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, 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 December 11, 1997, the registrant had 7,924,821 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 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 October 31 January 31 October 31 1997 1997 1996 (In Thousands) ASSETS: Cash and cash equivalents $ 1,836 $ 3,959 $ 1,763 Short-term investments 1,627 1,645 1,625 Accounts receivable, net 791 1,477 1,073 Merchandise inventory 169,345 135,033 170,879 Prepaid expenses and other 3,929 2,219 4,889 Future income tax benefits 6,624 5,544 3,818 ---------- --------- --------- Total current assets 184,152 149,877 184,047 PROPERTY AND EQUIPMENT, NET 93,676 89,638 86,368 FUTURE INCOME TAX BENEFITS 10,219 8,519 8,269 ---------- --------- --------- Total assets $ 288,047 $ 248,034 $ 278,684 ========== ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 29,861 $ 12,142 $ 36,501 Current portion of long-term debt 3,234 3,131 2,595 Accounts payable, trade 55,598 31,265 50,356 Accrued income taxes - 1,077 - Current portion, deferred income and deferred gain on sale and leaseback 11,350 10,844 10,442 Accrued payroll 4,979 4,866 4,961 Other liabilities 5,868 6,401 5,731 --------- --------- --------- Total current liabilities 110,890 69,726 110,586 --------- --------- --------- 3

Liabilities and Shareholders' Equity (Continued) LONG-TERM LIABILITIES: Long-term debt 51,499 51,102 40,605 Deferred income 17,364 18,279 17,117 Deferred gain on sale and leaseback 5,500 6,207 6,443 --------- --------- --------- Total long-term liabilities 74,363 75,588 64,165 --------- --------- --------- SHAREHOLDERS' EQUITY: Common stock 97 96 96 Paid-in capital 57,836 57,229 57,141 Retained earnings 59,302 56,763 52,885 Treasury stock (14,441) (11,368) (6,189) --------- --------- --------- Total shareholders' equity 102,794 102,720 103,933 --------- --------- --------- Total liabilities and shareholders' equity $ 288,047 $ 248,034 $ 278,684 ========= ========= ========= [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 1997 1996 1997 1996 (In Thousands, Except Per Share Amounts) NET SALES $ 87,967 $ 90,543 $266,131 $283,579 COSTS AND EXPENSES: Cost of merchandise sold 63,475 67,990 191,396 211,424 Selling, general and administrative expenses 21,973 20,793 65,206 62,430 -------- -------- -------- -------- Total costs and expenses 85,448 88,783 256,602 273,854 -------- -------- -------- -------- INCOME FROM OPERATIONS 2,519 1,760 9,529 9,725 INVESTMENT INCOME 23 17 73 62 INTEREST EXPENSE 1,911 1,361 5,406 4,030 -------- -------- -------- -------- Income before income taxes 631 416 4,196 5,757 PROVISION FOR INCOME TAXES 248 164 1,657 2,273 -------- -------- -------- -------- NET INCOME $ 383 $ 252 $ 2,539 $ 3,484 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVA- LENT SHARES OUTSTANDING 8,203 9,316 8,185 9,322 ======== ======== ======== ======== NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.05 $ 0.03 $ 0.31 $ 0.37 ======== ======== ======== ======== [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, 1996 9,598 $ 96 759 $6,189 $57,141 $52,885 Common stock issued 4 - - - 88 - Treasury stock acquired - - 629 5,179 - - Net income - - - - - 3,878 ----- ------ --- ------ ------- ------- Balance at January 31, 1997 9,602 $ 96 1,388 $11,368 $57,229 $56,763 Common stock issued 83 1 - - 607 - Treasury stock acquired - - 375 3,073 - - Net income - - - - - 2,539 ----- ------ --- ------ ------- ------- Balance at October 31, 1997 9,685 $ 97 1,763 $14,441 $57,836 $59,302 ===== ====== ===== ======= ======= ======= [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 1997 1996 (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,539 $ 3,484 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, net 2,228 2,163 Deferred income (409) 1,657 Future income tax benefits (2,780) 0 Accounts receivable 686 531 Merchandise inventory (34,312) (24,313) Other current assets (1,715) (3,068) Accounts payable, trade 24,333 10,831 Other liabilities (1,497) (5,331) -------- -------- NET CASH USED IN OPERATING ACTIVITIES (10,927) (14,046) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Short-term investments 18 (100) Capital expenditures (6,975) (18,931) Capital disposals 8 318 -------- -------- NET CASH USED IN INVESTING ACTIVITIE (6,949) (18,713) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in notes payable 17,719 27,174 Payments of long-term debt (2,030) (1,674) Long-term debt borrowings 2,530 10,234 Common stock issued 607 410 Treasury stock acquired (3,073) (2,307) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 15,753 33,837 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,123) 1,078 CASH AND CASH EQUIVALENTS, beginning of period 3,959 685 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 1,836 $1,763 ======== ======== [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, 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 October 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) (84,290) Expired or canceled ($8.125 per share) (7,600) --------- Outstanding at October 31, 1997 ($3.375 to $18.975 per share) 2,317,889 ========= 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 Nine Months Ended October 31 October 31 1997 1996 1997 1996 Basic $ .05 $ .03 $ .32 $ .39 ===== ===== ===== ===== Diluted $ .05 $ .03 $ .31 $ .37 ===== ===== ===== ===== 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, Southeast and Northwest 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 Nine Months Ended October 31 October 31 1997 1996 1997 1996 Net sales 100.0% 100.0% 100.0% 100.0% Cost of merchandise sold 72.2 75.1 71.9 74.6 ----- ----- ----- ----- Gross profit 27.8 24.9 28.1 25.4 Selling, general and administrative expense 25.0 23.0 24.5 22.0 ----- ----- ----- ----- Income from operations 2.8 1.9 3.6 3.4 Interest, net 2.1 1.4 2.0 1.4 ----- ----- ----- ----- Income before income taxes 0.7 0.5 1.6 2.0 Provision for income taxes 0.3 0.2 0.6 0.8 ----- ----- ----- ----- Net income 0.4% 0.3% 1.0% 1.2% ===== ===== ===== ===== 11

