REX American Resources (REX) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated condensed financial statements, including Balance Sheets, Statements of Operations, Equity, and Cash Flows, with detailed notes on accounting policies, revenue, leases, and related-party transactions Consolidated Condensed Balance Sheets The balance sheet shows an increase in total assets and equity from January 31, 2021, to October 31, 2021, driven primarily by higher cash and cash equivalents and accounts receivable, while liabilities also increased Consolidated Condensed Balance Sheets (Amounts in Thousands) | (In Thousands) | October 31, 2021 | January 31, 2021 | Change (Oct 2021 vs Jan 2021) | % Change | | :-------------------------------- | :--------------- | :--------------- | :----------------------------- | :------- | | Assets: | | | | | | Cash and cash equivalents | $197,395 | $144,501 | $52,894 | 36.6% | | Accounts receivable | $40,026 | $19,713 | $20,313 | 103.0% | | Inventory | $29,753 | $37,426 | $(7,673) | -20.5% | | Total current assets | $307,242 | $258,750 | $48,492 | 18.7% | | Total assets | $524,402 | $479,345 | $45,057 | 9.4% | | Liabilities: | | | | | | Accounts payable, trade | $27,133 | $16,573 | $10,560 | 63.7% | | Accrued expenses and other current liabilities | $14,121 | $8,754 | $5,367 | 61.3% | | Total current liabilities | $46,535 | $30,737 | $15,798 | 51.4% | | Total liabilities | $59,699 | $42,162 | $17,537 | 41.6% | | Equity: | | | | | | Total REX shareholders' equity | $409,323 | $384,783 | $24,540 | 6.4% | | Noncontrolling interests | $55,380 | $52,400 | $2,980 | 5.7% | | Total equity | $464,703 | $437,183 | $27,520 | 6.3% | Consolidated Condensed Statements of Operations The company reported significant improvements in net sales, gross profit, and net income for both the three and nine months ended October 31, 2021, compared to the prior year, largely driven by increased commodity prices and production volumes Consolidated Condensed Statements of Operations (Amounts in Thousands, Except Per Share Amounts) | (In Thousands, Except Per Share Amounts) | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | 3M Change | 3M % Change | Nine Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2120 | 9M Change | 9M % Change | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :-------- | :---------- | :----------------------------- | :----------------------------- | :-------- | :---------- | | Net sales and revenue | $203,066 | $124,217 | $78,849 | 63.5% | $562,786 | $246,694 | $316,092 | 128.1% | | Gross profit | $25,152 | $18,929 | $6,223 | 32.9% | $58,783 | $11,259 | $47,524 | 422.1% | | Income (loss) before income taxes | $19,226 | $16,349 | $2,877 | 17.6% | $39,219 | $(577) | $39,796 | -6897.1% | | Net income (loss) attributable to REX common shareholders (continuing operations) | $13,326 | $9,036 | $4,290 | 47.5% | $26,305 | $(1,464) | $27,769 | -1896.8% | | Net income (loss) attributable to REX common shareholders (discontinued operations) | $1,952 | $(195) | $2,147 | -1101.0% | $4,633 | $922 | $3,711 | 402.5% | | Net income (loss) attributable to REX common shareholders | $15,278 | $8,841 | $6,437 | 72.8% | $30,938 | $(542) | $31,480 | -5808.1% | | Basic and diluted net income (loss) per share from continuing operations | $2.23 | $1.47 | $0.76 | 51.7% | $4.39 | $(0.24) | $4.63 | -1929.2% | | Basic and diluted net income (loss) per share from discontinued operations | $0.33 | $(0.03) | $0.36 | -1200.0% | $0.77 | $0.15 | $0.62 | 413.3% | | Basic and diluted net income (loss) per share | $2.56 | $1.44 | $1.12 | 77.8% | $5.16 | $(0.09) | $5.25 | -5833.3% | Consolidated Condensed Statements of Equity Total equity increased from $437,183 thousand at January 31, 2021, to $464,703 thousand at October 31, 2021, primarily due to net income and capital contributions, partially offset by treasury stock acquisitions and noncontrolling interest distributions Consolidated Condensed Statements of Equity (Amounts in Thousands) | (In Thousands) | Balance at Jan 31, 2021 | Net Income | Treasury Stock Acquired | Noncontrolling Interests Distribution and Other | Capital Contributions | Issuance of Equity Awards and Stock Based Compensation Expense | Balance at Oct 31, 2021 | | :-------------------------------- | :---------------------- | :--------- | :---------------------- | :-------------------------------------------- | :-------------------- | :---------------------------------------------------------- | :---------------------- | | REX