FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
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UNITED STATES | |
SECURITIES AND EXCHANGE COMMISSION | |
WASHINGTON, D.C. 20549 | |
FORM 10-K | |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF | |
THE SECURITIES EXCHANGE ACT OF 1934 | |
FOR THE FISCAL YEAR ENDED JANUARY 31, | COMMISSION FILE NO. 001-09097 |
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REX STORES CORPORATION | |
(Exact name of registrant as specified in its charter) |
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Delaware | 31-1095548 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) |
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2875 Needmore Road, Dayton, Ohio | 45414 | |
(Address of principal executive offices) | (Zip Code) |
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Registrant’s telephone number, including area code (937) 276-3931 | ||
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class | Name of each exchange | |
Common Stock, $.01 par value | New York Stock Exchange |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso Noþx
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso Noþx
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþx Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.þx
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated fileroAccelerated filerx Non-accelerated filer o Smaller reporting company o
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(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yeso Nox |
At the close of business on July 31, 20082009 the aggregate market value of the registrant’s outstanding Common Stock held by non-affiliates of the registrant (for purposes of this calculation, 1,881,5712,048,795 shares beneficially owned by directors and executive officers of the registrant were treated as being held by affiliates of the registrant), was $100,485,398.$80,172,960.
There were 9,289,8639,842,083 shares of the registrant’s Common Stock outstanding as of April 15, 2009.2010.
Documents Incorporated by Reference |
Portions of REX Stores Corporation’s definitive Proxy Statement for its Annual Meeting of Shareholders on June 9, 2010 are incorporated by reference into Part III of this Form 10-K. |
AVAILABLE INFORMATION
REX makes available free of charge on its Internet website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. REX’s Internet website address iswww.rextv.com. www.rextv.com. The contents of the Company’s website are not a part of this report.
PART I
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Item 1. | Business |
Overview
REX was incorporated in Delaware in 1984 as a holding company to succeed to the entire ownership of three affiliated corporations, Rex Radio and Television, Inc., Stereo Town, Inc. and Kelly & Cohen Appliances, Inc., which were formed in 1980, 1981 and 1983, respectively. Our principal offices are located at 2875 Needmore Road, Dayton, Ohio 45414. Our telephone number is (937) 276-3931. Historically, we were a specialty retailer in the majority of our net sales and revenue was derived from the operation of consumer electronics and appliance retail locations.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, we sold approximately 60% of our owned retail and vacant stores in fiscal year 2007.2007 and leased back a portion of the stores which had been operating as electronics and appliance retail stores. 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 remaining real estate portfolio. Following a comprehensive analysis,We engaged an investment banking firm to assist us in analyzing and ultimately marketing our retail operations. As part of those marketing efforts, late in fiscal year 2008, we initially leased 37 owned store locations to aan unrelated third party. We also provided the lessee an option to purchase all of the properties being leased from us during the first two years of the lease term. The lessee also reached an agreement to lease or sub lease two of our leased locations. We anticipate closing, inDuring fiscal year 2009, the remainderlease agreements were terminated. We are marketing these vacant properties to lease or sell. Should our marketing efforts result in additional tenants to whom we lease property, we would expect to execute leases with terms of five to twenty years.
We completed our exit of the retail locationsbusiness as of July 31, 2009. Going forward, we expect that our only retail related activities will consist of the lessee does not take over from us.administration of extended service plans we previously sold and the payment of related claims. Net sales and expenses related to extended service plans are classified as discontinued operations.
We currently have invested approximately $110$111 million in ethanol production entitiesof equity and have interestsdebt investments in four ethanol production entities, two of which we have a majority ownership interest in. We have no definitive plans, beyond our existing commitments of approximately $3 million, but will continue to considerare considering making additional investments in the alternative energy segment.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 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.
The crush spread realized in 2009 was subject to significant volatility. For example, for calendar year 2009, the average Chicago Board of Trade (“CBOT”) near-month corn price was approximately $3.74 per bushel, with highs reaching nearly $4.20 per bushel and retreating to approximately $3.20 per bushel in the fall. Ethanol prices were generally in a range of approximately $1.50 to $1.70 per gallon for most of the year. Ethanol prices increased during the last three months of 2009 reaching as high as $2.00 per gallon. We believe this market volatility with respect to the crush spread was attributable to a number of factors, including but not limited to export demand, speculation, currency valuation, global economic conditions, ethanol demand and current production concerns. In 2009, the CBOT crush spread ranged from approximately $0.19 to $0.63 per gallon of ethanol.
We reported segment profit (before income taxes and noncontrolling interests) from our alternative energy segment of approximately $17.8 million in fiscal year 2009 compared to a loss of approximately $9.0 million in fiscal year 2008. The swing to profitability resulted from favorable crush spreads, particularly in the later parts of fiscal year 2009, and One Earth commencing production operations in the second quarter of fiscal year 2009. We expect that future operating results will be based upon annual production of between 130 and 140 million gallons, which assumes that Levelland Hockley and One Earth will operate at or near nameplate capacity. However, due to the inherent volatility of the crush spread, we cannot predict the likelihood of future operating results being similar to the 2009 results.
We plan to seek and evaluate various investment opportunities including energy related, agricultural or other ventures we believe fit our investment criteria. We can make no assurances that we will be successful in our efforts to find such opportunities.
Additional information regarding our business segments is presented below and in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in this Form 10-K. See Note 1820 of the Notes to the Consolidated Financial Statements for information regarding the net sales
and revenues and operating results for each of our business segments for the fiscal years ended January 31, 2010, 2009 2008 and 2007.2008.
Fiscal Year
All references in this report to a particular fiscal year are to REX’s fiscal year ended January 31. For example, “fiscal year 2008”2009” means the period February 1, 20082009 to January 31, 2009.2010. We refer to our fiscal year by reference to the year immediately preceding the January 31 fiscal year end date.
Retail Overview
We began fiscal year 2008 with 115 retail stores. Our stores averaged approximately 11,300 square feet and offered a broad selection of brand name products within selected major product categories, including big screen and standard-sized televisions, major household appliances, video and audio equipment and ready to assemble furniture. Reflecting the economic condition of the consumer electronics and appliance industry and our intention to exit the retail industry, we closed 25 stores during fiscal year 2008. We are currently in
the process of closing the majority of our retail stores and expect to exit the consumer electronics and appliance retail business in fiscal year 2009.
We offer extended service contracts to our customers which typically provide, inclusive of manufacturers’ warranties, one to five years of warranty coverage. We plan to manage and administer these contracts and to recognize the associated income and expenses, including the cost to repair or replace covered products, over the life of the contracts.
Real Estate Operations
At January 31, 2009, we have lease agreements or commitments, as landlord, for all or portions of 41 owned properties, including 37 stores leased to subsidiaries of Appliance Direct, Inc. (“Appliance Direct”), a third party appliance chain. We did not operate a retail store at seven of these locations. We operated a retail store at the remaining 34 locations, which, we anticipate closing throughout the first half of fiscal year 2009, as Appliance Direct occupies our properties as lessee. We also own two distribution facilities, comprising approximately 650,000 square feet, that we are marketing to sell or lease.
A typical lease agreement has an initial term of three to six years with renewal options. Most of our lessees are responsible for a portion of maintenance, taxes and other executory costs. We require our lessees to maintain adequate levels of insurance. We recognized lease revenue of approximately $416,000 and $401,000 during fiscal years 2008 and 2007, respectively. We expect lease revenue to increase by approximately $2.8 million annually, upon the successful transition of our 37 owned properties to Appliance Direct.
Alternative Energy Overview
As part of our ongoing efforts to diversify and increase our earnings, we began investing in the ethanol industry during fiscal year 2006. Our business strategy focuses on partnering with farmer groups, local groups, or farmer-controlled cooperatives to develop and operate ethanol production plants. We seek to identify quality ethanol plant opportunities characterized by strong plant construction partners and plant management, located near adequate feedstock supply with good transportation capabilities or other economically beneficial attributes, and that utilize leading ethanol production technology. Our partnership model generally enables farmer groups to retain local management of the project, including control of their crops as a supplier to the project, while we provide capital and additional business administration experience.
We follow a flexible model for our investments in ethanol plants, taking both minority and majority ownership positions. The form and structure of our investments is tailored to the specific needs and goals of each project and the local farmer group or investor with whom we are partnering. We actively participate in the development and management of our projects through our membership on the board of managers of the limited liability companies that own the plants.
Alternative Energy Strategy
The key elements of our alternative energy business strategy include:
Investing in Plants that Meet our Investment CriteriaCriteria..We have stringent and structured criteria to evaluate our plant investments. We focus on identifying projects with efficient cost structure, superior infrastructure and logistics and quality partners. We evaluate the projects using the following criteria:
Partners.We judge our partners on the strength of their connection with the local community, ability to support the plant through construction and when in operation, as well as their willingness and desire for an outside partner.
Plant Location. We generally look for locations in areas that are near large quantities of feedstock or feedlots which we believe will be important to procure commodities cost effectively as demand for key feedstock commodities increases. We also look for accessibility to rail, highways or waterways for ease of transportation of ethanol and distillers grains and feedstock. Access to feedlots and utilities such as water and natural gas are also important considerations for our plant locations.
Technology and Construction. We look for plants that are built or will be built using the latest but proven production technology in order to facilitate cost efficient conversion of raw material into ethanol. All of ourOur plants are beingwere designed and built by leading plant builder and design firms, such as Fagen, Inc. or ICM, Inc.
Marketing Alliance. Each project independently chooses its own marketing alliance. We prefer marketing partners that have strong positions in the industry based on their experience and national reach,
which we believe will become increasingly important as ethanol becomes a more available alternative to petroleum based fuels. We also sell our ethanol and related products in the local markets when it is advantageous to do so.
Adding Value to Our Partnerships. We look for ways to add to the operational characteristics of our projects by being a source of development support and information on practices in the ethanol industry. We believe the diversification of our investments in terms of geography, ownership, management, plant size and financial and operational agreements allow us to provide our partners with value added information with respect to risk management, feedstock procurement, plant management and ethanol and co-products marketing.
Ethanol Investments
We have invested in fivefour entities four of which we remain invested in as of January 31, 2009,2010, utilizing both equity and debt and equity investments. We sold our investmentAs of January 31, 2010, all of the entities we are invested in Millennium Ethanol, LLC (“Millennium”) during fiscal year 2007. One Earth Energy, LLC is a development stage enterprise and we expect it to be ready to begin generating operating revenue by mid-year 2009.
are operating. The following table is a summary of our ethanol investments at January 31, 20092010 (amounts in thousands, except operating capacity and ownership percentages):
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Entity |
| Initial |
| Operating |
| Ownership |
| Debt |
| Contingent |
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| Initial |
| Operating |
| Effective |
| Debt |
| Contingent |
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Levelland Hockley County Ethanol, LLC |
| $ | 16,500 |
| 40 |
| 56 | % | $ | 5,516 |
| $ | 3,000 |
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| $ | 16,500 |
| 40 |
| 56 | % | $ | 6,255 |
| $ | 1,532 |
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Big River Resources, LLC |
| 20,000 |
| 192 |
| 10 | % |
| — |
| — |
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Big River Resources, LLC-W Burlington |
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| 92 |
| 10 | % |
| — |
| — |
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Big River Resources, LLC-Galva |
| 20,025 |
| 100 |
| 10 | % |
| — |
| — |
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Big River United Energy, LLC |
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| 100 |
| 5 | % |
| — |
| — |
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Patriot Renewable Fuels, LLC |
| 16,000 |
| 100 |
| 23 | % |
| 933 |
| — |
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| 16,000 |
| 100 |
| 23 | % |
| 1,014 |
| — |
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One Earth Energy, LLC |
| 50,765 |
| 100 |
| 74 | % |
| — |
| — |
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| 50,765 |
| 100 |
| 74 | % |
| — |
| — |
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Total |
| $ | 103,265 |
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| $ | 6,449 |
| $ | 3,000 |
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| $ | 103,290 |
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| $ | 7,269 |
| $ | 1,532 |
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Levelland Hockley County Ethanol, LLC
On September 30, 2006, we acquired 47% of the outstanding membership units of Levelland Hockley County Ethanol, LLC, or Levelland Hockley, for $11.5 million. On December 29, 2006, we purchased a $5.0 million convertible secured promissory note from Levelland Hockley. On July 1, 2007, we converted the note into equity and increased our ownership percentage to approximately 56%. On February 20, 2008, we purchased an additional $5.0 million convertible secured promissory note from Levelland Hockley. The balance of this note at January 31, 20092010 was $5.5$4.8 million, including accrued interest. The conversion of the note into equity would increase our ownership percentage to approximately 62%. On January 29, 2009, we agreed to fund up
to $2.0 million in the form of a subordinated revolving line of credit with Levelland Hockley and to issue a $1.0 million letter of credit for the benefit of Levelland Hockley. In connection with the subordinated revolving line of credit and the letter of credit, we were granted warrants to purchase membership units of Levelland Hockley for $3.08 per unit. Our ownership percentage would increase to approximately 62% if we exercise only our rights under the warrants but do not convert the promissory note. There were no amountsAt January 31, 2010, there was $1.5 million outstanding under the subordinated revolving line of credit at January 31, 2009. We issued the $1.0 million letter of credit in the first quarter of fiscal year 2009.credit. We consolidate Levelland Hockley with our financial results and include them in our alternative energy segment.
Levelland Hockley, which is located in Levelland, Texas, commenced production operations in the first quarter of fiscal year 2008. The plant has a designnameplate capacity of 40 million gallons of ethanol and 135,000 tons of dried distillers grains (“DDG”) per year.
Big River Resources, LLC
We have invested $20 million in Big River Resources, LLC, or Big River, for a 10% ownership interest. Big River is a holding company for several entities including Big River Resources West Burlington, LLC which operates a 92 million gallon dry-mill ethanol manufacturing facility in West Burlington, Iowa. The facility has been in operation since 2004.
Big River has beguncompleted construction in the second quarter of fiscal year 2009 of its second plant which has a designnameplate capacity of 100 million gallons of ethanol and 320,000 tons of DDG per year. This plant is located in Galva, IllinoisIllinois.
In August 2009, Big River acquired a 50.5% interest in an ethanol production facility which has a nameplate capacity of 100 million gallons of ethanol and construction320,000 tons of theDDG per year. The plant is expected to be completed by June of 2009.located in Dyersville, Iowa. Reflecting REX’s 10% ownership interest in Big River, REX has an effective 5% ownership interest in this entity.
Patriot Renewable Fuels, LLC
On December 4, 2006, we acquired a 23% ownership interest in Patriot Renewable Fuels, LLC, or Patriot, for $16 million. Patriot commenced production operations in the second quarter of fiscal year 2008. The plant is located in Annawan, Illinois and has a designnameplate capacity of 100 million gallons of ethanol and 320,000 tons of DDG per year.
One Earth Energy, LLC
On October 30, 2007, we acquired 74% of the outstanding membership units of One Earth Energy, LLC, or One Earth, for $50.8 million. We consolidate One Earth with our financial results and include them in our alternative energy segment. One Earth has commencedcompleted construction in the second quarter of anfiscal year 2009 of its ethanol production facility in Gibson City, Illinois. Fagen, Inc. and ICM, Inc. are providing construction process design and engineering services for the plant. Construction of the facility is expected to be completed by mid-year 2009 andThe plant has a designnameplate capacity of 100 million gallons of ethanol and 320,000 tons of DDG per year.
One Earth has reached an agreement with a marketing company to provide corn or other grain origination, ethanolcommenced production operations late in the second quarter of fiscal year 2009 and DDG marketing.began generating revenue in the third quarter of fiscal year 2009.
Ethanol Industry
Ethanol is a renewable fuel source produced by processing corn and other biomass through a fermentation process that creates combustible alcohol that can be used as an additive or replacement to fossil fuel based gasoline. The majority of ethanol produced in the United States is made from corn because of its wide availability and ease of convertibility from large amounts of carbohydrates into glucose, the key ingredient in producing alcohol that is used in the fermentation process. Ethanol production can also use feedstocks such as grain sorghum, switchgrass, wheat, barley, potatoes and sugarcane as carbohydrate sources.
Most ethanol plants have been located near large corn production areas, such as Illinois, Indiana, Iowa, Minnesota, Nebraska, Ohio and South Dakota. Railway access and interstate access are vital for ethanol
facilities due to the large amount of demand in the east- and west-coast markets, primarily as a result of the stricter air quality requirements in large parts of those markets, and the limited ethanol production facilities.
According to the Renewable Fuels Association, or RFA, the United States fuel ethanol industry experienced record production of 9.510.6 billion gallons in 2008.2009. As of January 2009,2010, the number of operating ethanol plants increased to 170,189, up from 54 in 2000 and are located in 2625 states with a total capacity of 10.611.9 billion gallons annually.
On December 19, 2007, the Energy Independence and Security Act of 2007 (the “Energy Act of 2007”) was enacted. The Energy Act of 2007 establishesestablished new levels of renewable fuel mandates, including two different categories of renewable fuels: conventional biofuels and advanced biofuels. Corn-based ethanol is considered conventional biofuels which was subject to a renewable fuel standard (“RFS”) of at least 9.012.0 billion gallons per year in 2008,2010, with an expected increase to at least 15.0 billion gallons per year by 2015. Advanced biofuels includes ethanol derived from cellulose, hemicellulose or other non-corn starch sources; biodiesel; and other fuels derived from non-corn starch sources. Advanced biofuels RFS levels are set to reach at least 21.0 billion gallons per year, resulting in a total RFS from conventional and advanced biofuels of at least 36.0 billion gallons per year by 2022.
Ethanol Production
The plants we have invested in are designed to use the dry milling method of producing ethanol. In the dry milling process, the entire corn kernel is first ground into flour, which is referred to as “meal,” and processed without separating out the various component parts of the grain. The meal is processed with enzymes, ammonia and water, and then placed in a high-temperature cooker. It is then transferred to fermenters where yeast is added and the conversion of sugar to ethanol begins. After fermentation, the resulting liquid is transferred to distillation columns where the ethanol is separated from the remaining “stillage” for fuel uses. The anhydrous ethanol is then blended with denaturant, such as natural gasoline, to render it undrinkable and thus not subject to beverage alcohol tax. With the starch elements of the corn consumed in the above described process, the principal co-product produced by the dry milling process is dry distillers grains with solubles, or DDGS. DDGS is sold as a protein used in animal feed and recovers a significant portion of the total corn cost.
The Primary Uses of Ethanol
Blend component. Today, much of the ethanol blending in the U.S. is done for the purpose of extending the volume of fuel sold at the gas pump. Blending ethanol allows refiners to produce more fuel from a given barrel of oil. Currently, ethanol is blended into nearly 50%80% of the gasoline sold in the United States, the majority as E10 (a blend of 10% ethanol and 90% gasoline), according to the RFA. Going forward, the industry is attempting to expand the E-85 market, as well as to raise the federal cap on ethanol blend above the current 10% for most vehicles in use. The U.S. Environmental Protection Agency is expected to reach a decision on allowing ethanol blends of up to 15% for most vehicles by mid to late 2010.
Clean air additive. Ethanol is employed by the refining industry as a fuel oxygenate, which when blended with gasoline, allows engines to combust fuel more completely and reduce emissions from motor vehicles. Ethanol contains 35% oxygen, approximately twice that of Methyl Tertiary Butyl Ether, or MTBE, an alternative oxygenate to ethanol, the use of which is being phased out because of environmental and health concerns. The additional oxygen in ethanol results in more complete combustion of the fuel in the engine cylinder. Ethanol is non-toxic, water soluble and quickly biodegradable.
Octane enhancer. Ethanol increases the octane rating of gasoline with which it is blended. As such, ethanol is used by gasoline suppliers as an octane enhancer both for producing regular grade gasoline from lower octane blending stocks and for upgrading regular gasoline to premium grades.
Legislation
The United States ethanol industry is highly dependent upon federal and state legislation. See Item 1A. Risk Factors for a discussion of legislation affecting the U.S. ethanol industry.
Synthetic Fuel Partnerships
In fiscal year 1998, weWe had invested in twothree limited partnerships Colona SynFuel Limited Partnership, L.L.L.P. (“Colona”) and Somerset Synfuel, L.P. (“Somerset”) which ownowned facilities producing synthetic fuel. The partnerships earned federal income tax credits under Section 29/45K of the Internal Revenue Code based onupon the tonnage and content of solid synthetic fuel produced and sold to unrelated parties. We sold our entire interest in the Colona partnership (through a series of transactions) and received payments from the sales, on a quarterly basis, through 2007, subject to production levels. On October 14, 2005, we sold our entire interest in the Somerset Synfuel partnership for $1,200,000, net of commissions, along with a secured contingent payment note. We received payments from the sale, on a quarterly basis, through 2007, subject to production levels. On September 5, 2002, we purchased an additional synthetic fuel facility in Gillette, Wyoming. We sold our membership interest in the entity that owned the Gillette facility on March 30, 2004 for $2,750,000 along with a secured contingent payment note. The plant was subsequently sold and during the third quarter of fiscal year 2006, we modified our agreement with the owners and operators of the synthetic fuel facility. Based on the terms of the modified agreement, we currently are not able to determine the likelihood and timing of collecting payments related to production occurring after September 30, 2006. Thus, we cannot currently determine the timing of income recognition, if any, related to production occurring subsequent to September 30, 2006.
We do not expect to receive income from our Colona and Somerset synthetic fuel investments for production beyond fiscal year 2008, as the Section 29/45K tax credit program expired on December 31, 2007. However,As such, we may realizedo not expect to receive additional income from ourthese investments except for the possibility of an additional payment on a facility formerly located in Gillette, synthetic fuel investment asWyoming. Based upon the modified terms of a sales agreement we are currently not able to predict the likelihood and timing of payments for production subsequent tofrom September 30, 2006 throughto December 31, 2007.2007 for this facility. We expect the payments, if any, to be made within the next threetwo years. We have not recognized this income and will recognize income, if any, upon receipt of paymentspayment or upon our ability to reasonably assure ourselves of the timing and collectibilitycollectability of the payments.payment.
See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Notes 45 and 1719 of the Notes to the Consolidated Financial Statements for further discussions.
FacilitiesReal Estate Operations
We owned 35 of our stores operated at January 31, 2009. The remaining 55 stores operated on leased premises, with the unexpired terms of the leases ranging from less than one year to 18 years, inclusive of options to renew. For fiscal year 2008, the total net rent expense for our leased facilities was approximately $3.5 million.
At January 31, 2010, we had lease or sub-lease agreements, as landlord, for all or parts of ten 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 31 owned former retail stores (385,000 square feet), and one former distribution center (180,000 square feet), that are vacant at January 31, 2010. We are marketing these vacant properties to lease or sell. 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).
A typical lease agreement has an initial term of five to twenty years with renewal options. Most of our lessees are responsible for a portion of maintenance, taxes and other executory costs. We require our lessees to maintain adequate levels of insurance. We recognized lease revenue of approximately $1,089,000 and $415,000 during fiscal years 2009 and 2008, respectively.
Retail
We began fiscal year 2009 with 90 retail stores in operation, all of which were closed in the first half of the year as planned.
When we operated retail stores, we offered extended service contracts to our customers which typically provided, inclusive of manufacturers’ warranties, one to five years of warranty coverage. We plan to manage and administer these contracts and to recognize the associated income and expenses, including the cost to repair or replace covered products, over the remaining life of the contracts. We have classified
as discontinued operations all retail related activities, including those activities associated with extended service plans, in the Consolidated Statements of Operations for all periods presented.
Facilities
At January 31, 2010, we owned fournine former retail store properties that were not operated as stores and were leased to outside, unrelated parties. Of the nine leased properties, three of the properties are only partially leased. There were also seven completely or partially31 vacant properties that we were attempting to either lease or sell.
Levelland Hockley completed construction of a 40 million gallon ethanol plant during fiscal year 2008 In addition, we have one former distribution center partially leased and began production operations in the first quarter of fiscal year 2008.
One Earth began construction of a 100 million gallon ethanol plant during fiscal year 2007. We expectpartially vacant and another former distribution center that plant construction will be completed by mid-year 2009.is vacant.
Employees
At January 31, 2009,2010, we had approximately 8011 hourly and salaried employees and approximately 337 commission-based sales employees in or supporting our retail stores and corporate functions. None of our employees are represented by a labor union. We expect this employment to decrease to approximately 20 employees upon the completion ofremain relatively stable at its current level as we have completed our exit from the retail business.
At January 31, 2009,2010, Levelland Hockley had 39 employees.
At January 31, 2009,54 employees and One Earth had three49 employees. We anticipate this employment level will increase to approximately 45 employees once the plant is operational.
We consider our relationship with our employees to be good.
Service Marks
We have registered our service mark “REX”, and we own an application to register the mark “Farmers Energy”, with the United States Patent and Trademark Office. We are not aware of any adverse claims concerning our service marks.
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Item 1A. | Risk Factors |
We encourage you to carefully consider the risks described below and other information contained in this report when considering an investment decision in REX common stock. Any of the events discussed in the risk factors below may occur. If one or more of these events do occur, our results of operations, financial condition or cash flows could be materially adversely affected. In this instance, the trading price of REX stock could decline, and investors might lose all or part of their investment.
We have concentrations of cash deposits at financial institutions that exceed federal insurance limits.
We generally have cash deposits that exceed federal insurance limits. Should the financial institutions we deposit our cash at experience insolvency or other financial difficulty, our access to cash deposits could be limited. In extreme cases, we could lose our cash deposits entirely. This would negatively impact our liquidity and results of operations.
The current interest rate environment has resulted in lower yields on our excess cash.
We have experienced lower yields on our excess cash compared to historical yields. Should the present economic conditions result in a sustained period of historically low interest rates, our interest income would be negatively impacted.
Risks Related to the wind down and planned exit of our retail business
We may incur lease termination costs if we vacate leased stores prior to the expiration of the lease.
We are evaluating stores to close as part of the wind down of our retail business. We may close stores and warehouses we lease from landlords prior to the expiration of the lease. In such cases, we may be charged lease termination costs by the landlord that could be material.
We may not be able to sell our remaining inventory at profitable selling prices.
As we continue to liquidate our existing inventory, we may have to reduce the selling price of the products to levels that could result in material losses. At January 31, 2009, we had approximately $22.3 million of inventory related to our retail business.
Our future costs associated with administering extended product service contracts may result in higher than expected costs.
We will continue to administer extended product service contracts that have contractual maturities over the next five years. To the extent we do not have products or an adequate repair service network to satisfy warranty claims; we may incur material costs as we would be required to refund cash to customers for warranted products.
We may have a significant amount of vacant warehouse space after we complete the wind down of our retail business.
We own two distribution facilities comprising approximately 650,000 square feet. We are currently marketing these facilities for lease or sale. We may not be able to successfully lease or sell these properties which could result in lost opportunities for revenue or future impairment charges related to the carrying value of the associated assets.
A majority of our owned real estate will be leased to subsidiaries of Appliance Direct upon their taking possession of our properties.
Subsidiaries of Appliance Direct have agreed to lease 37 owned properties from us. Our expected lease revenue from these locations could be lower than expected should Appliance Direct or its subsidiaries fail to perform pursuant to the lease agreements. Such failures could have a material adverse effect on our financial condition, results of operations and cash flows.
Risks Related to our Synthetic Fuel Investments
We face synthetic fuel risks as future IRS audits may result in the disallowance of previously recognized tax credits.
We have been allocated approximately $25.0 million of Section 29/45K tax credits and recognized investment income of approximately $59.9$59.3 million from the sales of our partnership interests from years that the partnerships have not been audited by the Internal Revenue Service (IRS). Should the tax credits be denied on any future audit and we fail to prevail through the IRS or the legal process, there could be a significant tax liability owed for previously taken tax credits or refunds of previously recognized income with a significant adverse impact on earnings and cash flows.
The production and sale of synthetic fuel qualifiesqualified for Section 29/45K tax credits if certain requirements arewere satisfied, including a requirement that the synthetic fuel differs significantly in chemical composition from the coal used to produce the synthetic fuel and that the fuel was produced from a facility placed in service before July 1, 1998.
We may not be able to generate sufficient taxable income to realize our deferred tax assets.
We have approximately $31.9$14.8 million of deferred tax assets recorded on our consolidated financial statements. Should future results of operations or other factors cause us to determine that it is unlikely that we will generate sufficient taxable income to fully utilize our deferred tax assets; we would then be required to establish a
valuation allowance against such deferred tax assets. We would increase our income tax expense by the amount of the tax benefit we do not expect to realize. This would reduce our net income and could have a material adverse effect on our results of operations and our financial position.
We may realize capital losses related to our sales of synthetic fuel ownership interests.
We have, for income tax purposes, recognized capital gain in the year of sale for certain sales of our ownership interests in synthetic fuel entities. Should we, in subsequent years, realize a capital loss for income tax purposes, we may be required to carry the loss back to prior years. This could result in the write down of previously used Section 29/45K tax credits. This would reduce our net income and could have a material adverse effect on our results of operations.
Risks Related to our Alternative Energy Business
Certain of our ethanol investments are subject to the risks of a development stage business which could adversely affect the returns on our ethanol investmentsinvestment and our results of operations.
We do not have limitedlong term experience investing in the ethanol industry. We entered into our first agreement to invest in an ethanol plant in November 2005. At January 31, 2009,2010, we remain invested in four entities. Three entities are currently producingthat own and operate six ethanol production facilities. One facility has been in production since 2004, two facilities have been in production since 2008, two facilities became operational and one is expected to complete the construction of its ethanol production facility by the second quarter ofwas acquired (by an equity method investee) in fiscal year 2009. Our ethanol investments have been managed by our Chief Executive Officer, our Vice President and our Chief Financial Officer. We do not otherwise have a dedicated ethanol development or management staff. As a consequence, our ethanol investments are subject to many of the risks associated with a development stage company, including an unproven business model, a lack of operating history and an undeveloped operating structure. These development stage risks could result in our making investments in ethanol plants that perform substantially below our expectations, which would adversely affect our results of operations and financial condition.
One Earth and Big River are constructingrecently completed construction of new ethanol plants. As a result, we face significant project development risks that may adversely affect our investment returns.
Our investments in One Earth and Big River face risks of construction delays and cost overruns that could delay or reduce our investment returns. Significant delays in the construction schedules, or material variations between estimated versus actual construction costs, could prevent commencement of plant operations as expected and adversely impact the ability of the plants to operate profitably.
In addition, One Earth and Big River must obtain environmental and other permits, complete arrangements for transportation, water, natural gas and marketing of the ethanol, and hire and train employees before production can begin. In some cases, development of infrastructure outside of our control will be required, including additional rail capacity, adequate water supply, additional ethanol storage facilities and increases in truck fleets to transport ethanol within local markets. The failure to obtain any ofAs these necessary elements in a timely manner or on commercially acceptable terms could adversely affect the profitability of the plants. Once the new plants begin production,recently became operational, they face uncertainties of whether they will perform to specifications and whether they will achieve anticipated operating results.
If cash flow from operations of our ethanol plants is not sufficient to service debt, the plants could fail and we could lose our entire investment.
We expect ourOur ethanol plants to financefinanced approximately 60% of plant construction cost with debt. The debt typically has a balloon payment due after five years. The ability of each company owning the plant to repay borrowings incurred will depend upon the plant’s financial and operating performance. The cash flows and capital resources of an ethanol plant may be insufficient to repay its debt obligations. If a plant cannot service its debt, it may be forced to reduce or delay capital expenditures,
sell assets, restructure its
indebtedness or seek additional capital. If unable to do so, the value of our investment could decline significantly.
The institutional senior lenders to the companies which own and operate our ethanol plants hold liens on the plant’s assets. If a company fails to make its debt service payments, the senior lender will have the right to repossess the plant’s assets in addition to other remedies, which are superior to our rights as an equity investor or subordinated lender. Such action could have a materially adverse impact on our investment in the ethanol plant.
We depend on our partners to operate our ethanol investments.
Our investments currently represent both majority and minority equity positions, and day-to-day operating control of each plant generally remains with the local farmers’ cooperative or investor group that has promoted the plant. We may not have the ability to directly modify the operations of the plants in response to changes in the business environment or in response to any deficiencies in local operations of the plants. In addition, local plant operators, who also represent the primary suppliers of corn and other crops to the plants, may have interests, such as the price and sourcing of corn and other crops, that may differ from our interest, which is based solely on the operating profit of the plant. The limitations on our ability to control day-to-day plant operations could adversely affect plant results of operations.
We may not successfully acquire or develop additional ethanol investments.
The growth of our ethanol business depends on our ability to identify and develop new ethanol investments. Our ethanol development strategy depends on referrals, and introductions, to new investment opportunities from industry participants, such as ethanol plant builders, financial institutions, marketing agents and others. We must continue to maintain favorable relationships with these industry participants, and a material disruption in these sources of referrals would adversely affect our ability to expand our ethanol investments.
Any expansion strategy will depend on prevailing market conditions for the price of ethanol and the costs of corn and natural gas and the expectations of future market conditions. The significant expansion of ethanol production capacity in the United States could impede any expansion strategy. There is increasing competition for suitable sites for ethanol plants. Even if suitable sites or opportunities are identified, we may not be able to secure the services and products from contractors, engineering firms, construction firms and equipment suppliers necessary to build or expand ethanol plants on a timely basis or on acceptable economic terms. Construction costs associated with expansion may increase to levels that would make a new plant too expensive to complete or unprofitable to operate. Additional financing may also be necessary to implement any expansion strategy, which may not be accessible or available on acceptable terms.
We face significant competition in the ethanol industry.
We face significant competition for new ethanol investment opportunities. There are varied enterprises seeking to participate in the ethanol industry. Some enterprises provide financial support similar to our business model. Other enterprises seek to acquire or develop plants which they will directly own and operate. Many of our competitors are larger and have greater financial resources and name recognition than we do. We must compete for investment opportunities based on our strategy of supporting and enhancing local development of ethanol plant opportunities. We may not be successful in competing for investment opportunities based on our strategy.
There is a consolidation trend in the ethanol industry, partly a result of companies recently seeking protection under the United States Bankruptcy Code. As a result, firms are growing in size and scope. Larger firms offer efficiencies and economies of scale, resulting in lower costs of production. In addition, plants currently being sold as part of a bankruptcy proceeding may have significantly lower costs than our ethanol plants.
Absent significant growth and diversification, our ethanol plants may not be able to operate profitably in a more competitive environment. No assurance can be given that our ethanol plants will be able to compete successfully or that competition from larger companies with greater financial resources will not have a materially adverse affect on the results of our ethanol investments.
The financial returns on our ethanol investments are highly dependent on commodity prices, which are subject to significant volatility and uncertainty, and the availability of supplies, so our results could fluctuate substantially.
The financial returns on our ethanol investments are substantially dependent on commodity prices, especially prices for corn or other feedstock, natural gas, ethanol and unleaded gasoline. As a result of the volatility of the prices for these items, the returns may fluctuate substantially and our investments could experience periods of declining prices for their products and increasing costs for their raw materials, which could result in operating losses at our ethanol plants.
Our returns on ethanol investments are highly sensitive to grain prices. Corn or sorghum isare the principal raw materialmaterials our ethanol plants use or plan to use to produce ethanol and co-products. As a result, changes in the price of corn or sorghum can significantly affect their businesses. Rising corn or sorghum prices result in higher costs of ethanol and co-products. Because ethanol competes with non-corn-based fuels, our ethanol plants generally will be unable to pass along increased grain costs to their customers. At certain levels, grain prices may make ethanol uneconomical.uneconomical to produce.
The price of corn and sorghum is influenced by weather conditions and other factors affecting crop yields, transportation costs, farmer planting decisions, exports, the value of the U.S. dollar and general economic, market and regulatory factors. These factors include government policies and subsidies with respect to agriculture and international trade, and global and local demand and supply. The significance and relative effect of these factors on the price of corn and sorghum is difficult to predict. Any event that tends to negatively affect the supply of corn or sorghum, such as adverse weather or crop disease, could increase corn and sorghum prices and potentially harm the business of our ethanol plants. Increasing domestic ethanol capacity could boost the demand for corn and sorghum and result in increased corn or sorghum prices. Our ethanol plants may also have difficulty, from time to time, in physically sourcing corn or sorghum on economical terms due to supply shortages. Such a shortage could require our ethanol plants to suspend operations which would have a material adverse effect on the financial returns on our ethanol investments.
The spread between ethanol and corn and sorghum prices can vary significantly and may not return to recent high levels.significantly.The gross margin at our ethanol plants depends principally on the spread between ethanol and corn or sorghum prices. Fluctuations in the spread are likely to continue to occur. A sustained narrow spread or any further reduction in the spread between ethanol and corn prices, whether as a result of sustained high or increased corn prices or sustained low or decreased ethanol prices, would adversely affect the results of operations at our ethanol plants.
Our gross profit on gallons produced at Levelland Hockley and Patriot was much lower than expected for a majority of fiscal year 2008. Should this trend continue, our ethanol plants may generate material future losses from operations.
The market for natural gas is subject to market conditions that create uncertainty in the price and availability of the natural gas that our ethanol plants use in their manufacturing process. Our ethanol plants rely upon third parties for their supply of natural gas, which is consumed as fuel in the manufacture of ethanol. The prices for and availability of natural gas are subject to volatile market conditions. These market
market conditions often are affected by factors beyond the ethanol plants’ control, such as weather conditions, overall economic conditions and foreign and domestic governmental regulation and relations. Significant disruptions in the supply of natural gas could impair the ethanol plants’ ability to economically manufacture ethanol for their customers. Furthermore, increases in natural gas prices or changes in our natural gas costs relative to natural gas costs paid by competitors may adversely affect results of operations and financial position at our ethanol plants.
Fluctuations in the selling price and production costs of gasoline may reduce profit margins at our ethanol plants. Ethanol is marketed both as a fuel additive to reduce vehicle emissions from gasoline, and as an octane enhancer to improve the octane rating of gasoline with which it is blended.blended and, to a lesser extent, as a gasoline substitute. As a result, ethanol prices are influenced by the supply and demand for gasoline and our ethanol plants’ results of operations and financial position may be materially adversely affected if gasoline demand or price decreases.
New plants under construction or decreases in demand for ethanol may result in excess production capacity in the ethanol industry, which may cause the price of ethanol and/or distillers grains to decrease.
According to the Renewable Fuels Association, or RFA, domestic ethanol production nameplate capacity has increased from 1.9 billion gallons per year in January 2001 to approximately 10.613.0 billion gallons per year at January 2009.2010. The RFA estimates that, as of January 2009,2010, approximately 2.11.4 billion gallons per year of additional production capacity is under construction. Excess capacity in the ethanol industry would have an adverse effect on the results of our ethanol investments. In a manufacturing industry with excess capacity, producers have an incentive to manufacture additional products for so long as the price exceeds the marginal cost of production (i.e., the cost of producing only the next unit, without regard for interest, overhead or fixed costs). This incentive could result in the reduction of the market price of ethanol to a level that is inadequate to generate sufficient cash flow to cover costs.
Excess capacity may also result from decreases in the demand for ethanol, which could result from a number of factors, including, but not limited to, regulatory developments and reduced U.S. gasoline consumption. Reduced gasoline consumption could occur as a result of increased prices for gasoline or crude oil, which could cause businesses and consumers to reduce driving or acquire vehicles with more favorable gasoline mileage or acquire hybrid vehicles.
In addition, because ethanol production produces distillers grains as a co-product, increased ethanol production will also lead to increased supplies of distillers grains. An increase in the supply of distillers grains, without corresponding increases in demand, could lead to lower prices or an inability to sell our ethanol plants’ distillers grains production. A decline in the price of distillers grains or the distillers grains market generally could have a material adverse effect on the results of our ethanol investments.
We depend on our partners to operate our ethanol investments.
Our investments currently represent both majority and minority equity positions, and day-to-day operating control of each plant generally remains with the local farmers’ cooperative or investor group that has promoted the plant. We may not have the ability to directly modify the operations of the plants in response to changes in the business environment or in response to any deficiencies in local operations of the plants. In addition, local plant operators, who also represent the primary suppliers of corn and other crops to the plants, may have interests, such as the price and sourcing of corn and other crops, that may differ from our interest, which is based solely on the operating profit of the plant. The limitations on our ability to control day-to-day plant operations could adversely affect plant results of operations.
