UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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REX AMERICAN RESOURCES CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REX AMERICAN RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
Unaudited
| (In Thousands) | April 30, | January 31, | ||||
| 2021 | 2021 | |||||
| Assets: | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | $ | ||||
| Short-term investments | ||||||
| Restricted cash | ||||||
| Accounts receivable | ||||||
| Inventory | ||||||
| Refundable income taxes | ||||||
| Prepaid expenses and other | ||||||
| Total current assets | ||||||
| Property and equipment, net | ||||||
| Operating lease right-of-use assets | ||||||
| Deferred taxes and other assets | ||||||
| Equity method investment | ||||||
| Total assets | $ | $ | ||||
| Liabilities and equity: | ||||||
| Current liabilities: | ||||||
| Accounts payable, trade (includes $ | $ | $ | ||||
| Current operating lease liabilities | ||||||
| Accrued expenses and other current liabilities (includes $ | ||||||
| Total current liabilities | ||||||
| Long-term liabilities: | ||||||
| Deferred taxes | ||||||
| Long-term operating lease liabilities | ||||||
| Other long-term liabilities | ||||||
| Total long-term liabilities | ||||||
| Equity: | ||||||
| REX shareholders’ equity: | ||||||
| Common stock | ||||||
| Paid-in capital | ||||||
| Retained earnings | ||||||
| Treasury stock | ( | ( | ||||
| Total REX shareholders’ equity | ||||||
| Noncontrolling interests | ||||||
| Total equity | ||||||
| Total liabilities and equity | $ | $ | ||||
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
| 1 |
REX AMERICAN RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
Unaudited
| (In Thousands) | Three Months Ended | |||||||
| April 30, | ||||||||
| 2021 | 2020 | |||||||
| Net sales and revenue | $ | $ | ||||||
| Cost of sales (includes $ | ||||||||
| Gross profit (loss) | ( | |||||||
| Selling, general and administrative expenses (includes $( | ( | ( | ||||||
| Equity in income (loss) of unconsolidated affiliates | ( | |||||||
| Interest and other income, (net) | ||||||||
| Income (loss) before income taxes | ( | |||||||
| (Provision) benefit for income taxes | ( | |||||||
| Net income (loss) | ( | |||||||
| Net (income) loss attributable to noncontrolling interests | ( | |||||||
| Net income (loss) attributable to REX common shareholders | $ | $ | ( | |||||
| Weighted average shares outstanding – basic and diluted | ||||||||
| Basic and diluted net income (loss) per share attributable to REX common shareholders | $ | $ | ( | |||||
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
| 2 |
REX AMERICAN RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Equity
For the Three Months Ended April 30, 2021 and 2020
Unaudited
(In Thousands)
| REX Shareholders | ||||||||||||||||||||||||||||||||
| Common Shares Issued | Treasury | Paid-in | Retained | Noncontrolling | Total | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Interests | Equity | |||||||||||||||||||||||||
| Balance at January 31, 2021 | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Noncontrolling interests distribution and other | ( | ( | ||||||||||||||||||||||||||||||
| Capital contributions | ||||||||||||||||||||||||||||||||
| Issuance of equity awards and stock based compensation expense | - | - | - | - | - | |||||||||||||||||||||||||||
| Balance at April 30, 2021 | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||
| Balance at January 31, 2020 | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||
| Net loss | ( | ( | ( | ) | ||||||||||||||||||||||||||||
| Treasury stock acquired | ( | ( | ||||||||||||||||||||||||||||||
| Noncontrolling interests distribution and other | ( | ( | ||||||||||||||||||||||||||||||
| Capital contributions | ||||||||||||||||||||||||||||||||
| Issuance of equity awards and stock based compensation expense | - | - | - | - | - | |||||||||||||||||||||||||||
| Balance at April 30, 2020 | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
| 3 |
REX AMERICAN RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Unaudited
| (In Thousands) | Three Months Ended | |||||||
| April 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) including noncontrolling interests | $ | $ | ( | |||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| (Income) loss from equity method investments | ( | |||||||
| Dividends received from equity method investee | - | |||||||
| Interest income from investments | ( | ( | ||||||
| Deferred income tax | ( | |||||||
| Stock based compensation expense | ||||||||
| Gain on sale of property and equipment – net | ( | ( | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | |||||||
| Inventories | ||||||||
| Other assets | ( | ( | ||||||
| Accounts payable, trade | ( | ( | ||||||
| Other liabilities | ( | ( | ||||||
| Net cash provided by (used in) operating activities | ( | |||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | ( | ( | ||||||
| Purchases of short-term investments | ( | ( | ||||||
| Maturities of short-term investments | ||||||||
| Other | ( | |||||||
| Net cash used in investing activities | ( | ( | ||||||
| Cash flows from financing activities: | ||||||||
| Treasury stock acquired | - | ( | ||||||
| Payments to noncontrolling interests holders | ( | ( | ||||||
| Capital contributions from minority investor | ||||||||
| Net cash used in financing activities | ( | ( | ||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | |||||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Non cash investing activities – Accrued capital expenditures | $ | $ | ||||||
| Non cash financing activities – Stock awards accrued | $ | $ | - | |||||
| Right-of-use assets acquired and liabilities incurred upon lease execution | $ | - | $ | |||||
| Reconciliation of total cash, cash equivalents and restricted cash: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
| 4 |
REX AMERICAN RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
April 30, 2021
Note 1. Consolidated Condensed Financial Statements
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, 2021 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, 2021 (fiscal year 2020). 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, 2021. 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
Nature of Operations – The Company
has
Note 2. Accounting Policies
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 2020 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.
| 5 |
Cash and Cash Equivalents
Cash and cash equivalents includes bank deposits as well as short-term, highly liquid investments with original maturities of three months or less.
Revenue Recognition
For ethanol and by-products segment sales, the Company recognizes sales of ethanol, distillers grains and non-food grade corn oil 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. For refined coal segment sales, the Company recognizes sales of refined coal when obligations under the term of the contract with its customer are satisfied; this occurs when title and control of the product transfers to its customer, generally upon the coal leaving the refined coal plant. Refined coal sales are recorded net of the cost of coal as the Company purchases the coal feedstock from the customer to which the processed refined coal is sold.