Shareholders' Equity: | | | | | | | | | Common Stock | $299 | - | - | - | - | - | $299 | | Paid-in Capital | $149,110 | - | - | - | - | $189 | $149,299 | | Retained Earnings | $589,986 | $30,938 | - | - | - | - | $620,924 | | Treasury Stock | $(354,612) | - | $(6,627) | - | - | $40 | $(361,199) | | Total REX Shareholders' Equity | $384,783 | $30,938 | $(6,627) | - | - | $229 | $409,323 | | Noncontrolling Interests | $52,400 | $4,215 | - | $(1,515) | $280 | - | $55,380 | | Total Equity | $437,183 | $35,153 | $(6,627) | $(1,515) | $280 | $229 | $464,703 | Consolidated Condensed Statements of Cash Flows Net cash provided by operating activities significantly increased to $50,431 thousand for the nine months ended October 31, 2021, from $21,499 thousand in the prior year, primarily due to higher net income from continuing operations, with investing activities providing cash and financing activities using cash mainly for treasury stock acquisitions Consolidated Condensed Statements of Cash Flows (Amounts in Thousands) | (In Thousands) | Nine Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2020 | Change | % Change | | :------------------------------------------ | :----------------------------- | :----------------------------- | :----- | :------- | | Net cash provided by operating activities | $50,431 | $21,499 | $28,932 | 134.6% | | Net cash provided by (used in) investing activities | $10,405 | $(10,027) | $20,432 | -203.8% | | Net cash used in financing activities | $(7,862) | $(18,284) | $10,422 | -57.0% | | Net increase (decrease) in cash, cash equivalents and restricted cash | $52,974 | $(6,812) | $59,786 | -877.6% | | Cash, cash equivalents and restricted cash, end of period | $199,132 | $173,959 | $25,173 | 14.5% | Notes to Consolidated Condensed Financial Statements The notes provide essential context to the financial statements, detailing the company's accounting practices, significant events like the reclassification of the refined coal business to discontinued operations, and specific breakdowns of financial statement line items, including revenue, leases, fair value measurements, and related-party transactions Note 1. Consolidated Condensed Financial Statements This note clarifies the company's identity, the unaudited nature of the financial statements, the basis of consolidation, and a significant change in segment reporting due to the cessation and reclassification of the refined coal business to discontinued operations * The refined coal business ceased operations on November 18, 2021, and its results are recognized in discontinued operations starting in the third quarter of fiscal year 2021. Prior period amounts have been reclassified accordingly[19] * The Company now operates with one reportable segment: ethanol and by-products, which includes equity investments in three ethanol LLCs (two majority-owned)[20] Note 2. Accounting Policies This note outlines the company's key accounting policies, including revenue recognition, cost of sales, SG&A, financial instruments (derivatives), income taxes, inventories, property and equipment, and investments, highlighting the shift to an annual effective tax rate method for continuing operations and the reclassification of the refined coal segment * The Company uses derivative financial instruments (exchange-traded futures contracts) to manage commodity price risk, primarily related to corn, and changes in fair value are recognized in current period earnings as hedge accounting is not applied[28][29] * Beginning in the three and nine months ended October 31, 2021, the Company returned to using the annual effective tax rate method for continuing operations, following the cessation and reclassification of the refined coal business (which previously caused significant fluctuations in the effective tax rate) to discontinued operations[30] Inventory Components (Amounts in Thousands) | Component | October 31, 2021 | January 31, 2021 | | :------------------------ | :--------------- | :--------------- | | Ethanol and other finished goods | $7,135 | $18,346 | | Work in process | $5,097 | $4,374 | | Grain and other raw materials | $17,521 | $14,706 | | Total | $29,753 | $37,426 | * The refined coal business ceased operations on November 18, 2021, as tax credits could no longer be earned, and its results are recognized in discontinued operations starting in the third quarter of fiscal year 