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, 1998 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) Registrant's telephone number, including area code 937-276-3931 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 11, 1998, the registrant had 7,723,722 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.................................... 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 April 30 January 31 April 30 1998 1998 1997 (In Thousands) ASSETS: Cash and cash equivalents $ 2,260 $ 16,937 $ 2,119 Short-term investments 1,700 1,637 1,633 Accounts receivable, net 366 2,775 542 Merchandise inventory 142,737 126,498 156,318 Prepaid expenses and other 3,490 2,078 3,861 Future income tax benefits 7,899 7,899 5,544 --------- --------- -------- Total current assets 158,452 157,824 170,017 PROPERTY AND EQUIPMENT, NET 94,063 93,165 89,480 FUTURE INCOME TAX BENEFITS 9,541 9,541 8,519 --------- --------- -------- Total assets $ 262,056 $ 260,530 $268,016 ========= ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 11,608 $ 0 $ 25,816 Current portion of long-term debt 3,045 2,959 3,152 Accounts payable, trade 43,548 49,832 41,541 Accrued income taxes 270 1,671 0 Current portion, deferred income and deferred gain on sale and leaseback 11,371 11,402 11,101 Accrued payroll 3,649 5,810 3,315 Other liabilities 7,237 7,263 6,254 --------- --------- -------- Total current liabilities 80,728 78,937 91,179 --------- --------- -------- 3

Liabilities and Shareholders' Equity (Continued) LONG-TERM LIABILITIES: Long-term debt 52,490 52,661 52,323 Deferred income 17,426 17,886 17,992 Deferred gain on sale and leaseback 5,028 5,264 5,971 --------- --------- --------- Total long-term liabilities 74,944 75,811 76,286 --------- --------- --------- SHAREHOLDERS' EQUITY: Common stock 97 97 96 Paid-in capital 58,224 57,896 57,336 Retained earnings 65,194 64,175 57,560 Treasury stock (17,131) (16,386) (14,441) --------- --------- --------- Total shareholders' equity 106,384 105,782 100,551 --------- --------- --------- Total liabilities and shareholders' equity $ 262,056 $ 260,530 $ 268,016 ========= ========= ========= [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 1998 1997 (In Thousands, Except Per Share Amounts) NET SALES $ 87,964 $ 88,265 --------- --------- COSTS AND EXPENSES: Cost of merchandise sold 63,982 63,870 Selling, general and administrative expenses 21,216 21,573 --------- --------- Total costs and expenses 85,198 85,443 --------- --------- INCOME FROM OPERATIONS 2,766 2,822 INVESTMENT INCOME 178 28 INTEREST EXPENSE 1,259 1,532 --------- --------- Income before provision for income taxes 1,685 1,318 PROVISION FOR INCOME TAXES 666 521 --------- --------- NET INCOME $ 1,019 $ 797 ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVA- LENT SHARES OUTSTANDING 7,697 7,998 ========= ========= BASIC NET INCOME PER SHARE $ 0.13 $ 0.10 ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 8,037 8,230 ========= ========= DILUTED NET INCOME PER SHARE $ 0.13 $ 0.10 ========= ========= [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 April 30, 1997 9,615 $ 96 1,763 $14,441 $57,336 $57,560 Common stock issued 73 1 0 0 560 0 Treasury stock acquired 0 0 192 1,945 0 0 Net income 0 0 0 0 0 6,615 ----- ------ ----- ------ ------- ------- Balance at January 31, 1998 9,688 $ 97 1,955 $16,386 $57,896 $64,175 Common stock issued 47 0 0 0 328 0 Treasury stock acquired 0 0 70 745 0 0 Net income 0 0 0 0 0 1,019 ----- ------ ----- ------ ------- ------- Balance at April 30, 1998 9,735 $ 97 2,025 $17,131 $58,224 $65,194 ===== ====== ===== ====== ======= ======= [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 1998 1997 (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,019 $ 797 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, net 781 743 Deferred income (491) (30) Accounts receivable 2,409 935 Merchandise inventory (16,239) (21,285) Other current assets (1,414) (1,644) Accounts payable, trade (6,284) 10,276 Other liabilities (3,588) (2,775) -------- -------- NET CASH USED IN OPERATING ACTIVITIES (23,807) (12,983) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Short-term investments (63) 12 Capital expenditures (1,913) (819) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (1,976) (807) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in note payable 11,608 13,674 Payments of long-term debt (723) (680) Long-term debt borrowings 638 1,922 Common stock issued 328 107 Treasury stock acquired (745) (3,073) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 11,106 11,950 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (14,677) (1,840) CASH EQUIVALENTS, beginning of period 16,937 3,959 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 2,260 $ 2,119 ======== ======== [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, 1998 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, 1998. 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 1998 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. Certain reclassifications have been made to prior year amounts to conform with their 1998 presentation. 8

