NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles of Consolidation
–
The accompanying financial statements consolidate the operating results and financial position of REX American
Resources Corporation and its wholly-owned and majority owned subsidiaries (the “Company” or “REX”). All
intercompany balances and transactions have been eliminated. As of January 31, 2019, the Company owns interests in five operating
entities – four are consolidated and one is accounted for using the equity method of accounting. 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. The other consolidated entities
have the same fiscal year end as the parent company.
Fiscal Year –
All references in these consolidated financial statements to a particular fiscal year are to the Company’s fiscal
year ended January 31. For example, “fiscal year 2018” means the period February 1, 2018 to January 31,
2019. The Company refers to its fiscal year by reference to the year immediately preceding the January 31 fiscal year end date.
Segments
–
In 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 4). 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.
In applying the criteria set
forth in ASC 280, the Company determined that based on the nature of the products and production process and the expected financial
results, the Company’s operations at its ethanol plants are aggregated into one reporting segment.
Use of Estimates –
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents –
Cash equivalents are principally short-term investments with original maturities of less than three months. The carrying
amount of cash equivalents approximates fair value.
Basis of Presentation
–
Interest and other income, net includes the following (amounts in thousands):
|
|
Fiscal
Year
2018
|
|
|
Fiscal
Year
2017
|
|
|
Fiscal
Year
2016
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
3,514
|
|
|
$
|
1,556
|
|
|
$
|
434
|
|
(Loss) gain on sale of investment
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
192
|
|
(Loss) gain on disposal of real estate and property and equipment, net
|
|
|
(104
|
)
|
|
|
(192
|
)
|
|
|
328
|
|
Other
|
|
|
(22
|
)
|
|
|
709
|
|
|
|
162
|
|
Total
|
|
$
|
3,388
|
|
|
$
|
2,060
|
|
|
$
|
1,116
|
|
Concentrations of Risk
–
The Company maintains cash and cash equivalents in accounts with financial institutions which exceed federally
insured limits. The Company has not experienced any losses in such accounts. The Company does not believe there is significant
credit risk related to its cash and cash equivalents. Six (fiscal years 2018 and 2017) and five (fiscal year 2016) customers accounted
for approximately 85%, 87% and 83% of the Company’s net sales and revenue during fiscal years 2018, 2017 and 2016, respectively.
At January 31, 2019 and 2018, these customers represented approximately 80% and 89%, respectively, of the Company’s accounts
receivable balance.
Inventory
–
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 was no significant write-down of inventory during fiscal years 2018, 2017 or 2016. Fluctuations in the write-down of inventory
generally relate to the levels and composition of such inventory at a given point in time and commodity prices
.
The
components of inventory are as follows (amounts in thousands):
|
|
January 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Ethanol and other finished goods
|
|
$
|
5,767
|
|
|
$
|
8,402
|
|
Work in process
|
|
|
3,094
|
|
|
|
2,824
|
|
Grain and other raw materials
|
|
|
9,616
|
|
|
|
9,529
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,477
|
|
|
$
|
20,755
|
|
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 5 to
40 years for buildings and improvements, and 2 to 20 years for fixtures and equipment. The components of property and equipment
are as follows (amounts in thousands):
|
|
January 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
$
|
21,469
|
|
|
$
|
21,074
|
|
Buildings and improvements
|
|
|
23,608
|
|
|
|
23,272
|
|
Machinery, equipment and fixtures
|
|
|
297,807
|
|
|
|
288,832
|
|
Construction in progress
|
|
|
708
|
|
|
|
3,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
343,592
|
|
|
|
336,333
|
|
Less: accumulated depreciation
|
|
|
(161,071
|
)
|
|
|
(138,506
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
182,521
|
|
|
$
|
197,827
|
|
In accordance with ASC 360-05
“
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.
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 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 recorded no impairment charges in fiscal years 2018, 2017 and 2016.
Depreciation expense was approximately
$24,828,000, $21,462,000 and $19,519,000 in fiscal years 2018, 2017 and 2016, respectively.
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 accounts for
investments in limited liability companies in which it may have a less than 20% ownership interest, using the equity method of
accounting when the factors discussed in ASC 323 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. 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 using the equity method of accounting and includes
the results of Big River on a delayed basis of one month as it 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, in
addition to persistent, declining market prices, 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 Statements of
Operations and a new cost basis in the investment is established.
Short-term investments, consisting of U.S. government
obligations, are considered held-to-maturity, and, therefore are carried at amortized historical cost.
Revenue Recognition
– For ethanol
and by-products segment sales, the Company recognizes sales of ethanol, distillers grains and non-food grade corn oil when obligations
under the terms of the respective contracts with customers are satisfied; this occurs with the transfer of control of products,
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 of refined coal when obligations under the term of the contract with its customer are
satisfied; this occurs when control of the product transfers to the 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,
shipping costs, other distribution expenses, warehousing costs, plant management, certain compensation 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 ASC 815, because these arrangements are for purchases
of grain that will be delivered in quantities expected to be used and sales of ethanol, distillers grains and non-food grade corn
oil that will be produced in quantities expected to be sold by us over a reasonable period of time in the normal course of business.
During the years ended January 31, 2019, 2018 and 2017 there were no material settlements of forward contracts that were recorded
at fair value. At January 31, 2019, the company recorded a liability of $21,000 associated with contracts not accounted for under
the “normal purchases and normal sales” scope exemption of ASC 815. At January 31, 2018, the Company recorded an asset
of approximately $0.1 million associated with contracts not accounted for under the “normal purchases and normal sales”
scope exemption of ASC 815.