Comparison of Nine Months Ended October 31, 1997 and 1996 Net sales in the third quarter ended October 31, 1997 were $87.9 million compared to $90.5 million in the prior year's comparable period, representing a decrease of $2.6 million or 2.8%. Net sales for the first nine months of fiscal 1998 were $266.1 million compared to $283.6 million for the first nine months of fiscal 1997, representing a decrease of $17.5 million or 6.2%. These decreases are a result of a decline in comparable store merchandise sales of 11.1% for the third quarter and 16.4% for the nine months ended October 31, 1997, partially offset by sales from 14 net additional stores in the current year compared to one year earlier. As of October 31, 1997 there were 218 stores compared to 204 stores one year earlier. There were three stores opened and seven closed during the nine months ended October 31, 1997, compared to opening 11 stores and closing six during the nine months ended October 31, 1996. During the fourth quarter of the current fiscal year the Company has opened an additional five stores bringing the total opened for the year to eight stores. 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 $24.5 million (27.8% of net sales) in the third quarter of fiscal 1998 was 8.6% higher than the $22.6 million (24.9% of net sales) gross profit recorded in the third quarter of fiscal 1997. For the first nine months of fiscal 1998, gross profit was $74.7 million (28.1% of net sales), a 3.6% increase over the $72.2 million (25.4% of net sales) for the first nine months of fiscal 1997. The improved gross profit margin, as a percent of sales, for the third quarter and first nine months 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 third quarter of fiscal 1998 were $22.0 million (25.0% of net sales), a 5.7% increase over the $20.8 million (23.0% of net sales) for the third quarter of fiscal 1997. Selling, general and administrative expenses for the first nine months of fiscal 1998 were $65.2 million (24.5% of net sales), a 4.4% increase over the $62.4 million (22.0% of net sales) for the first nine months of fiscal 1997. The increase in expenses was primarily attributable to higher advertising costs and operating expenses associated with more store locations and increased incentive commissions for sales personnel. The increase in expenses as a percent of net sales resulted primarily from the decline in comparable store sales. 12