Cost of Sales
Cost of sales includes depreciation, costs of raw materials, inbound freight charges, purchasing and receiving costs, inspection costs, other distribution expenses, warehousing costs, plant management, certain compensations costs and general facility overhead charges.
Selling, General and Administrative (“SG&A”) Expenses
The Company includes non-production
related costs such as professional fees, outbound freight charges, selling charges and certain payroll in SG&A expenses. Outbound
freight charges were approximately $
Financial Instruments
Certain of the forward grain purchase and ethanol, distillers grains and non-food grade corn oil sale contracts are accounted for under the “normal purchases and normal sales” scope exemption of Accounting Standards Codification (“ASC”) 815, “Derivatives and Hedging” (“ASC 815”) because these arrangements are for purchases of grain that will be delivered in quantities expected to be used by the Company and sales of ethanol, distillers grains and non-food grade corn oil quantities expected to be produced by the Company over a reasonable period of time in the normal course of business.
The Company uses derivative financial instruments (exchange-traded futures contracts) to manage a portion of the risk associated with changes in commodity prices, primarily related to corn. The Company monitors and manages this exposure as part of its overall risk management policy. As such, the Company seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results. The Company may take hedging positions in these commodities as one way to mitigate risk. While the Company attempts to link its hedging activities to purchase and sales activities, there are
| 6 |
situations in which these hedging activities can themselves result in losses. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The changes in fair value of these derivative financial instruments are recognized in current period earnings as the Company does not use hedge accounting.
Income Taxes
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 months ended April 30, 2021 and 2020.
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 basis and operating loss and tax credit carryforwards. The Company provides for
a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. The Company paid no income taxes nor received refunds of income taxes
during the three months ended April 30, 2021. The Company paid income taxes of approximately $
As of April 30, 2021, and January 31, 2021,
total unrecognized tax benefits were approximately $
Inventories
Inventories are carried at the lower of
cost or net realizable value on a first-in, first-out basis. Inventory includes direct production costs and certain overhead costs
such as depreciation, property taxes and utilities associated with producing ethanol and related by-products and refined coal.
Inventory is written down for instances when cost exceeds estimated net realizable value; such write-downs are based primarily
upon commodity prices as the market value of inventory is often dependent upon changes in commodity prices. The Company recorded
approximately $
| April 30, 2021 | January 31, 2021 | |||||
| Ethanol and other finished goods | $ | $ | ||||
| Work in process | ||||||
| Grain and other raw materials | ||||||
| Total | $ | $ | ||||
| 7 |
Property and Equipment
Property and equipment is recorded at cost
or the fair value on the date of acquisition (for property and equipment acquired in a business combination). Depreciation is
computed using the straight-line method. Estimated useful lives are
In accordance with ASC 360-10 “Impairment or Disposal of Long-Lived Assets”, the carrying value of long-lived assets is assessed for recoverability by management when changes in circumstances indicate that the carrying amount may not be recoverable. During fiscal year 2020, the Company concluded that the impact of the coronavirus (” COVID- 19”) pandemic on the ethanol industry and the Company’s operating results was an indicator that impairment may exist related to certain of its long-lived assets. As a result, the Company performed a recoverability test and determined that there was no impairment for fiscal year 2020. There were no impairment charges in the first three months of fiscal year 2020.
The Company did not identify any indicators of impairment during the first quarter of fiscal year 2021. There were no impairment charges in the first three months of fiscal year 2021.
The Company tests for recoverability of an asset group by comparing its carrying amount to its estimated undiscounted future cash flows. If the carrying amount exceeds its estimated undiscounted future cash flows, the Company recognizes an impairment charge for the amount by which the asset group’s carrying amount exceeds its fair value, if any.
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 the Company is the primary beneficiary. The Company accounts for investments in a limited liability
company in which it has a less than
| 8 |
The Company periodically evaluates its investments for impairment due to declines in market value considered to be other than temporary. Such impairment evaluations include 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 the Consolidated Condensed Statements of Operations and a new cost basis in the investment is established.
Short-term investments are considered held to maturity, and therefore are carried at amortized historical cost.
Comprehensive Income
The Company has no components of other comprehensive income, and therefore, comprehensive income equals net income.
Accounting Changes and Recently Issued Accounting Standards
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The Company adopted this update effective February 1, 2021. The adoption of this update did not impact the consolidated financial statements.
Note 3. Net Sales and Revenue
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.
Note 4. Leases
At April 30, 2021, 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
| 9 |
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.
| Three Months Ended | Three Months Ended | |||||
| April 30, 2021 | April 30, 2020 | |||||
| Operating lease expense | $ | $ | ||||
| Variable lease expense | ||||||
| Total lease expense | $ | $ | ||||
The following table is a summary of future minimum rentals on such leases at April 30, 2021 (amounts in thousands):
| Years Ended January 31, | Minimum Rentals | |||
| Remainder of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | ||||
| Less: present value discount | ||||
| Operating lease liabilities | $ | |||
At April 30, 2021, the weighted average remaining lease
term is
The following table is a summary of future minimum rentals on such leases at January 31, 2021 (amounts in thousands):
| Years Ended January 31, | Minimum Rentals | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | ||||
| Less: present value discount | ||||
| Operating lease liabilities | $ | |||
At January 31, 2021, the weighted average remaining lease
term was
| 10 |
Note 5. Fair Value
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.
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||
| Investment in cooperative (1) | $ | $ | $ | $ | ||||||||
| Forward purchase contracts (2) | ||||||||||||
| Total assets | $ | - | $ | $ | $ | |||||||
| Commodity futures liability (3) | $ | $ | $ | $ | ||||||||
| 11 |
Financial assets and liabilities measured at fair value on a recurring basis at January 31, 2021 are summarized below (amounts in thousands):
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||
| Investment in cooperative (1) | $ | $ | $ | $ | ||||||||
| Forward purchase contracts asset (2) | ||||||||||||
| Total assets | $ | - | $ | $ | $ | |||||||
| Commodity futures liability (3) | $ | $ | $ | $ | ||||||||
(1)
(2)
(3)
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
Note 6. Property and Equipment
The components of property and equipment are as follows for the periods presented (amounts in thousands):
| April 30, 2021 | January 31, 2021 | |||||||
| Land and improvements | $ | $ | ||||||
| Buildings and improvements | ||||||||
| Machinery, equipment and fixtures | ||||||||
| Construction in progress | ||||||||
| Less: accumulated depreciation | ( | ( | ||||||
| Total | $ | $ | ||||||
| 12 |
Note 7. Accrued Expenses and Other Current Liabilities
The components of accrued expenses and other current liabilities are as follows for the periods presented (amounts in thousands):
| April 30, 2021 | January 31, 2021 | |||||||
| Accrued payroll and related items | $ | $ | ||||||
| Accrued utility charges | ||||||||
| Accrued transportation related items | ||||||||
| Accrued real estate taxes | ||||||||
| Commodity futures | ||||||||
| Accrued income taxes | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
Note 8. Derivative Financial Instruments
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. The changes in fair value of these derivative financial instruments are recognized in current period earnings as the Company does not use hedge accounting.