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 sale 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.
Stock Compensation
–
The Company has a stock-based compensation 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 equity
and liability awards in its consolidated financial statements over the requisite service period on a straight-line basis. See Note
12 for a further discussion of restricted stock.
Income Taxes
–
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 bases 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’s annual effective tax rate
includes the impact of its refined coal operation and the expected federal income tax credits to be earned and the impact of research
and experimentation credits. In addition, for fiscal year 2017, the Company’s annual effective tax rate includes a benefit
related to remeasuring deferred tax liabilities at a federal income tax rate of 21% compared to 35% in historical periods, a result
of the Tax Act, which reduced the federal income tax rate on corporations from 35% to 21%.
Comprehensive Income
– The Company has no components of other comprehensive income, and therefore, comprehensive income equals net income.
New Accounting Pronouncements
–
Effective February 1, 2018, the Company adopted 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. See Note 3 for a discussion of the adoption of this amended guidance.
Effective February 1, 2018, the
Company prospectively adopted Accounting Standards Update “ASU” 2016-15 “
Statement of Cash Flows (Topic 230),
Classification of Certain Cash Receipts and Cash Payments
”. This standard provides guidance on eight specific cash flow
issues. The cash flow issues covered by this ASU are: 1) debt prepayment or debt extinguishment costs; 2) settlement of zero-coupon
debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest
rate of the borrowing; 3) contingent consideration payments made after a business combination; 4) proceeds from the settlement
of insurance claims; 5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance
policies; 6) distributions received from equity method investees; 7) beneficial interests in securitization transactions; and 8)
separately identifiable cash flows and application of the predominance principle for distributions received from equity method
investees in the Statement of Cash Flows. The adoption of this standard did not affect the consolidated financial statements and
related disclosures.
Effective February 1, 2018, the
Company adopted ASU 2016-18 “
Statement of Cash Flows (Topic 230), Restricted Cash
”. This standard requires that
the statements of cash flows explain the changes in the combined total of restricted and unrestricted cash balances. Amounts generally
described as restricted cash will be combined with unrestricted cash and cash equivalents when reconciling the beginning and end
of period balances on the statements of cash flows. The Company adopted this standard retrospectively. Therefore, the balance of
cash and cash equivalents was increased by $354,000 and $130,000 as of January 31, 2018 and 2017, respectively to reflect the respective
restricted cash amounts. Net cash used in investing activities was adjusted to exclude the change in restricted cash of $224,000
and $76,000 for the years ended January 31, 2018 and 2017, respectively.
In February 2016, the Financial
Accounting Standards Board (“FASB”) issued ASU 2016-02 “
Leases (Codified as Topic 842)
”. 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 is required to adopt this standard effective
February 1, 2019. The related leases are currently accounted for as operating leases (see Note 8). This standard requires a modified
retrospective transition approach and allows for early adoption. This standard provides three practical expedients, which the Company
intends to elect as a package and apply consistently to all leases. Pursuant to this package, the Company will not reassess i)
whether any expired or existing contracts are or contain leases, ii) the lease classification for any expired or existing leases
that were previously classified
as operating leases, or iii) initial direct costs for any existing leases. In July 2018, the FASB issued ASU 2018-11, Leases (Topic
842):
Targeted Improvements
, which provides an option to apply the transition provisions of the new standard at the adoption
date instead of the earliest comparative period presented in the financial statements. The Company will elect to use this
optional transition method.
The Company expects the adoption
of this new standard to result in the recognition of a range of approximately $18 million to $22 million in right-of-use assets
and lease liabilities on the Consolidated Balance Sheet. The Company does not expect the adoption of this new standard to have
a material impact on its Consolidated Statements of Operations Cash Flows or Shareholders’ Equity. The Company expects to
use the lessee non-lease component accounting policy election, for all asset classes, to include both the lease and non-lease components
as a single component and account for them as a lease.
The Company is currently working
to complete the implementation of new processes and information technology tools to assist in ongoing lease data collection and
analysis, and is updating accounting policies and internal controls in connection with the adoption of the new standard.
The Company’s equity method investment
in Big River is accounted for under ASC 323. The following table summarizes the investment (amounts in thousands):
|
|
January 31,
2019
|
|
|
January 31,
2018
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
$
|
32,075
|
|
|
$
|
34,549
|
|
|
|
|
|
|
|
|
|
|
Ownership percentage
|
|
|
10.3
|
%
|
|
|
10.3
|
%
|
The Company invested $20.0 million
in Big River which is a holding company for several entities. Big River, through its various entities (both wholly and partially
owned), operates four ethanol manufacturing facilities, that combined shipped approximately 428.6 million gallons of ethanol in
the twelve months ended January 31, 2019. The Company recorded income of approximately $1.5 million, $3.2 million and $6.1 million
as its share of earnings from Big River during fiscal years 2018, 2017 and 2016, respectively. The Company received dividends of
approximately $4.0 million, $6.5 million and $7.0 million from Big River during fiscal years 2018, 2017 and 2016, respectively.
At January 31, 2019, the carrying value of the investment in Big River is approximately $32.1 million; the amount of underlying
equity in the net assets of Big River is approximately $28.3 million.
