The accompanying notes are an
integral part of these unaudited consolidated condensed financial statements.
The accompanying notes are an integral part of these unaudited
consolidated condensed financial statements.
The accompanying notes are an integral part of these unaudited
consolidated condensed financial statements.
The accompanying notes are an integral part of these unaudited
consolidated condensed financial statements.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
July 31, 2017
Note 1.
Consolidated Condensed Financial Statements
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, 2017 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, 2017 (fiscal year 2016). 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, 2017. 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 REX American Resources Corporation and its wholly and majority owned subsidiaries. All intercompany balances and transactions
have been eliminated. The Company includes the results of operations of One Earth Energy, LLC (“One Earth”) in its
Consolidated Condensed Statements of Operations on a delayed basis of one month.
Nature of Operations – The Company
operates in one reportable segment, alternative energy, and has equity investments in three ethanol limited liability companies,
two of which are majority ownership interests.
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 2016 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.
Revenue Recognition
The Company recognizes sales from the production
of ethanol, distillers grains and non-food grade corn oil when title transfers to customers, generally upon shipment from the ethanol
plant or upon loading of the rail car used to transport the products.
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 Expenses
The
Company includes non-production related costs such as professional fees, selling charges and certain payroll in selling, general
and administrative expenses.
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. During fiscal year 2015, the Company began to carry
a portion of its forward grain purchase contracts at fair value.
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 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 applies an effective tax rate
to interim periods that is consistent with the Company’s estimated annual tax rate as adjusted for discrete items impacting
the interim periods. The Company’s estimated annual tax rate does not reflect the impact of its refined coal operation and
the expected federal income tax credits to be earned beginning in the third quarter of fiscal year 2017 (see Note 16). 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 evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. The Company paid income taxes of approximately $6.5 million and $1.0 million
during the six months ended July 31, 2017 and 2016, respectively. The Company received no refunds of income taxes during the six
months ended July 31, 2017 and 2016.
As of July 31, 2017 and January 31, 2017,
total unrecognized tax benefits were approximately $2.0 million and $1.9 million, respectively. Accrued penalties and interest
were approximately $0.3 million and $0.2 million at July 31, 2017 and January 31, 2017, respectively. If the Company were to prevail
on all unrecognized tax benefits recorded, the provision for income taxes would be reduced by approximately $1.3 million. In addition,
the impact of penalties and interest would also benefit the effective tax rate. Interest and penalties associated with unrecognized
tax benefits are recorded within income tax expense. On a quarterly basis, the Company accrues for the effects of open uncertain
tax positions and the related potential penalties and interest.
Inventories
Inventories are carried at the lower of cost
or market on a first-in, first-out basis. Inventory includes direct production costs and certain overhead costs such as depreciation,
property taxes and utilities related to producing ethanol and related co-products. Inventory is permanently 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. There were no significant permanent write-downs of inventory
at July 31, 2017 and January 31, 2017. Fluctuations in the write-down of inventory generally relate to the levels and composition
of such inventory at a given point in time. The components of inventory are as follows as of the dates presented (amounts in thousands):
|
|
July 31,
2017
|
|
|
January 31,
2017
|
|
|
|
|
|
|
|
|
Ethanol and other finished goods
|
|
$
|
4,302
|
|
|
$
|
5,262
|
|
Work in process
|
|
|
3,074
|
|
|
|
2,359
|
|
Grain and other raw materials
|
|
|
14,715
|
|
|
|
9,436
|
|
Total
|
|
$
|
22,091
|
|
|
$
|
17,057
|
|
Property and Equipment
Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method. Estimated useful lives are 15 to 40 years for buildings and improvements,
and 2 to 20 years for fixtures and equipment.
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, based on an analysis of undiscounted future
expected cash flows from the use and ultimate disposition of the asset. There were no impairment charges in the first six months
of fiscal years 2017 or 2016. Impairment charges have historically resulted from the
Company’s management performing cash flow analysis and
have represented management’s estimate of the excess of net book value over fair value.