The following table provides information about the fair values of the Company’s derivative financial instruments (that are not accounted for under the “normal purchases and normal sales” scope exemption of ASC 815) and the line items on the Consolidated Condensed Balance Sheets in which the fair values are reflected (in thousands):
| Asset Derivatives | Liability Derivatives | |||||||||||||||
| Fair Value | Fair Value | |||||||||||||||
| April 30, 2021 | January 31, 2021 | April 30, 2021 | January 31, 2021 | |||||||||||||
| Commodity futures (1) | $ | $ | $ | $ | ||||||||||||
| Forward purchase contracts (2) | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
(1)
(2)
| 13 |
As of April 30, 2021, and January 31,
2021, all of 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 April
30, 2021, and January 31, 2021, 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 $
See Note 5 which contains fair value information related to derivative financial instruments.
The Company recognized losses (included
in net sales and revenue) on derivative financial instruments of approximately $
The Company recognized (losses) gains (included
in cost of sales) on derivative financial instruments of approximately $(
Note 9. Investments
The following table summarizes the Company’s equity method investment at April 30, 2021 and January 31, 2021 (dollars in thousands):
| Carrying Amount | ||||||
| Entity | Ownership Percentage | April 30, 2021 | January 31, 2021 | |||
| Big River | $ |
$ | ||||
Undistributed earnings of the Company’s
equity method investee totaled approximately $
| 14 |
| Three Months Ended April 30, | ||||||||
| 2021 | 2020 | |||||||
| Net sales and revenue | $ | $ | ||||||
| Gross profit (loss) | $ | $ | ( | |||||
| Income (loss) from continuing operations | $ | $ | ( | |||||
| Net income (loss) | $ | $ | ( | |||||
At April 30, 2021, the Company owned certificates
of deposit that had an amortized cost, or carrying value, of approximately $
At January 31, 2021, the Company owned certificates
of deposit that had an amortized cost, or carrying value, of approximately $
Note 10. Employee Benefits
The Company maintains
the REX 2015 Incentive Plan, approved by its shareholders, which reserves a total of
| 15 |
At April 30, 2021 and
January 31, 2021, unrecognized compensation cost related to nonvested restricted stock was approximately $
| Three Months Ended April 30, 2021 | ||||||||||||
| Weighted | Weighted | |||||||||||
| Average Grant | Average Remaining | |||||||||||
| Non-Vested | Date Fair Value | Vesting Term | ||||||||||
| Shares | (000’s) | (in years) | ||||||||||
| Non-Vested at January 31, 2021 | $ | |||||||||||
| Granted | - | - | ||||||||||
| Forfeited | - | - | ||||||||||
| Vested | - | - | ||||||||||
| Non-Vested at April 30, 2021 | $ | |||||||||||
| Three Months Ended April 30, 2020 | ||||||||||||
| Weighted | Weighted | |||||||||||
| Average Grant | Average Remaining | |||||||||||
| Non-Vested | Date Fair Value | Vesting Term | ||||||||||
| Shares | (000’s) | (in years) | ||||||||||
| Non-Vested at January 31, 2020 | $ | |||||||||||
| Granted | - | - | ||||||||||
| Forfeited | - | - | ||||||||||
| Vested | - | - | ||||||||||
| Non-Vested at April 30, 2020 | $ | |||||||||||
The above tables include
Note 11. Income Taxes
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 months ended April 30, 2021 and 2020.
| 16 |
The Company’s income tax provision
was approximately
The Company assessed all available positive and negative evidence to determine whether it expects sufficient future taxable income will be generated to allow for the realization of existing federal deferred tax assets. For the three year period ended April 30, 2021, the Company has a cumulative pre-tax book loss on a comprehensive basis, including the impact of an operation that has historically produced pre-tax book losses, but after tax net income. The Company expects that this entity will cease operations in fiscal year 2021. There is sufficient objectively verifiable income for management to conclude that it is more likely than not that the Company will utilize available federal deferred tax assets prior to their expiration.
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. The Company is currently undergoing a federal income tax examination for the years ended January 31, 2015, 2016 and 2017.
On a quarterly and annual basis, the Company
accrues for the effects of open uncertain tax positions and the related potential penalties and interest. 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.
| Three Months Ended April 30, | ||||||||
| 2021 | 2020 | |||||||
| Unrecognized tax benefits, beginning of period | $ | $ | ||||||
| Changes for prior years’ tax positions | ||||||||
| Changes for current year tax positions | - | |||||||
| Unrecognized tax benefits, end of period | $ | $ | ||||||
Note 12. Commitments and Contingencies
The Company is involved in various legal actions arising in the normal course of business. After taking into consideration legal counsels’ evaluations of such actions, management is of the opinion that their outcome will not have a material adverse effect on the Company’s Consolidated Condensed Financial Statements.