Summarized financial information
for the Company’s equity method investee as of and for its fiscal year end is presented in the following tables (amounts
in thousands):
Big River
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
117,796
|
|
|
$
|
149,436
|
|
Non current assets
|
|
|
241,382
|
|
|
|
261,443
|
|
Total assets
|
|
$
|
359,178
|
|
|
$
|
410,879
|
|
Current liabilities
|
|
$
|
50,172
|
|
|
$
|
49,130
|
|
Long-term liabilities
|
|
|
701
|
|
|
|
10,599
|
|
Total liabilities
|
|
$
|
50,873
|
|
|
$
|
59,729
|
|
Noncontrolling interests
|
|
$
|
34,149
|
|
|
$
|
38,412
|
|
|
|
Years Ended December 31,
|
|
Big River
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue
|
|
$
|
802,523
|
|
|
$
|
817,112
|
|
|
$
|
851,434
|
|
Gross profit
|
|
$
|
33,782
|
|
|
$
|
60,259
|
|
|
$
|
88,841
|
|
Income from continuing operations
|
|
$
|
14,893
|
|
|
$
|
32,243
|
|
|
$
|
63,292
|
|
Net income
|
|
$
|
14,893
|
|
|
$
|
32,243
|
|
|
$
|
63,292
|
|
Big River has debt agreements that
limit and restrict amounts the entity can pay in the form of dividends or advances to owners. The restricted net assets of Big
River at January 31, 2019 are approximately $185.1 million; the Company’s proportionate share of restricted net assets of
Big River is approximately $19.1 million.
The following table summarizes the
Company’s held-to-maturity security at January 31, 2019 (amounts in thousands):
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
United States Treasury Bill
|
|
$
|
14,975
|
|
|
$
|
2
|
|
|
$
|
14,973
|
|
As of January 31, 2019, the contractual
maturity of this investment was less than one year. The yield to maturity rate is 2.29%.
The Company had no held-to-maturity
investments as of January 31, 2018.
On February 1, 2018, the Company
adopted the amended guidance in ASC Topic 606, “Revenue from Contracts with Customers”, and all related amendments
and applied it to all contracts utilizing the modified retrospective method. There were no adjustments to the Consolidated Condensed
Balance Sheet as of February 1, 2018 as a result of the adoption of this accounting guidance. Therefore, comparative information
has not been restated and continues to be reported under the accounting standards in effect for those periods. Furthermore, there
was no impact related to the adoption of this
accounting guidance on the Consolidated
Statements of Operations or Balance Sheets for the year ended January 31, 2019. The Company expects the impact of adopting this
accounting guidance to be immaterial on an ongoing basis.
The Company recognizes sales of
products when obligations under the terms of the respective contracts with customers are satisfied. This occurs with the transfer
of control of products, generally upon shipment from the ethanol plant or upon loading of the rail car used to transport the products.
Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods. Sales, value add
and other taxes the Company collects concurrent with revenue producing activities are excluded from net sales and revenue.
The majority of the Company’s
sales have payment terms ranging from 5 to 10 days after transfer of control. The Company has determined that sales contracts do
not generally include a significant financing component. The Company has not historically, and does not intend to, enter into sales
contracts in which payment is due from a customer prior to transferring product to the customer. Thus, the Company does not record
unearned revenue.
The Company elected, pursuant to
the new accounting guidance, to recognize as fulfillment activities the cost for shipping and handling activities that occur after
the customer obtains control of the promised goods and not when performance obligations are met. See Note 16 for disaggregation
of net sales and revenue by operating segment and by product.
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 refined coal
operating results will be subsidized by federal production tax credits through November 2021, subject to meeting qualified emissions
reductions and other requirements as governed by Section 45 of the Internal Revenue Code.
The results of the Company’s
refined coal operations (approximately $1.2 million of net sales and revenue and approximately $15.8 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.
Pro forma net sales and revenue and net income attributable to REX common shareholders, had the acquisition occurred on February
1, 2017 would have been $452.6 million and $38.9 million, respectively for the year ended January 31, 2018.
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 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
$2.5 million during fiscal year 2017 and are included in selling, general and administrative expenses in the Consolidated Statement
of Operations.
The Company applies ASC 820, “
Fair
Value Measurements and Disclosures
” (“ASC 820”) which 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 financial instruments at fair value.
Level 1 –
Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities
and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly
liquid and are actively traded in over-the-counter markets.
Level 2 –
Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities. Level 2 assets and liabilities include derivative contracts whose value is determined using
a pricing model with inputs that are observable in the market or can be derived principally or corroborated by observable market
data.
Level 3 –
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted
cash flow methods, or similar techniques, as well as instruments for which the determination of fair value requires significant
management judgment or estimation. Unobservable inputs are developed based on the best information available, which may include
the Company’s own data.