2021[42] Note 3. Net Sales and Revenue This note details the company's revenue recognition policies and provides a disaggregated view of net sales and revenue by product for both continuing and discontinued operations, highlighting significant increases in ethanol and by-product sales Disaggregated Revenue by Product (Amounts in Thousands) | Product | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Nine Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2020 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Continuing Operations: | | | | | | Ethanol | $161,598 | $98,850 | $441,657 | $191,971 | | Dried distillers grains | $28,717 | $20,916 | $91,408 | $45,314 | | Non-food grade corn oil | $11,958 | $4,661 | $27,364 | $9,162 | | Modified distillers grains | $2,930 | $562 | $7,157 | $1,228 | | Derivative financial instruments losses | $(2,144) | $(777) | $(4,907) | $(1,075) | | Other | $7 | $5 | $107 | $94 | | Total Continuing Operations | $203,066 | $124,217 | $562,786 | $246,694 | | Discontinued Operations: | | | | | | Refined coal | $151 | $34 | $377 | $134 | Note 4. Leases The company's lease agreements, primarily for railcars, are accounted for as operating leases, with total lease expense increasing for both the three and nine months ended October 31, 2021, compared to the prior year, and future minimum rentals detailed Total Lease Expense (Amounts in Thousands) | Type of Expense | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Nine Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2020 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating lease expense | $1,690 | $1,545 | $4,805 | $4,779 | | Variable lease expense | $1,090 | $79 | $1,654 | $417 | | Total lease expense | $2,780 | $1,624 | $6,459 | $5,196 | Future Minimum Rentals on Leases (Amounts in Thousands) | Years Ended January 31, | Minimum Rentals (Oct 31, 2021) | Minimum Rentals (Jan 31, 2021) | | :---------------------- | :----------------------------- | :----------------------------- | | Remainder of 2022 | $1,506 | $5,397 | | 2023 | $4,836 | $3,690 | | 2024 | $3,670 | $2,524 | | 2025 | $2,221 | $1,648 | | 2026 | $49 | $49 | | Total | $12,282 | $13,308 | | Less: present value discount | $730 | $994 | | Operating lease liabilities | $11,552 | $12,314 | Note 5. Fair Value This note describes the company's fair value measurements for financial instruments, categorizing them into Level 1, 2, and 3 inputs, and provides a summary of financial assets and liabilities measured at fair value, including an investment in cooperative and derivative contracts Financial Assets and Liabilities Measured at Fair Value (Amounts in Thousands) | Instrument | Level 1 (Oct 31, 2021) | Level 2 (Oct 31, 2021) | Level 3 (Oct 31, 2021) | Fair Value (Oct 31, 2021) | Level 1 (Jan 31, 2021) | Level 2 (Jan 31, 2021) | Level 3 (Jan 31, 2021) | Fair Value (Jan 31, 2021) | | :-------------------------- | :--------------------- | :--------------------- | :--------------------- | :------------------------ | :--------------------- | :--------------------- | :--------------------- | :------------------------ | | Assets: | | | | | | | | | | Investment in cooperative | $- | $- | $354 | $354 | $- | $- | $354 | $354 | | Forward purchase contracts | $- | $430 | $- | $430 | $- | $2,144 | $- | $2,144 | | Total Assets | $- | $430 | $354 | $784 | $- | $2,144 | $354 | $2,498 | | Liabilities: | | | | | | | | | | Forward purchase contracts | $- | $687 | $- | $687 | $- | $- | $- | $- | | Commodity futures liability | $- | $3,822 | $- | $3,822 | $- | $1,794 | $- | $1,794 | | Total Liabilities | $- | $4,509 | $- | $4,509 | $- | $1,794 | $- | $1,794 | Note 6. Property and Equipment This note provides a breakdown of property and equipment, net of accumulated depreciation, showing a decrease in total net property and equipment from January 31, 2021, to October 31, 2021 Components of Property and Equipment (Amounts in Thousands) | Component | October 31, 2021 | January 31, 2021 | | :-------------------------- | :--------------- | :--------------- | | Land and improvements | $27,329 | $27,329 | | Buildings and improvements | $23,613 | $23,613 | | Machinery, equipment and fixtures | $294,906 | $293,762 | | Construction in progress | $2,006 | $215 | | Total Cost | $347,854 | $344,919 | | Less: accumulated depreciation | $(206,649) | $(194,058) | | Total Net Property and Equipment | $141,205 | $150,861 | Note 7. Accrued Expenses and Other Current Liabilities