2010. The
change in fair value was recorded in the Consolidated Condensed Statements of
Operations.
One Earth Energy Subsidiary Level Debt
In
September 2007, One Earth entered into a $111,000,000 financing agreement
consisting of a construction loan agreement for $100,000,000 together with a
$10,000,000 revolving loan and a $1,000,000 letter of credit with First
National Bank of Omaha (the Bank). The construction loan was converted into a
term loan on July 31, 2009 as all of the requirements, for such conversion, of
the construction and term loan agreement were fulfilled. The term loan bears
interest at variable interest rates ranging from LIBOR plus 300 basis points to
LIBOR plus 310 basis points (3.3% -3.4% at April 30, 2010). Beginning with the
first quarterly payment on October 8, 2009, payments are due in 20 quarterly
payments of principal plus accrued interest with the principal portion
calculated based on a 120 month amortization schedule. One final installment
will be required on the maturity date (July 31, 2014) for the remaining unpaid
principal balance with accrued interest.
Borrowings
are secured by all of the assets of One Earth. This debt is recourse only to
One Earth and not to REX Stores Corporation or any of its wholly owned
subsidiaries. As of April 30, 2010, approximately $86.2 million was outstanding
on the term loan. One Earth is also subject to certain financial covenants
under the loan agreement, including required levels of EBITDA, debt service
coverage ratio requirements, net worth requirements and other common covenants.
One Earth was in compliance with all covenants at April 30, 2010. One Earth has
paid approximately $1.4 million in financing costs. These costs are recorded as
prepaid loan fees and are amortized ratably over the term of the loan.
The
Companys proportionate share of restricted assets related to One Earth was
$53.3 million and $47.9 million at April 30, 2010 and January 31, 2010,
respectively. One Earths restricted assets total approximately $72.3 million
and $65.0 million at April 30, 2010 and January 31, 2010, respectively. Such
assets may not be paid in the form of dividends or advances to the parent
company or other members of One Earth per the terms of the loan agreement with
the Bank.
One
Earth entered into two forward interest rate swaps in the notional amounts of
$50.0 million and $25.0 million with the Bank. The swap settlements commenced
as of July 31, 2009; the $50.0 million swap terminates on July 8, 2014 and the
$25.0 million swap terminates on July 31, 2011. The $50.0 million swap fixed a
portion of the variable interest rate of the term loan subsequent to the plant
completion date at 7.9% while the $25.0 million swap fixed the rate at 5.49%.
At April 30, 2010, the Company recorded a liability of $5.6 million related to
the fair value of the swaps. The change in fair value is recorded in the
Consolidated Condensed Statements of Operations.
Note 9.
Financial
Instruments
The Company uses interest rate swaps to
manage its interest rate exposure at Levelland Hockley and One Earth by fixing
the interest rate on a portion of the entitys variable rate debt. The Company
does not engage in trading activities involving derivative contracts for which
a
17
lack of marketplace quotations would
necessitate the use of fair value estimation techniques. As of March 31, 2010,
the notional value of the Levelland Hockley and One Earth interest rate swaps
were $35.3 million and $72.2 million, respectively. At April 30, 2010, the
Company has recorded a liability of $5.7 million related to the fair value of
the swaps.
The
notional amounts and fair values of derivatives, all of which are not
designated as cash flow hedges at April 30, 2010 are summarized in the table
below (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
Fair Value
Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
107,509
|
|
$
|
5,695
|
|
As
the interest rate swaps are not designated as cash flow hedges, the unrealized
gain and loss on the derivatives is reported in current earnings. The Company
reported losses of $167,000 in the first quarter of fiscal year 2010 and losses
of $556,000 in the first quarter of fiscal year 2009.
In
the normal course of its ethanol business, the Company enters into forward
pricing agreements for the purchase of grain and for the sale of ethanol and
distillers grains for delivery in future periods. The Company accounts for
these forward pricing arrangements under the normal purchases and normal
sales scope exemption of ASC 815, Derivatives and Hedging.
Levelland
Hockley and One Earth have combined forward purchase contracts for 6,859,000
bushels of sorghum and corn, the principal raw materials for their ethanol
plants. Levelland Hockley and One Earth expect to take delivery of the grain
through July 2010. The unrealized loss of such contracts was approximately
$1,395,000 at March 31, 2010.
Levelland
Hockley and One Earth have combined sales commitments for 17.7 million gallons
of ethanol and 115,000 tons of distiller grains. Levelland Hockley and One
Earth expect to deliver the ethanol and distiller grains through August 2010.
The unrealized gain of such contracts was approximately $1,694,000 at March 31,
2010.
Note 10.
Stock
Option Plans
The
Company has stock-based compensation plans under which stock options have been
granted to directors, officers and key employees at the market price on the
date of the grant.
No
options have been granted since fiscal year 2004. The fair values of options
granted were estimated as of the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions used for grants
in the fiscal year ended January 31, 2005: risk-free interest rate of 4.7%,
expected volatility of 65.4% and a weighted average stock option life of nine
years for all option grants.
The
total intrinsic value of options exercised during the quarters ended April 30,
2010 and 2009 was approximately $0.2 million and $0.4 million, respectively,
resulting in tax
18
deductions to
realize benefits of approximately $0.1 million for each period. The following
table summarizes options granted, exercised and canceled or expired during the
three months ended April 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual Term
(in years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 31, 2010
|
|
|
824,421
|
|
$
|
10.14
|
|
|
|
|
|
|
|
Exercised
|
|
|
(36,000
|
)
|
$
|
11.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at April 30,
2010
|
|
|
788,421
|
|
$
|
10.09
|
|
|
1.8
|
|
$
|
5,573
|
|
At April
30, 2010, there was no unrecognized compensation cost related to nonvested
stock options.
Note 11.