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 of an
asset group 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. The Company generally determines the fair value of
the asset group using a discounted cash flow model based on market participant assumptions (for income producing asset groups)
or by obtaining appraisals based on the market approach and comparable market transactions (for non-income producing asset groups).
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 consolidates the results of two majority owned
subsidiaries, One Earth and NuGen Energy, LLC (“NuGen”). The results of One Earth are included on a delayed basis of
one month lag as One Earth has a fiscal year end of December 31. NuGen has the same fiscal year as the parent, and therefore, there
is no lag in reporting the results of NuGen. The Company accounts for investments in a limited liability company in which it has
a less than 20% ownership interest, using the equity method of accounting when the factors discussed in ASC 323, “
Investments-Equity
Method and Joint Ventures
” are met. The excess of the carrying value over the underlying equity in the net assets of
equity method investees is allocated to specific assets and liabilities. Any unallocated excess is treated as goodwill and is recorded
as a component of the carrying value of the equity method investee. Investments in businesses that the Company does not control
but for which it has the ability to exercise significant influence over operating and financial matters are accounted for using
the equity method. The Company accounts for its investment in Big River Resources, LLC (“Big River”) using the equity
method of accounting and includes the results on a delayed basis of one month as Big River has a fiscal year end of December 31.
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.
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 March 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, “
Improvements to Employee Share-Based
Payment Accounting
” (“ASU 2016-09”). This standard simplifies the accounting treatment for excess tax benefits
and deficiencies, forfeitures,
and cash flow considerations related to share-based compensation.
The Company adopted this standard February 1, 2017. The adoption of ASU 2016-09 did not impact the Company’s consolidated
financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02
“
Leases
”. This standard requires that virtually all leases will be recognized by lessees on their balance sheet
as a right-of-use asset and a corresponding lease liability, including leases currently accounted for as operating leases. The
Company will be required to adopt this standard effective February 1, 2019. The Company has not completed its analysis of adopting
this guidance but it does expect the adoption of this guidance to have a material impact on its Consolidated Balance Sheet related
to the right to use asset and lease obligation liability to be recognized upon adoption of this guidance. The related leases are
currently accounted for as operating leases (see Note 3).
The Company will be required to adopt the
amended guidance in ASC Topic 606 “
Revenue from Contracts with Customers
”, which requires revenue recognition
to reflect the transfer of promised goods or services to customers and replaces existing revenue recognition guidance. The updated
standard permits the use of either the retrospective or cumulative effect transition method. The FASB had deferred the required
adoption of the amended guidance by one year, from February 1, 2017 to February 1, 2018. The Company is progressing in its evaluation
of adopting this guidance but it does not expect the adoption of this guidance to have a material impact on its consolidated financial
statements with respect to measurement and recognition of revenue. The Company expects to adopt this guidance using the modified
prospective method. The Company is still evaluating the impact of adopting this guidance on disclosures in the consolidated financial
statements.
In November 2015, the FASB issued ASU 2015-17
“
Balance Sheet Classification of Deferred Taxes
”, (“ASU 2015-17”) which requires that for a particular
tax-paying component of an entity and within a particular tax jurisdiction, all deferred tax liabilities and assets shall be offset
and presented as a single noncurrent amount. The Company prospectively adopted the amended guidance effective February 1, 2017.
Prior periods were not retrospectively adjusted. The adoption of ASU 2015-17 did not affect net income attributable to REX common
shareholders or retained earnings in the presented periods.
Note 3.
Leases
At July 31, 2017, the Company has lease agreements,
as lessee, for rail cars and a natural gas pipeline. All of the leases are accounted for as operating leases. The following table
is a summary of future minimum rentals on such leases (amounts in thousands):
Years Ended January 31,
|
|
Minimum
Rentals
|
|
|
|
|
|
Remainder of 2018
|
|
$
|
3,556
|
|
2019
|
|
|
6,910
|
|
2020
|
|
|
5,379
|
|
2021
|
|
|
3,580
|
|
2022
|
|
|
2,948
|
|
Thereafter
|
|
|
1,622
|
|
Total
|
|
$
|
23,995
|
|
Note 4.
