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
October 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 – In the third
quarter of fiscal year 2017, the Company began reporting the results of its refined coal operation as a new segment as a result
of the August 10, 2017 acquisition of an entity that operates a refined coal facility (see Note 3). Prior to the acquisition, the
Company had one reportable segment, ethanol. Beginning with the third quarter of fiscal year 2017, the Company has two reportable
segments: i) ethanol and by-products and ii) refined coal. Within the ethanol and by-products segment, the Company has equity investments
in three ethanol limited liability companies, two of which are majority ownership interests. Within the refined coal segment, the
Company has a majority equity interest in one refined coal limited liability company.
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
For ethanol and by-products segment
sales, 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. For
refined coal segment sales, the Company recognizes sales from the production of refined coal when title transfers to its customer,
generally upon the coal leaving the refined coal plant. Refined coal sales are recorded net of the cost of coal as the Company
purchases the coal feedstock from the customer to which refined coal is sold (after processing).
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 effective tax rate as adjusted for discrete items
impacting the interim periods. The
Company’s estimated annual effective tax rate includes
the impact of its refined coal operation and the expected federal income tax credits to be earned in fiscal year 2017 beginning
on the date of the refined coal acquisition (see Note 3). Based on current projections, the Company has estimated that its annual
effective tax rate will be a tax benefit of approximately 4%, which is significantly less than prior estimates. As a result of
the timing of the August 10, 2017 refined coal acquisition, the Company’s effective tax rate for the quarter ended October
31, 2017 was a benefit of approximately 62% (as the cumulative effect of the reduced annual effective tax rate was recorded in
the third quarter of fiscal year 2017), which then results in a year to date effective rate of a benefit of approximately 4%. 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
$6.8 million and $5.1 million during the nine months ended October 31, 2017 and 2016, respectively. The Company received refunds
of state income taxes of approximately $0.5 million during the nine months ended October 31, 2017. The Company received no refunds
of income taxes during the nine months ended October 31, 2016.
As of October 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 October 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 by-products and refined coal. 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 October 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):
|
|
October
31,
2017
|
|
|
January 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and other finished goods
|
|
|
$
|
5,144
|
|
|
|
$
|
5,262
|
|
Work in process
|
|
|
|
2,881
|
|
|
|
|
2,359
|
|
Grain and other raw materials
|
|
|
|
16,120
|
|
|
|
|
9,436
|
|
Total
|
|
|
$
|
24,145
|
|
|
|
$
|
17,057
|
|
Property and Equipment
Property and equipment is recorded at cost
or the fair value on the date of acquisition (for property and equipment acquired in a business combination). Depreciation is computed
using the straight-line method. Estimated useful lives are 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 nine 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 four majority owned
subsidiaries, One Earth Energy, LLC (“One Earth”), NuGen Energy, LLC (“NuGen”), Future Energy, LLC (“Future
Energy”) and an entity that owns a refined coal facility. 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 and the refined coal entity have the same fiscal year as the
parent, and therefore, there is no lag in reporting the results of NuGen or the refined coal entity. 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 4).
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 although it is expected to result in expanded disclosures regarding revenue from contracts with customers.
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.
Business Combinations
On August 10, 2017, the Company,
through a 95.35% owned subsidiary, purchased the entire ownership interest of an entity that owns a refined coal facility.
The Company began operating its refined coal facility immediately after the acquisition. The Company expects that the
revenues from the sale of refined coal produced in the facility will be subsidized by federal production tax credits through
November 2021, 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 entity, on a pro forma basis, as though the companies had been combined as of the beginning
of fiscal year 2016 is as follows:
Cost of sales would have increased by approximately $692,000 for the quarter ended October 31, 2016. Cost of sales would have increased by approximately $1,385,000 and $2,077,000 for the nine months ended October 31, 2017 and 2016, respectively. These pro forma increases are a result of increased depreciation expense as if the refined coal entity was consolidated during those periods. Selling, general and administrative expenses would have decreased by approximately $2,077,000 and $2,140,000 for the quarter and nine months ended October 31, 2017, respectively. Selling, general and administrative expenses would have increased by approximately $2,140,000 for the nine months ended October 31, 2016. These pro forma adjustments are a result of transaction costs occurring (on a pro forma basis) during the first quarter of fiscal year 2016. The benefit for income taxes would have increased by approximately $789,000 and $287,000 for the quarter and nine months ended October 31, 2017, respectively. The provision for income taxes would have decreased by approximately $263,000 and $1,602,000 for the quarter and nine months ended October 31, 2016, respectively. Net income attributable to REX common shareholders would have increased by approximately $1,228,000 and $447,000 for the quarter and nine months ended October 31, 2017, respectively. Net income attributable to REX common shareholders would have decreased by approximately $409,000 and $2,493,000 for the quarter and nine months ended October 31, 2016, respectively. Basic and diluted net income per share attributable to REX common shareholders would have increased by approximately $0.19 per share and $0.07 per share for the quarter and nine months ended October 31, 2017, respectively. Basic and diluted net income per share attributable to REX common shareholders would have decreased by approximately $0.06 per share and $0.38 per share for the quarter and nine months ended October 31, 2016, respectively.