One Earth and NuGen have combined forward
purchase contracts for approximately
| 17 |
One Earth and NuGen have combined sales
commitments for approximately
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 $
Note 13. Related-Party Transactions
During the first quarter of fiscal years
2021 and 2020, One Earth and NuGen purchased approximately $
During the first quarter of fiscal years
2021 and 2020, the Company recognized commission expense of approximately $
Note 14. Segment Reporting
The Company has
| Three Months Ended | ||||||||
| April 30, | ||||||||
| 2021 | 2020 | |||||||
| Net sales and revenue: | ||||||||
| Ethanol and by-products | $ | $ | ||||||
| Refined coal 1 | ||||||||
| Total net sales and revenue | $ | $ | ||||||
1
| 18 |
| Three Months Ended | ||||||||
| April 30, | ||||||||
| 2021 | 2020 | |||||||
| Segment gross profit (loss): | ||||||||
| Ethanol and by-products | $ | $ | ( | |||||
| Refined coal | ( | ( | ||||||
| Total gross profit (loss) | $ | $ | ( | |||||
| Income (loss) before income taxes: | ||||||||
| Ethanol and by-products | $ | $ | ( | |||||
| Refined coal | ( | ( | ||||||
| Corporate and other | ( | ( | ||||||
| Total income (loss) before income taxes | $ | $ | ( | |||||
| (Provision) benefit for income taxes: | ||||||||
| Ethanol and by-products | $ | ( | $ | |||||
| Refined coal | ||||||||
| Corporate and other | ||||||||
| Total (provision) benefit for income taxes | $ | ( | $ | |||||
| Net income (loss) attributable to REX common shareholders: | ||||||||
| Ethanol and by-products | $ | $ | ( | |||||
| Refined coal | ||||||||
| Corporate and other | ( | ( | ||||||
| Net income (loss) attributable to REX common shareholders | $ | $ | ( | |||||
| Assets: | April 30, 2021 | January 31, 2021 | ||||||
| Ethanol and by-products | $ | $ | ||||||
| Refined coal | ||||||||
| Corporate and other | ||||||||
| Total assets | $ | $ | ||||||
| Three Months Ended | ||||||||
| April 30, | ||||||||
| Sales of products, ethanol and by-products segment: | 2021 | 2020 | ||||||
| Ethanol | $ | $ | ||||||
| Dried distillers grains | ||||||||
| Non-food grade corn oil | ||||||||
| Modified distillers grains | ||||||||
| Derivative financial instruments losses | ( | - | ||||||
| Other | ||||||||
| Total | $ | $ | ||||||
| Sales of products, refined coal segment: | ||||||||
| Refined coal | $ | $ | ||||||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ethanol and By-Products
At April 30, 2021, investments in our ethanol business include equity investments in three ethanol limited liability companies, two of which we have a majority ownership interest in. The following table is a summary of ethanol gallons shipped at our plants:
| Entity | Trailing
12 Months Ethanol Gallons Shipped |
REX’s Current Effective Ownership Interest |
Current
Effective Ownership of Trailing 12 Months Ethanol Gallons Shipped |
| One Earth Energy, LLC | 119.2 M | 75.5% | 90.0 M |
| NuGen Energy, LLC | 119.6 M | 99.5% | 119.0 M |
Big River Resources, LLC: Big River Resources W Burlington, LLC Big River Resources Galva, LLC Big River United Energy, LLC Big River Resources Boyceville, LLC |
97.3 M 111.5 M 113.8 M 55.8 M |
10.3% 10.3% 5.7% 10.3% |
10.0 M 11.5 M 6.5 M 5.7 M |
| Total | 617.2 M | 242.7 M |
Our ethanol operations and the results thereof are highly dependent on commodity prices, especially prices for corn, ethanol, distillers grains, non-food grade corn oil and natural gas and availability of corn. As a result of price volatility for these commodities, our operating results can fluctuate substantially. The price and availability of corn is subject to significant fluctuations depending upon several factors that affect commodity prices in general, including crop conditions, the amount of corn stored on farms, weather, federal policy and foreign trade. Because the market prices of ethanol and distillers grains are not always directly related to corn prices (for example, demand for crude and other energy and related prices, the
| 20 |
export market demand for ethanol and distillers grains and the results of federal policy decisions and trade negotiations can impact ethanol and distillers grains prices), at times ethanol and distillers grains prices may not follow movements in corn prices and, in an environment of higher corn prices or lower ethanol or distillers grains prices, reduce the overall margin structure at the plants. As a result, at times, we may operate our plants at negative or minimally positive operating margins.
We expect our ethanol plants to produce approximately 2.8 gallons of denatured ethanol for each bushel of grain processed in the production cycle. We refer to the actual gallons of denatured ethanol produced per bushel of grain processed as the realized yield. We refer to the difference between the price per gallon of ethanol and the price per bushel of grain (divided by the realized yield) 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 attempt to manage the risk related to the volatility of commodity prices by utilizing forward grain purchase, forward ethanol, distillers grains and corn oil sale contracts and commodity futures agreements, as management deems appropriate. We attempt to match quantities of these 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 generally lags the spot market with respect to ethanol price. Consequently, we generally execute fixed price contracts for no more than four months into the future at any given time and we may lock in our corn or ethanol price without having a corresponding locked in ethanol or corn price for short durations of time. As a result of the relatively short period of time our fixed price contracts cover, we generally cannot predict the future movements in our realized crush spread for more than four months; thus, we are unable to predict the likelihood or amounts of future income or loss from the operations of our ethanol facilities. We utilize derivative financial instruments, primarily exchange traded commodity future contracts, in conjunction with certain of our grain procurement activities.
Refined Coal
On August 10, 2017, we purchased the entire ownership interest of an entity that owns a refined coal facility, through a 95.35% owned subsidiary, for approximately $12.0 million. We began operating the refined coal facility immediately after the acquisition. We expect that the revenues from the sale of refined coal produced in the facility will be subsidized by federal production tax credits through November 18, 2021, subject to meeting qualified emissions reductions as governed by Section 45 of the Internal Revenue Code. In order to maintain compliance with Section 45 of the Internal Revenue Code, we are required to test the effectiveness of our process with respect to emissions reductions every six months through an independent laboratory. Annually, the IRS publishes the amount of federal income tax credit earned per ton of refined coal produced and sold. We expect to earn credits at the rate of approximately $7.38 per ton of refined coal produced and sold during calendar year 2021. The tax credits can be earned for refined coal produced and sold by our facility through November 18, 2021. Absent the tax credits, our refined coal operations would not be profitable.
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The refined coal facility is located at the site of a utility-owned electrical generating power station, which is our refined coal operation’s sole customer. Refined coal production and sales vary depending on fluctuations in demand from the site host utility, which generally changes based upon weather conditions in the geographic markets the utility serves and competing energy prices and supplies and the state of the economy. We have contracted with an experienced third party to operate and maintain the refined coal facility and to provide us with management reporting and operating data as required. We do not have any employees on site at the refined coal facility.