This note details the components of accrued expenses and other current liabilities, which significantly increased from January 31, 2021, to October 31, 2021, primarily due to higher accrued payroll, utility charges, commodity futures, and forward purchase contracts Components of Accrued Expenses and Other Current Liabilities (Amounts in Thousands) | Component | October 31, 2021 | January 31, 2021 | | :---------------------------------- | :--------------- | :--------------- | | Accrued payroll and related items | $3,727 | $690 | | Accrued utility charges | $3,473 | $2,515 | | Accrued transportation related items | $578 | $1,560 | | Accrued real estate taxes | $1,419 | $1,778 | | Commodity futures | $3,822 | $1,794 | | Forward purchase contracts | $687 | $- | | Accrued income taxes | $62 | $55 | | Other | $353 | $362 | | Total | $14,121 | $8,754 | Note 8. Derivative Financial Instruments The company uses derivative financial instruments to manage commodity price risks, recognizing changes in fair value in current earnings, with this note providing the fair values of these instruments and the losses recognized in net sales and cost of sales Fair Values of Derivative Financial Instruments (Amounts in Thousands) | Instrument | Asset Derivatives (Oct 31, 2021) | Asset Derivatives (Jan 31, 2021) | Liability Derivatives (Oct 31, 2021) | Liability Derivatives (Jan 31, 2021) | | :-------------------------- | :----------------------------- | :----------------------------- | :--------------------------------- | :--------------------------------- | | Commodity futures | $- | $- | $3,822 | $1,794 | | Forward purchase contracts | $430 | $2,144 | $687 | $- | | Total | $430 | $2,144 | $4,509 | $1,794 | Losses on Derivative Financial Instruments (Amounts in Thousands) | Impact Area | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Nine Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Included in net sales and revenue | $(2,144) | $(777) | $(4,907) | $(1,076) | | Included in cost of sales (gains) | $5,474 | $(26) | $(2,562) | $(1,785) | Note 9. Investments This note provides details on the company's equity method investment in Big River Resources, LLC, and its short-term investments in certificates of deposit, including their carrying amounts and summarized financial information for Big River Equity Method Investment (Amounts in Thousands) | Entity | Ownership Percentage | Carrying Amount (Oct 31, 2021) | Carrying Amount (Jan 31, 2021) | | :------- | :------------------- | :----------------------------- | :----------------------------- | | Big River | 10.3% | $30,715 | $29,456 | Summarized Financial Information for Big River (Amounts in Thousands) | Metric | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Nine Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2020 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net sales and revenue | $347,059 | $209,397 | $966,858 | $537,155 | | Gross profit | $7,092 | $15,419 | $27,993 | $13,041 | | Income from continuing operations | $3,390 | $11,167 | $26,802 | $1,627 | | Net income | $3,390 | $11,167 | $26,802 | $1,627 | Short-term Investments (Certificates of Deposit) (Amounts in Thousands) | Date | Amortized Cost/Carrying Value | Contractual Maturity | | :--------------- | :---------------------------- | :------------------- | | October 31, 2021 | $21,620 | Less than one year | | January 31, 2021 | $36,194 | Less than one year | Note 10. Employee Benefits This note outlines the REX 2015 Incentive Plan, under which restricted stock awards are granted to eligible employees and directors, detailing the activity of non-vested restricted stock and the associated unrecognized compensation cost Non-Vested Restricted Stock Award Activity (Nine Months Ended October 31) | Metric | 2021 | 2020 | | :-------------------------- | :----- | :----- | | Non-Vested at January 31 | 19,705 | 28,576 | | Granted | 2,803 | 6,158 | | Forfeited | - | - | | Vested | 12,447 | 15,029 | | Non-Vested at October 31 | 10,061 | 19,705 | | Weighted Average Grant Date Fair Value (000's) at Oct 31 | $773 | $1,398 | | Weighted Average Remaining Vesting Term (in years) at Oct 31 | 2 | 2 | * Unrecognized compensation cost related to nonvested restricted stock was approximately $126 thousand at October 31, 2021, down from $272 thousand at January 31, 2021[75] Note 11. Income Taxes This note explains the company's income tax provision and benefit for continuing and discontinued