REX American Resources (REX) - 2024 Q4 - Annual Report

PART I Business REX American Resources operates in ethanol and by-products, with profitability tied to crush spreads and a strategic carbon sequestration project Fiscal Year 2023 vs 2022 Financial Performance | Metric | Fiscal 2023 | Fiscal 2022 | | :--- | :--- | :--- | | Net Income Attributable to REX | $60.9 million | $27.7 million | - The increase in profits in fiscal 2023 was primarily driven by higher crush spreads, which is the margin between the price of ethanol and the cost of corn[18] Ethanol Entity Ownership Interests (as of Jan 31, 2024) | Entity | Location | REX's Ownership Interest | | :--- | :--- | :--- | | One Earth Energy, LLC | Gibson City, IL | 75.8% | | NuGen Energy, LLC | Marion, SD | 99.7% | | Big River Resources, LLC | Various | 5.7% - 10.3% | - The six facilities in which REX has an interest shipped approximately 716 million gallons of ethanol in FY2023, with REX's effective ownership portion being approximately 290 million gallons[19] - The company is developing a carbon sequestration project at its One Earth facility, with an expected total cost of $165-$175 million, aiming to qualify for tax credits under sections 45Q and 45Z of the Internal Revenue Code[24][27] - The NuGen facility has signed an agreement to be part of Summit Carbon Solutions' carbon capture and storage pipeline, allowing it to share in the economic benefits of tax credits[28] Risk Factors The company faces significant risks from volatile commodity prices, regulatory changes, carbon sequestration project approvals, and refined coal tax credit disallowance - The company's financial performance is highly dependent on the volatile prices of commodities such as corn, natural gas, ethanol, and distillers grains, where a sustained narrow or negative spread could adversely affect operating results[51][52] - The U.S. ethanol industry is heavily reliant on federal and state legislation, particularly the Renewable Fuel Standard (RFS), and unfavorable changes like Small Refinery Exemptions could reduce demand and pricing for ethanol[82][84] - The planned carbon sequestration facility at One Earth requires numerous government and landowner approvals, and failure to obtain these could prevent project completion and result in a significant write-off of investments[75] - The company's discontinued refined coal operation is under IRS audit, and if the IRS disallows tax credits, it could have a material adverse impact on the company's results of operations[117] - Future demand for ethanol is uncertain due to emerging transportation trends, including the increasing adoption of hybrid and electric vehicles and potential government bans on internal combustion engines[71] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[129] Cybersecurity REX manages cybersecurity risk through a robust framework with Board oversight, reporting no material incidents as of January 31, 2024 - The company has incorporated cybersecurity processes into its overall risk management system, utilizing measures such as multi-factor authentication, access controls, and data encryption[131] - Oversight is provided by the Board of Directors and management, with the Audit Committee receiving regular updates on the IT control environment and handling any whistleblower submissions related to cybersecurity[132] - As of January 31, 2024, the company had not identified any cybersecurity incidents that would have a material impact on its business or financial statements[133] Properties Property information is detailed in Item 1 of this report under "Ethanol Investments" and "Facilities" - The information required by this item is set forth in Item 1 of this report[134] Legal Proceedings The company is involved in legal proceedings but anticipates no material adverse effect on its financial condition or operations - The company believes that any current legal proceedings will not have a material adverse effect on its financial condition or results of operations[135] Mine Safety Disclosures This item is not applicable to the company - Not applicable[137] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities REX common stock trades on NYSE under REX, with no cash dividends and 876,786 shares remaining for repurchase as of January 31, 2024 - The company's common stock is traded on the New York Stock Exchange under the symbol REX[145] - The company has no history of paying cash dividends on its common stock[146] - As of January 31, 2024, 876,786 shares remained available for purchase under the company's share repurchase authorization, with no repurchases made in the fourth quarter of fiscal year 2023[147] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports improved FY2023 financial performance, with net income at $60.9 million driven by higher crush spreads and strong liquidity of $378.7 million supporting capital projects Results of Operations Gross profit more than doubled to $98.2 million in FY2023 due to improved crush spreads, despite a 3% decrease in net sales, as cost of sales fell by 9% Consolidated Results of Operations (in thousands) | | Fiscal Year 2023 | Fiscal Year 2022 | | :--- | :--- | :--- | | Net sales and revenue | $ 833,384 | $ 855,000 | | Gross profit | $ 98,218 | $ 48,602 | | Net income attributable to REX | $ 60,935 | $ 27,697 | - Net sales decreased by 3% in FY2023 compared to FY2022, as weaker pricing across all products offset an increase in sales volumes[169] - Cost of sales decreased by 9% in FY2023, primarily due to lower corn and natural gas prices, which more than offset the increase in corn usage[175] - Gross profit increased by 102% in FY2023, with the gross profit margin expanding to 11.8% from 5.7% in the prior year[176] - SG&A expenses increased by 29% in FY2023, mainly due to higher performance bonus expenses resulting from increased net income and the issuance of restricted stock awards[179] Liquidity and Capital Resources Operating cash flow increased to $128.0 million in FY2023, with $378.7 million in cash and short-term investments, supporting $125-$150 million in planned FY2024 capital expenditures - The company's cash and short-term investments balance was approximately $378.7 million at January 31, 2024[191] - Planned capital expenditures for the One Earth carbon sequestration and plant expansion projects are expected to be $165 million to $175 million in total, with $125 million to $150 million planned for fiscal year 2024[192] Cash Flow Summary (in millions) | Activity | Fiscal Year 2023 | Fiscal Year 