REX AMERICAN RESOURCES CORPORATION Overview
We have been an investor in ethanol production facilities beginning in 2006 and
a refined coal production facility during the period from 2017 through
Our ethanol operations are highly dependent on commodity prices, especially prices for corn, ethanol, distillers grains, non-food grade corn oil and natural gas. 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 a number of factors that affect commodity prices in general, including crop conditions, weather, federal policy and foreign trade. Because the market price of ethanol is not always directly related to corn prices, at times ethanol prices may not follow movements in corn prices and, in an environment of higher corn prices or lower ethanol 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 at least 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 and natural gas purchase contracts, forward ethanol, distillers grains and non-food grade corn oil sale contracts and commodity futures and swap agreements as management deems appropriate. We attempt to match quantities of these sales 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 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 and swaps, in conjunction with certain of our grain procurement and commodity marketing activities.
We reported net income attributable to REX common shareholders of
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On
The Company is working with the
During fiscal year 2013, we entered into a joint venture to file and defend
patents for eSteam technology. The patented technology is an enhanced method of
heavy oil recovery involving zero emissions downhole steam generation. To date,
we have not successfully had a field operation nor demonstrated that the
technology is commercially feasible. We own 60% and our partner owns 40% of the
entity named
We plan to seek and evaluate various investment opportunities including ethanol
and/or energy related,
Ethanol Investments
In fiscal year 2006, we entered the ethanol industry by investing in several
entities organized to construct and subsequently operate, ethanol producing
plants. We are invested in three entities as of
REX's Current
Entity Ownership Interest
One Earth Energy, LLC 75.8%
NuGen Energy, LLC 99.7%
Big River Resources, LLC :
Big River Resources W Burlington, LLC 10.3%
Big River Resources Galva, LLC 10.3%
Big River United Energy, LLC 5.7%
Big River Resources Boyceville, LLC 10.3%
The three entities own a total of six ethanol production facilities, which in
aggregate shipped approximately 699 millions gallons of ethanol over the
twelve-month period ended
Trends and Uncertainties
Renewable Fuel Standard II ("RFS II"), established in
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RFS II. When it was originally established, 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
On
Due to the Russian-Ukraine conflict, there is a concern that the corn supply
will be adversely affected, with a potential impact on price and corn
availability in
Should these trends and uncertainties continue, our future operating results are likely to be negatively impacted.
Results of Operations
The following table summarizes our results from operations (amounts in
thousands):
Fiscal Year
2021 2020
Net sales and revenue $ 774,802 $ 372,664
Cost of sales 677,242 353,131
Gross profit $ 97,560 $ 19,533
Income before income taxes $ 75,838 $ 4,212
(Provision) benefit for income taxes $ (19,031 ) $ 546 Net income attributable to REX common shareholders (continuing operations)
$ 47,572 $ 1,880 Net income attributable to REX common shareholders (discontinued operations)$ 4,792 $ 1,121 26
The following table summarizes net sales and revenue by product group:
Fiscal Year
2021 2020
Ethanol $ 613,597 $ 284,191
Dried distillers grains 125,009 71,774
Non-food grade corn oil 38,852 15,066
Modified distillers grains 9,104 2,626Derivative financial instruments losses (12,109) (1,167) Other
349 174
Total, continuing operations $ 774,802 $ 372,664 Refined coal (discontinued operations) 1
1 Refined coal sales were recorded net of the cost of coal as the Company purchased the coal feedstock from the same customer to which the processed refined coal was sold.
The following table summarizes selected operating data:
Fiscal Year
2021 2020
Average selling price per gallon of ethanol (net of hedging)
277.8 217.1
Average selling price per ton of dried distillers grains $ 197.86 $ 144.73
Tons of dried distillers grains sold 631,818 495,915
Average selling price per pound of non-food grade corn oil
77.2 58.9
Average selling price per ton of modified distillers grains
106,864 40,521
Average cost per bushel of grain $ 5.99 $ 3.73
Average cost of natural gas (per MmBtu) $ 4.27 $ 3.00 Comparison of Fiscal Years 2021 and 2020 (Consolidated Results)
Continuing Operations
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Ethanol sales increased in fiscal year 2021 compared to fiscal year 2020 as the number of gallons increased 28% and the average selling price increased 70% over the same period. The increase in ethanol selling price resulted primarily from an increase in demand and an increase in commodity prices.