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. The fair values of property and equipment are determined by using
various models that discount future expected cash flows.
To ensure the prudent application of estimates
and management judgment in determining the fair value of derivative assets and liabilities, investments and property and equipment,
various processes and controls have been adopted, which include: (i) model validation that requires a review and approval for pricing,
financial statement fair value determination and risk quantification; and (ii) periodic review and substantiation of profit and
loss reporting for all derivative instruments. Financial assets and liabilities measured at fair value on a recurring basis at
July 31, 2017 are summarized below (amounts in thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity futures (1)
|
|
$
|
-
|
|
|
$
|
136
|
|
|
$
|
-
|
|
|
$
|
136
|
|
Forward purchase contract asset (4)
|
|
|
-
|
|
|
|
237
|
|
|
|
-
|
|
|
|
237
|
|
Investment in cooperative (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
333
|
|
|
|
333
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
373
|
|
|
$
|
333
|
|
|
$
|
706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contract liability (3)
|
|
$
|
-
|
|
|
$
|
158
|
|
|
$
|
-
|
|
|
$
|
158
|
|
Financial assets and liabilities measured
at fair value on a recurring basis at January 31, 2017 are summarized below (amounts in thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity futures (1)
|
|
$
|
-
|
|
|
$
|
45
|
|
|
$
|
-
|
|
|
$
|
45
|
|
Forward purchase contract asset (4)
|
|
|
-
|
|
|
|
163
|
|
|
|
-
|
|
|
|
163
|
|
Investment in cooperative (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
333
|
|
|
|
333
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
208
|
|
|
$
|
333
|
|
|
$
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contract liability (3)
|
|
$
|
-
|
|
|
$
|
136
|
|
|
$
|
-
|
|
|
$
|
136
|
|
(1) Commodity futures are included in “Prepaid
expenses and other current assets” on the accompanying Consolidated Condensed Balance Sheets.
(2) The investment in cooperative is included
in “Other assets” on the accompanying Consolidated Condensed Balance Sheets.
(3) The forward purchase contract liability
is included in “Accrued expenses and other current liabilities” on the accompanying Consolidated Condensed Balance
Sheets.
(4) The forward purchase contract asset is
included in “Prepaid expenses and other current assets” on the accompanying Consolidated Condensed Balance Sheets.
The Company determined the fair value of
the investment in cooperative by using a discounted cash flow analysis on the expected cash flows. Inputs used in the analysis
include the face value of the allocated equity amount, the projected term for repayment based upon a historical trend, and a risk
adjusted discount rate based on the expected compensation participants would demand because of the uncertainty of the future cash
flows. The inherent risk and uncertainty associated with unobservable inputs could have a significant effect on the actual fair
value of the investment.
There were no assets measured at fair value
on a non-recurring basis at July 31, 2017 or January 31, 2017.
Note 5.
Property and Equipment
The components of property and equipment
are as follows for the periods presented (amounts in thousands):
|
|
July 31,
2017
|
|
|
January 31,
2017
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
$
|
20,965
|
|
|
$
|
20,951
|
|
Buildings and improvements
|
|
|
23,259
|
|
|
|
23,203
|
|
Machinery, equipment and fixtures
|
|
|
261,772
|
|
|
|
255,348
|
|
Construction in progress
|
|
|
9,359
|
|
|
|
1,046
|
|
|
|
|
315,355
|
|
|
|
300,548
|
|
Less: accumulated depreciation
|
|
|
(127,810
|
)
|
|
|
(117,787
|
)
|
Total
|
|
$
|
187,545
|
|
|
$
|
182,761
|
|
Note 6.