operations, the change in tax accounting method due to the refined coal business cessation, and the status of unrecognized tax benefits * The Company shifted from a discrete effective tax rate method to an annual effective tax rate method for continuing operations beginning in the three and nine months ended October 31, 2021, following the reclassification of the refined coal segment to discontinued operations[80] Income Tax Provision (Benefit) from Continuing Operations (Amounts in Thousands) | Period | 2021 | 2020 | | :------------------------------ | :----- | :----- | | Three Months Ended October 31 | $(4,338) | $(5,037) | | Nine Months Ended October 31 | $(8,329) | $444 | Income Tax Benefit from Discontinued Operations (Amounts in Thousands) | Period | 2021 | 2020 | | :------------------------------ | :----- | :----- | | Three Months Ended October 31 | $4,927 | $985 | | Nine Months Ended October 31 | $12,566 | $4,863 | Unrecognized Tax Benefits (Amounts in Thousands) | Period | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Unrecognized tax benefits, beginning of period | $8,400 | $7,370 | | Changes for prior years' tax positions | $15 | $(57) | | Changes for current year tax positions | $413 | $- | | Unrecognized tax benefits, end of period | $8,828 | $7,313 | Note 12. Discontinued Operations This note provides detailed financial information for the refined coal business, which was reclassified as discontinued operations due to the cessation of its activities on November 18, 2021, as tax credits could no longer be earned * The refined coal business ceased operations on November 18, 2021, because federal production tax credits could no longer be earned, leading to its reclassification as discontinued operations starting in the third quarter of fiscal year 2021[87] Discontinued Operations Financial Items (Amounts in Thousands) | Metric | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Nine Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2020 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net sales and revenue | $151 | $34 | $377 | $134 | | Cost of Sales | $3,033 | $1,284 | $8,015 | $4,375 | | Gross loss | $(2,882) | $(1,250) | $(7,638) | $(4,241) | | Income before income taxes | $(3,112) | $(1,238) | $(8,303) | $(4,134) | | Benefit for income taxes | $4,927 | $985 | $12,566 | $4,863 | | Net income from discontinued operations, net of tax | $1,815 | $(253) | $4,263 | $729 | | Net income (loss) attributable to REX common shareholders | $1,952 | $(195) | $4,633 | $922 | Discontinued Operations Assets and Liabilities (Amounts in Thousands) | Item | October 31, 2021 | January 31, 2021 | | :---------------------------------- | :--------------- | :--------------- | | Assets: | | | | Total current assets | $392 | $488 | | Property and equipment, net | $233 | $2,325 | | Total Assets | $625 | $2,813 | | Liabilities: | | | | Total current liabilities | $282 | $535 | | Total Liabilities | $282 | $535 | | Net assets included in discontinued operations | $343 | $2,278 | Note 13. Commitments and Contingencies This note addresses legal proceedings, stating no material adverse effects are expected, and details significant forward purchase contracts for raw materials and sales commitments for products at the ethanol plants, along with fees related to the refined coal entity * The Company is not party to any legal proceedings expected to have a material adverse effect on its financial condition, results of operations, or cash flows[89] * One Earth and NuGen have combined forward purchase contracts for approximately 12.4 million bushels of corn and 2.1 million MmBtu of natural gas[90] * One Earth and NuGen have combined sales commitments for approximately 50.3 million gallons of ethanol, 113,000 tons of distillers grains, and 13.5 million pounds of non-food grade corn oil[90] Note 14. Related-Party Transactions This note discloses related-party transactions, including purchases of corn and other supplies from minority equity investors and board members of subsidiaries, and commission expenses related to the refined coal entity Purchases from Related Parties (Amounts in Millions) | Period | 2021 | 2020 | | :------------------------------ | :----- | :----- | | Three Months Ended October 31 | $22.9 | $16.9 | | Nine Months Ended October 31 | $60.3 | $34.0 | Amounts Payable to Related Parties (Amounts in Millions) | Date | Amount | | :--------------- | :----- | | October 31, 2021 | $1.7 | | January 31, 2021 | $0.7 | Commission Expense (Refined Coal) (Amounts in Millions) | Period | 2021 | 2020 | | :------------------------------ | :----- | :----- | | Three Months Ended October 31 | $0.04 | $(0.015) | | Nine Months Ended October 31 | $0.2 | $(0.2) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and future outlook, covering the ethanol and by-products business, refined coal operations, the Future Energy joint venture, critical accounting policies, and a detailed comparison of operating results and liquidity Ethanol and By-Products The company's ethanol operations are highly dependent on volatile commodity prices for corn, ethanol, distillers grains, non-food grade corn oil, and natural gas, with the 'crush spread' being a key profitability indicator and risk managed through forward contracts REX's Current Effective Ownership of Trailing 12 Months Ethanol Gallons Shipped (in Millions) | Entity | Trailing 12 Months Ethanol Gallons Shipped | REX's Current Effective Ownership Interest | REX's Current Effective Ownership of Trailing 12 Months Ethanol Gallons Shipped | | :-------------------------------- | :----------------------------------------- | :----------------------------------------- | :------------------------------------------------------------------------------ | | One Earth Energy, LLC | 137.9 M | 75.8% | 104.5 M | | NuGen Energy, LLC | 137.8 M | 99.7% | 137.4 M | | Big River Resources, LLC: | | | | | Big River Resources W Burlington, LLC | 110.3 M | 10.3% | 11.4 M | | Big River Resources Galva, LLC | 116.0 M | 10.3% | 11.9 M | | Big River United Energy, LLC | 125.3 M | 5.7% | 7.1 M | | Big River Resources Boyceville, LLC | 63.6 M | 10.3% | 6.6 M | | Total | 690.9 M | | 278.9 M | Refined Coal The refined coal business ceased operations on November 18, 2021, as it was no longer able to earn federal production tax credits, which were essential for its profitability, with its income now presented within discontinued operations * The refined coal facility ceased operations on November 18, 2021, because federal production tax credits, which subsidized its revenues and made it profitable, could no longer be earned[99] Future Energy The company holds a 60% interest in Future Energy, LLC, a joint venture focused on developing and commercializing eSteam technology for heavy oil recovery, with approximately $2.5 million funded to date, though commercial feasibility has not yet been proven * The Company owns 60% of Future Energy, LLC, a joint venture with Hytken HPGP, LLC, to develop and commercially exploit eSteam technology for enhanced heavy oil recovery[102] * Approximately $2.5 million has been cumulatively paid and expensed to purchase the ownership interest and fund patent and other expenses, but the commercial feasibility of the technology has not yet been tested or proven[103] Critical Accounting Policies and Estimates No changes were made to the company's critical accounting policies during the three months ended October 31, 2021, as disclosed in its prior Annual Report on Form 10-K * No changes were made to the Company's critical accounting policies during the three months ended October 31, 2021[104] Fiscal Year The company's fiscal year ends on January 31 * The Company's fiscal year ends on January 31[105] Results of Operations - Trends and Uncertainties Operating results in the ethanol business have been impacted by weak margins, higher corn costs, and fluctuating demand, exacerbated by the COVID-19 pandemic and uncertainties surrounding the Renewable Fuel Standard II (RFS II) and small refiner waivers, while the refined coal business ceased operations due to expiring tax credits * Operating results in the ethanol and by-products business have been affected by a weak margin environment, including higher corn costs, lower local corn availability, lower ethanol demand, and EPA small refiner waivers[106] * The COVID-19 pandemic led to reduced demand for gasoline and ethanol, resulting in historically low ethanol pricing and the idling of NuGen and One Earth ethanol plants in March 2020, though production resumed later in 2020[107] * The CARES Act and large corn purchases by China have contributed to higher corn prices, and the Company experienced an increase in local basis price for corn[109] * Uncertainties surrounding the Renewable Fuel Standard II (RFS II) and the impact of small refiner waivers (SRWs) continue to affect the ethanol industry, with the EPA missing