Income
Per Share from Continuing Operations Attributable to REX Common Shareholders
The
following table reconciles the computation of basic and diluted net income per
share from continuing operations for the period presented (in thousands, except
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30, 2010
|
|
|
|
|
|
|
|
Income
|
|
Shares
|
|
Per
Share
|
|
|
|
|
|
|
|
|
|
Basic income per share from continuing
operations attributable to REX common shareholders
|
|
$
|
3,531
|
|
|
9,840
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of stock options
|
|
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share from continuing
operations attributable to REX common shareholders
|
|
$
|
3,531
|
|
|
10,045
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
As
there was a loss from continuing operations for the first quarter of fiscal
year 2009, basic loss per share from continuing operations equals diluted loss
per share from continuing operations. For the three months ended April 30,
2009, a total of 2,622,000 shares subject to outstanding options were not
included in the common equivalent shares outstanding calculation as the effect
from these shares is antidilutive. There were no such shares for the three
months ended April 30, 2010.
19
Note 12.
Investments
and Restricted Deposits
The
following tables summarize investments at April 30, 2010 and January 31, 2010
(amounts in thousands):
Debt
Securities April 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
Coupon
Rate
|
|
Maturity
|
|
Classification
|
|
Fair Market
Value
|
|
Initial
Investment
(Adjusted
for Principal
Repayments)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patriot
Renewable Fuels, LLC Convertible Note
|
|
16.00
|
%
|
11/25/2011
|
|
Available
for Sale
|
|
$
|
514
|
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities
January 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
Coupon
Rate
|
|
Maturity
|
|
Classification
|
|
Fair Market
Value
|
|
Initial
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patriot
Renewable Fuels, LLC Convertible Note
|
|
16.00
|
%
|
11/25/2011
|
|
Available
for Sale
|
|
$
|
1,014
|
|
$
|
933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains were $47,000 ($27,000 net of income taxes) at April 30, 2010 and
$81,000 ($49,000 net of income taxes) at January 31, 2010.
The
Company has approximately $743,000 at April 30, 2010, and January 31, 2010 on
deposit with the Florida Department of Financial Services to secure its
obligation to fulfill future obligations related to extended warranty contracts
sold in the state of Florida. As such, this deposit is restricted from use for
general corporate purposes. The deposits earned 2.1% and 2.7% at April 30, 2010
and January 31, 2010, respectively.
In
addition to the deposit with the Florida Department of Financial Services, the
Company has $1,357,000 at April 30, 2010 and January 31, 2010 invested in a
money market mutual fund to satisfy Florida Department of Financial Services
regulations. As such, this investment is restricted from use for general
corporate purposes. This investment earned 0.1% at April 30, 2010 and January
31, 2010.
20
The
following table summarizes equity method investments at April 30, 2010 and
January 31, 2010 (amounts in thousands):
Equity Method
Investments April 30, 2010
|
|
|
|
|
|
|
|
|
|
|
Entity
|
|
Ownership
Percentage
|
|
Carrying Amount
|
|
Initial Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Big River
Resources, LLC
|
|
|
10
|
%
|
$
|
26,193
|
|
$
|
20,025
|
|
Patriot
Renewable Fuels, LLC
|
|
|
23
|
%
|
|
19,888
|
|
|
16,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
Method Investments
|
|
|
|
|
$
|
46,081
|
|
$
|
36,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Method
Investments January 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity
|
|
Ownership
Percentage
|
|
Carrying Amount
|
|
Initial Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Big River
Resources, LLC
|
|
|
10
|
%
|
$
|
25,660
|
|
$
|
20,025
|
|
Patriot
Renewable Fuels, LLC
|
|
|
23
|
%
|
|
18,411
|
|
|
16,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
Method Investments
|
|
|
|
|
$
|
44,071
|
|
$
|
36,025
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the first quarter of fiscal years 2010 and 2009, the Company recorded income of
$1,335,000 and $92,000, respectively as its share of earnings from Big River
Resources, LLC (Big River).
During
the first quarter of fiscal years 2010 and 2009, the Company recorded income of
$1,512,000 and a loss of $352,000, respectively as its share of earnings/loss
from Patriot Renewable Fuels, LLC (Patriot).
Undistributed
earnings of equity method investees totaled approximately $8.9 million and $3.9
million at April 30, 2010 and 2009, respectively.
Summarized
financial information for each of the Companys equity method investees is
presented in the following table for the three months ended March 31, 2010 and
March 31, 2009 (amounts in thousands):
|
|
|
|
|
|
|
|
March 31,
2010
|
|
Patriot
|
|
Big River
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
and revenue
|
|
$
|
56,944
|
|
$
|
156,886
|
|
Gross profit
|
|
$
|
9,643
|
|
$
|
14,319
|
|
Income from
continuing operations
|
|
$
|
6,485
|
|
$
|
13,714
|
|
Net income
|
|
$
|
6,485
|
|
$
|
13,714
|
|
21
|
|
|
|
|
|
|
|
March 31,
2009
|
|
Patriot
|
|
Big River
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
and revenue
|
|
$
|
47,494
|
|
$
|
67,653
|
|
Gross profit
|
|
$
|
3,356
|
|
$
|
2,968
|
|
(Loss)
income from continuing operations
|
|
$
|
(1,510
|
)
|
$
|
940
|
|
Net (loss)
income
|
|
$
|
(1,510
|
)
|
$
|
940
|
|
Both
Patriot and Big River have debt agreements that limit and restrict amounts the
companies can pay in the form of dividends or advances to owners. The
restricted net assets of Patriot and Big River combined at April 30, 2010 and
January 31, 2010 are approximately $307,981,000 and $298,076,000, respectively.
The Companys proportionate share of restricted net assets of Patriot and Big
River combined at April 30, 2010 and January 31, 2010 are approximately
$40,551,000 and $38,926,000, respectively.
Note 13.
Restructuring
and Other
During
the fourth quarter of fiscal year 2008, the Company entered into an agreement
with Appliance Direct, Inc. pursuant to which (i) the Company agreed to sell
certain appliance inventory, furniture, fixtures and equipment at the store
locations to be taken over by Appliance Direct and (ii) subsidiaries of
Appliance Direct leased 37 retail store locations owned by the Company.
During
the fourth quarter of fiscal year 2008, the Company recorded a restructuring
charge of approximately $4.2 million related to (i) a workforce reduction of a
majority of employees located at its corporate headquarters, retail stores and
distribution facilities and (ii) certain costs associated with the transition
of the Companys retail business to Appliance Direct.