Notes to Consolidated Financial Statements (Continued) Note 3. Stock Option Plans The following summarizes options granted, exercised and cancelled or expired during the quarter ended April 30, 1998: Shares Under Stock Option Plans Outstanding at January 31, 1998 2,287,464 ($3.375 to $18.975 per share) Exercised ($6.875 to $8.125 per share) (46,945) --------- Outstanding at April 30, 1998 ($3.375 to $18.975 per share) 2,240,519 --------- Note 4. Net Income Per Share Effective January 31, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share," which replaces the calculation of primary and fully diluted earnings per share under previous accounting standards with basic and diluted earnings per share. As a result, the Company's reported net income per share amounts for the quarter ended April 30, 1997 have been restated to conform with the requirements of SFAS No. 128. The restatement had no impact on the amounts reported. The following table reconciles the basic and diluted net income per share computations for each period presented: 9

April 30, 1998 Income Shares Per Share Basic net income per share $1,019 7,697 $0.13 ===== Effect of stock options - 340 ------ ------ Diluted net income per share $1,019 8,037 $0.13 ====== ====== ===== April 30, 1997 Income Shares Per Share Basic net income per share $ 797 7,998 $0.10 ===== Effect of stock options - 232 ------ ------ Diluted net income per share $ 797 8,230 $0.10 ====== ====== ===== As of April 30, 1998, a total of 1,133,973 shares subject to outstanding options at exercise prices ranging from $13.00 to $18.975 per share were not included in the common equivalent shares outstanding calculation as the exercise prices were above the average trading price of the Company's stock for the quarter ended April 30, 1998. 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 with 223 stores in 35 states, operating predominantly in small to medium sized markets 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 1998 1997 Net sales 100.0% 100.0% Cost of merchandise sold 72.7 72.4 ----- ----- Gross profit 27.3 27.6 Selling, general and administrative expense 24.1 24.4 ----- ----- Income from operations 3.2 3.2 Interest, net 1.2 1.7 ----- ----- Income before income taxes 2.0 1.5 Provision for income taxes .8 .6 ----- ----- Net income 1.2% .9% ===== ===== 11

Comparison of Three Months Ended April 30, 1998 and 1997 Net sales in the first quarter ended April 30, 1998 were $88.0 million compared to $88.3 million in the prior year's comparable period, representing a decrease of $300,000 or 0.3%. This decrease is the result of a 2.4% decline in comparable store sales for the quarter, partially offset by increased sales in non-comparable stores. The Company considers a store to be comparable after it has been open six fiscal quarters. As of April 30, 1998, the Company had 223 stores compared to 222 stores one year earlier. There was one store opened and none closed during the first quarter of fiscal 1999. 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 $24.0 million in the first quarter of fiscal 1999 (27.3% of net sales) was 1.7% lower than the $24.4 million gross profit (27.6% of net sales) recorded in the first quarter of fiscal 1998. The reduced gross profit margin, as a percent of net sales, for the first quarter of fiscal 1999 is primarily the result of a change in the merchandise mix, partially offset by 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 quarter ended April 30, 1998 were $21.2 million (24.1% of net sales), a 1.7% decrease from $21.6 million (24.4% of net sales) for the quarter ended April 30, 1997. The decrease in expense is primarily attributable to lower advertising expenditures in certain markets, partially offset by an increase in incentive commissions for sales personnel. Interest expense decreased to $1.3 million in the first quarter of fiscal 1999 from $1.5 million in the first quarter of fiscal 1998. This decrease is a result of lower borrowings on the line of credit primarily due to lower inventory levels. The effective tax rate was approximately 39.5% in the first quarter of fiscal 1999 and 1998. As a result of the foregoing, net income for the first quarter of fiscal 1999 was $1.0 million, a 27.9% increase from $797,000 for the first quarter of fiscal 1998. 12

Liquidity and Capital Resources Net cash used in operating activities was $23.8 million for the first quarter of fiscal 1999, compared to $13.0 million for the prior year first quarter. Cash flow was provided by net income of $1.0 million adjusted for non-cash charges of $290,000. The primary use of cash was an increase in inventory of $16.2 million primarily due to the addition of seasonal air conditioner inventory and a decrease in accounts payable of $6.3 million due to timing of payments with vendors. Changes in other working capital items also served to decrease cash by approximately $2.6 million. At April 30, 1998, working capital was $77.7 million compared to $78.9 million at January 31, 1998. The ratio of current assets to current liabilities was 2.0 to 1 at April 30, 1998 and January 31, 1998. The Company had outstanding borrowings of $11.6 million on its revolving line of credit at April 30, 1998 at a average interest rate of 8.5%. At April 30, 1998, the Company had approximately $77.4 million borrowing availability on the revolving line of credit. 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 Form 10-Q for the quarter ended October 31, 1997 (File No. 0-13283). Item 3. Quantitative and Qualitative Disclosure About Market Risk None. 13

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 April 30, 1998. 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 June 12, 1998 STUART A. ROSE Stuart A. Rose Chairman of the Board (Chief Executive Officer) June 12, 1998 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 3-MOS JAN-31-1999 FEB-1-1998 APR-30-1998 1 2,260 1,700 834 468 142,737 158,452 110,060 15,997 262,056 80,728 52,490 97 0 0 106,287 262,056 87,964 87,964 63,982 63,982 0 0 1,259 1,685 666 1,019 0 0 0 1,019 .13 .13