The results of the Company’s refined
coal operations (approximately $0.2 million of net sales and revenue and approximately $4.5 million of net income attributable
to REX common shareholders, including the income tax benefit of estimated Section 45 credits to be earned) have been included in
the consolidated financial statements subsequent to the acquisition date and are included in the Company’s refined coal segment.
The purchase price was $12,049,000, which
was paid in cash. The acquisition was recorded by allocating the total purchase price to the assets acquired, based on their estimated
fair values at the acquisition date. The purchase price allocation is based on the preliminary results of a valuation analysis.
The purchase price allocation is preliminary until the valuation analysis is completed. The income approach was used to determine
the fair values of assets acquired. The following table summarizes the estimated fair values of the assets acquired at the acquisition
date (amounts in thousands):
Inventory
|
|
$
|
49
|
|
Property, plant and equipment
|
|
|
12,000
|
|
Total assets acquired and purchase price
|
|
$
|
12,049
|
|
Transaction costs totaled approximately
$2.1 million during the first nine months of fiscal year 2017 and are included in selling, general and administrative expenses
in the Condensed Consolidated Statement of Operations.
Note 4.
Leases
At October 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
|
|
|
$
|
1,774
|
|
2019
|
|
|
|
6,910
|
|
2020
|
|
|
|
5,700
|
|
2021
|
|
|
|
3,931
|
|
2022
|
|
|
|
3,299
|
|
Thereafter
|
|
|
|
3,026
|
|
Total
|
|
|
$
|
24,640
|
|
Note 5.
Fair Value
The Company applies ASC 820, “
Fair
Value Measurements and Disclosures”
(“ASC 820”), which provides a framework for measuring fair value under
accounting principles generally accepted in the United States of America. This accounting standard defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date.
The Company determines the fair market values
of its financial instruments based on the fair value hierarchy established by ASC 820 which requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels
of inputs that may be used to measure fair values which are provided below. The Company carries certain cash equivalents, investments
and derivative instruments at fair value.
The fair values of derivative assets and
liabilities traded in the over-the-counter market are determined using quantitative models that require the use of multiple market
inputs including interest rates, prices and indices to generate pricing and volatility factors, which are used to value the position.
The predominance of market inputs are actively quoted and can be validated through external sources, including brokers, market
transactions and third-party pricing services. Estimation risk is greater for derivative asset and liability positions that are
either option-based or have longer maturity dates where observable market inputs are less readily available or are unobservable,
in which case interest rate, price or index scenarios are extrapolated in order to determine the fair value. The fair values of
derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality, the Company’s own
credit standing and other specific factors, where appropriate. 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
October 31, 2017 are summarized below (amounts in thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity futures (1)
|
|
|
$
|
-
|
|
|
|
$
|
120
|
|
|
|
$
|
-
|
|
|
|
$
|
120
|
|
Investment in cooperative (2)
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
333
|
|
|
|
|
333
|
|
Total assets
|
|
|
$
|
-
|
|
|
|
$
|
120
|
|
|
|
$
|
333
|
|
|
|
$
|
453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contract liability (3)
|
|
|
$
|
-
|
|
|
|
$
|
287
|
|
|
|
$
|
-
|
|
|
|
$
|
287
|
|
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 October 31, 2017 or January 31, 2017. As discussed in Note 3, the Company estimated the fair values
of refined coal assets acquired using the income approach. This estimated fair value is a level 3 measurement.
