REX American Resources (REX) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the Company's unaudited consolidated condensed financial statements, including Balance Sheets, Statements of Operations, Equity, and Cash Flows, with notes on accounting policies, fair values, and segment performance for the periods ended July 31, 2021, and January 31, 2021 Consolidated Condensed Balance Sheets Consolidated Condensed Balance Sheets (In Thousands) | Metric | July 31, 2021 | January 31, 2021 | | :-------------------------- | :-------------- | :--------------- | | Cash and cash equivalents | $154,312 | $144,501 | | Short-term investments | $33,282 | $36,194 | | Restricted cash | $6,758 | $1,657 | | Accounts receivable | $29,521 | $19,713 | | Inventory | $41,759 | $37,880 | | Total current assets | $284,699 | $258,750 | | Property and equipment, net | $145,078 | $153,186 | | Total assets | $505,507 | $479,345 | | Accounts payable, trade | $22,041 | $16,907 | | Total current liabilities | $38,695 | $30,737 | | Total long-term liabilities | $13,515 | $11,425 | | Total REX shareholders' equity | $399,272 | $384,783 | | Noncontrolling interests | $54,025 | $52,400 | | Total equity | $453,297 | $437,183 | | Total liabilities and equity | $505,507 | $479,345 | - Total assets increased by $26,162k (5.46%) from January 31, 2021, to July 31, 2021[11] - Total equity increased by $16,114k (3.68%) from January 31, 2021, to July 31, 2021[11] Consolidated Condensed Statements of Operations Consolidated Condensed Statements of Operations (In Thousands, Except Per Share Amounts) | Metric | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales and revenue | $195,843 | $39,327 | $359,947 | $122,577 | | Gross profit (loss) | $11,074 | $(1,331) | $28,876 | $(10,661) | | Income (loss) before income taxes | $6,375 | $(6,079) | $14,802 | $(19,822) | | Net income (loss) | $10,052 | $(2,033) | $18,450 | $(10,463) | | Net income (loss) attributable to REX common shareholders | $7,876 | $(1,748) | $15,660 | $(9,383) | | Basic and diluted net income (loss) per share | $1.31 | $(0.28) | $2.61 | $(1.50) | - Net sales and revenue for the three months ended July 31, 2021, increased by 398% compared to the same period in 2020[12] - Net income attributable to REX common shareholders for the six months ended July 31, 2021, was $15,660k, a significant improvement from a loss of $(9,383)k in the prior year[12] Consolidated Condensed Statements of Equity Consolidated Condensed Statements of Equity (In Thousands) | Metric | Balance at January 31, 2021 | Balance at July 31, 2021 | | :-------------------------- | :-------------------------- | :----------------------- | | Common Shares Issued (Shares) | 29,853 | 29,853 | | Common Shares Issued (Amount) | $299 | $299 | | Treasury Shares | 23,861 | 23,866 | | Treasury Stock (Amount) | $(354,612) | $(355,936) | | Paid-in Capital | $149,110 | $149,263 | | Retained Earnings | $589,986 | $605,646 | | Noncontrolling Interests | $52,400 | $54,025 | | Total Equity | $437,183 | $453,297 | - Retained earnings increased by $15,660k from January 31, 2021, to July 31, 2021, reflecting net income[14] - Treasury stock increased by $(1,324)k, indicating share repurchases during the period[14] Consolidated Condensed Statements of Cash Flows Consolidated Condensed Statements of Cash Flows (In Thousands) | Metric | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $17,157 | $(9,034) | | Net cash provided by (used in) investing activities | $276 | $(12,355) | | Net cash used in financing activities | $(2,521) | $(5,724) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $14,912 | $(27,113) | | Cash, cash equivalents and restricted cash, end of period | $161,070 | $153,658 | - Operating activities generated $17,157k in cash for the first six months of 2021, a significant improvement from cash used of $(9,034)k in the prior year[18] - Cash, cash equivalents and restricted cash increased by $14,912k during the first six months of 2021, ending at $161,070k[18] Notes to Consolidated Condensed Financial Statements Note 1. Consolidated Condensed Financial Statements - The Company (REX American Resources Corporation) consolidates its majority and wholly-owned subsidiaries, with intercompany balances and transactions eliminated[19][21] - The Company has two reportable segments: ethanol and by-products (with equity investments in three ethanol LLCs, two majority-owned) and refined coal (with a majority equity interest in one refined coal LLC)[22] - Financial information for One Earth Energy, LLC is included on a delayed basis of one month due to its December 31 fiscal year end[21] Note 2. Accounting