Ethanol and By-Products
At October 31, 2022, 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 entity ownership interests at October 31, 2022:
Entity REX's Current
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%
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, foreign trade and international disruptions caused by wars or
conflicts. 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 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 purchase, forward ethanol, distillers grains and corn
oil sale contracts and commodity futures 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.
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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 and swap contracts, in conjunction with certain of our grain
procurement activities and commodity marketing activities.
Refined Coal
On August 10, 2017, we purchased, through a 95.35% owned subsidiary, for
approximately $12.0 million, the entire ownership interest of an entity that
owned a refined coal facility. We began operating the refined coal facility
immediately after the acquisition. As the plant was no longer eligible to
receive federal production tax credits beginning on November 18, 2021, we ceased
operations on that date. We began classifying this operation as discontinued
operations in the third quarter of fiscal 2021.
Carbon Sequestration
One Earth Sequestration, LLC, a wholly owned subsidiary of One Earth Energy, LLC
is in the exploratory stage of a carbon sequestration project with the
University of Illinois near the One Earth Energy ethanol plant. A test well has
been drilled and three-dimensional seismic testing has been performed. We have
applied for a Class VI injection well permit for three wells with the U.S.
Environmental Protection Agency ("EPA"). The geological model for predicting the
movement of CO2 injection and plume area has been completed to determine maximum
injection pressure, reservoir quality, and storage capacity for potential wells.
In addition, we have signed a construction contract to capture, dehydrate and
compress carbon to a state suitable for sequestration of carbon originating from
the One Earth Energy ethanol plant. We continue to complete documents required
from various government agencies. This is a highly technical project and may
require considerable time to obtain all approvals and to make continued
progress.
Future Energy
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 Future Energy, LLC, an Ohio limited liability company. We have no
current plans to operate this technology and are maintaining patents in limited
countries.
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Critical Accounting Policies and Estimates
During the three months ended October 31, 2022, we did not change any of our
critical accounting policies as disclosed in our 2021 Annual Report on Form 10-K
as filed with the Securities and Exchange Commission on April 6, 2022.
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 2022" means the period February
1, 2022 to January 31, 2023.
Results of Operations
Trends and Uncertainties
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. In recent
years, there has been much uncertainty on the enforcement of 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 required that it 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. In addition, under RFS II, a
small refiner that processes less than 75,000 barrels of oil per day can
petition the EPA for a waiver of their requirement to submit renewable
identification numbers ("RINs") for the oil they process. The EPA, through
consultation with the Department of Energy and the Department of Agriculture,
can grant the refiner a full or partial waiver, or deny the waiver. The EPA
issued 85 refinery exemptions for 2016-2018 compliance years, undercutting the
statutory renewable fuel volumes by a total of 4.0 billion gallons.
The EPA has finalized volumes for 2021 and 2022 and reduced the previously
finalized volumes for 2020 to account for challenges for that year including the
COVID-19 pandemic. The volumes for conventional biofuels are 13.8 billion
gallons and 15.0 billion gallons for 2021 and 2022, respectively. The 2020
volumes were reduced to 12.5 billion gallons, down from the previously finalized
15.0 billion gallons. In addition, the EPA at the same time denied all pending
applications for Small Refinery Exemptions ("SREs"). The EPA also added 250
million gallons of "supplemental obligation" to the 2022 proposed volumes and
stated its intent to add another 250 million gallons to 2023 to address the
remand of
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the 2016 waiver by the D.C Circuit. There are multiple legal challenges to how
the EPA has handled SREs and RFS II rulemakings.
On December 1, 2022, the EPA issued proposed Renewable Fuel Standard volume
obligations for calendar years 2023-2025. The proposed volumes from conventional
biofuels (which includes corn-based ethanol) were 15.0 billion gallons for 2023
and 15.25 billion gallons each for 2024 and 2025. They also proposed an
additional 250 million gallon supplemental obligation for 2023 to make good on
the shortfall from the 2014-2016 compliance years.
The USDA has estimated United States corn harvest in 2022 to be approximately
13.9 billion bushels, a decrease of 8% from the prior year. The corn harvest
near the NuGen Energy, LLC ethanol plant has been below average, which will
likely lead to increased corn cost and lower supply for that plant for the
upcoming year.
Due to the Russian-Ukraine conflict, corn and natural gas supplies worldwide
have been adversely affected, which has increased the prices for both
commodities and has impacted corn availability in the United States.