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 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 at January 31, 2019 on a
recurring basis are summarized below (amounts in thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
Fair
Value
|
|
Commodity futures (3)
|
|
$
|
—
|
|
|
$
|
44
|
|
|
$
|
—
|
|
|
$
|
44
|
|
Investment in cooperative (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
333
|
|
|
|
333
|
|
Total assets
|
|
$
|
—
|
|
|
$
|
44
|
|
|
$
|
333
|
|
|
$
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts liability (5)
|
|
$
|
—
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
22
|
|
Financial assets and liabilities measured at fair value
at January 31, 2018 on a recurring basis are summarized below (amounts in thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
Fair
Value
|
|
Forward purchase contracts asset (4)
|
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
—
|
|
|
$
|
72
|
|
Investment in cooperative (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
333
|
|
|
|
333
|
|
Total assets
|
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
333
|
|
|
$
|
405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity futures (5)
|
|
$
|
—
|
|
|
$
|
87
|
|
|
$
|
—
|
|
|
$
|
87
|
|
Forward purchase contracts liability (2)
|
|
|
—
|
|
|
|
34
|
|
|
|
—
|
|
|
|
34
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
121
|
|
|
$
|
—
|
|
|
$
|
121
|
|
|
(1)
|
The
investment in cooperative is included in “Other assets” on the accompanying Consolidated Balance Sheets.
|
|
|
|
|
(2)
|
The forward purchase contract liability is included in “Accrued
expenses and other current liabilities” on the accompanying Consolidated Balance Sheets.
|
|
|
|
|
(3)
|
The commodity futures asset is included in “Prepaid expenses
and other” on the accompanying Consolidated Balance Sheets.
|
|
|
|
|
(4)
|
The forward purchase contract asset is included in “Prepaid
expenses and other” on the accompanying Consolidated Balance Sheets.
|
|
|
|
|
(5)
|
The commodity futures liability is included in “Accrued expenses
and other current liabilities” on the accompanying Consolidated 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.
No other financial instruments were elected to be measured at fair value in accordance with ASC 470-20-25-21.
There were no assets measured at
fair value at January 31, 2019 and 2018 on a non-recurring basis. As discussed in Note 4, the Company estimated the fair values
of refined coal assets acquired using the income approach. This estimated fair value is a level 3 measurement.
The components of other noncurrent assets are as follows
(amounts in thousands):
|
|
January 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes
|
|
$
|
5,843
|
|
|
$
|
—
|
|
Real estate taxes refundable
|
|
|
—
|
|
|
|
6,719
|
|
Other
|
|
|
333
|
|
|
|
735
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,176
|
|
|
$
|
7,454
|
|
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.
7.
|
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
The components of accrued expenses and other current
liabilities at January 31, 2019 and 2018 are as follows (amounts in thousands):
|
|
January 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Accrued payroll and related items
|
|
$
|
2,041
|
|
|
$
|
5,108
|
|
Accrued utility charges
|
|
|
2,924
|
|
|
|
2,639
|
|
Accrued transportation related items
|
|
|
1,567
|
|
|
|
1,561
|
|
Accrued real estate taxes
|
|
|
1,680
|
|
|
|
2,678
|
|
Accrued income taxes
|
|
|
71
|
|
|
|
61
|
|
Other
|
|
|
1,263
|
|
|
|
1,669
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,546
|
|
|
$
|
13,716
|
|
At January 31, 2019, the Company
has lease agreements, as lessee, for rail cars and other equipment. All of the leases are accounted for as operating leases. As
of January 31, 2019, future minimum annual rentals on such leases are as follows (amounts in thousands):
Years Ended
|
|
|
Minimum
|
|
January 31,
|
|
|
Rentals
|
|
|
|
|
|
|
|
2019
|
|
|
|
6,767
|
|
2020
|
|
|
|
5,487
|
|
2021
|
|
|
|
4,791
|
|
2022
|
|
|
|
3,208
|
|
2023
|
|
|
|
2,041
|
|
Thereafter
|
|
|
|
1,221
|
|
|
|
|
$
|
23,515
|
|
During fiscal years 2018 and 2016,
the Company purchased 305,473 shares and 87,904 shares, respectively, of its common stock for approximately $21,856,000 and $4,353,000,
respectively. During fiscal year 2017, the Company did not purchase any of its common stock. At January 31, 2019, the Company had
prior authorization by its Board of Directors to purchase, in open market transactions, an additional 349,861 shares of its common
stock. Information regarding the Company’s common stock is as follows (amounts in thousands):
|
|
January 31,
|
|
|
|
2019
|
|
|
2018
|
|
Authorized shares
|
|
|
45,000
|
|
|
|
45,000
|
|
Issued shares
|
|
|
29,853
|
|
|
|
29,853
|
|
Outstanding shares
|
|
|
6,274
|
|
|
|
6,566
|
|
10.
|
REVOLVING LINES OF CREDIT
|
One Earth and NuGen each have $10.0
million revolving loan facilities that mature June 1, 2019. Any borrowings will be secured by the inventory and accounts receivable
of One Earth or NuGen, specific to which entity borrows money under these facilities. These revolving loan facilities are recourse
only to One Earth and NuGen, respectively, and not to REX American Resources Corporation or any of its other subsidiaries. Borrowings
under these facilities bear interest at the one month LIBOR rate plus 225 basis points. Neither One Earth nor NuGen had outstanding
borrowings on the revolving loans during the years ended January 31, 2019 or 2018.
11.
|
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 changes in fair value of these derivative financial instruments are recognized
in current period earnings as the Company does not use hedge accounting.