On
September 30, 2009, the Company entered into a letter agreement with Appliance
Direct pursuant to which (i) Appliance Direct agreed to vacate all properties
leased from the Company and turn over possession of the leased premises to the
Company and (ii) the Company and Appliance Direct agreed to release and
discharge each other from all claims or causes of action whatsoever.
22
The
Company substantially completed its exit of the retail business as of July 31,
2009. The following is a summary of restructuring charges and payments for the
three months ended April 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Severance and
Bonus Costs
|
|
Lease
Termination
Costs
|
|
Total
Restructuring
Accrual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 31, 2010
|
|
$
|
219
|
|
$
|
439
|
|
$
|
658
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges
|
|
|
|
|
|
|
|
|
|
|
Payment of
restructuring liabilities
|
|
|
(7
|
)
|
|
(75
|
)
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
April 30, 2010
|
|
$
|
212
|
|
$
|
364
|
|
$
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
Of
the total accrual balance of $576,000, $502,000 is classified within current
liabilities and $74,000 is classified within long term liabilities. The
restructuring charges are all classified as discontinued operations in the
accompanying Consolidated Condensed Statements of Operations. The accrued
balances at April 30, 2010 are managements best estimate of the amounts to be
incurred for the related categories.
The
following is a summary of restructuring charges and payments for the three
months ended April 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Severance and
Bonus Costs
|
|
Lease
Termination
Costs
|
|
Investment
Banker
Fees
|
|
ESP
Credit
|
|
Total
Restructuring
Accrual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 31, 2009
|
|
$
|
2,839
|
|
$
|
|
|
$
|
834
|
|
$
|
498
|
|
$
|
4,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges
|
|
|
|
|
|
1,460
|
|
|
|
|
|
|
|
|
1,460
|
|
Payment of
restructuring liabilities
|
|
|
(436
|
)
|
|
(409
|
)
|
|
|
|
|
|
|
|
(845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
April 30, 2009
|
|
$
|
2,403
|
|
$
|
1,051
|
|
$
|
834
|
|
$
|
498
|
|
$
|
4,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14.
Income Taxes
The
effective tax rate on consolidated pre-tax income or loss from continuing
operations was 33.4% for the quarter ended April 30, 2010, 33.5% for the year
ended January 31, 2010 and 29.9% for the quarter ended April 30, 2009. The
provision for state taxes is approximately 5% for the quarters ended April 30,
2010 and 2009. The provision for state taxes was approximately 4% for the year
ended January 31, 2010.
The
Company files a U.S. federal income tax return and income tax returns in
various states. In general, the Company is no longer subject to U.S. federal,
state or local income tax
23
examinations by tax authorities for years
ended January 31, 2007 and prior. A reconciliation of the beginning and ending
amount of unrecognized tax benefits, including interest and penalties, is as
follows (amounts in thousands):
|
|
|
|
|
Unrecognized tax benefits, February 1, 2010
|
|
$
|
2,338
|
|
Changes for prior years tax positions
|
|
|
19
|
|
Changes for current year tax positions
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, April 30, 2010
|
|
$
|
2,357
|
|
|
|
|
|
|
Note 15.
Discontinued
Operations and Assets Held for Sale
During
fiscal year 2009, the Company completed the exit of its retail business.
Accordingly, all operations of the Companys former retail segment and certain
sold properties have been classified as discontinued operations for all periods
presented. Once real estate property has been sold, and no continuing
involvement is expected, the Company classifies the results of the operations
as discontinued operations. The results of operations were previously reported
in the Companys retail or real estate segment, depending on when the store
ceased operations. Below is a table reflecting certain items of the
Consolidated Condensed Statements of Operations that were reclassified as
discontinued operations for the period indicated:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
Net sales and revenue
|
|
$
|
2,352
|
|
$
|
23,854
|
|
Cost of sales
|
|
|
494
|
|
|
18,851
|
|
Income (loss) before income taxes
|
|
|
1,003
|
|
|
(868
|
)
|
(Provision) benefit for income taxes
|
|
|
(346
|
)
|
|
323
|
|
Income (loss) from discontinued operations,
net of tax
|
|
$
|
657
|
|
$
|
(545
|
)
|
|
|
|
|
|
|
|
|
Loss on disposal before benefit for income
taxes
|
|
$
|
|
|
$
|
(201
|
)
|
Benefit for income taxes
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
Loss on disposal of discontinued
operations, net of tax
|
|
$
|
|
|
$
|
(129
|
)
|
|
|
|
|
|
|
|
|
The
Company has classified two properties with a carrying value of approximately
$976,000 as held for sale at April 30, 2010, which are included in other assets
in the accompanying Consolidated Condensed Balance Sheet.
Note 16.
Commitments
and Contingencies
The
Company is involved in various legal actions arising in the normal course of
business. After taking into consideration legal counsels evaluations of such
actions, management is of the opinion that their outcome will not have a
material effect on the Companys consolidated condensed financial statements.
24
Note 17.