The recently enacted Inflation Reduction Act of 2022 could impact our business
by creating a new Clean Fuel Production Credit, section 45Z of the Internal
Revenue Code ("45Z"), that would be dependent on the level of greenhouse gas
emissions reduction for each gallon of ethanol produced and sold, available for
years 2025 to 2027. The Act also raises the carbon capture tax credit from $50
per metric ton to $85 per metric ton, under section 45Q of the Internal Revenue
Code ("45Q"). Taxpayers may elect to be treated as making a payment against tax
for 100% of the value of the 45Q credit ("direct pay") for the first five years,
starting with the year a qualifying carbon sequestration facility is placed in
service, but not beyond December 31, 2032. Companies may elect either the 45Q
credit or the 45Z credit in periods in which both tax credits are available.
Other potential impacts include (a) extending the biodiesel tax credit, which
could impact our renewable corn oil values, as this co-product serves as a
low-carbon feedstock for renewable diesel and biomass based diesel production;
(b) creating a new tax credit for sustainable aviation fuel; (c) funding biofuel
refueling infrastructure which could impact the availability of higher level
ethanol blended fuel; and (d) providing for production and purchase credits for
electric vehicles, which could impact the amount of internal combustion engines
on the road over time, and ultimately reduce the demand for gasoline, diesel
fuels and ethanol.
Should any of the trends and uncertainties mentioned above continue, our future
operating results could be impacted.
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Comparison of Three and Nine Months Ended October 31, 2022 and 2021
The following table summarizes our results from operations (amounts in
thousands):
Three Months Ended Nine Months Ended
October 31, October 31,
2022 2021 2022 2021
Net sales and revenue $ 220,277 $ 203,066 $ 654,833 $ 562,786
Cost of sales 208,941 177,914 615,001 504,003
Gross profit $ 11,336 $ 25,152 $ 39,832 $ 58,783
Income before income taxes $ 6,094 $ 19,226 $ 34,143 $ 39,219
Provision for income taxes $ (1,196) $ (4,338) $ (7,374) $ (8,329)
Net income attributable to REX
common shareholders (continuing
operations) $ 3,184 $ 13,326 $ 19,536 $ 26,305
Net income attributable to REX
common shareholders
(discontinued operations) - 1,952 - 4,633
Net income attributable to REX
common shareholders $ 3,184 $ 15,278 $ 19,536 $ 30,938
The following table summarizes net sales and revenue by product group (amounts
in thousands):
Three Months Ended Nine Months Ended
October 31, October 31,
2022 2021 2022 2021
Ethanol $ 165,135 $ 161,598 $ 502,404 $ 441,657
Dried distillers grains 38,009 28,717 104,167 91,408
Non-food grade corn oil 14,648 11,958 39,973 27,364
Modified distillers grains 2,477 2,930 9,288 7,157
Derivative financial instruments
gains (losses) 8 (2,144) (1,144) (4,907)
Other - 7 145 107
Total, continuing operations $ 220,277 $ 203,066 $ 654,833 $ 562,786
Refined coal (discontinued
operations) 1 $ - $ 151 $ - $ 3771 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,
2022 2021 2022 2021
Average selling price per gallon
of ethanol (net of hedging) $ 2.49 $ 2.31 $ 2.48 $ 2.12
Gallons of ethanol sold (in
millions) 66.3 69.0 202.1 207.9
Average selling price per ton of
dried distillers grains $ 230.29 $ 184.85 $ 232.51 $ 200.02
Tons of dried distillers grains
sold 165,052 155,356 448,016 456,996
Average selling price per pound
of non-food grade corn oil $ 0.74 $ 0.59 $ 0.70 $ 0.47
Pounds of non-food grade corn
oil sold (in millions) 19.8 20.2 57.1 57.9
Average selling price per ton of
modified distillers grains $ 116.49 $ 92.10 $ 120.23 $ 83.97
Tons of modified distillers
grains sold 21,264 31,814 77,253 85,235
Average cost per bushel of grain $ 7.52 $ 6.45 $ 7.28 $ 6.05
Average cost of natural gas (per
MmBtu)
$ 7.15 $ 4.58 $ 6.69 $ 3.69
Net sales and revenue in the quarter ended October 31, 2022 increased
approximately 8% compared to the prior year's third quarter. Net sales and
revenue in the first nine months ended October 31, 2022 increased approximately
16% compared to the first nine months of fiscal year 2021. Quantities sold at
our consolidated plants during the third quarter of fiscal year 2022 and the
first nine months of 2022 did not change significantly from the prior year
comparable periods. The increase in net sales and revenue was driven primarily
by stronger commodity pricing in the third quarter and first nine months of
2022.
