for the second quarter of fiscal 1997. Interest expense for the first half of fiscal 1998 increased to $3.5 million (1.9% of net sales) from $2.7 million (1.3% of net sales) for the first half 12

of fiscal 1997. This increase is primarily a result of additional mortgage debt of approximately $12.2 million (at an average interest rate of approximately 8.8%) since July 31, 1996 associated with more Company owned store locations. The increase in interest expense is also attributable to additional borrowings on the line of credit (average outstanding borrowings of $28.8 million and $21.5 million for the second quarter and first six months of fiscal 1998, respectively, versus average outstanding borrowings of $24.2 million and $20.9 million for the second quarter and first six months of fiscal 1997, respectively). The effective tax rate was approximately 39.5% for all periods presented. As a result of the foregoing, net income for the second quarter of fiscal 1998 was $1.4 million, a 7.9% decline from $1.5 million for the second quarter of fiscal 1997. Net income for the first half of fiscal 1998 was $2.2 million, a 33.3% decrease from $3.2 million for the first half of fiscal 1997. Liquidity and Capital Resources Net cash used in operating activities was $13.2 million for the six months ended July 31, 1997. Cash was provided by net income of $2.2 million, adjusted for non-cash charges of $1.3 million. The primary use of cash was an increase in inventory of $13.1 million primarily due to the addition of seasonal air conditioner inventory and opportunistic purchases. Changes in other working capital items also served to decrease cash by approximately $3.6 million. At July 31, 1997, working capital was $78.0 million compared to $80.2 million at January 31, 1997. The ratio of current assets to current liabilities was 1.9 to 1 at July 31, 1997 and 2.1 to 1 at January 31, 1997. The Company had outstanding borrowings on its revolving line of credit of $28.2 million at July 31, 1997 at an average interest rate of 7.7%. At July 31, 1997, the Company had approximately $64.7 million borrowing availability on the revolving line of credit after reduction for the outstanding letter of credit. 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 6, 1997, at which the following matter was submitted to a vote of shareholders: 1. Election of six directors. The vote on this matter was as follows: Broker Nominee For Withheld Nonvotes Stuart Rose 7,210,780 10,095 0 Lawrence Tomchin 7,210,780 10,095 0 Robert Davidoff 7,210,780 10,095 0 Tibor Fabian 7,210,780 10,095 0 Edward Kress 7,210,780 10,095 0 Lee Fisher 7,210,780 10,095 0 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. The following exhibits are filed with this report: 27 Financial Data Schedule...................... 16 (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended July 31, 1997. 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 12, 1997 Stuart A. Rose Stuart A. Rose Chairman of the Board (Chief Executive Officer) September 12, 1997 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 U.S. DOLLARS 6-MOS JAN-31-1998 FEB-1-1997 JUL-31-1997 1 1,656 1,647 1,154 346 148,174 162,950 104,893 13,524 262,838 84,953 52,219 97 0 0 102,150 262,838 178,164 178,164 127,921 127,921 0 0 3,495 3,565 1,409 2,156 0 0 0 2,156 .26 .26