Future Energy
During fiscal year 2013, we entered into a joint venture with Hytken HPGP, LLC (“Hytken”) to file and defend patents for eSteam technology relating to heavy oil and oil sands production methods, and to commercially exploit the technology to generate license fees, royalty income and development opportunities. The patented technology is an enhanced method of heavy oil recovery involving zero emissions downhole steam generation. We own 60% and Hytken owns 40% of the entity named Future Energy, LLC (“Future Energy”).
We have agreed to fund direct patent expenses relating to patent applications and defense, annual annuity fees and maintenance on a country by country basis, with the right to terminate funding and transfer related patent rights to Hytken. We have funded all costs relating to new intellectual property, consultants, research and development, pilot field tests and equipment purchases with respect to the proposed commercialization stage of the technology. To date, we have paid and expensed approximately $2.5 million cumulatively to purchase our ownership interest and fund patent and other expenses. We have not yet tested or proven the commercial feasibility of the technology.
Critical Accounting Policies and Estimates
During the three months ended April 30, 2021, we did not change any of our critical accounting policies as disclosed in our 2020 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on April 12, 2021.
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 2021” means the period February 1, 2021 to January 31, 2022.
Results of Operations
Trends and Uncertainties
In recent years, operating results in our ethanol and by-products segment have been, at times affected by a weak margin environment including such factors as higher costs for corn, lower availability of local corn, lower ethanol demand and the EPA granting small refiner waivers.
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During the early months of 2020, COVID-19 spread into the United States and other countries. In an effort to contain the spread of this virus, there were various government mandated restrictions, in addition to voluntary privately implemented restrictions, including limiting public gatherings, retail store closures, restrictions on employees working and the quarantining of people who may have been exposed to the virus. This led to reduced demand for gasoline and ethanol, and consequently, historically low ethanol pricing. As a result, we idled our NuGen and One Earth ethanol plants in March of 2020. In May of 2020, businesses and other activities slowly began to reopen, which led to an increase in demand for gasoline and ethanol, and in related prices. As a result, we resumed production operations at the One Earth ethanol plant in late May of 2020 and at NuGen in late June of 2020. In addition, actions by the Federal Reserve related to the COVID-19 outbreak, reduced interest rates. Given the amount of cash and short-term investments we have, this could significantly reduce our interest income in future periods, depending on the length of time interest rates remain at these levels. The impacts of the COVID-19 outbreak on our business operations, including the duration and impact on ethanol demand, cannot be reasonably estimated at this time, although a prolonged production stoppage at our plants would have a material adverse impact on our results of operations, financial condition and cash flows in future periods.
Congress passed the CARES Act in March 2020, which provided the United States department of Agriculture (“USDA”) with additional funding for the “Commodity Credit Corporation (“CCC”). The USDA is using this additional funding to provide direct payments to farmers, including farmers that we purchase corn from. Such direct payments to farmers could cause them to delay marketing decisions. Consequently, this could reduce the supply of corn and result in a price increase for what we pay for corn. In addition, China has been purchasing large quantities of corn, which has led to higher prices for corn. We have experienced an increase in the local basis paid for corn during the first quarter of fiscal year 2021.
Renewable Fuel Standard II (“RFS II”), established in October 2010, has been an important factor in the growth of ethanol usage in the United States. When it was originally established, RFS II required the volume of “conventional” or corn derived ethanol to be blended with gasoline to increase each year until it reached 15.0 billion gallons in 2015 and was to remain at that level through 2022. There are no established congressional target volumes beginning in 2023. The EPA has the authority to waive the biofuel mandate, in whole or in part, if there is inadequate domestic renewable fuel supply or the requirement severely harms the domestic economy or environment. On December 19, 2019, the EPA announced the final 2020 renewable volume obligation for conventional ethanol, which met the 15.0 billion gallons congressional target. The EPA has missed its deadline and has not yet released a draft renewable volume obligation rule for the 2021 volumes. On April 15, 2020, five state Governors sent a letter to the EPA requesting a general waiver from RFS II due to the drop in demand caused by COVID-19 travel restrictions. On October 21, 2020, 15 U.S. Senators sent a letter to the EPA requesting a general waiver from RFS II to reduce the 2021 renewable volume obligation, citing the reduced demand for fuels due to COVID-19. It is unclear when the renewable volume obligation for 2021 will be released.
Throughout fiscal year 2020 and the first quarter of fiscal year 2021, operating results in our refined coal segment were affected by inconsistent utility plant demand (our only customer). We expect to cease these operations and earning the resulting production tax credits by November 18, 2021.
Should these trends and uncertainties continue, our future operating results are likely to be negatively impacted.