Segment
Reporting
Beginning
in the second quarter of fiscal year 2009, the Company realigned its reportable
business segments to be consistent with changes to its management structure and
reporting. The Company has two segments: alternative energy and real estate. In
prior years, the real estate segment was formerly included in the retail
segment and historical amounts have been reclassified to conform to the current
year segment reporting presentation. For stores and warehouses closed for which
the Company has a retained interest in the related real estate, operations are
presented in the real estate segment when retail operations cease. Former
retail operations results are classified as discontinued operations. The
Company evaluates the performance of each reportable segment based on segment
profit. Segment profit excludes income taxes, indirect interest expense,
discontinued operations, indirect interest income and certain other items that
are included in net income determined in accordance with accounting principles
generally accepted in the United States of America. Segment profit includes
realized and unrealized gains on derivative financial instruments. The following
table summarizes segment and other results and assets (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Three
Months Ended April 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Net
sales and revenue:
|
|
|
|
|
|
|
|
Alternative
energy
|
|
$
|
71,022
|
|
$
|
14,118
|
|
Real
estate
|
|
|
269
|
|
|
130
|
|
|
|
|
|
|
|
|
|
Total
net sales and revenues
|
|
$
|
71,291
|
|
$
|
14,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
gross profit (loss):
|
|
|
|
|
|
|
|
Alternative
energy
|
|
$
|
8,462
|
|
$
|
233
|
|
Real
estate
|
|
|
(365
|
)
|
|
92
|
|
|
|
|
|
|
|
|
|
Total
gross profit
|
|
$
|
8,097
|
|
$
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit (loss):
|
|
|
|
|
|
|
|
Alternative
energy segment profit (loss)
|
|
$
|
8,613
|
|
$
|
(1,988
|
)
|
Real
estate segment (loss) profit
|
|
|
(428
|
)
|
|
29
|
|
Corporate
expense
|
|
|
(773
|
)
|
|
(476
|
)
|
Interest
expense
|
|
|
(49
|
)
|
|
(189
|
)
|
Interest
income
|
|
|
69
|
|
|
230
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before income taxes and noncontrolling
interests
|
|
$
|
7,432
|
|
$
|
(2,394
|
)
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
April
30,
2010
|
|
January
31,
2010
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Alternative energy
|
|
$
|
295,166
|
|
$
|
302,228
|
|
Real estate
|
|
|
31,567
|
|
|
31,796
|
|
Corporate
|
|
|
112,743
|
|
|
117,481
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
439,476
|
|
$
|
451,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended April 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Sales of
products alternative energy segment:
|
|
|
|
|
|
|
|
Ethanol
|
|
|
84
|
%
|
|
74
|
%
|
Distillers
grains
|
|
|
16
|
%
|
|
26
|
%
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
Sales of
services real estate segment:
|
|
|
|
|
|
|
|
Leasing
|
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
Certain
corporate costs and expenses, including information technology, employee
benefits and other shared services are allocated to the business segments. The
allocations are generally amounts agreed upon by management, which may differ
from amounts that would be incurred if such services were purchased separately
by the business segment. Corporate assets are primarily cash and deferred
income tax benefits.
Cash,
except for cash held by Levelland Hockley and One Earth, is considered to be
fungible and available for both corporate and segment use dependent on
liquidity requirements. Cash of approximately $15.3 million held by Levelland
Hockley and One Earth will be used to fund working capital needs for those
entities.
I
tem 2.
Managements
Discussion and Analysis of Financial Condition and Results of Operations.
Historically,
we were a specialty retailer in the consumer electronics/appliance industry
serving small to medium-sized towns and communities. In addition, we have been
an investor in various alternative energy entities beginning with synthetic
fuel partnerships in 1998 and later ethanol production facilities beginning in
2006.
In
fiscal year 2007 we began to evaluate strategic alternatives for our retail
segment with a focus on closing unprofitable or marginally profitable retail
stores and monetizing our retail-related real estate assets. We did not believe
that we were generating an adequate return from our retail business due to the
competitive nature of the consumer electronics and appliance industry and the
overall economic conditions in the United States. Reflecting this focus, in
fiscal year 2008, we commenced an evaluation of a broad range of alternatives
intended to derive value from the remaining retail operations and our real
estate portfolio. We engaged an investment banking firm to assist us in
analyzing and ultimately marketing our retail operations. As part of
26
those
marketing efforts, late in fiscal year 2008 we leased 37 owned store locations
to a third party. During fiscal year 2009, the lease agreements were
terminated. We are marketing the vacant properties to lease or sell.
We
completed our exit of the retail business as of July 31, 2009. Going forward,
we expect that our only retail related activities will consist of the
administration of previously sold extended service plans and the payment of
related claims. All activities related to extended service plans are classified
as discontinued operations.
We
currently have approximately $111 million of equity and debt investments in
four ethanol limited liability corporations, two of which we have a majority
ownership interest in. We are considering making additional investments in the
alternative energy segment during fiscal year 2010.
Our
ethanol operations are highly dependent on commodity prices, especially prices
for corn, sorghum, ethanol, distillers grains and natural gas. As a result of
price volatility for these commodities, our operating results can fluctuate
substantially. The price and availability of corn and sorghum are subject to
significant fluctuations depending upon a number of factors that affect
commodity prices in general, including crop conditions, weather, federal policy
and foreign trade. Because the market price of ethanol is not always directly
related to corn and sorghum prices, at times ethanol prices may lag movements
in corn prices and, in an environment of higher prices, reduce the overall
margin structure at the plants. As a result, at times, we may operate our
plants at negative or marginally positive operating margins.
We
expect our ethanol plants to produce approximately 2.8 gallons of denatured
ethanol for each bushel of grain processed in the production cycle. We refer to
the difference between the price per gallon of ethanol and the price per bushel
of grain (divided by 2.8) as the crush spread. Should the crush spread
decline, it is possible that our ethanol plants will generate operating results
that do not provide adequate cash flows for sustained periods of time. In such
cases, production at the ethanol plants may be reduced or stopped altogether in
order to minimize variable costs at individual plants. We expect these
decisions to be made on an individual plant basis, as there are different
market conditions at each of our ethanol plants.
We
attempt to manage the risk related to the volatility of grain and ethanol
prices by utilizing forward grain purchase and forward ethanol and distillers
grain sale contracts. We attempt to match quantities of ethanol and distillers
grains sale contracts with an appropriate quantity of grain purchase contracts
over a given period of time when we can obtain an adequate gross margin
resulting from the crush spread inherent in the contracts we have executed.
However, the market for future ethanol sales contracts is not a mature market.
Consequently, we generally execute contracts for no more than three months into
the future at any given time. As a result of the relatively short period of
time our contracts cover, we generally cannot predict the future movements in
the crush spread for more than three months; thus, we are unable to predict the
likelihood or amounts of future income or loss from the operations of our
ethanol facilities.
27
Fiscal Year
All
references in this report to a particular fiscal year are to REXs fiscal year
ended January 31. For example, fiscal year 2010 means the period February 1,
2010 to January 31, 2011.
We
are no longer presenting the comparable prior year quarter end balance sheet
(April 30, 2009) which was included in prior year quarterly filings. With the
exit of the retail business, and the lack of seasonality in the alternative
energy and real estate segments, such information is no longer useful to
understand trends in our business.