Note 6.
Property and Equipment
The components of property and equipment are as follows for
the periods presented (amounts in thousands):
|
|
October
31,
2017
|
|
|
January 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
|
$
|
21,074
|
|
|
|
$
|
20,951
|
|
Buildings and improvements
|
|
|
|
23,272
|
|
|
|
|
23,203
|
|
Machinery, equipment and fixtures
|
|
|
|
280,986
|
|
|
|
|
255,348
|
|
Construction in progress
|
|
|
|
6,590
|
|
|
|
|
1,046
|
|
|
|
|
|
331,922
|
|
|
|
|
300,548
|
|
Less: accumulated depreciation
|
|
|
|
(132,963
|
)
|
|
|
|
(117,787
|
)
|
Total
|
|
|
$
|
198,959
|
|
|
|
$
|
182,761
|
|
Note 7.
Other Assets
The components of other assets are as follows for the periods
presented (amounts in thousands):
|
|
October
31,
2017
|
|
|
January 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes refundable
|
|
|
$
|
6,450
|
|
|
|
$
|
5,923
|
|
Deposits
|
|
|
|
5
|
|
|
|
|
155
|
|
Other
|
|
|
|
735
|
|
|
|
|
835
|
|
Total
|
|
|
$
|
7,190
|
|
|
|
$
|
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 8.
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):
|
|
October
31,
2017
|
|
|
January 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued utility charges
|
|
|
$
|
2,097
|
|
|
|
$
|
2,414
|
|
Accrued payroll and related items
|
|
|
|
2,855
|
|
|
|
|
4,279
|
|
Accrued real estate taxes
|
|
|
|
1,966
|
|
|
|
|
2,716
|
|
Accrued income taxes
|
|
|
|
52
|
|
|
|
|
2,120
|
|
Other
|
|
|
|
4,253
|
|
|
|
|
1,819
|
|
Total
|
|
|
$
|
11,223
|
|
|
|
$
|
13,348
|
|
Note 9.
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 nine months ended October 31, 2017 and 2016.
Note 10.
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
|
|
|
Liability Derivatives
|
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
|
October 31,
2017
|
|
|
January 31,
2017
|
|
|
October 31,
2017
|
|
|
January 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity futures (1)
|
|
$
|
120
|
|
|
$
|
45
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Forward purchase contracts (2)
|
|
|
-
|
|
|
|
163
|
|
|
|
287
|
|
|
|
136
|
|
Total
|
|
$
|
120
|
|
|
$
|
208
|
|
|
$
|
287
|
|
|
$
|
136
|
|
(1) Commodity futures are included
in prepaid expenses and other current assets. These contracts are short/sell positions for approximately 1.5 million and 0.7 million
bushels of corn at October 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 4.7 million and 5.3 million bushels
of corn at October 31, 2017 and January 31, 2017, respectively.
As of October 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 October 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 October 31, 2017, the Company was required to maintain collateral
with the counterparty in the amount of approximately $230,000 to secure the Company’s derivative position.
See Note 4 which contains fair value information
related to derivative financial instruments.
Gains on the Company’s derivative
financial instruments of approximately $75,000 and $115,000 for the third 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 $1,052,000 and $1,740,000 for the first nine months of fiscal years 2017 and 2016, respectively,
were included in cost of sales on the Consolidated Condensed Statements of Operations.
Note 11.
Investments
The following table summarizes the Company’s
equity method investment at October 31, 2017 and January 31, 2017 (dollars in thousands):
Entity
|
|
Ownership Percentage
|
|
Carrying
Amount
October 31, 2017
|
|
Carrying
Amount
January 31, 2017
|
|
|
|
|
|
|
|
Big River
|
|
10.3% at October 31, 2017 and 9.7% at January 31, 2017
|
$35,755
|
|
$37,833
|
Undistributed earnings of the Company’s
equity method investee totaled approximately $15.7 million and $17.8 million at October 31, 2017 and January 31, 2017, respectively.
The Company received dividends from its equity method investee of approximately $4.0 million during the first nine months of fiscal
years 2017 and 2016.