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $128.0 | $54.8 | | Net cash from/(used in) investing activities | $28.4 | $(198.5) | | Net cash used in financing activities | $(4.3) | $(17.0) | - The increase in operating cash flow in FY2023 was driven by higher net income and favorable changes in working capital, including a $21.8 million decrease in inventory[194][195] Quantitative and Qualitative Disclosures About Market Risk REX faces significant commodity price risk, particularly for corn and ethanol, with a hypothetical 10% adverse change impacting pre-tax income by over $42 million for each - The company manages a portion of its commodity price risk by using forward purchase and sale contracts[213] Estimated Pre-tax Income Decrease from a 10% Adverse Price Change (in thousands) | Commodity | Estimated Decrease (in thousands) | | :--- | :--- | | Corn | $42,793 | | Ethanol | $42,203 | | Distillers Grains | $11,042 | | Distillers Corn Oil | $3,858 | | Natural Gas | $2,010 | Financial Statements and Supplementary Data This section presents audited consolidated financial statements, with total assets of $664.8 million and net income of $60.9 million for FY2023, supported by detailed accounting notes and auditor reports Consolidated Financial Statements The consolidated financial statements show total assets of $664.8 million and shareholders' equity of $513.9 million as of January 31, 2024, with FY2023 net income at $60.9 million ($3.47 diluted EPS) Consolidated Balance Sheet Highlights (in thousands) | | Jan 31, 2024 | Jan 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $452,103 | $372,644 | | Total Assets | $664,802 | $579,579 | | Total Liabilities | $77,205 | $68,585 | | Total REX Shareholders' Equity | $513,918 | $447,982 | Consolidated Statement of Operations Highlights (in thousands, except per share) | | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Net Sales and Revenue | $833,384 | $855,000 | $774,802 | | Gross Profit | $98,218 | $48,602 | $90,629 | | Net Income Attributable to REX | $60,935 | $27,697 | $52,364 | | Diluted EPS | $3.47 | $1.57 | $2.92 | Notes to Consolidated Financial Statements Notes detail accounting policies, investments, leases, derivatives, employee benefits, capital and commodity commitments, and income taxes, including deferred tax assets and uncertain tax positions - (Note 1) The company has one reportable segment: ethanol and by-products, and changed its accounting for shipping and handling costs, reclassifying them from SG&A to Cost of Sales, with prior periods retrospectively adjusted[225][243] - (Note 3) REX holds a 10.3% equity method investment in Big River Resources, LLC, with a carrying value of $34.9 million at year-end, and also held $155.3 million in U.S. Treasury Bills as short-term investments[260][263] - (Note 11) As of January 31, 2024, the company had significant commitments, including forward purchase contracts for 17.4 million bushels of corn and capital project contracts of $34.9 million, primarily for its carbon capture and plant expansion projects[299][300] - (Note 12) The company's effective tax rate was 22.9% for fiscal 2023, with a general business credit carryforward of $12.3 million and unrecognized tax benefits of $18.9 million, and is currently under a federal income tax examination for fiscal years 2015 through 2022 related to tax credits[304][306][312][313] - (Note 14) The refined coal business, which ceased operations on November 18, 2021, is reported as discontinued operations, with no amounts reclassified in fiscal years 2023 and 2022[316] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[342] Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of January 31, 2024, with an unqualified audit opinion from RSM US LLP - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective at a reasonable assurance level[343] - Management assessed the effectiveness of internal control over financial reporting based on the COSO framework and concluded that it was effective as of January 31, 2024[348] - The effectiveness of the company's internal control over financial reporting as of January 31, 2024, has been audited by RSM US LLP, an independent registered public accounting firm, which issued an unqualified opinion[349][352] Other Information The company reports no other information for this item - None[359] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[360] PART III Directors, Executive Officers and Corporate Governance Information is incorporated by reference from the definitive Proxy Statement for the Annual Meeting of Shareholders on June 11, 2024 - Information is incorporated by reference to the Proxy Statement for the Annual Meeting of Shareholders on June 11, 2024[362] Executive Compensation Executive compensation information is incorporated by reference from the definitive Proxy Statement for the Annual Meeting of Shareholders on June 11, 2024 - Information is incorporated by reference to the Proxy Statement for the Annual Meeting of Shareholders on June 11, 2024[363] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the definitive Proxy Statement for the Annual Meeting of Shareholders on June 11, 2024 - Information is incorporated by reference to the Proxy Statement for the Annual Meeting of Shareholders on June 11, 2024[364] Certain Relationships and Related Transactions and Director Independence Related transactions and director independence information is incorporated by reference from the definitive Proxy Statement for the Annual Meeting of Shareholders on June 11, 2024 - Information is incorporated by reference to the Proxy Statement for the Annual Meeting of Shareholders on June 11, 2024[365] Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the definitive Proxy Statement for the Annual Meeting of Shareholders on June 11, 2024 - Information is incorporated by reference to the Proxy Statement for the Annual Meeting of Shareholders on June 11, 2024[366] PART IV Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed with the Form 10-K, including consolidated financial statements, auditor reports, and corporate documents - This section lists the consolidated financial statements and the financial statement schedule (Schedule II - Valuation and Qualifying Accounts) filed with the report[368][371] - An exhibit index is provided, listing corporate governance documents, employment agreements, incentive plans, and other required filings such as consents of experts and certifications[372][373] Form 10-K Summary The company reports no Form 10-K summary for this item - None[375]