Policies - Revenue from ethanol and by-products is recognized upon transfer of control (shipment/loading), while refined coal sales are recognized when title and control transfer, recorded net of coal cost[26] - The Company uses derivative financial instruments (exchange-traded futures) to manage commodity price risk (primarily corn) but does not use hedge accounting, recognizing fair value changes in current earnings[31] - Inventories are carried at the lower of cost or net realizable value (FIFO basis) and include direct production and certain overhead costs, with write-downs of approximately $1.3 million recorded at July 31, 2021[35] Note 3. Net Sales and Revenue - Revenue is measured as the consideration expected in exchange for goods, with sales, value-added, and other taxes excluded from net sales[45] - Payment terms for most sales range from 5 to 10 days after control transfer, and the Company does not record unearned revenue[46] Note 4. Leases Total Lease Expense (In Thousands) | Metric | 3 Months Ended July 31, 2021 | 3 Months Ended July 31, 2020 | 6 Months Ended July 31, 2021 | 6 Months Ended July 31, 2020 | | :------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Operating lease expense | $1,565 | $1,548 | $3,115 | $3,234 | | Variable lease expense | $520 | $207 | $564 | $338 | | Total lease expense | $2,085 | $1,755 | $3,679 | $3,572 | Operating Lease Liabilities (In Thousands) | Metric | July 31, 2021 | January 31, 2021 | | :------------------------ | :-------------- | :--------------- | | Total Minimum Rentals | $13,791 | $13,308 | | Less: present value discount | $877 | $994 | | Operating lease liabilities | $12,914 | $12,314 | - At July 31, 2021, the weighted average remaining lease term was 2.7 years, and the weighted average discount rate was 4.88% for the Company's operating leases, primarily for railcars[50] Note 5. Fair Value Financial Assets and Liabilities Measured at Fair Value (In Thousands) at July 31, 2021 | Instrument | Level 1 | Level 2 | Level 3 | Fair Value | | :------------------------ | :------ | :------ | :------ | :--------- | | Investment in cooperative | $- | $- | $354 | $354 | | Commodity futures asset | $- | $784 | $- | $784 | | Forward purchase contracts | $- | $673 | $- | $673 | | Total assets | $- | $1,457 | $354 | $1,811 | | Commodity futures liability | $- | $4,590 | $- | $4,590 | - The fair value of derivative assets and liabilities is determined using quantitative models with multiple market inputs, while the investment in cooperative is valued using a discounted cash flow analysis[55][59] Note 6. Property and Equipment Property and Equipment, Net (In Thousands) | Category | July 31, 2021 | January 31, 2021 | | :-------------------------- | :-------------- | :--------------- | | Land and improvements | $27,437 | $27,437 | | Buildings and improvements | $23,701 | $23,701 | | Machinery, equipment and fixtures | $306,514 | $305,640 | | Construction in progress | $1,173 | $215 | | Less: accumulated depreciation | $(213,747) | $(203,807) | | Total | $145,078 | $153,186 | - Total property and equipment, net, decreased by $8,108k from January 31, 2021, to July 31, 2021[61] - No impairment charges were identified or recorded during the first six months of fiscal year 2021, following a recoverability test in fiscal year 2020 due to COVID-19 impacts[38] Note 7. Accrued Expenses and Other Current Liabilities Accrued Expenses and Other Current Liabilities (In Thousands) | Category | July 31, 2021 | January 31, 2021 | | :-------------------------------- | :-------------- | :--------------- | | Accrued payroll and related items | $1,882 | $690 | | Accrued utility charges | $2,708 | $2,515 | | Accrued transportation related items | $204 | $1,560 | | Accrued real estate taxes | $1,220 | $1,778 | | Commodity futures | $4,590 | $1,794 | | Accrued income taxes | $51 | $55 | | Other | $619 | $563 | | Total | $11,274 | $8,955 | - Total accrued expenses and other current liabilities increased by $2,319k (25.89%) from January 31, 2021, to July 31, 2021[62] - Commodity futures liabilities significantly increased from $1,794k to $4,590k, while accrued transportation related items decreased from $1,560k to $204k[62] Note 8. Derivative Financial Instruments Fair Values of Derivative Financial Instruments (In Thousands) | Instrument | July 31, 2021 (Asset) | January 31, 2021 (Asset) | July 31, 2021 (Liability) | January 31, 2021 (Liability) | | :------------------------ | :-------------------- | :----------------------- | :---------------------- | :----------------------- | | Commodity futures | $784 | $- | $4,590 | $1,794 | | Forward purchase contracts | $673 | $2,144 | $- | $- | | Total | $1,457 | $2,144 | $4,590 | $1,794 | - The Company recognized losses on derivative financial instruments of approximately $1.6 million (Q2 2021) and $2.8 million (first six months 2021) in net sales and revenue[68] - Collateral required to secure derivative positions increased from approximately $1.7 million at January 31, 2021, to $6.8 million at July 31, 2021[66] Note 9. Investments Equity Method Investment in Big River (In Thousands) | Entity | Ownership Percentage | Carrying Amount (July 31, 2021) | Carrying Amount (January 31, 2021) | | :------- | :------------------- | :------------------------------ | :--------------------------------- | | Big River | 10.3% | $31,870 | $29,456 | Summarized Financial Information for Big River (In Thousands) | Metric | 3 Months Ended July 31, 2021 | 3 Months Ended July 31, 2020 | 6 Months Ended July 31, 2021 | 6 Months Ended July 31, 2020 | | :------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net sales and revenue | $363,383 | $130,126 | $619,799 | $327,758 | | Net income (loss) | $17,877 | $(4,914) | $23,412 | $(9,540) | - The Company did not receive any dividends from its equity method investee in the first six months of fiscal year 2021, compared to approximately $2.0 million in the first six months of fiscal year 2020[70] Note 10. Employee Benefits - Unrecognized compensation cost related to non-vested restricted stock was approximately $155k at July 31, 2021, down from $272k at January 31, 2021[76] Non-Vested Restricted Stock Activity (Shares) | Metric | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :------------------------ | :----------------------------- | :----------------------------- | | Non-Vested at January 31 | 19,705 | 28,576 | | Granted | 2,803 | 6,158 | | Vested | 12,447 | 15,029 | | Non-Vested at July 31 | 10,061 | 19,705 | Note 11. Income Taxes Income Tax Benefit (In Thousands) | Metric | 3 Months Ended July 31, 2021 | 3 Months Ended July 31, 2020 | 6 Months Ended July 31, 2021 | 6 Months Ended July 31, 2020 | | :------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Income tax benefit | $3,677 | $4,046 | $3,648 | $9,359 | - The income tax benefit for the first six months of fiscal year 2021 was $3,648k, significantly lower than $9,359k in the prior year, primarily due to a shift from pre-tax losses to pre-tax income and the level of tax credits from refined coal operations[82] - Total unrecognized tax benefits, including interest and penalties, increased from $8,400k at the beginning of the period to $8,685k at July 31, 2021[85] Note 12. Commitments and Contingencies - One Earth and NuGen have combined forward purchase contracts for approximately 10.6 million bushels of corn and 639,000 MmBtu of natural gas[87] - One Earth and NuGen have combined sales commitments for approximately 31.7 million gallons of ethanol, 46,000 tons of distillers grains, and 9.6 million pounds of non-food grade corn oil[88] - Fees related to the refined coal operation totaled approximately $3.1 million for the six months ended July 31, 2021, compared to $1.4 million in the prior year[89] Note 13. Related-Party Transactions Related-Party Purchases of Corn and Other Supplies (In Millions) | Period | 2021 | 2020 | | :------------------------ | :----- | :----- | | Three Months Ended July 31 | $20.7 | $4.9 | | Six Months Ended July 31 | $37.4 | $17.2 | - Amounts payable to related parties were approximately $2.5 million at July 31, 2021, up from $0.7 million at January 31, 2021[90] - Commission expense of approximately $0.2 million was recognized in the second quarter and first six months of fiscal year 2021, payable to the minority investor in the refined coal entity[91] Note 14. Segment Reporting Net Sales and Revenue by Segment (In Thousands) | Segment | 3 Months Ended July 31, 2021 | 3 Months Ended July 31, 2020 | 6 Months Ended July 31, 2021 | 6 Months Ended July 31, 2020 | | :------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Ethanol and by-products | $195,678 | $39,242 | $359,720 | $122,477 | | Refined coal | $165 | $85 | $227 | $100 | | Total | $195,843 | $39,327 | $359,947 | $122,577 | Segment Gross Profit (Loss) (In Thousands) | Segment | 3 Months Ended July 31, 2021 | 3 Months Ended July 31, 2020 | 6 Months Ended July 31, 2021 | 6 Months Ended July 31, 2020 | | :------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Ethanol and by-products | $14,155 | $553 | $33,631 | $(7,670) | | Refined coal | $(3,081) | $(1,884) | $(4,755) | $(2,991) | | Total | $11,074 | $(1,331) | $28,876 | $(10,661) | Net Income (Loss) Attributable to REX Common Shareholders by Segment (In Thousands) | Segment | 3 Months Ended July 31, 2021 | 3 Months Ended July 31, 2020 | 6 Months Ended July 31, 2021 | 6 Months Ended July 31, 2020 | | :------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Ethanol and by-products | $6,418 | $(2,178) | $14,374 | $(9,611) | | Refined coal | $2,139 | $898 | $2,612 | $1,048 | | Corporate and other | $(681) | $(468) | $(1,326) | $(820) | | Total | $7,876 | $(1,748) | $15,660 | $(9,383) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Company's financial condition and operational results, covering ethanol, refined coal, and Future Energy segments, alongside key trends, uncertainties, and liquidity for the periods ended July 31, 2021, and 2020 Ethanol and By-Products REX's Effective Ownership of Trailing 12 Months Ethanol Gallons Shipped (In Millions) | Entity | Current Effective Ownership Interest | REX's Current Effective Ownership of Trailing 12 Months Ethanol Gallons Shipped | | :-------------------------------- | :--------------------------------- | :------------------------------------------------------------------------------ | | One Earth Energy, LLC | 75.6% | 108.8 M | | NuGen Energy, LLC | 99.7% | 137.0 M | | Big River Resources, LLC (various plants) | 5.7% - 10.3% | 36.2 M | | Total | | 283.0 M | - Ethanol operations are highly dependent on volatile commodity prices for corn, ethanol, distillers grains, non-food grade corn oil, and natural gas, leading to substantial fluctuations in operating results[96] - The Company manages commodity price risk using forward grain purchase, ethanol, distillers grains, and corn oil sale contracts, and commodity futures agreements, typically for no more than four months into the future[98][99] Refined Coal - The Company owns 95.35% of a refined coal facility, acquired in August 2017 for approximately $12.0 million[100] - Revenues from refined coal sales are subsidized by federal production tax credits (IRC Section 45), expected to be approximately $7.38 per ton in calendar year 2021[100] - Operations are expected to cease by November 18, 2021, as the facility will no longer be eligible for tax credits, and would otherwise be unprofitable[100] Future Energy - The Company owns 60% of Future Energy, LLC, a joint venture focused on eSteam technology for zero-emissions downhole heavy oil recovery[102] - Approximately $2.5 million has been cumulatively paid and expensed for ownership interest, patent, and other development costs[104] - The commercial feasibility of the eSteam technology has not yet been tested or proven[104] Critical Accounting Policies and Estimates - No changes were made to critical accounting policies during the three months ended July 31, 2021, as disclosed in the 2020 Annual Report on Form 10-K[105] Fiscal Year - All references to a fiscal year in this report refer to REX's fiscal year ending January 31[106] Results of Operations Trends and Uncertainties - Ethanol segment operating results have been affected by weak margins due to higher corn costs, lower local corn availability, reduced ethanol demand, and EPA small refiner waivers[107] - The COVID-19 pandemic led to reduced demand for gasoline and ethanol, causing the idling of NuGen and One Earth ethanol plants in March 2020, with production resuming in May/June 2020[108] - The refined coal segment's operating results were affected by inconsistent utility plant demand, and operations are expected to cease by November 18, 2021, due to the expiration of federal production tax credits[113] Comparison of Three and Six Months Ended July 31, 2021 and 2020 Net Sales and Revenue by Segment (In Thousands) | Segment | 3 Months Ended July 31, 2021 | 3 Months Ended July 31, 2020 | 6 Months Ended July 31, 2021 | 6 Months Ended July 31, 2020 | | :------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Ethanol and by-products | $195,678 | $39,242 | $359,720 | $122,477 | | Refined coal | $165 | $85 | $227 | $100 | | Total | $195,843 | $39,327 | $359,947 | $122,577 | Segment Gross Profit (Loss) (In Thousands) | Segment | 3 Months Ended July 31, 2021 | 3 Months Ended July 31, 2020 | 6 Months Ended July 31, 2021 | 6 Months Ended July 31, 2020 | | :------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Ethanol and by-products | $14,155 | $553 | $33,631 | $(7,670) | | Refined coal | $(3,081) | $(1,884) | $(4,755) | $(2,991) | | Total | $11,074 | $(1,331) | $28,876 | $(10,661) | Net Income (Loss) Attributable to REX Common Shareholders (In Thousands) | Metric | 3 Months Ended July 31, 2021 | 3 Months Ended July 31, 2020 | 6 Months Ended July 31, 2021 | 6 Months Ended July 31, 2020 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to REX common