Ethanol and By-Products
At October 31, 2021, we had investments in three ethanol limited liability
companies, in two of which we have a majority ownership interest. The following
table is a summary of ethanol gallons shipped at our plants:
Trailing 12 REX's Current Effective
Months Current Ownership of
Ethanol Effective Trailing 12
Gallons Ownership Months Ethanol
Entity Shipped Interest Gallons Shipped
One Earth Energy, LLC 137.9 M 75.8% 104.5 M
NuGen Energy, LLC 137.8 M 99.7% 137.4 M
Big River Resources, LLC:
Big River Resources W Burlington, LLC 110.3 M 10.3% 11.4 M
Big River Resources Galva, LLC 116.0 M 10.3% 11.9 M
Big River United Energy, LLC 125.3 M 5.7% 7.1 M
Big River Resources Boyceville, LLC 63.6 M 10.3% 6.6 M
Total 690.9 M 278.9 M
Our ethanol operations and the results thereof are highly dependent on commodity
prices, especially prices for corn, ethanol, distillers grains, non-food grade
corn oil and natural gas and availability of corn. As a result of price
volatility for these commodities, our operating results can fluctuate
substantially. The price and availability of corn is subject to significant
fluctuations depending upon several factors that affect commodity prices in
general, including crop conditions, the amount of corn stored on farms, weather,
federal policy and foreign trade. Because the market prices of ethanol and
distillers grains are not always directly related to corn prices (for example,
demand for crude and other energy and related prices, the export market demand
for ethanol and distillers grains, soybean meal prices, and the results of
federal policy decisions and trade negotiations can impact ethanol and
distillers grains prices), at times ethanol and distillers grains prices may not
follow movements in corn prices and, in an environment of higher corn prices or
lower ethanol or distillers grains prices, reduce the overall margin structure
at the plants. As a result, at times, we may operate our plants at negative or
minimally positive operating margins.
We expect our ethanol plants to produce approximately 2.8 gallons of denatured
ethanol for each bushel of grain processed in the production cycle. We refer to
the actual gallons of denatured ethanol produced per bushel of grain processed
as the realized yield. We refer to the difference between the price per gallon
of ethanol and the price per bushel of grain (divided by the realized yield) as
the "crush spread". Should the crush spread decline, it is possible that our
ethanol plants will generate operating results that do not provide adequate cash
flows for sustained periods of time. In such cases, production at the ethanol
plants may be reduced or stopped altogether in order to minimize variable costs
at individual plants.
We attempt to manage the risk related to the volatility of commodity prices by
utilizing forward grain purchase, forward ethanol, distillers grains and corn
oil sale contracts and commodity futures
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agreements, as management deems appropriate. We attempt to match quantities of
these sale contracts with an appropriate quantity of grain purchase contracts
over a given period of time when we can obtain an adequate gross margin
resulting from the crush spread inherent in the contracts we have executed.
However, the market for future ethanol sales contracts generally lags the spot
market with respect to ethanol price. Consequently, we generally execute fixed
price ethanol contracts for no more than four months into the future at any
given time and we may lock in our corn or ethanol price without having a
corresponding locked in ethanol or corn price for short durations of time. As a
result of the relatively short period of time our fixed price contracts cover,
we generally cannot predict the future movements in our realized crush spread
for more than four months; thus, we are unable to predict the likelihood or
amounts of future income or loss from the operations of our ethanol facilities.
We utilize derivative financial instruments, primarily exchange traded commodity
future contracts, in conjunction with certain of our grain procurement
activities.
Refined Coal
On August 10, 2017, we purchased the entire ownership interest of an entity that
owns a refined coal facility, along with a minority partner, for approximately
$12.0 million. We own 95.35% of the entity. We began operating the refined coal
facility immediately after the acquisition. We expect that the revenues from the
sale of refined coal produced in the facility will be subsidized by federal
production tax credits until November 18, 2021, subject to meeting qualified
emissions reductions as governed by Section 45 of the Internal Revenue Code. In
order to maintain compliance with Section 45 of the Internal Revenue Code, we
were required to test the effectiveness of our process with respect to emissions
reductions every six months through an independent laboratory. Annually, the IRS
publishes the amount of federal income tax credit earned per ton of refined coal
produced and sold. We expect to earn credits at the rate of approximately $7.38
per ton of refined coal produced and sold during calendar year 2021. The tax
credits were able to be earned for refined coal produced and sold by our
facility until November 18, 2021. Absent the tax credits, our refined coal
operations would not be profitable and we ceased operations of the facility on
November 18, 2021. As such, beginning in the third quarter of fiscal year 2021,
we are presenting the income from this operation within discontinued operations.