Other Assets
The components of other assets are as follows
for the periods presented (amounts in thousands):
|
|
July 31,
2017
|
|
|
January 31,
2017
|
|
|
|
|
|
|
|
|
Real estate taxes refundable
|
|
$
|
5,923
|
|
|
$
|
5,923
|
|
Deposits
|
|
|
55
|
|
|
|
155
|
|
Other
|
|
|
742
|
|
|
|
835
|
|
Total
|
|
$
|
6,720
|
|
|
$
|
6,913
|
|
Real estate taxes refundable represent amounts
due One Earth associated with refunds of previously paid taxes in connection with a tax increment financing arrangement with local
taxing authorities. Deposits are with utility and other vendors.
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):
|
|
July 31,
2017
|
|
|
January 31,
2017
|
|
|
|
|
|
|
|
|
Accrued utility charges
|
|
$
|
2,088
|
|
|
$
|
2,414
|
|
Accrued payroll and related items
|
|
|
1,344
|
|
|
|
4,279
|
|
Accrued real estate taxes
|
|
|
1,049
|
|
|
|
2,716
|
|
Accrued income taxes
|
|
|
37
|
|
|
|
2,120
|
|
Other
|
|
|
2,924
|
|
|
|
1,819
|
|
Total
|
|
$
|
7,442
|
|
|
$
|
13,348
|
|
Note 8.
Revolving Lines of Credit
Effective April 1, 2016, One Earth and NuGen
each entered into $10.0 million revolving loan facilities that matured April 1, 2017. During the second quarter of fiscal year
2017, One Earth and NuGen renewed the revolving loan facilities, which now mature June 1, 2018. Neither One Earth nor NuGen had
outstanding borrowings on the revolving loans during the six months ended July 31, 2017 and 2016.
Note 9.
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 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 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
Fair Value
|
|
|
Liability Derivatives
Fair Value
|
|
|
|
July 31,
2017
|
|
|
January 31,
2017
|
|
|
July 31,
2017
|
|
|
January 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity futures (1)
|
|
$
|
136
|
|
|
$
|
45
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Forward purchase contracts (2)
|
|
|
237
|
|
|
|
163
|
|
|
|
158
|
|
|
|
136
|
|
Total
|
|
$
|
373
|
|
|
$
|
208
|
|
|
$
|
158
|
|
|
$
|
136
|
|
(1) Commodity futures are included
in prepaid expenses and other current assets. These contracts are short/sell positions for approximately 1.9 million and 0.7 million
bushels of corn at July 31, 2017 and January 31, 2017, respectively.
(2) Forward purchase contracts
assets are included in prepaid expenses and other current assets while forward purchase contracts liabilities are included in accrued
expenses and other current liabilities. These contracts are for purchases of approximately 10.3 million and 5.3 million bushels
of corn at July 31, 2017 and January 31, 2017, respectively.
As of July 31, 2017, 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 amounts owed or owing with the same counterparty. As of July 31, 2017, 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. As of July 31, 2017, the Company was required to maintain collateral with the
counterparty in the amount of approximately $379,000 to secure the Company’s derivative liability position.
See Note 4 which contains fair value information
related to derivative financial instruments.
Gains on the Company’s derivative financial
instruments of approximately $853,000 and $1,136,000 for the second quarters of fiscal years 2017 and 2016, respectively, were
included in cost of sales on the Consolidated Condensed Statements of Operations. Gains on the Company’s derivative financial
instruments of approximately $977,000 and $1,625,000 for the first six months of fiscal years 2017 and 2016, respectively, were
included in cost of sales on the Consolidated Condensed Statements of Operations.
Note 10.
Investments
The following table summarizes the Company’s
equity method investment at July 31, 2017 and January 31, 2017 (dollars in thousands):
Entity
|
|
Ownership
Percentage
|
|
Carrying Amount
July 31, 2017
|
|
Carrying Amount
January 31, 2017
|
|
|
|
|
|
|
|
Big River
|
|
9.7%
|
|
$36,665
|
|
$37,833
|
Undistributed earnings of the Company’s
equity method investee totaled approximately $16.6 million and $17.8 million at July 31, 2017 and January 31, 2017, respectively.
The Company received dividends from its equity method investee of approximately $2.0 million and $1.5 million during the first
six months of fiscal years 2017 and 2016, respectively.