We may not successfully acquire or develop additional ethanol investments.
The growth of our ethanol business depends on our ability to identify and develop new ethanol investments. Our ethanol development strategy depends on referrals, and introductions, to new investment opportunities from industry participants, such as ethanol plant builders, financial institutions, marketing agents and others. We must continue to maintain favorable relationships with these industry participants, and a material disruption in these sources of referrals would adversely affect our ability to expand our ethanol investments.
Any expansion strategy will depend on prevailing market conditions for the price of ethanol and the costs of corn and natural gas and the expectations of future market conditions. The significant expansion of ethanol production capacity in the United States could impede any expansion strategy. There is increasing competition for suitable sites for ethanol plants. Even if suitable sites or opportunities are identified, we may not be able to secure the services and products from contractors, engineering firms, construction firms and equipment suppliers necessary to build or expand ethanol plants on a timely basis or on acceptable economic terms. Construction costs associated with expansion may increase to levels that would make a new plant too expensive to complete or unprofitable to operate. Additional financing may also be necessary to implement any expansion strategy, which may not be accessible or available on acceptable terms.
Our ethanol plants may be adversely affected by technological advances and efforts to anticipate and employ such technological advances may prove unsuccessful.
The development and implementation of new technologies may result in a significant reduction in the costs of ethanol production. For instance, any technological advances in the efficiency or cost to produce ethanol from inexpensive, cellulosic sources such as wheat, oat or barley straw could have an adverse effect on our ethanol plants, because those facilities are designed to produce ethanol from corn, which is, by comparison, a raw material with other high value uses. We cannot predict when new technologies may become available, the rate of acceptance of new technologies by competitors or the costs associated with new technologies. In addition, advances in the development of alternatives to ethanol could significantly reduce demand for or eliminate the need for ethanol.
Any advances in technology which require significant unanticipated capital expenditures to remain competitive or which reduce demand or prices for ethanol would have a material adverse effect on the results of our ethanol investments.
In addition, alternative fuels, additives and oxygenates are continually under development. Alternative fuel additives that can replace ethanol may be developed, which may decrease the demand for ethanol. It is also possible that technological advances in engine and exhaust system design and performance could reduce the use of oxygenates, which would lower the demand for ethanol, and the results of our ethanol investments may be materially adversely affected.
The U.S. ethanol industry is highly dependent upon a myriad of federal and state legislation and regulation and any changes in legislation or regulation could materially and adversely affect our results of operations and financial position.
The elimination or significant reduction of the blenders’blender’s credit could have a material adverse effect on the results of our ethanol investments. The cost of production of ethanol is made significantly more competitive with regular gasoline by federal tax incentives. The federal excise tax incentive programAmerican Jobs Creation Act of 2004 created the Volumetric Ethanol Tax Credit, referred to as the “blender’s credit.” This credit currently
allows gasoline distributors who blend ethanol with gasoline to receive a federal excise tax rate reduction for each blendedcredit of $0.45 per gallon they sell. If the fuel isof pure ethanol, or $0.045 per gallon if blended with 10% ethanol the refiner/marketer paid $0.051(E10), and $0.3825 per gallon less tax in 2008, which equates to an incentive of $0.51 per gallon ofif blended with 85% ethanol (effective January 1, 2009, it was reduced to $0.45 per gallon.)(E85). The $0.45 per gallon incentive for ethanol is scheduled to expire inon December 31, 2010. The blenders’blender’s credit could be eliminated or reduced at any time through an act of Congress and may not be renewed in 2010 or may be renewed on different terms. In addition, the blenders’blender’s credit, as well as other federal and state programs benefiting ethanol (such as tariffs), generally are subject to U.S. government obligations under international trade agreements, including those under the World Trade Organization Agreement on Subsidies and Countervailing Measures, and might be the subject of challenges thereunder, in whole or in part.
Ethanol can be imported into the U.S. duty-free from some countries, which may undermine the ethanol industry in the U.S. Imported ethanol is generally subject to a $0.54 per gallon tariff that was designed to offset the $0.45 per gallon ethanol incentive that is available under the federal excise tax incentive program for refineries that blend ethanol in their fuel. A special exemption from the tariff, known as the Caribbean Basin Initiative, exists for ethanol imported from 24 countries in Central America and the Caribbean Islands, which is limited to a total of 7% of U.S. production per year. Imports from the exempted countries may increase as a result of new plants under development. Since production costs for ethanol in these countries are estimated to be significantly less than what they are in the U.S., the duty-free import of ethanol through the countries exempted from the tariff may negatively affect the demand for domestic ethanol and the price at which our ethanol plants sell ethanol. Any changes in the tariff or exemption from the tariff could have a material adverse effect on the results of our ethanol investments. In addition, the North America Free Trade Agreement, or NAFTA which entered into force on January 1, 1994, allows Canada and Mexico to export ethanol to the United States duty-free.
The effect of the renewable fuel standard (“RFS”) program in the Energy Independence and Security Act signed into law on December 19,of 2007 (the “2007 Act”) is uncertain. The mandated minimum level of use of renewable fuels in the RFS under the 2007 Act increased towill increase from 9 billion gallons per year in 2008 (from 5.4 billion gallons under the RFS enacted in 2005), further increasing to 36 billion gallons per year in 2022. The RFS mandate level for conventional biofuels, which includes corn-based ethanol, for 2010 is 12 billion gallons. This requirement progressively increases to 15 billion gallons by 2015 and remains at that level through 2022. The 2007 Act also requires the increased use of “advanced” biofuels, which are alternative biofuels produced without using corn starch such as cellulosic ethanol and biomass-based diesel, with 21 billion gallons of the mandated 36 billion gallons of renewable fuel required to come from advanced biofuels by 2022. Required RFS volumes for both general and advanced renewable fuels in years to follow 2022 will be determined by a governmental administrator, in coordination with the U.S. Department of Energy and U.S. Department of Agriculture. Increased competition from other types of biofuels could have a material adverse effect on the results of our ethanol investments.
The RFS program and the 2007 Act also include provisions allowing “credits” to be granted to fuel producers who blend in their fuel more than the required percentage of renewable fuels in a given year. These credits may be used in subsequent years to satisfy RFS production percentage and volume standards and may be traded to other parties. The accumulation of excess credits could further reduce the impact of the RFS mandate schedule and result in a lower ethanol price or could result in greater fluctuations in demand for ethanol from year to year, both of which could have a material adverse effect on the results of our ethanol investments.
Waivers of the RFS minimum levels of renewable fuels included in gasoline could have a material adverse effect on the results of our ethanol investments. Under the RFS as passed as part of the Energy Policy Act of 2005, the U.S. Environmental Protection Agency, in consultation with the Secretary of Agriculture and the Secretary of Energy, may waive the renewable fuels mandate with respect to one or more states if the Administrator of the U.S. Environmental Protection Agency, or EPA, determines upon
the petition of one or more states that implementing the requirements would severely harm the economy or the environment of a state, a region or the U.S., or that there is inadequate supply to meet the requirement. In addition, the 2007 Act allows any other person subject to the requirements of the RFS or the EPA Administrator to file a petition for such a waiver. Any waiver of the RFS with respect to one or more states could adversely offset demand for ethanol and could have a material adverse effect on the results of our ethanol investments.
Changes in corporate average fuel economy standards could adversely impact ethanol prices.Flexible fuel vehicles receive preferential treatment in meeting federally mandated corporate average fuel economy (“CAFE”) standards for automobiles manufactured by car makers. High blend ethanol fuels such as E85 result in lower fuel efficiencies. Absent the CAFE preferences, car makers would not likely build flexible-fuel vehicles. Any change in CAFE preferences could reduce the growth of E85 markets and result in lower ethanol prices.
Various studies have criticized the efficiency of ethanol, in general, and corn-based ethanol in particular, which could lead to the reduction or repeal of incentives and tariffs that promote the use and domestic production of ethanol or otherwise negatively impact public perception and acceptance of ethanol as an alternative fuel.
Although many trade groups, academics and governmental agencies have supported ethanol as a fuel additive that promotes a cleaner environment, others have criticized ethanol production as consuming considerably more energy and emitting more greenhouse gases than other biofuels and as potentially depleting water resources. Other studies have suggested that corn-based ethanol is less efficient than ethanol produced from switchgrass or wheat grain and that it negatively impacts consumers by causing prices for dairy, meat and other foodstuffs from livestock that consume corn to increase. If these views gain acceptance, support for existing measures promoting use and domestic production of corn-based ethanol could decline, leading to reduction or repeal of these measures. These views could also negatively impact public perception of the ethanol industry and acceptance of ethanol as an alternative fuel.
Levelland Hockley’s water treatment plant is not functioning as planned.Federal support of cellulosic ethanol may result in reduced incentives to corn-derived ethanol producers.
The reverse osmosisAmerican Recovery and Reinvestment Act of 2009 and the Energy Independence and Security Act of 2007 provide funding opportunities in support of cellulosic ethanol obtained from biomass sources such as switchgrass and poplar trees. The amended RFS mandates an increasing level of production of non-corn derived biofuels. These federal policies may suggest a long-term political preference for cellulosic processes using alternative feedstocks such as switchgrass, silage or wood chips. Cellulosic ethanol has a smaller carbon footprint and is unlikely to divert foodstuff from the market. Several cellulosic ethanol plants are under development and there is a risk that cellulosic ethanol could displace corn ethanol. Our plants are designed as single-feedstock facilities, located in corn production areas with limited alternative feedstock nearby, and would require significant additional investment to convert to the production of cellulosic ethanol. The adoption of cellulosic ethanol as the preferred form of ethanol could have a significant adverse effect on our ethanol business.
Our ethanol business is affected by environmental and other regulations which could impede or prohibit our ability to successfully operate our plants.
Our ethanol production facilities are subject to extensive air, water treatmentand other environmental regulations. We have had to obtain numerous permits to construct and operate our plants. Regulatory agencies could
impose conditions or other restrictions in the permits that are detrimental or which increase our costs. More stringent federal or state environmental regulations could be adopted, which could significantly increase our operating costs or require us to expend considerable resources.
Our ethanol plants emit various airborne pollutants as by-products of the ethanol production process, including carbon dioxide. In 2007, the U.S. Supreme Court classified carbon dioxide as an air pollutant under the Clean Air Act in a case seeking to require the EPA to regulate carbon dioxide in vehicle emissions. In February 2010, the EPA released its final regulations on the Renewable Fuel Standard program (RFS2). We believe our plants are grandfathered at their current operating capacity, but plant builtexpansion will need to supply watermeet a 20% threshold reduction in greenhouse gas (GHG) emissions from a wastewater treatment facility2005 baseline measurement to itsproduce ethanol eligible for the RFS2 mandate. Additionally, legislation is pending in Congress on a comprehensive carbon dioxide regulatory scheme, such as a carbon tax or cap-and-trade system. To expand our plant capacity, we may be required to obtain additional permits, install advanced technology such as corn oil extraction, or reduce drying of certain amounts of distillers grains.
The California Air Resources Board has adopted a Low Carbon Fuel Standard requiring a 10% reduction in GHG emissions from transportation fuels by 2020. An Indirect Land Use Charge is included in this lifecycle GHG emission calculation. While this standard is being challenged by lawsuits, implementation of such a standard could have an adverse impact on our market for corn-based ethanol if determined that in California corn-based ethanol fails to achieve lifecycle GHG emission reductions.
We face significant competition in the ethanol industry.
We face significant competition for new ethanol investment opportunities. There are varied enterprises seeking to participate in the ethanol industry. Some enterprises provide financial and management support similar to our business model. Other enterprises seek to acquire or develop plants which they will directly own and operate. Many of our competitors are larger and have greater financial resources and name recognition than we do. We must compete for investment opportunities based on our strategy of supporting and enhancing local development of ethanol plant opportunities. We may not be successful in competing for investment opportunities based on our strategy.
The ethanol industry is primarily comprised of smaller entities that engage exclusively in ethanol production and large integrated grain companies that produce ethanol along with their base grain business. Recently, several large oil companies have entered the ethanol production market. If these companies increase their ethanol plant ownership or other oil companies seek to engage in direct ethanol production, there would be less of a need to purchase ethanol from independent producers like our ethanol plants.
There is a consolidation trend in the ethanol industry, partly a result of companies recently seeking protection under the United States Bankruptcy Code. As a result, firms are growing in size and scope. Larger firms offer efficiencies and economies of scale, resulting in lower costs of production. In addition, plants currently being sold as part of a bankruptcy proceeding may have significantly lower costs than our ethanol plants. Absent significant growth and diversification, our ethanol plants may not be able to generateoperate profitably in a more competitive environment. No assurance can be given that our ethanol plants will be able to compete successfully or that competition from larger companies with greater financial resources will not have a materially adverse affect on the results of our ethanol investments.
There is a risk of foreign competition in the ethanol industry.
Ethanol produced or processed in several countries in Central America and the Caribbean region is eligible for tariff reduction or elimination under the Caribbean Basin Initiative. Brazil, currently the world’s second largest ethanol producer, makes ethanol primarily from sugarcane which historically has been less expensive to produce than producing ethanol from corn. Other foreign producers may be able to produce ethanol at lower input costs, including feedstock, facilities and personnel, than our plants. Ethanol imported from Brazil or other foreign countries, even with the import tariff, or from a Caribbean Basin source may be a less expensive alternative to domestically produced ethanol.
Our plants depend on an uninterrupted supply of energy and water to operate. Unforeseen plant shutdowns could harm our business.
Our plants require a significant and uninterrupted supply of natural gas, electricity and water to operate. We generally rely on third parties to provide these resources. If there is an interruption in the supply of energy or water for any reason, such as supply, delivery or mechanical problems and we are unable to secure an adequate supply of water in order for the plant to function at full capacity. To date, Levelland Hockley has been able to locate alternative sources of watersupply to sustain plant operations. However, Levelland Hockley has no long term alternative water supply agreements. If Levelland Hockley cannot correct the deficiencies at its water treatment plant or successfully sustain alternative suppliesoperations, we may be required to stop production. A production halt for an extended period of water, the ability of the plant to continue operations could be significantly impacted whichtime could result in material losses.
Potential business disruption from factors outside our control, including natural disasters, severe weather conditions, accidents, strikes, unexpected equipment failures and unforeseen plant shutdowns, could adversely affect our cash flow and operating results.
The debt agreements for the ethanol plants contain restrictive financial and performance covenants.
Ethanol facility debt covenants contain several financial and performance restrictions. A breach of any of these covenants could result in a default under the applicable agreement. If a default were to occur, we would likely seek a waiver of that default, attempt to reset the covenant, or refinance the instrument and accompanying obligations. If we were unable to obtain this relief, the default could result in the acceleration of the total due related to that debt obligation. If a default were to occur, we may not be able to pay our debts or borrow sufficient funds to refinance them. In addition, certain lease agreements could also be in default if a
default of the debt agreement occurs. Any of these events, if they occur, could materially adversely affect our results of operations, financial condition, and cash flows.
Changes in interest rates could have a material adverse effect on the results of our ethanol investments.
Levelland Hockley, One Earth and Patriot all have forward interest rate swaps at January 31, 2009.2010 that, in essence, fix the interest rate on a portion of their variable rate debt. During fiscal year 2008,2009, we recognized losses on these swaps of approximately $3.8$2.5 million. Further reductions in interest rates could increase the liability position of the interest rate swaps, requiring us to record additional expense which could be material. The liability for these interest rate swaps could also result in a default of the term loan agreements’ restrictive financial covenants.
In addition, increases in interest rates could have a negative impact on results of operations as all of the debt our ethanol plants have is variable rate debt. Furthermore, the interest rate swaps do not fix the interest rate on the entire portion of the related debt. Levelland Hockley’s interest rate swap expires in April 2010.
Risks Related to the wind down and exit of our retail business and our real estate segment.
Our future costs associated with administering extended product service contracts may result in higher than expected costs.
We will continue to administer extended product service contracts that have contractual maturities over the next four years. To the extent we do not have products or an adequate repair service network to satisfy warranty claims, we may incur material costs as we would be required to refund cash to customers for warranted products.
We have a significant amount of vacant warehouse and retail space after the completion of the wind down of our retail business.
At January 31, 2010, we own two distribution facilities and 34 former retail store properties comprising approximately 911,000 square feet that are completely or partially vacant. We are currently marketing these facilities for lease or sale. We may not be able to successfully lease or sell these properties which could result in lost opportunities for revenue or future impairment charges related to the carrying value of the associated assets. We would also have costs related to the vacant properties such as property taxes and utilities that we would have to bear without any revenue from such properties.
|
|
Item 1B. | Unresolved Staff Comments |
None.
|
|
Item 2. | Properties |
The information required by this Item 2 is set forth in Item 1 of this report under “Retail Overview,” “Real Estate Operations” and “Facilities” and is incorporated herein by reference.
|
|
Item 3. | Legal Proceedings |
Levelland Hockley County Ethanol, LLC (“Levelland Hockley”) filed a lawsuit against Layne Christensen Company (“Layne”) in the District Court, Hockley County, Texas in connection with a lease agreement with Layne for certain water treatment equipment for its ethanol plant, alleging that Layne was negligent in its design and construction of the water treatment facility and breached its various process guaranties and warranties. On May 28, 2008, the lawsuit was removed to the United States District Court for the Northern District of Texas, Lubbock Division.
On May 14, 2008, Layne filed a lawsuit against Levelland in the United States District Court of Kansas at Kansas City, Missouri seeking interest on late lease payments, repossession of the water treatment facility that is the subject of the lease and that all lease payments due under the lease be accelerated and immediately due and payable. On February 12, 2009, this case was dismissed from the United States District Court of Kansas.
We are involved in various other legal proceedings incidental to the conduct of our business. We believe that these other proceedings will not have a material adverse effect on our financial condition or results of operations.
|
|
None.
Executive Officers of the Company
Set forth below is certain information about each of our executive officers.
|
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|
|
|
Name |
| Age |
| Position |
|
| |||
Stuart Rose |
|
|
| Chairman of the Board and Chief Executive Officer* |
|
|
| ||
Douglas Bruggeman |
|
|
| Vice President-Finance, Chief Financial Officer and Treasurer |
Edward Kress |
|
|
| Secretary* |
|
|
| ||
|
|
| ||
Zafar Rizvi |
|
|
| Vice President, and President of Farmers Energy Incorporated |
*Also serves as a director.
Stuart Rose has been our Chairman of the Board and Chief Executive Officer since our incorporation in 1984 as a holding company to succeed to the ownership of Rex Radio and Television, Inc., Kelly &
Cohen Appliances, Inc. and Stereo Town, Inc. Prior to 1984, Mr. Rose was Chairman of the Board and Chief Executive Officer of Rex Radio and Television, Inc., which he founded in 1980 to acquire the stock of a corporation which operated four retail stores.
David Beardenhas been our President and Chief Operating Officer since 2005. Mr. Bearden joined us from Panasonic Company where he held several senior management positions over 24 years, most recently as Group President of Panasonic’s Consumer Electronics Sales Group.
Douglas Bruggeman has been our Vice President–Finance and Treasurer since 1989 and was elected Chief Financial Officer in 2003. From 1987 to 1989, Mr. Bruggeman was our Manager of Corporate Accounting. Mr. Bruggeman was employed with the accounting firm of Ernst & Young prior to joining us in 1986.
Edward Kress has been our Secretary since 1984 and a director since 1985. Mr. Kress has been a partner of the law firm of Dinsmore & Shohl LLP (formerly Chernesky, Heyman & Kress P.L.L.), our legal counsel, since 1988. Mr. Kress has practiced law in Dayton, Ohio since 1974.
David Fuchshas been our Vice President–Management Information Systems since 1989. From 1985 to 1989, Mr. Fuchs was our Manager of Management Information Systems.
Keith Magby has been our Vice President–Operations since 1991. From 1982 to 1991, Mr. Magby was employed in the consumer electronics/appliance retailing industry in a variety of management positions.
Zafar Rizvi has been our Vice President, and President of Farmers Energy Incorporated, our alternative energy investment subsidiary, since 2006. From 1991 to 2006, Mr. Rizvi was our Vice President – Loss Prevention. From 1986 to 1991, Mr. Rizvi was employed in the video retailing industry in a variety of management positions.
Item 4. | Removed and Reserved |
PART II
|
|
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
SHAREHOLDER INFORMATION
Common Share Information and Quarterly Share Prices
Our common stock is traded on the New York Stock Exchange under the symbol RSC.
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|
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Fiscal Quarter ended |
| High |
| Low |
|
| High |
| Low |
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| ||||||||||
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|
|
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| ||||
April 30, 2007 |
| $ | 18.15 |
| $ | 14.62 |
| ||||||||
July 31, 2007 |
| 21.52 |
| 15.66 |
| ||||||||||
October 31, 2007 |
| 22.68 |
| 15.88 |
| ||||||||||
January 31, 2008 |
| 19.00 |
| 14.62 |
| ||||||||||
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|
|
|
|
| ||||||||||
April 30, 2008 |
| $ | 21.15 |
| $ | 15.84 |
| April 30, 2008 |
| $ | 21.15 |
| $ | 15.84 |
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|
|
|
|
|
| ||||||||||
July 31, 2008 |
| 16.98 |
| 10.78 |
| July 31, 2008 |
| 16.98 |
| 10.78 |
| ||||
October 31, 2008 |
| 13.46 |
| 6.50 |
| October 31, 2008 |
| 13.46 |
| 6.50 |
| ||||
January 31, 2009 |
| 10.48 |
| 5.76 |
| January 31, 2009 |
| 10.48 |
| 5.76 |
| ||||
|
|
|
|
|
|
| |||||||||
April 30, 2009 | April 30, 2009 |
| $ | 13.50 |
| $ | 5.52 |
| |||||||
July 31, 2009 | July 31, 2009 |
| 12.99 |
| 9.36 |
| |||||||||
October 31, 2009 | October 31, 2009 |
| 13.02 |
| 9.75 |
| |||||||||
January 31, 2010 | January 31, 2010 |
| 15.41 |
| 11.89 |
|
As of April 15, 2009,2010, there were 139132 holders of record of our common stock, including shares held in nominee or street name by brokers.
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 us dividends.
Issuer Purchases of Equity Securities
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
| Total Number |
| Average Price |
| Total Number of |
| Maximum Number |
| ||||||||||||
|
|
|
|
| |||||||||||||||||
November 1-30, 2008 |
|
|
| 144,300 |
|
|
| $ | 7.11 |
|
|
|
| 144,300 |
|
|
|
| 238,958 |
|
|
December 1-31, 2008 |
|
|
| 46,500 |
|
|
| $ | 8.10 |
|
|
|
| 46,500 |
|
|
|
| 192,458 |
|
|
January 1-31, 2009 |
|
|
| 113,110 |
|
|
| $ | 7.16 |
|
|
|
| 113,110 |
|
|
|
| 79,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
|
|
| 303,910 |
|
|
| $ | 7.28 |
|
|
|
| 303,910 |
|
|
|
| 79,348 |
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Period |
|
| Total Number |
| Average Price |
| Total Number of |
| Maximum Number |
| |
|
|
|
|
| |||||||
November 1-30, 2009 |
| 6,700 |
| $ | 12.22 |
| 6,700 |
| 38,101 |
| |
December 1-31, 2009 |
| — |
| $ | — |
| — |
| 538,101 |
| |
January 1-31, 2010 |
| 715,357 |
| $ | 14.07 |
| 55,400 |
| 482,701 |
| |
|
|
|
|
|
| ||||||
Total |
| 722,057 |
| $ | 14.06 |
| 62,100 |
| 482,701 |
| |
|
|
|
|
|
|
|
|
|
| (1) | A total of 659,957 shares of common stock were purchased by us other than through a publicly announced plan or program. These shares were acquired on January 8, 2010 in payment of the exercise price of stock options exercised by Stuart A. Rose, our Chairman and Chief Executive Office pursuant to the Company’s Stock-for-Stock and Cashless Option Exercise Rules and Procedures, adopted on June 4, 2001. The purchase price was $14.00 per share. |
(2) | On |
On February 20, 2009, our Board of Directors increased our share repurchase authorization by 500,000 shares. Subsequent to January 31, 2009, we have purchased approximately 127,000 shares. We presently have approximately 452,000 authorized shares remaining available to purchase under this authorization.
Performance Graph
The following graph compares the yearly percentage change in the cumulative total shareholder return on our Common Stock against the cumulative total return of the S&P 500 Stock Index and two peer groups comprised of selected publicly traded consumer electronics retailers and ethanol producers (*) for the period commencing January 31, 20042005 and ended January 31, 2009.
2010. The graph assumes an investment of $100 in our Common Stock and each index on January 31, 20042005 and reinvestment of all dividends.
* The retail peer group is comprised of Best Buy Co., Inc. and Conn’s, Inc. In prior years,This is the last year we will show a retail peer group included Circuit City Stores, Inc. Circuit City hasas we ceased our retail operations and has been removed from the retail peer group.during fiscal year 2009.
* The ethanol peer group (and the datemonth the companies went public) is comprised of Pacific Ethanol, Inc. (March 2005), Aventine Renewable Energy Holdings, Inc. (June 2006), and BioFuel Energy Corp. (June 2007) and Green Plains Renewable Energy, Inc. (March 2006). In prior years, the ethanol peer group included VeraSunAventine Renewable Energy Corporations. VeraSunHoldings, Inc. which filed for Chapter 11 reorganization in October 2008February 2009 and has been removed from the ethanol peer group. We added Green Plains Renewable Energy, Inc. this year. Returns for the ethanol peer group are included upon a full year’s return being available as of January 31.
|
|
Item 6. | Selected Financial Data |
The following statements of operations and balance sheet data have been derived from our consolidated financial statements and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related Notes. Prior period amounts applicable to the statement of operations have been adjusted to recognize the reclassification of the results of our former retail segment and certain storesreal estate assets to discontinued operations as a result of store closings orour exit of the retail business and real estate sales and certain other reclassifications.sales. See Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of income from synthetic fuel, ethanol investments, derivative financial instruments, gain on sale of real estate and long-term debt. These items have fluctuated significantly in recent years and may affect comparability of years.
Five Year Financial Summary
|
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|
|
|
|
|
|
|
(In Thousands, Except Per Share Amounts) |
| Years Ended January 31, |
| |||||||||||||
|
| |||||||||||||||
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| ||||||
|
|
|
|
|
|
| ||||||||||
Net sales and revenue (a) |
| $ | 230,627 |
| $ | 194,787 |
| $ | 201,881 |
| $ | 209,554 |
| $ | 198,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations (a) |
| $ | (2,271 | ) | $ | 26,393 |
| $ | 9,982 |
| $ | 26,797 |
| $ | 26,624 |
|
Net (loss) income |
| $ | (3,297 | ) | $ | 33,867 |
| $ | 11,351 |
| $ | 28,269 |
| $ | 27,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) income per share from continuing |
| $ | (0.22 | ) | $ | 2.53 |
| $ | 0.97 |
| $ | 2.50 |
| $ | 2.40 |
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) income per share from continuing operations (a) |
| $ | (0.22 | ) | $ | 2.25 |
| $ | 0.86 |
| $ | 2.19 |
| $ | 2.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share |
| $ | (0.32 | ) | $ | 3.25 |
| $ | 1.10 |
| $ | 2.64 |
| $ | 2.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share |
| $ | (0.32 | ) | $ | 2.89 |
| $ | 0.98 |
| $ | 2.31 |
| $ | 2.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 451,288 |
| $ | 408,978 |
| $ | 345,442 |
| $ | 304,535 |
| $ | 319,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, net of current maturities |
| $ | 103,939 |
| $ | 35,224 |
| $ | 31,236 |
| $ | 21,462 |
| $ | 30,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred gain on sale and leaseback |
| $ | 3,467 |
| $ | 4,493 |
| $ | 504 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term derivative financial instrument liability |
| $ | 4,032 |
| $ | 2,308 |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands, Except Per |
| Years Ended January 31, |
| |||||||||||||
|
| |||||||||||||||
| 2010 |
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| ||||||
|
|
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|
|
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| ||||||||||
|
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|
|
|
|
|
|
|
|
|
|
Net sales and revenue (a) |
| $ | 170,264 |
| $ | 68,638 |
| $ | 382 |
| $ | 316 |
| $ | 233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to REX common shareholders (a) (b) |
| $ | 5,158 |
| $ | (2,919 | ) | $ | 19,588 |
| $ | 6,587 |
| $ | 22,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to REX common shareholders (b) |
| $ | 8,652 |
| $ | (3,297 | ) | $ | 33,867 |
| $ | 11,351 |
| $ | 28,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per (loss) share from continuing operations attributable to REX common shareholders (a) |
| $ | 0.55 |
| $ | (0.29 | ) | $ | 1.88 |
| $ | 0.64 |
| $ | 2.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share from continuing operations attributable to REX common shareholders (a) |
| $ | 0.54 |
| $ | (0.29 | ) | $ | 1.67 |
| $ | 0.57 |
| $ | 1.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
| $ | 0.93 |
| $ | (0.32 | ) | $ | 3.25 |
| $ | 1.10 |
| $ | 2.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
| $ | 0.91 |
| $ | (0.32 | ) | $ | 2.89 |
| $ | 0.98 |
| $ | 2.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 451,505 |
| $ | 451,288 |
| $ | 408,978 |
| $ | 345,442 |
| $ | 304,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, net of current maturities |
| $ | 126,689 |
| $ | 103,939 |
| $ | 35,224 |
| $ | 31,236 |
| $ | 21,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred gain on sale and leaseback |
| $ | — |
| $ | 3,467 |
| $ | 4,493 |
| $ | 504 |
| $ | — |
|
|
| |
| Amounts differ from those previously reported as | |
|
| |
b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarters Ended |
| ||||||||||
|
|
| |||||||||||
|
| April 30, |
| July 31, |
| October 31, |
| January 31, |
| ||||
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||
Net sales and revenue (a) |
| $ | 41,277 |
| $ | 62,286 |
| $ | 59,669 |
| $ | 67,395 |
|
Gross profit (a) |
|
| 11,911 |
|
| 11,970 |
|
| 8,659 |
|
| 14,540 |
|
Net income (loss) |
|
| 1,526 |
|
| 1,206 |
|
| (650 | ) |
| (5,379 | ) |
Basic net income (loss) per share (b) |
| $ | 0.14 |
| $ | 0.11 |
| $ | (0.07 | ) | $ | (0.57 | ) |
Diluted net income (loss) per share (b) |
| $ | 0.13 |
| $ | 0.11 |
| $ | (0.07 | ) | $ | (0.57 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarters Ended |
| ||||||||||
|
|
| |||||||||||
|
| April 30, |
| July 31, |
| October 31, |
| January 31, |
| ||||
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||
Net sales and revenue (a) |
| $ | 42,492 |
| $ | 41,875 |
| $ | 48,445 |
| $ | 61,975 |
|
Gross profit (a) |
|
| 13,744 |
|
| 13,515 |
|
| 13,876 |
|
| 17,144 |
|
Net income |
|
| 7,534 |
|
| 5,810 |
|
| 14,666 |
|
| 5,857 |
|
Basic net income per share (b) |
| $ | 0.72 |
| $ | 0.55 |
| $ | 1.41 |
| $ | 0.58 |
|
Diluted net income per share |
| $ | 0.64 |
| $ | 0.48 |
| $ | 1.25 |
| $ | 0.52 |
|
Quarterly Financial Data
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarters Ended |
| ||||||||||
|
|
| |||||||||||
|
| April 30, |
| July 31, |
| October 31, |
| January 31, |
| ||||
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue (a) |
| $ | 14,248 |
| $ | 17,145 |
| $ | 61,697 |
| $ | 77,174 |
|
Gross profit (a) |
|
| 275 |
|
| 912 |
|
| 5,661 |
|
| 12,885 |
|
Net (loss) income |
|
| (1,731 | ) |
| 837 |
|
| 2,273 |
|
| 7,273 |
|
Basic net (loss) income per share attributable to REX common shareholders (b) |
| $ | (0.19 | ) | $ | 0.09 |
| $ | 0.25 |
| $ | 0.78 |
|
Diluted net (loss) income per share attributable to REX common shareholders (b) |
| $ | (0.19 | ) | $ | 0.09 |
| $ | 0.24 |
| $ | 0.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarters Ended |
| ||||||||||
|
|
| |||||||||||
|
| April 30, |
| July 31, |
| October 31, |
| January 31, |
| ||||
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue (a) |
| $ | 1,262 |
| $ | 24,971 |
| $ | 22,539 |
| $ | 19,866 |
|
Gross profit (a) |
|
| 151 |
|
| 740 |
|
| (2,357 | ) |
| 2,671 |
|
Net income (loss) |
|
| 1,526 |
|
| 1,206 |
|
| (650 | ) |
| (5,379 | ) |
Basic net income (loss) per share attributable to REX common shareholders (b) |
| $ | 0.14 |
| $ | 0.11 |
| $ | (0.07 | ) | $ | (0.57 | ) |
Diluted net income (loss) per share attributable to REX common shareholders (b) |
| $ | 0.13 |
| $ | 0.11 |
| $ | (0.07 | ) | $ | (0.57 | ) |
|
|
|
| a) | Amounts differ from those previously reported as |
|
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| b) | The total of the quarterly net income (loss) |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Overview
Historically, we were a specialty retailer in the consumer electronics and 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, we sold approximately 60% of our owned retail and vacant stores in fiscal year 2007.2007 and leased back a portion of the stores which had been operating as electronics and appliance retail stores. 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 remaining real estate portfolio. Following a comprehensive analysis,We engaged an investment banking firm to assist us in analyzing and ultimately marketing our retail operations. As part of those marketing efforts, late in fiscal year 2008, we initially leased 37 owned store locations to aan unrelated third party. We also provided the lessee an option to purchase all of the properties being leased from REX during the first two years of the lease term. The lessee also reached an agreement to lease or sub lease two of our leased locations. We anticipate closing, inDuring fiscal year 2009, the remainderlease agreements were terminated. We are marketing the vacant properties to lease or sell. Should our marketing efforts result in additional tenants to whom we lease property, we would expect to execute leases with a term of five to twenty years.
We completed our exit of the retail locationsbusiness as of July 31, 2009. Going forward, we expect that our only retail related activities will consist of the lessee does not take over from REX.administration of extended service plans we previously sold and the payment of related claims. All activities related to extended service plans will be classified as discontinued operations.
We currently have invested approximately $110$111 million in ethanol production entitiesof equity and have interestsdebt investments in four ethanol production entities, two of which we have a majority ownership interest in. We have no definitive plans, beyond our existing commitments of approximately $3 million, but will continue to considerare considering making additional investments in the alternative energy segment.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 planexpect our ethanol plants to seekproduce approximately 2.8 gallons of ethanol for each bushel of grain processed in the production cycle. We refer to the difference between the price per gallon of ethanol and evaluate various investment opportunities including energythe price per bushel of grain (divided by 2.8) as the “crush spread.” Should the crush spread decline, our ethanol plants are likely to 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 agriculturalto the volatility of grain and real estate.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 makeobtain 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 assurances thatmore than three months into the future at any given time. As a result of the relatively short period of time our contracts cover, we will be successfulgenerally cannot predict the future movements in the crush spread for more than three months; we are unable to predict the likelihood or amounts of future income or loss from the operations of our effortsethanol facilities.
The crush spread realized in 2009 was subject to find such opportunities.
Retail
Assignificant volatility. For example, for calendar year 2009, the average Chicago Board of January 31,Trade (“CBOT”) near-month corn price was approximately $3.74 per bushel, with highs reaching nearly $4.20 per bushel and retreating to approximately $3.20 per bushel in the fall. Ethanol prices were generally in a range of approximately $1.50 to $1.70 per gallon for most of the year. Ethanol prices increased during the last three months of 2009 we operated 90 stores in 30 states under the “REX” trade name. Our comparable store sales decreased 10.3% for fiscal year 2008, decreased 6.7% for fiscal year 2007, and increased 5.0% for fiscal year 2006.reaching as high as $2.00 per gallon. We believe our comparable store sales have recently been negatively affected by overall economic conditions, increased competition and rapid change in television technology, resulting inthis market volatility with respect to the lossCBOT crush spread was attributable to a number of CRT, light engine and projection television sales. We consider a storefactors, including but not limited to be comparable after it has been open six full fiscal quarters. Comparable store sales comparisons do not include sales of extended service contracts.
Our extended service contract revenues and sales commissions are deferred and amortized on a straight-line basis over the life of the contracts after the expiration of applicable manufacturers’ warranty periods. Terms of coverage, including the manufacturers’ warranty periods, are usually for periods of 12 to 60 months. Extended service contract revenues represented 5.6% of net sales and revenue for fiscal year 2008, 7.0% of net sales and revenue for fiscal year 2007 and 6.1% of net sales and revenue for fiscal year 2006. Service contract repair costs are charged to operations as incurred.export demand, speculation, currency valuation, global
Investmentseconomic conditions, ethanol demand and current production concerns. In 2009, the CBOT crush spread ranged from approximately $0.19 to $0.63 per gallon of ethanol.
We reported segment profit in Alternative Energyfiscal year 2009 (before income taxes and noncontrolling interests) from our alternative energy segment of approximately $17.8 million in fiscal year 2009 compared to a loss of approximately $9.0 million in fiscal year 2008. The swing to profitability results from favorable crush spreads, particularly in the later parts of fiscal year 2009, and One Earth commencing production operations in the second quarter of fiscal year 2009. Approximately $13.0 million of the segment profit was earned in the fourth quarter. This period of time was when the crush spread was at its highest.
We expect that future operating results, from our consolidated subsidiaries, will be based upon annual production of between 130 and 140 million gallons, which assumes that Levelland Hockley and One Earth will operate at or near nameplate capacity. However, due to the inherent volatility of the crush spread, we cannot predict the likelihood of future operating results being similar to the 2009 results.
Ethanol Investments
In fiscal year 2006, we entered the alternative energy industry by investing in several entities organized to construct and, subsequently operate, ethanol producing plants. We have invested in five entities, four of which we remain invested in as of January 31, 2009,2010, utilizing both debtequity and equitydebt investments. We sold our investment in Millennium during fiscal year 2007.
The following table is a summary of our ethanol investments (amounts in thousands, except operating capacity and ownership percentages):
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Entity |
| Initial |
| Operating |
| Ownership |
| Debt |
| Contingent |
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| Initial |
| Operating |
| Effective |
| Debt |
| Contingent |
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Levelland Hockley County |
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Ethanol, LLC |
| $ | 16,500 |
| 40 |
| 56 | % | $ | 5,516 |
| $ | 3,000 |
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Big River Resources, LLC |
| 20,000 |
| 192 |
| 10 | % |
| — |
| — |
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Levelland Hockley County Ethanol, LLC |
| $ | 16,500 |
| 40 |
| 56 | % | $ | 6,255 |
| $ | 1,532 |
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Big River Resources, LLC-W Burlington |
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| 92 |
| 10 | % |
| — |
| — |
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Big River Resources, LLC-Galva |
| 20,025 |
| 100 |
| 10 | % |
| — |
| — |
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Big River United Energy, LLC |
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| 100 |
| 5 | % |
| — |
| — |
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Patriot Renewable Fuels, LLC |
| 16,000 |
| 100 |
| 23 | % |
| 933 |
| — |
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| 16,000 |
| 100 |
| 23 | % |
| 1,014 |
| — |
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One Earth Energy, LLC |
| 50,765 |
| 100 |
| 74 | % |
| — |
| — |
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| 50,765 |
| 100 |
| 74 | % |
| — |
| — |
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Total |
| $ | 103,265 |
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| $ | 6,449 |
| $ | 3,000 |
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| $ | 103,290 |
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| $ | 7,269 |
| $ | 1,532 |
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Big River has beguncompleted construction in the second quarter of fiscal year 2009 of its second plant which has a designnameplate capacity of 100 million gallons of ethanol and 320,000 tons of DDG per year. The plant is located in Galva, IllinoisIllinois.