At the conclusion of the operations we are obligated to remove the equipment
from the site but do not expect the cost to exceed $250,000.
The refined coal facility is located at the site of a utility-owned electrical
generating power station, which is our refined coal operation's sole customer.
Refined coal production and sales vary depending on fluctuations in demand from
the site host utility, which generally changes based upon weather conditions in
the geographic markets, competing energy prices, lack of supplies and the state
of the local economy. We contracted with an experienced third party to operate
and maintain the refined coal facility and to provide us with management
reporting and operating data as required. We do not have any employees on site
at the refined coal facility.
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Future Energy
During fiscal year 2013, we entered into a joint venture with Hytken HPGP, LLC
("Hytken") to file and defend patents for eSteam technology relating to heavy
oil and oil sands production methods, and to commercially exploit the technology
to generate license fees, royalty income and development opportunities. The
patented technology is an enhanced method of heavy oil recovery involving zero
emissions downhole steam generation. We own 60% and Hytken owns 40% of the
entity named Future Energy, LLC ("Future Energy").
We have agreed to fund direct patent expenses relating to patent applications
and defense, annual annuity fees and maintenance on a country by country basis,
with the right to terminate funding and transfer related patent rights to
Hytken. We have funded all costs relating to new intellectual property,
consultants, research and development, and equipment purchases with respect to
the proposed commercialization stage of the technology. To date, we have paid
and expensed approximately $2.5 million cumulatively to purchase our ownership
interest and fund patent and other expenses. We have not yet tested or proven
the commercial feasibility of the technology.
Critical Accounting Policies and Estimates
During the three months ended October 31, 2021, we did not change any of our
critical accounting policies as disclosed in our 2020 Annual Report on Form 10-K
as filed with the Securities and Exchange Commission on April 12, 2021.
Fiscal Year
All references in this report to a particular fiscal year are to REX's fiscal
year ended January 31. For example, "fiscal year 2021" means the period February
1, 2021 to January 31, 2022.
Results of Operations
Trends and Uncertainties
In recent years, operating results in our ethanol and by-products business have
been, at times affected by a weak margin environment including such factors as
higher costs for corn, including increased basis over index pricing, lower
availability of local corn, lower ethanol demand and the EPA granting small
refiner waivers.
During the early months of 2020, COVID-19 spread into the United States and
other countries. In an effort to contain the spread of this virus, there were
various government mandated restrictions, in addition to voluntary privately
implemented restrictions, including limiting public gatherings, retail store
closures, restrictions on employees working and the quarantining of people who
may have been exposed to the virus. This led to reduced demand for gasoline and
ethanol, which consequently resulted in historically low ethanol pricing. As a
result, we idled our NuGen and One Earth ethanol plants in March of 2020. In May
of 2020, businesses and other activities slowly began to reopen, which led to an
increase in demand for gasoline and ethanol, and in related prices. As a result,
we resumed production operations at the One Earth ethanol plant in late May of
2020 and at NuGen in late June of 2020. In addition, actions by the
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Federal Reserve related to the COVID-19 outbreak, reduced interest rates. Given
the amount of cash and short-term investments we have, this has reduced our
interest income and could continue in future periods, depending on the length of
time interest rates remain at these levels. The impacts of the COVID-19 outbreak
continues to evolve and the duration and impact of the outbreak remains
uncertain. We did not incur significant disruptions in our business operations
from COVID-19 for the three and nine months ended October 31, 2021.
Congress passed the CARES Act in March 2020, which provided the United States
Department of Agriculture ("USDA") with additional funding from the Commodity
Credit Corporation. The USDA is using this additional funding to provide direct
payments to farmers, including farmers that we purchase corn from. Such direct
payments to farmers could cause further delays in marketing decisions.
Consequently, this could reduce the supply of available corn and could result in
a price increase. In addition, China has been purchasing large quantities of
corn, which has led to higher prices for corn. We have experienced an increase
in the local basis price paid for corn over the Chicago Board of Trade prices
for corn during the first nine months of fiscal year 2021.