Results of Operations
For
a detailed analysis of period to period changes, see the segment discussion
that follows this section as this is how management views and monitors our
business.
Comparison of Three
Months Ended April 30, 2010 and 2009
Net
sales and revenue in the quarter ended April 30, 2010 were $71.3 million
compared to $14.2 million in the prior years first quarter, representing an
increase of $57.1 million. Net sales and revenue do not include sales from
retail and real estate operations classified as discontinued operations. The
increase was primarily caused by higher sales in our alternative energy segment
of $56.9 million. Net sales and revenue from our real estate segment increased
$0.2 million over the prior year first quarter to $0.3 million.
The
following table reflects the approximate percent of net sales for each major
product and service group for the following periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
|
|
|
|
|
Product
Category
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
Ethanol
|
|
|
83.6
|
%
|
|
73.4
|
%
|
Distiller
grains
|
|
|
15.9
|
|
|
25.1
|
|
Leasing
|
|
|
0.4
|
|
|
0.9
|
|
Other
|
|
|
0.1
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
Gross
profit of $8.1 million (11.4% of net sales and revenue) in the first quarter of
fiscal year 2010 was approximately $7.8 million higher than the $0.3 million
(2.3% of net sales and revenue) recorded in the first quarter of fiscal year
2009. Gross profit for the first quarter of fiscal year 2010 increased by $8.2
million compared to the prior year from our alternative energy segment. Gross
loss for the first quarter of fiscal year 2010 increased by $0.4 million
compared to the prior year from our real estate segment.
Selling,
general and administrative expenses for the first quarter of fiscal year 2010
were $2.1 million (2.9% of net sales and revenue), an increase of $0.9 million
from $1.2 million (8.4%
28
of net sales
and revenue) for the first quarter of fiscal year 2009. Compared to the prior
year, these expenses increased approximately $0.6 million and $0.3 million in
the alternative energy segment and the corporate and other category,
respectively.
Interest
income was $0.1 million for the first quarter of fiscal year 2010 compared to
$0.2 million for the first quarter of fiscal year 2009. The decrease results
primarily from lower yields earned on our excess cash compared to the prior
year. The lower yields are a result of the overall macroeconomic environment
and not a result of a shift to investments with less risk.
Interest
expense was $1.4 million for the first quarter of fiscal year 2010 compared to
$0.9 million for the first quarter of fiscal year 2009. The increase was
primarily attributable to the alternative energy segment as we had higher
amounts of average debt outstanding upon the completion of construction of One
Earths ethanol plant.
During
the first quarter of fiscal year 2009, we paid off approximately $7.3 million
of debt prior to its maturity. As a result, we incurred prepayment penalties
and the write off of prepaid loan fees totaling approximately $0.1 million.
There were no such penalties or fees incurred during the first quarter of
fiscal year 2010.
During
the first quarters of fiscal years 2010 and 2009, we recognized income of
approximately $2.8 million and a loss of approximately $0.3 million,
respectively, from our equity investments in Big River and Patriot. During the
first quarter of fiscal year 2010, we recognized income of approximately $1.3
million and $1.5 million from our equity investments in Big River and Patriot,
respectively. During the first quarter of fiscal year 2009, we recognized
income of approximately $0.1 million and a loss of approximately $0.4 million
from our equity investments in Big River and Patriot, respectively. Big River
has a 92 million gallon plant which has been in operation since 2004. Big River
opened an additional 100 million gallon plant during the second quarter of
fiscal year 2009 and acquired a 50.5% ownership in a 100 million gallon plant
in August 2009. Patriot completed construction of its 100 million gallon plant
during the second quarter of fiscal year 2008.
Due
to the inherent volatility of the crush spread, we cannot predict the
likelihood of future operating results from Big River and Patriot being similar
to fiscal year 2010 results.
We
recognized losses of $167,000 and $556,000 during the first quarter of fiscal
years 2010 and 2009, respectively, related to forward starting interest rate
swap agreements that Levelland Hockley and One Earth entered into during fiscal
year 2007. During the first quarter of fiscal year 2010, One Earths loss was
$167,000. Levelland Hockleys swap expired in April 2010 while One Earths
swaps expire in July 2011 and July 2014. In general, declining interest rates
have a negative effect on our interest rate swaps as our swaps fixed the
interest rate of variable rate debt. Should interest rates continue to decline,
we would expect to experience continued losses on the interest rate swaps. We
would expect to incur gains on the interest rate swaps should interest rates
increase. We cannot predict the future movements in interest rates; thus, we
are unable to predict the likelihood or amounts of future gains or losses
related to interest rate swaps.
29
Our
effective tax rate was 33.4% and 29.9% for the first quarter of fiscal years
2010 and 2009, respectively. Our effective tax rate increased, as the
noncontrolling interests in the income or loss of consolidated subsidiaries is
presented in the Consolidated Condensed Statements of Operations after the
income tax provision or benefit. The noncontrolling interests in the income or
loss of Levelland and One Earth were a higher proportion of pre-tax loss in
fiscal year 2009 compared to the pre-tax income for fiscal year 2010.
As
a result of the foregoing, income from continuing operations including
noncontrolling interests was $4.9 million for the first quarter of fiscal year
2010 versus a loss of $1.7 million for the first quarter of fiscal year 2009.
During
fiscal year 2009, we closed our remaining retail store and warehouse operations
and reclassified all retail related results as discontinued operations. As a
result of these closings and certain other retail store and real estate
property closings from prior years, we had income from discontinued operations,
net of tax, of $0.7 million in the first quarter of fiscal year 2010 compared
to a loss of $0.5 million in the first quarter of fiscal year 2009. The
improvement to profitability in the current year results from the recognition
of deferred income on our extended service plans and there were no unprofitable
retail operations in the current year since we exited the retail business
during fiscal year 2009. One property classified as discontinued operations was
abandoned during the first quarter of fiscal year 2009, resulting in a loss,
net of taxes of $0.1 million. There was no such gain or loss during the first
quarter of fiscal year 2010.
