References to the Company – References to “REX” or the “Company” in the consolidated condensed financial statements and in these notes to the consolidated condensed financial statements refer to REX American Resources Corporation, a Delaware corporation, and its majority and wholly owned subsidiaries.

The consolidated condensed financial statements included in this report have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments necessary to state fairly the information set forth therein. Any such adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. Financial information as of January 31, 2020 included in these financial statements has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2020 (fiscal year 2019). It is suggested that these unaudited consolidated condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2020. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the year.

Basis of Consolidation – The consolidated condensed financial statements in this report include the operating results and financial position of the Company. All intercompany balances and transactions have been eliminated. The Company consolidates the results of its four majority owned subsidiaries. The Company includes the results of operations of One Earth Energy, LLC (“One Earth”) in its Consolidated Condensed Statements of Operations on a delayed basis of one month as One Earth has a fiscal year end of December 31.

Nature of Operations –The Company has two reportable segments: i) ethanol and by-products; and ii) refined coal. Within the ethanol and by-products segment, the Company has equity investments in three ethanol limited liability companies, two of which are majority ownership interests. Within the refined coal segment, the Company has a majority equity interest in one refined coal limited liability company.

The interim consolidated condensed financial statements have been prepared in accordance with the accounting policies described in the notes to the consolidated financial statements included in the Company’s fiscal year 2019 Annual Report on Form 10-K. While management believes that the procedures followed in the preparation of interim financial information are reasonable, the accuracy of some estimated amounts is dependent upon facts that will exist or calculations that will be accomplished at fiscal year-end. Examples of such estimates include accrued liabilities, such as management bonuses, and the provision for income taxes. Any adjustments pursuant to such estimates during the quarter were of a normal recurring nature. Actual results could differ from those estimates.

The Company recognizes sales of products when obligations under the terms of the respective contracts with customers are satisfied. This occurs with the transfer of control of products, generally upon shipment from the ethanol plant or upon loading of the rail car used to transport the products. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods. Sales, value added and other taxes the Company collects concurrent with revenue producing activities are excluded from net sales and revenue.

The majority of the Company’s sales have payment terms ranging from 5 to 10 days after transfer of control. The Company has determined that sales contracts do not generally include a significant financing component. The Company has not historically, and does not intend to, enter into sales contracts in which payment is due from a customer prior to transferring product to the customer. Thus, the Company does not record unearned revenue.

See Note 14 for disaggregation of net sales and revenue by operating segment and by product.

At October 31, 2020, the Company has lease agreements, as lessee, for railcars. All of the leases are accounted for as operating leases. The lease agreements do not contain a specified implicit interest rate; therefore, the Company’s estimated incremental borrowing rate was used to determine the present value of future minimum lease payments. The exercise of any lease renewal is at the Company’s sole discretion. The lease term for all of the Company’s leases includes the noncancelable period of the lease and any periods covered by renewal options that the Company is reasonably certain to exercise. Certain leases include rent escalations pre-set in the agreements, which are factored into the lease payment stream. The components of lease expense, classified as SG&A expenses on the Consolidated Condensed Statement of Operations, are as follows:

At October 31, 2020, the weighted average remaining lease term is 3.1 years and the weighted average discount rate is 5.27% for the above leases.

The following table is a summary of future minimum rentals on such leases at January 31, 2020 (amounts in thousands):

At January 31, 2020, the weighted average remaining lease term was 3.5 years and the weighted average discount rate was 5.46% for the above leases.

The Company applies ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), which provides a framework for measuring fair value under accounting principles generally accepted in the United States of America. This accounting standard defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company determines the fair market values of its financial instruments based on the fair value hierarchy established by ASC 820 which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values which are provided below. The Company carries certain cash equivalents, investments and derivative instruments at fair value.

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, investments and property and equipment, various processes and controls have been adopted, which include: (i) model validation that requires a review and approval for pricing, financial statement fair value determination and risk quantification; and (ii) periodic review and substantiation of profit and loss reporting for all derivative instruments. Financial assets and liabilities measured at fair value on a recurring basis at October 31, 2020 are summarized below (amounts in thousands):

Financial assets and liabilities measured at fair value on a recurring basis at January 31, 2020 are

summarized below (amounts in thousands):

The Company determined the fair value of the investment in cooperative by using a discounted cash flow analysis on the expected cash flows. Inputs used in the analysis include the face value of the allocated equity amount, the projected term for repayment based upon a historical trend and a risk adjusted discount rate based on the expected compensation participants would demand because of the uncertainty of the future cash flows. The inherent risk and uncertainty associated with unobservable inputs could have a significant effect on the actual fair value of the investment.