Renewable Fuel Standard II ("RFS II"), established in October 2010, has been an
important factor in the growth of ethanol usage in the United States. When it
was originally established by Congress, RFS II required the volume of
"conventional" or corn derived ethanol to be blended with gasoline to increase
each year until it reached 15.0 billion gallons in 2015 and was to remain at
that level through 2022. There are no established congressional target volumes
beginning in 2023. The EPA has the authority to waive the biofuel mandate, in
whole or in part, if there is inadequate domestic renewable fuel supply or the
requirement severely harms the domestic economy or environment. On December 19,
2019, the EPA announced the 2020 renewable volume obligation for conventional
ethanol, which met the 15.0 billion gallons congressional target. The EPA has
missed its deadline and has not yet released a draft renewable volume obligation
rule for the 2021 volumes. Proposed 2022 volumes from the EPA were due by
November 30, 2021, but have not yet been released. The EPA has recently proposed
giving all obligated parties more time to prove compliance with the 2020 and
2021 biofuel blending mandates. The EPA is also proposing to change the way
subsequent years' RFS compliance deadlines are determined.
On April 15, 2020, five state Governors sent a letter to the EPA requesting a
general waiver of the RFS II requirements due to the drop in demand caused by
COVID-19 travel restrictions. On October 21, 2020, 15 U.S. Senators sent a
letter to the EPA requesting a general waiver of the RFS II requirements to
reduce the 2021 renewable volume obligation, citing the reduced demand for fuels
due to COVID-19. There have been additional petitions for waivers filed based
upon COVID-19 restrictions.
RFS II requirements have been reduced through small refiner waivers (SRWs)
issued by the EPA. The SRWs issued have been for approximately 4.0 billion
gallons for 85 refinery exemptions for 2016 through 2018. In January 2020, the
U.S. Court of Appeals for the 10th Circuit overturned the EPA's granting of
refinery exemptions for three refineries on two separate grounds. Two of the
refiners appealed the decision to the U.S. Supreme Court. On June 25, 2021, the
Supreme Court of the United States ruled in favor of small refiners and reversed
a portion of the decision by the U.S Court of Appeals for the 10th Circuit on
SRWs. It only reversed the interpretation of "extension" of a waiver but not the
economic hardship portion of the decision. It remains unclear how the Supreme
Court decision may impact the EPA's handing of SRWs.
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Throughout fiscal year 2020 and the first nine months of fiscal year 2021,
operating results in our refined coal business were affected by inconsistent
utility plant demand (our only customer). As we are no longer able to earn tax
credits from refined coal beginning November 18, 2021, we have ceased operation
of the facility after that date and have classified it as discontinued
operations.
Should these trends and uncertainties continue, our future operating results are
likely to be negatively impacted.
30
Comparison of Three and Nine Months Ended October 31, 2021 and 2020
The following tables summarizes our results from operations (amounts in
thousands):
Three Months Ended Nine Months Ended
October 31, October 31,
2021 2020 2021 2020
Net sales and revenue $ 203,066 $ 124,217 $ 562,786 $ 246,694
Cost of sales 177,914 105,288 504,003 235,435
Gross profit $ 25,152 $ 18,929 $ 58,783 $ 11,259Income (loss) before income taxes $ 19,226 $ 16,349 $ 39,219 $ (577)
(Provision) benefit for income taxes $ (4,338) $ (5,037) $ (8,329) $ 444
Net income (loss) attributable to REX
common shareholders (continuing
operations) $ 13,326 $ 9,036 $ 26,305 $ (1,464)
Net income (loss) attributable to REX
common shareholders (discontinued
operations) $ 1,952 $ (195) $ 4,633 $ 922
The following table summarizes net sales and revenue by product group:
Three Months Ended Nine Months Ended
October 31, October 31,
2021 2020 2021 2020
Ethanol $ 161,598 $ 98,850 $ 441,657 $ 191,971
Dried distillers grains 28,717 20,916 91,408 45,314
Non-food grade corn oil 11,958 4,661 27,364 9,162
Modified distillers grains 2,930 562 7,157 1,228
Derivative financial instruments losses (2,144) (777) (4,907) (1,075)
Other
7 5 107 94
Total, continuing operations $ 203,066 $ 124,217 $ 562,786 $ 246,694Refined coal (discontinued operations) 1 $ 151 $ 34 $ 377 $ 134
1 Refined coal sales were recorded net of the cost of coal as the Company
purchased the coal feedstock from the customer to which the processed refined
coal was sold.