(Income)
or loss related to noncontrolling interests was $(1.4) million and $0.6 million
during the first quarter of fiscal years 2010 and 2009, respectively, and
represents the owners (other than us) share of the income or loss of Levelland
Hockley and One Earth. Noncontrolling interests of Levelland Hockley and One
Earth was $0.5 million and $(1.9) million, respectively during the first
quarter of fiscal year 2010 and $0.5 million and $0.1 million, respectively,
during the first quarter of fiscal year 2009.
As
a result of the foregoing, net income attributable to REX common shareholders
was $4.2 million for the first quarter of fiscal year 2010 compared to a net
loss of $1.7 million for the first quarter of fiscal year 2009.
Business Segment Results
During
fiscal year 2009, we realigned our reportable business segments to be
consistent with changes to our management structure and reporting. We have two
segments: alternative energy and real estate. The real estate segment was
formerly included in the retail segment. For former retail stores and
warehouses closed which we have a retained interest in the related real estate,
operations are currently presented in the real estate segment based upon when
retail operations ceased. Historical results from retail store operations have
been reclassified as discontinued operations for all periods presented.
30
The
following sections discuss the results of operations for each of our business
segments and corporate and other. As discussed in Note 17, our chief operating
decision maker (as defined by ASC 280,
Segment
Reporting
) evaluates the operating performance of our business
segments using a measure we call segment profit. Segment profit includes gains
and losses on derivative financial instruments. Segment profit excludes income
taxes, indirect interest expense, discontinued operations, indirect interest
income and certain other items that are included in net income determined in
accordance with accounting principles generally accepted in the United States of
America. Management believes these are useful financial measures; however, they
should not be construed as being more important than other comparable GAAP
measures.
Items
excluded from segment profit generally result from decisions made by corporate
executives. Financing, divestiture and tax structure decisions are generally
made by corporate executives. Excluding these items from our business segment
performance measure enables us to evaluate business segment operating
performance based upon current economic conditions.
The
following table sets forth, for the periods indicated, sales and profits by
segment (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Net sales
and revenue:
|
|
|
|
|
|
|
|
Alternative
energy
|
|
$
|
71,022
|
|
$
|
14,118
|
|
Real estate
|
|
|
269
|
|
|
130
|
|
|
|
|
|
|
|
|
|
Total net
sales and revenues
|
|
$
|
71,291
|
|
$
|
14,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
gross profit (loss):
|
|
|
|
|
|
|
|
Alternative
energy
|
|
$
|
8,462
|
|
$
|
233
|
|
Real estate
|
|
|
(365
|
)
|
|
92
|
|
|
|
|
|
|
|
|
|
Total gross
profit
|
|
$
|
8,097
|
|
$
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit (loss):
|
|
|
|
|
|
|
|
Alternative
energy segment profit (loss)
|
|
$
|
8,613
|
|
$
|
(1,988
|
)
|
Real estate
segment (loss) profit
|
|
|
(428
|
)
|
|
29
|
|
Corporate
expense
|
|
|
(773
|
)
|
|
(476
|
)
|
Interest
expense
|
|
|
(49
|
)
|
|
(189
|
)
|
Interest
income
|
|
|
69
|
|
|
230
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before income taxes and noncontrolling
interests
|
|
$
|
7,432
|
|
$
|
(2,394
|
)
|
|
|
|
|
|
|
|
|
Alternative Energy
The
alternative energy segment includes the consolidated financial statements of
Levelland Hockley and One Earth, our equity method and debt investments in
ethanol facilities, the income related to those investments and certain
administrative expenses.
31
One Earth
began limited production operations late in the second quarter of fiscal year
2009 and became fully operational during the third quarter of fiscal year 2009.
The following table summarizes sales from Levelland Hockley and One Earth by
product group (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol
|
|
$
|
59,529
|
|
$
|
10,452
|
|
Dried
distiller grains
|
|
|
9,258
|
|
|
1,633
|
|
Wet
distiller grains
|
|
|
2,031
|
|
|
1,938
|
|
Other
|
|
|
204
|
|
|
95
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
71,022
|
|
$
|
14,118
|
|
|
|
|
|
|
|
|
|
The following
table summarizes certain operating data from Levelland Hockley and One Earth:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
Average
selling price per gallon of ethanol
|
|
$
|
1.73
|
|
$
|
1.55
|
|
Average
selling price per ton of dried distiller grains
|
|
$
|
121.32
|
|
$
|
160.10
|
|
Average
selling price per ton of wet distiller grains
|
|
$
|
31.56
|
|
$
|
47.82
|
|
Average cost
per bushel of grain
|
|
$
|
3.67
|
|
$
|
3.26
|
|
Average cost
of natural gas (per mmbtu)
|
|
$
|
5.65
|
|
$
|
5.47
|
|
Net
sales and revenue increased $56.9 million to $71.0 million primarily a result
of One Earth becoming fully operational during the third quarter of fiscal year
2009. The average selling price per gallon of ethanol increased to $1.73 in the
current year from $1.55 in the prior year. Our sales were based upon 34.5
million gallons of ethanol in the current year compared to 6.7 million gallons
of ethanol in the prior year. We expect that net sales and revenue in future
periods will be based upon production of approximately 130 million to 140
million gallons of ethanol per year. This expectation assumes that One Earth
and Levelland will continue to operate at or near nameplate capacity, which is
dependent upon the crush spread realized at each respective plant.
Gross profit from these sales was approximately $8.5 million during the first
quarter of fiscal year 2010 compared to $0.2 million during the first quarter
of fiscal year 2009. Gross profit improved primarily as a result of One Earth
beginning operations in fiscal year 2009 subsequent to the first quarter and
the corresponding increase in production volume realized in fiscal year 2010.
Given the inherent volatility in ethanol
32
and grain
prices, we cannot predict the likelihood that the spread between ethanol and grain
prices in future periods will remain favorable or consistent compared to
historical periods.
Selling,
general and administrative expenses were approximately $1.3 million in the
first quarter of fiscal year 2010, a $0.6 million increase from $0.7 million in
the first quarter of fiscal year 2009. Executive compensation was approximately
$0.3 million higher compared to the prior year, as profitability from this
segment during the current year exceeded the prior year loss. In addition,
depreciation expense was approximately $0.2 million higher than the prior year,
primarily related to One Earth commencing productions operations subsequent to
the first quarter of fiscal year 2009.