In August 2009, Big River acquired a 50.5% interest in an ethanol production facility which has a nameplate capacity of 100 million gallons of ethanol and construction320,000 tons of theDDG per year. The plant is expected to be completed by June 2009.located in Dyersville, Iowa.
The Levelland Hockley and Patriot facilities became operational duringOne Earth commenced production operations late in the second quarter of fiscal year 2008. We expect2009 and began generating revenue in the constructionthird quarter of the One Earth facility to be completed by June,fiscal year 2009.
Investment in Synthetic Fuel Partnerships
In fiscal year 1998, weWe had invested in twothree limited partnerships Colona and Somerset, which owned facilities for the productionproducing synthetic fuel. The partnerships earned federal income tax credits under Section 29/45K of the Internal Revenue Code based onupon the tonnage and content of solid synthetic fuel produced and sold to unrelated parties. We sold our entire interests in the Colona and Somerset partnerships and received payments from the sales, on a quarterly basis, through 2007, subject to production levels. On September 5, 2002, we purchased an additional synthetic fuel facility in Gillette, Wyoming. We sold our membership interest in the entity that owned the Gillette facility on March 30, 2004 for $2,750,000 along with a secured contingent payment note. The plant was subsequently sold and during the third quarter of fiscal year 2006, we modified our agreement with the owners and operators of the synthetic fuel facility. Based on the terms of the modified agreement, we currently are not able to determine the likelihood and timing of collecting payments related to production occurring after September 30, 2006. Thus, we cannot currently determine the timing of income recognition, if any, related to production occurring subsequent to September 30, 2006.
We do not expect to receive income from our Colona and Somerset synthetic fuel investments for production beyond fiscal year 2008, as the Section 29/45K tax credit program expired on December 31, 2007. However,As such we may realizedo not expect to receive additional income from ourthese investments except for the possibility of an additional payment on a facility formerly located in Gillette, synthetic fuel investment asWyoming. Based upon the modified terms of a sales agreement, we are currently not able to predict the likelihood and timing of payments for production subsequent tofrom September 30, 2006 throughto December 31, 2007.2007 for this facility. We expect the payments, if any, to be made within the next threetwo years. We have not recognized this income and will recognize income, if any, upon receipt of paymentspayment or upon our ability to reasonably assure ourselves of the timing and collectibilitycollectability of the payments.payment.
See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Notes 45 and 1719 of the Notes to the Consolidated Financial Statements for further discussion.discussions.
See Item 1A Risk Factors for further discussion of the risks involved with our synthetic fuel investments.
Real Estate Operations
At January 31, 2010, we had lease or sub-lease agreements, as landlord, for all or parts of ten 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 31 owned former retail stores (385,000 square feet), and one former distribution center (180,000 square feet), that are vacant at January 31, 2010. We are marketing these vacant properties to lease or sell. 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).
Retail
We completed the exit of our retail business during the second quarter of fiscal year 2009. We offered extended service contracts to our customers which typically provide, inclusive of manufacturers’ warranties, one to five years of warranty coverage. We plan to manage and administer these contracts over the life of the contracts. Service contract repair costs are charged to operations as incurred. We expect to continue recognizing extended service contract revenues and expenses (as discontinued operations) through January 2014, although the revenues will decline annually as we are no longer selling new contracts. We typically service a warranty claim through a network of third party repair and service providers. Warranty repair costs have been in the range of 19% to 25% of extended service contract revenue over the last three years; we expect these costs to average approximately 25% of extended service contract revenue in future years. Future expected amortization of deferred revenue and
commission expense are as follows (amounts in thousands):
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Years Ended |
| Deferred |
| Deferred |
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2011 |
| $ | 7,816 |
| $ | 2,396 |
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2012 |
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| 3,983 |
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| 1,195 |
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2013 |
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| 1,864 |
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| 565 |
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2014 |
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| 551 |
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| 164 |
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Total |
| $ | 14,214 |
| $ | 4,320 |
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Results of Operations
The following table sets forth, forFor a detailed analysis of period to period changes, see the periods indicated, the relative percentagessegment discussion that certain incomefollows this section as this is how management views and expense items bear to net sales and revenue:monitors our business.
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| Years Ended January 31, |
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| 2009 |
| 2008 |
| 2007 |
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Net sales and revenue |
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| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
Cost of sales |
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| (79.6 | ) |
| (70.1 | ) |
| (71.9 | ) |
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Gross profit |
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| 20.4 |
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| 29.9 |
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| 28.1 |
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Selling, general and administrative expenses |
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| (23.3 | ) |
| (27.5 | ) |
| (27.8 | ) |
Interest income |
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| 0.8 |
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| 2.9 |
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| 1.2 |
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Interest expense |
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| (1.4 | ) |
| (0.1 | ) |
| (0.5 | ) |
Loss on early termination of debt |
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| — |
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| (0.3 | ) |
| — |
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Gain on sale of real estate |
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| 1.0 |
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| 0.5 |
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| 0.8 |
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Equity in income of unconsolidated ethanol affiliates |
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| 0.4 |
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| 0.8 |
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| 0.2 |
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Realized investment gains |
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| — |
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| 12.3 |
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Income from synthetic fuel investments |
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| 0.3 |
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| 3.6 |
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| 5.3 |
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Losses on derivative financial instruments |
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| (1.6 | ) |
| (1.3 | ) |
| — |
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(Loss) income from continuing operations before taxes and minority interest |
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| (3.4 | ) |
| 20.8 |
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| 7.3 |
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Benefit (provision) for income taxes |
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| 1.0 |
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| (7.7 | ) |
| (2.4 | ) |
Minority interest in loss of consolidated subsidiaries |
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| 1.4 |
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| 0.4 |
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| — |
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(Loss) income from continuing operations |
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| (1.0 | ) |
| 13.5 |
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| 4.9 |
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Loss from discontinued operations, net of tax |
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| (0.6 | ) |
| (1.1 | ) |
| — |
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Gain on disposal of discontinued operations, net of tax |
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| 0.2 |
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| 5.0 |
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| 0.7 |
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Net (loss) income |
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| (1.4 | )% |
| 17.4 | % |
| 5.6 | % |
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Comparison of Fiscal Years Ended January 31, 20092010 and 20082009
Net Sales and Revenue – Net sales and revenue in fiscal year 20082009 were $230.6$170.3 million, an 18.4%a 148.3% increase from $194.8$68.6 million in fiscal year 2007. This increase was primarily due to Levelland Hockley commencing production operations during fiscal year 2008. Levelland Hockley contributed $68.2 million of netNet sales and revenue during fiscal year 2008. This increase was partially offset by a decline in comparable retail store sales of 10.3%. We consider a retail store to be comparable after it has been open six full fiscal quarters. Comparable retail store sales do not include sales from retail and real estate operations classified in discontinued operations. The increase was primarily caused by higher sales in our alternative energy segment of extended service contracts. We closed 25 retail stores (23 of which were classified as discontinued operations for all periods presented) during fiscal$101.0 million. Net sales and revenue from our real estate segment increased $0.7 million over the prior year 2008 and 78 retail stores during fiscal year 2007. We did not open any new retail stores in fiscal years 2008 and 2007. We had 90 retail stores open at January 31, 2009 compared to 115 retail stores at January 31, 2008.$1.1 million.
The television category negatively impacted comparable retail store sales by 6.0%. This resulted from gains in LCD and plasma television sales being more than offset by declines in light engine and traditional tube televisions. The appliance category negatively impacted comparable retail store sales by 2.3%. Declines in air conditioner and laundry product sales were the primary causes of the appliance category performance. The audio category negatively impacted comparable store sales by 1.0%. The audio category decline is consistent
with industry trends away from traditional audio products to portable digital media which we do not sell. The video category negatively impacted comparable store sales by 0.9%. The video category has generally been impacted by lower price points, as many of these products continue to become more of a commodity item with very high levels of competition.
The following table reflects the approximate percent of net sales and revenue for each product and service group for the periods presented:
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Product or Service Category |
| 2008 |
| 2007 |
| 2006 |
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Televisions |
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| 39 | % |
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| 56 | % |
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| 55 | % |
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Ethanol |
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| 22 |
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| — |
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| — |
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Appliances |
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| 21 |
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| 28 |
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| 26 |
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Distiller grains |
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| 5 |
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| — |
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| — |
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Audio |
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| 3 |
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| 4 |
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| 7 |
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Extended warranties |
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| 5 |
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| 6 |
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| 5 |
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Other |
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| 5 |
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| 6 |
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| 7 |
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Total |
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| 100 | % |
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| 100 | % |
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| 100 | % |
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Lease income was approximately $0.4 million in fiscal years 2008 and 2007. We expect lease income to increase by approximately $2.8 million on an annualized basis once Appliance Direct completes its transition of REX retail locations. See Note 13 of the Notes to the Consolidated Financial Statements for a further discussion of the Appliance Direct agreement.
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Product or Service Category |
| 2009 |
| 2008 |
| 2007 |
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Ethanol |
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| 82 | % |
| 82 | % |
| — | % |
Distiller grains |
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| 17 |
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| 17 |
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| — |
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Leasing |
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| 1 |
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| 1 |
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| 100 |
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Total |
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| 100 | % |
| 100 | % |
| 100 | % |
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Gross Profit – Gross profit was $47.1$19.7 million in fiscal year 2009, or 11.6% of net sales and revenue, versus $1.2 million in fiscal year 2008 or 20.4% of net sales and revenue, versus $58.3 million for fiscal year 2007 or 29.9%1.8% of net sales and revenue. This represents a decreasean increase of $11.2 million or 19.2%.$18.5 million. Gross profit in fiscal year 2008 from our retail segment was 28.5% of retail segment sales compared to 29.9% for fiscal year 2007. Gross profit in fiscal2009 increased by $21.1 million over the prior year 2008 from our alternative energy segment was 1.2% of net sales and revenue. Gross profit from our alternative energy segment has been lower than expected, generally as a result of a declineoperations in the spread between ethanol and grain prices. In general, corn and grain prices have increased more than ethanol prices. Lower merchandise sales inalternative energy segment. Gross profit for fiscal year 2008 were the primary cause of the gross profit dollar decline. In addition, extended service contracts contributed gross profit of $9.72009 decreased by $2.6 million in fiscal year 2008 compared to $11.0 million in fiscalthe prior year 2007. Our direct warranty repair costs were approximately 25% and 19% of extended service contract revenue in fiscal years 2008 and 2007, respectively. Warranty repair costs increased during fiscal year 2008 as there were generally lower levels of vendor support for defective merchandise during the current fiscal year.from our real estate segment.
Selling, General and Administrative Expenses – Selling, general and administrative expenses for fiscal year 20082009 were $53.8$6.0 million or 23.3%(3.5% of net sales and revenue, consistent with the $53.7revenue), a decrease of $0.6 million or 27.6%9.1% from $6.6 million (9.7% of net sales and revenue,revenue) for fiscal year 2007. We incurred lower payroll2008. Compared to the prior year, these expenses declined approximately $0.3 million and $0.2 million in fiscal year 2008 of $2.1 million as our accrual for variable incentive pay declined $2.1 million as a result of the current year decline in overall corporate profitability. We also had lower sales commission expense, which declined by $1.6 million, primarily a result of lower retail merchandise sales. We incurred severance and other payroll charges of approximately $2.8 million in connection with the anticipated Appliance Direct transactioncategory and the planned exit of our retail operations. Other corporate payroll and related taxes declined by approximately $1.2 million as a result of lower levels of employment during fiscal year 2008. Our advertising expense decreased $1.0 million compared to fiscal year 2007 as we had fewer markets to serve after our store closings and we continued to emphasize cost control. Expenses at Levelland Hockley increased from $0.4 million in fiscal year 2007 to $2.0 million in fiscal year 2008. This increase is a result of Levelland Hockley commencing production operations during fiscal year 2008. For all of fiscal year 2007, Levelland Hockley was in the development stage. We recognized an impairment charge, in our alternative energy segment, ofrespectively.
approximately $1.3 million during fiscal year 2008 related to goodwill associated with the Levelland Hockley acquisition.
Interest Income – Interest income decreased to $0.4 million for fiscal year 2009 from $2.0 million for fiscal year 2008 from $5.7 million for fiscal year 2007. Approximately $1.6 million of the decrease2008. The decline generally results from lower yields earned on our excess cash in fiscalthe current year 2008. We recognized $1.3 millioncompared to the prior year. The lower yields are a result of interest income in fiscal year 2007 from our ethanol investment in Millennium, which was sold in fiscal year 2007. We also had lower interest income from our consolidated ethanol entitiesthe overall macroeconomic environment and not a result of approximately $0.3 million, as excess cash was spent on the construction activities at Levelland Hockley and One Earth.a shift to investments with less risk.
Interest Expense – Interest expense increased to $4.7 million for fiscal year 2009 from $3.2 million for fiscal year 2008 from $0.2 million for fiscal year 2007.2008. The increase in interest expense was primarily caused by the interest incurred on the Levelland Hockley credit facility subsequentattributable to the commencementalternative energy segment as we had higher amounts of operations at thataverage debt outstanding upon the completion of One Earth’s ethanol plant. Prior to the commencement of operations at Levelland Hockley, related interest was capitalized. We capitalized $3.2 million in interest related to plant construction at Levelland Hockley and One Earth and our equity method investment in Patriot in fiscal year 2008. We capitalized $1.6 million of interest in fiscal year 2007.
Loss on Early Termination of Debt – During fiscal year 2007,2009, we completed the early payoff of mortgages for 10 retail locations totaling approximately $7.1$8.0 million of mortgage debt prior to maturity. As a result, we expensed certain unamortized financing costs and modified the collateral securing the revolving line of credit. We incurred a chargeprepayment penalties of approximately $0.6 million related to this$89,000 as loss on early termination of debt.
Gain on Sale of Real Estate – During fiscal year 2008, we completed a transaction for the sale and leaseback of our Cheyenne, Wyoming distribution center under a three year lease term. A pre-tax gain classified as continuing operations, of approximately $1.6 million (net of expenses) resulted from this sale. We also deferred approximately $0.7 million of the gain at January 31, 2009, based upon the present value of the minimum lease payments, and will amortize this deferred gain as a reduction to lease expense over the lease term. The lease has been accounted for as an operating lease. We also sold vacant land adjacent to the Cheyenne, Wyoming distribution center for a gain of $0.7 million.
On April 30, 2007, we completed a transaction for the sale of 86 of our current and former retail store locations to KLAC REX, LLC (“Klac”) for $74.5 million in cash, before selling expenses. We also entered into leases to leaseback 40 of the properties from Klac for initial lease terms expiring January 31, 2010, with renewal options for up to 15 additional years. Either REX or Klac had the right to terminate a lease after the initial six months of the initial lease term on 28 of the leases, of which 14 were terminated both in each of fiscal years 2008 and 2007. We also entered into license agreements with Klac for 15 of the properties that allowed us to occupy the properties for up to 90 days rent free. Upon the expiration of the license period, we vacated the 15 properties.
This transaction resulted in a gain (realized and deferred) of $14.8 million. We recognized a pre-tax gain on sale of real estate of $0.1 million and $8.0 million (net of expenses and losses) in fiscal years 2008 and 2007, respectively. We also recognized approximately $1.4 million of the deferred gain as a reduction of lease expense during fiscal years 2008 and 2007. We have a deferred gain of $3.9 million and $5.4 million at January 31, 2009 and 2008, respectively, based upon the present value of the remaining minimum lease payments. The deferred gain will be amortized as a reduction to lease expense over the lease periods or recognized as gain on disposal at the end of the lease period. The leases have been accounted for as operating leases.
The following table summarized the pre-tax gains recognized for fiscal years 2008 and 2007 (amounts in thousands):
|
|
|
|
|
|
|
|
Classification of Gain |
| 2008 |
| 2007 |
| ||
|
|
| |||||
|
|
|
|
|
|
|
|
Continuing Operations |
| $ | 1,396 |
| $ | 2,168 |
|
Discontinued Operations |
|
| 97 |
|
| 7,211 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Total Pre-Tax Gain |
| $ | 1,493 |
| $ | 9,379 |
|
|
|
|
|
The following table summarizes the components of the Klac sale and leaseback transaction as of January 31, 2009 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Property Category |
| Number |
| Deferred |
| Recognized |
| ||
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
Vacated |
| 62 |
| $ | — |
| $ | 7,707 |
|
Leased until January 31, 2010 |
| 12 |
|
| 3,279 |
|
| 740 |
|
Leased until January 31, 2010 |
| 12 |
|
| 654 |
|
| 2,425 |
|
|
|
|
|
| |||||
Total |
| 86 |
| $ | 3,933 |
| $ | 10,872 |
|
|
|
|
|
|
Equity in Income of Unconsolidated Ethanol Affiliates – During fiscal years 20082009 and 2007,2008, we recognized income of $849,000approximately $6.0 million and $1,601,000,$0.8 million, respectively from our equity investments in Big River and Patriot. Big River operates an ethanol facility with annual capacity ofhas a 92 million gallons.gallon plant which has been in operations 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 ethanol facility with annuala nameplate capacity of 100 million gallons during the second quarter of fiscal year 2008. Income from Big River was $2,397,000approximately $2.5 million and $2,379,000$2.4 million in fiscal years 2009 and 2008, respectively. Although our proportionate 10% share of income from Big River has been consistent over the prior two years, we expect such income to be based upon increased sales in future years as the Big River Galva and 2007, respectively. Big River United Energy facilities are in production for a full year.
We recorded income of approximately $3.5 million and a loss of $1,548,000 and $778,000$1.5 million from Patriot in fiscal years 2009 and 2008, respectively. Patriot benefited in the current year from a full year of production and 2007, respectively.favorable crush spreads, particularly during the latter half of calendar year 2009.
Realized Investment Gains – On August 29, 2007, US BioEnergy Corporation (“US BioEnergy”) completedDue to the acquisition of Millennium. In connection with the acquisition, we received 3,693,858 shares of US BioEnergy common stock and approximately $4.8 million of cash as total consideration for our interest in Millennium based upon the conversion of our $14.0 million convertible secured promissory note, accrued interest and related purchase rights. We sold allinherent volatility of the US BioEnergy common stock during fiscal year 2007crush spread, we cannot predict the likelihood of future operating results from Big River and recorded a gain of $24.0 million relatedPatriot being similar to the sale of our Millennium investment and subsequent holdings of US BioEnergy common stock and cash proceeds received from US BioEnergy.2009 results.
IncomeIncome from Synthetic Fuel Investments – Results for fiscal yearsyear 2008 and 2007 reflect the impact of our equity investment in two limited partnerships, Colona and Somerset, which produced synthetic fuels. The income recognized in fiscal year 2008 represents the estimated final settlements related to Colona and Somerset as all synthetic fuel production ceased during fiscal year 2007. We recognized income from the sales of our interests in Colona and Somerset equal to certain percentages of the Section 29/45K tax credits attributable to the ownership interest sold, subject to production levels. The Section 29/45K tax credit program expired on December 31, 2007. We do not anticipate additional income or loss from these sales.
We also sold our membership interest in the limited liability company that owned a synthetic fuel facility in Gillette, Wyoming. The plant was subsequently sold and during the third quarter of fiscal year 2006, we modified our agreement with the owners and operators of the synthetic fuel facility. Based on the terms of the modified agreement, we currently are not able to determinepredict the likelihood and timing of collecting payments related to production occurring after September 30, 2006. Thus, we cannot currently determine the timing of
income recognition, if any, related to production occurring subsequent to September 30, 2006. We did not recognize any income from this sale during fiscal years 20082009 or 2007. Below is2008.
Other Income – During fiscal year 2009, Levelland Hockley entered into an agreement with Layne Christensen Company (“Layne”) to settle litigation between the two parties. As a table (amounts in thousands) summarizingresult of the settlement agreement, Layne paid Levelland Hockley $1.5 million. Of the proceeds received, approximately $0.3 million was recognized as other income during fiscal year 2009.
During fiscal year 2009, Levelland Hockley received notification from the sales, netUnited States Department of certain expenses, of our interestsAgriculture that Levelland Hockley had been approved to receive funds under the Advanced Biofuel Producer Program. As a result, approximately $0.5 million was recognized as other income during fiscal year 2009. We anticipate applying to receive funds under this federal program assuming such federal programs are available and adequately funded by the government in synthetic fuel entities:future years.
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| ||||
|
|
| |||||
|
| 2009 |
| 2008 |
| ||
|
|
|
| ||||
February 1, 1999 Colona sale |
| $ | 186 |
| $ | 1,673 |
|
July 31, 2000 Colona sale |
|
| 148 |
|
| 1,335 |
|
May 31, 2001 Colona sale |
|
| 132 |
|
| 1,186 |
|
March 30, 2004 Gillette sale |
|
| — |
|
| — |
|
October 1, 2005 Somerset sale |
|
| 225 |
|
| 2,751 |
|
|
|
|
| ||||
Total |
| $ | 691 |
| $ | 6,945 |
|
|
|
|
|
Losses on Derivative Financial Instruments – We recognized unrealized and realized losses of $3.8$2.5 million and $2.6$3.8 million during fiscal years 20082009 and 2007,2008, respectively, related to forward starting interest rate swaps that Levelland Hockley and One Earth entered into during fiscal year 2007. During fiscal year 2008,2009, Levelland Hockley’s loss was $0.8$0.5 million and One Earth’s loss was $3.0$2.0 million. Levelland Hockley’s swap expires in April 2010 while One Earth’s 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. As interest rates declined during fiscal years 2009 and 2008, we incurred large losses on the interest rate swaps. 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.
Income Taxes – Our effective tax rate was a provision of 33.5% and a benefit of 30.5% and a provision of 36.9%31.1% for fiscal years 20082009 and 2007,2008, respectively. Our effective tax rate increased, as the minority interestnoncontrolling interests in the income or loss of consolidated subsidiaries is presented in the income statementConsolidated Statements of Operations after income tax benefit or provision.
Minority Interest – Minority interest of $3.2 million represents In addition, the owners’ (other than us) share of the loss of Levelland Hockley and One Earth. Minority interest of Levelland Hockley and One Eartheffective tax rate was $2.3 million and $0.8 million, respectively duringlower in fiscal year 2008 and $0.5 million and $0.4 million, respectively during fiscal year 2007.as a result of a federal tax credit available to certain ethanol producers. We do not anticipate benefiting from this credit in future years.
Loss/IncomeIncome/Loss from Continuing Operations Including Noncontrolling Interests – As a result of the foregoing, lossincome from continuing operations including noncontrolling interests was $2.3$9.1 million for fiscal year 20082009 versus incomea loss of $26.4$6.1 million for fiscal year 2007.2008.
Discontinued Operations –During fiscal year 2008,2009, we closed 23our remaining retail stores that were classifiedstore and warehouse operations and reclassified all retail related results as discontinued operations. As a result of these closings and certain other retail storesstore and those closed inreal estate property closings from prior years, we had a lossincome from discontinued operations, net of tax benefit, of $1.4$2.1 million in fiscal year 20082009 compared to $2.3a loss of $2.2 million in fiscal year 2007.2008. Five properties classified as discontinued operations were sold or abandoned during fiscal year 2009, resulting in a gain, net of tax expense, of $1.4 million. We sold 6 retail store locations classified as discontinued operations in fiscal year 2008 compared to selling 71 properties in fiscal year 2007. As2008; as a result, we had a gain from disposal of discontinued operations, net of a tax provision, of $0.3$1.8 million in fiscal year 2008. We expect income from discontinued operations to decline in future periods as our extended service plan activities wind down.
Noncontrolling Interests – (Income) or loss related to noncontrolling interests was $(3.9) million and $3.1 million during fiscal years 2009 and 2008, compared to $9.8respectively, and represents the owners’ (other than us) share of the income of Levelland Hockley and One Earth. Noncontrolling interests of Levelland Hockley and One Earth was $(1.4) million inand $(2.5) million, respectively during fiscal year 2007.2009 and $2.3 million and $0.8 million, respectively during fiscal year 2008.
Net Loss/IncomeIncome/Loss Attributable to REX Common Shareholders – As a result of the foregoing, net income attributable to REX common shareholders was $8.7 million for fiscal year 2009 compared to a net loss wasof $3.3 million for fiscal year 2008 versus net income of $33.9 million for fiscal year 2007.2008.
Business Segment Results
In additionDuring fiscal year 2009, we realigned our reportable business segments to be consistent with changes to our management structure and reporting. We now have two segments: alternative energy and real estate. The real estate segment was formerly included in the information discussed above,retail segment. For former retail stores and warehouses closed which we have a retained interest in the related real estate, operations are now 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.
The following sections discuss the results of operations for each of our business segments and corporate and other. As discussed in Note 18,20, our chief operating decision maker (as defined by SFAS No. 131, “ASC 280Disclosures about Segments of an Enterprise and Related Information “Segment Reporting”) evaluates the operating performance of our business segments using a measure we call segment profit. Segment profit excludes income taxes, 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. Amounts in the other category below include business activities that are not separately reportable and income from synthetic fuel investments (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| |||||||
|
|
| ||||||||
|
| 2009 |
| 2008 |
| 2007 |
| |||
|
|
|
|
| ||||||
Net sales and revenues: |
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 162,404 |
| $ | 194,787 |
| $ | 201,881 |
|
Alternative energy |
|
| 68,223 |
|
| — |
|
| — |
|
|
|
|
|
| ||||||
Total net sales and revenues |
| $ | 230,627 |
| $ | 194,787 |
| $ | 201,881 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Segment gross profit: |
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 46,273 |
| $ | 58,279 |
| $ | 56,782 |
|
Alternative energy |
|
| 807 |
|
| — |
|
| — |
|
|
|
|
|
| ||||||
Total gross profit |
| $ | 47,080 |
| $ | 58,279 |
| $ | 56,782 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss): |
|
|
|
|
|
|
|
|
|
|
Retail segment profit |
| $ | 1,124 |
| $ | 10,421 |
| $ | 5,677 |
|
Alternative energy segment (loss) profit |
|
| (8,992 | ) |
| 22,404 |
|
| 168 |
|
Corporate expenses |
|
| (2,038 | ) |
| (2,077 | ) |
| (2,138 | ) |
Interest expense |
|
| (387 | ) |
| (749 | ) |
| (1,121 | ) |
Interest income |
|
| 1,788 |
|
| 3,575 |
|
| 1,521 |
|
Income from synthetic fuel investments |
|
| 691 |
|
| 6,945 |
|
| 10,764 |
|
|
|
|
|
| ||||||
(Loss) income from continuing operations before income taxes and minority interest |
| $ | (7,814 | ) | $ | 40,519 |
| $ | 14,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| |||||||
|
|
| ||||||||
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
| ||||||
Net sales and revenues: |
|
|
|
|
|
|
|
|
|
|
Alternative energy |
| $ | 169,175 |
| $ | 68,223 |
| $ | — |
|
Real estate |
|
| 1,089 |
|
| 415 |
|
| 382 |
|
|
|
|
|
| ||||||
Total net sales and revenues |
| $ | 170,264 |
| $ | 68,638 |
| $ | 382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| |||||||
|
|
| ||||||||
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
| ||||||
| ||||||||||
Segment gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
Alternative energy |
| $ | 21,923 |
| $ | 807 |
| $ | — |
|
Real estate |
|
| (2,190 | ) |
| 398 |
|
| 364 |
|
|
|
|
|
| ||||||
Total gross profit |
| $ | 19,733 |
| $ | 1,205 |
| $ | 364 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss): |
|
|
|
|
|
|
|
|
|
|
Alternative energy segment |
| $ | 17,811 |
| $ | (8,992 | ) | $ | 22,404 |
|
Real estate |
|
| (2,373 | ) |
| 116 |
|
| 177 |
|
Corporate expenses |
|
| (1,721 | ) |
| (2,038 | ) |
| (2,077 | ) |
Interest expense |
|
| (369 | ) |
| (387 | ) |
| (1,032 | ) |
Interest income |
|
| 263 |
|
| 1,788 |
|
| 3,575 |
|
Income from synthetic fuel investments |
|
| — |
|
| 691 |
|
| 6,945 |
|
|
|
|
|
| ||||||
Income (loss) from continuing operations before income taxes and noncontrolling interests |
| $ | 13,611 |
| $ | (8,822 | ) | $ | 29,992 |
|
|
|
|
|
|
RetailAlternative Energy
The retailalternative energy segment includes the consolidated financial results of Levelland Hockley and One Earth, our other investments in ethanol facilities, the income or loss related to those investments and certain administrative expenses. 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):
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| ||||
|
| 2010 |
| 2009 |
| ||
|
|
|
| ||||
| |||||||
Ethanol |
| $ | 140,443 |
| $ | 55,989 |
|
Dried distiller grains |
|
| 20,223 |
|
| 6,478 |
|
Wet distiller grains |
|
| 7,953 |
|
| 5,449 |
|
Other |
|
| 556 |
|
| 307 |
|
|
|
|
| ||||
Total |
| $ | 169,175 |
| $ | 68,223 |
|
|
|
|
|
The following table summarizes selected operating data from Levelland Hockley and One Earth:
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| ||||
|
| 2010 |
| 2009 |
| ||
|
|
|
| ||||
Average selling price per gallon of ethanol |
| $ | 1.68 |
| $ | 2.14 |
|
Average selling price per ton of dried distiller grains |
| $ | 112.29 |
| $ | 180.42 |
|
Average selling price per ton of wet distiller grains |
| $ | 41.53 |
| $ | 51.74 |
|
Average cost per bushel of grain |
| $ | 3.58 |
| $ | 4.82 |
|
Average cost of natural gas (per mmbtu) |
| $ | 4.28 |
| $ | 9.01 |
|
Net sales and revenue for the current year increased $101.0 million over the prior year to $169.2 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 declined from $2.14 in the prior year to $1.68 in the current year. Our sales were based upon 83.6 million gallons of ethanol in the current year compared to 26.2 million gallons 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 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 $21.9 million during the current year compared to $0.8 million during the prior year. Gross profit improved primarily as a result of One Earth beginning operations in fiscal year 2009. The crush spread realized improved during the third and fourth quarters of the current year, which is when One Earth began operations. Given the inherent volatility in ethanol and grain prices, we cannot predict the likelihood that the spread between ethanol and grain prices in future periods will remain favorable compared to historical periods.
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. Approximately 10-15% of our forecasted ethanol production during the next 12 months has been sold under fixed-price contracts. As a result of these positions, the effect of a 10% adverse move in the price of ethanol from the current pricing would result in a decrease in revenues of $24.9 million. Similarly, approximately 10-15% of our estimated corn/sorghum usage for the next 12 months was subject to fixed-price contracts. As a result of these positions, the effect of a 10% adverse move in the price of corn/sorghum from current pricing would result in an increase in cost of goods of approximately $16.1 million.
Selling, general and administrative expenses were approximately $4.1 million in fiscal year 2009, a $0.2 million decrease from $4.3 million in fiscal year 2008. An impairment charge of approximately $1.3 million related to the write off of goodwill associated with the Levelland Hockley acquisition was recorded in fiscal year 2008. We incurred approximately $0.7 million in increased expenses (in fiscal year 2009) related to the start of operations at One Earth. We expect selling, general and administrative expenses in future periods to remain consistent with comparable historical periods.
Interest expense increased $1.7 million in the current year over the prior year to $4.5 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; the resulting higher outstanding debt amount also contributed to the increase in interest expense. Based on current interest rates, we expect interest expense to increase to approximately $5.8 million in fiscal year 2010 based on current debt levels and that we do not anticipate capitalizing significant amounts of interest now that all facilities are in operation.
Other income increased $0.8 million in the current year compared to the prior year. The increase is a result of Levelland Hockley recognizing a legal settlement of $0.3 million and grant income of $0.5 million in fiscal year 2009. We do not expect other income to be significant to our financial results in future periods.
Income from equity method investments in Big River and Patriot increased from $0.8 million in the prior year to $6.0 million in the current year. We recognized $2.5 million of income from Big River in fiscal year 2009 which is consistent with the prior year amount of $2.4 million. We recognized $3.5 million of income from Patriot in fiscal year 2009, which is $5.0 million higher than the loss of $1.5 million in the prior year. The fluctuation related to income from Patriot is primarily a result of fiscal year 2009 being the first year that Patriot was in production for a full year. Patriot was in production for approximately four months during fiscal year 2008. We expect that revenue recognized by Patriot in future periods will be consistent with the current year assuming that the plant continues to operate at or near nameplate capacity. We expect that revenue recognized by Big River in future periods will increase over the current year as it had two plants in operation for only a portion 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 $2.5 million in the current year compared to $3.8 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 $17.8 million in the current year from a loss of $9.0 million in the prior year.
Real Estate
The real estate segment includes all of ourowned 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.
The netAt January 31, 2010, we had lease or sub-lease agreements, as landlord, for all or parts of ten 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 31 owned former retail stores (385,000 square feet), and one former distribution center (180,000 square feet), that are vacant at January 31, 2010. We are marketing these vacant properties to lease or sell. 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 are discussed underNet Sales and Revenue—Comparison of Fiscal Years Ended January 31, 2009 and 2008.
Segment profit decreased $9.3for the current year increased $0.7 million (89.2%)over the prior year to $1.1 million. The increase in revenue is primarily a result of 15 properties leased to Appliance Direct for a portion of the current year. Gross loss from these leases was approximately $2.2 million in fiscalduring the current year 2008 from $10.4 million in fiscal year 2007. The decrease in segment profit was primarily relatedcompared to lower gross profit of $12.0 million, primarily resulting from a 16.6% decline in retail segment sales.
Selling, general and administrative expensesapproximately $0.4 during the prior year. Gross profit declined by $1.5 million in fiscal year 2008. We incurred lower payroll expenses in fiscal year 2008 of $1.0 million as we had lower sales commissions of $2.3 million related to the sales decline. We incurred severance and other payroll charges of approximately $2.8 million in connection with the anticipated Appliance Direct transaction and the planned exit of our retail operations. Our accrual for variable incentive pay declined $0.6 million related to the lower segment profits in the current fiscal year. Lower headcount of employees accounted for approximately $0.9 million of the decrease in
payroll expense. Advertising expense decreased approximately $1.0 million in the current year as a result of our continuing emphasis on cost control.
expenses associated with vacant properties; the largest of which was a long-lived asset impairment charge of approximately $1.6 million. The sale and leasebackincrease in vacant properties is a result of the Cheyenne, Wyoming distribution center resulted in $2.3 million in incomeagreement we reached with Appliance Direct during the third quarter of the current year which relieved Appliance Direct of their obligation to lease properties from gain on sale of real estateus. We expect lease revenue in fiscal year 2008. This represents an increase of $1.2 million over the2010 to be consistent with fiscal year 2007 gain on sale of real estate.
Alternative Energy
The alternative energy segment includes the consolidated financial statements of Levelland Hockley and One Earth, our other investments in ethanol facilities, the income related to those investments and certain administrative expenses. Fiscal year 2008 is the first year that this segment has sales as Levelland Hockley commenced production operations during the second quarter of fiscal year 2008. One Earth is a development stage company and income related to equity method investments is not reported as sales or revenue.
The following table summarizes sales from Levelland Hockley by product group (amounts in thousands):
|
|
|
|
|
|
|
|
| Year Ended |
| |||
|
|
| ||||
Ethanol |
|
| $ | 55,989 |
|
|
Dried distiller grains |
|
|
| 6,478 |
|
|
Wet distiller grains |
|
|
| 5,449 |
|
|
Other |
|
|
| 307 |
|
|
|
|
|
|
| ||
Total |
|
| $ | 68,223 |
|
|
|
|
|
|
|
The following table summarizes certain operating data from Levelland Hockley:
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|
|
|
|
| Year Ended |
| |||
|
|
| ||||
Average selling price per gallon of ethanol |
|
| $ | 2.14 |
|
|
Average selling price per ton of dried distiller grains |
|
| $ | 180.42 |
|
|
Average selling price per ton of wet distiller grains |
|
| $ | 51.74 |
|
|
Average cost per bushel of grain |
|
| $ | 4.82 |
|
|
Average cost of natural gas (per mmbtu) |
|
| $ | 9.01 |
|
|
Results for the segment declined from a profit of $22.4 million in fiscal year 2007 to a loss of $9.0 million in fiscal year 2008. The decline in segment profit is generally a result of lower investment gains and increases in expenses.2009 based upon leases currently executed.
Selling, general and administrative expenses were $4.3 millionapproximately $183,000 in fiscal year 2008 compared to $2.7 million2009, consistent with the $289,000 in fiscal year 2007, an increase of $1.6 million.2008. We recorded a non cash impairment charge of $1.3 millionexpect selling, general and administrative expenses in fiscal year 2008 relatedfuture periods to goodwill associatedremain consistent with the Levelland Hockley acquisition. We also incurred expenses of $2.0 million from Levelland Hockley in fiscal year 2008 compared to $0.4 million in fiscal year 2007. This increase results from Levelland Hockley commencing production operations in the second quarter of fiscal year 2008. Levelland Hockley was a development stage company during fiscal year 2007. Executive incentive compensation declined by $1.5 million in fiscal year 2008,comparable historical periods.
As a result of the decline infactors discussed above, segment profit.
Interest incomeprofit decreased to $0.3a loss of $2.4 million in the current year from income of $0.1 million in the prior year. Excluding any property sales that may occur in fiscal year 2008 from $2.1 million2010, we expect to generate another segment loss in fiscal year 2007. Interest income from our debt investment in Millennium, which was sold during fiscal year 2007, accounted for a majority2010 based upon the current number of the decrease in interest income.
Interest expense increased to $2.8 million in fiscal year 2008 as interest incurred by Levelland Hockley was not capitalized subsequent to the start of production operations. All interest incurred by Levelland Hockley in fiscal year 2007 was capitalized.
Realized investment gains were $24.0 million in fiscal year 2007, as a result of the acquisition of our interest in Millennium by US BioEnergy Corporation. There was no such income in fiscal year 2008.
We recognized unrealized and realized losses of $3.8 million and $2.6 million during fiscal years 2008 and 2007, respectively, related to forward starting interest rate swaps that Levelland Hockley and One Earth entered into during fiscal year 2007. During fiscal year 2008, Levelland Hockley’s loss was $0.8 million and One Earth’s loss was $3.0 million.vacant properties.
Corporate and Other
Corporate and other includes certain administrative expenses of the corporate headquarters, interest expense and interest income not directly allocated to the retailalternative energy, real estate or alternative energyretail segments and income from synthetic fuel investments.
IncomeSelling, general and administrative expenses were $1.7 million in the current year consistent with the $2.0 million in the prior year.
Interest expense of $0.4 million in the current year is consistent with prior year expense.
Investment income was $0.3 million in the current year compared to $1.8 million in the prior year. The decline generally results from lower yields 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.
There was no income from synthetic fuel investments declinedin fiscal year 2009, compared to $0.7 million in fiscalthe prior year. Prior year 2008 from $6.9 million in fiscal year 2007. The income recognized in fiscal year 2008 represents the estimated final settlements related tofor Colona and Somerset as all synthetic fuel production ceased during fiscal year 2007. As the Section 29/45K tax credit program expired on December 31, 2007, weWe do not anticipateexpect additional income or loss from the Colona orand Somerset sales to be significant beyond fiscal year 2008. During the third quarter of fiscal year 2006, we modified our agreement with the owners and operators of the Gillette synthetic fuel facility. Based on the terms of the modified agreement, we currently are not able to determine the likelihood and timing of collecting payments related to production occurring after September 30, 2006. Thus, we cannot currently determine the timing of income recognition, if any, related to production occurring subsequent to September 30, 2006. At January 31, 2009, we estimate that there is approximately 6.0 million tons of production for which we did not recognize income nor receive payment. We estimate this could result in approximately $2.3 million (net of phase out) of future income and cash receipts.
Unallocated interest income was $1.8 million in fiscal year 2008, compared to $3.6 million in fiscal year 2007. The decrease resulted from lower yields earned during fiscal year 2008 on our excess cash as interest rates were generally lower in fiscal year 2008 compared to fiscal year 2007.partnership sales.