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The following table summarizes selected operating data:
Three Months Ended Nine Months Ended
October 31, October 31,
2021 2020 2021 2020
Average selling price per gallon of
ethanol (net of hedging) $ 2.31 $ 1.31 $ 2.12 $ 1.28
Gallons of ethanol sold (in millions) 69.0 74.6 207.9 149.4
Average selling price per ton of dried
distillers grains $ 184.85 $ 129.38 $ 200.02 $ 136.49Tons of dried distillers grains sold 155,356 161,666 456,996 331,990
Average selling price per pound of
non-food grade corn oil
$ 0.59 $ 0.24 $ 0.47 $ 0.25
Pounds of non-food grade corn oil sold
(in millions) 20.2 19.0 57.9 37.2
Average selling price per ton of
modified distillers grains $ 92.10 $ 56.68 $ 83.97 $ 52.44
Tons of modified distillers grains
sold 31,814 9,924 85,235 23,431
Average cost per bushel of grain $ 6.45 $ 3.28 $ 6.05 $ 3.57
Average cost of natural gas (per
MmBtu) $ 4.58 $ 2.09 $ 3.69 $ 2.87
Net sales and revenue in the quarter ended October 31, 2021 increased
approximately 63% compared to the prior year's third quarter. Net sales and
revenue in the first nine months of fiscal year 2021 increased approximately
128%. We had significantly lower production and sales volumes in our ethanol and
by-products business during the first nine months of fiscal year 2020, as
diminished local availability of corn at the NuGen facility, the effects of the
COVID-19 outbreak and lower ethanol pricing resulted in the idling of the NuGen
and One Earth ethanol plants in March of 2020. We resumed production operations
at One Earth in late May of 2020 and at NuGen in late June of 2020. Both of our
consolidated plants produced at or near capacity during the first nine months of
fiscal year 2021. In addition, stronger commodity pricing in the third quarter
of 2021 compared to 2020 was the primary contributor to an increase in sales
between the three month periods and an incremental contributor to the increase
in sales between the nine month periods.
Ethanol sales increased in the third quarter of fiscal year 2021 compared to the
third quarter of fiscal year 2020 as the average price per gallon sold increased
76%, offset slightly by an 8% decrease in gallons sold. Ethanol sales increased
in the first nine months of fiscal year 2021 compared to the first nine months
of fiscal year 2020 as the number of gallons sold increased 39% and the average
selling price per gallon increased 66% over the prior fiscal year. The increase
in the ethanol selling price resulted primarily from an increase in demand and
an increase in commodity prices.
Dried distillers grains sales increased in the third quarter of fiscal year 2021
compared to the third quarter of fiscal year 2020 as the average price per ton
sold increased 43%, offset slightly by a 4% decrease in tons sold. Dried
distillers grains sales increased in the first nine months of fiscal year 2021
compared to the first nine months of fiscal year 2020 as the number of tons sold
increased 38% and the average selling price per ton increased 47% over the prior
fiscal year. The increase in the dried distillers grains selling
32
price resulted primarily from increased demand and an increase in corn prices as
dried distillers grains prices often correlate with corn pricing.
Non-food grade corn oil sales increased in the third quarter of fiscal year 2021
compared to the third quarter of fiscal year 2020 as the number of pounds sold
increased 6% and the average selling price per pound increased 146% over the
prior year third quarter. Non-food grade corn oil sales increased in the first
nine months of fiscal year 2021 compared to the first nine months of fiscal year
2020 as the number of pounds sold increased 56% and the average selling price
per pound increased 88% over the prior year fiscal year. The increase in the
non-food grade corn oil selling price resulted primarily from an increase in
demand from the biodiesel industry.
Modified distillers grains sales increased in the third quarter of fiscal year
2021 compared to the third quarter of fiscal year 2020 as the number of tons
sold increased 221% and the average selling price per ton increased 62% over the
prior year third quarter. Modified distillers grains sales increased in the
first nine months of fiscal year 2021 compared to the first nine months of
fiscal year 2020 as the number of tons sold increased 264% and the average
selling price per ton increased 60% over the prior year fiscal year. The
increase in the modified distillers grains selling price resulted primarily from
an increase in corn prices and increased local demand.
Losses on derivative financial instruments, included in net sales and revenue,
of approximately $2.1 million in the third quarter of fiscal year 2021 related
to our risk management activities and were impacted by the increase in ethanol
prices during that quarter. There were losses on derivative financial
instruments of approximately $0.8 million during the third quarter of fiscal
year 2020. Losses on derivative financial instruments, included in net sales and
revenue, were approximately $4.9 million in the first nine months of fiscal year
2021 compared to $1.1 million in the first nine months of fiscal year 2020.