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
October 31,
|
|
|
Nine Months Ended
October 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue
|
|
$
|
201,621
|
|
|
$
|
216,505
|
|
|
$
|
606,190
|
|
|
$
|
611,050
|
|
Gross profit
|
|
$
|
18,620
|
|
|
$
|
26,191
|
|
|
$
|
38,363
|
|
|
$
|
49,119
|
|
Income from continuing operations
|
|
$
|
11,010
|
|
|
$
|
18,934
|
|
|
$
|
19,628
|
|
|
$
|
33,555
|
|
Net income
|
|
$
|
11,010
|
|
|
$
|
18,934
|
|
|
$
|
19,628
|
|
|
$
|
33,555
|
|
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 October 31,
2017 and January 31, 2017 are approximately $276.4 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 12.
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 October 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 October 31, and
January 31, 2017, unrecognized compensation cost related to nonvested restricted stock was approximately $277,000 and $214,000,
respectively. The following table summarizes non-vested restricted stock award activity for the nine months ended October 31,
2017 and 2016:
|
|
Nine Months Ended October 31, 2017
|
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
Average Grant
|
|
Average Remaining
|
|
|
Non-Vested
|
|
|
Date Fair Value
|
|
Vesting Term
|
|
|
Shares
|
|
|
(000’s)
|
|
(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 October 31, 2017
|
|
|
29,415
|
|
|
$
|
2,275
|
|
|
|
2
|
|
|
|
Nine Months Ended October 31, 2016
|
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
Average Grant
|
|
Average Remaining
|
|
|
Non-Vested
|
|
|
Date Fair Value
|
|
Vesting Term
|
|
|
Shares
|
|
|
(000’s)
|
|
(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 October 31, 2016
|
|
|
23,350
|
|
|
$
|
1,386
|
|
|
|
3
|
|
Note 13
. Income Taxes
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):
|
|
Nine Months Ended
October 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, beginning of period
|
|
$
|
2,096
|
|
|
$
|
987
|
|
Changes for prior years’ tax positions
|
|
|
247
|
|
|
|
749
|
|
Changes for current year tax positions
|
|
|
-
|
|
|
|
491
|
|
Unrecognized tax benefits, end of period
|
|
$
|
2,343
|
|
|
$
|
2,227
|
|
Note 14.
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 9.1 million bushels of corn, the principal raw material for their ethanol plants. They expect
to take delivery of the grain through March 2018.
One Earth and NuGen have combined sales commitments
for approximately 29.8 million gallons of ethanol, approximately 108,000 tons of distillers grains and approximately 16.7 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.
The refined coal entity has various agreements
(site license, operating agreements, etc.) containing payment terms based upon production of refined coal under which the Company
is required to pay various fees. Since refined coal production began, these fees have totaled $2.4 million.
Note 15.
Related-Party Transactions
During the third quarters of fiscal year
2017 and 2016, One Earth and NuGen purchased approximately $43.4 million and approximately $34.2 million, respectively, of corn
from minority equity investors and board members of those subsidiaries. Such purchases totaled approximately $121.8 million and
approximately $114.6 million for the nine months ended October 31, 2017 and 2016, respectively. The Company had amounts payable
to related parties for corn purchases of approximately $2.7 million and $1.7 million at October 31, 2017 and January 31, 2017,
respectively.
The Company recognized commission expense
of approximately $1.6 million, payable to the minority investor in the refined coal entity. The commission expense is associated
with the refined coal acquisition. The Company had accrued liabilities related to the commission expense of approximately $1.5
million at October 31, 2017.