The following table provides information about the fair
values of the Company’s derivative financial instruments and the line items on the Consolidated Balance Sheets in which the
fair values are reflected (in thousands):
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Fair Value at
January 31,
|
|
|
Fair Value at
January 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity futures (1)
|
|
$
|
44
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
87
|
|
Forward purchase contracts (2)
|
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
22
|
|
|
$
|
34
|
|
|
(1)
|
Commodity futures assets are included in prepaid expense and other. Commodity futures liabilities
are included in accrued expenses and other current liabilities. These contracts are short/sell positions for approximately 2.0
million bushels of corn at January 31, 2019. These contracts are short/sell positions for approximately 2.5 million bushels of
corn and approximately 2.8 million gallons of ethanol and long/buy positions for approximately 2.8 million gallons of ethanol at
January 31, 2018.
|
|
(2)
|
Forward purchase contracts liabilities are included in accrued expenses and other current liabilities
while forward purchase contracts assets are included in prepaid expenses and other. These contracts are for purchases of approximately
1.3 million bushels of corn at January 31, 2019 and 11.7 million bushels of corn at January 31, 2018.
|
As of January 31, 2019 and 2018,
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 owed or owing with the same counterparty. As of January 31, 2019 and 2018, 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 January 31, 2019, the Company was required to maintain collateral
with the counterparty in the amount of approximately $281,000 to secure the Company’s derivative liability position. See
Note 5 which contains fair value information related to derivative financial instruments.
The Company recognized gains (included in cost of sales)
on derivative financial instruments of approximately $2,698,000, $1,317,000 and $2,131,000 in fiscal years 2018, 2017 and 2016,
respectively.
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 January 31, 2019, 489,430 shares remain available for
issuance under the Plan. As a component of their compensation, restricted stock has been granted to directors at the 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 market
price of REX common stock. The
Company’s board of directors has determined that the grant date will be June 15
th
, or the next business day, for
all grants of restricted stock.
At January 31, 2019 and 2018, unrecognized
compensation cost related to nonvested restricted stock was approximately $200,000 and $233,000, respectively. The following table
summarizes non-vested restricted stock award activity for fiscal years 2018, 2017 and 2016:
|
|
2018
|
|
|
|
Non-Vested
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
(000’s)
|
|
|
Weighted
Average Remaining
VestingTerm
(in years)
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested at January 31, 2018
|
|
|
29,415
|
|
|
$
|
2,275
|
|
|
|
2
|
|
Granted
|
|
|
21,744
|
|
|
|
1,623
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Vested
|
|
|
13,123
|
|
|
|
963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested at January 31, 2019
|
|
|
38,036
|
|
|
$
|
2,935
|
|
|
|
2
|
|
|
|
2017
|
|
|
|
Non-Vested
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
(000’s)
|
|
|
Weighted
Average Remaining
VestingTerm
(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 January 31, 2018
|
|
|
29,415
|
|
|
$
|
2,275
|
|
|
|
2
|
|
|
|
2016
|
|
|
|
Non-Vested
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
(000’s)
|
|
|
Weighted
Remaining Vesting
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 January 31, 2017
|
|
|
23,350
|
|
|
$
|
1,386
|
|
|
|
2
|
|
The above tables include 34,148,
24,711 and 18,541 non-vested shares at January 31, 2019, 2018 and 2017, respectively, which are included in the number of weighted
average shares outstanding used to determine basic and diluted earnings per share attributable to REX common shareholders. Such
shares are treated, for accounting purposes, as being fully vested at the grant date as they were granted to officers who were
retirement eligible at the time of grant.
One Earth and NuGen have combined
forward purchase contracts for approximately 13.0 million bushels of corn, the principal raw material for their ethanol plants.
They expect to take delivery of a majority of the corn through June 2019.
One Earth and NuGen have combined
sales commitments for approximately 32.3 million gallons of ethanol, 88,000 tons of distillers grains and 18.2 million pounds of
non-food grade corn oil. They expect to deliver the ethanol, distillers grains and corn oil through March 2019.
One Earth has entered into an agreement
with an unrelated party for the use of a portion of the party’s natural gas pipeline. The term of the agreement is 10 years,
and the amount is $4,380,000, which is paid over 120 equal monthly installments of $36,500 beginning in February 2009. A 15 year
agreement, with monthly payments of $29,250 will be effective February 1, 2019. One Earth paid approximately $438,000 pursuant
to the agreement in each of fiscal years 2018, 2017 and 2016.
One Earth and NuGen have entered
into agreements with unrelated parties for the lease of railcars used to ship ethanol and distillers grains. These leases expire
on various dates through February 1, 2025. One Earth and NuGen pay a monthly lease amount per railcar. One Earth and NuGen incurred
combined expenses of approximately $8,109,000, $8,600,000 and $8,515,000 pursuant to the leases in fiscal years 2018, 2017 and
2016, respectively.
One Earth and NuGen each have a
contract with an unrelated party (“Distillers Grains Marketers”) for distillers grains marketing services. Under the
terms of the contracts, the Distillers Grains Marketers will purchase all of One Earth’s and NuGen’s distillers grains
production during the term of the contracts. The contracts call for One Earth and NuGen to pay a fee per ton of distillers grains
for the Distillers Grains Marketers’ services. The terms of the agreements are for one year and shall renew automatically
for additional one year terms, unless either party sends notice to the other party of its intent to terminate the agreement at
least 90 days prior to the expiration of the then current term of the agreement. One Earth and NuGen combined incurred fees of
approximately $1,250,000, $1,354,000 and $1,194,000 in fiscal years 2018, 2017 and 2016, respectively, for these marketing services.