Comparison of Fiscal Years Ended January 31, 20082009 and 20072008
Net Sales and Revenue – All of our netNet sales and revenue was generated by our retail segment, as the ethanol entities we consolidate did not have an operating plantin fiscal year 2008 were $68.6 million, a $68.2 million increase from $0.4 million in fiscal year 2007. Net sales and revenue do not include sales from retail and real estate operations classified in fiscaldiscontinued operations. The increase was primarily caused by higher sales in our alternative energy segment of $68.2 million. Net sales and revenue from our real estate segment of $415,000 were consistent with the prior year 2007 were $194.8 million, a 3.5% decrease from $201.9amount of $382,000.
Gross Profit – Gross profit was $1.2 million in fiscal year 2006. This decrease was primarily a result of a decrease in comparable store sales of 6.7%2008 versus $0.4 million for fiscal year 2007. This decrease was partially offset by revenue from extended service contracts which was $13.7 million in fiscal year 2007 compared to $12.4 million in fiscal year 2006. The increase in revenue from extended service contracts results from higher accretion of revenue from extended service contracts sold in previous years when our merchandise sales were higher. We consider a store to be comparable after it has been open six full fiscal quarters. Comparable store sales results do not include sales of extended service contracts. We closed 78 stores (67 of which were classified as discontinued operations) during fiscal year 2007 and 25 stores during fiscal year 2006. We did not open any new stores in fiscal years 2007 and 2006. We had 115 stores open at January 31, 2008 compared to 193 stores at January 31, 2007.
The television category negatively impacted comparable store sales by 3.1%. This resulted from gains in LCD television sales being offset by declines in plasma, light engine and traditional tube televisions. The audio category negatively impacted comparable store sales by 3.0%. The audio category decline is consistent with industry trends away from traditional audio products to portable digital media which we do not sell. The video category negatively impacted comparable store sales by 1.6%. The video category has generally been impacted by lower price points, as many of these products continue to become more of a commodity item with very high levels of competition. The appliance category positively impacted comparable store sales by 1.0%. The appliance category performance was primarily due to an increased promotional effort andrepresents an increase in the breadth of products offered.
Lease income was approximately $401,000 in fiscal year 2007, a 19.3% decrease from $497,000 in fiscal year 2006. The decrease results primarily from fewer properties being leased during fiscal year 2007.
Gross Profit –$0.8 million. Gross profit was approximately $58.3 million in fiscal year 2007, or 29.9% of net sales and revenue, versus approximately $56.8 million for fiscal year 2006 or 28.1% of net sales and revenue. The increase in gross profit was primarily2008 increased by $0.8 million over the prior year as a result of extended service contracts. Extended service contracts contributedoperations in the alternative energy segment. Our real estate segment had gross profit of $11.0 million infor fiscal year 2007, compared to $9.52008 of $0.4 million in fiscal year 2006, generally reflectingconsistent with the income recognition of extended service contracts sold in prior years. Our direct warranty repair costs were approximately 19% and 23% of extended service contract revenue in fiscal years 2007 and 2006, respectively.year.
Selling, General and Administrative Expenses – Selling, general and administrative expenses for fiscal year 20072008 were approximately $53.8$6.6 million, or 27.6% of net sales and revenue, a 4.3% decrease34.0% increase from approximately $56.2$5.0 million or 27.8% of net sales and revenue, for fiscal year 2006. The decrease2007. Compared to the prior year, these expenses increased approximately $1.6 million in expenditures was primarily due to lower advertising expenses of $2.0 million as we had fewer markets to serve after our store closings and we continued to emphasize cost control.the alternative energy segment.
Interest Income – Interest income increaseddecreased to approximately $2.0 million for fiscal year 2008 from approximately $5.7 million or 2.9%for fiscal year 2007. Approximately $1.6 million of net sales and revenue, forthe decrease results from lower yields earned on our excess cash in fiscal year 2008. We recognized $1.3 million of interest income in fiscal year 2007 from approximately $2.4 million or 1.2% of net sales and revenue for fiscal year 2006. Approximately $2.4 million of the increase results from more excess cash available forour debt investment in Millennium Ethanol, LLC, which was sold in fiscal year 2007 and $1.0 million of2007. We also had lower interest income in fiscal year 2008 from our consolidated ethanol investments in Millennium,entities of approximately $0.3 million, as excess cash was spent on the construction activities at Levelland Hockley and One Earth.
Interest Expense – Interest expense decreasedincreased to approximately $0.2$3.2 million or 0.1% of net sales and revenue, for fiscal year 20072008 from approximately $1.1$0.6 million or 0.5% of net sales and revenue, for fiscal year 2006.2007. The declineincrease in interest expense was primarily caused by capitalizing $1.6the interest incurred on the Levelland Hockley credit facility subsequent to the commencement of operations at that plant. Prior to the commencement of operations at Levelland Hockley, related interest was capitalized. We capitalized $3.2 million in interest related to plant construction at Levelland Hockley and One Earth and our equity method investment in Patriot in fiscal year 2007.2008. We capitalized $0.4$1.6 million of interest related to our equity investments in ethanol entities in fiscal year 2006.2007.
Loss on Early Termination of Debt – During fiscal year 2007, we completed the early payoff of mortgages for 10 retail locations totaling approximately $7.1 million and modified the collateral securing the revolving line of credit. We incurred a charge of approximately $0.6$0.4 million related to this termination of debt.
Gain on Sale of Real Estate – During fiscal year 2007, we completed a sale and leaseback for 12 properties classified in continuing operations for a net gain of $1.1 million. During fiscal year 2006, we completed a sale and leaseback for one property classified in continuing operations for a gain of $1.7 million. A portion of the gains was deferred, based upon the present value of the minimum lease payments.
Equity in Income of Unconsolidated Ethanol Affiliates – During fiscal yearyears 2008 and 2007, we recognized income of $1.6 million$849,000 and $1,601,000, respectively from our equity investments in Big River and Patriot. Big River hasoperates an operating ethanol facility whilewith a nameplate capacity of 92 million gallons. Patriot is currently constructing ancompleted construction of its ethanol facility.facility with a nameplate capacity of 100 million gallons during the second quarter of fiscal year 2008. Income from Big River was $2.4 million$2,397,000 and $2,379,000 in fiscal yearyears 2008 and 2007, while werespectively. We recorded a loss of $0.8 million$1,548,000 and $778,000 from Patriot in fiscal year 2007. The lossyears 2008 and 2007, respectively.
Although our proportionate 10% share of income from Big River has been consistent over the past two years, we expected this to change as Big River was constructing its second ethanol plant with a nameplate capacity of 100 million gallons of ethanol. Future results will depend greatly on the crush spread, the future movement of which we are unable to predict. Thus, we are unable to predict whether results from Big River will continue to remain consistent with results from the last two years.
We also expect our proportionate 23% share of income from Patriot includes a chargeto change in future years. Fiscal year 2008 was the first year that Patriot was in operation as Patriot commenced production operations in the second quarter of $0.8fiscal year 2008. During fiscal year 2008, we reported an equity method loss in operations of $1.5 million, representing our share of unrealized losses on derivative financial
instruments (anwhich $0.5 million related to the effects of an interest rate swap). Inswap. Also during fiscal year 2006,2008, Patriot began production at a time when the crush spread did not provide for gross margins sufficient to cover interest expense and other general and administrative expenses. Future results will depend greatly on the crush spread, the future movement of which we recognized incomeare unable to predict. Thus, we are unable to predict whether results from Patriot will improve compared to the results from the last two years. However, we do expect revenues to increase as we expect Patriot to operate at or near nameplate capacity in future years.
Overall, we expect the trends in crush spread margins described in the “Overview” section to be generally consistent with the operating experience of $0.5 million from our equity investment in Big River.River and Patriot as their results are dependent on the same key drivers (corn and natural gas pricing as well ethanol pricing, all of which are commodities.)
Realized Investment Gains – On August 29, 2007, US BioEnergy Corporation (“US BioEnergy”) completed the acquisition of Millennium. In connection with the acquisition, we received approximately 3.7 million shares of US BioEnergy common stock and approximately $4.8 million of cash as total consideration for our interest in Millennium based upon the conversion of our $14.0 million convertible secured promissory note, accrued interest and related purchase rights. We sold all of the US BioEnergy common stock during fiscal year 2007 and recorded a gain of $24.0 million related to the sale of our Millennium investment and subsequent holdings of US BioEnergy common stock and cash proceeds received from US BioEnergy.
Income from Synthetic Fuel Investments – Results for fiscal years 20072008 and 20062007 reflect the impact of our equity investment in two limited partnerships, Colona and Somerset, which produced synthetic fuels. We recognized income from the sales of our interests in Colona and Somerset subject to certain annual limitations and production levels. The Section 29/45K tax credit program expired on December 31, 2007.
Income fromThe income recognized in fiscal year 2008 represents the final settlements related to Colona and Somerset as all synthetic fuel investments forproduction ceased during fiscal year 20062007. We do not anticipate additional income or loss from the sales of our Colona and Somerset partnership interests.
We also includes income related to our sale ofsold our membership interest in the limited liability company that owned a synthetic fuel facility in Gillette, Wyoming. We are eligible to receive $1.50 per ton of “qualified production” (subject to phase out) produced by the facilityThe plant was subsequently sold and sold through 2007. Duringduring the third quarter of fiscal year 2006, we modified our agreement with the owners and operators of the synthetic fuel facility. Based on the terms of the modified agreement, we currently are not able to determinepredict the likelihood and timing of collecting payments related to production occurring after September 30, 2006. Thus, we cannot currently determinepredict the timing of income recognition, if any, related to production occurring subsequent to September 30, 2006. At January 31, 2009, we estimate that there is approximately 6.0 million tons of production for which we did not recognize income nor receive payment. We estimate this could result in approximately $2.3 million (net of phase out) of future income and cash receipts. The following table (amounts in thousands) summarizes theWe did not recognize any income from the sales, net of certain expenses, of our interests in synthetic fuel entities:this sale during fiscal years 2008 or 2007.
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| Years Ended January 31, | |||||
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| |||||
|
| 2008 |
| 2007 |
| ||
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| ||||
February 1, 1999 Colona sale |
| $ | 1,673 |
| $ | 1,928 |
|
July 31, 2000 Colona sale |
|
| 1,335 |
|
| 1,805 |
|
May 31, 2001 Colona sale |
|
| 1,186 |
|
| 1,604 |
|
March 30, 2004 Gillette sale |
|
| — |
|
| 1,058 |
|
October 1, 2005 Somerset sale |
|
| 2,751 |
|
| 4,369 |
|
|
|
|
| ||||
Total |
| $ | 6,945 |
| $ | 10,764 |
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|
|
|
|
Unrealized LossLosses on Derivative Financial Instruments – We recognized an unrealized losslosses of $3.8 million and $2.6 million during fiscal years 2008 and 2007, respectively, related to forward starting interest rate swaps that Levelland Hockley and One Earth entered into during fiscal year 2007 due to interest rate changes.2007. During fiscal year 2008, Levelland Hockley’s unrealized loss was $0.9$0.8 million and One Earth’s unrealized loss was $1.7$3.0 million.
Income Taxes – Our effective tax rate was approximately 36.9%a benefit of 31.1% and 32.9%a provision of 37.5% for fiscal years 2008 and 2007, and 2006, respectively, after reflecting our share of federal tax credits earned by the Somerset limited partnership for fiscal year 2006.respectively. Our effective tax rate increased forwas lower in fiscal year 2007,2008, as we no longer receive federalthe noncontrolling interests in the loss of consolidated subsidiaries is presented in the statement of operations after income tax credits for synthetic fuel produced subsequent to September 30, 2005. Statebenefit or provision. In addition, the effective tax expense increased duringrate was lower in fiscal year 20072008 as a result of a federal tax credit available to certain ethanol producers. We do not anticipate benefitting from this credit in future years.
Loss/Income from Continuing Operations Including Noncontrolling Interests – As a result of the foregoing, loss from continuing operations including noncontrolling interests was approximately $6.1 million for fiscal year 2008 versus income of $18.7 million for fiscal year 2007.
Discontinued Operations – During fiscal year 2009, we closed our remaining retail store and warehouse operations and reclassified them as discontinued operations. As a result of these closings and certain other retail store and real estate property closings from our saleprior years, we had a loss from discontinued operations, net of tax benefit, of $2.2 million in fiscal year 2008 compared to income of $3.8 million in fiscal year 2007. We sold 6 retail store locations classified as discontinued operations in fiscal year 2008 compared to selling 101 properties in fiscal year 2007. As a result, we had a gain from disposal of discontinued operations, net of a tax provision, of approximately $1.8 million in fiscal year 2008 compared to approximately $10.5 million in fiscal year 2007.
Noncontrolling Interests – (Income) loss related to noncontrolling interests of $3.2 million and leaseback transaction$0.8 million, respectively, and ethanol activities generating state taxable income that exceeded available net operating losses in certain states.
Minority Interest – Minority interest of $841,000 represents the owners’ (other than us) share of the loss of Levelland Hockley and One Earth. Minority interestNoncontrolling interests of Levelland Hockley and One Earth was $454,000$2.4 million and $387,000, respectively.
Income from Continuing Operations – As a result of the foregoing, income from continuing operations was approximately $26.4$0.8 million, forrespectively during fiscal year 2007 versus approximately $10.02008 and $0.5 million forand $0.3 million, respectively during fiscal year 2006.2007.
Discontinued Operations –During fiscal year 2007, we closed 67 stores that were classified as discontinued operations. As a result of these stores and certain other stores, we had a loss from discontinued operations, net of tax benefit, of approximately $2.3 million in fiscal year 2007 comparedNet Loss/Income Attributable to approximately $21,000 in fiscal year 2006. We sold 71 of these store locations and as a result had a gain from disposal of discontinued operations, net of a tax provision, of approximately $9.8 million in fiscal year 2007 compared to approximately $1.4 million in fiscal year 2006.
Net IncomeREX Common Shareholders – As a result of the foregoing, net loss attributable to REX common shareholders was approximately $3.3 million for fiscal year 2008 versus net income wasof approximately $33.9 million for fiscal year 2007 versus approximately $11.4 million for fiscal year 2006.2007.
In addition to the information discussed above, the following sections discuss the results of operations for each of our business segments and corporate and other.
Retail
The net sales and revenue are discussed underNet Sales and Revenue—Comparison of Fiscal Years Ended January 31, 2008 and 2007.
Segment profit increased $4.7 million (82.5%) to $10.4 million in fiscal year 2007 from $5.7 million in fiscal year 2006. The increase in segment profit was primarily related to lower selling, general and administrative expenses of $3.9 million. Payroll expenditures declined $3.0 million from fiscal year 2006 as we utilized a sales commission program during fiscal year 2007 that emphasized cost control. Furthermore, we utilized a higher incentive program for our sales force during fiscal year 2006 designed to reduce selected inventory items. Gross profit increased $1.5 million in fiscal year 2007, primarily the result of extended service contracts as higher amounts of revenue were recognized primarily related to extended service contracts sold in prior years.
Alternative Energy
The alternative energy segment includes the consolidated financial statements of Levelland Hockley and One Earth, our other investments in ethanol facilities, the income related to those investments and certain administrative expenses. No sales or revenueFiscal year 2008 is attributable tothe first year that this segment has sales as Levelland Hockley andcommenced production operations during the second quarter of fiscal year 2008. One Earth wereis a development stage enterprises through fiscal year 2007company and income related to equity method investments is not reported as sales or revenue.
Segment profitThe following table summarizes sales from Levelland Hockley by product group (amounts in thousands):
|
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|
|
| Year Ended January 31, |
| |
|
| 2009 |
| |
|
|
| ||
| ||||
Ethanol |
| $ | 55,989 |
|
Dried distiller grains |
|
| 6,478 |
|
Wet distiller grains |
|
| 5,449 |
|
Other |
|
| 307 |
|
|
|
| ||
Total |
| $ | 68,223 |
|
|
|
|
The following table summarizes selected operating data from Levelland Hockley:
|
|
|
|
|
|
| Year Ended January 31, |
| |
|
| 2009 |
| |
|
|
| ||
| ||||
Average selling price per gallon of ethanol |
| $ | 2.14 |
|
Average selling price per ton of dried distiller grains |
| $ | 180.42 |
|
Average selling price per ton of wet distiller grains |
| $ | 51.74 |
|
Average cost per bushel of grain |
| $ | 4.82 |
|
Average cost of natural gas (per mmbtu) |
| $ | 9.01 |
|
Net sales and revenue for the current year increased $22.2to $68.2 million as Levelland Hockley commenced production operations during fiscal year 2008. Sales were based on approximately 31.9 million gallons during fiscal year 2008. We expect sales (from Levelland Hockley) in future years to be based on approximately 30 million to $22.440 million gallons should the plant at Levelland Hockley run at or near nameplate capacity during future years, which we believe is a reasonable assumption given the current operating environment at the plant and assuming that the crush spread remains at levels that support operations at or near nameplate capacity. We expect sales (from One Earth) in future years to be based on approximately 100 million gallons should the plant at One Earth run at or near nameplate capacity during future years, which we believe is a reasonable assumption dependent upon adequate crush spreads.
Gross profit from these sales was approximately $0.8 million (1.2% of net sales and revenue) during fiscal year 2008. Gross profit was lower than we expected, generally as a result of a decline in the spread between ethanol and grain prices and start up costs. In general, corn and grain prices increased more than ethanol prices during fiscal year 2008. Given the inherent volatility in ethanol and grain prices, we cannot predict the likelihood that the spread between ethanol and grain prices in future periods will remain favorable compared to historical periods.
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.
Selling, general and administrative expenses were approximately $4.3 million in fiscal year 20072008, a $1.6 million increase from $0.2$2.7 million in fiscal year 2006. 2007. We incurred a non cash impairment charge of $1.3 million in fiscal year 2008 related to the write off of goodwill associated with the Levelland Hockley. We also incurred expenses of $2.0 million from Levelland Hockley in fiscal year 2008 compared to $0.4 million in fiscal year 2007. This increase results from Levelland Hockley commencing production operations in the second quarter of fiscal year 2008. Levelland Hockley was a development stage company during fiscal year 2007. Executive compensation declined by $1.5 million in fiscal year 2008, a result of the decline in segment profit. We expect selling, general and administrative expenses to increase in future periods once One Earth becomes fully operational, which we expect to occur in fiscal year 2009.
Interest income decreased to $0.3 million in fiscal year 2008 from $2.1 million in fiscal year 2007. Interest income from our debt investment in Millennium, which was sold during fiscal year 2007, accounted for a majority of the decrease in interest income.
Interest expense increased to $2.8 million in fiscal year 2008 as interest incurred by Levelland Hockley was not capitalized subsequent to the start of production operations. All interest incurred by Levelland Hockley in fiscal year 2007 was capitalized. We expect interest expense to increase in future years once One Earth becomes operational and ceases to capitalize interest on its debt.
Income from equity method investments in Big River and Patriot decreased from $1.6 million in the prior year to $0.8 million in the current year. We recognized $2.4 million of income from our investment in Big River in fiscal years 2008 and 2007. We recognized a loss of $1.5 million and $0.8 million during fiscal years 2008 and 2007, respectively from our investment in Patriot. The fluctuation related to income from Patriot is primarily a result of the start up of production in fiscal year 2008. Patriot was in production for approximately four months during fiscal year 2008.
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. However, we do expect Patriot to operate at or near nameplate capacity in future years, given the current operating environment at Patriot, which we believe is a reasonable assumption dependent upon adequate crush spreads.
Realized investment gains increased towere $24.0 million in fiscal year 2007, as a result of the acquisition of our interest in Millennium by US BioEnergy Corporation, while equity in unconsolidated affiliates increased $1.1 million to $1.6 millionCorporation. There was no such income in fiscal year 2007. Income from Big River was $2.42008.
Losses on derivative financial instruments held by One Earth and Levelland were $3.8 million in fiscalthe current year 2007 whilecompared to $2.6 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 recordedcannot 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 loss/profit decreased to a loss of $0.8$9.0 million in the current year from Patriotprofit of $22.4 million in the prior year.
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 January 31, 2009, we had lease or sub-lease agreements, as landlord, for all or parts of 41 owned properties, including 37 stores leased to subsidiaries of Appliance Direct, Inc. (“Appliance Direct”), a third party appliance chain. We did not operate a retail store at seven of these locations. We operated a retail store at the remaining 34 locations, which we anticipated closing throughout the first half of fiscal year 2007. The loss from Patriot includes2009. We also own two distribution facilities, comprising approximately 650,000 square feet that we are marketing to sell or lease.
Net sales and revenue for the current year of $0.4 million is consistent with the prior year. We expected net sales and revenue to increase in future years as a charge of $0.8 million representing our share of unrealized losses on derivative financial instruments. In fiscal year 2006, we recognized income of $0.5 million from our equity investment in Big River. Interest income increased to $2.1 million in fiscal year 2007 from $0.9 million in fiscal year 2006. Interest income from our debt investment in Millennium accounted for a majorityresult of the properties leased to Appliance Direct and our marketing efforts related to other vacant properties.
Gross profit from these sales was approximately $0.4 million during fiscal years 2008 and 2007. We expected gross profit to increase in interest income. future years as a result of the properties leased to Appliance Direct and our marketing efforts related to other vacant properties.
Selling, general and administrative expenses were $2.7 millionapproximately $289,000 in fiscal year 2007, an increase of $1.6 million from2008, consistent with the $210,000 in fiscal year 2006. Allocated compensation expense accounted for $1.3 million2007. We expected selling, general and administrative expenses in future periods to remain consistent with comparable historical periods.
As a result of this increase, primarily reflecting higher executive incentive compensation relatedthe factors discussed above, segment profit decreased to alternative energy.
We recognized an unrealized loss of $2.6 million related to forward interest rate swaps that Levelland Hockley and One Earth entered into during$116,000 in fiscal year 2007 due to interest rate changes. Levelland Hockley’s unrealized loss was $0.9 million and One Earth’s unrealized loss was $1.7 million.2008 from $177,000 in fiscal year 2007.
Corporate and Other
Corporate and other includes certain administrative expenses of the corporate headquarters, interest expense and interest income not directly allocated to the retail or alternative energy segments and income from synthetic fuel investments.
Income from synthetic fuel investments declined to $0.7 million in fiscal year 2008 from $6.9 million in fiscal year 2007 from $10.8 million2007. The income recognized in fiscal year 20062008 represents the estimated final settlements related to Colona and Somerset as the impact of the phase out of Section 29/45K credits was estimated to be 70% in calendar year 2007 compared to an estimate of 40% in calendar year 2006 andall synthetic fuel production at the Colona facility was halted inceased during fiscal year 2007. During the third quarter of fiscal year 2006, we modified our agreement with the owners and operators of the Gillette synthetic fuel facility. Based on the terms of the modified agreement, we currently are not able to determinepredict the likelihood and timing of collecting payments related to production occurring after September 30, 2006. Thus, we cannot currently determine the timing of income recognition, if any, related to production occurring subsequent to September 30, 2006.
Selling, general and administrative expenses were $2.1$2.0 million in fiscal year 2007,2008, consistent with fiscal year 2006.2007. Unallocated interest income was $1.8 million in fiscal year 2008, compared to $3.6 million in fiscal year 2007, compared to $1.5 million2007. The decrease resulted from lower yields earned during fiscal year 2008 on our excess cash as interest rates were generally lower in fiscal year 2006. The increase resulted from having more excess cash available for investment in2008 compared to fiscal year 2007.
Liquidity and Capital Resources
Our primary sources of financing have been income from operations, sales of real estate and debt financing. In fiscal year 2007, we also generated cash from our sale of Millennium and the subsequent sale of US BioEnergy common stock. In addition, we monetized a significant portion of our real estate portfolio in fiscal year 2007, generating approximately $71 million in net cash receipts. Our primary uses of cash have been debtequity and equitydebt investments in ethanol entities, construction of ethanol plants, long term debt repayments and stock repurchases.
Outlook – As we wind down our retail business, we expect to liquidate our retail inventory of $22.3 million at January 31, 2009. Our cash balance of $92.0$100.4 million includes $2.0$17.9 million held by Levelland Hockley whichand One Earth. Pursuant to the respective debt agreements, each plant is limited with respect to paying dividends. Thus, we expect tothat Levelland Hockley and One Earth will use the $17.9 million for working capital needs at Levelland Hockley. In addition, One Earth intendsthese plants. All of our ethanol investments have significant amounts of long term debt and we expect these organizations to borrow up to $54 million overlimit the next year to fund construction costs and providepayment of dividends based upon working capital as it anticipates opening its ethanol plant in May of 2009. Currently, we do not have definitive plans to makeneeds and debt service requirements.
We are considering making additional investments in the alternative energy segment during fiscal year 2009 and have not identified specific2010. Other possible uses of our excess cash. Possible uses of the cash are to pay down long term mortgage debt and repurchase our common stock. In general, we will pay down long term debt when the interest rate environment is unfavorable as it relates to the type of debt (fixed rate versus variable rate) and if the specific debt does not contain significant prepayment penalties. Such pay downs are carried out at levels that do not impede on other cash requirements we may have, such as investments in prospective entities we are investigating. We typically repurchase our common stock when our stock price is trading at prices we deem to be a discount to the underlying value of our net assets. Such purchases are carried out at levels that do not impede on other cash requirements we may have, such as prospective investments in entities we are investigating. Historically, we have not incurred additional borrowings under our debt agreements to fund repurchases of our common stock. We also plan to seek and evaluate other various investment opportunities including energy related, agricultural and real estate.or other ventures we believe fit our investment criteria. We can make no assurances that we will be successful in our efforts to find such opportunities.
During the first quarter of fiscal year 2010, we are expecting our financial performance from our ethanol plants to decline compared to the fourth quarter of fiscal year 2009 as the crush spread is decreasing from end of year 2009 levels. The near month crush spread (determined by information on CBOT) averaged approximately $0.39 per gallon of ethanol during the first quarter of fiscal year 2010 compared to approximately $0.56 per gallon of ethanol during the fourth quarter of fiscal year 2009.
Operating Activities – Net cash provided by operating activities was $11.0 million for fiscal year 2009 compared to $2.9 million in fiscal year 2008. For fiscal year 2009, operating cash flow was provided by net income of $12.6 million adjusted for the impact of impairment charges of $1.5 million and non-cash items of $(1.0) million, which consist of deferred income, the deferred income tax provision, gain on disposal of real estate and property and equipment, income from ethanol investments, and depreciation and amortization. Cash was provided by a decrease in inventory of $15.7 million, primarily due to our exit of the retail business. Additionally, cash was provided by a decrease in other assets of $1.9 million, primarily a result of prepaid commissions related to extended service contracts decreasing, reflecting our lower sales of this service. Accounts payable decreased $8.5 million, primarily a result of our exit of the retail business. Income taxes refundable increased $4.9 million as a result of an income tax loss carryback created during fiscal year 2009. Other liabilities decreased $2.1 million, as accruals for costs associated with our exit of the retail business were paid in fiscal year 2009. Accounts receivable increased $4.9 million; this was primarily a result of One Earth commencing production operations in fiscal year 2008.
Operating Activities – Net cash provided by operating activities was $2.9 million for fiscal year 2008 compared to $14.8 million in fiscal year 2007. For fiscal year 2008, operating cash flow was providedused by a net loss of $3.3$6.5 million adjusted for the impact of impairment charges of $2.0 million, and a $3.4 million unrealized loss on
derivative financial instruments, $1.1 million of stock based compensation expense and non-cash items of $8.5$5.4 million, which consist of deferred income, the deferred income tax provision, minority interest, gain on disposal of real estate and property and equipment, income from ethanol investments, and depreciation and amortization. Cash was provided by a decrease in inventory of $25.6 million, primarily due to store closings during fiscal year 2008 and our planned exit of the retail business. Additionally, cash was provided by a decrease in other assets of $2.5 million, primarily a result of prepaid commissions related to extended service contracts decreasing, reflecting our lower sales of this service. Accounts payable decreased $8.6 million, primarily a result of lower levels of inventory and our planned exit of the retail business. Other
liabilities decreased $3.7 million, as accruals for variable incentive compensation decreased $2.2 million, a result of the decline in profitability. Income taxes refundable increased $5.4 million as a result of a loss carryback created during fiscal year 2008. Accounts receivable increased $2.3 million; this was primarily a result of Levelland Hockley commencing production operations in fiscal year 2008.
Investing Activities – Net cash provided by operatingused in investing activities was $14.8$30.7 million for fiscal year 2007 compared to $31.8 million2009. Capital expenditures in fiscal year 2006. For fiscal year 2007, operating cash flow2009 totaled $35.7 million, the majority of which was for the construction of One Earth’s ethanol plant. Cash of $4.8 million was provided by net income of $33.9 million adjusted forproceeds from the impact of a $24.0 million gain on sale of investments, a $6.9 million gain on sales of partnership interest, $1.4 million of stock based compensation expense and non-cash items of $15.7 million, which consist of deferred income, the deferred income tax provision, minority interest, impairment charges, gain on disposal of real estate and property and equipment, income from ethanol investments, unrealized loss on derivatives and depreciation and amortization. Cash was provided by a decrease in inventory of $20.1 million, primarily due to store closings during fiscal year 2007. Additionally, cash was provided by a decrease in other assets of $5.2 million, primarily a result of a $5.0 million advance equity deposit being used for an equity investment at January 31, 2007. Other liabilities increased $4.2 million, primarily a result of an accrual for amounts owed related to synthetic fuel production as payments received from our synthetic fuel partnership sales exceeded our estimated amounts due us. Accounts payable, excluding accrued capital expenditures for ethanol related construction in process, decreased $3.0 million, primarily the result of the timing of inventory purchases and payments.equipment.
Investing Activities – Net cash used in investing activities was $91.6 million for fiscal year 2008. Capital expenditures in fiscal year 2008 totaled $101.3 million, all of which was for the construction of ethanol plants.
Cash of $1.3 million was provided by proceeds from the sale of our partnership interests in synthetic fuel and $9.2 million was provided by proceeds from the sale of real estate and property and equipment. We purchased a promissory note from Patriot for $0.9 million.
Net cashFinancing Activities – Cash provided by investingfinancing activities was $79.4$28.2 million for fiscal year 2007. We paid $10.02009. During fiscal year 2009, we borrowed $49.0 million for an equity investment in Big River. The acquisition and resulting consolidation oflong term debt. One Earth provided cashaccounted for all of $8.7 millionthe borrowing as One Earth’s cash balance exceeded the purchase priceEarth used loan proceeds to complete construction of $50.8its ethanol plant. Repayments of debt totaled $20.4 million which resulted in us acquiring a 74% ownership interest in One Earth. Cash of $15.2 million was provided by proceeds from the sale of our partnership interests in synthetic fuel and $94.8 million was provided by proceeds from the sale of real estate and property and equipment. The acquisition of our interest in Millennium by US BioEnergy Corporation and the subsequent sale of their stock provided proceeds of $39.5 million. Capital expendituresduring fiscal year 2009. Stock option exercises in fiscal year 2007 totaled $68.82009 generated cash of $6.0 million. Expenditures includedDuring fiscal year 2009, we purchased approximately $68.60.6 million shares of our common stock for the construction of ethanol plants and $0.2$6.5 million of improvements to existing stores.in open market transactions.
Financing Activities – Cash provided by financing activities was $52.9 million for fiscal year 2008. During fiscal year 2008, we borrowed $75.9 million in long term debt. Levelland Hockley and One Earth accounted for $19.9 million and $56.0 million, respectively, of the borrowing as they used loan proceeds to construct their ethanol plants. Repayments of debt totaled $6.7 million during fiscal year 2008. Stock option exercises in fiscal year 2008 generated cash of $1.5 million. During fiscal year 2008, we purchased approximately 1.6 million shares of our common stock for $17.7 million in open market transactions.
Cash used in financing activities was $9.5 million for fiscal year 2007. During fiscal year 2007, we borrowed $25.4 million in long term debt. Levelland Hockley accounted for $23.9 million of the borrowing as they used loan proceeds to construct their ethanol plant. Repayments of debt totaled $26.0 million during fiscal year 2007. Stock option exercises in fiscal year 2007 generated cash of $5.6 million. During fiscal year 2007, we purchased approximately 0.8 million shares of our common stock for $14.6 million in open market transactions.
At January 31, 2009,2010, we had a remaining authorization from our Board of Directors to purchase 79,348482,701 shares of our common stock. All acquired shares will be held in treasury for possible future use. On February 20,
2009, our Board of Directors increased our share repurchase authorization by 500,000 shares. Subsequent to January 31, 2009, we have purchased approximately 127,000 shares. We presently have approximately 452,000 authorized shares remaining available to purchase under this authorization.
At January 31, 2009,2010, we had approximately $109.1$138.1 million of debt outstanding at a weighted average interest rate of 5.51%3.70%, with maturities from January 25,August 2011 to November 20, 2016.2015. During fiscal year 2009, we paid off $20.4 million of long-term mortgage debt from scheduled repayments and early payoffs. During fiscal year 2008, we paid off $6.7 million of long-term mortgage debt from scheduled repayments and early payoffs. During fiscal year 2007, we paid off $26.0 million of long-term mortgage debt from scheduled repayments and early payoffs.
Effective July 17, 2007, we exercised our right to reduce the revolving credit commitment to $75 million from $115 million. The revolving credit agreement was to expire on September 14, 2009. On February 13, 2009, we terminated the loan agreement.
Levelland Hockley Subsidiary Level Debt
On September 27, 2006, Levelland Hockley entered into a construction and term loan agreement with Merrill Lynch Capital, now GE Business Financial Services, Inc. (“GE”), for a principal sum of up to $43.7
$43.7 million (including accrued interest). During the second quarter of fiscal year 2008, pursuant to the terms of the construction loan agreement, Levelland Hockley converted the construction loan into a permanent term loan. Beginning with the first monthly payment date on June 30, 2008, payments are due in 59 equal monthly payments of principal and accrued interest with the principal portion calculated based on a 120 month amortization schedule. One final installment is required on the maturity date (June 30, 2013) for the remaining unpaid principal balance with accrued interest. The term loan bears interest at a floating rate of 400 basis points above LIBOR (4.5%(4.25%) at January 31, 2009.2010. Borrowings are secured by all assets of Levelland Hockley. This debt is recourse only to Levelland Hockley and not to REX Stores Corporation or any of its other subsidiaries.
As of January 31, 2009,2010, approximately $41.5$37.2 million was outstanding on the term loan. Levelland Hockley is also subject to certain financial covenants under the loan agreement, including required levels of EBITDAR, debt service coverage ratio requirements, net worth requirements and other common covenants. Levelland Hockley was in compliance with all covenants at January 31, 2009.
On April 13, 2009, Levelland Hockley entered into a forbearance agreement with GE. This agreement includes:
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Management believes the EBITDAR Coverage Ratio covenant violation will be cured on or before the end of the forbearance period. Also, based on our forecasts which are primarily based on estimates of plant production, prices of ethanol, sorghum, distillers grains and natural gas as well as other assumptions management believes to be reasonable, we believe that Levelland Hockley will be able to maintain compliance with the covenants subsequent to the Forbearance Period as noted above for the next 12 months. Management believes that cash flow from operating activities together with working capital will be sufficient to meet Levelland Hockley’s liquidity needs. However, if a material adverse change in the financial position
of Levelland Hockley should occur, or if actual sales or expenses are substantially different than what has been forecasted, Levelland Hockley’s liquidity and ability to fund future operating and capital requirements and compliance with debt covenants could be negatively impacted.2010.
Levelland Hockley paid approximately $3.5 million for various fees associated with the construction and term loan agreement. These fees are recorded as prepaid loan fees and will be amortized ratably over the loan term. At January 31, 2009,2010, the Company’s proportionate share of restricted assets related to Levelland Hockley was approximately $11.5$13.2 million; Levelland Hockley’s restricted assets total approximately $20.6$23.6 million. Such assets may not be paid in the form of dividends or advances to the parent company or other members of Levelland Hockley per the terms of the loan agreement with GE.
One Earth 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. During the construction period, One Earth will be required to make interest payments quarterly on the outstanding principal amount at a variable interest rate equal to LIBOR plus 310 basis points. The construction loan will bewas converted into a term loan upon completionon July 31, 2009 as all of plant construction.the requirements, for such conversion, of the construction and term loan agreement were fulfilled. The term loan will bearbears interest at variable interest rates ranging from LIBOR plus 300 basis points to LIBOR plus 310 basis points (3.3% to 3.4% at January 31, 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. This debt is recourse only to One Earth and is payable over five years.not to REX Stores Corporation or any of its other subsidiaries.
Borrowings are secured by all property of One Earth. As of January 31, 2009,2010, approximately $56.0$98.0 million had been drawnwas outstanding on the constructionterm 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 January 31, 2009.2010. One Earth has paid approximately $1,364,000 in financing costs. These costs are recorded as prepaid loan fees and will be amortized ratably over the loan term. At January 31, 2009,2010, our proportionate share of restricted assets related to One Earth was approximately $41.3$47.9 million. One Earth’s restricted assets total approximately $56.0$65.0 million. 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 First National Bank of Omaha.
One Earth has no outstanding borrowings on the $10,000,000 revolving loan as of January 31, 2010.
On a consolidated basis, approximately 24.8% of our net assets are restricted as of January 31, 2010.
Tabular Disclosure of Contractual Obligations
In the ordinary course of business, we enter into agreements under which we are obligated to make legally enforceable future cash payments. These agreements include obligations related to purchasing inventory, mortgaging and interest rate management, and leasing retail space.management.
The following table summarizes by category expected future cash outflows associated with contractual obligations in effect as of January 31, 20092010 (amounts in thousands):
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| Payment due by period |
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Contractual Obligations |
| Total |
| Less |
| 1-3 |
| 3-5 |
| More than |
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| Total |
| Less |
| 1-3 |
| 3-5 |
| More than |
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Lease obligations (a) |
| $ | 7,557 |
| $ | 4,113 |
| $ | 2,342 |
| $ | 1,037 |
| $ | 65 |
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| $ | 2,579 |
| $ | 924 |
| $ | 1,262 |
| $ | 393 |
| $ | — |
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Long-term debt obligations |
| 109,091 |
| 7,017 |
| 21,799 |
| 41,770 |
| 38,505 |
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| 138,120 |
| 12,831 |
| 29,881 |
| 95,033 |
| 375 |
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Inventory purchase orders |
| 3,517 |
| 3,517 |
| — |
| — |
| — |
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Interest on variable rate debt (b) |
| 25,002 |
| 3,374 |
| 11,316 |
| 8,158 |
| 2,154 |
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| 18,050 |
| 5,214 |
| 8,770 |
| 4,066 |
| — |
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Interest on fixed rate debt |
| 3,269 |
| 699 |
| 1,079 |
| 780 |
| 711 |
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| 621 |
| 183 |
| 279 |
| 144 |
| 15 |
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Other (c) |
| 17,514 |
| 17,514 |
| — |
| — |
| — |
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| 255 |
| 255 |
| — |
| — |
| — |
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Total (d) |
| $ | 165,950 |
| $ | 36,234 |
| $ | 36,536 |
| $ | 51,745 |
| $ | 41,435 |
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| $ | 159,625 |
| $ | 19,407 |
| $ | 40,192 |
| $ | 99,636 |
| $ | 390 |
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| (a) | Amounts include minimum rentals of $0.5 million related to |
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| (b) | The interest rates effective as of January 31, |
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| (c) | Amounts represent construction and related commitments of One Earth for construction of its ethanol producing plant. |
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| (d) | We are not able to determine the likely settlement period for uncertain tax positions, accordingly |
Seasonality and Quarterly Fluctuations
Our retail business is seasonal. As is the case with many other retailers,The impact of seasonal and quarterly fluctuations has not been material to our net sales and revenue and net income are generally greatest in our fourth fiscal quarter, which includes the Christmas selling season. The fourth fiscal quarter accounted for 29% and 32% of net sales and revenue for fiscal years 2008 and 2007, respectively. The fourth fiscal quarter accounted for 31% and 29% of gross profit in fiscal years 2007 and 2006, respectively. Year to year comparisons of quarterly results of operations and comparable store sales can be affected by a variety of factors, includingfor the duration of the holiday selling season, weather conditions, the opening of ethanol plants and fluctuations in synthetic fuel production.past three fiscal years.