Dried distillers grains sales increased 74% in fiscal year 2021 compared to fiscal year 2020 as the number of tons sold increased 27% and the average selling price per ton increased 37%.
Non-food grade corn oil sales increased 158% as the number of pounds sold increased 31% and the average selling price increased 92% in fiscal year 2021 over the prior fiscal year.
Modified distillers grains sales increased 247% in fiscal year 2021 compared to fiscal year 2020 as the number of tons sold increased 164% and the average selling price per ton increased 31%.
Losses on derivative financial instruments were approximately
The volume increases discussed above were primarily a result of operating near full capacity in the current year versus fiscal 2020, which was negatively impacted by lower demand due to the COVID-19 outbreak, lower ethanol pricing, an oversupply of oil and diminished local supplies of corn from a poor 2019 harvest caused by localized weather conditions. These factors resulted in idling both of our consolidated 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 at the One Earth ethanol plant in May of 2020 and at the NuGen ethanol plant in June of 2020. In addition, stronger commodity pricing during fiscal year 2021 contributed to the increase in sales between the two fiscal years.
Gross Profit - Gross profit for fiscal year 2021 increased approximately
Grain accounted for approximately 84% (
We attempt to match quantities of ethanol, distillers grains and non-food grade corn oil sale contracts with an appropriate quantity of grain purchase contracts over a given period of time when we can obtain an adequate 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 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
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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. We utilize derivative financial instruments, primarily exchange traded commodity future contracts and swaps, in conjunction with our grain procurement and commodity marketing activities.
Selling, General and Administrative ("SG&A") Expenses - SG&A expenses for fiscal
year 2021 were approximately
Equity in Income of Unconsolidated Ethanol Affiliates - During fiscal years 2021
and 2020, we recognized income of approximately
We expect the operating experience of Big River to be generally consistent with the trends in crush spread margins described in the "Overview" section as Big River's results are dependent on the same key drivers as our other ethanol investments (ethanol, corn, dried distillers grains and natural gas pricing).
Interest and Other Income - Interest and other income for fiscal year 2021 was
approximately
Income from Continuing Operations Before Income Taxes - As a result of the
foregoing, income from continuing operations before income taxes was
approximately
Provision (Benefit) for Income Taxes - Our effective tax rate was a provision of
25.1% and a benefit of 13.0% for fiscal years 2021 and 2020, respectively. Our
effective rate is impacted by the noncontrolling interests of the companies we
consolidate, as we recognize 100% of their income or loss before income taxes
and noncontrolling interests. However, we only provide an income tax provision
or benefit for our portion of the subsidiaries' income or loss. During fiscal
years 2021 and 2020, our effective tax rate decreased 6.8% (approximately
Net Income from Continuing Operations - As a result of the foregoing, net income
from continuing operations was approximately
Noncontrolling Interests (continuing operations) - Income attributable to
noncontrolling interests (continuing operations) was approximately
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Net Income Attributable to REX Common Shareholders (continuing operations) - As
a result of the foregoing, net income attributable to REX common shareholders
(continuing operations) was approximately
Discontinued Operations
Results from discontinued operations include the consolidated financial results
of our refined coal business and certain administrative expenses. We acquired
the refined coal entity during the third quarter of fiscal year 2017. Our
refined coal facility was eligible to earn Section 45 production tax credits.
The Company ceased operation of its refined coal business as tax credits could
no longer be earned on its operation beginning
The refined coal entity sold one product, refined coal. We recorded sales in the
refined coal segment net of the cost of coal as we purchased the coal feedstock
from the customer to which refined coal is sold. Sales increased from
approximately
Gross loss was approximately
The benefit for income taxes was approximately
Loss related to noncontrolling interests was approximately
Net income attributable to REX common shareholders from discontinued operations,
net of tax, for fiscal year 2021 was approximately
Net Income
As a result of the foregoing, including results from both continuing and
discontinued operations, net income attributable to REX common shareholders was
approximately
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Comparison of Fiscal Years 2020 and 2019
See "Item 7 Management's discussion and Analysis of Financial Condition and
Results of Operations" in our Annual Report on Form 10-K for the year ended
Liquidity and Capital Resources
Our primary sources of cash have been income from operations. Our primary uses of cash have been capital expenditures at our ethanol plants, stock repurchases and contributions to fund refined coal operating losses.