Gross profit for the third quarter of fiscal year 2021 increased approximately
$6.2 million compared to the prior year's third quarter. This was primarily
caused by significantly increased commodity prices during the third quarter of
fiscal year 2021 compared to the reduced levels during the third quarter of
fiscal year 2020 discussed above. The crush spread for the third quarter of
fiscal year 2021 was $0.11 per gallon of ethanol sold compared to $0.19 per
gallon of ethanol sold during the third quarter of fiscal year 2020. The selling
price per gallon of ethanol sold increased 76% for the third quarter of fiscal
year 2021 compared to the third quarter of fiscal year 2020. There was a 97%
increase in the cost per bushel of corn during the same periods. During the
third quarter of fiscal year 2020 the impact from the COVID-19 outbreak and
lower gasoline pricing resulted in lower ethanol and corn pricing which severely
impacted operations.
Grain accounted for approximately 84% ($148.7 million) of our cost of sales
during the third quarter of fiscal year 2021 compared to approximately 79%
($83.4 million) during the third quarter of fiscal year 2020. Natural gas
accounted for approximately 5% ($8.1 million) of our cost of sales during the
third quarter of fiscal year 2021 compared to approximately 4% ($4.0 million)
during the third quarter of fiscal year 2020. The grain and natural gas
expenditure increases were primarily attributable to the higher costs of both
corn and natural gas with stable production levels in the third quarter of
fiscal year 2021 compared to the third quarter of fiscal year 2020.
33
Gross profit for the first nine months of fiscal year 2021 increased
approximately $47.5 million compared to the first nine months of the prior year.
This was primarily the result of significantly higher production and sales
volumes during the first nine months of fiscal year 2021 compared to the reduced
levels during the first nine months of fiscal year 2020 discussed above. The
crush spread for the first nine months of fiscal year 2021 was approximately
$0.06 per gallon of ethanol sold compared to $0.05 per gallon of ethanol sold
during the first nine months of fiscal year 2020. The selling price per gallon
of ethanol sold increased 66% for the first nine months of fiscal year 2021
compared to the first nine months of fiscal year 2020, slightly below the 69%
increase in the cost per bushel of corn during the same periods. In addition,
the higher sales volumes discussed above and the higher prices of by-products
contributed to the increase in gross profit during the first nine months of
fiscal year 2021 compared to the first nine months of fiscal year 2020. During
the first nine months of fiscal year 2020, the impact from the COVID-19 outbreak
and lower gasoline pricing resulted in lower ethanol and corn prices, which
severely impacted operations and resulted in the consolidated ethanol plants
being idled for a portion of the year and the lower gross profit.
Grain accounted for approximately 85% ($427.0 million) of our cost of sales
during the first nine months of fiscal year 2021 compared to approximately 76%
($178.3 million) during the first nine months of fiscal year 2020. Natural gas
accounted for approximately 4% ($18.0 million) of our cost of sales during the
first nine months of fiscal year 2021 compared to approximately 5% ($11.3
million) during the first nine months of fiscal year 2020. The grain increase
was primarily attributable to the higher production levels in the first nine
months of fiscal year 2021 compared to the reduced production levels in the
first nine months of fiscal year 2020 and the significant rise in corn prices
during the first nine months of fiscal year 2021. The natural gas unit price
increase was offset by gains realized on the sales of unused natural gas during
the first quarter of fiscal year 2021. The sales were a result of unusual and
significant increases in the spot price of natural gas during portions of the
first quarter of fiscal year 2021 which resulted in an opportunity for us to
sell forward natural gas purchases at a gain.
We attempt to match quantities of ethanol, distillers grains and non-food grade
corn oil sales contracts with an appropriate quantity of grain purchase
contracts over a given time period when we can obtain a satisfactory margin
resulting from the crush spread inherent in the contracts we have executed.
However, the market for future ethanol sales contracts generally lags the spot
market with respect to ethanol price. Consequently, we generally execute fixed
price sales contracts for no more than four months into the future at any given
time and we may lock in our corn or ethanol price without having a corresponding
locked in ethanol or corn price for short durations of time. As a result of the
relatively short period of time our contracts cover, we generally cannot predict
the future movements in our realized crush spread for more than four months.
