REX AMERICAN RESOURCES Corp - Quarter Report: 2001 July (Form 10-Q)

Prepared by MerrillDirect

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2001

o	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 incorporation or organization)	(I.R.S. Employer 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 the past 90 days. Yes ý No o

At the close of business on September 13, 2001, the registrant had 7,729,514 shares of Common Stock, par value $.01 per share, outstanding.

REX STORES CORPORATION AND SUBSIDIARIES

INDEX


PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements

	Consolidated Condensed Balance Sheets

	Consolidated Statements of Income

	Consolidated Statements of Shareholders' Equity

	Consolidated Statements of Cash Flows

	Notes to Consolidated Financial Statements

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosure About Market Risk


PART II.	OTHER INFORMATION

Item 6.	Exhibits and Reports on Form 8-K

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

REX STORES CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

ASSETS

			July 31			January 31			July 31
			2001			2001			2000
						(In Thousands)
ASSETS:
	Cash and cash equivalents		$	2,822		$	687		$	4,608
	Accounts receivable, net		2,730			4,707			924
	Merchandise inventory		160,235			144,150			181,167
	Prepaid expenses and other		3,752			4,173			4,823
	Future income tax benefits		9,837			9,837			9,837

		Total current assets	179,376			163,554			201,359

PROPERTY AND EQUIPMENT, NET			134,118			135,643			124,558
FUTURE INCOME TAX BENEFITS			9,523			9,523			8,835
RESTRICTED INVESTMENTS			2,200			2,165			2,104

		Total assets	$	325,217		$	310,885		$	336,856


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
	Notes payable		$	9,448		$	742		$	46,416
	Current portion of long-term debt		5,272			4,923			3,576
	Current portion, deferred income and deferred gain on sale and leaseback		11,477			11,355			11,099
	Accounts payable, trade		52,223			47,680			59,664
	Accrued payroll		4,706			6,369			5,255
	Other current liabilities		9,246			8,737			9,270

		Total current liabilities	92,372			79,806			135,280


LONG-TERM LIABILITIES:
	Long-term mortgage debt		84,744			81,262			48,322
	Deferred income		15,525			16,494			16,056
	Deferred gain on sale and leaseback		1,716			2,129			2,541

		Total long-term liabilities	101,985			99,885			66,919


SHAREHOLDERS' EQUITY:
	Common stock		175			173			173
	Paid-in capital		107,338			106,248			105,799
	Retained earnings		119,374			112,399			100,889
	Treasury stock		(96,027		)	(87,626		)	(72,204		)

		Total shareholders' equity	130,860			131,194			134,657

		Total liabilities and shareholders' equity	$	325,217		$	310,885		$	336,856

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
		2001			2000			2001			2000

		(In Thousands, Except Per Share Amounts)

NET SALES		$	99,867		$	101,609		$	204,030		$	208,792

COSTS AND EXPENSES:
	Cost of merchandise sold	70,967			72,822			146,481			151,271
	Selling, general and administrative expenses	26,265			24,823			51,964			49,472

Total costs and expenses		97,232			97,645			198,445			200,743

INCOME FROM OPERATIONS		2,635			3,964			5,585			8,049
INVESTMENT INCOME		31			29			94			215
INTEREST EXPENSE		(2,261		)	(1,877		)	(4,227		)	(3,049		)
INCOME FROM LIMITED PARTNERSHIPS		4,754			3,190			7,849			4,419

Income before provision for income taxes		5,159			5,306			9,301			9,634
PROVISION FOR INCOME TAXES		1,289			1,326			2,326			2,408