deadlines for 2021 and 2022 volume obligations[110][112] * The refined coal business ceased operations on November 18, 2021, as tax credits could no longer be earned, and its operating results were previously affected by inconsistent utility plant demand[114] Comparison of Three and Nine Months Ended October 31, 2021 and 2020 The company experienced substantial growth in net sales and gross profit for both the three and nine months ended October 31, 2021, compared to 2020, driven by significantly higher production volumes and stronger commodity prices, particularly for ethanol and its by-products, despite increased costs for grain and natural gas Consolidated Results of Operations (Amounts in Thousands) | Metric | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Nine Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2020 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net sales and revenue | $203,066 | $124,217 | $562,786 | $246,694 | | Cost of sales | $177,914 | $105,288 | $504,003 | $235,435 | | Gross profit | $25,152 | $18,929 | $58,783 | $11,259 | | Income (loss) before income taxes | $19,226 | $16,349 | $39,219 | $(577) | | Net income (loss) attributable to REX common shareholders (continuing operations) | $13,326 | $9,036 | $26,305 | $(1,464) | | Net income (loss) attributable to REX common shareholders (discontinued operations) | $1,952 | $(195) | $4,633 | $922 | Net Sales and Revenue by Product Group (Amounts in Thousands) | Product | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Nine Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2020 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Ethanol | $161,598 | $98,850 | $441,657 | $191,971 | | Dried distillers grains | $28,717 | $20,916 | $91,408 | $45,314 | | Non-food grade corn oil | $11,958 | $4,661 | $27,364 | $9,162 | | Modified distillers grains | $2,930 | $562 | $7,157 | $1,228 | | Derivative financial instruments losses | $(2,144) | $(777) | $(4,907) | $(1,075) | | Refined coal (discontinued operations) | $151 | $34 | $377 | $134 | Selected Operating Data | Metric | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Nine Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2020 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Average selling price per gallon of ethanol (net of hedging) | $2.31 | $1.31 | $2.12 | $1.28 | | Gallons of ethanol sold (in millions) | 69.0 | 74.6 | 207.9 | 149.4 | | Average selling price per ton of dried distillers grains | $184.85 | $129.38 | $200.02 | $136.49 | | Tons of dried distillers grains sold | 155,356 | 161,666 | 456,996 | 331,990 | | Average selling price per pound of non-food grade corn oil | $0.59 | $0.24 | $0.47 | $0.25 | | Pounds of non-food grade corn oil sold (in millions) | 20.2 | 19.0 | 57.9 | 37.2 | | Average selling price per ton of modified distillers grains | $92.10 | $56.68 | $83.97 | $52.44 | | Tons of modified distillers grains sold | 31,814 | 9,924 | 85,235 | 23,431 | | Average cost per bushel of grain | $6.45 | $3.28 | $6.05 | $3.57 | | Average cost of natural gas (per MmBtu) | $4.58 | $2.09 | $3.69 | $2.87 | * Net sales and revenue increased by approximately 63% for the third quarter and 128% for the first nine months of fiscal year 2021, primarily due to significantly higher production and sales volumes and stronger commodity pricing compared to the prior year, which was impacted by COVID-19[116] * Ethanol sales increased due to a 76% increase in average selling price per gallon (Q3) and a 66% increase (9M), coupled with a 39% increase in gallons sold (9M), despite an 8% decrease in gallons sold (Q3)[117] * Gross profit increased by approximately $6,200 thousand for Q3 and $47,500 thousand for 9M, driven by increased commodity prices and higher production volumes, although the crush spread decreased from $0.19/gallon (Q3 2020) to $0.11/gallon (Q3 2021) due to a 97% increase in corn cost[123][126] * Selling, general and administrative (SG&A) expenses increased significantly due to higher shipping costs and increased incentive compensation associated with improved profitability[129] * Net income attributable to REX common shareholders from continuing operations increased to $13,300 thousand (Q3 2021) from $9,000 thousand (Q3 2020), and to $26,300 thousand (9M 2021) from a net loss of $1,500 thousand (9M 2020)[138] * Net income attributable to REX common shareholders from discontinued operations (refined coal) was $2,000 thousand (Q3 