SG&A expenses were approximately $6.3 million for the third quarter of fiscal
year 2021, significantly higher than the approximately $4.3 million of expenses
for the third quarter of fiscal year 2020. SG&A expenses were approximately
$22.4 million for the first nine months of fiscal year 2021, significantly
higher than the approximately $13.4 million of expenses for the first nine
months of fiscal year 2020. A majority of the increase results from higher
shipping costs as more sales contracts provided for shipping to be paid by us in
the first nine months of fiscal year 2021 compared to the first nine months of
fiscal year 2020. In addition, there was an increase in incentive compensation
associated with higher profitability in fiscal year 2021.
34
During the third quarter of fiscal year 2021, we recognized income of
approximately $0.3 million compared to income of approximately $1.2 million for
the third quarter of fiscal year 2020, from our equity investment in Big River.
We recognized income of approximately $2.8 million during the first nine months
of fiscal year 2021 compared to income of approximately $0.2 million during the
first nine months of fiscal year 2020. Big River has interests in four ethanol
production plants that shipped approximately 415 million gallons in the trailing
twelve months ended October 31, 2021 and has an effective ownership of ethanol
gallons shipped for the same period of approximately 359 million gallons. Big
River's operations also include agricultural elevators. Due to the inherent
volatility of commodity prices within the ethanol industry, we cannot predict
the likelihood of future operating results from Big River being similar to
historical results.
Interest and other income was approximately $35,000 for the third quarter of
fiscal year 2021 versus approximately $537,000 for the third quarter of fiscal
year 2020. Interest and other income was approximately $117,000 for the first
nine months of fiscal year 2021 versus approximately $1.4 million for the first
nine months of fiscal year 2020. Interest income decreased as yields on our
excess cash decreased in the first nine months of fiscal year 2021 compared to
the first nine months of fiscal year 2020.
As a result of the foregoing, income before income taxes was approximately $19.2
million for the third quarter of fiscal year 2021 versus approximately $16.3
million for the third quarter of fiscal year 2020. Income before income taxes
was approximately $39.2 million versus a loss of approximately $0.6 million for
the first nine months of fiscal years 2021 and 2020, respectively.
Prior to the third quarter of fiscal year 2021, the Company determined that
small changes in estimated "ordinary" income would result in significant changes
in the estimated annual effective tax rate. Thus, the Company used a discrete
effective tax rate method to calculate the provision or benefit for income taxes
for the three and nine months ended October 31, 2020. Beginning on November 18,
2021, we are unable to earn tax credit related to the refined coal business, and
as such, have ceased operation of that business. As earning these credits is
what had caused the significant changes in the estimated annual effective tax
rate from small changes in estimated "ordinary" income and we have now
classified the refined coal business as discontinued operations, we have
returned to using the annual effective tax rate method to calculate the
provision or benefit for income taxes from continuing operations beginning in
the three and nine month periods ending October 31, 2021. Our income tax
provision from continuing operations was approximately $4.3 million and
approximately $5.0 million for the three months ended October 31, 2021 and 2020,
respectively, and was approximately $8.3 million and a benefit of approximately
$0.4 million for the nine months ended October 31, 2021 and 2020, respectively.
We had a slight benefit in the prior year nine month period based upon pre-tax
losses from continuing operations for that period versus pre-tax income from
continuing operations in the current period. Our income tax provision for the
third quarter of fiscal year 2020 includes a provision of approximately $1.8
million related to reversing previously recognized tax benefits associated with
the lengthening of a net operating loss carryback allowed by the CARES Act as
the Company no longer had a year to date estimated taxable loss.
As a result of the foregoing, net income from continuing operations was
approximately $14.9 million for the third quarter of fiscal year 2021 compared
to approximately $11.3 million for the third quarter of fiscal year 2020. Net
income from continuing operations was approximately $30.9 million for
35
the first nine months of fiscal year 2021 compared to net loss of approximately
$0.1 million for the first nine months of fiscal year 2020.
Income from continuing operations related to noncontrolling interests was
approximately $1.6 million for the third quarter of fiscal year 2021 compared to
$2.3 million for the third quarter of fiscal years 2020. Income from continuing
operations related to noncontrolling interests was approximately $4.6 million
for the nine months of fiscal year 2021 compared to approximately $1.3 million
for the first nine months of fiscal years 2020. These amounts represent the
other owners' share of the income or loss of NuGen and One Earth. Noncontrolling
interests related to the refined coal entity is included in discontinued
operations.
As a result of the foregoing, net income attributable to REX common shareholders
from continuing operations for the third quarter of fiscal year 2021 was
approximately $13.3 million, an increase of approximately $4.3 million from net
income attributable to REX common shareholders from continuing operations of
approximately $9.0 million for the third quarter of fiscal year 2020. Net income
attributable to REX common shareholders from continuing operations for the first
nine months of fiscal year 2021 was approximately $26.3 million, an increase of
approximately $27.8 million from net loss attributable to REX common
shareholders from continuing operations of approximately $1.5 million for the
first nine months of fiscal year 2020.