shareholders | $7,876 | $(1,748) | $15,660 | $(9,383) | - Ethanol sales increased by 160% in gallons sold and 80% in average selling price per gallon for Q2 2021 YoY, and 86% in gallons sold and 62% in average selling price per gallon for the first six months YoY[119] - The crush spread for Q2 2021 was approximately break-even per gallon, a significant improvement from $(0.04) per gallon in Q2 2020, and for the first six months, it improved from $(0.08) to $0.02 per gallon[125][128] Liquidity and Capital Resources Net Cash Flow Summary (In Thousands) | Activity | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $17,157 | $(9,034) | | Net cash provided by (used in) investing activities | $276 | $(12,355) | | Net cash used in financing activities | $(2,521) | $(5,724) | - Working capital increased to approximately $246.0 million at July 31, 2021, from $228.0 million at January 31, 2021[144] - The Company completed a 500,000 share buyback authorization and obtained authorization for an additional 500,000 shares[149] - The Company is exploring a carbon sequestration project near the One Earth ethanol plant in collaboration with the University of Illinois[150] Forward-Looking Statements - Forward-looking statements are subject to risks and uncertainties, including the impact of pandemics (COVID-19), legislative/regulatory changes, commodity price volatility (corn, ethanol, natural gas), logistical delays, and operational efficiency[152] - The Company does not intend to update publicly any forward-looking statements except as required by law[152] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the Company's market risk exposure, particularly commodity price volatility, and its management strategies, quantifying the estimated impact of adverse price changes on pre-tax income Estimated Decrease in Pre-tax Income from a 10% Adverse Change in Commodity Prices (as of July 31, 2021, In Thousands) | Commodity | Volume for 12 Months | Unit of Measure | Decrease in Pre-tax Income From a 10% Adverse Change in Price | | :------------------------ | :------------------- | :---------------- | :------------------------------------------------------------ | | Ethanol | 280,000 | Gallons | $62,678 | | Corn | 100,000 | Bushels | $57,302 | | Distillers Grains | 770 | Tons | $12,548 | | Non-food grade Corn Oil | 77,750 | Pounds | $3,905 | | Natural Gas | 7,400 | MmBtu | $800 | - The Company manages commodity price 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[155] Item 4. Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures as of July 31, 2021, with no material changes in internal control over financial reporting during the last quarter - The Company's disclosure controls and procedures were evaluated and deemed effective as of July 31, 2021[156] - There were no material changes in internal control over financial reporting during the last fiscal quarter[157] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is not involved in legal proceedings expected to materially adversely affect its financial condition, results of operations, or cash flows - The Company is not party to any legal proceedings that are believed to have a material adverse effect on its financial condition, results of operations, or cash flows[159] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2021 - There have been no material changes to the risk factors discussed in the Company's Annual Report on Form 10-K for the year ended January 31, 2021[160] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section is not applicable, reporting no unregistered sales of equity securities or use of proceeds Item 3. Defaults upon Senior Securities This section is not applicable, reporting no defaults upon senior securities Item 4. Mine Safety Disclosures This section is not applicable, reporting no mine safety disclosures Item 5. Other Information No other information is reported in this section Item 6. Exhibits This section lists filed exhibits, including certifications and iXBRL formatted financial statements and notes - The report includes Rule 13a-14(a)/15d-14(a) and Section 1350 Certifications[161] - The Consolidated Condensed Balance Sheets, Statements of Operations, Statements of Equity, Statements of Cash Flows, and Notes to Consolidated Condensed Financial Statements are provided in iXBRL format[161] SIGNATURES This section contains the certifications and signatures of the CEO and CFO for the report dated September 3, 2021 - The report was signed by Zafar Rizvi (Chief Executive Officer and President) and Douglas L. Bruggeman (Vice President, Finance and Treasurer / Chief Financial Officer) on September 3, 2021[164]