There were no assets measured at fair value on a non-recurring basis at October 31, 2020 or January 31, 2020.

The components of property and equipment are as follows for the periods presented (amounts in thousands):

The components of accrued expenses and other current liabilities are as follows for the periods presented (amounts in thousands):

The Company is exposed to various market risks, including changes in commodity prices (raw materials and finished goods). To manage risks associated with the volatility of these natural business exposures, the Company enters into commodity agreements and forward purchase (corn and natural gas) and sale (ethanol, distillers grains and non-food grade corn oil) contracts. The Company does not purchase or sell derivative financial instruments for trading or speculative purposes. The Company does not purchase or sell derivative financial instruments for which a lack of marketplace quotations would require the use of fair value estimation techniques.

As of October 31, 2020, and January 31, 2020, all the derivative financial instruments held by the Company were subject to enforceable master netting arrangements. The Company’s accounting policy is to offset positions and amounts owed or owing with the same counterparty. As of October 31, 2020, and January 31, 2020, the gross positions of the enforceable master netting agreements are not significantly different from the net positions presented in the table above. Depending on the amount of an unrealized loss on a derivative contract held by the Company, the counterparty may require collateral to secure the Company’s derivative contract position. The Company was required to maintain collateral in the amount of approximately $884,000 and approximately $1,113,000 to secure the Company’s derivative position at October 31, 2020 and January 31, 2020, respectively.

See Note 5 which contains fair value information related to derivative financial instruments.

(Losses) gains on derivative financial instruments of approximately $(26,000) and approximately $248,000 for the third quarters of fiscal years 2020 and 2019, respectively, were included in cost of sales on the Consolidated Condensed Statements of Operations. (Losses) gains on derivative financial instruments of approximately $(1,785,000) and approximately $1,478,000 for the first nine months of fiscal years 2020 and 2019, respectively, were included in cost of sales on the Consolidated Condensed Statements of Operations.

Losses on derivative financial instruments of approximately $777,000 and $1,076,000 for the third quarter and first nine months, respectively, of fiscal year 2020 were included in net sales and revenue on the Consolidated Condensed Statements of Operations.

Undistributed earnings of the Company’s equity method investee totaled approximately $10.1 million and approximately $12.4 million at October 31, 2020 and January 31, 2020, respectively. The Company received dividends from its equity method investee of approximately $2.5 million and approximately $1.0 million during the first nine months of fiscal years 2020 and 2019, respectively.

At October 31, 2020, the Company owned certificates of deposit that had an amortized cost, or carrying value, of approximately $29,216,000. The contractual maturity of these investments was less than one year. The yield to maturity rate was approximately 0.2%. Unrealized gains or losses were insignificant.

At January 31, 2020, the Company owned certificates of deposit that had an amortized cost, or carrying value, of approximately $26,073,000. The contractual maturity of these investments was less than one year. The yield to maturity rate was approximately 1.8%. Unrealized gains or losses were insignificant.

The Company maintains the REX 2015 Incentive Plan, approved by its shareholders, which reserves a total of 550,000 shares of common stock for issuance pursuant to its terms. The plan provides for the granting of shares of stock, including options to purchase shares of common stock, stock appreciation rights tied to the value of common stock, restricted stock, and restricted stock unit awards to eligible employees, non-employee directors and consultants. Since plan inception, the Company has only granted restricted stock awards. The Company measures share-based compensation grants at fair value on the grant date, with no

adjustments for estimated forfeitures. The Company records noncash compensation expense related to liability and equity awards in its consolidated financial statements over the requisite service period on a straight-line basis. At October 31, 2020, 473,830 shares remain available for issuance under the Plan. As a component of their compensation, restricted stock has been granted to directors at the closing market price of REX common stock on the grant date. In addition, one third of executives’ incentive compensation is payable by an award of restricted stock based on the then closing market price of REX common stock on the grant date. The Company’s board of directors has determined that the grant date will be June 15^th, or the next business day if June 15^th is not a business day, for all grants of restricted stock.