Summarized financial information for the
Company’s equity method investee is presented in the following table for the periods presented (amounts in thousands):
|
|
Three Months Ended
July 31,
|
|
|
Six Months Ended
July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue
|
|
$
|
212,070
|
|
|
$
|
210,974
|
|
|
$
|
404,569
|
|
|
$
|
394,545
|
|
Gross profit
|
|
$
|
11,582
|
|
|
$
|
17,057
|
|
|
$
|
19,764
|
|
|
$
|
22,928
|
|
Income from continuing operations
|
|
$
|
1,411
|
|
|
$
|
12,216
|
|
|
$
|
8,618
|
|
|
$
|
14,620
|
|
Net income
|
|
$
|
1,411
|
|
|
$
|
12,216
|
|
|
$
|
8,618
|
|
|
$
|
14,620
|
|
Big River has debt agreements that limit
amounts Big River can pay in the form of dividends or advances to owners. The restricted net assets of Big River at July 31, 2017
and January 31, 2017 are approximately $279.5 million and $278.7 million, respectively.
On June 1, 2015, Patriot Holdings, LLC (“Patriot”)
and a subsidiary of CHS Inc. (“CHS”) completed a merger that resulted in CHS acquiring 100% of the ownership interest
in Patriot. During the first quarter of fiscal year 2016, the Company received proceeds of approximately $2.3 million as partial
payment for certain escrow holdbacks and adjustments to the purchase price. As a result, the Company recognized approximately $0.2
million as gain on sale of investment during the first quarter of fiscal year 2016. The Company does not expect any further proceeds
or gain/loss on sale of investment to be significant.
Note 11.
Employee Benefits
The Company maintains
the REX 2015 Incentive Plan, approved by its shareholders, which reserves a total of 550,000 shares of common stock for issuance
pursuant to its terms. The plan provides for the granting of shares of stock, including options to purchase shares of common stock,
stock
appreciation rights tied
to the value of common stock, restricted stock, and restricted stock unit awards to eligible employees, non-employee directors
and consultants. The Company measures share-based compensation grants at fair value on the grant date, adjusted for estimated forfeitures.
The Company records noncash compensation expense related to liability and equity awards in its consolidated financial statements
over the requisite service period on a straight-line basis. At July 31, 2017, 511,174 shares remain available for issuance under
the Plan. As a component of their compensation, restricted stock has been granted to directors at the closing market price of REX
common stock on the date of the grant. In addition one third of executives’ incentive compensation is payable by an award
of restricted stock based on the then closing market price of REX common stock.
At July 31, and January
31, 2017, unrecognized compensation cost related to nonvested restricted stock was approximately $321,000 and $214,000, respectively.
The following table summarizes non-vested restricted stock award activity for the six months ended July 31, 2017 and 2016:
|
|
Six Months Ended July 31, 2017
|
|
|
|
|
|
|
|
Non-Vested
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
(000’s)
|
|
|
Weighted
Average Remaining
Vesting Term
(in years)
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested at January 31, 2017
|
|
|
23,350
|
|
|
$
|
1,386
|
|
|
|
2
|
|
Granted
|
|
|
14,156
|
|
|
|
1,370
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Vested
|
|
|
8,091
|
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested at July 31, 2017
|
|
|
29,415
|
|
|
$
|
2,275
|
|
|
|
2
|
|
|
|
|
|
|
|
Six Months Ended July 31, 2016
|
|
|
|
|
|
|
|
Non-Vested
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
(000’s)
|
|
|
Weighted
Average Remaining
Vesting Term
(in years)
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested at January 31, 2016
|
|
|
3,168
|
|
|
$
|
200
|
|
|
|
2
|
|
Granted
|
|
|
21,502
|
|
|
|
1,269
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Vested
|
|
|
1,320
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested at July 31, 2016
|
|
|
23,350
|
|
|
$
|
1,386
|
|
|
|
3
|
|
Note 12
. Income Taxes
The effective tax rate on consolidated pre-tax income was 35.6%
and 33.3% for the three months ended July 31, 2017 and 2016, respectively. The effective tax rate on consolidated pre-tax income
was
32.4% and 32.6% for the six months ended July 31, 2017 and
2016, respectively. The fluctuation in the effective tax rate primarily relates to the impact of noncontrolling interests.