The Company ceased operation of its refined coal business as tax credits could
no longer be earned on its operation beginning November 18, 2021. Beginning in
the third quarter of fiscal year 2021, the results of the operation of the
refined coal business will be recognized as discontinued operations. The refined
coal business operated at a loss but generated tax credits that normally
exceeded the operating loss. Net income attributable to REX common shareholders
from discontinued operations, net of tax, for the third quarter of fiscal year
2021 was approximately $2.0 million, an increase of $2.1 million from the net
loss attributable to REX common shareholder from discontinued operations, net of
tax, of approximately $0.2 million for the third quarter of fiscal year 2020.
Net income attributable to REX common shareholders from discontinued operations,
net of tax, for the first nine months of fiscal year 2021 was approximately $4.6
million, an increase of approximately $3.7 million from net income attributable
to REX common shareholders from discontinued operations, net of tax of
approximately $0.9 million for the first nine months of fiscal year 2020.
Through its refined coal operation, the Company earned production tax credits
pursuant to IRC Section 45. The credits can be used to reduce future income tax
liabilities for up to 20 years. The income tax benefit generated from
discontinued operations was $4.9 million and $1.0 million for the three months
ended October 31, 2021 and 2020 respectively. The income tax benefit generated
from discontinued operations was $12.6 million and $4.9 million for the nine
months ended October 31, 2021 and 2020, respectively.
Liquidity and Capital Resources
Net cash provided by operating activities was approximately $50.4 million for
the first nine months of fiscal year 2021, compared to approximately $21.5
million for the first nine months of fiscal year 2020. For the first nine months
of fiscal year 2021, cash was provided by net income from continuing operations
of approximately $30.9 million, adjusted for non-cash items of approximately
$21.8 million, which
36
consisted of depreciation, amortization of operating lease right-of-use assets,
income from equity method investments, interest income from short-term
investments, the deferred income tax provision and stock based compensation
expense. We received dividends from Big River of approximately $1.5 million
during the first nine months of fiscal year 2021. An increase in the balance of
accounts receivable used cash of approximately $20.3 million, primarily a result
of the timing of products shipped and the receipt of customer payments at One
Earth and NuGen in addition to higher sales and pricing. Inventories decreased
by approximately $7.7 million, primarily a result of the timing of receipt of
raw materials and the shipment of finished goods. A decrease in the balance of
other assets of approximately $1.9 million primarily relates to changes in the
carrying value of forward purchase contracts recorded at fair value. An increase
in the balance of refundable income taxes of approximately $0.3 million
primarily relates to estimated federal and state income tax payments made during
fiscal year 2021. An increase in the balance of accounts payable provided cash
of approximately $10.9 million, which was primarily a result of the timing of
inventory receipts and vendor payments. An increase in the balance of other
liabilities provided cash of approximately $2.8 million, which was primarily a
result of operating lease payments. Discontinued operations used cash from
operating activities of $6.4 million.
Net cash provided by operating activities was approximately $21.5 million for
the first nine months of fiscal year 2020. For the first nine months of fiscal
year 2020, cash was used by a net loss from continuing operations of
approximately $0.1 million, adjusted for non-cash items of approximately $17.0
million, which consisted of depreciation, amortization of operating lease
right-of-use assets, income from equity method investments, interest income from
short-term investments, the deferred income tax provision and stock based
compensation expense. We received dividends from Big River of approximately $2.5
million during the first nine months of fiscal year 2020. A decrease in the
balance of accounts receivable provided cash of approximately $0.5 million,
which was primarily a result of the timing of customer shipments. Inventories
decreased by approximately $14.0 million, which was primarily a result of the
timing of receipt of raw materials and shipments of finished goods. A decrease
in the balance of accounts payable used cash of approximately $4.4 million,
which was primarily a result of the timing of inventory receipts and vendor
payments. A decrease in the balance of other liabilities used cash of
approximately $5.0 million, which was primarily a result of payments of
operating leases and incentive compensation. Discontinued operations used cash
from operating activities of $2.2 million.
At October 31, 2021, working capital was approximately $260.7 million, compared
to approximately $228.0 million at January 31, 2021. The ratio of current assets
to current liabilities was 6.6 to 1 at October 31, 2021 and 8.4 to 1 at January
31, 2021.