NET INCOME		$	3,870		$	3,980		$	6,975		$	7,226

WEIGHTED AVERAGE SHARES OUTSTANDING-BASIC		7,641			9,816			7,793			10,229

BASIC NET INCOME PER SHARE		$	0.51		$	0.41		$	.90		$	0.71

WEIGHTED AVERAGE SHARES OUTSTANDING-DILUTED		8,839			10,917			8,825			11,273

DILUTED NET INCOME PER SHARE		$	0.44		$	0.37		$	0.79		$	0.64

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, 2000	17,320	$173	7,809		$72,204		$105,799	$100,889
Common stock issued	14	-	(2	)	(17	)	449	-
Treasury stock acquired	-	-	1,295		15,439		-	-
Net income	-	-	-		-		-	11,510


Balance at January 31, 2001	17,334	$173	9,102		$87,626		$106,248	$112,399
Common stock issued	170	2	(30	)	(292	)	1,090	-
Treasury stock acquired	-	-	709		8,693		-	-
Net income	-	-	-		-		-	6,975

Balance at July 31, 2001	17,504	$175	9,781		$96,027		$107,338	$119,374

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
			2001			2000
			(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income		$	6,975		$	7,226
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization, net	2,100			1,896
		Capital disposals	802			79
		Deferred income	(848		)	(487		)
		Gain on sale of partnership interest	(7,849		)	(4,419		)
	Changes in assets and liabilities:
		Accounts receivable	1,977			1,645
		Merchandise inventory	(16,085		)	(41,900		)
		Other current assets	417			(2,726		)
		Accounts payable, trade	4,543			13,412
		Other current liabilities	(1,154		)	(3,324		)

NET CASH USED IN OPERATING ACTIVITIES			(9,122		)	(28,598		)

CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures		(1,785		)	(13,143		)
	Proceeds from sale of partnership interest		7,849			4,419
	Restricted investments		(35		)	(84		)

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES			6,029			(8,808		)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Increase in notes payable		8,706			46,416
	Payments of long-term debt		(2,269		)	(2,213		)
	Proceeds from long-term debt		6,100			4,608
	Common stock issued		1,092			554
	Treasury stock issued		292			113
	Treasury stock acquired		(8,693		)	(33,073		)

NET CASH PROVIDED BY FINANCING ACTIVITIES			5,228			16,405

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			2,135			(21,001		)

CASH AND CASH EQUIVALENTS, beginning of period			687			25,609

CASH AND CASH EQUIVALENTS, end of period			$	2,822		$	4,608

The accompanying notes are an integral part of
these unaudited consolidated statements.

REX STORES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2001

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 accounting principles generally accepted in the United States 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, 2001 (fiscal 2000).

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 2000 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), management bonuses and the provision for income taxes. 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 2001 presentation.

Note 3. Stock Option Plans

The following summarizes options granted, exercised and canceled or expired during the six months ended July 31, 2001:

	Shares Under Stock
	Option Plans

Outstanding at January 31, 2001 ($5.42 to $15.21 per share)	4,149,356
Granted ($12.01 to $15.56 per share)	1,413,210
Exercised ($5.42 to $11.18 per share)	(200,436	)

Outstanding at July 31, 2001 ($5.42 to $15.56 per share)	5,362,130

Note 4. Investments in Limited Partnerships

Effective May 31, 2001, the Company sold its remaining 8% interest in one of its synthetic fuel limited partnership investments. The Company expects to receive cash payments from the sale on a quarterly basis through 2007. The payments will range from 74.25% to 82.5% of the federal income tax credits attributable to the 8% interest sold, calculated annually, depending upon synthetic fuel sales levels of the partnership.

Note 5. Stock Split

On July 12, 2001, the Company's Board of Directors declared a three-for-two stock split in the form of a 50% stock dividend, payable on August 10, 2001 to shareholders of record on July 31, 2001. The stock split has been retroactively reflected in the accompanying consolidated financial statements.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

We are a leading specialty retailer in the consumer electronics/appliance industry. As of July 31, 2001 we operated 264 stores in 37 states, predominantly in small to medium-sized markets under the trade name "REX".