Impact of Inflation
The impact of inflation has not been material to our results of operations for the past three fiscal years.
Critical Accounting Policies
We believe the application of the following accounting policies, which are important to our financial position and results of operations, require significant assumptions, judgments and estimates on the part of
management. We base our assumptions, judgments, and estimates on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented in accordance with generally accepted accounting principles (GAAP). However, because future events and their effects cannot be determined with
certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Further, if different assumptions, judgments and estimates had been used, the results could have been different and such differences could be material. For a summary of all of our accounting policies, including the accounting policies discussed below, see Note 1 of the Notes to the Consolidated Financial Statements. Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.
Revenue Recognition – We recognize sales of retail products upon receipt by the customer. We will honor returns from retail customers within seven days from the dateproduction of sale. We establish liabilities for estimated returns at the point of sale. Such liabilitiesethanol and distillers grains when title transfers to customers, generally upon shipment from our plant. Shipping and handling charges to ethanol customers are immaterialincluded in all years presented.net sales and revenue.
We also sellinclude income from our real estate leasing activities in net sales and revenue. We account for these leases as operating leases. Accordingly, minimum rental revenue is recognized on a straight-line basis over the term of the lease.
We sold retail product service contracts covering periods beyond the normal manufacturers’ warranty periods, usually with terms of coverage (including manufacturers’ warranty periods) of between 12 to 60 months. Contract revenues and sales commissions are deferred and amortized on a straight-line basis over the life of the contracts after the expiration of applicable manufacturers’ warranty periods. Amortization of deferred contract revenues is included in net sales and revenue while amortization of deferred sales commissions is included in selling, general and administrative expenses. We retain the obligation to perform warranty service and such costs are charged to operations as incurred.
We recognize sales from the production of ethanol All related revenue and distillers grains when title transfers to customers, generally upon shipment from our plant. Shipping and handling charges to ethanol customers are includedexpense is classified in net sales and revenue.discontinued operations.
We recognized income from synthetic fuel partnership sales as the synthetic fuel was produced and sold except for operations at the Gillette facility as we do not believe that collection of our proceeds for production occurring subsequent to September 30, 2006 is reasonably assured from that plant. We estimated the impact of oil prices and the likelihood of any phase out of Section 29/45K credits and the resulting reduction of synthetic fuel income quarterly. See Note 45 of the Notes to the Consolidated Financial Statements for a further discussion of synthetic fuel partnership sales.
We include income from our real estate leasing activities in net sales and revenue. We account for these leases as operating leases. Accordingly, minimum rental revenue is recognized on a straight-line basis over the term of the lease.
Investments – The method of accounting applied to long-term investments, whether consolidated, equity or cost, involves an evaluation of the significant terms of each investment that explicitly grant or suggest evidence of control or influence over the operations of the investee and also includes the identification of any variable interests in which we are the primary beneficiary. The evaluation of consolidation under FIN 46RASC 810 “Consolidation” is complex and requires judgments to be made. We consolidate the results of two majority owned subsidiaries, Levelland Hockley and One Earth, on a one month lag. See Note 56 of the Notes to the Consolidated Financial Statements for a further discussion of the acquisitions of Levelland Hockley and One Earth. Investments in businesses that we do not control, or maintain a majority voting interest or maintain a primary beneficial interest, but for which we have the ability to exercise significant influence over operating and financial matters, are accounted for using the equity method. Investments in which we do not have the ability to exercise significant influence over operating and financial matters are accounted for using the cost method.
Investments in debt securities are considered “held to maturity”, “available for sale”, or “trading securities” under Statement of Financial Accounting Standards (SFAS) No. 115,ASC 320, “Accounting for Certain Investments in DebtInvestments-Debt and Equity Securities” (“SFAS 115”). Under SFAS 115,ASC 320, held to maturity securities are required to be carried at their cost; while available-for-sale securities are required to be carried at their fair value, with unrealized gains and losses, net of income taxes, that are considered
temporary in nature recorded in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets. The fair
values of our investments in debt securities are determined based upon market quotations and various valuation techniques, including discounted cash flow analysis.
We periodically evaluate our investments for impairment due to declines in market value considered to be other than temporary. Such impairment evaluations include, in addition to persistent, declining market prices, general economic and company-specific evaluations. If we determine that a decline in market value is other than temporary, then a charge to earnings is recorded in investment and other income (expense), net in the accompanying consolidated statementsConsolidated Statements of operationsOperations for all or a portion of the unrealized loss, and a new cost basis in the investment is established.
Vendor allowancesAllowances– Vendors often fund,funded, up front, certain advertising costs and exposure to general changes in pricing to customers due to technological change. Allowances arewere deferred as received from vendors and recognized into income as an offset to the cost of merchandise sold when the related product iswas sold. All such allowances were used in the wind down of the Company’s retail business during fiscal year 2009. Advertising costs were expensed as incurred.
Inventory Reserves – Inventory is recorded at the lower of cost or market, net of reserves established for estimated technological obsolescence.net realizable value. The market value of inventory is often dependent upon changes in technology resulting in significant changes in customer demand and on fluctuating commodity prices. If these estimates are inaccurate, we may be exposed to market conditions that require an additional reduction in the value of certain inventories affected. We provide an inventory reserve, which is treated as a permanent write down of inventory, for specifically identified inventory items that have a cost greater than net realizable value, aged and slow moving inventory and non-saleable or defective inventory items.value. The inventory reserve was approximately $3.3$0.6 million and $4.1$3.3 million at January 31, 20092010 and January 31, 2008,2009, respectively. Fluctuations in the inventory reserve generally relate to the levels and composition of such inventory at a given point in time. Assumptions we use to estimate the necessary reserve have not significantly changed over the last three fiscal years. Suchyears other than we no longer provide a reserve for obsolete retail inventory as this inventory was liquidated during fiscal year 2009. The assumptions we currently use include our ability to return defective products to vendors for credit,estimates of the estimated salvage value of defective inventory items if we are unable to return such items to the vendor for credit and the net realizable valueselling prices of ethanol inventories at a point in time.and distillers grains.
Financial Instruments – – Forward grain purchase and ethanol sale contracts are accounted for under the “normal purchases and normal sales” scope exemption of Statement of Financial Accounting Standards No. 133,ASC 815, “Accounting for Derivative InstrumentsDerivatives and Hedging Activities” (“SFAS 133”) because these arrangements are for purchases of grain and sales of ethanol that will be delivered in quantities expected to be used by us over a reasonable period of time in the normal course of business. We use derivative financial instruments to manage our balance of fixed and variable rate debt. We do not hold or issue derivative financial instruments for trading or speculative purposes. Interest rate swap agreements involve the exchange of fixed and variable rate interest payments and do not represent an actual exchange of the notional amounts between the parties. Our swap agreements were not designated for hedge accounting pursuant to SFAS 133.ASC 815. The interest rate swaps are recorded at their fair values and the changes in fair values are recorded as gain or loss on derivative financial instruments in the accompanying statementsConsolidated Statements of consolidated income.Operations.
Income Taxes – – Income taxes are recorded based on the current year amounts payable or refundable, as well as the consequences of events that give rise to deferred tax assets and liabilities based on differences in how those events are treated for tax purposes, net of valuation allowances. We base our estimate of deferred tax assets and liabilities on current tax laws and rates and other expectations about future outcomes. Changes in existing regulatory tax laws and rates and future business results may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. We have established valuation allowances for certain state net operating loss carryforwards and other deferred tax assets. We determined that it is more likely than not that we will be able to generate sufficient taxable income in future years to allow for the full utilization of the AMT credit carryforward and other deferred tax assets
other than those reserved. In determining the need for a valuation allowance, we have assumed that our ethanol plants and real estate assets will begin generating taxable income by fiscal year 2011. We are projecting that the operations of One Earth that began in fiscal year 2009 will also be profitable and that in future years, Levelland Hockley will show improved financial results over the current year. We are assuming that we will be relatively successful in our real estate marketing efforts. In addition, we have considered the fact that our AMT credit carryforward has an indefinite life. In general, we have used approximately $16.0 million as the assumed average of future years’ pre-tax income. We believe our assumed target level of earnings is reasonable based upon expectations of real estate rental income and ethanol plant operating income. In addition, we considered other positive factors in our assessment. Although during fiscal years 2008 and 2009 we realized a taxable loss, historically, we have generated cumulative profitability over the past several years and expect to begin producing taxable income by fiscal year 2011 through our ethanol and real estate operations. In addition, we have significant financial resources to deploy in future income producing activities.
The valuation allowance was approximately $0.6 million and $0.8 million at both January 31, 20092010 and January 31, 2008, respectively.2009. Should estimates of future income differ significantly from our prior estimates, we could be required to make a material change to our deferred tax valuation allowance. The primary assumption used to estimate the valuation allowance has been estimates of future state taxable income. Such estimates can have material variations from year to year based upon expected levels of retail income from our ethanol plants, leasing income and gains on real estate sales. Factors that could negatively affect future taxable income from our
include adverse changes in the commercial real estate market and the ethanol plants.crush spread. Our accounting for deferred tax consequences represents management’s best estimate of future events that can be appropriately reflected in the accounting estimates.
We adopted the provisions of FIN 48ASC 740-10-25-5 on February 1, 2007. As a result of the adoption of FIN 48,this accounting standard, we recorded a $0.3 million decrease to retained earnings. As of January 31, 2009,2010, total unrecognized tax benefits were $4.0$2.2 million, and accrued penalties and interest were $0.1 million. If we were to prevail on all unrecognized tax benefits recorded, approximately $0.2$0.1 million of the reserve would benefit the effective tax rate. In addition, the impact of penalties and interest would also benefit the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense.
It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will increase or decrease during the next 12 months; however, we do not expect the change to have a material effect on results of operations or financial position.
On a quarterly and annual basis, we accrue for the effects of open uncertain tax positions and the related potential penalties and interest. Should future estimates of open uncertain tax positions differ from our current estimates, we could be required to make a material change to our accrual for uncertain tax positions. In addition, new income tax audit findings could also require us to make a material change to our accrual for uncertain tax positions.
Recoverability of Long-Lived Assets – – Given the nature of our business, each income producing property must be evaluated separately when events and circumstances indicate that the value of that asset may not be recoverable. We recognize an impairment loss when the estimated future undiscounted cash flows expected to result from the usefair value of the asset and its value upon disposal areis less than its carrying amount. Changes in the real estate market for particular locations could result in changes to our estimates of the property’s value upon disposal. In addition, changes in expected future cash flows from our ethanol plants could result in additional impairment charges. Any adverse change in the spread between ethanol and grain prices could result in additional impairment charges.
Costs Associated with Exit Activities– In connection with our planned exit of the retail business, we expect to vacate stores prior to the expiration of the related lease. For vacated locations that are under long-term leases, we record an expense for the difference between our future lease payments and related costs (real estate taxes, maintenance, etc.) from the date of closure through the end of the remaining lease term, net of expected future sublease rental income. If actual results related to sublease income, vacancy periods and the payment of settlements and repairs differ from our estimates, we may be exposed to gains and or losses that could be material. Charges for lease termination costs are immaterial for all periods presented.
Restructuring Costs– Restructuring charges include severance and associated employee termination costs, lease termination fees and other costs associated with the Appliance Direct transaction and the planned exit of our retail business. We record severance and associated employee termination costs pursuant to Statement of Financial Accounting Stand (“SFAS) No. 112, “Employer’s Accounting for Postemployment Benefits-an Amendment of FASB Statements No. 5ASC 712, ASC 715 and 43” and lease termination fees are recorded pursuant to SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146ASC 420. ASC 420 requires that lease termination fees, net of expected sublease rental income, be recorded once the leased facility is no longer actively used in a revenue producing manner. Future changes to our estimates of employee layoffs or leased stores abandoned couldare unlikely to have a material impact on our restructuring accrual.
At January 31, 2009,2010, we have an accrual of approximately $4.2$0.7 million for severance and other costs related to restructuring.
New Accounting Pronouncements
On September 15, 2009, the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification”) became the single source of authoritative generally accepted accounting principles in the United States of America. The Codification changed the referencing of financial standards but did not change or alter existing U.S. GAAP. The Codification became effective for us in the third quarter of fiscal year 2009.
During December 2007, the FASB issued new accounting and disclosure guidance related to noncontrolling interests in subsidiaries. This guidance establishes accounting and reporting standards for the noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. We adopted the provisions of this guidance as of the beginning of its 2009 fiscal year. This guidance is to be applied prospectively as of the beginning of 2009 except for the presentation and disclosure requirements which are to be applied retrospectively. The consolidated financial statements conform to the presentation required under this guidance. Other than the change in presentation of noncontrolling interests, the adoption had no impact on our results of operations or financial position.
In JanuaryApril 2009, the FASB issued FASB Staff Position (“FSP”) EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20.” This standard prescribesnew accounting standards that ifrequire disclosures about the fair value of an available-
for-sale or held-to-maturity debt security is less than its cost basis at the measurement date, GAAP requires that thefinancial instruments in financial statements for interim and annual reporting entity assess the impaired security to determine whether the impairment is other than temporary.periods of publicly traded companies. These accounting standards are effective for interim and annual reporting periods ending after June 15, 2009. The adoption of this statement in the fourth quarter of 2008 had nothese accounting standards did not have a material impact on our consolidated financial statements.
In December 2007,May 2009, the FASB issued SFAS No. 141 (Revised), “Business Combinations” (“SFAS 141 (R)”), replacing SFAS No. 141, “Business Combinations” (“SFAS 141”), and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51” (“SFAS 160”). SFAS 141(R) retains the fundamental requirements of SFAS 141, broadens its scope by applying the acquisition method to all transactions and other events ina new accounting standard which one entity obtains control over one or more other businesses, and requires, among other things,clarifies that assets acquired and liabilities assumed be measured at fair valuemanagement must evaluate, as of each reporting period, events or transactions that occur after the acquisitionbalance sheet date through the date that liabilities relatedthe financial statements are issued or are available to contingent consideration be recognized atissued. This accounting standard is effective for interim and annual periods ending after June 15, 2009. We adopted this accounting standard in the acquisition datesecond quarter of fiscal year 2009. The adoption of this accounting standard did not have a material impact on our consolidated financial statements.
In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and remeasured at fair valueDisclosures” (“ASU 2010-06”), which adds new disclosure requirements for transfers into and out of Levels 1 and 2 in each subsequent reporting period, that acquisition-related costs be expensed as incurred, and that income be recognized if the fair value of the net assets acquired exceeds thehierarchy and additional disclosures about purchases, sales, issuances and settlements relating to Level 3 fair value measurements. This ASU also clarifies existing fair value disclosures about the level of the consideration transferred. SFAS 160 establishes accountingdisaggregation about inputs and reporting standards for noncontrolling interests (i.e., minority interests) in a subsidiary, including changes in a parent’s ownership interest in a subsidiary and requires, among other things, that noncontrolling interests in subsidiaries be classified as a separate component of equity. Exceptvaluation techniques used to measure fair value. The ASU is effective for the presentation and disclosure requirements of SFAS 160, which are to be applied retrospectively for all periods presented, SFAS 141 (R) and SFAS 160 are to be applied prospectively in financial statements issued for fiscal yearsfirst reporting period beginning after December 15, 2008. We have not determined2009, except for the effect, if any,requirement to provide the adoption of this statement will haveLevel 3 activity on our financial condition or results of operations.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—An Amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161a gross basis, which is effective for financial statements issued forthe fiscal yearsyear ends beginning after December 15, 2010 and interim periods beginning after November 15, 2008.within those years. We do not expect the adoption of this statement to have a material impact on our consolidated financial statements.
There were no other new accounting standards issued during fiscal year 20082009 that had or are expected to have a material impact on our financial position, results of operations, or cash flows.
|
|
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
As of January 31, 2009,2010, we had financial instruments which were sensitive to changes in interest rates. These financial instruments consist of ethanol construction andrelated term loans, various mortgage notes payable secured by certain land, buildings and leasehold improvements and interest rate swaps.
Approximately $9.9$2.3 million of our debt consists of fixed rate debt. The interest rates range from 6.75% torate on all fixed rate debt is 8.4%. The remaining $99.2$135.8 million of debt is variable rate debt. In general, the rate on the variable rate debt ranges from the one month LIBOR plus 4.1% to prime less 0.25%. If the variable interest rate increased 1%, we estimate our annual interest cost would increase approximately $992,000$1.4 million for the variable rate debt. Principal and interest are payable monthly over terms which generally range from 5 to 10 years. The fair value of our long-term debt at January 31, 20092010 was approximately $109.6$138.4 million. The fair value was estimated based on rates available to us for debt with similar terms and maturities. Including the impact of the interest rate swap agreements, approximately 98%81% of our indebtedness was based on fixed interest rates at January 31, 2009.2010. Including the impact of the interest rate swap agreements, after April 30, 2010, approximately 55% of our indebtedness will be based on fixed interest rates as Levelland Hockley’s interest rate swap expires on April 30, 2010.
We anticipate managingmanage a portion of our risk with respect to the volatility of commodity prices inherent in the ethanol industry by using forward purchase and sale contracts and other similar instruments. Levelland Hockley has purchase commitments for 575,0002,261,000 bushels of sorghum, the principal raw material for its ethanol plant. Levelland Hockley expects to take delivery of the sorghum by April 2009.March 2010. Levelland Hockley has
forward sales commitments for 0.84.2 million gallons of ethanol and 25,000112,000 tons of distiller grains. Levelland Hockley expects to deliver the ethanol and distillers grains by October 2009.March 2010. One Earth has forward purchase contracts for 3,501,000 bushels of corn, the principal raw material for its ethanol plant. One Earth expects to take delivery of the corn through March 2010. One Earth has sales commitments for 10.3 million gallons of ethanol and 25,200 tons of distiller grains. One Earth expects to deliver the ethanol and distiller grains through March 2010. Approximately 8% of our forecasted ethanol production during the next 12 months has been sold under fixed-price contracts. As a result, the effect of a 10% adverse move in the price of ethanol from the current pricing would result in a decrease in annual revenues of $24.9 million for the remaining 92% of forecasted ethanol production. Similarly, approximately 9% of our estimated corn/sorghum usage for the next 12 months was subject to fixed-price contracts. As a result, the effect of a 10% adverse move in the price of corn/sorghum from current pricing would result in an increase in annual cost of goods of approximately $16.6 million for the remaining 91% of forecasted corn/sorghum usage.
Levelland Hockley entered into a forward interest rate swap in the notional amount of $43.7 million with Merrill Lynch Capital during fiscal year 2007. The swap fixed the variable interest rate of the term loan, subsequent to the plant completion date, at 7.89%. The swap settlements commenced on April 30, 2008 and terminate on April 30, 2010. At January 31, 2009,2010, we recorded a liability of $1.4$0.3 million, related to the fair value of the swap. The change in fair value was recorded as “unrealized and realized losses on derivative financial instruments”instruments in the accompanying consolidated statementsConsolidated Statements of operations.Operations.
One Earth entered into two forward interest rate swaps in the notional amounts of $50.0 million and $25.0 million with the First National Bank of Omaha during fiscal yearyears 2008 and 2007. 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%. The swap settlements commence 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. At January 31, 2009,2010, we recorded a liability of $4.7$5.6 million related to the fair value of the swaps. The changes in fair value were recorded as “unrealized and realized losses on derivative financial instruments”instruments in the accompanying consolidated statementsConsolidated Statements of operations.Operations.
A hypothetical 10% change (for example, from 7.0%4.0% to 6.3%3.6%) in market interest rates at January 31, 20092010 would change the fair value of the interest rate swap contracts by approximately $1.8$0.6 million.
|
|
Item 8. | Financial Statements and Supplementary Data |
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
|
|
|
|
|
|
|
|
|
| January 31, |
| ||||
|
|
| |||||
|
| 2009 |
| 2008 |
| ||
|
|
|
| ||||
ASSETS |
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 91,991 |
| $ | 127,716 |
|
Accounts receivable-net |
|
| 4,197 |
|
| 1,877 |
|
Inventory- net |
|
| 24,374 |
|
| 49,933 |
|
Refundable income taxes |
|
| 7,790 |
|
| 1,522 |
|
Prepaid expenses and other |
|
| 1,063 |
|
| 1,543 |
|
Deferred taxes-net |
|
| 13,230 |
|
| 10,599 |
|
|
|
|
| ||||
Total current assets |
|
| 142,645 |
|
| 193,190 |
|
Property and equipment-net |
|
| 235,454 |
|
| 136,505 |
|
Other assets |
|
| 12,414 |
|
| 14,803 |
|
Goodwill |
|
| — |
|
| 1,322 |
|
Deferred taxes-net |
|
| 18,697 |
|
| 21,929 |
|
Equity method investments |
|
| 38,861 |
|
| 38,748 |
|
Investments in debt instruments |
|
| 933 |
|
| — |
|
Restricted investments |
|
| 2,284 |
|
| 2,481 |
|
|
|
|
| ||||
TOTAL ASSETS |
| $ | 451,288 |
| $ | 408,978 |
|
|
|
|
| ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
Current portion of long term debt and capital lease obligations – alternative energy |
| $ | 5,898 |
| $ | 1,790 |
|
Current portion of long term debt – other |
|
| 1,576 |
|
| 2,311 |
|
Accounts payable – trade |
|
| 25,167 |
|
| 27,253 |
|
Deferred income |
|
| 11,952 |
|
| 14,448 |
|
Accrued restructuring charges |
|
| 4,171 |
|
| — |
|
Deferred gain on sale and leaseback |
|
| 1,558 |
|
| 1,436 |
|
Derivative financial instruments |
|
| 1,996 |
|
| 293 |
|
Other current liabilities |
|
| 5,951 |
|
| 13,617 |
|
|
|
|
| ||||
Total current liabilities |
|
| 58,269 |
|
| 61,148 |
|
|
|
|
| ||||
LONG TERM LIABILITIES: |
|
|
|
|
|
|
|
Long term debt and capital lease obligations – alternative energy |
|
| 94,003 |
|
| 22,072 |
|
Long term debt – other |
|
| 9,936 |
|
| 13,152 |
|
Deferred income |
|
| 13,796 |
|
| 17,172 |
|
Deferred gain on sale and leaseback |
|
| 3,467 |
|
| 4,493 |
|
Derivative financial instruments |
|
| 4,032 |
|
| 2,308 |
|
Other |
|
| 4,152 |
|
| 4,313 |
|
|
|
|
| ||||
Total long term liabilities |
|
| 129,386 |
|
| 63,510 |
|
|
|
|
| ||||
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES |
|
| 24,573 |
|
| 27,729 |
|
|
|
|
| ||||
SHAREHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
Common stock, 45,000 shares authorized, 29,853 and 29,813 shares issued at par |
|
| 299 |
|
| 298 |
|
Paid in capital |
|
| 142,486 |
|
| 141,357 |
|
Retained earnings |
|
| 282,332 |
|
| 285,629 |
|
Treasury stock, 20,471 and 19,094 shares |
|
| (186,057 | ) |
| (170,693 | ) |
|
|
|
| ||||
Total shareholders’ equity |
|
| 239,060 |
|
| 256,591 |
|
|
|
|
| ||||
TOTAL LIABILITIES ANDSHAREHOLDERS’ EQUITY |
| $ | 451,288 |
| $ | 408,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| January 31, |
| ||||
|
|
| |||||
ASSETS |
| 2010 |
| 2009 |
| ||
|
|
|
| ||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 100,398 |
| $ | 91,991 |
|
Accounts receivable-net |
|
| 9,123 |
|
| 4,197 |
|
Inventory- net |
|
| 8,698 |
|
| 24,374 |
|
Refundable income taxes |
|
| 12,813 |
|
| 7,790 |
|
Prepaid expenses and other |
|
| 2,691 |
|
| 1,063 |
|
Deferred taxes-net |
|
| 6,375 |
|
| 13,230 |
|
|
|
|
| ||||
Total current assets |
|
| 140,098 |
|
| 142,645 |
|
Property and equipment-net |
|
| 246,874 |
|
| 235,454 |
|
Other assets |
|
| 8,880 |
|
| 12,414 |
|
Deferred taxes-net |
|
| 8,468 |
|
| 18,697 |
|
Equity method investments |
|
| 44,071 |
|
| 38,861 |
|
Investments in debt instruments |
|
| 1,014 |
|
| 933 |
|
Restricted investments |
|
| 2,100 |
|
| 2,284 |
|
|
|
|
| ||||
TOTAL ASSETS |
| $ | 451,505 |
| $ | 451,288 |
|
|
|
|
|
See notes to consolidated financial statements.
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(Amounts in Thousands)
|
|
|
|
|
|
|
|
|
| January 31, |
| ||||
|
|
| |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
| 2010 |
| 2009 |
| ||
|
|
|
| ||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
Current portion of long term debt and capital lease obligations – alternative energy |
| $ | 12,935 |
| $ | 5,898 |
|
Current portion of long term debt – other |
|
| 371 |
|
| 1,576 |
|
Accounts payable –trade |
|
| 6,976 |
|
| 24,917 |
|
Deferred income |
|
| 7,818 |
|
| 11,952 |
|
Accrued restructuring charges |
|
| 511 |
|
| 4,171 |
|
Deferred gain on sale and leaseback |
|
| — |
|
| 1,558 |
|
Accrued real estate taxes |
|
| 2,968 |
|
| 1,002 |
|
Derivative financial instruments |
|
| 1,829 |
|
| 1,996 |
|
Other current liabilities |
|
| 5,442 |
|
| 5,199 |
|
|
|
|
| ||||
Total current liabilities |
|
| 38,850 |
|
| 58,269 |
|
|
|
|
| ||||
LONG TERM LIABILITIES: |
|
|
|
|
|
|
|
Long term debt and capital lease obligations – alternative energy |
|
| 124,093 |
|
| 94,003 |
|
Long term debt – other |
|
| 2,596 |
|
| 9,936 |
|
Deferred income |
|
| 6,396 |
|
| 13,796 |
|
Deferred gain on sale and leaseback |
|
| — |
|
| 3,467 |
|
Derivative financial instruments |
|
| 4,055 |
|
| 4,032 |
|
Other |
|
| 419 |
|
| 4,152 |
|
|
|
|
| ||||
Total long term liabilities |
|
| 137,559 |
|
| 129,386 |
|
|
|
|
| ||||
COMMITMENTS AND CONTINGENCIES EQUITY: |
|
|
|
|
|
|
|
REX shareholders’ equity: |
|
|
|
|
|
|
|
Common stock, 45,000 shares authorized, 29,853 and 29,853 shares issued at par |
|
| 299 |
|
| 299 |
|
Paid in capital |
|
| 141,698 |
|
| 142,486 |
|
Retained earnings |
|
| 290,984 |
|
| 282,332 |
|
Treasury stock, 20,045 and 20,471 shares |
|
| (186,407 | ) |
| (186,057 | ) |
Accumulated other comprehensive income, net of tax |
|
| 49 |
|
| — |
|
|
|
|
| ||||
Total REX shareholders’ equity |
|
| 246,623 |
|
| 239,060 |
|
Noncontrolling interests |
|
| 28,473 |
|
| 24,573 |
|
|
|
|
| ||||
Total equity |
|
| 275,096 |
|
| 263,633 |
|
|
|
|
| ||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | 451,505 |
| $ | 451,288 |
|
|
|
|
|
See notes to consolidated financial statements.
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| |||||||
|
|
| ||||||||
|
| 2009 |
| 2008 |
| 2007 |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue |
| $ | 230,627 |
| $ | 194,787 |
| $ | 201,881 |
|
Cost of sales (excluding retail segment depreciation) |
|
| 183,547 |
|
| 136,508 |
|
| 145,099 |
|
|
|
|
|
| ||||||
Gross profit |
|
| 47,080 |
|
| 58,279 |
|
| 56,782 |
|
Selling, general and administrative expenses |
|
| (53,796 | ) |
| (53,704 | ) |
| (56,220 | ) |
Interest income |
|
| 2,044 |
|
| 5,714 |
|
| 2,374 |
|
Interest expense |
|
| (3,155 | ) |
| (165 | ) |
| (1,062 | ) |
Loss on early termination of debt |
|
| (9 | ) |
| (565 | ) |
| — |
|
Gain on sale of real estate |
|
| 2,279 |
|
| 1,064 |
|
| 1,734 |
|
Equity in income of unconsolidated ethanol affiliates |
|
| 849 |
|
| 1,601 |
|
| 499 |
|
Realized investment gains |
|
| — |
|
| 23,951 |
|
| — |
|
Income from synthetic fuel investments |
|
| 691 |
|
| 6,945 |
|
| 10,764 |
|
Losses on derivative financial instruments |
|
| (3,797 | ) |
| (2,601 | ) |
| — |
|
|
|
|
|
| ||||||
(Loss) income from continuing operations before income taxes and minority interest |
|
| (7,814 | ) |
| 40,519 |
|
| 14,871 |
|
Benefit (provision) for income taxes |
|
| 2,387 |
|
| (14,967 | ) |
| (4,889 | ) |
Minority interest in loss of consolidated subsidiaries |
|
| 3,156 |
|
| 841 |
|
| — |
|
|
|
|
|
| ||||||
(Loss) income from continuing operations |
|
| (2,271 | ) |
| 26,393 |
|
| 9,982 |
|
Loss from discontinued operations, net of tax |
|
| (1,359 | ) |
| (2,306 | ) |
| (21 | ) |
Gain on disposal of discontinued operations, net of tax |
|
| 333 |
|
| 9,780 |
|
| 1,390 |
|
|
|
|
|
| ||||||
Net (loss) income |
| $ | (3,297 | ) | $ | 33,867 |
| $ | 11,351 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic |
|
| 10,170 |
|
| 10,420 |
|
| 10,291 |
|
|
|
|
|
| ||||||
Basic (loss) income per share from continuing operations |
| $ | (0.22 | ) | $ | 2.53 |
| $ | 0.97 |
|
Basic loss per share from discontinued operations |
|
| (0.13 | ) |
| (0.22 | ) |
| — |
|
Basic gain per share on disposal of discontinued operations |
|
| 0.03 |
|
| 0.94 |
|
| 0.13 |
|
|
|
|
|
| ||||||
Basic net (loss) income per share |
| $ | (0.32 | ) | $ | 3.25 |
| $ | 1.10 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – diluted |
|
| 10,170 |
|
| 11,721 |
|
| 11,576 |
|
|
|
|
|
| ||||||
Diluted income per share from continuing operations |
| $ | (0.22 | ) | $ | 2.25 |
| $ | 0.86 |
|
Diluted (loss) income per share from discontinued operations |
|
| (0.13 | ) |
| (0.20 | ) |
| — |
|
Diluted gain per share on disposal of discontinued operations |
|
| 0.03 |
|
| 0.84 |
|
| 0.12 |
|
|
|
|
|
| ||||||
Diluted net (loss) income per share |
| $ | (0.32 | ) | $ | 2.89 |
| $ | 0.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| |||||||
|
|
| ||||||||
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue |
| $ | 170,264 |
| $ | 68,638 |
| $ | 382 |
|
Cost of sales |
|
| 150,531 |
|
| 67,433 |
|
| 18 |
|
|
|
|
|
| ||||||
Gross profit |
|
| 19,733 |
|
| 1,205 |
|
| 364 |
|
Selling, general and administrative expenses |
|
| (6,025 | ) |
| (6,640 | ) |
| (4,955 | ) |
Interest income |
|
| 445 |
|
| 2,044 |
|
| 5,714 |
|
Interest expense |
|
| (4,741 | ) |
| (3,174 | ) |
| (604 | ) |
Loss on early termination of debt |
|
| (89 | ) |
| — |
|
| (423 | ) |
Equity in income of unconsolidated ethanol affiliates |
|
| 6,027 |
|
| 849 |
|
| 1,601 |
|
Realized investment gains |
|
| — |
|
| — |
|
| 23,951 |
|
Income from synthetic fuel investments |
|
| — |
|
| 691 |
|
| 6,945 |
|
Other income |
|
| 748 |
|
| — |
|
| — |
|
Losses on derivative financial instruments |
|
| (2,487 | ) |
| (3,797 | ) |
| (2,601 | ) |
|
|
|
|
| ||||||
Income (loss) from continuing operations before income taxes and noncontrolling interests |
|
| 13,611 |
|
| (8,822 | ) |
| 29,992 |
|
(Provision) benefit for income taxes |
|
| (4,553 | ) |
| 2,747 |
|
| (11,245 | ) |
|
|
|
|
| ||||||
Income (loss) from continuing operations including noncontrolling interests |
|
| 9,058 |
|
| (6,075 | ) |
| 18,747 |
|
Income (loss) from discontinued operations, net of tax |
|
| 2,120 |
|
| (2,176 | ) |
| 3,809 |
|
Gain on disposal of discontinued operations, net of tax |
|
| 1,374 |
|
| 1,798 |
|
| 10,470 |
|
|
|
|
|
| ||||||
Net income (loss) including noncontrolling interests |
|
| 12,552 |
|
| (6,453 | ) |
| 33,026 |
|
Net (income) loss attributable to noncontrolling interests |
|
| (3,900 | ) |
| 3,156 |
|
| 841 |
|
|
|
|
|
| ||||||
Net income (loss) attributable to REX common shareholders |
| $ | 8,652 |
| $ | (3,297 | ) | $ | 33,867 |
|
|
|
|
|
| ||||||
Weighted average shares outstanding – basic |
|
| 9,254 |
|
| 10,170 |
|
| 10,420 |
|
|
|
|
|
| ||||||
Basic income (loss) per share from continuing operations attributable to REX common shareholders |
| $ | 0.55 |
| $ | (0.29 | ) | $ | 1.88 |
|
Basic income (loss) per share from discontinued operations attributable to REX common shareholders |
|
| 0.23 |
|
| (0.21 | ) |
| 0.37 |
|
Basic income per share on disposal of discontinued operations attributable to REX |
|
| 0.15 |
|
| 0.18 |
|
| 1.00 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share attributable to REX common shareholders |
| $ | 0.93 |
| $ | (0.32 | ) | $ | 3.25 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – diluted |
|
| 9,551 |
|
| 10,170 |
|
| 11,721 |
|
|
|
|
|
| ||||||
Diluted income (loss) per share from continuing operations attributable to REX common shareholders |
| $ | 0.54 |
| $ | (0.29 | ) | $ | 1.67 |
|
Diluted income (loss) per share from discontinued operations attributable to REX common shareholders |
|
| 0.22 |
|
| (0.21 | ) |
| 0.33 |
|
Diluted gain per share on disposal of discontinued operations attributable to REX common shareholders |
|
| 0.15 |
|
| 0.18 |
|
| 0.89 |
|
|
|
|
|
| ||||||
Diluted net income (loss) per share attributable to REX common shareholders |
| $ | 0.91 |
| $ | (0.32 | ) | $ | 2.89 |
|
|
|
|
|
| ||||||
Amounts attributable to REX common shareholders: |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of tax |
| $ | 5,158 |
| $ | (2,919 | ) | $ | 19,588 |
|
Income (loss) from discontinued operations, net of tax |
|
| 3,494 |
|
| (378 | ) |
| 14,279 |
|
|
|
|
|
| ||||||
Net income (loss) |
| $ | 8,652 |
| $ | (3,297 | ) | $ | 33,867 |
|
|
|
|
|
|
See notes to consolidated financial statements.