One Earth has a grain origination
agreement with a minority equity owner, under which it purchased 100% of its grain during fiscal years 2018, 2017 and 2016. Pursuant
to this agreement, One Earth pays a procurement fee per bushel. The agreement expires December 31, 2020, and can be terminated
prior to the expiration date if either party provides 180 days written notice. The agreement automatically renews for additional
one year terms, unless either party sends notice to the other party of its intent to terminate the agreement at least 180 days
prior to the expiration of the then current term of the agreement.
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. These fees totaled approximately $9.9 million and $5.5 million in fiscal years 2018
and 2017, respectively.
The (benefit) provision for income
taxes for fiscal years 2018, 2017 and 2016 consist of the following (amounts in thousands):
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
81
|
|
|
$
|
(2,094
|
)
|
|
$
|
12,197
|
|
Deferred
|
|
|
(23,547
|
)
|
|
|
(19,528
|
)
|
|
|
3,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,466
|
)
|
|
|
(21,622
|
)
|
|
|
15,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and Local:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
361
|
|
|
|
1,180
|
|
|
|
2,153
|
|
Deferred
|
|
|
183
|
|
|
|
923
|
|
|
|
(525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
544
|
|
|
|
2,103
|
|
|
|
1,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit) provision for income taxes
|
|
$
|
(22,922
|
)
|
|
$
|
(19,519
|
)
|
|
$
|
17,393
|
|
The tax effects of significant temporary
differences representing deferred tax assets and liabilities are as follows (amounts in thousands):
|
|
January 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
General business credit carryforward
|
|
$
|
26,523
|
|
|
$
|
3,897
|
|
Accrued liabilities
|
|
|
308
|
|
|
|
687
|
|
State net operating loss carryforward
|
|
|
294
|
|
|
|
241
|
|
Other items
|
|
|
647
|
|
|
|
576
|
|
Valuation allowance
|
|
|
(232
|
)
|
|
|
(241
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
27,540
|
|
|
|
5,160
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Basis in pass through entities, including depreciation
|
|
|
(25,725
|
)
|
|
|
(26,717
|
)
|
Other
|
|
|
(157
|
)
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(25,882
|
)
|
|
|
(26,866
|
)
|
Net deferred tax asset (liability)
|
|
$
|
1,658
|
|
|
$
|
(21,706
|
)
|
The Company has a general business
credit carryforward of approximately $26.5 million and approximately $3.9 million at January 31, 2019 and 2018, respectively. The
Company can carry these credits forward for up to twenty years. The carryforward period begins to expire in fiscal year 2037.
The Company has a valuation allowance
of approximately $232,000 and $241,000 at January 31, 2019 and 2018, respectively. The Company decreased the valuation allowance
by $9,000, $176,000 and $734,000 in fiscal years 2018, 2017 and 2016, respectively. These adjustments to the valuation allowance
are a result of estimates of realizing certain future state tax benefits.
The Tax Act signed into law on
December 22, 2017, reduced the federal corporate income tax rate to 21% effective January 1, 2018. The Tax Act also makes numerous
other changes to the U.S. tax code, including, but not limited to, permitting full expensing of qualified property acquired after
September 27, 2017, and expanding prior limitations on the deductibility of certain executive compensation.
The SEC issued Staff Account bulleting
118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. In recognition of the inherent
complexities associated with accounting for the effects of the Tax Act, SAB 118 provides a measurement period of up to one year
from enactment of the Tax Act for companies to complete the accounting for the tax effects of the Tax Act. Although the accounting
for the tax effects of the Tax Act was not yet complete, at January 31, 2018 the Company made a preliminary estimate of the effect
of the tax rate reducing on the existing deferred tax balances and recorded a tax benefit of approximately $14,362,000 to remeasure
the deferred tax liability at the new 21% rate. The Company finalized its analysis in fiscal year 2018, and as a result, recorded
a tax provision of approximately $272,000.
Through its refined coal
operation, the Company earns production tax credits pursuant to IRC Section 45. The credits can be used to reduce future
income tax liabilities for up to 20 years. These credits increased the income tax benefit by approximately $21.2 million and
$11.5 million during fiscal years 2018 and 2017, respectively.
During fiscal year 2018, the company
recognized an income tax benefit (net of uncertain tax position expense) of approximately $4.6 million for federal and state research
and experimentation credits. These credits recorded during fiscal year 2018 related to fiscal years 2014 to 2017 as well as an
estimated tax benefit for fiscal year 2018.
The Company paid income taxes of
approximately $855,000, $6,920,000 and $7,090,000 in fiscal years 2018, 2017 and 2016, respectively. The Company received refunds
of income taxes of approximately $1,132,000, $476,000 and $150,000 in fiscal years 2018, 2017 and 2016, respectively.
The effective income tax rate on
consolidated pre-tax income or loss differs from the federal income tax statutory rate for fiscal years 2018, 2017 and 2016 as
follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax at statutory rate
|
|
|
21.0
|
%
|
|
|
33.8
|
%
|
|
|
35.0
|
%
|
State and local taxes, net of federal tax benefit
|
|
|
3.6
|
|
|
|
3.2
|
|
|
|
2.3
|
|
Section 45 production tax credits
|
|
|
(145.2
|
)
|
|
|
(45.4
|
)
|
|
|
—
|
|
Research and experimentation credits
|
|
|
(77.8
|
)
|
|
|
—
|
|
|
|
—
|
|
Tax Cuts and Jobs Act
|
|
|
1.9
|
|
|
|
(56.6
|
)
|
|
|
—
|
|
Domestic production activities deduction
|
|
|
—
|
|
|
|
(5.9
|
)
|
|
|
(2.9
|
)
|
Uncertain tax positions
|
|
|
47.1
|
|
|
|
1.4
|
|
|
|
0.8
|
|
Noncontrolling interest
|
|
|
(9.9
|
)
|
|
|
(7.6
|
)
|
|
|
(4.6
|
)
|
Other
|
|
|
2.2
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(157.1
|
)%
|
|
|
(76.9
|
)%
|
|
|
30.6
|
%
|
The Company files a U.S. federal
income tax return and income tax returns in various states. In general, the Company is no longer subject to U.S. federal, state
or local income tax examinations by tax authorities for fiscal years ended January 31, 2014 and prior.