| 23 |
Comparison of Three Months Ended April 30, 2021 and 2020
The following sections discuss the results of operations for each of our business segments and corporate and other. Amounts in the corporate and other category include activities that are not separately reportable or related to a segment. We have two reportable segments: i) ethanol and by-products; and ii) refined coal. We evaluate the performance of each reportable segment using net income attributable to REX common shareholders. Segment profitability measures are determined using the same accounting policies used in the preparation of the consolidated financial statements. The following tables summarizes segment and other results (amounts in thousands):
| Three Months Ended | ||||||||
| April 30, | ||||||||
| 2021 | 2020 | |||||||
| Net sales and revenue: | ||||||||
| Ethanol and by-products | $ | 164,042 | $ | 83,235 | ||||
| Refined coal 1 | 62 | 15 | ||||||
| Total net sales and revenue | $ | 164,104 | $ | 83,250 | ||||
| 1 | We record sales in the refined coal segment net of the cost of coal as we purchase the coal feedstock from the customer to which refined coal is sold. |
| Segment gross profit (loss): | ||||||||
| Ethanol and by-products | $ | 19,477 | $ | (8,223) | ||||
| Refined coal | (1,675) | (1,107) | ||||||
| Total gross profit (loss) | $ | 17,802 | $ | (9,330) | ||||
| Income (loss) before income taxes: | ||||||||
| Ethanol and by-products | $ | 11,082 | $ | (12,351) | ||||
| Refined coal | (1,795) | (847) | ||||||
| Corporate and other | (860) | (545) | ||||||
| Total income (loss) before income taxes | $ | 8,427 | $ | (13,743) | ||||
| (Provision) benefit for income taxes: | ||||||||
| Ethanol and by-products | $ | (2,436) | $ | 4,161 | ||||
| Refined coal | 2,195 | 959 | ||||||
| Corporate and other | 212 | 193 | ||||||
| Total (provision) benefit for income taxes | $ | (29) | $ | 5,313 |
| 24 |
| Three Months Ended | ||||||||
| April 30, | ||||||||
| 2021 | 2020 | |||||||
| Net income (loss) attributable to REX common shareholders: | ||||||||
| Ethanol and by-products | $ | 7,952 | $ | (7,433) | ||||
| Refined coal | 480 | 150 | ||||||
| Corporate and other | (648) | (352) | ||||||
| Net income (loss) attributable to REX common shareholders | $ | 7,784 | $ | (7,635) | ||||
The following table summarizes net sales and revenue from the ethanol and by-products segment (amounts in thousands):
| Three Months Ended | ||||||||
| April 30, | ||||||||
| 2021 | 2020 | |||||||
| Ethanol | $ | 126,069 | $ | 60,597 | ||||
| Dried distillers grains | 31,119 | 18,918 | ||||||
| Non-food grade corn oil | 5,594 | 3,188 | ||||||
| Modified distillers grains | 2,293 | 457 | ||||||
| Derivative financial instruments losses | (1,126) | - | ||||||
| Other | 93 | 75 | ||||||
| Total | $ | 164,042 | $ | 83,235 | ||||
| 25 |
The following table summarizes selected data from the ethanol and by-products segment:
| Three Months Ended | ||||||||
| April 30, | ||||||||
| 2021 | 2020 | |||||||
| Average selling price per gallon of ethanol (net of hedging) | $ | 1.79 | $ | 1.25 | ||||
| Gallons of ethanol sold (in millions) | 70.0 | 48.3 | ||||||
| Average selling price per ton of dried distillers grains | $ | 208.92 | $ | 145.64 | ||||
| Tons of dried distillers grains sold | 148,951 | 129,895 | ||||||
| Average selling price per pound of non-food grade corn oil | $ | 0.33 | $ | 0.25 | ||||
| Pounds of non-food grade corn oil sold (in millions) | 17.1 | 12.8 | ||||||
| Average selling price per ton of modified distillers grains | $ | 71.54 | $ | 65.82 | ||||
| Tons of modified distillers grains sold | 32,060 | 6,941 | ||||||
| Average cost per bushel of grain | $ | 5.16 | $ | 3.93 | ||||
| Average cost of natural gas (per MmBtu) | $ | 3.18 | $ | 3.93 | ||||
Net sales and revenue in the quarter ended April 30, 2021 increased approximately 97% compared to the prior year’s first quarter. We had significantly lower production and sales volumes in our ethanol and by-products segment during fiscal year 2020, which related primarily to operations at NuGen as diminished local availability of corn, the effects of the COVID-19 outbreak and lower ethanol pricing resulted in the idling of the NuGen ethanol plant in March of 2020. Both of our consolidated plants produced at or near capacity during the first quarter of fiscal year 2021.
Ethanol sales increased in the first quarter of fiscal year 2021 compared to the first quarter of fiscal year 2020 as the number of gallons sold increased 45% and the average selling price per gallon increased 43% over the prior year first quarter. The increase in the ethanol selling price resulted primarily from an increase in demand and an increase in commodity prices.
Dried distillers grains sales increased in the first quarter of fiscal year 2021 compared to the first quarter of fiscal year 2020 as the number of tons sold increased 15% and the average selling price per ton increased 43% over the prior year first quarter. The increase in the dried distillers grains selling price resulted primarily from an increase in corn prices as dried distillers grains prices often follow corn pricing.
Non-food grade corn oil sales increased in the first quarter of fiscal year 2021 compared to the first quarter of fiscal year 2020 as the number of pounds sold increased 34% and the average selling price per pound increased 32% over the prior year first quarter. The increase in the non-food grade corn oil selling price resulted primarily from an increase in demand from the biodiesel industry.
| 26 |
Modified distillers grains sales increased in the first quarter of fiscal year 2021 compared to the first quarter of fiscal year 2020 as the number of tons sold increased 362% and the average selling price per ton increased 9% over the prior year first quarter. The increase in the modified distillers grains selling price resulted primarily from an increase in corn prices.
Losses on derivative financial instruments, included in net sales and revenue, of approximately $1.1 million in the first quarter of fiscal year 2021 related to our risk management activities and were impacted by the significant increase in ethanol prices during that quarter. There were no gains or losses on derivative financial instruments during the first quarter of fiscal year 2020.
Gross profit for the first quarter of fiscal year 2021 increased approximately $27.1 million compared to the prior year’s first quarter. This was primarily caused by significantly higher production and sales volumes in our ethanol and by-products segment during the first quarter of fiscal year 2021 compared to the depressed levels during the first quarter of fiscal year 2020 discussed above. The crush spread for the first quarter of fiscal year 2021 was approximately $0.04 per gallon of ethanol sold compared to $(0.08) per gallon of ethanol sold during the first quarter of fiscal year 2020. The selling price per gallon of ethanol sold increased 43% for the first quarter of fiscal year 2021 compared to the first quarter of fiscal year 2020, outpacing the 31% increase in the cost per bushel of corn during the same periods. In addition, higher sales volumes and prices of by-products contributed to the increase in gross profit during the first quarter of fiscal year 2021 compared to the first quarter of fiscal year 2020. During the first quarter of fiscal year 2020 the impact from the COVID-19 outbreak and lower oil pricing resulted in lower ethanol and corn pricing which severely impacted operations and resulted in the large gross loss.
Grain accounted for approximately 84% ($121.8 million) of our cost of sales during the first quarter of fiscal year 2021 compared to approximately 75% ($65.8 million) during the first quarter of fiscal year 2020. Natural gas accounted for approximately 3% ($3.6 million) of our cost of sales during the first quarter of fiscal year 2021 compared to approximately 6% ($5.4 million) during the first quarter of fiscal year 2020. The grain increase was primarily attributable to the higher production levels in the first quarter of fiscal year 2021 compared to the depressed production levels in the first quarter of fiscal year 2020 and the significant rise in corn prices during the first quarter of fiscal year 2021. The natural gas decrease was primarily attributable to gains realized on the sales of unused natural gas during the first quarter of fiscal year 2021. The sales were a result of unusual and significant increases in the spot price of natural gas during portions of the first quarter of fiscal year 2021 which resulted in an opportunity for us to sell forward natural gas purchases at a gain.