2021) compared to a net loss of $200 thousand (Q3 2020), and $4,600 thousand (9M 2021) compared to $900 thousand (9M 2020), primarily due to production tax credits[139][140] Liquidity and Capital Resources The company's liquidity significantly improved, with net cash provided by operating activities more than doubling for the nine months ended October 31, 2021, with investing activities providing cash and financing activities using cash primarily for share repurchases, and the company exploring various uses for its excess cash, including a carbon sequestration project Net Cash Flows (Amounts in Thousands) | Activity | Nine Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $50,431 | $21,499 | | Net cash provided by (used in) investing activities | $10,405 | $(10,027) | | Net cash used in financing activities | $(7,862) | $(18,284) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $52,974 | $(6,812) | * Working capital increased to approximately $260,700 thousand at October 31, 2021, from $228,000 thousand at January 31, 2021, with a current ratio of 6.6 to 1[144] * Capital expenditures for the first nine months of fiscal year 2021 were approximately $4,200 thousand, with an expectation of $3,000 thousand to $5,000 thousand for the remainder of fiscal year 2021[145] * The company repurchased approximately 84,099 shares of common stock for $6,600 thousand during the first nine months of fiscal year 2021 and authorized an additional 500,000 share buyback[148][150] * The company is investigating a carbon sequestration project near the One Earth ethanol plant, with drilling for a test well commenced and further testing and research needed to determine feasibility[151] Forward-Looking Statements This section serves as a cautionary statement regarding forward-looking statements, highlighting various risks and uncertainties that could cause actual results to differ materially from projections, including impacts from pandemics, legislative changes, and commodity price volatility * Forward-looking statements are subject to risks and uncertainties, including the effects of pandemics (like COVID-19), legislative and regulatory changes, price volatility and availability of commodities (corn, ethanol, natural gas), logistical delays, operational efficiency of plants, and global economic conditions[152] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market fluctuations in commodity prices and manages this risk using forward purchase and sale contracts and exchange-traded commodity futures, with a 10% adverse change in commodity prices potentially significantly decreasing pre-tax income Estimated Decrease in Pre-tax Income from a 10% Adverse Change in Commodity Price (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 | $69,669 | | Corn | 100,000 | Bushels | $48,528 | | Distillers Grains | 725 | Tons | $10,509 | | Non-food grade Corn Oil | 73,700 | Pounds | $3,595 | | Natural Gas | 7,400 | MmBtu | $2,733 | Item 4. Controls and Procedures Management, with the participation of the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures, concluding they were effective as of October 31, 2021, with no material changes to internal control over financial reporting during the last fiscal quarter * The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of October 31, 2021[156] * There were no changes in the Company's internal control over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[157] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any legal proceedings that are expected to have a material adverse effect on 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 There have been no material changes to the risk factors previously discussed 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 item is not applicable to the company for the reporting period * This item is not applicable[161] Item 3. Defaults upon Senior Securities This item is not applicable to the company for the reporting period * This item is not applicable[161] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period * This item is not applicable[161] Item 5. Other Information There is no other information to report under this item * None[161] Item 6. Exhibits This section lists the exhibits filed with the report, including certifications and the iXBRL formatted financial statements * Exhibits filed include Rule 13a-14(a)/15d-14(a) Certifications, Section 1350 Certifications, and iXBRL formatted financial statements[161]