Outlook - Our cash and short-term investments balance of approximately
We are investigating various uses of our excess cash. We have a stock buyback
program with an authorization level of an additional approximately 449,000
shares at
We expect capital expenditures to be in the range of approximately
Operating Activities - Net cash provided by operating activities was
approximately
Net cash provided by operating activities was approximately
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year 2020. Accounts receivable increased approximately
Investing Activities - Net cash provided by investing activities was
approximately
Net cash used in investing activities was approximately
Financing Activities - Net cash used in financing activities was approximately
Net cash used in financing activities was approximately
Based on our forecasts, which are primarily based on estimates of plant production, prices of ethanol, corn, distillers grains, non-food grade corn oil and natural gas as well as other assumptions, management believes that cash flow from operating activities together with working capital will be sufficient to meet One Earth's and NuGen's respective liquidity needs. However, if a material adverse change in the financial position of One Earth or NuGen should occur, or if actual sales or expenses are substantially different than what has been forecasted (because of the COVID-19 pandemic or other factors), One Earth's and NuGen's liquidity, and ability to fund future operating and capital requirements could be negatively impacted.
Approximately 2.8% of our net assets are restricted pursuant to the terms of
various loan agreements of our equity method investee as of
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Contractual Obligations and Commitments
In the ordinary course of business, we enter into agreements under which we are
legally obligated to make future cash payments. These agreements include
obligations related to purchasing inventory and leasing rail cars. Aggregate
minimum lease payments under the operating lease agreements for future fiscal
years as of
Seasonality and Quarterly Fluctuations
Our business is directly affected by the supply and demand for ethanol. The demand for ethanol typically increases during the spring and summer months and during holiday travel.
Critical Accounting Policies
We believe the application of the following accounting policies, which are important to our financial position and results of operations, require significant assumptions, judgments and estimates on the part of management. We base our assumptions, judgments, and estimates on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented in accordance with generally accepted accounting principles (GAAP). However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Further, if different assumptions, judgments and estimates had been used, the results could have been different and such differences could be material. For a summary of all of our accounting policies, including the accounting policies discussed below, see Note 1 to the Consolidated Financial Statements.
Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management's most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.
Revenue Recognition - We recognize 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.
Impairment of Long-Lived Assets -We review our long-lived assets, consisting of property and equipment, equity method investments and operating lease right-of-use assets, for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. We assess long-lived assets for impairment by first determining the forecasted, undiscounted cash flows the asset group is expected to generate. If this total is less than the carrying value of the asset, we will then determine the fair value of the asset group. An impairment loss would be recognized in the amount by which the carrying amount of the asset exceeded the fair value of the asset. Significant management judgement is required to determine the fair value of long-lived assets, which includes discounted cash flows. Such estimates could be significantly affected by future changes in market conditions. We recorded no impairment charges in fiscal years 2021, 2020, and 2019. During fiscal year 2020, we concluded the impact of the COVID-19 pandemic on our industry and our operating results was an indicator that impairment may exist related to certain of our long-lived assets. As a result, we performed a recoverability test for the One Earth and NuGen asset groups (the lowest level at which
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related cash flows can be identified) and determined that there was no impairment as the gross undiscounted future cash flows substantially exceeded the respective carrying values.
Income Taxes - Income taxes are recorded based on the current year amounts payable or refundable, as well as the consequences of events that give rise to deferred tax assets and liabilities based on differences in how those events are treated for tax purposes, net of valuation allowances. We base our estimate of deferred tax assets and liabilities on current tax laws and rates and other expectations about future outcomes. Changes in existing regulatory tax laws and rates and future business results may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. We have established valuation allowances for certain state net operating loss carryforwards. We assessed all available positive and negative evidence to determine whether we expect sufficient future taxable income will be generated to allow for the realization of existing federal deferred tax assets. We believe there is sufficient objectively verifiable income for management to conclude that it is more likely than not that the Company will utilize available federal deferred tax assets prior to their expiration. However, realization of these deferred tax assets is not certain. Changes in our current estimates for factors such as unanticipated market conditions and legislative developments could have a material effect on our ability to utilize deferred tax assets.
New Accounting Pronouncements
For information related to recent accounting pronouncements, see Note 1 of the Notes to the Consolidated Financial Statements.
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