We attempt to match quantities of ethanol, distillers grains and non-food grade corn oil sales contracts with an appropriate quantity of grain purchase contracts over a given time period when we can obtain a satisfactory margin resulting from the crush spread inherent in the contracts we have executed. However, the market for future ethanol sales contracts generally lags the spot market with respect to ethanol price. Consequently, we generally execute fixed price sales contracts for no more than four months into the future at any given time and we may lock in our corn or ethanol price without having a corresponding locked in ethanol or corn price for short durations of time. As a result of the relatively short period of time our contracts cover, we generally cannot predict the future movements in our realized crush spread for more than four months.
SG&A expenses were approximately $10.0 million for the first quarter of fiscal year 2021, significantly higher than the approximately $4.6 million of expenses for the first quarter of fiscal year 2020. A majority of the increase results from higher shipping costs as more sales contracts in our ethanol and by-products segment provided for shipping to be paid by us in the first quarter of fiscal year 2021 compared to the first quarter of fiscal year 2020.
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During the first quarter of fiscal year 2021, we recognized income of approximately $0.6 million compared to a loss of approximately $0.5 million for the first quarter of fiscal year 2020, from our equity investment in Big River, which is included in our ethanol and by-products segment results. Big River has interests in four ethanol production plants that shipped approximately 378 million gallons in the trailing twelve months ended April 30, 2021 and has an effective ownership of ethanol gallons shipped for the same period of approximately 328 million gallons. Big River’s operations also include agricultural elevators. Due to the inherent volatility of commodity prices within the ethanol industry, we cannot predict the likelihood of future operating results from Big River being similar to historical results.
Interest and other income was approximately $43,000 for the first quarter of fiscal year 2021 versus approximately $669,000 for the first quarter of fiscal year 2020. Interest income decreased as yields on our excess cash decreased in the first quarter of fiscal year 2021 compared to the first quarter of fiscal year 2020.
As a result of the foregoing, income before income taxes was approximately $8.4 million for the first quarter of fiscal year 2021 versus loss of approximately $13.7 million for the first quarter of fiscal year 2020.
We 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 months ended April 30, 2021 and 2020. Our tax provision was approximately 0.3% for the three months ended April 30, 2021 versus a benefit of approximately 38.7% for the three months ended April 30, 2020. The fluctuation in the rate results primarily from the production tax credits we expect to receive associated with our refined coal segment relative to pre-tax income or loss. Our income tax benefit for the first quarter of fiscal year 2020 includes approximately $1.4 million related to the lengthening of a net operating loss carryback allowed by the CARES Act.
As a result of the foregoing, net income was approximately $8.4 million for the first quarter of fiscal year 2021 compared to net loss of approximately $8.4 million for the first quarter of fiscal year 2020.
(Income) loss related to noncontrolling interests was approximately $(0.6) million and approximately $0.8 million during the first quarter of fiscal years 2021 and 2020, respectively. These amounts represent the other owners’ share of the income or loss of NuGen, One Earth and the refined coal entity.
As a result of the foregoing, net income attributable to REX common shareholders for the first quarter of fiscal year 2021 was approximately $7.8 million, an increase of approximately $15.4 million from net loss attributable to REX common shareholders of approximately $7.6 million for the first quarter of fiscal year 2020.
| 28 |
Liquidity and Capital Resources
Net cash provided by operating activities was approximately $13.6 million for the first quarter of fiscal year 2021, compared to cash used of approximately $0.3 million for the first quarter of fiscal year 2020. For the first quarter of fiscal year 2021, cash was provided by net income of approximately $8.4 million, adjusted for non-cash items of approximately $6.4 million, which consisted of depreciation, amortization of operating lease right-of-use assets, income from equity method investments, interest income from short-term investments, the deferred income tax provision and stock based compensation expense. An increase in the balance of accounts receivable used cash of approximately $7.8 million, primarily a result of the timing of products shipped and the receipt of customer payments at One Earth and NuGen in addition to higher sales. Inventories decreased by approximately $11.2 million, primarily a result of the timing of receipt of raw materials and the shipment of finished goods. An increase in the balance of other assets of approximately $2.2 million primarily relates to increases in the carrying value of forward purchase contracts recorded at fair value as commodity price increased significantly during the first quarter of fiscal year 2021. A decrease in the balance of accounts payable used cash of approximately $1.0 million, which was primarily a result of the timing of inventory receipts and vendor payments. A decrease in the balance of other liabilities used cash of approximately $1.4 million, which was primarily a result of operating lease payments.
Net cash used in operating activities was approximately $0.3 million for the first quarter of fiscal year 2020. For the first quarter of fiscal year 2020, cash was used by a net loss of approximately $8.4 million, adjusted for non-cash items of approximately $5.3 million, which consisted of depreciation, amortization of operating lease right-of-use assets, loss from equity method investments, interest income from short-term investments, the deferred income tax provision and stock based compensation expense. We received dividends from Big River of approximately $2.0 million during the first quarter of fiscal year 2020. A decrease in the balance of accounts receivable provided cash of approximately $10.2 million, which was primarily a result of idling production at the NuGen facility during the first quarter of fiscal year 2020. Inventories decreased by approximately $8.4 million, which was primarily a result of lower of cost or net realizable value writedowns, the timing of receipt of raw materials, plant shutdowns and the shipment of finished goods. An increase in the balance of other assets of approximately $3.8 million primarily relates to a net operating loss we intended to carry back for federal income tax purposes. A decrease in the balance of accounts payable used cash of approximately $11.9 million, which was primarily a result of the timing of inventory receipts, vendor payments and idling production at the NuGen facility during the first quarter of fiscal year 2020. A decrease in the balance of other liabilities used cash of approximately $2.0 million, which was primarily a result of payments of operating leases and incentive compensation.
At April 30, 2021, working capital was approximately $240.2 million, compared to approximately $228.0 million at January 31, 2021. The ratio of current assets to current liabilities was 9.1 to 1 at April 30, 2021 and 8.4 to 1 at January 31, 2021.