Interest
expense increased $0.6 million in the current year over the prior year to $1.3
million, as we no longer capitalize interest on the One Earth credit facility
subsequent to the commencement of operations at the plant. In addition, One
Earth borrowed approximately $49.0 million during fiscal year 2009 as it
completed construction of its ethanol plant; the resulting higher outstanding
debt amount also contributed to the increase in interest expense. Based on
current interest rates, we expect interest expense in future quarters to be
consistent with the first quarter of fiscal year 2010 levels based on current
debt levels.
Income
from equity method investments in Big River and Patriot increased from a loss
of $0.3 million in the prior year to $2.8 million in the current year. We
recognized $1.3 million of income from Big River in the first quarter of fiscal
year 2010 compared to $0.1 million in the first quarter of fiscal year 2009. We
recognized $1.5 million of income from Patriot in the first quarter of fiscal
year 2010 compared to a loss of $0.4 million in the first quarter of fiscal
year 2009. The improvement in Big Rivers and Patriots profitability over the
prior year levels is primarily a result of improved crush spreads. In addition,
Big River benefitted from two of its plants being in operation during the first
quarter of fiscal year 2010 which were not in operation during the first
quarter of fiscal year 2009. Given the inherent volatility in the factors that
affect the crush spread, we cannot predict the likelihood that the trend with
respect to income from equity method investments will continue in future
periods.
Losses
on derivative financial instruments held by One Earth and Levelland were $0.2
million in the current year compared to $0.6 million in the prior year. Since
the gains or losses on these derivative financial instruments are primarily a
function of the movement in interest rates, we cannot predict the likelihood
that such gains or losses in future periods will be consistent with current
year results.
As
a result of the factors discussed above, segment profit increased to $8.6
million in the first quarter of fiscal year 2010 compared to a loss of $2.0
million in the first quarter of fiscal year 2009.
33
Real Estate
The
real estate segment includes all owned and sub-leased real estate including
those previously used as retail store and distribution center operations, our
real estate sales and leasing activities and certain administrative expenses.
It excludes results from discontinued operations.
At
April 30, 2010, we have lease or sub-lease agreements, as landlord, for all or
parts of 10 former retail stores (108,000 square feet leased and 35,000 square
feet vacant). We own nine of these properties and are the tenant/sub landlord
for one of the properties. We have 30 owned former retail stores (374,000
square feet), and one former distribution center (180,000 square feet), that
are vacant at April 30, 2010. We are marketing these vacant properties for
lease or sale. In addition, one former distribution center is partially leased
(156,000 square feet), partially occupied by our corporate office personnel
(10,000 square feet) and partially vacant (300,000 square feet).
Net
sales and revenue increased in the first quarter of fiscal year 2010 to
$269,000 from $130,000 in the first quarter of fiscal year 2009. This increase
is primarily the result of a lease we entered into for a portion of one of our
distribution centers which began during the fourth quarter of fiscal year 2009.
We expect lease revenue for the remainder of fiscal year 2010 to be consistent
with the first quarter of fiscal year 2010 based upon leases currently
executed.
Gross
loss in the first quarter of fiscal year 2010 was $0.4 million compared to
gross profit of $0.1 million in the first quarter of fiscal year 2009. Gross
profit declined compared to the prior year as a result of expenses associated
with vacant properties. A majority of these properties were being used in our
retail segment during the first quarter of fiscal year 2009. We expect gross
loss for the remainder of fiscal year 2010 to be consistent with the first
quarter of fiscal year 2010 based upon leases currently executed. If we are
successful in our marketing efforts related to vacant properties, we would
expect gross profit (loss) to improve over the first quarter of fiscal year
2010 results.
As
a result of the factors discussed above, segment loss decreased to $428,000 in
the first quarter of fiscal year 2010 from segment profit of $29,000 in the
first quarter of fiscal year 2009.
Corporate and Other
Corporate
and other includes certain administrative expenses of the corporate
headquarters, interest expense and investment income not directly allocated to
the alternative energy or real estate segments.
Selling,
general and administrative expenses were $0.8 million in the first quarter of
fiscal year 2010 compared to $0.5 million in the first quarter of fiscal year
2009. We expect these expenses for the remainder of fiscal year 2010 to be
consistent with the first quarter of fiscal year 2010 results.
Interest
income was $0.1 million in the first quarter of fiscal year 2010 compared to
$0.2 million in the first quarter of fiscal year 2009. The decline generally
results from lower yields
34
earned on our
excess cash in the current year compared to the prior year. The lower yields
are a result of the overall macroeconomic environment and not a result of a
shift to investments with less risk.
Liquidity and Capital Resources
Net
cash provided by operating activities was approximately $13.8 million for the
first quarter of fiscal year 2010, compared to $10.4 million for the first
quarter of fiscal year 2009. For the first three months of fiscal year 2010,
cash was provided by net income of $5.6 million, adjusted for non-cash items of
$0.2 million, which consisted of depreciation and amortization, income from
equity method investments, deferred income and the deferred income tax
provision. Dividends received from our equity method investees were $0.8
million in the first quarter of fiscal year 2010. In addition, refundable
income taxes provided cash of $6.6 million, primarily a result of federal tax
refunds received. Accounts receivable and inventory provided cash of $1.6
million and $1.3 million, respectively, a result of normal variations in
production and sales levels. The primary use of cash was a decrease in accounts
payable of $1.3 million which is a result of the timing of vendor payments and
inventory receipts.
Net
cash provided by operating activities was approximately $10.4 million for the
first quarter of fiscal year 2009. For the first three months of fiscal year
2009, cash was used by net loss of $2.4 million, adjusted for non-cash items of
$4.2 million, which consisted of depreciation and amortization, stock based
compensation expense, loss from equity method investments, loss on disposal of
real estate and property and equipment, deferred income and the deferred income
tax provision. In addition, inventory provided cash of $17.9 million, primarily
a result of the wind down of our retail business inventory levels as we
liquidated a significant portion of our retail merchandise inventory as we
closed stores. The primary use of cash was a decrease in accounts payable of
$2.3 million as we reduced our merchandise vendor balances in connection with
the wind down of our retail business. Accounts receivable provided $1.9 million
of cash, primarily a result of the timing of cash receipts and customer
billings at Levelland Hockley. Refundable income taxes used cash of $1.0
million as we had an increase in the balance of refundable income taxes due to
the operating losses incurred in fiscal year 2008.