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| Years Ended January 31, |
|
| Years Ended January 31, |
| ||||||||||||||
|
|
|
|
| ||||||||||||||||
|
| 2009 |
| 2008 |
| 2007 |
|
| 2010 |
| 2009 |
| 2008 |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net (loss) income |
| $ | (3,297 | ) | $ | 33,867 |
| $ | 11,351 |
| ||||||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
| |||||||||||||
Net income (loss) including noncontrolling interests |
| $ | 12,552 |
| $ | (6,453 | ) | $ | 33,026 |
| ||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
| |||||||||||||
Depreciation and amortization |
| 5,061 |
| 2,428 |
| 4,190 |
|
| 10,603 |
| 5,061 |
| 2,428 |
| ||||||
Stock based compensation expense |
| 1,143 |
| 1,413 |
| 1,660 |
|
| 234 |
| 1,143 |
| 1,413 |
| ||||||
Impairment charges |
| 1,961 |
| 158 |
| 346 |
|
| 1,533 |
| 1,961 |
| 158 |
| ||||||
Income from equity method investments |
| (849 | ) |
| (1,601 | ) |
| (499 | ) |
| (6,027 | ) |
| (849 | ) |
| (1,601 | ) | ||
Dividends received from equity method investments |
| 900 |
| 525 |
| — |
|
| 702 |
| 900 |
| 525 |
| ||||||
Minority interest in consolidated subsidiaries |
| (3,156 | ) |
| (841 | ) |
| (6 | ) | |||||||||||
Income from synthetic fuel investments |
| (691 | ) |
| (6,945 | ) |
| (10,764 | ) |
| — |
| (691 | ) |
| (6,945 | ) | |||
Unrealized loss on derivative financial instruments |
| 3,427 |
| 2,601 |
| — |
| |||||||||||||
(Gains) losses on derivative financial instruments |
| (144 | ) |
| 3,427 |
| 2,601 |
| ||||||||||||
Gain on sale of investments |
| — |
| (23,951 | ) |
| — |
|
| — |
| — |
| (23,951 | ) | |||||
Gain on disposal of real estate and property and equipment |
| (3,410 | ) |
| (16,584 | ) |
| (3,775 | ) |
| (2,003 | ) |
| (3,410 | ) |
| (16,584 | ) | ||
Deferred income |
| (6,776 | ) |
| (4,819 | ) |
| 1,548 |
|
| (16,559 | ) |
| (6,776 | ) |
| (4,819 | ) | ||
Excess tax benefits from stock option exercises |
| (12 | ) |
| (69 | ) |
| (27 | ) |
| — |
| (12 | ) |
| (69 | ) | |||
Deferred income tax |
| 601 |
| 2,909 |
| 3,955 |
|
| 12,958 |
| 601 |
| 2,909 |
| ||||||
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts receivable |
| (2,320 | ) |
| 126 |
| 1,507 |
|
| (4,926 | ) |
| (2,320 | ) |
| 126 |
| |||
Merchandise inventory |
| 25,559 |
| 20,145 |
| 27,293 |
| |||||||||||||
Other current assets |
| (93 | ) |
| (859 | ) |
| 151 |
| |||||||||||
Inventory |
| 15,676 |
| 25,559 |
| 20,145 |
| |||||||||||||
Prepaid expenses and other current assets |
| (1,628 | ) |
| (93 | ) |
| (859 | ) | |||||||||||
Income taxes refundable |
| (5,390 | ) |
| — |
| — |
|
| (4,924 | ) |
| (5,390 | ) |
| — |
| |||
Other long term assets |
| 2,481 |
| 5,195 |
| (4,199 | ) |
| 3,534 |
| 2,481 |
| 5,195 |
| ||||||
Accounts payable-trade |
| (8,560 | ) |
| (3,041 | ) |
| 2,281 |
|
| (8,457 | ) |
| (8,560 | ) |
| (3,041 | ) | ||
Other liabilities |
| (3,656 | ) |
| 4,172 |
| (3,187 | ) |
| (2,146 | ) |
| (3,656 | ) |
| 4,172 |
| |||
|
|
|
|
|
|
|
|
| ||||||||||||
Net cash provided by operating activities |
| 2,923 |
| 14,829 |
| 31,825 |
|
| 10,978 |
| 2,923 |
| 14,829 |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Capital expenditures |
| (101,271 | ) |
| (68,754 | ) |
| (1,668 | ) |
| (35,652 | ) |
| (101,271 | ) |
| (68,754 | ) | ||
Proceeds from sale of synthetic fuel investments |
| 1,264 |
| 15,210 |
| 3,716 |
|
| — |
| 1,264 |
| 15,210 |
| ||||||
Purchase of investments |
| (933 | ) |
| (10,000 | ) |
| (40,795 | ) |
| (25 | ) |
| (933 | ) |
| (10,000 | ) | ||
Proceeds of note receivable and sale of investments |
| — |
| 39,541 |
| 5,595 |
|
| — |
| — |
| 39,541 |
| ||||||
Acquisition, net of cash acquired |
| — |
| 8,703 |
| 1,665 |
|
| — |
| — |
| 8,703 |
| ||||||
Proceeds from sale of real estate and property and equipment |
| 9,172 |
| 94,775 |
| 9,339 |
|
| 4,756 |
| 9,172 |
| 94,775 |
| ||||||
Restricted investments |
| 197 |
| (75 | ) |
| (88 | ) |
| 184 |
| 197 |
| (75 | ) | |||||
|
|
|
|
|
|
|
|
| ||||||||||||
Net cash (used in) provided by investing activities |
| (91,571 | ) |
| 79,400 |
| (22,236 | ) |
| (30,737 | ) |
| (91,571 | ) |
| 79,400 |
| |||
|
|
|
|
|
|
|
|
| ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds from long term debt |
| 75,890 |
| 25,424 |
| 13,812 |
|
| 48,958 |
| 75,890 |
| 25,424 |
| ||||||
Payments of long term debt |
| (6,724 | ) |
| (26,023 | ) |
| (3,749 | ) |
| (20,376 | ) |
| (6,724 | ) |
| (26,023 | ) | ||
Loan fees |
| — |
| — |
| (593 | ) | |||||||||||||
Stock options exercised |
| 1,453 |
| 5,596 |
| 2,559 |
|
| 6,038 |
| 1,453 |
| 5,596 |
| ||||||
Excess tax benefits from stock option exercises |
| 12 |
| 69 |
| 27 |
|
| — |
| 12 |
| 69 |
| ||||||
Treasury stock acquired |
| (17,708 | ) |
| (14,587 | ) |
| — |
|
| (6,454 | ) |
| (17,708 | ) |
| (14,587 | ) | ||
|
|
|
|
|
|
|
|
| ||||||||||||
Net cash provided by (used in) financing activities |
| 52,923 |
| (9,521 | ) |
| 12,056 |
|
| 28,166 |
| 52,923 |
| (9,521 | ) | |||||
|
|
|
|
|
|
|
|
| ||||||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
| (35,725 | ) |
| 84,708 |
| 21,645 |
| ||||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| 8,407 |
| (35,725 | ) |
| 84,708 |
| ||||||||||||
CASH AND CASH EQUIVALENTS-Beginning of year |
| 127,716 |
| 43,008 |
| 21,363 |
|
| 91,991 |
| 127,716 |
| 43,008 |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||
CASH AND CASH EQUIVALENTS-End of year |
| $ | 91,991 |
| $ | 127,716 |
| $ | 43,008 |
|
| $ | 100,398 |
| $ | 91,991 |
| $ | 127,716 |
|
|
|
|
|
|
|
|
|
| ||||||||||||
Non cash investing activities–Accrued capital expenditures |
| $ | 6,474 |
| $ | 8,100 |
| $ | 131 |
| ||||||||||
Non cash investing activities–Assets acquired by capital leases |
| $ | 2,922 |
| $ | — |
| $ | — |
| ||||||||||
Non cash activities–Accrued capital expenditures |
| $ | 265 |
| $ | 6,474 |
| $ | 8,100 |
| ||||||||||
Non cash activities–Assets acquired by capital leases |
| $ | — |
| $ | 2,922 |
| $ | — |
| ||||||||||
Non cash activities–Payable related to plant construction refinanced to long term debt |
| $ | 9,749 |
| $ | — |
| $ | — |
|
See notes to consolidated financial statements.
|
REX STORES CORPORATION AND SUBSIDIARIES |
|
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY |
FOR THE YEARS ENDED JANUARY 31, 2010, 2009 |
(Amounts in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Common Shares |
| Treasury |
| Paid-in |
| Retained |
| Accumulated |
| Total |
|
| REX Shareholders |
|
|
|
|
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Common Shares |
| Treasury |
| Paid-in |
| Retained |
| Accumulated |
| Noncontrolling |
| Total |
| ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares |
| Amount |
| Shares |
| Amount |
|
| ||||||||||||||||||||||||||
Balance at February 1, 2006 |
| 29,390 |
| $ | 294 |
| 19,289 |
| ($ | 162,762 | ) | $ | 135,775 |
| $ | 240,898 |
| $ | — |
| $ | 214,205 |
| ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| (In Thousands) |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Balance at January 31, 2007, as reported |
| 29,513 |
| $ | 295 |
| 19,089 |
| $ | (161,092 | ) | $ | 139,337 |
| $ | 252,249 |
| $ | — |
| $ | — |
| $ | 230,789 |
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Effects of adoption of new accounting standard for noncontrolling interests |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 11,443 |
| 11,443 |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Balance at January 31, 2007, as adjusted |
| 29,513 |
| 295 |
| 19,089 |
| (161,092 | ) |
| 139,337 |
| 252,249 |
| — |
| 11,443 |
| 242,232 |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
| 11,351 |
|
|
| 11,351 |
|
|
|
|
|
|
|
|
|
|
|
| 33,867 |
|
|
| (841 | ) |
| 33,026 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Stock based compensation |
|
|
|
|
|
|
|
|
| 1,660 |
|
|
|
|
| 1,660 |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Stock options exercised and related tax effects |
| 123 |
| 1 |
| (200 | ) |
| 1,670 |
| 1,902 |
|
|
|
|
| 3,573 |
| |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Balance at January 31, 2007 |
| 29,513 |
| 295 |
| 19,089 |
| (161,092 | ) |
| 139,337 |
| 252,249 |
| — |
| 230,789 |
| |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
| 33,867 |
|
|
| 33,867 |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Cumulative effect of adopting FIN 48 |
|
|
|
|
|
|
|
|
|
|
| (287 | ) |
|
|
| (287 | ) | |||||||||||||||||||||||||||||||||||
Effects of adoption of new accounting standard for income taxes |
|
|
|
|
|
|
|
|
|
|
| (287 | ) |
|
|
|
|
| (287 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Treasury stock acquired |
|
|
|
|
| 971 |
| (18,045 | ) |
|
|
|
|
|
|
| (18,045 | ) |
|
|
|
|
| 971 |
| (18,045 | ) |
|
|
|
|
|
|
|
|
| (18,045 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Stock based compensation |
|
|
|
|
|
|
|
|
| 1,413 |
|
|
|
|
| 1,413 |
|
|
|
|
|
|
|
|
|
| 1,413 |
|
|
|
|
|
|
| 1,413 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Stock options exercised and related tax effects |
| 300 |
| 3 |
| (966 | ) |
| 8,444 |
| 607 |
|
|
|
|
| 9,054 |
| |||||||||||||||||||||||||||||||||||
Stock options and related tax effects |
| 300 |
| 3 |
| (966 | ) |
| 8,444 |
| 607 |
|
|
|
|
|
|
| 9,054 |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Minority interest distribution |
|
|
|
|
|
|
|
|
|
|
| (200 | ) |
|
|
| (200 | ) | |||||||||||||||||||||||||||||||||||
Noncontrolling interests distribution |
|
|
|
|
|
|
|
|
|
|
| (200 | ) |
|
|
| 295 |
| 95 |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Acquisition of One Earth |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 16,832 |
| 16,832 |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Unrealized holding gains, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
| 9,717 |
| 9,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9,717 |
|
|
| 9,717 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Reclassification adjustment for net gains included in net income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
| (9,717 | ) |
| (9,717 | ) |
| — |
| — |
| — |
| — |
| — |
| — |
| (9,717 | ) |
| — |
| (9,717 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Balance at January 31, 2008 |
| 29,813 |
| $ | 298 |
| 19,094 |
| ($ | 170,693 | ) | $ | 141,357 |
| $ | 285,629 |
| $ | — |
| $ | 256,591 |
|
| 29,813 |
| $ | 298 |
| 19,094 |
| $ | (170,693 | ) | $ | 141,357 |
| $ | 285,629 |
| $ | — |
| $ | 27,729 |
| $ | 284,320 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
|
REX STORES CORPORATION AND SUBSIDIARIES |
|
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY |
FOR THE YEARS ENDED JANUARY 31, 2010, 2009 |
(Amounts in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
|
| REX Shareholders |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Shares |
| Treasury |
| Paid-in |
| Retained |
| Accumulated |
| Noncontrolling |
| Total |
| |||||||||||||
|
| Common Shares |
| Treasury |
| Paid-in |
| Retained |
| Accumulated |
| Total |
|
|
|
| |||||||||||||||||||||||||||||||||||||
|
|
|
|
| Shares |
| Amount |
| Shares |
| Amount |
| |||||||||||||||||||||||||||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (In Thousands) |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at January 31, 2008 |
| 29,813 |
| $ | 298 |
| 19,094 |
| ($ | 170,693 | ) | $ | 141,357 |
| $ | 285,629 |
| $ | — |
| $ | 256,591 |
|
| 29,813 |
| $ | 298 |
| 19,094 |
| $ | (170,693 | ) | $ | 141,357 |
| $ | 285,629 |
| $ | — |
| $ | 27,729 |
| $ | 284,320 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
| (3,297 | ) |
|
|
| (3,297 | ) |
|
|
|
|
|
|
|
|
|
|
| (3,297 | ) |
|
|
| (3,156 | ) |
| (6,453 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Treasury stock acquired |
|
|
|
|
| 1,636 |
| (17,708 | ) |
|
|
|
|
|
|
|
|
| (17,708 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Stock based compensation |
|
|
|
|
|
|
|
|
| 1,143 |
|
|
|
|
| 1,143 |
|
|
|
|
|
|
|
|
|
| 1,143 |
|
|
|
|
|
|
| 1,143 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Treasury stock acquired |
|
|
|
|
| 1,636 |
| (17,708 | ) |
|
|
|
|
|
|
| (17,708 | ) | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Stock options exercised and related tax effects |
| 40 |
| 1 |
| (259 | ) |
| 2,344 |
| (14 | ) |
|
|
|
|
| 2,331 |
| ||||||||||||||||||||||||||||||||||
Stock options and related tax effects |
| 40 |
| 1 |
| (259 | ) |
| 2,344 |
| (14 | ) |
| — |
| — |
| — |
| 2,331 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at January 31, 2009 |
| 29,853 |
| $ | 299 |
| 20,471 |
| ($ | 186,057 | ) | $ | 142,486 |
| $ | 282,332 |
| $ | — |
| $ | 239,060 |
|
| 29,853 |
| 299 |
| 20,471 |
| (186,057 | ) |
| 142,486 |
| 282,332 |
| — |
| 24,573 |
| 263,633 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
| 8,652 |
|
|
| 3,900 |
| 12,552 |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Treasury stock acquired |
|
|
|
|
| 1,257 |
| (15,694 | ) |
|
|
|
|
|
|
|
|
| (15,694 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Stock based compensation |
|
|
|
|
|
|
|
|
| 234 |
|
|
|
|
|
|
| 234 |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Stock options and related tax effects |
|
|
|
|
| (1,683 | ) |
| 15,344 |
| (1,022 | ) |
|
|
|
|
|
|
| 14,322 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Unrealized holding gains, net of tax |
| — |
| — |
| — |
| — |
| — |
| — |
| 49 |
| — |
| 49 |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Balance at January 31, 2010 |
| 29,853 |
| $ | 299 |
| 20,045 |
| $ | (186,407 | ) | $ | 141,698 |
| $ | 290,984 |
| $ | 49 |
| $ | 28,473 |
| $ | 275,096 |
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
|
REXSTORES CORPORATION AND SUBSIDIARIES |
|
|
|
|
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
|
| Principles of Consolidation – |
|
|
| Fiscal Year – |
|
|
| Use of Estimates – |
|
|
| Cash Equivalents – |
|
|
| Concentrations of Risk – |
|
|
| Inventory – |
|
|
| The components of inventory at January 31, |
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
| 2008 |
| ||
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Retail merchandise, net |
| $ | 22,318 |
| $ | 49,933 |
|
| Ethanol and other finished goods, net |
|
| 487 |
|
| — |
|
| Work in process, net |
|
| 341 |
|
| — |
|
| Grain and other raw materials |
|
| 1,228 |
|
| — |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Total |
| $ | 24,374 |
| $ | 49,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| ||
|
|
|
| ||||
| |||||||
Retail merchandise, net |
| $ | 190 |
| $ | 22,318 |
|
Ethanol and other finished goods, net |
|
| 1,784 |
|
| 487 |
|
Work in process, net |
|
| 1,577 |
|
| 341 |
|
Grain and other raw materials |
|
| 5,147 |
|
| 1,228 |
|
|
|
|
| ||||
| |||||||
Total |
| $ | 8,698 |
| $ | 24,374 |
|
|
|
|
|
|
|
| Property and Equipment – |
The components of property and equipment at January 31, |
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
| 2008 |
| ||
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Land and improvements |
| $ | 24,073 |
| $ | 13,683 |
|
| Buildings and improvements |
|
| 40,987 |
|
| 39,567 |
|
| Machinery, equipment and fixtures |
|
| 70,408 |
|
| 10,596 |
|
| Leasehold improvements |
|
| 3,396 |
|
| 5,500 |
|
| Construction in progress |
|
| 121,333 |
|
| 91,689 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| 260,197 |
|
| 161,035 |
|
| Less: accumulated depreciation |
|
| (24,743 | ) |
| (24,530 | ) |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| $ | 235,454 |
| $ | 136,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| ||
|
|
|
| ||||
| |||||||
Land and improvements |
| $ | 26,405 |
| $ | 24,073 |
|
Buildings and improvements |
|
| 59,024 |
|
| 40,987 |
|
Machinery, equipment and fixtures |
|
| 187,526 |
|
| 70,408 |
|
Leasehold improvements |
|
| 569 |
|
| 3,396 |
|
Construction in progress |
|
| 127 |
|
| 121,333 |
|
|
|
|
| ||||
| |||||||
|
|
| 273,651 |
|
| 260,197 |
|
Less: accumulated depreciation |
|
| (26,777 | ) |
| (24,743 | ) |
|
|
|
| ||||
|
| $ | 246,874 |
| $ | 235,454 |
|
|
|
|
|
|
|
| In accordance with |
|
|
|
|
| |
| |
|
|
| The method of accounting applied to long-term investments, whether consolidated, equity or cost, involves an evaluation of the significant terms of each investment that explicitly grant or suggest evidence of control or influence over the operations of the investee and also includes the identification of any variable interests in which the Company is the primary beneficiary. The Company consolidates the results of two majority owned subsidiaries, Levelland Hockley and One Earth, with a one month lag. See Note |
|
|
| Investments in debt securities are considered “held to maturity”, “available for sale”, or “trading securities” under |
|
|
| The Company periodically evaluates its investments for impairment due to declines in market value considered to be other than temporary. Such impairment evaluations include, in addition to persistent, declining market prices, general economic and company-specific evaluations. If the Company determines that a decline in market value is other than temporary, then a charge to earnings is recorded in |
|
|
| Revenue Recognition – |
The Company recognizes sales from the production of ethanol and distillers grains when title transfers to customers, generally upon shipment from |
| |
| |
| |
|
|
| The Company includes income from its real estate leasing activities in net sales and revenue. The Company accounts for these leases as operating leases. Accordingly, minimum rental revenue is recognized on a straight-line basis over the term of the lease. |
|
|
|
|
manufacturers’ warranty periods) of between 12 to 60 months. Contract revenues and sales commissions are deferred and amortized on a straight-line basis over the life of the contracts after the expiration of applicable manufacturers’ warranty periods. The Company retains the obligation to perform warranty service and such costs are charged to operations as | |
|
|
| The Company recognized income from synthetic fuel partnership sales as production was completed and collectability of receipts was reasonably assured. The Company was paid for actual tax credits earned as the synthetic fuel was produced with the exception of production at the Pine Mountain (Gillette) facility. See Note 5 for a further discussion of synthetic fuel partnership sales. |
Costs of Sales –Ethanol cost of sales includes depreciation, costs of raw materials, inbound freight charges, purchasing and receiving costs, inspection costs, shipping costs, other distribution expenses, warehousing costs, plant management, certain compensation costs, and general facility overhead charges. | |
Real estate cost of sales includes depreciation, real estate taxes, insurance, repairs and maintenance and other costs directly associated with operating the Company’s portfolio of real property. | |
|
|
| Vendor Allowances and Advertising Costs – |
|
|
| Selling, General and Administrative Expenses – |
The Company includes non-production related costs from its alternative energy segment such as utilities, property taxes, professional fees and certain payroll in selling, general and administrative expenses. | |
The Company includes costs not directly related to operating its portfolio of real property from its real estate segment such as certain payroll and related costs, professional fees and other general expenses in selling, general and administrative expenses. | |
|
|
| Interest Cost – |
|
|
| Deferred Financing Costs – |
|
|
| Financial Instruments – Forward grain purchase and ethanol and distillers grain sale contracts are accounted for under the “normal purchases and normal sales” scope exemption of |
agreements involve the exchange of fixed and variable rate interest payments and do not represent an actual exchange of the notional amounts between the parties. The swap agreements were not designated for hedge accounting pursuant to | |
Restructuring Costs – Restructuring charges include severance and associated employee termination costs, lease termination fees and other costs associated with the exit of the Company’s retail business. The Company records severance and associated employee termination costs pursuant to ASC 712, ASC 715 and ASC 420. ASC 420 requires that lease termination fees, net of expected sublease rental income, be recorded once the leased facility is no longer actively used in a revenue producing manner. Future changes to the Company’s estimates of employee layoffs or leased stores abandoned are unlikely to have a material impact on the Company’s restructuring accrual. | |
|
|
| Stock Compensation– 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. The Company adopted |
| |
|
|
| No options were granted in the fiscal years ended January 31, |
2008. The following table summarizes options granted, exercised and canceled or expired during |
the fiscal year ended January 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Shares |
| Weighted |
| Weighted Average |
| Aggregate |
| |||||
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
| |||||
Outstanding—Beginning of year |
|
| 3,016 |
| $ | 9.16 |
|
|
|
|
|
|
| |
Granted |
|
| — |
|
| — |
|
|
|
|
|
|
| |
Exercised |
|
| (299 | ) |
| 4.86 |
|
|
|
|
|
|
| |
Canceled or expired |
|
| (2 | ) |
| 12.64 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Outstanding—End of year |
|
| 2,715 |
| $ | 9.63 |
|
| 2.7 |
| $ | 8 |
| |
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Exercisable—End of year |
|
| 2,661 |
| $ | 9.57 |
|
| 2.7 |
| $ | 8 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares |
| Weighted |
| Weighted Average |
| Aggregate |
| ||||
|
|
|
|
|
| ||||||||
| |||||||||||||
Outstanding—Beginning of |
|
|
|
|
|
|
|
|
|
|
|
|
|
year |
|
| 2,715 |
| $ | 9.63 |
|
|
|
|
|
|
|
Granted |
|
| — |
|
| — |
|
|
|
|
|
|
|
Exercised |
|
| (1,683 | ) |
| 8.87 |
|
|
|
|
|
|
|
Canceled or expired |
|
| (208 | ) |
| 13.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable—End of year |
|
| 824 |
| $ | 10.14 |
|
| 2.0 |
| $ | 4,097 |
|
|
|
|
|
|
|
|
|
| The total intrinsic value of options exercised in the fiscal years ended January 31, 2010, 2009 |
At January 31, | |
|
|
| Income Taxes – The Company provides for deferred tax liabilities and assets for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. The Company provides for a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. |
|
|
|
|
| |
|
Discontinued Operations– The Company classifies | |
|
|
| New Accounting Pronouncements– |
U.S. GAAP. The Codification became effective for the Company in the third quarter of | |
|
|
|
|
|
|
| In |
In May 2009, the FASB issued a new accounting standard which clarifies that management must evaluate, as of each reporting period, events or transactions that occur after the balance sheet date through the date that the financial statements are issued or are available to be issued. This accounting standard is effective for interim and annual periods ending after June 15, 2009. The Company adopted this accounting standard in the second quarter of fiscal year 2009. The adoption of this accounting standard did not have a material impact on the Company’s consolidated financial statements. | |
In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures” (“ASU 2010-06”), which adds new disclosure requirements for transfers into and out of Levels 1 and 2 in the fair value hierarchy and additional disclosures about purchases, sales, issuances and settlements relating to Level 3 fair value measurements. This ASU also clarifies existing fair value disclosures about the level of | |
|
|
| There were no other new accounting standards issued during fiscal year |
2. | QUARTERLY UNAUDITED INFORMATION |
The following tables set forth the Company’s net sales and revenue, gross profit (loss), net income (loss) and net income (loss) per share (basic and diluted) for each quarter during the last two fiscal years. The unaudited financial information has been prepared in accordance with accounting principles generally accepted in the United States of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarters Ended |
| ||||||||||
|
|
| |||||||||||
|
| April 30, |
| July 31, |
| October 31, |
| January 31, |
| ||||
|
|
|
|
|
| ||||||||
| |||||||||||||
Net sales and revenue (a) |
| $ | 14,248 |
| $ | 17,145 |
| $ | 61,697 |
| $ | 77,174 |
|
Gross profit (a) |
|
| 275 |
|
| 912 |
|
| 5,661 |
|
| 12,885 |
|
Net (loss) income |
|
| (1,731 | ) |
| 837 |
|
| 2,273 |
|
| 7,273 |
|
Basic net (loss) income per share attributable to REX common shareholders (b) |
| $ | (0.19 | ) | $ | 0.09 |
| $ | 0.25 |
| $ | 0.78 |
|
Diluted net (loss) income per share attributable to REX common shareholders (b) |
| $ | (0.19 | ) | $ | 0.09 |
| $ | 0.24 |
| $ | 0.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarters Ended |
| ||||||||||
|
|
| |||||||||||
|
| April 30, |
| July 31, |
| October 31, |
| January 31, |
| ||||
|
|
|
|
|
| ||||||||
| |||||||||||||
Net sales and revenue (a) |
| $ | 1,262 |
| $ | 24,971 |
| $ | 22,539 |
| $ | 19,866 |
|
Gross profit (loss) (a) |
|
| 151 |
|
| 740 |
|
| (2,357 | ) |
| 2,671 |
|
Net income (loss) |
|
| 1,526 |
|
| 1,206 |
|
| (650 | ) |
| (5,379 | ) |
Basic net income (loss) per share attributable to REX common shareholders (b) |
| $ | 0.14 |
| $ | 0.11 |
| $ | (0.07 | ) | $ | (0.57 | ) |
Diluted net income (loss) per share attributable to REX common shareholders (b) |
| $ | 0.13 |
| $ | 0.11 |
| $ | (0.07 | ) | $ | (0.57 | ) |
a) | Amounts differ from those previously reported as a result of retail operations and certain real estate assets sold being reclassified as discontinued operations. | |
b) | The total of the quarterly net income (loss) per share amounts do not equal the annual net loss or income per share amount due to the impact of varying amounts of shares and options outstanding during the year. | |
During the fourth quarter of fiscal year 2009, the Company identified an error in its classification of certain closed retail stores in continuing operations as of January 31, 2009 and for the interim periods subsequent to January 31, 2009 and for the classification of its extended warranty operations in continuing operations for interim periods subsequent to April 30, 2009. Management has evaluated the affects of the error on the consolidated financial statements for the years ended January 31, 2009 and 2008 and concluded the error was not material. The errors had no impact on the Company’s Consolidated Balance Sheet or the Consolidated Statements of Cash Flows for the years ended January 31, 2009, 2008 or 2007. The Company corrected the presentation for the years ended January 31, 2009 and 2008 in the accompanying Consolidated Statements of Operations. The errors had no impact on net income or loss on the Company’s Consolidated Statements of Operations; however it did impact the presentation of income or loss from continuing and discontinued operations by amounts not exceeding $30,000. | ||
Because of the significance of the error correction to interim periods, the Company has summarized the effect of the restatement on the Consolidated Condensed Statements of Operations for the three-month periods ended April 30, 2009, July 31, 2009 and October 31, 2009, and the effect of the retrospective application of applying ASC 205-20 “Discontinued Operations” to financial statements previously issued. The impact of the correction of the error specific to income (loss) from continuing operations for the three-month periods ended April 30, 2009, July 31, 2009 and October 31, 2009 was $832,000, ($1,435,000) and ($556,000), respectively. The following reconciles certain |
amounts reported in the Consolidated Condensed Statements of Operations previously reported to the reclassified and corrected amounts reported currently: |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, 2009 |
| As |
| Reclassified for |
| As Restated |
| |||
|
|
|
| |||||||
Net sales and revenue |
| $ | 29,734 |
| $ | (15,486 | ) | $ | 14,248 |
|
Cost of sales |
|
| 25,015 |
|
| (11,042 | ) |
| 13,973 |
|
Gross profit |
|
| 4,719 |
|
| (4,444 | ) |
| 275 |
|
Selling, general and administrative expenses |
|
| 5,749 |
|
| (4,738 | ) |
| 1,011 |
|
Interest expense |
|
| 878 |
|
| (65 | ) |
| 813 |
|
(Loss) income from continuing operations including noncontrolling interests |
|
| (1,951 | ) |
| 312 |
|
| (1,639 | ) |
(Loss) income from discontinued operations, net of tax |
|
| (402 | ) |
| (184 | ) |
| (586 | ) |
Loss on sale of discontinued operations, net of tax |
|
| — |
|
| (128 | ) |
| (128 | ) |
Net loss attributable to REX common shareholders |
|
| (1,731 | ) |
| — |
|
| (1,731 | ) |
Basic and diluted (loss) earnings per share from continuing operationsattributable to REX common shareholders |
| $ | (0.14 | ) | $ | 0.03 |
| $ | (0.11 | ) |
Basic and diluted loss per share from discontinued operationsattributable to REX common shareholders |
| $ | (0.05 | ) | $ | (0.02 | ) | $ | (0.07 | ) |
Basic and diluted loss per share from loss on sale of discontinued operationsattributable to REX common shareholders |
| $ | — |
| $ | (0.01 | ) | $ | (0.01 | ) |
Basic and diluted net loss per shareattributable to REX common shareholders |
| $ | (0.19 | ) | $ | — |
| $ | (0.19 | ) |
64
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, 2009 |
| As |
| Reclassified for |
| As Restated |
| |||
|
|
|
| |||||||
Net sales and revenue |
| $ | 21,477 |
| $ | (4,332 | ) | $ | 17,145 |
|
Cost of sales |
|
| 17,912 |
|
| (1,679 | ) |
| 16,233 |
|
Gross profit |
|
| 3,565 |
|
| (2,653 | ) |
| 912 |
|
Selling, general and administrative expenses |
|
| 1,905 |
|
| (336 | ) |
| 1,569 |
|
Income (loss) from continuing operations including noncontrolling interests |
|
| 442 |
|
| (1,435 | ) |
| (993 | ) |
(Loss) income from discontinued operations, net of tax |
|
| (52 | ) |
| 1,435 |
|
| 1,383 |
|
Gain on sale of discontinued operations, net of tax |
|
| 251 |
|
| — |
|
| 251 |
|
Net income attributable to REX common shareholders |
|
| 837 |
|
| — |
|
| 837 |
|
Basic and diluted earnings (loss) per share from continuing operations attributable to REX common shareholders |
| $ | 0.07 |
| $ | (0.15 | ) | $ | (0.08 | ) |
Basic and diluted (loss) earnings per share from discontinued operationsattributable to REX common shareholders |
| $ | (0.01 | ) | $ | 0.15 |
| $ | 0.14 |
|
Basic and diluted earnings per share from gain on sale of discontinued operationsattributable to REX common shareholders |
| $ | 0.03 |
| $ | — |
| $ | 0.03 |
|
Basic and diluted net income per shareattributable to REX common shareholders |
| $ | 0.09 |
| $ | — |
| $ | 0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, 2009 |
| As |
| Reclassified for |
| As Restated |
| |||
|
|
|
| |||||||
Net sales and revenue |
| $ | 64,416 |
| $ | (2,719 | ) | $ | 61,697 |
|
Cost of sales |
|
| 56,556 |
|
| (520 | ) |
| 56,036 |
|
Gross profit |
|
| 7,860 |
|
| (2,199 | ) |
| 5,661 |
|
Selling, general and administrative expenses |
|
| 2,581 |
|
| (1,347 | ) |
| 1,234 |
|
Income (loss) from continuing operations including noncontrolling interests |
|
| 3,307 |
|
| (556 | ) |
| 2,751 |
|
Income (loss) from discontinued operations, net of tax |
|
| (22 | ) |
| 556 |
|
| 534 |
|
Net incomeattributable to REX common shareholders |
|
| 2,273 |
|
| — |
|
| 2,273 |
|
Basic earnings (loss) per share from continuing operationsattributable to REX common shareholders |
| $ | 0.25 |
| $ | (0.06 | ) | $ | 0.19 |
|
Diluted earnings (loss) per share from continuing operationsattributable to REX common shareholders |
| $ | 0.24 |
| $ | (0.06 | ) | $ | 0.18 |
|
Basic earnings per share from discontinued operationsattributable to REX common shareholders |
| $ | — |
| $ | 0.06 |
| $ | 0.06 |
|
Diluted earnings per share from discontinued operationsattributable to REX common shareholders |
| $ | — |
| $ | 0.06 |
| $ | 0.06 |
|
Basic net income per shareattributable to REX common shareholders |
| $ | 0.24 |
| $ | — |
| $ | 0.24 |
|
Diluted net income per shareattributable to REX common shareholders |
| $ | 0.24 |
| $ | — |
| $ | 0.24 |
|
|
|
| INVESTMENTS |
|
|
| The Company has debt and equity investments. The debt investments are accounted for under |
|
|
| Debt Securities January 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
| Coupon |
| Maturity |
| Classification |
| Fair |
| Carrying |
| ||
|
|
|
|
|
| ||||||||
| |||||||||||||
Patriot Renewable Fuels, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Note |
| 16.00 | % | 11/25/2011 |
| Available for Sale |
| $ | 933 |
| $ | 933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
| Coupon |
| Maturity |
| Classification |
| Fair |
| Initial |
| |||
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||
Patriot Renewable Fuels, LLC Convertible Note |
|
| 16.00 | % | 11/25/2011 |
| Available for Sale |
| $ | 1,014 |
| $ | 933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Debt Securities January 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
| Coupon |
| Maturity |
| Classification |
| Fair |
| Carrying |
| ||
|
|
|
|
|
| ||||||||
| |||||||||||||
United States Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
Bill |
| 2.82 | % | 2/28/2008 |
| Held to Maturity |
| $ | 1,548 |
| $ | 1,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
| Coupon |
| Maturity |
| Classification |
| Fair |
| Initial |
| |||
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||
Patriot Renewable Fuels, LLC Convertible Note |
|
| 16.00 | % | 11/25/2011 |
| Available for Sale |
| $ | 933 |
| $ | 933 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains were $81,000 ($49,000 net of income taxes) at January 31, 2010. There were no unrealized holding gains at January 31, 2009.
The Company has $743,000 and $933,000 at January 31, 2010 and 2009, respectively, 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. The deposits earned 2.7% and 2.3% at January 31, 2010 and 2009, respectively.
In addition to the deposit with the Florida Department of Financial Services, the Company has $1,357,000 and $1,351,000 at January 31, 2010 and 2009, respectively, invested in a money market mutual fund to satisfy Florida Department of Financial Services regulations. This investment earned 0.1% and 1.3% at January 31, 2010 and 2009, respectively.
Equity Method Investments January 31, 2010
|
|
|
|
|
|
|
|
|
|
|
Entity |
| Ownership |
| Carrying |
| Initial |
| |||
|
|
|
| |||||||
| ||||||||||
Big River Resources, LLC |
|
| 10 | % | $ | 25,660 |
| $ | 20,025 |
|
|
|
|
|
|
|
|
|
|
|
|
Patriot Renewable Fuels, LLC |
|
| 23 | % |
| 18,411 |
|
| 16,000 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Total Equity Securities |
|
|
|
| $ | 44,071 |
| $ | 36,025 |
|
|
|
|
|
|
|
|
Equity Method Investments January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Entity |
| Ownership |
| Carrying |
| Initial |
| |||
|
|
|
| |||||||
| ||||||||||
Big River Resources, LLC |
|
| 10 | % | $ | 23,850 |
| $ | 20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Patriot Renewable Fuels, LLC |
|
| 23 | % |
| 15,011 |
|
| 16,000 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Total Equity Securities |
|
|
|
| $ | 38,861 |
| $ | 36,000 |
|
|
|
|
|
|
|
|
On October 1, 2006, the Company entered into an agreement to invest $20 million in Big River, an Iowa limited liability company and holding company for several entities. The Company funded this
investment in exchange for a 10% ownership interest. Big River Resources West Burlington, LLC, a wholly owned subsidiary of Big River, presently operates a 92 million gallon ethanol manufacturing facility. Big River Resources Galva, LLC, a wholly owned subsidiary of Big River, presently operates a 100 million gallon ethanol manufacturing facility. Big River Resources United Energy, LLC, a 50.5% owned subsidiary of Big River, presently operates a 100 million gallon ethanol manufacturing facility. The Company recorded income of $2,487,000, $2,397,000 and $2,379,000 as its share of earnings from Big River during fiscal years 2009, 2008 and 2007, respectively.
On June 8, 2006, the Company entered into an agreement to invest $16 million in Patriot which commenced production operations during fiscal year 2008. The Company funded this investment on December 4, 2006 in exchange for a 23% ownership interest. The facility has a nameplate capacity of 100 million gallons annually and began operations during the second quarter of fiscal year 2008. The Company recorded income of $3,540,000 and losses of $1,548,000 and $778,000 as its share of earnings or loss from Patriot during fiscal years 2009, 2008 and 2007, respectively.
Undistributed earnings of equity method investees totaled approximately $6.8 million at January 31, 2010.