Interest expense increased to $1.9 million (2.1% of net sales) for the third quarter ended October 31, 1997 from $1.4 million (1.4% of net sales ) for the third quarter of fiscal 1997. Interest expense for the first nine months of fiscal 1998 increased to $5.4 million (2.0% of net sales) from $4.0 million (1.4% of net sales) for the first nine months of fiscal 1997. This increase is primarily a result of additional mortgage debt of approximately $11.5 million (at an average interest rate of approximately 8.8%) since October 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 $26.2 million and $23.1 million for the third quarter and first nine months of fiscal 1998, respectively, versus average outstanding borrowings of $20.1 million and $20.7 million for the third quarter and first nine 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 third quarter of fiscal 1998 was $383,000, an 52% increase over $252,000 for the third quarter of fiscal 1997. Net income for the first nine months of fiscal 1998 was $2.5 million, a 27.1% decrease from $3.5 million for the first nine months of fiscal 1997. Liquidity and Capital Resources Net cash used in operating activities was $10.9 million for the nine months ended October 31, 1997. Cash was provided by net income of $2.5 million, adjusted for non-cash charges of $1.8 million. The primary use of cash was an increase in inventory of $34.3 million due to preparations for the Christmas selling season and opportunistic purchases. This was partially offset by an increase in trade payables of $24.3 million. Changes in other working capital items also served to decrease cash by approximately $5.3 million. At October 31, 1997, working capital was $73.3 million compared to $80.2 million at January 31, 1997. The ratio of current assets to current liabilities was 1.7 to 1 at October 31, 1997 and 2.1 to 1 at January 31, 1997. The Company had outstanding borrowings on its revolving line of credit of $29.9 million at October 31, 1997 at an average interest rate of 7.8%. At October 31, 1997, the Company had approximately $76.1 million borrowing availability on the revolving line of credit. Forward-Looking Statements This Form 10-Q contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The words 13

"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 this report. 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...................... 17 99 Cautionary Statement under the Safe Harbor for Forward-Looking Statements in the Private Securities Litigation Reform Act of 1995..... 18 (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended October 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 December 11, 1997 /s/Stuart A. Rose Stuart A. Rose Chairman of the Board (Chief Executive Officer) December 11, 1997 /s/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 9-MOS JAN-31-1998 FEB-1-1997 OCT-31-1997 1 1,836 1,627 1,228 437 169,345 184,152 107,855 14,179 288,047 110,890 51,499 97 0 0 102,697 288,047 266,131 266,131 191,396 191,396 0 0 5,406 4,196 1,657 2,539 0 0 0 2,539 .31 .31

Exhibit 99 Certain statements in filings by REX Stores Corporation (the "Company") with the Securities and Exchange Commission, in the Company's press releases and in oral statements made by or with the approval of an authorized executive officer of the Company constitute 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 include, but are not limited to, the following: * Demand for the Company's products, which is dependent upon factors such as general economic conditions, availability of consumer credit, consumer confidence, consumer spending patterns and preferences, introduction and acceptance of new products and product features and the continued popularity of existing products in the Company's product categories; * Changes in the level of competition from current competitors and potential new competition from both retail stores and alternative methods of distribution such as electronic and telephone shopping services and mail order; * Availability of working capital financing from lending institutions and vendors and availability of long-term financing to support development of stores and distribution facilities; * The Company's ability to identify additional market areas in which it can successfully compete, locate suitable store sites and hire and train qualified personnel; * Loss of a significant vendor(s) or prolonged disruptions in product supply; * Changes in the cost of the Company's advertising or in support from vendors for co-op advertising and promotional programs; * Additional governmental or manufacturers restrictions or regulations on the sale of products or services by the Company; * Adverse results in significant litigation matters (if any); and * Seasonality of the Company's business and its dependence on the Christmas selling season.