At
April 30, 2010, working capital was $94.9 million compared to $101.2 million at
January 31, 2010. This decrease is primarily a result of repayments of long
term debt. The ratio of current assets to current liabilities was 3.7 to 1 at
April 30, 2010 and 3.6 to 1 at January 31, 2010.
Cash
of $0.1 million was used in investing activities for the first quarter of
fiscal year 2010, compared to $22.6 million of cash used during the first
quarter of fiscal year 2009. During the first quarter of fiscal year 2010, we
had capital expenditures of approximately $0.6 million, primarily related to
improvements at the Levelland Hockley ethanol plant and certain real estate
properties. We received approximately $0.5 million from Patriot as repayments
on their promissory note.
Cash
of $22.6 million was used in investing activities for the first quarter of
fiscal year 2009. During the first quarter of fiscal year 2009, we had capital
expenditures of approximately $21.6 million, primarily related to construction
at the One Earth ethanol plant. We paid
35
approximately
$1.0 million into a restricted account as collateral for a letter of credit on
behalf of Levelland Hockley to secure grain purchasing.
Cash
used in financing activities totaled approximately $12.6 million for the first
quarter of fiscal year 2010 compared to cash provided of $6.1 million for the
first quarter of fiscal year 2009. Cash was used by debt payments of $13.4
million, primarily on Levelland Hockleys and One Earths term loans. Stock
option activity generated cash of $0.8 million.
Cash
provided by financing activities totaled approximately $6.1 million for the
first quarter of fiscal year 2009. Cash was provided by debt borrowings of
$15.3 million on construction loans at ethanol facilities and stock option
activity of $0.6 million. Cash of $8.7 million was used for payments of
mortgage debt. In addition, cash of $1.2 million was used to repurchase our
common shares.
We
believe we have sufficient working capital and credit availability to fund our
commitments and to maintain our operations at their current levels for the next
twelve months and foreseeable future.
We
plan to seek and evaluate various investment opportunities. We can make no
assurances that we will be successful in our efforts to find such
opportunities.
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. Such statements can be
identified by use of forward-looking terminology such as may, expect,
believe, estimate, anticipate or continue or the negative thereof or
other variations thereon or comparable terminology. Readers are cautioned that
there are risks and uncertainties that could cause actual events or results to
differ materially from those referred to in such forward-looking statements.
These risks and uncertainties include the risk factors set forth from time to
time in the Companys filings with the Securities and Exchange Commission and
include among other things: the impact of legislative changes, the price
volatility and availability of corn, sorghum, distiller grains, ethanol,
gasoline and natural gas, ethanol plants operating efficiently and according to
forecasts and projections, changes in the national or regional economies,
weather, the effects of terrorism or acts of war and changes in real estate
market conditions. The Company does not intend to update publicly any
forward-looking statements except as required by law. Other factors that could
cause actual results to differ materially from those in the forward-looking
statements are set forth in Item 1A of the Companys Annual Report on Form 10-K
for the fiscal year ended January 31, 2010 (File No. 001-09097).
I
tem 3.
Quantitative and Qualitative Disclosures About Market
Risk
Levelland
Hockley entered into a forward interest rate swap in the notional amount of
$43.7 million during fiscal year 2007. The swap fixed the variable interest
rate of the term loan at 7.89%. The swap matured on April 30, 2010. Thus,
approximately $36.1 million of term debt
36
is no longer
effectively fixed rate debt. Any increases in LIBOR will increase the Companys
interest expense.
I
tem 4.
Controls and Procedures
Our
management evaluated, with the participation of our Chief Executive Officer and
Chief Financial Officer, the effectiveness of our disclosure controls and
procedures, as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms and is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
There
were no changes in our internal control over financial reporting that occurred
during our last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
P
ART II. OTHER
INFORMATION
I
tem 1A.
Risk Factors
During
the quarter ended April 30, 2010, there have been no material changes to the
risk factors discussed in our Annual Report on Form 10-K for the year ended
January 31, 2010.
I
tem 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
Dividend Policy
We
did not pay dividends in the current or prior years. We currently have no
restrictions on the payment of dividends. Our consolidated ethanol subsidiaries
have certain restrictions on their ability to pay dividends to us.
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total Number
of Shares
Purchased
|
|
Average
Price
Paid per
Share
|
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)
|
|
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans
or Programs (1)
|
|
|
|
|
|
|
|
|
|
|
|
February
1-28, 2010
|
|
|
2,000
|
|
$
|
15.11
|
|
|
2,000
|
|
|
480,701
|
|
March 1-31,
2010
|
|
|
|
|
|
|
|
|
|
|
|
480,701
|
|
April 1-30,
2010
|
|
|
|
|
|
|
|
|
|
|
|
480,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,000
|
|
$
|
15.11
|
|
|
2,000
|
|
|
480,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
On December 1, 2009, our Board of Directors increased our share repurchase authorization
by an additional 500,000. At April 30, 2010, a total of 480,701 shares remained
available to purchase under this authorization.
|
37
I
tem 6.
Exhibits.
|
|
|
|
|
The
following exhibits are filed with this report:
|
|
|
|
|
|
|
31
|
Rule 13a-14(a)/15d-14(a)
Certifications
|
|
|
|
|
|
|
32
|
Section 1350
Certifications
|
38
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
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Stuart A. Rose
|
|
Chairman of the Board
|
|
June
3, 2010
|
|
|
(Chief Executive Officer)
|
|
|
(Stuart
A. Rose)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Douglas L. Bruggeman
|
|
Vice President, Finance
and Treasurer
|
|
June
3, 2010
|
|
|
(Chief Financial Officer)
|
|
|
(Douglas
L. Bruggeman)
|
|
|
|
|
39
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