The Company applies the provisions
of ASC 740-10-25-5 for uncertain tax positions. As of January 31, 2019, total unrecognized tax benefits were approximately $8,785,000,
and accrued penalties and interest were approximately $447,000. If the Company were to prevail on all unrecognized tax benefits
recorded, the provision for income taxes would be reduced by approximately $8,304,000. 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 and annual basis,
the Company accrues for the effects of open uncertain tax positions and the related potential penalties and interest. It is reasonably
possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will increase or decrease
during the next 12 months; however, the Company does not expect the change to have a material effect on results of operations or
financial position. A reconciliation of the beginning and ending amount of unrecognized tax benefits, including interest and penalties,
is as follows (dollars in thousands):
|
|
Fiscal Year
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, beginning of year
|
|
$
|
2,325
|
|
|
$
|
2,096
|
|
Changes for tax positions for prior years
|
|
|
5,973
|
|
|
|
269
|
|
Changes for tax positions for current year
|
|
|
934
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, end of year
|
|
$
|
9,232
|
|
|
$
|
2,325
|
|
The Company is involved in various
legal actions arising in the normal course of business. After taking into consideration legal counsels’ evaluation of such
actions, management is of the opinion that their outcome will not have a material effect on the Company’s consolidated financial
statements. There were no liabilities recorded at January 31, 2019 or 2018 as the Company did not believe that there was a probable
and reasonably estimable loss associated with any legal contingencies.
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 tables summarize segment and other results and
assets (amounts in thousands):
|
|
Fiscal Year
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
485,885
|
|
|
$
|
452,153
|
|
|
$
|
453,799
|
|
Refined coal
1
|
|
|
786
|
|
|
|
433
|
|
|
|
—
|
|
Total net sales and revenue
|
|
$
|
486,671
|
|
|
$
|
452,586
|
|
|
$
|
453,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
43,856
|
|
|
$
|
51,509
|
|
|
$
|
71,039
|
|
Refined coal
|
|
|
(13,641
|
)
|
|
|
(7,348
|
)
|
|
|
—
|
|
Total gross profit
|
|
$
|
30,215
|
|
|
$
|
44,161
|
|
|
$
|
71,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
31,545
|
|
|
$
|
38,352
|
|
|
$
|
59,447
|
|
Refined coal
|
|
|
(15,204
|
)
|
|
|
(10,021
|
)
|
|
|
—
|
|
Corporate and other
|
|
|
(1,753
|
)
|
|
|
(2,938
|
)
|
|
|
(2,536
|
)
|
Total income before income taxes
|
|
$
|
14,588
|
|
|
$
|
25,393
|
|
|
$
|
56,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
(2,343
|
)
|
|
$
|
3,245
|
|
|
$
|
(18,259
|
)
|
Refined coal
|
|
|
24,674
|
|
|
|
15,168
|
|
|
|
—
|
|
Corporate and other
|
|
|
591
|
|
|
|
1,106
|
|
|
|
866
|
|
Total benefit (provision) for income taxes
|
|
$
|
22,922
|
|
|
$
|
19,519
|
|
|
$
|
(17,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
23,346
|
|
|
$
|
35,880
|
|
|
$
|
33,950
|
|
Refined coal
|
|
|
10,148
|
|
|
|
5,628
|
|
|
|
—
|
|
Corporate and other
|
|
|
(1,849
|
)
|
|
|
(1,802
|
)
|
|
|
(1,617
|
)
|
Net income attributable to REX common shareholders
|
|
$
|
31,645
|
|
|
$
|
39,706
|
|
|
$
|
32,333
|
|
1
Sales in the refined
coal segment are recorded net of the cost of coal as the Company purchases the coal feedstock from the customer to which refined
coal is sold.