Ethanol sales increased in the third quarter of fiscal year 2022 compared to the
third quarter of fiscal year 2021 as the average price per gallon sold increased
8%, offset partially by a slight decrease in gallons sold of 4%. Ethanol sales
increased in the first nine months of fiscal year 2022 compared to the first
nine months of fiscal year 2021 as the average price per gallon sold increased
17%, offset slightly by a decrease in gallons sold of 3%. The increase in the
ethanol selling price resulted primarily from an increase in commodity prices.
Dried distillers grains sales increased in the third quarter of fiscal year 2022
compared to the third quarter of fiscal year 2021 as the average price per ton
sold increased 25%, as well as a 6% increase in tons sold. Dried distillers
grains sales increased in the first nine months of fiscal year 2022 compared to
the first nine months of fiscal year 2021 as the average price per ton sold
increased 16%, offset slightly by a 2% decrease in tons sold. The increase in
the dried distillers grains selling price resulted primarily from 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 2022
compared to the third quarter of fiscal year 2021 as the average selling price
per pound increased 25% over the prior year third quarter, offset slightly by a
decrease in pounds sold of 2%. Non-food grade corn oil sales increased in
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the first nine months of fiscal year 2022 compared to the first nine months of
fiscal year 2021 as the average selling price per pound increased 49%, offset
slightly by a decrease in pounds sold of 1%. 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 decreased in the third quarter of fiscal year
2022 compared to the third quarter of fiscal year 2021 due to a decrease in tons
sold of 33%, offset partially by a 26% increase in price per ton sold. Modified
distillers grains sales increased in the first nine months of fiscal year 2022
compared to the first nine months of fiscal year 2021 as the average price per
ton sold increased 43%, offset partially by a 9% decrease in tons sold. The
increase in the modified distillers grains selling price resulted primarily from
an increase in corn prices.
Gains on derivative financial instruments, included in net sales and revenue, of
approximately $8,000 in the third quarter of fiscal year 2022 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 $2.1 million during the third quarter of fiscal year 2021. Losses
on derivative financial instruments, included in net sales and revenue, were
approximately $1.1 million in the first nine months of fiscal year 2022 compared
to $4.9 million in the first nine months of fiscal year 2021.
Gross profit for the third quarter of fiscal year 2022 decreased approximately
$13.8 million compared to the prior year's third quarter. Cost increases were
primarily driven by the significant increase in price of corn and natural gas.
The crush spread decreased from $0.11 in the third quarter of 2021 to $(0.07) in
the third quarter of 2022. However, fewer ethanol contracts were sold net of
freight in the third quarter of fiscal year 2022 compared to fiscal year 2021,
which increased revenue in fiscal year 2022. The selling price per gallon of
ethanol sold increased 8% for the third quarter of fiscal year 2022 compared to
the third quarter of fiscal year 2021. There was a 17% increase in the cost per
bushel of corn during the same periods as there was a tight supply of corn which
led to an increase in basis paid for corn.
Grain accounted for approximately 83% ($172.6 million) of our cost of sales
during the third quarter of fiscal year 2022 compared to approximately 84%
($148.7 million) during the third quarter of fiscal year 2021. Natural gas
accounted for approximately 6% ($12.2 million) of our cost of sales during the
third quarter of fiscal year 2022 compared to approximately 5% ($8.1 million)
during the third quarter of fiscal year 2021. The grain and natural gas
expenditure increases were primarily attributable to the higher costs of both
corn and natural gas with slightly reduced production levels in the third
quarter of fiscal year 2022 compared to the third quarter of fiscal year 2021.
Gross profit for the first nine months of fiscal year 2022 decreased
approximately $19.0 million compared to the first nine months of fiscal year
2021. Selling prices increased significantly year over year but were offset by
the significant increase in the cost of corn. The crush spread decreased from
$0.06 over the first nine months of fiscal year 2021 to approximately break-even
in the first nine months of fiscal year 2022. In addition, more ethanol
contracts were sold net of freight in the first nine months of fiscal year 2022
compared to fiscal year 2021, which decreased revenue in fiscal year 2022. The
selling price per gallon of ethanol sold increased 17% for the first nine months
of fiscal year 2022 compared to the first nine months of fiscal year 2021. There
was a 20% increase in the cost per bushel of corn during the same periods.
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Grain accounted for approximately 83% ($512.2 million) of our cost of sales
during the first nine months of fiscal year 2022 compared to approximately 85%
($427.0 million) during the first nine months of fiscal year 2021. Natural gas
accounted for approximately 6% ($35.9 million) of our cost of sales during the
first nine months of fiscal year 2022 compared to approximately 4% ($18.0
million) during the first nine months of fiscal year 2021. The grain and natural
gas expenditure increases were primarily attributable to the higher costs of
both corn and natural gas with slightly reduced production levels in the first
nine months of fiscal year 2022 compared to the first nine months of fiscal year
2021.