Cash of approximately $0.9 million was used in investing activities for the first quarter of fiscal year 2021, compared to approximately $11.4 million during the first quarter of fiscal year 2020. During the first quarter of fiscal year 2021, we had capital expenditures of approximately $1.3 million, primarily for improvements at the One Earth and NuGen facilities. We expect capital expenditures to be in the range of approximately $5.0 million to $8.0 million for the remainder of fiscal year 2021. During the first quarter
| 29 |
of fiscal year 2021, we purchased certificates of deposit (classified as short-term investments) of approximately $25.9 million. During the first quarter of fiscal year 2021, certificates of deposit (classified as short-term investments) of approximately $26.3 million matured. The certificates of deposit, both matured and sold, had maturities of less than one year. Depending on investment options available, we may elect to retain the funds, or a portion thereof, in cash investments, short-term investments or long-term investments.
Cash of approximately $11.4 million was used in investing activities for the first quarter of fiscal year 2020. During the first quarter of fiscal year 2020, we had capital expenditures of approximately $4.7 million, primarily for the purchase of land at One Earth Energy. During the first quarter of fiscal year 2020, we purchased certificates of deposit (classified as short-term investments) of approximately $19.2 million. During the first quarter of fiscal year 2020, certificates of deposit (classified as short-term investments) of approximately $12.8 million matured.
Cash used in financing activities for the first quarter of fiscal year 2021 was insignificant compared to approximately $3.9 million for the first quarter of fiscal year 2020. During the first quarter of fiscal year 2020, we used cash of approximately $3.9 million to purchase approximately 78,000 shares of our common stock in open market transactions.
We are investigating various uses for our excess cash and short-term investments. We have a stock buyback program, and given our current authorization level, can repurchase a total of approximately 34,000 shares at April 30, 2021. We also plan to seek and evaluate investment opportunities including ethanol and/or energy related, carbon dioxide related, agricultural or other ventures we believe fit our investment criteria in addition to investing in highly liquid short-term securities.
We are working with the University of Illinois to explore the development of a carbon sequestration project to be located near the One Earth ethanol plant. The University of Illinois has received a United States Department of Energy award through the CarbonSAFE program, and, will evaluate the greenhouse gas storage potential beneath the site by drilling a test well and performing seismic surveys. Further work and research is needed to determine if this will be a feasible project.
Forward-Looking Statements
This Form 10-Q contains or may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements can be identified by use of forward-looking terminology such as “may,” “expect,” “believe,” “estimate,” “anticipate” or “continue” or the negative thereof or other variations thereon or comparable terminology. Readers are cautioned that there are risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements. These risks and uncertainties include the risk factors set forth from time to time in the Company’s filings with the Securities and Exchange Commission and include among other things: the effect of pandemics such as COVID-19 on the Company’s business operations, including impacts on supplies, demand, personnel and other factors, the impact of legislative and regulatory changes, the price volatility and availability of corn, distillers grains, ethanol, non-food grade corn oil, gasoline, natural gas, logistical delays, our ethanol and refined coal plants operating efficiently and according to forecasts and projections, changes in the international, national or regional economies, weather, results of income tax audits, changes in income tax laws or regulations and the effects of terrorism or acts of war. The Company does not intend to update publicly any forward-looking statements except as required by law. Other factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2021 (File No. 001-09097).
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to the impact of market fluctuations associated with commodity prices as discussed below.
We manage 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 exchange traded commodity futures contracts. Our exposure to market risk, which includes the impact of our risk management activities, is based on the estimated effect on pre-tax income starting on April 30, 2021 is as follows (amounts in thousands):
Commodity |
Estimated
Total Volume for 12 Months |
Unit of Measure | Decrease
in Pre-tax Income From a 10% Adverse Change in Price | |||
| Ethanol | 280,000 | Gallons | $56,430 | |||
| Corn | 100,000 | Bushels | $58,823 | |||
| Distillers Grains | 745 | Tons | $13,670 | |||
| Non-food grade Corn Oil | 72,300 | Pounds | $ 2,054 | |||
| Natural Gas | 7,400 | MmBtu | $ 1,727 |
Item 4. Controls and Procedures
Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not party to any legal proceedings that we believe would, individually or in the aggregate, have a material adverse effect on our financial condition, results of operations or cash flows.
Item 1A. Risk Factors
During the quarter ended April 30, 2021, there have been no material changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended January 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits
The following exhibits are filed with this report:
| 31 | Rule 13a-14(a)/15d-14(a) Certifications | |
| 32 | Section 1350 Certifications | |
| 101 | The following information from REX American Resources Corporation Quarterly Report on Form 10-Q for the quarter ended April 30, 2021, formatted in iXBRL: (i) Consolidated Condensed Balance Sheets, (ii) Consolidated Condensed Statements of Operations, (iii) Consolidated Condensed Statements of Equity, (iv) Consolidated Condensed Statements of Cash Flows and (v) Notes to Consolidated Condensed Financial Statements. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
REX American Resources Corporation
Registrant
| Signature | Title | Date |
| /s/ Zafar Rizvi | Chief Executive Officer and President | |
| (Zafar Rizvi) | (Chief Executive Officer) | May 28, 2021 |
| /s/ Douglas L. Bruggeman | Vice President, Finance and Treasurer | |
| (Douglas L. Bruggeman) | (Chief Financial Officer) | May 28, 2021 |
| 33 |
Exhibit 31
CERTIFICATIONS
I, Zafar Rizvi, certify that:
1. I have reviewed this quarterly report on Form 10-Q of REX American Resources Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 28, 2021 | |
| /s/ Zafar Rizvi | |
| Zafar Rizvi | |
| Chief Executive Officer and President |
CERTIFICATIONS
I, Douglas L. Bruggeman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of REX American Resources Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 28, 2021 | |
| /s/ Douglas L. Bruggeman | |
| Douglas L. Bruggeman | |
| Vice President, Finance, Treasurer and | |
| Chief Financial Officer |
Exhibit 32
REX American Resources Corporation
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officers of REX American Resources Corporation (the “Company”) hereby certify, to their knowledge, that the Company’s Quarterly Report on Form 10-Q for the period ended April 30, 2021 which this certificate accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
| /s/Zafar Rizvi | |
| Zafar Rizvi | |
| Chief Executive Officer and President | |
| /s/ Douglas L. Bruggeman | |
| Douglas L. Bruggeman | |
| Vice President, Finance, Treasurer and | |
| Chief Financial Officer | |
| Date: May 28, 2021 |