|
|
Fiscal Year
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products, ethanol and by-products segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol
|
|
$
|
368,319
|
|
|
$
|
359,239
|
|
|
$
|
358,349
|
|
Dried distillers grains
|
|
|
85,417
|
|
|
|
63,120
|
|
|
|
71,204
|
|
Non-food grade corn oil
|
|
|
20,097
|
|
|
|
21,195
|
|
|
|
18,518
|
|
Modified distillers grains
|
|
|
11,950
|
|
|
|
8,525
|
|
|
|
5,326
|
|
Other
|
|
|
102
|
|
|
|
74
|
|
|
|
402
|
|
Total sales
|
|
$
|
485,885
|
|
|
$
|
452,153
|
|
|
$
|
453,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products, refined coal segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refined coal
|
|
$
|
786
|
|
|
$
|
433
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
2,460
|
|
|
$
|
878
|
|
|
$
|
212
|
|
Refined coal
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Corporate and other
|
|
|
1,054
|
|
|
|
678
|
|
|
|
222
|
|
Total interest income
|
|
$
|
3,514
|
|
|
$
|
1,556
|
|
|
$
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
22,004
|
|
|
$
|
20,037
|
|
|
$
|
19,464
|
|
Refined coal
|
|
|
2,784
|
|
|
|
1,385
|
|
|
|
—
|
|
Corporate and other
|
|
|
40
|
|
|
|
40
|
|
|
|
55
|
|
Total depreciation expense
|
|
$
|
24,828
|
|
|
$
|
21,462
|
|
|
$
|
19,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
1,536
|
|
|
$
|
3,232
|
|
|
$
|
6,144
|
|
Refined coal
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Corporate and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total equity in income of unconsolidated affiliates
|
|
$
|
1,536
|
|
|
$
|
3,232
|
|
|
$
|
6,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain on sale of investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
—
|
|
|
$
|
(13
|
)
|
|
$
|
192
|
|
Refined coal
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Corporate and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total gain on sale of investment
|
|
$
|
—
|
|
|
$
|
(13
|
)
|
|
$
|
192
|
|
|
|
January 31,
|
|
Assets:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
393,691
|
|
|
$
|
384,997
|
|
Refined coal
|
|
|
8,625
|
|
|
|
12,165
|
|
Corporate and other
|
|
|
69,077
|
|
|
|
81,702
|
|
Total assets
|
|
$
|
471,393
|
|
|
$
|
478,864
|
|
|
|
|
|
|
|
|
|
|
Additions to other long lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
—
|
|
|
$
|
796
|
|
Refined coal
|
|
|
—
|
|
|
|
—
|
|
Corporate and other
|
|
|
—
|
|
|
|
—
|
|
Total additions to other long lived assets
|
|
$
|
—
|
|
|
$
|
796
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
10,697
|
|
|
$
|
24,017
|
|
Refined coal
|
|
|
78
|
|
|
|
—
|
|
Corporate and other
|
|
|
—
|
|
|
|
—
|
|
Total additions to property and equipment
|
|
$
|
10,775
|
|
|
$
|
24,017
|
|
All of the Company’s
ethanol and distillers grains are sold in the domestic market. The Company’s customers make all decisions with regard to
where products they purchase from the Company are distributed.
|
17.
|
QUARTERLY UNAUDITED INFORMATION
|
The following tables set forth
the Company’s net sales and revenue, gross profit, net income and net income per share (basic and diluted) for each quarter
during the last two fiscal years. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.
|
|
Quarters Ended
(In Thousands, Except Per Share Amounts)
|
|
|
|
April 30,
|
|
|
July 31,
|
|
|
October 31,
|
|
|
January 31,
|
|
|
|
2018
|
|
|
2018
|
|
|
2018
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue
|
|
$
|
120,820
|
|
|
$
|
128,757
|
|
|
$
|
123,750
|
|
|
$
|
113,344
|
|
Gross profit
|
|
|
10,851
|
|
|
|
9,399
|
|
|
|
7,747
|
|
|
|
2,218
|
|
Net income
|
|
|
10,352
|
|
|
|
10,490
|
|
|
|
13,769
|
|
|
|
2,899
|
|
Net income attributable to REX common shareholders
|
|
|
9,496
|
|
|
|
9,217
|
|
|
|
11,875
|
|
|
|
1,057
|
|
Basic and diluted net income per share attributable to REX common shareholders
|
|
$
|
1.45
|
|
|
$
|
1.43
|
|
|
$
|
1.86
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
(In Thousands, Except Per Share Amounts)
|
|
|
|
|
April 30,
|
|
|
|
July 31,
|
|
|
|
October 31,
|
|
|
|
January 31,
|
|
|
|
|
2017
|
|
|
|
2017
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue
|
|
$
|
113,143
|
|
|
$
|
108,744
|
|
|
$
|
121,164
|
|
|
$
|
109,535
|
|
Gross profit
|
|
|
12,489
|
|
|
|
10,781
|
|
|
|
14,867
|
|
|
|
6,024
|
|
Net income
|
|
|
5,612
|
|
|
|
4,171
|
|
|
|
14,994
|
|
|
|
20,135
|
|
Net income attributable to REX common shareholders
|
|
|
4,544
|
|
|
|
2,941
|
|
|
|
13,168
|
|
|
|
19,053
|
|
Basic and diluted net income per share attributable to REX common shareholders (a)
|
|
$
|
0.69
|
|
|
$
|
0.45
|
|
|
$
|
2.00
|
|
|
$
|
2.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a)
|
The total of the quarterly net income per share amounts do not equal the annual net income per
share amounts due to the impact of varying amounts of shares outstanding during the year.
|
During fiscal years 2018, 2017
and 2016, One Earth and NuGen purchased approximately $176.8 million, $154.5 million and $148.5 million, respectively, of corn
from minority equity investors. The Company had amounts payable to related parties for corn purchases of approximately $1.9 million
and $0.9 million at January 31, 2019 and 2018, respectively.
During fiscal years 2018 and
2017, the Company recognized commission expense of approximately $0.8 million and approximately $1.8 million, respectively, 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 $1.6 million and approximately $1.5 million
at January 31, 2019 and 2018, respectively.
During fiscal years 2018 and
2017, the Company received approximately $0.5 million and approximately $0.9 million, respectively, in capital contributions from
the minority investor in the refined coal entity.
******