Fiscal Year

All references in this report to a particular fiscal year are to REX's fiscal year ended January 31. For example, "fiscal 2000" means the period February 1, 2000 to January 31, 2001.

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
		2001		2000		2001		2000

Net sales		100.0	%	100.0	%	100.0	%	100.0	%
Cost of merchandise sold		71.1		71.7		71.8		72.4

	Gross profit	28.9		28.3		28.2		27.6

Selling, general and administrative expenses		26.3		24.4		25.5		23.7

	Income from operations	2.6		3.9		2.7		3.9

Investment income		0.1		-		0.1		0.1
Interest expense		(2.3	)	(1.8	)	(2.1	)	(1.5	)
Income from limited partnerships		4.8		3.1		3.8		2.1

	Income before provision for income taxes	5.2		5.2		4.5		4.6

Provision for income taxes		1.3		1.3		1.1		1.1

Net income		3.9	%	3.9	%	3.4	%	3.5	%

Comparison of Three and Six Months Ended July 31, 2001 and 2000

Net sales in the second quarter ended July 31, 2001 were $99.9 million compared to $101.6 million in the prior year's second quarter, representing a decrease of $1.7 million or 1.7%. This decrease was caused by a decline of 8.4% in comparable store sales, partially offset by sales from the net increase of 22 stores since the second quarter of fiscal 2000.

All product categories contributed to the decline in comparable store sales for the quarter. The television category contributed 3.5%, the video category contributed 1.7%, the appliance category contributed 1.6%, the audio category contributed 1.2% and the other category contributed 0.4%.

Net sales for the first half of fiscal 2001 were $204.0 million compared to $208.8 million for the first half of fiscal 2000, representing a decrease of $4.8 million or 2.3%. This decrease was caused by a decline in comparable store sales of 11.0% for the first half of fiscal 2001, partially offset by sales from the net increase of 22 stores since the second quarter of fiscal 2000.

All product categories contributed to the decline in comparable store sales for the first six months of fiscal 2001. The television category contributed 5.1%, the video category contributed 2.1%, the appliance category contributed 1.9%, the audio category contributed 1.3% and the other category contributed 0.6%.

As of July 31, 2001, we had 264 stores compared to 242 stores one year earlier. There were six stores opened and four closed in the first half of fiscal 2001. In the prior year's first half there were nine stores opened and five closed.

Gross profit of $28.9 million (28.9% of net sales) in the second quarter of fiscal 2001 was $100,000 higher than the $28.8 million (28.3% of net sales) recorded in the second quarter of fiscal 2000. Gross profit for the first half of fiscal 2001 and fiscal 2000 was $57.5 million for each year. However, the gross profit margin percentage increased to 28.2% for fiscal 2001 from 27.6% for fiscal 2000. The improvement in the gross profit margin percentage is primarily due to opportunistic inventory purchases available from our vendors.

Selling, general and administrative expenses for the second quarter of fiscal 2001 were $26.3 million (26.3% of net sales) compared to $24.8 million (24.4% of net sales) for the second quarter of fiscal 2000. This represents an increase of $1.5 million or 6.0%. Selling, general and administrative expenses for the first half of fiscal 2001 were $52.0 million (25.5% of net sales), a 5.0% increase from $49.5 million (23.7% of net sales) for the first half of fiscal 2000. The increase in expense is primarily caused by the increased advertising and store expenses associated with the net increase of 22 stores since July 31, 2000.

Interest expense increased to $2.3 million (2.3% of net sales) for the second quarter from $1.9 million (1.8% of net sales) for the second quarter of fiscal 2000. Interest expense for the first half of fiscal 2001 was $4.2 million (2.1% of net sales) compared to $3.0 million (1.5% of net sales) for the first half of fiscal 2000. The increase in expense is primarily due to an increased amount of mortgage debt outstanding on company-owned store locations.