At October 31, 2020 and January 31, 2020, unrecognized compensation cost related to nonvested restricted stock was approximately $272,000 and $220,000, respectively. The following tables summarize non-vested restricted stock award activity for the periods presented:

The above tables include 14,777 and 24,219 non-vested shares at October 31, 2020 and 2019, respectively, which are included in the number of weighted average shares outstanding used to determine basic and diluted earnings per share attributable to REX common shareholders. Such shares are treated, for accounting purposes, as being fully vested at the grant date as they were granted to recipients who were retirement eligible at the time of grant.

The Company determined that small changes in estimated “ordinary” income would result in significant changes in the estimated annual effective tax rate. Thus, the Company used a discrete effective tax rate method to calculate the provision or benefit for income taxes for the three and nine months ended October 31, 2020 and 2019.

The Company’s income tax provision was approximately 26.8% and was a benefit of approximately 65.9% for the three months ended October 31, 2020 and 2019, respectively. The Company’s income tax benefit was approximately 112.7% and approximately 234.7% for the nine months ended October 31, 2020 and 2019, respectively. The fluctuation in the rate results primarily from the production tax credits the Company expects to receive associated with its refined coal segment relative to consolidated pre-tax income or loss. Through its refined coal operation, the Company earns production tax credits pursuant to IRC Section 45. The credits can be used to reduce future income tax liabilities for up to 20 years. The Company’s income tax provision for the third quarter of fiscal year 2020 includes approximately $1.8 million related to reversing previously recognized tax benefits associated with the lengthening of a net operating loss carryback allowed by the CARES Act as the Company no longer has a year to date estimated taxable loss.

The Company files a U.S. federal income tax return and various state income tax returns. In general, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years ended January 31, 2014 and prior. A reconciliation of the beginning and ending amount of unrecognized tax benefits, including interest and penalties, is as follows (amounts in thousands):

The Company is involved in various legal actions arising in the normal course of business. After taking into consideration legal counsels’ evaluations of such actions, management is of the opinion that their outcome will not have a material adverse effect on the Company’s Consolidated Condensed Financial Statements.

As of October 31, 2020, One Earth and NuGen have combined forward purchase contracts for approximately 6.2 million bushels of corn, the principal raw material for their ethanol plants, and they have combined forward purchase contracts for approximately 1,391,000 MmBtu (Million British Thermal Units) of natural gas.

As of October 31, 2020, One Earth and NuGen have combined sales commitments for approximately 37.6 million gallons of ethanol, approximately 109,000 tons of distillers grains and approximately 32.6 million pounds of non-food grade corn oil.

As of October 31, 2020, the refined coal entity has various agreements (site license, operating agreements, etc.) containing payment terms based upon production of refined coal under which the Company is required to pay various fees. These fees totaled approximately $0.5 million and approximately $0.9 million in the third quarter of fiscal years 2020 and 2019, respectively. Such fees totaled approximately $1.9 million and approximately $3.6 million for the nine months ended October 31, 2020 and 2019, respectively.

During the third quarters of fiscal years 2020 and 2019, the Company purchased approximately $16.9 million and approximately $58.5 million, respectively, of corn and other supplies from minority equity investors and board members of One Earth and NuGen. Such purchases totaled approximately $34.0 million and approximately $148.7 million for the nine months ended October 31, 2020 and 2019, respectively. The Company had amounts payable to related parties of approximately $0.8 million and approximately $0.7 million at October 31, 2020 and January 31, 2020, respectively.

During the third quarters of fiscal years 2020 and 2019, the Company reduced commission expense by approximately $15,000 and approximately $242,000, respectively, payable to the minority investor in the refined coal entity. During the first nine months of fiscal years 2020 and 2019, the Company reduced commission expense by approximately $160,000 and approximately $577,000, respectively. The commission expense is associated with the refined coal acquisition. The Company had accrued liabilities related to the commission expense of approximately $0.2 million and approximately $0.5 million at October 31, 2020 and January 31, 2020, respectively.

The Company has two reportable segments: i) ethanol and by-products; and ii) refined coal. The Company evaluates the performance of each reportable segment based on segment profit. The following tables summarize segment and other results and assets (amounts in thousands):