|
|
|
|
| |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity |
| Ownership |
| Carrying |
| Initial |
| |||
|
|
|
| |||||||
| ||||||||||
Big River Resources, LLC |
| 10% |
| $ | 23,850 |
| $ | 20,000 |
| |
|
|
|
|
|
|
|
|
|
|
|
Patriot Renewable Fuels, LLC |
| 23% |
| 15,011 |
|
| 16,000 |
| ||
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Total Equity Securities |
|
|
|
| $ | 38,861 |
| $ | 36,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Patriot |
| Big River |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Current assets |
| $ | 24,767 |
| $ | 101,710 |
|
|
|
|
|
|
|
|
|
Non current assets |
|
| 179,954 |
|
| 371,669 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Total assets |
| $ | 204,721 |
| $ | 473,379 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Current liabilities |
| $ | 13,941 |
| $ | 46,162 |
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
| 120,636 |
|
| 176,755 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Total liabilities |
| $ | 134,577 |
| $ | 222,917 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Noncontrolling interests |
| $ | — |
| $ | 11,530 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Patriot |
| Big River |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Current assets |
| $ | 16,362 |
| $ | 77,298 |
|
|
|
|
|
|
|
|
|
Non current assets |
|
| 179,358 |
|
| 262,752 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Total assets |
| $ | 195,720 |
| $ | 340,050 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Current liabilities |
| $ | 16,374 |
| $ | 41,638 |
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
| 126,490 |
|
| 77,237 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Total liabilities |
| $ | 142,864 |
| $ | 118,875 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Noncontrolling interests |
| $ | — |
| $ | 811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity |
| Ownership |
| Carrying |
| Initial |
| |||
|
|
|
| |||||||
| ||||||||||
Big River Resources, LLC |
| 10% |
| $ | 22,353 |
| $ | 20,000 |
| |
|
|
|
|
|
|
|
|
|
|
|
Patriot Renewable Fuels, LLC |
| 23% |
|
| 16,395 |
|
| 16,000 |
| |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Total Equity Securities |
|
|
|
| $ | 38,748 |
| $ | 36,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
|
|
|
| ||
|
|
|
|
|
| ||
|
| Patriot |
| Big River |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Net sales and revenue |
| $ | 213,709 |
| $ | 448,145 |
|
|
|
|
|
|
|
|
|
Gross profit |
| $ | 26,556 |
| $ | 43,317 |
|
|
|
|
|
|
|
|
|
Income from continuing operations |
| $ | 17,288 |
| $ | 25,225 |
|
|
|
|
|
|
|
|
|
Net income |
| $ | 17,288 |
| $ | 25,225 |
|
|
|
|
|
|
|
|
|
| |||||||
Year Ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Patriot |
| Big River |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Net sales and revenue |
| $ | 63,534 |
| $ | 343,698 |
|
|
|
|
|
|
|
|
|
Gross (loss) profit |
| $ | (2,029 | ) | $ | 34,735 |
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
| $ | (9,103 | ) | $ | 24,540 |
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (9,103 | ) | $ | 24,540 |
|
|
|
|
|
|
|
|
|
| |||||||
Year Ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Patriot |
| Big River |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Net sales and revenue |
| $ | — |
| $ | 130,449 |
|
|
|
|
|
|
|
|
|
Gross profit |
| $ | — |
| $ | 26,416 |
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
| $ | (2,213 | ) | $ | 31,883 |
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (2,213 | ) | $ | 31,883 |
|
|
|
|
|
|
|
| |
| FAIR VALUE |
|
|
| Effective February 1, 2008, the Company adopted |
measurement date. | |
|
|
| Effective February 1, 2008, the Company determined the fair market values of its financial instruments based on the fair value hierarchy |
|
|
| Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets. |
|
|
| Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally or corroborated by observable market data. |
|
|
| Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methods, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. Unobservable inputs shall be developed based on the best information available, which may include the Company’s own data. |
|
|
| The fair values of derivative assets and liabilities traded in the over-the-counter market are determined using quantitative models that require the use of multiple market inputs including interest rates, prices and indices to generate pricing and volatility factors, which are used to value the position. The predominance of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. Estimation risk is greater for derivative asset and liability positions that are either option-based or have longer maturity dates where observable market inputs are less readily available or are unobservable, in which case interest rate, price or index scenarios are extrapolated in order to determine the fair value. The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality, the Company’s own credit standing and other specific factors, where appropriate. To ensure the prudent application of estimates and management judgment in |
determining the fair value of derivative assets and liabilities, various processes and controls have been adopted, which include: model validation that requires a review and approval for pricing, financial statement fair value determination and risk quantification; periodic review and substantiation of profit and loss reporting for all derivative instruments. Financial assets and liabilities measured at fair value at January 31, |
below (amounts in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total Fair |
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total Fair |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash Equivalents |
| $ | 91,601 |
| $ | — |
| $ | — |
| $ | 91,601 |
|
| $ | 81,625 |
| $ | — |
| $ | — |
| $ | 81,625 |
|
Investments in Debt Securities |
|
|
| 933 |
|
|
| 933 |
|
| — |
| 1,014 |
| — |
| 1,014 |
| ||||||||
Restricted Investments |
| 1,351 |
| — |
| — |
| 1,351 |
|
| 1,357 |
| — |
| — |
| 1,357 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Assets |
| $ | 92,952 |
| $ | 933 |
| $ | — |
| $ | 93,885 |
|
| $ | 82,982 |
| $ | 1,014 |
| $ | — |
| $ | 83,996 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Derivative Liabilities |
| $ | — |
| $ | 6,028 |
| $ | — |
| $ | 6,028 |
|
| $ | — |
| $ | 5,884 |
| $ | — |
| $ | 5,884 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Liabilities |
| $ | — |
| $ | 6,028 |
| $ | — |
| $ | 6,028 |
|
| $ | — |
| $ | 5,884 |
| $ | — |
| $ | 5,884 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Financial assets and liabilities measured at fair value at January 31, 2009 on a recurring basis are summarized below (amounts in thousands): | Financial assets and liabilities measured at fair value at January 31, 2009 on a recurring basis are summarized below (amounts in thousands): | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total Fair |
| |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Cash Equivalents |
| $ | 91,601 |
| $ | — |
| $ | — |
| $ | 91,601 |
| |||||||||||||
Investments in Debt Securities |
| — |
| 933 |
| — |
| 933 |
| |||||||||||||||||
Restricted Investments |
| 1,351 |
| — |
| — |
| 1,351 |
| |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
Total Assets |
| $ | 92,952 |
| $ | 933 |
| $ | — |
| $ | 93,885 |
| |||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Derivative Liabilities |
| $ | — |
| $ | 6,028 |
| $ | — |
| $ | 6,028 |
| |||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
Total Liabilities |
| $ | — |
| $ | 6,028 |
| $ | — |
| $ | 6,028 |
| |||||||||||||
|
|
|
|
|
|
|
|
| No financial instruments were elected to be measured at fair value in accordance with |
|
|
The Company reviews its long-lived assets balances for impairment on at least an annual basis based on the carrying value of these assets as of January 31. As a result of the increase in vacant owned real estate during the latter half of fiscal year 2009, the Company tested certain long-lived assets for impairment using a fair value measurement approach. The fair value measurement approach utilizes a number of significant unobservable inputs or Level 3 assumptions. These assumptions include, among others, the implied fair value of these assets using an income approach by preparing a discounted cash flow analysis and a the implied fair value of these assets using recent sales data of comparable properties, and other subjective assumptions. Upon completion of its impairment analysis during the fourth quarter of fiscal year 2009, the Company determined that the carrying value of certain long-lived assets exceeded the fair value of these assets. Accordingly, the Company recorded long-lived asset impairment charges of approximately $1.5 million to properly reflect the carrying value of these assets. |
Assets measured at fair value at January 31, 2010 on a non-recurring basis are summarized below (amounts in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| |||||
|
|
|
|
|
|
| ||||||||||
| ||||||||||||||||
Property and equipment, net |
| $ | 6,161 |
| $ | — |
| $ | — |
| $ | 6,161 |
| $ | 1,533 |
|
| SYNTHETIC FUEL LIMITED PARTNERSHIPS |
|
|
| During fiscal year 1998, the Company invested in two limited partnerships that produced synthetic fuels. The limited partnerships earned Federal income tax credits under Section 29/45K of the Internal Revenue Code based upon the quantity and content of synthetic fuel production and sales. Credits under Section 29/45K are available for qualified fuels sold before January 1, 2008 (see Note |
|
|
| Through a series of sales, the Company sold its ownership interest in Colona Synfuel Limited Partnership L.L.L.P (Colona), a limited partnership that owned a synthetic fuel facility, and generally received cash payments from the sales on a quarterly basis through fiscal year 2007. The Company earned and reported as income approximately $0.5 million |
|
|
| The Company sold its entire ownership interest in Somerset Synfuel, L.P., (Somerset), a limited partnership that owned two synthetic fuel facilities, and generally received cash payments from the sales on a quarterly basis through fiscal year 2007. The Company earned and reported as income approximately $0.2 million |
|
|
| The Section 29/45K tax credit program expired, under current law, at the end of 2007. Thus, the Company does not expect to recognize any income or loss from the Colona and Somerset sales beyond fiscal year 2008. |
|
|
| Income from synthetic fuel investments also includes income related to the sale on March 30, 2004 of the Company’s membership interest in the limited liability company that owned a synthetic fuel facility in Gillette, Wyoming. In addition to certain other payments, the Company was eligible to receive $1.50 per ton of “qualified production” produced by the facility and sold through 2007. The plant was subsequently sold and during the third quarter of fiscal year 2006, the Company modified its agreement with the owners and operators of the synthetic fuel facility. Based on the terms of the modified agreement, the Company currently is not able to determine the likelihood and timing of collecting payments related to production occurring after September 30, 2006. Thus, the Company cannot currently determine the timing of income recognition, if any, related to production occurring subsequent to September 30, 2006. The Company |
|
|
| BUSINESS COMBINATIONS |
|
|
| On September 30, 2006, the Company acquired 47 percent of the outstanding membership units of Levelland Hockley County Ethanol, LLC (“Levelland Hockley”). Levelland Hockley was a |
development stage entity that completed construction of an ethanol production facility in Levelland, Texas during fiscal year 2008. Levelland Hockley commenced production operations in March of 2008. The ethanol plant has a | |
|
|
| The results of Levelland Hockley’s operations have been included in the consolidated financial statements subsequent to the acquisition date and are included in the Company’s alternative energy segment. The aggregate purchase price was $11.5 million, all of which was cash. |
|
|
| The acquisition was recorded by allocating the total purchase price to the assets acquired, including intangible assets and liabilities assumed, based on their estimated fair values at the acquisition date. The excess of the cost of the acquisition over the net amounts assigned to the fair values of the assets acquired and liabilities assumed was recorded as goodwill. |
|
|
| As a result of |
|
|
| The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition: |
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Cash |
| $ | 13,165 |
|
| $ | 13,165 |
|
Accrued interest receivable |
| 24 |
|
| 24 |
| ||
Property, plant and equipment |
| 595 |
|
| 595 |
| ||
Prepaid loan fees |
| 3,200 |
|
| 3,200 |
| ||
Deposits |
| 5,220 |
|
| 5,220 |
| ||
Goodwill |
| 1,322 |
|
| 1,322 |
| ||
|
|
|
|
| ||||
Total assets acquired |
| 23,526 |
|
| 23,526 |
| ||
Current liabilities |
| (577 | ) |
| (583 | ) | ||
Minority interest |
| (11,449 | ) | |||||
Noncontrolling interest |
| (11,443 | ) | |||||
|
|
|
|
| ||||
Net purchase price |
| $ | 11,500 |
|
| $ | 11,500 |
|
|
|
|
|
|
|
|
| Prepaid loan fees have an estimated useful life of 6 years. The entire amount of goodwill is expected to be deductible for income tax purposes. |
|
|
| Effective July 1, 2007, the Company converted its $5.0 million convertible secured promissory note, which increased its ownership interest in Levelland Hockley to 56%. There was a $200,000 premium over book value related to the conversion; the premium was recorded as a non-cash distribution to minority interest holders on the consolidated statement of shareholders’ equity. |
|
|
|
|
|
|
|
|
|
| |
|
| Year Ended |
| ||
|
|
| |||
|
|
|
|
| |
Net sales and revenue |
| $ | 201,881 |
| |
Net income |
| $ | 10,871 |
| |
Basic net income per share |
| $ | 1.06 |
| |
Diluted net income per share |
| $ | 0.94 |
|
| |
On October 30, 2007, the Company acquired 74 percent of the outstanding membership units of One Earth Energy, LLC (“One Earth”). The results of One Earth’s operations have been included in the consolidated financial statements subsequent to the acquisition date and are included in the Company’s alternative energy segment. The aggregate purchase price was $50.8 million, all of which was cash. |
|
|
| The acquisition was recorded by allocating the total purchase price to the assets acquired, including intangible assets and liabilities assumed, based on their estimated fair values at the acquisition date. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of |
|
|
|
|
| ||||
(In thousands) |
|
|
| |||||
|
|
|
|
|
|
|
| |
Cash |
| $ | 59,313 |
|
| $ | 59,313 |
|
Property, plant and equipment |
| 9,899 |
|
| 9,899 |
| ||
Prepaid expenses |
| 307 |
|
| 307 |
| ||
Prepaid loan fees |
| 1,012 |
|
| 1,012 |
| ||
|
|
|
|
| ||||
Total assets acquired |
| 70,531 |
|
| 70,531 |
| ||
Current liabilities |
| (1,922 | ) |
| (1,922 | ) | ||
Long term debt |
| (1,010 | ) |
| (1,010 | ) | ||
Minority interest |
| (16,832 | ) | |||||
Noncontrolling interest |
| (16,832 | ) | |||||
|
|
|
|
| ||||
Net purchase price |
| $ | 50,767 |
|
| $ | 50,767 |
|
|
|
|
|
|
|
|
| Prepaid loan fees have an estimated useful life of 6 years. One Earth |
|
|
| The unaudited financial information in the table below summarizes the combined results of operations of the Company and One Earth, on a pro forma basis, as though the companies had been combined as of the beginning of |
|
|
|
|
|
|
|
| ||||||
|
| Years Ended |
| ||||||||||
|
|
|
|
|
|
| |||||||
|
| 2008 |
| 2007 |
|
| Year Ended |
| |||||
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||
Net sales and revenue |
| $ | 194,787 |
| $ | 201,881 |
|
| $ | 382 |
| ||
Net income |
| 33,661 |
| 11,075 |
|
| 33,661 |
| |||||
Basic net income per share |
| 3.23 |
| 1.08 |
|
| 3.23 |
| |||||
Diluted net income per share |
| 2.87 |
| 0.96 |
|
| 2.87 |
| |||||
|
|
|
|
|
|
| The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of each of the periods presented. |
|
|
| OTHER ASSETS |
|
|
| The components of other noncurrent assets at January 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| January 31, |
|
| January 31, |
| ||||||||
|
|
|
|
| ||||||||||
|
| 2009 |
| 2008 |
|
| 2010 |
| 2009 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
| ||||||||
Prepaid loan fees |
| $ | 4,515 |
| $ | 5,187 |
|
| $ | 3,633 |
| $ | 4,515 |
|
Prepaid commissions |
| 7,563 |
| 9,208 |
|
| 4,320 |
| 7,563 |
| ||||
Equipment deposit |
| — |
| 293 |
| |||||||||
Other |
| 336 |
| 115 |
|
| 927 |
| 336 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Total |
| $ | 12,414 |
| $ | 14,803 |
|
| $ | 8,880 |
| $ | 12,414 |
|
|
|
|
|
|
|
|
|
|
| Prepaid loan fees represent amounts paid to obtain both mortgage debt and borrowings under the |
|
|
|
|
|
|
|
|
|
Years Ended January 31, |
| Amortization |
|
| Amortization |
| ||
|
|
|
| |||||
|
|
|
|
| ||||
2010 |
| $ | 1,029 |
| ||||
2011 |
| 977 |
|
| $ | 1,117 |
| |
2012 |
| 866 |
|
| 986 |
| ||
2013 |
| 744 |
|
| 854 |
| ||
2014 |
| 414 |
|
| 483 |
| ||
2015 |
| 187 |
| |||||
Thereafter |
| 485 |
|
| 6 |
| ||
|
|
|
|
| ||||
Total |
| $ | 4,515 |
|
| $ | 3,633 |
|
|
|
|
|
|
|
|
| Prepaid commissions represent sales commissions paid in connection with extended warranties sold by the Company’s former retail sales staff. Such amounts are capitalized and amortized ratably over the life of the extended warranty plan sold. Future amortization of prepaid commissions is as follows (amounts in thousands): |
|
|
|
|
|
|
|
|
|
Years Ended January 31, |
| Amortization |
|
| Amortization |
| ||
|
|
|
| |||||
|
|
|
|
| ||||
2010 |
| $ | 3,386 |
| ||||
2011 |
| 2,336 |
|
| $ | 2,396 |
| |
2012 |
| 1,154 |
|
| 1,195 |
| ||
2013 |
| 544 |
|
| 565 |
| ||
2014 |
| 143 |
|
| 164 |
| ||
Thereafter |
| — |
| |||||
|
|
|
|
| ||||
Total |
| $ | 7,563 |
|
| $ | 4,320 |
|
|
|
|
|
|
|
|
| NET INCOME PER SHARE FROM CONTINUING OPERATIONS |
|
|
| The Company reports net income per share in accordance with |
by the weighted average number of common shares outstanding during the year. Diluted net income per share is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding and dilutive common share equivalents during the year. Common share equivalents for each year include the number of shares issuable upon the exercise of outstanding options, less the shares that could be purchased under the treasury stock method. The following table reconciles the basic and diluted net income per share from continuing operations computations for each year presented for fiscal years |
|
|
|
|
|
|
|
|
|
|
|
|
| 2007 |
| |||||||
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Income |
| Shares |
| Per Share |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share from continuing operations |
| $ | 26,393 |
|
| 10,420 |
| $ | 2.53 |
|
Effect of stock options |
|
|
|
|
| 1,301 |
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share from continuing operations |
| $ | 26,393 |
|
| 11,721 |
| $ | 2.25 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| 2006 |
| |||||||
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Income |
| Shares |
| Per Share |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share from continuing operations |
| $ | 9,982 |
|
| 10,291 |
| $ | 0.97 |
|
Effect of stock options |
|
|
|
|
| 1,285 |
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share from continuing operations |
| $ | 9,982 |
|
| 11,576 |
| $ | 0.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
| |||||||
|
|
| ||||||||
| ||||||||||
|
| Income |
| Shares |
| Per Share |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share from continuing operations attributable to REX common shareholders |
| $ | 5,158 |
|
| 9,254 |
| $ | 0.55 |
|
Effect of stock options |
|
|
|
|
| 297 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted net income per share from continuing operations attributable to REX common shareholders |
| $ | 5,158 |
| $ | 9,551 |
| $ | 0.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2007 |
| |||||||
|
|
| ||||||||
| ||||||||||
|
| Income |
| Shares |
| Per Share |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share from continuing operations attributable to REX common shareholders |
| $ | 19,588 |
|
| 10,420 |
| $ | 1.88 |
|
Effect of stock options |
|
|
|
|
| 1,301 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted net income per share from continuing operations attributable to REX common shareholders |
| $ | 19,588 |
|
| 11,721 |
| $ | 1.67 |
|
|
|
|
|
|
|
|
| As there was a loss from continuing operations in fiscal year 2008, basic loss per share from continuing operations equals diluted loss per share from continuing operations. For fiscal years 2009, 2008 |
|
|
| SALE AND LEASEBACK TRANSACTIONS AND OTHER LEASES |
|
|
| On September 16, 2008, the Company completed a transaction for the sale and partial leaseback of its Cheyenne, Wyoming distribution center under a three year lease term. A pre-tax gain, classified as |
Company | |
| |
|
|
| On April 30, 2007, the Company completed a transaction for the sale of 86 of its current and former store locations to KLAC REX, LLC (“Klac”) for $74.5 million in cash, before selling expenses. The Company also entered into leases to leaseback 40 of the properties from Klac for initial lease terms expiring January 31, |
|
|
| This transaction resulted in a gain (realized and deferred) of $14.8 million. |
|
|
|
|
|
|
|
| |
Classification of Gain |
| 2008 |
| 2007 |
| |||
|
|
| ||||||
|
|
|
|
|
|
|
| |
Continuing Operations |
| $ | 1,396 |
| $ | 2,168 |
| |
Discontinued Operations |
|
| 97 |
|
| 7,211 |
| |
|
|
|
| |||||
|
|
|
|
|
|
|
| |
Total Pre-Tax Gain |
| $ | 1,493 |
| $ | 9,379 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Property Category |
| Number |
| Deferred |
| Recognized |
| ||||
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| |
Vacated |
|
| 62 |
| $ | — |
| $ | 7,707 |
| |
Leased until January 31, 2010 |
|
| 12 |
|
| 3,279 |
|
| 740 |
| |
Leased until January 31, 2010 |
|
| 12 |
|
| 654 |
|
| 2,425 |
| |
|
|
|
|
| |||||||
Total |
|
| 86 |
| $ | 3,933 |
| $ | 10,872 |
| |
|
|
|
|
|
|
|
|
|
|
|
Years Ended January 31, |
| Amortization |
| |
|
| |||
|
|
|
|
|
2010 |
| $ | 1,193 |
|
2011 |
|
| 539 |
|
2012 |
|
| 539 |
|
2013 |
|
| 539 |
|
2014 |
|
| 539 |
|
Thereafter |
|
| 584 |
|
|
|
| ||
Total |
| $ | 3,933 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
| Minimum |
| Gain |
| Sublease |
| Total |
|
| Minimum |
| Sublease |
| Total |
| ||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2010 |
| $ | 85 |
| $ | (117 | ) | $ | (32 | ) | ||||||||||||||||||||
2009 | 2009 |
| $ | 5,288 |
| $ | (1,596 | ) |
| $ | (235 | ) |
| $ | 3,457 |
|
| 78 |
| (136 | ) |
| (58 | ) | ||||||
2008 | 2008 |
|
| 4,671 |
|
| (1,175 | ) |
|
| (224 | ) |
| 3,272 |
|
| 84 |
| (134 | ) |
| (50 | ) | |||||||
2007 |
|
| 2,211 |
|
| (50 | ) |
|
| (218 | ) |
| 1,943 |
|
|
|
| The Company is secondarily liable under lease arrangements when there is a sublessee. These arrangements arise out of the normal course of business when the Company decides to close stores prior to lease expiration and is able to sublease the facility. As of January 31, |
|
|
|
|
|
|
|
|
|
Years Ended |
|
| Minimum |
| Sublease |
| ||
|
|
|
| |||||
|
|
|
|
|
|
| ||
2010 |
| $ | 3,544 |
| $ | 193 |
| |
2011 (a) |
|
| 851 |
|
| 110 |
| |
2012 (a) |
|
| 353 |
|
| 46 |
| |
2013 (a) |
|
| 60 |
|
| 40 |
| |
2014 (a) |
|
| 60 |
|
| 40 |
| |
Thereafter (a) |
|
| 65 |
|
| 43 |
| |
|
|
|
| |||||
|
|
|
|
|
|
|
| |
|
| $ | 4,933 |
| $ | 472 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
| Minimum |
| Sublease |
| ||
|
|
| |||||
|
|
|
|
|
|
|
|
2011 (a) |
| $ | 66 |
| $ | 65 |
|
2012 (a) |
|
| 26 |
|
| 6 |
|
|
|
|
| ||||
| |||||||
|
| $ | 92 |
| $ | 71 |
|
|
|
|
|
|
| |
| (a) | Amounts do not include minimum rentals related to |
|
| |
| At January 31, |
|
|
| As of January 31, |
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
| Minimum |
|
| Minimum |
| ||||
|
|
|
| |||||||
|
|
|
|
|
|
|
|
| ||
2010 |
| $ | 2,198 |
| ||||||
2011 | 2011 |
| 3,042 |
| 2011 |
| $ | 1,122 |
| |
2012 | 2012 |
| 3,345 |
| 2012 |
| 1,043 |
| ||
2013 | 2013 |
| 3,176 |
| 2013 |
| 1,004 |
| ||
2014 | 2014 |
| 3,053 |
| 2014 |
| 905 |
| ||
2015 | 2015 |
| 847 |
| ||||||
Thereafter | Thereafter |
| 4,761 |
| Thereafter |
| 576 |
| ||
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
| ||
|
|
| $ | 19,575 |
|
|
| $ | 5,497 |
|
|
|
|
|
|
|
|
|
|
| Levelland Hockley leases certain real estate and equipment for its ethanol plant. These leases have been classified as capital leases. The following is a summary, at January 31, |
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
| Minimum |
|
|
| Minimum |
| |||
|
|
|
|
| ||||||
|
|
|
|
| ||||||
2010 |
| $ | 569 |
| ||||||
2011 | 2011 |
| 569 |
| 2011 |
| $ | 569 |
| |
2012 | 2012 |
| 569 |
| 2012 |
| 569 |
| ||
2013 | 2013 |
| 524 |
| 2013 |
| 524 |
| ||
2014 | 2014 |
| 393 |
| 2014 |
| 393 |
| ||
|
|
|
|
|
|
| ||||
|
|
|
| |||||||
Total minimum lease payments | Total minimum lease payments |
| 2,624 |
| Total minimum lease payments |
| 2,055 |
| ||
Less amount representing interest |
| 302 |
| |||||||
Less amoun representing interest | Less amoun representing interest |
| 172 |
| ||||||
|
|
|
|
|
|
| ||||
Present value of minimum capital lease payments | Present value of minimum capital lease payments |
| 2,322 |
| Present value of minimum capital lease payments |
| 1,883 |
| ||
Less current maturities of capital lease obligtions |
| 442 |
| |||||||
Less current maturities of capital lease obligations | Less current maturities of capital lease obligations |
| 475 |
| ||||||
|
|
|
|
|
|
| ||||
Long term capital lease obligtions |
| $ | 1,880 |
| ||||||
Long term capital lease obligations | Long term capital lease obligations |
| $ | 1,408 |
| |||||
|
|
|
|
|
|
|
|
|
| The composition of capital leases reflected as property and equipment at January 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
| 2008 |
|
| 2010 |
| 2009 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Buildings and improvements |
| $ | 2,512 |
| $ | — |
|
| $ | 50 |
| $ | 50 |
|
Machinery, equipment and fixtures |
| 410 |
| — |
|
| 2,872 |
| 2,872 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
| 2,922 |
| — |
|
| 2,922 |
| 2,922 |
| ||||
Less: accumulated amortization |
| (141 | ) |
| — |
|
| (399 | ) |
| (141 | ) | ||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ | 2,781 |
| $ | — |
|
| $ | 2,523 |
| $ | 2,781 |
|
|
|
|
|
|
|
|
|
|
| COMMON STOCK |
|
|
| During fiscal years 2009, 2008 |
80 $18,045,000, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| January 31, |
| January 31, |
|
| January 31, |
| January 31, |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Authorized shares |
| 45,000 |
| 45,000 |
|
| 45,000 |
| 45,000 |
| ||||
Issued shares |
| 29,853 |
| 29,813 |
|
| 29,853 |
| 29,853 |
| ||||
Outstanding shares |
| 9,382 |
| 10,719 |
|
| 9,808 |
| 9,382 |
|
|
|
| |
|
|
11. | LONG-TERM DEBT AND INTEREST RATE SWAPS |
|
|
| Long-term debt consists of notes payable secured by certain land, buildings and equipment. Interest rates ranged from 2.3% to |
rates segregated as fixed or variable and by term for fiscal years |
|
|
|
|
|
|
|
|
Fiscal Year 2008 |
| ||||||
|
|
|
|
|
|
|
|
Interest Rates |
|
| Maturity |
| Balance |
| |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
| Variable |
|
|
|
|
2.30% - 5.44% |
|
| Within five years |
| $ | 43,113 |
|
5.29% |
|
| Five to six years |
|
| 56,042 |
|
|
|
|
|
|
| ||
|
|
|
|
| $ | 99,155 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| Fixed |
|
|
|
|
6.75% - 7.21% |
|
| Within five years |
| $ | 2,243 |
|
6.41% - 8.40% |
|
| Five to ten years |
|
| 7,693 |
|
|
|
|
|
|
| ||
|
|
| Total fixed |
| $ | 9,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2009 |
| |||||
|
|
|
|
|
|
|
Interest Rates |
| Maturity |
| Balance |
| |
|
|
| ||||
|
|
|
|
|
|
|
|
| Variable |
|
|
|
|
3.38% - 4.25% |
| Within five years |
| $ | 135,790 |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| Fixed |
|
|
|
|
8.40% |
| Five to six years |
| $ | 2,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2007 | |||||||
|
|
|
|
|
|
|
|
Interest Rates |
|
| Maturity |
| Balance |
| |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
| Variable |
|
|
|
|
5.68% - 8.69% |
|
| Within five years |
| $ | 27,540 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| Fixed |
|
|
|
|
6.75% - 7.21% |
|
| Within five years |
| $ | 2,836 |
|
3.70% - 8.40% |
|
| Five to ten years |
|
| 8,949 |
|
|
|
|
|
|
| ||
|
|
| Total fixed |
| $ | 11,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2008 | ||||||
|
|
|
|
|
|
|
Interest Rates |
| Maturity |
| Balance |
| |
|
|
| ||||
|
|
|
|
|
| |
|
| Variable |
|
|
|
|
2.30% - 5.44% |
| Within five years |
| $ | 43,113 |
|
5.29% |
| Five to six years |
|
| 56,042 |
|
|
|
|
|
| ||
|
| Total variable |
| $ | 99,155 |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| Fixed |
|
|
|
|
6.75% - 7.21% |
| Within five years |
| $ | 2,243 |
|
6.41% - 8.40% |
| Five to ten years |
|
| 7,693 |
|
|
|
|
|
| ||
|
| Total fixed |
| $ | 9,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending |
|
|
|
|
|
| |||
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
| ||
2010 |
| $ | 7,868 |
| |||||
2011 |
| 14,497 |
| 2011 |
| $ | 12,831 |
| |
2012 |
| 14,609 |
| 2012 |
| 14,628 |
| ||
2013 |
| 15,492 |
| 2013 |
| 15,253 |
| ||
2014 |
| 35,376 |
| 2014 |
| 35,387 |
| ||
2015 | 2015 |
| 59,646 |
| |||||
Thereafter |
| 65,207 |
| Thereafter |
| 375 |
| ||
|
|
|
|
|
| ||||
|
| $ | 153,049 |
|
|
| $ | 138,120 |
|
|
|
|
|
|
|
|
|
| In fiscal year |
| |||
|
| ||
| The fair value of the Company’s long-term debt at January 31, | ||
|
| ||
| Levelland Hockley Subsidiary Level Debt | ||
|
| ||
|
| ||
| |||
|
| ||
|
| ||
|
| ||
| |||
|
| ||
| Levelland Hockley paid approximately $3.5 million for various fees associated with the construction and term loan agreement. These fees are recorded as prepaid loan fees and will be amortized ratably over the loan term. At January 31, |
Levelland Hockley was approximately | |
|
|
| Levelland Hockley entered into a forward interest rate swap in the notional amount of $43.7 million with Merrill Lynch Capital during fiscal year 2007. The swap fixed the variable interest rate of the term loan subsequent to the plant completion date at 7.89%. The swap settlements commenced as of April 30, 2008 and terminate on April 30, 2010. At January 31, |
recorded a liability of | |
|
|
| One Earth Energy Subsidiary Level Debt |
|
|
|
|
(3.3% to 3.4% at January 31, 2010). Borrowings are secured by all | |
One Earth has a $10.0 million revolving loan facility that matures September 17, 2010. Borrowings under this facility bear interest at the greater of 2.0% or LIBOR plus 310 basis points. One Earth has no outstanding borrowings on the revolving loan as of January 31, 2010. | |
One Earth has paid approximately $1.4 million in financing costs. These costs are recorded as prepaid loan fees and | |
|
|
| 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 |
12. | 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 variable rate debt these entities have. The Company does not engage in trading activities involving derivative contracts for which a lack of marketplace quotations would necessitate the use of fair value estimation techniques. As of January 31, 2010, the notional value of the Levelland Hockley and One Earth interest rate swaps were $36.0 million and $72.2 million, respectively. At January 31, 2010, the Company has recorded a liability of $5.9 million related to the fair value of the swaps. The change in fair value was recorded in the |
which are not designated as cash flow hedges at January 31, 2010 are summarized in the table below (amounts in thousands): |
|
|
|
|
|
|
|
|
|
| Notionaol |
| Fair Value |
| ||
|
|
|
|
|
|
|
|
Interest rate swaps |
| $ | 108,238 |
| $ | 5,884 |
|
|
|
|
|
|
|
|
|
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 $2,487,000 and $3,797,000 and $2,601,000, in fiscal years 2009, 2008 and 2007, respectively. | |
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 as normal purchases and normal sales pursuant to the “normal purchases and normal sales” scope exemption of ASC 815, “Derivatives and Hedging”. | |
Levelland Hockley has forward purchase contracts for 2,261,000 bushels of sorghum, the principal raw material for its ethanol plant. Levelland Hockley expects to take delivery of the sorghum through March 2010. The unrealized loss of such contracts was approximately $327,000 at January 31, 2010. | |
One Earth has forward purchase contracts for 3,501,000 bushels of corn, the principal raw material for its ethanol plant. One Earth expects to take delivery of the corn through March 2010. The unrealized gain of such contracts was approximately $1,904,000 at January 31, 2010. | |
Levelland Hockley has sales commitments for 4,220,000 gallons of ethanol and 112,400 tons of distiller grains. Levelland Hockley expects to deliver the ethanol and distiller grains through March 2010. The unrealized loss of such contracts was approximately $81,000 at January 31, 2010. | |
One Earth has sales commitments for 10.3 million gallons of ethanol and 25,200 tons of distiller grains. One Earth expects to deliver the ethanol and distiller grains through March 2010. The unrealized loss of such contracts was approximately $2.1 million at January 31, 2010. | |
|
|
| EMPLOYEE BENEFITS |
|
|
| Stock Option Plans – The Company maintains the REX Stores Corporation 1995 Omnibus Stock Incentive Plan and the REX Stores Corporation 1999 Omnibus Stock Incentive Plan (the “Omnibus Plans”). Under the Omnibus Plans, the Company may grant to officers and key employees awards in the form of non-qualified stock options, stock appreciation rights, restricted stock, other stock-based awards and cash incentive awards. The Omnibus Plans also provide for yearly grants of non-qualified stock options to directors who are not employees of the Company. The exercise price of each option must be at least 100% of the fair market value of the Company’s common stock on the date of grant. A maximum of 4,500,000 shares of common stock are authorized for issuance under each of the Omnibus |
Plans. On January 31, | |
|
|
| On April 17, 2001, the Company’s Board of Directors approved a grant of non-qualified stock options to two key executives for 1,462,500 shares at an exercise price of $8.01, which represented |
the market price on the date of grant. These became fully vested as of December 31, 2005. | |
|
|
| On May 26, 2005, the Company’s Board of Directors approved accelerating the vesting of out-of-the-money, unvested stock options held by current employees, including non-director executive officers. An option was considered out-of-the-money if the stated option exercise price was greater than $13.82, which was the closing price of the Company’s common stock on May 26, 2005. As a result, options to purchase approximately 118,000 shares, including options to purchase approximately 60,000 shares held by non director executive officers, became immediately exercisable. As a result of the acceleration, stock option expense was reduced by approximately $181,000 ($118,000, net of tax) during fiscal year |
|
|
| The following summarizes stock option activity for fiscal years 2009, 2008 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2008 |
| 2007 |
| 2006 |
|
| 2009 |
| 2008 |
| 2007 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
|
| Shares |
| Weighted |
| Shares |
| Weighted |
| Shares |
| Weighted |
|
| Shares |
| Weighted |
| Shares |
| Weighted |
| Shares |
| Weighted |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Outstanding—Beginning of year |
| 3,016 |
| $ | 9.16 |
| 4,337 |
| $ | 8.18 |
| 4,674 |
| $ | 8.15 |
|
| 2,715 |
| $ | 9.63 |
| 3,016 |
| $ | 9.16 |
| 4,337 |
| $ | 8.18 |
| |||
Exercised |
| (299 | ) |
| 4.86 |
| (1,266 | ) |
| 5.64 |
| (323 | ) |
| 7.69 |
|
| (1,683 | ) |
| 8.87 |
| (299 | ) |
| 4.86 |
| (1,266 | ) |
| 5.64 |
| |||
Canceled or expired |
| (2 | ) |
| 12.64 |
| (55 | ) |
| 12.67 |
| (14 | ) |
| 12.65 |
|
| (208 | ) |
| 13.75 |
| (2 | ) |
| 12.64 |
| (55 | ) |
| 12.67 |
| |||
|
|
|
|
|
|
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|
|
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|
|
|
| |||||||||||||||||||||
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Outstanding—End of year |
| 2,715 |
| $ | 9.63 |
| 3,016 |
| $ | 9.16 |
| 4,337 |
| $ | 8.18 |
|
| 824 |
| $ | 10.14 |
| 2,715 |
| $ | 9.63 |
| 3,016 |
| $ | 9.16 |
| |||
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| |||||||||||||||||||||
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|
|
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|
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|
|
|
|
|
|
|
|
|
| |||||||||
Exercisable—End of year |
| 2,661 |
| $ | 9.57 |
| 2,854 |
| $ | 8.96 |
| 4,007 |
| $ | 7.81 |
|
| 824 |
| $ | 10.14 |
| 2,661 |
| $ | 9.57 |
| 2,854 |
| $ | 8.96 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Price ranges and other information for stock options outstanding as of January 31, |
follows (amounts in thousands, except per share amounts): |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
| Outstanding |
| Exercisable |
|
| Outstanding and Exercisable |
| |||||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||
Range of |
| Shares |
| Weighted |
| Weighted |
| Shares |
| Weighted |
|
| Shares |
| Weighted |
| Weighted |
| |||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
$5.11 to $7.67 |
| 12 |
| $ | 5.11 |
| 0.14 |
| 12 |
| $ | 5.11 |
| ||||||||||||||
$8.01 to $12.02 |
| 1,964 |
| 8.26 |
| 2.08 |
| 1,964 |
| 8.26 |
| $8.01 to $12.02 |
| 513 |
| $ | 8.25 |
| 1.12 |
| |||||||
$12.04 to $16.04 |
| 739 |
| 13.34 |
| 4.44 |
| 685 |
| 13.41 |
| $12.04 to $16.04 |
| 311 |
| 13.27 |
| 3.46 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| 2,715 |
| $ | 9.63 |
| 2.72 |
| 2,661 |
| $ | 9.57 |
|
|
| 824 |
| $ | 10.14 |
| 2.00 |
| |||||
|
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|
|
|
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|
|
|
|
|
|
|
|
| Profit Sharing Plan – The Company has a qualified, noncontributory profit sharing plan (the “Plan”) covering full-time employees who meet certain eligibility requirements. The Plan also allows for additional 401(k) saving contributions by participants, along with certain company matching |
contributions. Aggregate contributions to the Plan are determined annually by the Board of Directors and are not to exceed 15% of total compensation paid to all participants during such year. The Company contributed approximately $1,800, $15,000 | |
|
|
| RESTRUCTURING AND OTHER |
|
|
| During the fourth quarter of fiscal year 2008, the Company entered into an agreement with Appliance Direct, Inc. (“Appliance Direct”) 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. |
|
|
| The Company agreed to pay Appliance Direct, as of the implementation date defined in the agreement, an amount equal to the adjusted book value liability of the Company’s customer extended service plans for certain appliances previously sold at locations that Appliance Direct |
|
|
| 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 Company’s retail business to Appliance Direct. |
On July 31, 2009, the Company entered into a Third Amendment to Agreement and a Second Global Amendment to Multiple Leases (together, the “Amendments”) with Appliance Direct. The Amendments (i) eliminated the right of Appliance Direct to purchase stores it leased from the Company (ii) eliminated the right of Appliance Direct to terminate certain leases in the future and (iii) eliminated the obligation of Appliance Direct to lease 22 properties from the Company. The terms of the 15 leases and one sub-lease under which the Company leased property to Appliance Direct remained in full force except as modified by the Amendments. As a result of these Amendments, the Company reduced the accruals for employee severance and bonus costs by approximately $0.7 million, for investment banker fees by approximately $0.3 million and for the ESP Credit by approximately $0.3 million during the second quarter of fiscal year 2009. |
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. | |
The Company completed its exit of the retail business as of July 31, 2009. The following is a summary of restructuring charges and payments (in thousands): |
|
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|
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|
|
|
|
|
| Employee |
| Investment |
| ESP Credit |
| Total |
|
| Employee |
| Lease |
| Investment |
| ESP |
| Total |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Balance, January 31, 2008 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Restructuring charges |
| 2,839 |
| 834 |
| 498 |
| 4,171 |
|
| 2,839 |
| — |
| 834 |
| 498 |
| 4,171 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Balance, January 31, 2009 |
| $ | 2,839 |
| $ | 834 |
| $ | 498 |
| $ | 4,171 |
|
| 2,839 |
| — |
| 834 |
| 498 |
| 4,171 |
| |||||
Restructuring charges |
| 85 |
| 2,951 |
| — |
| — |
| 3,036 |
| ||||||||||||||||||
Reversal of restructuring charges |
| (706 | ) |
| (41 | ) |
| (325 | ) |
| (287 | ) |
| (1,359 | ) | ||||||||||||||
Payments of restructuring |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
liabilities |
| (1,999 | ) |
| (2,471 | ) |
| (509 | ) |
| (211 | ) |
| (5,190 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Balance, January 31, 2010 |
| $ | 219 |
| $ | 439 |
| $ | — |
| $ | — |
| $ | 658 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
Of the total accrual balance of $658,000, $511,000 is classified within current liabilities and $147,000 is classified within long term liabilities. The restructuring charges are all classified as discontinued operations. The accrued balances at January 31, 2010 are management’s best estimate of the amounts to be incurred for the related categories. | |
| COMMITMENTS |
|
|
| Levelland Hockley has |
| |
| |
|
| |
| |
|
|
| One Earth has a non-exclusive contract with an unrelated party (“Marketer”) for ethanol marketing services. Under the terms of the contract, the Marketer will purchase |
|
|
| One Earth has a contract with an unrelated party (“Marketer”) for distillers grains marketing. Under the terms of the contract, the Marketer will purchase all of One Earth’s distillers grain production during the term of the contract. |
|
|
| One Earth has a contract with an unrelated party to lease rail cars. Under the terms of the contract, One Earth will pay approximately $55,000 per month. The contract has a term of three years and |
|
|
| One Earth has a contract with an unrelated party to provide use of a natural gas pipeline. Under the terms of the contract, One Earth will pay approximately $37,000 per month. The contract has a term of ten years and |
|
|
| INCOME TAXES |
|
|
| The provision (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2008 |
| 2007 |
| 2006 |
|
| 2009 |
| 2008 |
| 2007 |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Federal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current |
| $ | (3,101 | ) | $ | 11,765 |
| $ | 880 |
|
| $ | (8,547 | ) | $ | (3,422 | ) | $ | 8,134 |
|
Deferred |
| 489 |
| 2,685 |
| 4,109 |
|
| 12,561 |
| 489 |
| 2,685 |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| (2,612 | ) |
| 14,450 |
| 4,989 |
|
| 4,014 |
| (2,933 | ) |
| 10,819 |
| ||||
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
State and Local: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current |
| 113 |
| 293 |
| 54 |
|
| 142 |
| 74 |
| 203 |
| ||||||
Deferred |
| 112 |
| 224 |
| (154 | ) |
| 397 |
| 112 |
| 223 |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| 225 |
| 517 |
| (100 | ) |
| 539 |
| 186 |
| 426 |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| $ | (2,387 | ) | $ | 14,967 |
| $ | 4,889 |
|
| $ | 4,553 |
| $ | (2,747 | ) | $ | 11,245 |
|
|
|
|
|
|
|
|
|
|
|
|
| The tax effects of significant temporary differences representing deferred tax assets and liabilities are as follows as of January 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
| 2008 |
|
| 2010 |
| 2009 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
| ||||
Deferral of service contract income |
| $ | 6,049 |
| $ | 8,023 |
|
| $ | 3,463 |
| $ | 6,049 |
|
Accrued liabilities |
| 2,341 |
| 1,851 |
|
| 504 |
| 2,341 |
| ||||
Inventory accounting |
| 1,320 |
| 1,949 |
|
| 215 |
| 1,320 |
| ||||
Income from synthetic fuel investments |
| — |
| 1,333 |
| |||||||||
Installment sales of limited partnerships |
| 1,297 |
| 1,297 |
|
| 1,297 |
| 1,297 |
| ||||
Sale and leaseback accounting |
| 1,759 |
| 2,283 |
|
| — | �� |
| 1,759 |
| |||
Derivative accounting |
| 1,699 |
| 678 |
|
| 1,729 |
| 1,699 |
| ||||
Stock based compensation |
| 1,436 |
| 1,153 |
|
| 464 |
| 1,436 |
| ||||
Depreciation |
| — |
| 1,255 |
| |||||||||
Federal net operating loss carryforward |
| 156 |
| — |
| |||||||||
AMT credit carryforward |
| 15,442 |
| 12,595 |
|
| 23,449 |
| 15,442 |
| ||||
State net operating loss carryforward |
| 487 |
| 206 |
|
| 1,473 |
| 487 |
| ||||
Valuation allowance |
| (578 | ) |
| (809 | ) |
| (578 | ) |