Results for the second quarter and first half of fiscals 2001 and 2000 also reflect the impact of our equity investment in two limited partnerships which produce synthetic fuels. Effective February 1, 1999, we entered into an agreement to sell a portion of our investment in one of the limited partnerships, which resulted in the reduction in our ownership interest from 30% to 17%. Effective July 31, 2000, we sold an additional portion of our ownership interest in that partnership, reducing our ownership percentage from 17% to 8%. Effective May 31, 2001, we sold our remaining 8% ownership interest. We report the income from these sales on a quarterly basis as payments are received. Below is a table summarizing the income from the sales, net of certain expenses.

	Three Months Ended					Six Months Ended
	July 31					July 31
	2001		2000			2001		2000
	(In Thousands)

February 1, 1999 sale	$	1,780	$	1,706		$	3,587	$	2,946
July 31, 2000 sale	1,626		1,515			2,914		1,515
May 31, 2001 sale	1,347		-			1,347		-
Cash contribution	-		(31		)	-		(42		)

	$	4,753	$	3,190		$	7,848	$	4,419

Our effective tax rate was 25% for all periods presented after reflecting our share of federal income tax credits earned by the limited partnerships under Section 29 of the Internal Revenue Code.

As a result of the foregoing, net income for the second quarter of fiscal 2001 was $3.9 million, a 2.5% decrease from $4.0 million for the second quarter of fiscal 2000. Net income for the first half of fiscal 2001 was $7.0 million, a 2.8% decrease from $7.2 million for the first half of fiscal 2000.

Liquidity and Capital Resources

Net cash used in operating activities was $9.9 million for the first six months of fiscal 2001, compared to $28.7 million for the first six months of fiscal 2000. For the first half of fiscal 2001, cash was provided by net income of $7.0 million, adjusted for the impact of $7.8 million for gains on our installment sales of the limited partnership interest and non-cash items of $1.3 million which consisted of deferred income and depreciation and amortization. Cash was also provided by an increase of $4.5 million in accounts payable, a decrease of $2.0 million in accounts receivable and a decrease of $417,000 in other assets. The primary use of cash was an increase of $16.1 million in inventory due to the timing of purchases and a decrease in other liabilities of $1.2 million.

At July 31, 2001, working capital was $87.0 million compared to $83.7 million at January 31, 2001. The ratio of current assets to current liabilities was 1.9 to 1 at July 31, 2001 and 2.0 to 1 at January 31, 2001.

Capital expenditures through July 31, 2001 totaled $1.8 million and primarily relate to the construction expenditures associated with planned fiscal 2001 store openings. We received proceeds of $7.8 million during the first half of fiscal 2001 from installment sales of our ownership interest in a limited partnership.

Cash provided by financing activities totaled approximately $5.2 million. Cash was provided by borrowings of $8.7 million on the line of credit during the first half of fiscal 2001 and proceeds of $6.1 million from long-term debt borrowings related to mortgage financing of seven stores. A total of approximately $102.3 million was available for borrowings on the line of credit as of July 31, 2001. We also received proceeds of $1.4 million from the exercise of 200,437 shares (split adjusted) of employee stock options. Cash was used to purchase 709,800 shares (split adjusted) of our common stock for approximately $8.7 million during the first half of fiscal 2001. As of July 31, 2001, we had authorization from our board of directors to purchase an additional 797,700 shares. Cash was also used for payments on long-term debt of $2.3 million.

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 Annual Report on Form 10-K for the fiscal year ended January 31, 2001 (File No. 0-13283).

Item 3. Quantitative and Qualitative Disclosure About Market Risk

No material changes since January 31, 2001.

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits. No exhibits are filed with this report.

(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended July 31, 2001.

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 14, 2001	STUART A. ROSE
	Stuart A. Rose
	Chairman of the Board
	(Chief Executive Officer)

September 14, 2001	DOUGLAS L. BRUGGEMAN
	Douglas L. Bruggeman
	Vice President, Finance and Treasurer
	(Principal Financial and Chief Accounting Officer)