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 $7.9 million for the third quarter of fiscal
year 2022, higher than the approximately $6.3 million of expenses for the third
quarter of fiscal year 2021. Higher shipping costs of $2.3 million contributed
to a portion of the increase in the third quarter of fiscal year 2022 as more
sales contracts provided for shipping to be paid by us compared to the third
quarter of fiscal year 2021. This was offset by a decrease in performance
bonuses of approximately $0.8 million and a decrease in railcar lease expense of
approximately $0.6 million in the third quarter of fiscal year 2022 compared to
the third quarter of fiscal year 2021. SG&A expenses were approximately $22.2
million for the first nine months of fiscal year 2022, slightly lower than the
approximately $22.4 million of expenses for the first nine months of fiscal year
2021. Shipping costs declined approximately $2.0 million for the nine months
ended October 31, 2022 compared to the prior year as fewer ethanol contracts
required us to pay the freight. The decline in SG&A from shipping costs was
offset primarily by increases in performance incentives, compensation and
related costs, as well as professional fees.
During the third quarter of fiscal year 2022, we recognized income of
approximately $0.7 million compared to income of approximately $0.3 million for
the third quarter of fiscal year 2021, from our equity investment in Big River.
We recognized income of approximately $6.2 million during the first nine months
of fiscal year 2022 compared to income of approximately $2.8 million during the
first nine months of fiscal year 2021. During the second quarter of 2022,
COVID-19 relief grants from the USDA received by Big River contributed $1.6
million to the increase in income we recognized in 2022. Big River has interests
in four ethanol production plants that shipped approximately 427 million gallons
in the trailing twelve months ended October 31, 2022 and has an effective
ownership of ethanol gallons shipped for the same period of approximately 370
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 $2.0 million for the third quarter
of fiscal year 2022 versus approximately $35,000 for the third quarter of fiscal
year 2021. Interest and other income was approximately $10.3 million for the
first nine months of fiscal year 2022 versus approximately $117,000
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for the first nine months of fiscal year 2021. During the second quarter of
2022, the Company's consolidated plants received COVID-19 relief grants from the
USDA totaling approximately $7.8 million based on reduced production in 2020.
The remaining increase is primarily due to an increase in interest income as
yields on our excess cash increased in the third quarter and first nine months
of fiscal year 2022 compared to the third quarter and first nine months of
fiscal year 2021.
As a result of the foregoing, income before income taxes was approximately $6.1
million for the third quarter of fiscal year 2022 versus approximately $19.2
million for the third quarter of fiscal year 2021. Income before income taxes
was approximately $34.1 million for the first nine months of fiscal year 2022
versus approximately $39.2 million for the first nine months of fiscal year
2021.
The Company applies an effective tax rate to interim periods that is consistent
with the Company's estimated annual tax rate as adjusted for discrete items
impacting the interim periods. Our income tax provision from continuing
operations was approximately $1.2 million and approximately $4.3 million for the
three months ended October 31, 2022 and 2021, respectively. Our income tax
provision from continuing operations was approximately $7.4 million and
approximately $8.3 million for the nine months ended October 31, 2022 and 2021,
respectively.
As a result of the foregoing, net income from continuing operations was
approximately $4.9 million for the third quarter of fiscal year 2022 compared to
approximately $14.9 million for the third quarter of fiscal year 2021. Net
income from continuing operations was approximately $26.8 million for the first
nine months of fiscal year 2022 compared to approximately $30.9 million for the
first nine months of fiscal year 2021.
Income from continuing operations related to noncontrolling interests was
approximately $1.7 million for the third quarter of fiscal year 2022 compared to
$1.6 million for the third quarter of fiscal year 2021. Income from continuing
operations related to noncontrolling interests was approximately $7.2 million
for the first nine months of fiscal year 2022 compared to $4.6 million for the
first nine months of fiscal year 2021. These amounts represent the other owners'
share of the income or loss of NuGen and One Earth. Noncontrolling interest
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 2022 was
approximately $3.2 million, a decrease of approximately $10.1 million from net
income attributable to REX common shareholders from continuing operations of
approximately $13.3 million for the third quarter of fiscal year 2021. Net
income attributable to REX common shareholders from continuing operations for
the first nine months of fiscal year 2022 was approximately $19.5 million, a
decrease of approximately $6.8 million from net income attributable to REX
common shareholders from continuing operations of approximately $26.3 million
for the first nine months of fiscal year 2021.