| (578 | ) | ||
Other items |
| 1,525 |
| 714 |
|
| 2,358 |
| 1,933 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Total |
| 32,777 |
| 32,528 |
|
| 34,530 |
| 33,185 |
| ||||
|
|
|
|
|
|
| ||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
| ||||
Basis in pass through entities |
| (6,201 | ) |
| (408 | ) | ||||||||
Depreciation |
| (850 | ) |
| — |
|
| (12,106 | ) |
| (850 | ) | ||
Other |
| (1,380 | ) |
| — |
| ||||||||
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
| ||||||
Total |
| (850 | ) |
| — |
|
| (19,687 | ) |
| (1,258 | ) | ||
|
|
|
|
|
|
| ||||||||
Net deferred tax asset |
| $ | 31,927 |
| $ | 32,528 |
|
| $ | 14,843 |
| $ | 31,927 |
|
|
|
|
|
|
|
|
|
|
| The Company has approximately |
|
|
| The Company has federal net operating loss carryforwards of approximately $10.0 million, which will expire in fiscal year 2019. |
The Company has state net operating loss carryforwards of approximately | |
|
|
| The Company has a valuation allowance of approximately $578,000 at January 31, |
|
|
|
| The Company paid income taxes of $14,000, $732,000 |
|
|
| The effective income tax rate on consolidated pre-tax loss or income differs from the federal income tax statutory rate for fiscal years 2009, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2008 |
| 2007 |
| 2006 |
|
| 2009 |
| 2008 |
| 2007 |
| |||
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Federal income tax at statutory rate |
| (35.0 | )% |
| 35.0 | % |
| 34.0 | % |
| 35.0 | % | (35.0 | )% | 35.0 | % | |
Tax credits from investment in limited partnership |
| — |
| — |
| (1.5 | ) | ||||||||||
Ethanol small producer credit |
| (7.0 | ) |
| — |
| — |
|
| — |
| (14.7 | ) | — |
| ||
State and local taxes, net of federal tax benefit |
| 3.1 |
| 2.2 |
| (0.4 | ) |
| 3.9 |
| 6.5 |
| 2.2 |
| |||
Net provision (reduction) in valuation allowance |
| (3.0 | ) |
| (0.4 | ) |
| 0.3 |
|
| — |
| (6.3 | ) | (0.4 | ) | |
Uncertain tax positions |
| (4.3 | ) |
| (0.7 | ) |
| — |
|
| (0.3 | ) | (9.0 | ) | (0.7 | ) | |
Minority interest |
| 13.9 |
| 0.8 |
| — |
| ||||||||||
Noncontrolling interest |
| (8.0 | ) | 29.2 |
| 0.8 |
| ||||||||||
Other |
| 1.8 |
| — |
| 0.5 |
|
| 2.9 |
| (1.8 | ) | 0.6 |
| |||
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total |
| (30.5 | )% |
| 36.9 | % |
| 32.9 | % |
| 33.5 | % | (31.1 | )% | 37.5 | % | |
|
|
|
|
|
|
|
|
|
|
|
| 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 examinations by tax authorities for fiscal years ended January 31, |
|
|
| The Company adopted the provisions of |
|
|
| On a quarterly and annual basis, the Company accrues for the effects of open uncertain tax positions and the related potential penalties and interest. As a result of statutes of limitation expiring, during fiscal year |
|
|
| It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will increase or decrease during the next 12 months; however, the Company does not expect the change to have a material effect on results of operations or financial position. A reconciliation of the beginning and ending amount of unrecognized tax benefits, including interest and penalties, is as follows (dollars in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended |
|
| Years Ended |
| ||||||||
|
| 2009 |
| 2008 |
|
| 2010 |
| 2009 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Unrecognized tax benefits, beginning of year |
| $ | 1,394 |
| $ | 940 |
|
| $ | 4,160 |
| $ | 1,394 |
|
Changes for tax positions for prior years |
| (349 | ) |
| (321 | ) |
| (2,978 | ) |
| (349 | ) | ||
Changes for tax positions for current year |
| 3,115 |
| 775 |
|
| 1,156 |
| 3,115 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Unrecognized tax benefits, end of year |
| $ | 4,160 |
| $ | 1,394 |
|
| $ | 2,338 |
| $ | 4,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
| 2008 |
| 2007 |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to REX common shareholders |
| $ | 8,652 |
| $ | (3,297 | ) | $ | 33,867 |
|
Unrealized holding gains on available for sale securities, net |
|
| 49 |
|
| — |
|
| — |
|
|
|
|
|
| ||||||
Total comprehensive income (loss) |
| $ | 8,701 |
| $ | (3,297 | ) | $ | 33,867 |
|
|
|
|
|
|
18. | DISCONTINUED OPERATIONS |
During fiscal year 2009, the Company |
|
|
|
|
|
|
|
|
|
|
|
|
| 2008 |
| 2007 |
| 2006 |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue |
| $ | 23,120 |
| $ | 76,270 |
| $ | 162,070 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Cost of merchandise sold |
| $ | 18,412 |
| $ | 59,047 |
| $ | 121,665 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Loss before benefit for income taxes |
| ($ | 2,114 | ) | ($ | 3,560 | ) | ($ | 33 | ) |
Benefit for income taxes |
|
| 755 |
|
| 1,254 |
|
| 12 |
|
|
|
|
|
| ||||||
Loss from discontinued operations, net of tax |
| ($ | 1,359 | ) | ($ | 2,306 | ) | $ | (21 | ) |
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal before provision for income taxes |
| $ | 518 |
| $ | 15,097 |
| $ | 2,139 |
|
Provision for income taxes |
|
| (185 | ) |
| (5,317 | ) |
| (749 | ) |
|
|
|
|
| ||||||
Gain on disposal of discontinued operations, net of tax |
| $ | 333 |
| $ | 9,780 |
| $ | 1,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
| 2008 |
| 2007 |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue |
| $ | 35,017 |
| $ | 185,108 |
| $ | 270,674 |
|
|
|
|
|
| ||||||
Cost of merchandise sold |
| $ | 23,243 |
| $ | 134,542 |
| $ | 195,555 |
|
|
|
|
|
| ||||||
Income (loss) before income taxes |
| $ | 3,288 |
| $ | (3,385 | ) | $ | 5,903 |
|
(Provision) benefit for income taxes |
|
| (1,168 | ) |
| 1,209 |
|
| (2,094 | ) |
|
|
|
|
| ||||||
Income (loss) from discontinued operations, net of tax |
| $ | 2,120 |
| $ | (2,176 | ) | $ | 3,809 |
|
|
|
|
|
| ||||||
Gain on disposal before provision for income taxes |
| $ | 2,131 |
| $ | 2,797 |
| $ | 16,162 |
|
Provision for income taxes |
|
| (757 | ) |
| (999 | ) |
| (5,692 | ) |
|
|
|
|
| ||||||
Gain on disposal of discontinued operations, net of tax |
| $ | 1,374 |
| $ | 1,798 |
| $ | 10,470 |
|
|
|
|
|
|
19. | CONTINGENCIES |
|
|
| The Company sold its entire interest, through a series of transactions, in three partnerships (Colona, Somerset and Gillette) that owned synthetic fuel facilities. As such, the Company was no longer allocated Section 29/45K tax credits after fiscal year 2005. In connection with the Colona and Somerset sales, the Company received contingent payments based upon percentages of qualified Section 29/45K credits generated. In connection with the sale of the Gillette partnership, the Company was eligible to receive contingent payments based upon the amount of “qualified production.” The Company has recognized |
| |
| |
|
|
| The Company is involved in various legal actions arising in the normal course of business. After taking into consideration legal counsels’ evaluation of such actions, management is of the opinion that their outcome will not have a material effect on the Company’s consolidated financial statements. |
|
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| |||||||
|
|
| ||||||||
|
| 2009 |
| 2008 |
| 2007 |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenues: |
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 162,404 |
| $ | 194,787 |
| $ | 201,881 |
|
Alternative energy |
|
| 68,223 |
|
| — |
|
| — |
|
|
|
|
|
| ||||||
Total net sales and revenues |
| $ | 230,627 |
| $ | 194,787 |
| $ | 201,881 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Segment gross profit: |
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 46,273 |
| $ | 58,279 |
| $ | 56,782 |
|
Alternative energy |
|
| 807 |
|
| — |
|
| — |
|
|
|
|
|
| ||||||
Total gross profit |
| $ | 47,080 |
| $ | 58,279 |
| $ | 56,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| |||||||
|
|
| ||||||||
|
| 2009 |
| 2008 |
| 2007 |
| |||
|
|
|
|
| ||||||
Segment profit (loss): |
|
|
|
|
|
|
|
|
|
|
Retail segment profit |
| $ | 1,124 |
| $ | 10,421 |
| $ | 5,677 |
|
Alternative energy segment (loss) profit |
|
| (8,992 | ) |
| 22,404 |
|
| 168 |
|
Corporate expenses |
|
| (2,038 | ) |
| (2,077 | ) |
| (2,138 | ) |
Interest expense |
|
| (387 | ) |
| (749 | ) |
| (1,121 | ) |
Interest income |
|
| 1,788 |
|
| 3,575 |
|
| 1,521 |
|
Income from synthetic fuel investments |
|
| 691 |
|
| 6,945 |
|
| 10,764 |
|
|
|
|
|
| ||||||
(Loss) income from continuing operations before income taxes and minority interest |
| $ | (7,814 | ) | $ | 40,519 |
| $ | 14,871 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Sales of products retail segment: |
|
|
|
|
|
|
|
|
|
|
Televisions |
|
| 54 | % |
| 56 | % |
| 55 | % |
Appliances |
|
| 29 | % |
| 28 | % |
| 26 | % |
Audio |
|
| 4 | % |
| 4 | % |
| 7 | % |
Video |
|
| 2 | % |
| 3 | % |
| 4 | % |
Other |
|
| 5 | % |
| 2 | % |
| 2 | % |
|
|
|
|
| ||||||
Total |
|
| 94 | % |
| 93 | % |
| 94 | % |
|
|
|
|
| ||||||
Sales of services retail segment: |
|
|
|
|
|
|
|
|
|
|
Extended service contracts |
|
| 6 | % |
| 7 | % |
| 6 | % |
|
|
|
|
| ||||||
Sales of products alternative energy segment: |
|
|
|
|
|
|
|
|
|
|
Ethanol |
|
| 82 | % |
| — | % |
| — | % |
Distillers grains |
|
| 18 | % |
| — | % |
| — | % |
|
|
|
|
| ||||||
Total |
|
| 100 | % |
| — | % |
| — | % |
|
|
|
|
| ||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | — |
| $ | — |
| $ | — |
|
Alternative energy |
|
| 256 |
|
| 2,142 |
|
| 853 |
|
Unallocated |
|
| 1,788 |
|
| 3,572 |
|
| 1,521 |
|
|
|
|
|
| ||||||
Total interest income |
| $ | 2,044 |
| $ | 5,714 |
| $ | 2,374 |
|
|
|
|
|
| ||||||
Depreciation and amortization expense: |
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 1,384 |
| $ | 1,643 |
| $ | 2,090 |
|
Alternative energy |
|
| 3,543 |
|
| — |
|
| — |
|
|
|
|
|
| ||||||
Total depreciation and amortization expense |
| $ | 4,927 |
| $ | 1,643 |
| $ | 2,090 |
|
|
|
|
|
| ||||||
Equity in unconsolidated affiliates: |
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | — |
| $ | — |
| $ | — |
|
Alternative energy |
|
| 849 |
|
| 1,601 |
|
| 499 |
|
|
|
|
|
| ||||||
Total equity in unconsolidated affiliates: |
| $ | 849 |
| $ | 1,601 |
| $ | 499 |
|
|
|
|
|
|
investments (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| |||||||
|
|
| ||||||||
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenues: |
|
|
|
|
|
|
|
|
|
|
Alternative energy |
| $ | 169,175 |
| $ | 68,223 |
| $ | — |
|
Real estate |
|
| 1,089 |
|
| 415 |
|
| 382 |
|
|
|
|
|
| ||||||
Total net sales and revenues |
| $ | 170,264 |
| $ | 68,638 |
| $ | 382 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Segment gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
Alternative energy |
| $ | 21,923 |
| $ | 807 |
| $ | — |
|
Real estate |
|
| (2,190 | ) |
| 398 |
|
| 364 |
|
|
|
|
|
| ||||||
Total gross profit |
| $ | 19,733 |
| $ | 1,205 |
| $ | 364 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| |||||||
|
|
| ||||||||
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
| ||||||
| ||||||||||
Segment profit (loss): |
|
|
|
|
|
|
|
|
|
|
Alternative energy segment profit (loss) |
| $ | 17,811 |
| $ | (8,992 | ) | $ | 22,404 |
|
Real estate segment (loss) profit |
|
| (2,373 | ) |
| 116 |
|
| 177 |
|
Corporate expenses |
|
| (1,721 | ) |
| (2,038 | ) |
| (2,077 | ) |
Interest expense |
|
| (369 | ) |
| (387 | ) |
| (1,032 | ) |
Interest income |
|
| 263 |
|
| 1,788 |
|
| 3,575 |
|
Income from synthetic fuel investments |
|
| — |
|
| 691 |
|
| 6,945 |
|
|
|
|
|
| ||||||
Income (loss) from continuing operations before income taxes and noncontrolling interests |
| $ | 13,611 |
| $ | (8,822 | ) | $ | 29,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| |||||||
|
|
| ||||||||
|
| 2009 |
| 2008 |
| 2007 |
| |||
|
|
|
|
| ||||||
Additions to property and equipment: |
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 170 |
| $ | 199 |
| $ | 848 |
|
Alternative energy |
|
| 107,575 |
|
| 68,555 |
|
| 820 |
|
|
|
|
|
| ||||||
Total additions to property and equipment |
| $ | 107,745 |
| $ | 68,754 |
| $ | 1,668 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 80,437 |
| $ | 120,711 |
| $ | 233,666 |
|
Alternative energy |
|
| 249,422 |
|
| 167,070 |
|
| 67,653 |
|
Corporate and other |
|
| 121,429 |
|
| 121,197 |
|
| 44,123 |
|
|
|
|
|
| ||||||
Total assets |
| $ | 451,288 |
| $ | 408,978 |
| $ | 345,442 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Additions to other long lived assets: |
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | — |
| $ | — |
| $ | — |
|
Alternative energy |
|
| 284 |
|
| 1,103 |
|
| 42,021 |
|
|
|
|
|
| ||||||
Total additions to other long lived assets |
| $ | 284 |
| $ | 1,103 |
| $ | 42,021 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Long term debt and capital lease obligations |
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | — |
| $ | — |
| $ | — |
|
Alternative energy |
|
| 93,990 |
|
| 22,072 |
|
| — |
|
Corporate and other |
|
| 9,949 |
|
| 13,152 |
|
| 31,236 |
|
|
|
|
|
| ||||||
Total long term debt and capital lease obligations |
| $ | 103,939 |
| $ | 35,224 |
| $ | 31,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| |||||||
|
|
| ||||||||
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
| ||||||
| ||||||||||
Sales of products alternative energy segment: |
|
|
|
|
|
|
|
|
|
|
Ethanol |
|
| 83 | % |
| 82 | % |
| — | % |
Distillers grains |
|
| 17 | % |
| 18 | % |
| — | % |
|
|
|
|
| ||||||
Total |
|
| 100 | % |
| 100 | % |
| — | % |
|
|
|
|
| ||||||
Sales of services real estate segment: |
|
|
|
|
|
|
|
|
|
|
Leasing |
|
| 100 | % |
| 100 | % |
| 100 | % |
|
|
|
|
| ||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
Alternative energy |
| $ | 182 |
| $ | 256 |
| $ | 2,142 |
|
Real estate |
|
| — |
|
| — |
|
| — |
|
Unallocated |
|
| 263 |
|
| 1,788 |
|
| 3,572 |
|
|
|
|
|
| ||||||
| ||||||||||
Total interest income |
| $ | 445 |
| $ | 2,044 |
| $ | 5,714 |
|
|
|
|
|
| ||||||
Depreciation and amortization expense: |
|
|
|
|
|
|
|
|
|
|
Alternative energy |
| $ | 9,644 |
| $ | 3,543 |
| $ | — |
|
Real estate |
|
| 472 |
|
| 69 |
|
| 33 |
|
|
|
|
|
| ||||||
| ||||||||||
Total depreciation and amortization expense |
| $ | 10,116 |
| $ | 3,612 |
| $ | 33 |
|
|
|
|
|
| ||||||
Equity in unconsolidated affiliates: |
|
|
|
|
|
|
|
|
|
|
Alternative energy |
| $ | 6,027 |
| $ | 849 |
| $ | 1,601 |
|
Real estate |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
| ||||||
| ||||||||||
Total equity in unconsolidated affiliates: |
| $ | 6,027 |
| $ | 849 |
| $ | 1,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| |||||||
|
|
| ||||||||
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment: |
|
|
|
|
|
|
|
|
|
|
Alternative energy |
| $ | 35,320 |
| $ | 107,575 |
| $ | 68,555 |
|
Real estate |
|
| 332 |
|
| — |
|
| — |
|
|
|
|
|
| ||||||
Total additions to property and equipment |
| $ | 35,652 |
| $ | 107,575 |
| $ | 68,555 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
Alternative energy |
| $ | 302,228 |
| $ | 249,422 |
| $ | 167,070 |
|
Real estate |
|
| 31,796 |
|
| 3,149 |
|
| 3,206 |
|
Corporate and other |
|
| 117,481 |
|
| 198,717 |
|
| 238,702 |
|
|
|
|
|
| ||||||
Total assets |
| $ | 451,505 |
| $ | 451,288 |
| $ | 408,978 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Additions to other long lived assets: |
|
|
|
|
|
|
|
|
|
|
Alternative energy |
| $ | 25 |
| $ | 284 |
| $ | 1,103 |
|
Real estate |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
| ||||||
Total additions to other long lived assets |
| $ | 25 |
| $ | 284 |
| $ | 1,103 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Long term debt and capital lease obligations |
|
|
|
|
|
|
|
|
|
|
Alternative energy |
| $ | 124,093 |
| $ | 94,003 |
| $ | 22,072 |
|
Real estate |
|
| — |
|
| — |
|
| — |
|
Corporate and other |
|
| 2,596 |
|
| 9,936 |
|
| 13,152 |
|
|
|
|
|
| ||||||
Total long term debt and capital lease obligations |
| $ | 126,689 |
| $ | 103,939 |
| $ | 35,224 |
|
|
|
|
|
|
|
|
| Additions to other long lived assets represent primarily equity method investments, goodwill and prepaid loan fees. |
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| 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 |
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| Cash, except for cash held by Levelland Hockley and One Earth, is considered to be fungible and available for both corporate and segment use depending on liquidity requirements. Cash of approximately |
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| SUBSEQUENT EVENTS |
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* * * * * *
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
REX Stores Corporation
We have audited the accompanying consolidated balance sheets of REX Stores Corporation and subsidiaries (the “Company”) as of January 31, 20092010 and 2008,2009, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended January 31, 2009.2010. Our audits also included the consolidated financial statement schedule listed in the Index at Item 15. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements and consolidated financial statement schedule based on our audits. We did not audit the financial statements of Patriot Renewable Fuels, LLC, an equity method investment, which statements reflect total assets of $18,411,000 and $15,011,000 as of January 31, 2010 and 2009, respectively, and equity in income (loss) of unconsolidated affiliates of $3,540,000, ($1,548,000) and ($788,000) for the years ended January 31, 2010, 2009, and 2008, respectively. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Patriot Renewable Fuels, LLC, is based solely on the report of the other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of REX Stores Corporation and subsidiaries as of January 31, 20092010 and 2008,2009, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2009,2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As disclosed in Note 1 and Note 18, the consolidated financial statements have been adjusted for the retrospective application of Accounting Standards Codification (ASC) 810, Consolidation (formerly Financial Accounting Standards Board (FASB) Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements), which became effective February 1, 2009 and the retrospective presentation of the Company’s retail business as discontinued operations. Additionally, as discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Financial Accounting Standards BoardASC 740, Income Taxes (formerly FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-anTaxes—an Interpretation of FASB Statement No. 109”), effective February 1, 2007.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of January 31, 2009,2010, based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 16, 20092010 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
April 16, 20092010
REX STORES CORPORATION AND SUBSIDIARIES
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Schedule II - VALUATION AND QUALIFYING ACCOUNTS |
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2008 |
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| Additions |
| Deductions |
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2010: |
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Allowance for doubtful accounts |
| $ | 447 |
| $ | — |
| $ | 279 |
| $ | 168 |
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| Charges for |
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2009: |
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Allowance for doubtful accounts |
| $ | 84 |
| $ | 499 |
| $ | 136 |
| $ | 447 |
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| $ | 84 |
| $ | 499 |
| $ | 136 |
| $ | 447 |
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2008: |
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Allowance for doubtful accounts |
| $ | 116 |
| $ | 169 |
| $ | 201 |
| $ | 84 |
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| $ | 116 |
| $ | 169 |
| $ | 201 |
| $ | 84 |
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2007: |
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Allowance for doubtful accounts |
| $ | 159 |
| $ | 296 |
| $ | 339 |
| $ | 116 |
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2009: |
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Inventory reserve |
| $ | 4,100 |
| $ | 2,443 |
| $ | 3,246 |
| $ | 3,297 |
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2008: |
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Inventory reserve |
| $ | 5,107 |
| $ | 571 |
| $ | 1,578 |
| $ | 4,100 |
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2007: |
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Inventory reserve |
| $ | 5,211 |
| $ | 2,130 |
| $ | 2,234 |
| $ | 5,107 |
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None
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Item 9A. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
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| Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on that evaluation, our 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 Commission’s rules and forms. Our officers concluded that our disclosure controls and procedures are also effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. |
Material Changes to Disclosure Controls and Procedures | |
During fiscal year 2009, we have corrected errors in the process of calculating the significance of our equity method investees pursuant to Rule 3-09 of Regulation S-X. During fiscal 2008, deficiencies in our disclosure controls and procedures led to a failure to file required financial statements of Big River Resources, LLC and Patriot Renewable Fuels, LLC in accordance with Rule 3-09 of Regulation S-X in our Annual Report on Form 10-K for the year ended January 31, 2009. We have revised our calculations of significance of equity method investees, as appropriate, and have included required financial statements in this Annual Report on Form 10-K for the year ended January 31, 2010. |
Material Changes to Internal Control Over Financial Reporting | |
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| 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. |
Management’s Annual Report on Internal Control Over Financial Reporting
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| Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America. |
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| All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems deemed to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. |
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| Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of January 31, |
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| The effectiveness of our internal control over financial reporting as of January 31, |
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| STUART A. ROSE | Chairman of the Board and Chief Executive |
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| Stuart A. Rose | Officer (principal executive officer) | April 16, |
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| DOUGLAS L. BRUGGEMAN | Vice President-Finance, Chief Financial Officer and Treasurer | |
| Douglas L. Bruggeman | (principal financial and accounting officer) | April 16, |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
REX Stores Corporation
We have audited the internal control over financial reporting of REX Stores Corporation and subsidiaries (the “Company”) as of January 31, 2009,2010, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2009,2010, based on the criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and consolidated financial statement schedule as of and for the year ended January 31, 20092010 of the Company and our report dated April 16, 20092010 expressed an unqualified opinion on those consolidated financial statements and consolidated financial statement schedule and included an explanatory paragraph regarding the Company’s adoptionretrospective application of Accounting Standards Codification (ASC) 810, Consolidation (formerly Financial Accounting Standards Board (FASB) Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements), which became effective February 1, 2009, the retrospective presentation of the Company’s retail business as discontinued operations, and the adoption of the provisions of ASC 740, Income Taxes (formerly FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes-anTaxes—an Interpretation of FASB Statement No. 109), ineffective February 1, 2007.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
April 16, 20092010
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Item 9B. | Other Information |
None
PART III
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Item 10. | Directors, Executive Officers and Corporate Governance |
The information required by this Item 10 is incorporated herein by reference to the Proxy Statement for our Annual Meeting of Shareholders on June 2, 2009,
The information required by this Item 10 is incorporated herein by reference to the Proxy Statement for our Annual Meeting of Shareholders on June 9, 2010, except for certain information concerning our executive officers which is set forth in Part I of this report.
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Item 11. | Executive Compensation |
The information required by this Item 11 is set forth in the Proxy Statement for our Annual Meeting of Shareholders on June 2, 2009
The information required by this Item 11 is set forth in the Proxy Statement for our Annual Meeting of Shareholders on June 9, 2010 and is incorporated herein by reference.
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this Item 12 is set forth in the Proxy Statement for our Annual Meeting of Shareholders on June 2, 2009
The information required by this Item 12 is set forth in the Proxy Statement for our Annual Meeting of Shareholders on June 9, 2010 and is incorporated herein by reference.
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Item 13. | Certain Relationships and Related Transactions and Director Independence |
The information required by this Item 13 is set forth in the Proxy Statement for our Annual Meeting of Shareholders on June 2, 2009
The information required by this Item 13 is set forth in the Proxy Statement for our Annual Meeting of Shareholders on June 9, 2010 and is incorporated herein by reference.
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Item 14. | Principal Accountant Fees and Services |
The information required by this Item 14 is set forth in the Proxy Statement for our Annual Meeting of Shareholders on June 2, 2009
The information required by this Item 14 is set forth in the Proxy Statement for our Annual Meeting of Shareholders on June 9, 2010 and is incorporated herein by reference.
PART IV
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Item 15. | Exhibits and Financial Statement Schedules |
(a)(1)Financial Statements
The following consolidated financial statements of REX Stores Corporation and subsidiaries are filed as a part of this report at Item 8 hereof.
Consolidated Balance Sheets as of January 31, 2009 and 2008
Consolidated Statements of Operations for the years ended January 31, 2009, 2008 and 2007
Consolidated Statements of Cash Flows for the years ended January 31, 2009, 2008 and 2007
Consolidated Statements of Shareholders’ Equity for the years ended January 31, 2009, 2008 and 2007
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(a)(1)Financial Statements | |
The following consolidated financial statements of REX Stores Corporation and subsidiaries are filed as a part of this report at Item 8 hereof. | |
Consolidated Balance Sheets as of January 31, 2010 and 2009 | |
Consolidated Statements of Operations for the years ended January 31, 2010, 2009 and 2008 | |
Consolidated Statements of Cash Flows for the years ended January 31, 2010, 2009 and 2008 | |
Consolidated Statements of Shareholders’ Equity for the years ended January 31, 2010, 2009 and 2008 | |
Notes to Consolidated Financial Statements |
Report of Independent Registered Public Accounting Firm
(a)(2)Financial Statement Schedules
The following financial statement schedule is filed as a part of this report at Item 8 hereof.
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not required, or because the required information is included in the consolidated financial statements or notes thereto.
(a)(3)Exhibits
See Exhibit Index at page 89 of this report.
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Report of Independent Registered Public Accounting Firm | |
(a)(2)(i)Financial Statement Schedules | |
The following financial statement schedule is filed as a part of this report at Item 8 hereof. | |
Schedule II - Valuation and Qualifying Accounts | |
All other schedules are omitted because they are not applicable or not required, or because the required information is included in the consolidated financial statements or notes thereto. | |
a)(2)(ii)Separate Financial Statements of Subsidiaries Not Consolidated and 50 Percent or Less Owned Persons | |
Separate consolidated financial statements of Big River Resources, LLC and Patriot Renewable Fuels, LLC required pursuant to Rule 3-09 of Regulation S-X are filed as Exhibits 99(a) and 99(b) to this report. | |
(a)(3)Exhibits | |
See Exhibit Index at page 105 of this report. | |
Management contracts and compensatory plans and arrangements filed as exhibits to this report are identified by an asterisk in the exhibit index. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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| REX STORES CORPORATION | |
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| By: | STUART A. ROSE |
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| Stuart A. Rose |
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| Chairman of the Board and |
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| Chief Executive Officer |
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| Date: April 16, |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Signature |
| Capacity |
| Date | ||||
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STUART A. ROSE |
| Chairman of the Board |
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Stuart A. Rose |
| and Chief Executive Officer | ||||||
(principal executive officer) |
| April 16, | ||||||
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DOUGLAS L. BRUGGEMAN |
| Vice President-Finance, Chief |
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Douglas L. Bruggeman |
| Financial Officer and Treasurer |
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| (principal financial and accounting | ||||||
officer) |
| April 16, | ||||||
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LAWRENCE TOMCHIN |
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Lawrence Tomchin |
| Director |
| April 16, | ||||
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EDWARD M. KRESS |
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Edward M. Kress |
| Director |
| April 16, | ||||
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ROBERT DAVIDOFF |
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Robert Davidoff |
| Director |
| April 16, | ||||
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CHARLES A. ELCAN |
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Charles A. Elcan |
| Director |
| April 16, | ||||
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DAVID S. HARRIS |
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David S. Harris |
| Director |
| April 16, | ||||
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MERVYN L. ALPHONSO |
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Mervyn L. Alphonso |
| Director |
| April 16, |
EXHIBIT INDEX
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(3) | Articles of incorporation and by-laws: | ||
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| 3(a) | Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3(a) to Form 10-K for fiscal year ended January 31, 1994, File No. | |
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| 3(b)(1) | By-Laws, as amended (incorporated by reference to Registration Statement No. 2-95738, Exhibit 3(b), filed February 8, 1985) | |
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| 3(b)(2) | Amendment to By-Laws adopted June 29, 1987 (incorporated by reference to Exhibit 4.5 to Form 10-Q for quarter ended July 31, 1987, File No. 0-13283) | |
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(4) | Instruments defining the rights of security holders, including indentures: | ||
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| 4(a) |
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| Construction and Term Loan Agreement dated as of September 27, 2006 among Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Administrative Agent, the Lenders party thereto and Levelland Hockley County Ethanol, LLC (incorporated by reference to Exhibit 4(f) to Form 10-K for fiscal year ended January 31, 2007, File No. 001-09097) | |
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| First Amendment to Construction and Term Loan Agreement and Other Loan Documents dated as of August 10, 2007 among Levelland Hockley County Ethanol, LLC, the Lenders party thereto, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Administrative Agent (incorporated by reference to Exhibit 4(i) to Form 10-K for fiscal year ended January 31, 2008, File No. 001-09097) |
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| Second Amendment to Construction and Term Loan Agreement and Other Loan Documents dated as of February 15, 2008 among Levelland Hockley County Ethanol, LLC, the Lenders party thereto, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Administrative Agent (incorporated by reference to Exhibit 4(j) to Form 10-K for fiscal year ended January 31, 2008, File No. 001-09097) |
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| Third Amendment to Construction and Term Loan Agreement and Other Loan Documents dated as of February 19, 2008 among Levelland Hockley County Ethanol, LLC, the Lenders party thereto, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Administrative Agent (incorporated by reference to Exhibit 4(k) to Form 10-K for fiscal year ended January 31, 2008, File No. 001-09097) |
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| Fourth Amendment to Construction and Term Loan Agreement dated as of May 31, 2008 among Levelland/Hockley County Ethanol, LLC, the Lenders party thereto, and GE Business Financial Services Inc. (f/k/a Merrill Lynch Business Financial Services Inc.), as Administrative |
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| Fifth Amendment to Construction and Term Loan Agreement dated as of May 31, 2008 among Levelland/Hockley County Ethanol, LLC, the Lenders party thereto, and GE Business Financial Services Inc. (f/k/a Merrill Lynch Business Financial Services Inc.), as Administrative |
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| Sixth Amendment to Construction and Term Loan Agreement dated as of January 29, 2009 among Levelland/Hockley County Ethanol, LLC, the Lenders party thereto, and GE Business Financial Services Inc. (f/k/a Merrill Lynch Business Financial Services Inc.), as Administrative |
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| Seventh Amendment to Construction and Term Loan Agreement dated as of September 4, 2009 among Levelland/Hockley County Ethanol, LLC, the Lenders party thereto, and GE Business Financial Services Inc., as Administrative Agent (incorporated by reference to Exhibit 4(a) to Form 10-Q for quarter ended July 31, 2009, File No. 001-09097) |
4 (i) | Construction Loan Agreement dated as of September 20, 2007 among One Earth Energy, LLC, First National Bank of Omaha, as a Bank and as Administrative Agent, Accounts Bank and Collateral Agent, and the other Banks party thereto (incorporated by reference to Exhibit 4(l) to Form 10-K for fiscal year ended January 31, 2008, File No. 001-09097) | |
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| 4 (j) | First Amendment of Construction Loan Agreement dated September 19, 2008 among One Earth Energy, LLC, First National Bank of Omaha, as a Bank and as Administrative Agent, Accounts Bank and Collateral Agent, and the other Banks party thereto |
4(k) | Second Amendment of Construction Loan Agreement dated January 30, 2009 among One Earth Energy, LLC, First National Bank of Omaha, as a Bank and as Administrative Agent, Accounts Bank and Collateral Agent, and the other Banks party thereto | |
4(l) | Third Amendment of Construction Loan Agreement dated September 18, 2009 among One Earth Energy, LLC, First National Bank of Omaha, as a Bank and as Administrative Agent, Accounts Bank and Collateral Agent, and the other Banks party thereto |
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the registrant has not filed as an exhibit to this Form 10-K certain instruments with respect to | |||
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(10) | Material contracts: | ||
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| 10(a)* | Employment Agreement dated November 29, 2005 between Rex Radio and Television, Inc. and Stuart Rose (incorporated by reference to Exhibit 10(a) to Form 8-K filed November 30, 2005, File No. 001-09097) | |
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| 10(b)* | Amended and Restated Amendment No. 1 to Employment Agreement dated December 10, 2007 between Rex Radio and Television, Inc. and Stuart A. Rose (incorporated by reference to Exhibit 10(b) to Form 8-K filed November 30, 2008, File No. 001-09097) | |
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| 10(c)* | Amendment No. 2 to Employment Agreement dated December 10, 2007 between Rex Radio and Television, Inc. and Stuart A. Rose (incorporated by reference to Exhibit 10(c) to Form 8-K filed November 30, 2005, File No. 001-09097) | |
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| 10(d)* | Employment Agreement dated October 11, 2005 between Rex Radio and Television, Inc. and David L. Bearden (incorporated by reference to Exhibit 10(a) to Form 8-K filed October 12, 2005, File No. 001-09097) | |
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| 10(e)* | Amendment No. 1 to Employment Agreement dated December 10, 2007 between Rex Radio and Television, Inc. and David L. Bearden (incorporated by reference to Exhibit 10(e) to Form 8-K filed November 30, 2005, File No. 001-09097) |
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| 10(f)* | Amendment No. 2 to Employment Agreement dated March 6, 2008 between Rex Radio and Television, Inc. and David L. Bearden (incorporated by reference to Exhibit 10(f) to Form 8-K filed November 30, 2005, File No. 001-09097) |
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| 10(g)* | Amendment No. 3 to Employment Agreement dated February 19, 2009 between Rex Radio and Television, Inc. and David L. Bearden (incorporated by reference to Exhibit 10(a) to Form 8-K filed February 20, 2009, File No. 001-09097) |
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| 10(h)* |
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| 10(i)* | Executive Stock Option dated April 17, 2001 granting Lawrence Tomchin an option to purchase 150,000 shares of registrant’s Common Stock (incorporated by reference to Exhibit 10(h) to Form 10-K for fiscal year ended January 31, 2002, File No. 001-09097) |
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| 10(j)* | Subscription Agreement dated December 1, 1989 from Stuart Rose to purchase 300,000 shares of registrant’s Common Stock (incorporated by reference to Exhibit 6.5 to Form 10-Q for quarter ended October 31, 1989, File No. 0-13283) |
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| 10(k)* | Subscription Agreement dated December 1, 1989 from Lawrence Tomchin to purchase 140,308 shares of registrant’s Common Stock (incorporated by reference to Exhibit 6.6 to Form 10-Q for quarter ended October 31, 1989, File No. 0-13283) |
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| 10(l)* | 1995 Omnibus Stock Incentive Plan, as amended and restated effective June 2, 1995 (incorporated by reference to Exhibit 4(c) to Post-Effective Amendment No. 1 to Form S-8 Registration Statement No. 33-81706) |
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| 10(m)* | 1999 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10(a) to Form 10-Q for quarter ended April 30, 2000, File No. 001-09097) |
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| 10(n)* | Form of Stock Option Agreement under 1999 Omnibus Stock Incentive Plan (Nonqualified Stock Option)(incorporated by reference to Exhibit 10(a) to Form 10-Q for quarter ended October 31, 2004, File No. 001-09097) |
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| 10(o)* | Form of Stock Option Agreement under 1999 Omnibus Stock Incentive Plan (Nonemployee Director Stock Option) |
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| 10(p) | Lease dated December 12, 1994 between Stuart Rose/Beavercreek, Inc. and Rex Radio and Television, Inc. (incorporated by reference to Exhibit 10(q) to Form 10-K for fiscal year ended January 31, 1995, File No. 0-13283) |
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| 10(q) | Purchase and Sale Agreement dated February 8, 2007 among Rex Radio and Television, Inc., Kelly & Cohen Appliances, Inc., Stereo Town, Inc., REX Stores Corporation and Coventry Real Estate Investments, LLC (incorporated by reference to Exhibit 10(o) to Form 10-K for fiscal year ended January 31, 2007, File No. 001-09097) |
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| 10(r) | Agreement dated January 29, 2009 between Rex Radio and Television, Inc., Kelly & Cohen Appliances, Inc., Stereo Town, Inc., Rex Alabama, Inc., REX Stores Corporation and Appliance Direct, Inc. (incorporated by reference to Exhibit 10(a) to Form 8-K filed February 2, 2009, File No. 001-09097) |
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10 (s) | Third Amendment to Agreement dated July 31, 2009 between Rex Radio and Television, Inc., Kelly & Cohen Appliances, Inc., Stereo Town, Inc., Rex Alabama, Inc., REX Stores Corporation and Appliance Direct, Inc. (incorporated by reference to Exhibit 10(a) to Form 8-K filed July 31, 2009, File No. 001-09097) | |
10(t) | Second Global Amendment to Multiple Leases dated July 31, 2009 between Rex Radio and Television, Inc., Kelly & Cohen Appliances, Inc., Stereo Town, Inc., Appliance Direct, Inc. and the Tenants (incorporated by reference to Exhibit 10(b) to Form 8-K filed July 31, 2009, File No. 001-09097) |
10 (u) | Letter Agreement dated September 30, 2009 between Rex Radio and Television, Inc., Kelly & Cohen Appliances, Inc., Stereo Town, Inc. and Appliance Direct, Inc. (incorporated by reference to Exhibit 10(a) to Form 8-K filed October 6, 2009, File No. 001-09097) | ||
(14) | Code of Ethics: | ||
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| 14(a) | Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14 (a) to Form 10-K for fiscal year ended January 31, 2004, File No. 001-09097) | |
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(21) | Subsidiaries of the registrant: | ||
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| 21(a) | Subsidiaries of registrant | |
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(23) | Consents of experts and counsel: | ||
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| Consent of Deloitte & Touche LLP to use its report dated April 16, | |
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23(b) | Consent of Christianson & Associates, PLLP to use its reports dated February 18, 2010 and February 6, 2008, relating to the financial statements of Big River Resources, LLC included in this annual report on Form 10-K into the Registration Statements | ||
23(c) | Consent of Boulay, Heutmaker, Zibell & Co, P.L.L.P. to use its report dated April 12, 2010 relating to the financial statements of Patriot Renewable Fuels, LLC included in this annual report on Form 10-K into the Registration Statements | ||
23(d) | Consent of Deloitte & Touche LLP to use its report dated November 24, 2009 relating to the financial statements of Patriot Renewable Fuels, LLC included in this annual report on Form 10-K into the Registration Statements | ||
(31) | Rule 13a-14(a)/15d-14(a) Certifications: | ||
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| 31 | Certifications | |
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(32) | Section 1350 Certifications: | ||
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| 32 | Certifications | |
(99) | Additional Exhibits |
99(a) | Consolidated financial statements of Big River Resources, LLC for the years ended December 31, 2009, 2008 and 2007 and for the four months ended December 31, 2006 | |
99(b) | Financial statements of Patriot Renewable Fuels, LLC for the years ended December 31, 2009, 2008 and 2007 | |
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| Copies of the Exhibits not contained herein may be obtained by writing to Edward M. Kress, Secretary, REX Stores Corporation, 2875 Needmore Road, Dayton, Ohio 45414. |
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Those exhibits marked with an asterisk (*) above are management contracts or compensatory plans or arrangements for directors or executive officers of the registrant. |
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