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, 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) (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, 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 September 10, 1998, the registrant had 7,179,222 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 Item 3. Quantitative and Qualitative Disclosure About Market Risk................................... 13 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders.............................. 14 Item 5. Other Information............................... 14 Item 6. Exhibits and Reports on Form 8-K................ 14

PART I. FINANCIAL INFORMATION Item 1. Financial Statements REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS A S E T S July 31 January 31 July 31 1998 1998 1997 (In Thousands) ASSETS: Cash and cash equivalents $ 6,014 $ 16,937 $ 1,656 Short-term investments 1,744 1,637 1,647 Accounts receivable, net 518 2,775 808 Merchandise inventory 144,523 126,498 148,174 Prepaid expenses and other 2,833 2,078 5,121 Future income tax benefits 7,899 7,899 5,544 ---------- --------- --------- Total current assets 163,531 157,824 162,950 PROPERTY AND EQUIPMENT, NET 93,624 93,165 91,369 FUTURE INCOME TAX BENEFITS AND OTHER NONCURRENT ASSETS 12,727 9,541 8,519 ---------- --------- --------- Total assets $ 269,882 $ 260,530 $ 262,838 ========== ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 13,618 $ - $ 28,152 Current portion of long-term debt 3,011 2,959 3,190 Accounts payable, trade 49,507 49,832 31,941 Accrued income taxes - 1,671 - Current portion, deferred income and deferred gain on sale and leaseback 11,379 11,402 11,257 Accrued payroll 4,388 5,810 4,655 Other liabilities 10,612 7,263 5,758 --------- --------- --------- Total current liabilities 92,515 78,937 84,953 --------- --------- ---------

Liabilities and Shareholders' Equity (Continued) LONG-TERM LIABILITIES: Long-term debt 53,093 52,661 52,219 Deferred income 16,928 17,886 17,683 Deferred gain on sale and leaseback 4,793 5,264 5,736 --------- --------- --------- Total long-term liabilities 74,814 75,811 75,638 --------- --------- --------- SHAREHOLDERS' EQUITY: Common stock 97 97 97 Paid-in capital 58,403 57,896 57,672 Retained earnings 66,773 64,175 58,919 Treasury stock (22,720) (16,386) (14,441) --------- --------- --------- Total shareholders' equity 102,553 105,782 102,247 --------- --------- --------- Total liabilities and shareholders' equity $ 269,882 $ 260,530 $ 262,838 ========= ========= ========= [FN] The accompanying notes are an integral part of these unaudited consolidated statements.

REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Six Months Ended July 31 July 31 1998 1997 1998 1997 (In Thousands, Except Per Share Amounts) NET SALES $ 92,446 $ 89,899 $180,410 $178,164 COSTS AND EXPENSES: Cost of merchandise sold 66,402 64,051 130,384 127,921 Selling, general and administrative expenses 21,818 21,660 43,034 43,233 -------- -------- -------- -------- Total costs and expenses 88,220 85,711 173,418 171,154 -------- -------- -------- -------- INCOME FROM OPERATIONS 4,226 4,188 6,992 7,010 INVESTMENT INCOME 45 22 223 50 INTEREST EXPENSE 1,659 1,963 2,918 3,495 -------- -------- -------- -------- Income before income taxes 2,612 2,247 4,297 3,565 PROVISION FOR INCOME TAXES 1,033 888 1,699 1,409 -------- -------- -------- -------- NET INCOME $ 1,579 $ 1,359 $ 2,598 $ 2,156 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,644 7,885 7,670 7,940 ======== ======== ======== ======== BASIC NET INCOME PER SHARE $ 0.21 $ 0.17 $ 0.34 $ 0.27 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVA- LENT SHARES OUTSTANDING 8,011 8,144 8,034 8,181 ======== ======== ======== ======== DILUTED NET INCOME PER SHARE $ 0.20 $ 0.17 $ 0.32 $ 0.26 ======== ======== ======== ======== [FN] The accompanying notes are an integral part of these unaudited consolidated statements.

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, 1997 9,665 $ 97 1,763 $14,441 $57,672 $58,919 Common stock issued 23 - - - 224 - Treasury stock acquired - - 192 1,945 - - Net income - - - - - 5,256 ----- ------ --- ------ ------- ------- Balance at January 31, 1998 9,688 $ 97 1,955 $16,386 $57,896 $64,175 Common stock issued 68 - - - 507 - Treasury stock acquired - - 529 6,334 - - Net income - - - - - 2,598 ----- ------ --- ------ ------- ------- Balance at July 31, 1998 9,756 $ 97 2,484 $22,720 $58,403 $66,773 ===== ====== ===== ======= ======= ======= [FN] The accompanying notes are an integral part of these unaudited consolidated statements.

REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended July 31 1998 1997 (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,598 $ 2,156 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, net 1,573 1,481 Deferred income (981) (182) Accounts receivable 2,258 669 Merchandise inventory (18,025) (13,141) Other current assets (758) (2,906) Accounts payable, trade (325) 676 Other liabilities 256 (1,931) -------- -------- NET CASH USED IN OPERATING ACTIVITIES (13,404) (13,178) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Short-term investments and other assets (3,293) (2) Capital expenditures (4,175) (3,680) Capital disposals 1,675 1 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (5,793) (3,681) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in notes payable 13,618 16,010 Payments of long-term debt (2,224) (1,354) Long-term debt borrowings 2,707 2,530 Common stock issued 507 443 Treasury stock acquired (6,334) (3,073) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 8,274 14,556 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (10,923) (2,303) CASH AND CASH EQUIVALENTS, beginning of period 16,937 3,959 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 6,014 $ 1,656 ======== ======== [FN] The accompanying notes are an integral part of these unaudited consolidated statements.

REX STORES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 31, 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 fiscal 1999 presentation.

Notes to Consolidated Financial Statements (Continued) Note 3. Stock Option Plans The following summarizes options granted, exercised and canceled or expired during the six months ended July 31, 1998: Shares Under Stock Option Plans Outstanding at January 31, 1998 ($3.375 to $18.975 per share) 2,287,464 Granted ($11.50 to $12.50 per share) 346,625 Exercised ($6.875 to $10.375 per share) 68,145 Canceled or expired ($14.30 per share) 6,993 --------- Outstanding at July 31, 1998 ($3.375 to $18.975 per share) 2,558,951 ========= Note 4. Net Income Per Share Effective January 31, 1998, the Company adopted Statement of Financial Accounting Standards No. 128 (SFAS 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 three and six month periods ended July 31, 1997 have been restated as follows: Per Share Amounts Three Months Six Months Ended Ended July 31, 1997 July 31, 1997 Primary net income per share, as reported $0.17 $0.26 Effect of SFAS 128 - 0.01 ----- ----- Basic net income per share, as restated $0.17 $0.27 ===== =====

The following table reconciles the basic and diluted net income per share computations for each period presented: Three Months Ended July 31, 1998 July 31, 1997 Per Per Income Shares Share Income Shares Share Basic net income per share $1,579 7,644 $0.21 $1,359 7,885 $0.17 ===== ===== Effect of stock options - 367 - 259 ------ ----- ------ ----- Diluted net income per share $1,579 8,011 $0.20 $1,359 8,144 $0.17 ====== ===== ===== ====== ===== ===== Six Months Ended July 31, 1998 July 31, 1997 Per Per Income Shares Share Income Shares Share Basic net income per share $2,598 7,670 $0.34 $2,156 7,940 $0.27 ===== ===== Effect of stock options - 364 - 241 ------ ----- ------ ----- Diluted net income per share $2,598 8,034 $0.32 $2,156 8,181 $0.26 ====== ===== ===== ====== ===== ===== As of July 31, 1998, a total of 1,139,967 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 three and six months ended July 31, 1998.

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 220 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 Six Months Ended July 31 July 31 1998 1997 1998 1997 Net sales 100.0% 100.0% 100.0% 100.0% Cost of merchandise sold 71.8 71.2 72.3 71.8 ----- ----- ----- ----- Gross profit 28.2 28.8 27.7 28.2 Selling, general and administrative expense 23.6 24.1 23.8 24.3 ----- ----- ----- ----- Income from operations 4.6 4.7 3.9 3.9 Interest, net 1.8 2.2 1.5 1.9 ----- ----- ----- ----- Income before income taxes 2.8 2.5 2.4 2.0 Provision for income taxes 1.1 1.0 1.0 .8 ----- ----- ----- ----- Net income 1.7% 1.5% 1.4% 1.2% ===== ===== ===== =====