The Company expects the effective tax rate, for the remainder of fiscal year 2017, to be significantly lower than the current
year to date levels as the Company expects to earn federal income tax credits from its refined coal operation (see Note 16).
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, 2010 and prior. A reconciliation of the beginning and ending amount
of unrecognized tax benefits, including interest and penalties, is as follows (amounts in thousands):
|
|
Six Months Ended
July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, beginning of period
|
|
$
|
2,096
|
|
|
$
|
987
|
|
Changes for prior years’ tax positions
|
|
|
164
|
|
|
|
171
|
|
Changes for current year tax positions
|
|
|
-
|
|
|
|
-
|
|
Unrecognized tax benefits, end of period
|
|
$
|
2,260
|
|
|
$
|
1,158
|
|
Note 13.
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 11.4 million bushels of corn, the principal raw material for their ethanol plants. They expect
to take delivery of the grain through October 2017.
One Earth and NuGen have combined sales commitments
for approximately 67.8 million gallons of ethanol, approximately 79,000 tons of distillers grains and approximately 11.7 million
pounds of non-food grade corn oil. They expect to deliver the ethanol, distillers grains and non-food grade corn oil through December
2017.
Note 14.
Net Sales and Revenue
The following table summarizes sales for
each product and service group for the periods presented (amounts in thousands):
|
|
Three Months Ended
July 31,
|
|
|
Six Months Ended
July 31,
|
|
Product or Service Category
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol
|
|
$
|
88,785
|
|
|
$
|
90,933
|
|
|
$
|
180,257
|
|
|
$
|
168,564
|
|
Dried distillers grains
|
|
|
13,472
|
|
|
|
18,946
|
|
|
|
28,622
|
|
|
|
36,000
|
|
Non-food grade corn oil
|
|
|
4,726
|
|
|
|
4,738
|
|
|
|
9,318
|
|
|
|
8,584
|
|
Modified distillers grains
|
|
|
1,748
|
|
|
|
983
|
|
|
|
3,667
|
|
|
|
2,547
|
|
Other
|
|
|
13
|
|
|
|
107
|
|
|
|
23
|
|
|
|
234
|
|
Total
|
|
$
|
108,744
|
|
|
$
|
115,707
|
|
|
$
|
221,887
|
|
|
$
|
215,929
|
|
Note 15.
Related-Party Transactions
During the second quarters of fiscal year
2017 and 2016, One Earth and NuGen purchased approximately $36.5 million and approximately $36.0 million, respectively, of corn
from minority equity investors and board members of those subsidiaries. Such purchases totaled approximately $78.7 million and
approximately $80.4 million for the six months ended July 31, 2017 and 2016, respectively. The Company had amounts payable to related
parties for corn purchases of approximately $1.6 million and $1.7 million at July 31, 2017 and January 31, 2017, respectively.
Note 16. Subsequent Event
On August 10, 2017, the Company, through a 95.35%
owned subsidiary, purchased the entire ownership interest of a refined coal facility for approximately $12 million in cash. The
facility is in operation and will begin affecting the Company’s financial results during the third quarter of fiscal year
2017. The Company expects that the revenues from the sale of refined coal produced in the facility will be subsidized by federal
production tax credits, subject to meeting qualified emissions reductions as governed by Section 45 of the Internal Revenue Code.
The impact on the combined results of operations
of the Company and the refined coal facility, on a pro forma basis, as though the companies had been combined as of the beginning
of fiscal year 2017 is insignificant as the refined coal facility has been inactive for several years up until the Company’s
acquisition.
The Company expects to complete its analysis
of transaction costs related to the acquisition of the refined coal facility and the estimated fair value of assets acquired and
liabilities assumed during the third quarter of fiscal year 2017.