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 have been recognized as discontinued operations. The
refined coal business operated at a pre-tax loss but generated tax credits that
normally exceeded the
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operating loss. There was no activity related to discontinued operations in the
first nine months of fiscal year 2022. Net income attributable to REX common
shareholders from discontinued operations, net of tax, for the three and nine
months ended October 31, 2021 was approximately $1.9 million and $4.6 million,
respectively.
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 approximately $4.9 million and approximately $12.6
million for the three and nine months ended October 31, 2021.
Liquidity and Capital Resources
Net cash provided by operating activities was approximately $54.0 million for
the first nine months of fiscal year 2022, compared to cash provided by
operating activities of approximately $50.4 million for the first nine months of
fiscal year 2021. For the first nine months of fiscal year 2022, cash was
provided by net income from continuing operations of approximately $26.8
million, adjusted for non-cash items of approximately $16.6 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 $3.0 million in
the first nine months of fiscal year 2022. A decrease in the balance of accounts
receivable provided cash of approximately $3.1 million, primarily a result of
the timing of products shipped and the receipt of customer payments at One Earth
and NuGen. Inventories remained relatively flat over the first nine months of
fiscal year 2022. A decrease in the balance of other assets of approximately
$0.6 million primarily relates to changes in the carrying value of forward
purchase contracts recorded at fair value. A decrease in the balance of
refundable income taxes of approximately $66,000 primarily relates to amounts
currently payable on income from the first nine months of the fiscal year,
offset by quarterly estimated tax payments. An increase in the balance of
accounts payable provided cash of approximately $8.0 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 $4.3
million.
Net cash provided by operating activities was approximately $50.4 million for
the first nine months of fiscal year 2021. 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 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
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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 in fiscal year 2021.
At October 31, 2022, working capital was approximately $316.7 million, compared
to approximately $294.7 million at January 31, 2022. The ratio of current assets
to current liabilities was 6.5 to 1 at October 31, 2022 and 6.8 to 1 at January
31, 2022.
Cash of approximately $134.0 million was used in investing activities for the
first nine months of fiscal year 2022, compared to approximately $10.4 million
provided by investing activities during the first nine months of fiscal year
2021. During the first nine months of fiscal year 2022, we had capital
expenditures of approximately $7.2 million, primarily for improvements at the
One Earth and NuGen facilities. We expect capital expenditures to be in the
range of approximately $5.0 million to $7.0 million for the fourth quarter of
fiscal year 2022, primarily related to our carbon sequestration project. During
the first nine months of fiscal year 2022, we purchased short-term U.S. Treasury
Bills of approximately $307.4 million while U.S. Treasury Bills and certificates
of deposit of approximately $180.5 million matured. The certificates of deposit
and U.S Treasury Bills had maturities of less than one year and we classified
them as short-term investments. Depending on investment options available, we
may elect to retain the funds, or a portion thereof, in cash, short-term
investments or long-term investments.
Cash of approximately $10.4 million was provided by investing activities for the
first nine months of fiscal year 2021. 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. During the first nine
months of fiscal year 2021, we purchased certificates of deposit (classified as
short-term investments) of approximately $67.4 million. During the first nine
months of fiscal year 2021 certificates of deposit (classified as short-term
investments) of approximately $82.0 million matured.
Cash of approximately $14.7 million was used in financing activities for the
first nine months of fiscal year 2022, compared to approximately $7.9 million
for the first nine months of fiscal year 2021. During the first nine months of
fiscal year 2022, we used cash of approximately $13.0 million to purchase
approximately 472,000 shares of our common stock in open market transactions. We
also made payments of $1.7 million to noncontrolling interests holders.
Cash of approximately $7.9 million was used in financing activities from
continuing operations in the first nine months of 2021 as we used cash of
approximately $6.6 million to purchase approximately 252,000 shares of our
common stock in open market transactions and we made payments of approximately
$1.5 million to noncontrolling interests holders.
We are investigating various uses for our excess cash and short-term
investments. We have a stock buyback program, and given our current
authorization level, can repurchase a total of approximately 877,000 shares at
October 31, 2022. We typically repurchase our common stock when our stock price
is trading at a price we deem to be a discount to the underlying value of our
net assets. We plan to seek and evaluate various investment opportunities
including ethanol and/or energy related, carbon sequestration related,
agricultural or other ventures we believe fit our investment criteria.
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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 and natural gas, commodity market risk, ethanol plants
operating efficiently and according to forecasts and projections, logistical
interruptions, changes in the international, national or regional economies, the
impact of inflation, the ability to attract employees, weather, results of
income tax audits, changes in income tax laws or regulations, the impact of U.S.
foreign trade policy, changes in foreign currency exchange rates 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, 2022 (File No. 001-09097).
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