Cash of approximately $10.4 million was provided by investing activities for the
first nine months of fiscal year 2021, compared to approximately $10.0 million
used during the first nine months of fiscal year 2020. During the first nine
months of fiscal year 2021, we had capital expenditures of approximately $4.2
million, primarily for improvements at the One Earth and NuGen facilities. We
expect capital expenditures to be in the range of approximately $3.0 million to
$5.0 million for the remainder of fiscal year 2021. During the first nine months
of fiscal year 2021, we purchased certificates of deposit of approximately $67.4
million and certificates of deposit of approximately $82.0 million matured. The
certificates of deposit had maturities of less than one year and we classified
as short-term investments. Depending on investment options available, we may
elect to retain the funds, or a portion thereof, in cash investments, short-term
investments or long-term investments.
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Cash of approximately $10.0 million was used in investing activities for the
first nine months of fiscal year 2020. During the first nine months of fiscal
year 2020, we had capital expenditures of approximately $6.6 million, primarily
for the purchase of land at One Earth Energy. During the first nine months of
fiscal year 2020, we purchased certificates of deposit (classified as short-term
investments) of approximately $68.2 million. During the first nine months of
fiscal year 2020, certificates of deposit (classified as short-term investments)
of approximately $65.3 million matured.
Cash of approximately $7.9 million was used in financing activities for the
first nine months of fiscal year 2021, compared to approximately $18.3 million
for the first nine months of fiscal year 2020. During the first nine months of
fiscal year 2021, we used cash of approximately $6.6 million to purchase
approximately 84,099 shares of our common stock in open market transactions. We
also made payments of approximately $1.5 million to noncontrolling interests
holders.
Cash of approximately $18.3 million was used in financing activities for the
first nine months of fiscal year 2020 as of which approximately $18.1 million
was used to purchase approximately 295,000 shares of our common stock in open
market transactions.
We are investigating various uses for our excess cash and short-term
investments. We have historically had a stock buyback program and during the
fiscal 2021 third quarter completed a 500,000 share buyback authorization from
the Board of Directors and obtained authorization to repurchase an additional
500,000 shares. From the new authorization, we still are authorized to purchase
approximately 449,000 shares. We also plan to seek and evaluate investment
opportunities, including ethanol and/or energy related, carbon capture related,
agricultural or other ventures we believe fit our investment criteria in
addition to investing in highly liquid short-term securities.
We are working with the University of Illinois to explore the development of a
carbon sequestration project to be located near the One Earth ethanol plant. The
University of Illinois has received a United States Department of Energy award
through the CarbonSAFE program, and, will evaluate the greenhouse gas storage
potential by drilling a test well and performing seismic surveys. The 2-D
seismic survey has been completed and the data is being processed. We also plan
to do 3-D seismic survey testing which will be more involved as it will be done
on more land and requires the running of linear grids across the property after
receiving permission from the landowners. A permit for drilling a test well has
been received from the Illinois Department of Natural Resources and the drilling
has commenced. We will need to do extensive testing, modeling, and computer
simulation to predict the behavior of the carbon dioxide after it is injected
into the test well. Further work and research is needed to determine if this
will be a feasible location for carbon sequestration and storage.
Forward-Looking Statements
This Form 10-Q contains or may contain forward-looking statements as defined in
the Private Securities Litigation Reform Act of 1995. Such statements can be
identified by use of forward-looking terminology such as "may," "expect,"
"believe," "estimate," "anticipate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. Readers are cautioned that
there are risks and uncertainties that could cause actual events or results to
differ materially from those referred to in such forward-looking statements.
These risks and uncertainties include the risk factors set forth from time to
time in the Company's filings with the Securities and Exchange Commission and
include among other things: the effect of pandemics such as COVID-19 on the
Company's business operations, including impacts on supplies, demand, personnel
and other factors, the impact of legislative and regulatory changes, the price
volatility and availability of corn, distillers grains, ethanol, non-food grade
corn oil, gasoline, natural gas, logistical delays, our ethanol and refined coal
plants operating efficiently and according to
38
forecasts and projections, changes in the international, national or regional
economies, weather, results of income tax audits, changes in income tax laws or
regulations and the effects of terrorism or acts of war. The Company does not
intend to update publicly any forward-looking statements except as required by
law. Other factors that could cause actual results to differ materially from
those in the forward-looking statements are set forth in Item 1A of the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2021
(File No. 001-09097).
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