Comparison of Three and Six Months Ended July 31, 1998 and 1997 Net sales in the second quarter ended July 31, 1998 were $92.4 million compared to $89.9 million in the prior year's comparable period, representing an increase of $2.5 million or 2.8%. This increase is primarily a result of an increase in comparable store sales of 2.0%, along with increased sales at non-comparable stores. Net sales for the first half of fiscal 1999 were $180.4 million compared to $178.2 million in the first half of fiscal 1998, representing an increase of $2.2 million or 1.3%. This increase is primarily a result of an increase in non-comparable store sales, as comparable store sales were flat for the first half of fiscal 1999. The Company considers a store to be comparable after it has been open six fiscal quarters. As of July 31, 1998, the Company had 220 stores compared to 219 stores one year earlier. There were two stores opened and four closed in the first half of fiscal 1999. 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 $26.0 million in the second quarter of fiscal 1999 (28.2% of net sales) was 0.8% higher than the $25.8 million gross profit (28.8% of net sales) recorded in the second quarter of fiscal 1998. In the first half of fiscal 1999 gross profit was $50.0 million (27.7% of net sales), a 0.4% decrease from $50.2 million (28.2% of net sales) for the first half of fiscal 1998. The reduced gross profit margin, as a percent of net sales, for the first half 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 second quarter of fiscal 1999 were $21.8 million (23.6% of net sales), a 0.7% increase over the $21.7 million (24.1% of net sales) for the second quarter of fiscal 1998. Selling, general and administrative expenses for the first half of fiscal 1999 were $43.0 million (23.8% of net sales), a 0.5% decrease from $43.2 million (24.3% of net sales)for the first half of fiscal 1998. The decrease in expense, as a percent of net sales, 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 $1.7 million (1.8% of net sales) for the quarter ended July 31, 1998 from $2.0 million (2.2% of net sales) for the second quarter of fiscal 1998. Interest expense for the first half of fiscal 1999 decreased to $2.9 million (1.5% of net sales) from $3.5 million (1.9% of net sales) for the first half of fiscal 1998. The decrease in interest expense is a result of lower borrowings on the line of credit primarily due to lower inventory levels during the first half of fiscal 1999 compared to fiscal 1998.

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 1999 was $1.6 million, a 16.2% increase from $1.4 million for the second quarter of fiscal 1998. Net income for the first half of fiscal 1999 was $2.6 million, a 20.5% increase from $2.2 million for the first half of fiscal 1998. Liquidity and Capital Resources Net cash used in operating activities was $13.4 million for the first half of fiscal 1999, compared to $13.2 million for the prior year's first half. Cash was provided by net income of $2.6 million, adjusted for non-cash charges of $592,000. The primary use of cash was an increase in inventory of $18.0 million primarily due to seasonal fluctuations. Changes in other working capital items provided cash of approximately $1.4 million. At July 31, 1998, working capital was $71.0 million compared to $78.9 million at January 31, 1998. The ratio of current assets to current liabilities was 1.8 to 1 at July 31, 1998 and 2.0 to 1 at January 31, 1998. The Company had outstanding borrowings on its revolving line of credit of $13.6 million at July 31, 1998 at an average interest rate of approximately 7.75%. At July 31, 1998, the Company had approximately $76.7 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.

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 4, 1998, at which the following matter was submitted to a vote of shareholders: 1. Election of five directors. The vote on this matter was as follows: Broker Nominee For Withheld Nonvotes Stuart Rose 6,742,495 6,770 0 Lawrence Tomchin 6,742,495 6,770 0 Robert Davidoff 6,742,495 6,770 0 Edward Kress 6,742,435 6,830 0 Lee Fisher 6,742,495 6,770 0 Item 5. Other Information. Shareholder proposals intended to be submitted at the Company's 1999 annual meeting of shareholders outside the processes of Rule 14a-8 will be considered untimely under Rule 14a-4(c)(1) if not received by the Company at its principal offices on or before March 17, 1999. 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 July 31, 1998.

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 10, 1998 STUART A. ROSE Stuart A. Rose Chairman of the Board (Chief Executive Officer) September 10, 1998 DOUGLAS L. BRUGGEMAN Douglas L. Bruggeman Vice President, Finance and Treasurer (Principal Financial and Chief Accounting Officer)

5 0000744187 REX STORES CORPORATION 1,000 U.S. DOLLARS 6-MOS JAN-31-1999 FEB-1-1998 JUL-31-1998 1 6,014 1,744 993 475 144,523 166,717 110,345 16,721 269,882 92,515 53,093 97 0 0 102,456 269,882 180,410 180,410 130,384 130,384 0 0 2,918 4,297 1,699 2,598 0 0 0 2,598 .34 .32