Note 16. Segment Reporting
In the third quarter of fiscal year 2017,
the Company began reporting the results of its refined coal operations as a new segment as a result of the refined coal acquisition
(see Note 3.) The Company has two segments: ethanol and by-products and refined coal. Historical amounts have been reclassified
to conform to the current year segment reporting presentation. The Company evaluates the performance of each reportable segment
based on net income attributable to REX common shareholders. The following table summarizes segment and other results and assets
(amounts in thousands):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net sales and revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
120,971
|
|
|
$
|
116,283
|
|
|
$
|
342,858
|
|
|
$
|
332,212
|
|
Refined coal
1
|
|
|
193
|
|
|
|
-
|
|
|
|
193
|
|
|
|
-
|
|
Total net sales and revenue
|
|
$
|
121,164
|
|
|
$
|
116,283
|
|
|
$
|
343,051
|
|
|
$
|
332,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
18,257
|
|
|
$
|
20,162
|
|
|
$
|
41,527
|
|
|
$
|
45,868
|
|
Refined coal
|
|
|
(3,390
|
)
|
|
|
-
|
|
|
|
(3,390
|
)
|
|
|
-
|
|
Total gross profit
|
|
$
|
14,867
|
|
|
$
|
20,162
|
|
|
$
|
38,137
|
|
|
$
|
45,868
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
15,554
|
|
|
$
|
17,682
|
|
|
$
|
31,807
|
|
|
$
|
37,294
|
|
Refined coal
|
|
|
(5,684
|
)
|
|
|
-
|
|
|
|
(5,684
|
)
|
|
|
-
|
|
Corporate and other
|
|
|
(611
|
)
|
|
|
(468
|
)
|
|
|
(2,389
|
)
|
|
|
(1,554
|
)
|
Total income (loss) before income taxes
|
|
$
|
9,259
|
|
|
$
|
17,214
|
|
|
$
|
23,734
|
|
|
$
|
35,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
(4,379
|
)
|
|
$
|
(5,917
|
)
|
|
$
|
(9,712
|
)
|
|
$
|
(12,331
|
)
|
Refined coal
2
|
|
|
9,918
|
|
|
|
-
|
|
|
|
9,918
|
|
|
|
-
|
|
Corporate and other
|
|
|
196
|
|
|
|
177
|
|
|
|
837
|
|
|
|
560
|
|
Total benefit (provision) for income taxes
|
|
$
|
5,735
|
|
|
$
|
(5,740
|
)
|
|
$
|
1,043
|
|
|
$
|
(11,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
9,058
|
|
|
$
|
9,209
|
|
|
$
|
17,665
|
|
|
$
|
20,901
|
|
Refined coal
|
|
|
4,520
|
|
|
|
-
|
|
|
|
4,520
|
|
|
|
-
|
|
Corporate and other
|
|
|
(410
|
)
|
|
|
(271
|
)
|
|
|
(1,532
|
)
|
|
|
(949
|
)
|
Net income attributable to REX common shareholders
|
|
$
|
13,168
|
|
|
$
|
8,938
|
|
|
$
|
20,653
|
|
|
$
|
19,952
|
|
|
|
October 31,
2017
|
|
|
January 31,
2017
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
396,927
|
|
|
$
|
371,465
|
|
|
|
|
|
|
|
|
|
Refined coal
|
|
|
11,937
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Corporate and other
|
|
|
65,481
|
|
|
|
82,559
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
474,345
|
|
|
$
|
454,024
|
|
|
|
|
|
|
|
|
|
1
The
Company records sales in the refined coal segment net of the cost of coal as the Company purchases the coal feedstock from the
customer to which refined coal is sold.
2
The Company records its tax provision/benefit based on an estimated annual rate adjusted for items recorded discretely which it
estimates to be approximately negative 4%. As a result of the timing of the refined coal acquisition on August 10, 2017, the Company’s
effective tax rate for the quarter ended October 31, 2017 was a benefit of approximately 62%, which then results in a year to date
effective rate of a benefit of approximately 4%.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Sales of products, ethanol and by-products segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol
|
|
$
|
96,296
|
|
|
$
|
90,702
|
|
|
$
|
276,553
|
|
|
$
|
259,266
|
|
Dried distillers grains
|
|
|
16,703
|
|
|
|
19,551
|
|
|
|
45,325
|
|
|
|
55,551
|
|
Non-food grade corn oil
|
|
|
6,041
|
|
|
|
5,074
|
|
|
|
15,359
|
|
|
|
13,658
|
|
Modified distillers grains
|
|
|
1,889
|
|
|
|
853
|
|
|
|
5,557
|
|
|
|
3,400
|
|
Other
|
|
|
42
|
|
|
|
103
|
|
|
|
64
|
|
|
|
337
|
|
Total
|
|
$
|
120,971
|
|
|
$
|
116,283
|
|
|
$
|
342,858
|
|
|
$
|
332,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products, refined coal segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refined coal
|
|
$
|
193
|
|
|
$
|
-
|
|
|
$
|
193
|
|
|
$
|
-
|
|