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OFFON

REX AMERICAN RESOURCES CORPORATION

(REX)
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REX AMERICAN RESOURCES : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

09/03/2021 | 01:00pm EST

Ethanol and By-Products




At July 31, 2021, investments in our ethanol business include equity investments
in three ethanol limited liability companies, two of which we have a majority
ownership interest in. The following table is a summary of ethanol gallons
shipped at our plants:



                                      Trailing 12   REX's   Current Effective
                                        Months     Current    Ownership of
               Entity                   Ethanol   Effective    Trailing 12
                                        Gallons   Ownership  Months Ethanol
                                        Shipped   Interest   Gallons Shipped
One Earth Energy, LLC                     143.9 M     75.6%           108.8 M
NuGen Energy, LLC                         137.4 M     99.7%           137.0 M
Big River Resources, LLC:
Big River Resources W Burlington, LLC     108.5 M     10.3%            11.2 M
Big River Resources Galva, LLC            119.6 M     10.3%            12.3 M
Big River United Energy, LLC              126.4 M      5.7%             7.2 M
Big River Resources Boyceville, LLC        62.6 M     10.3%             6.5 M
Total                                     698.4 M                     283.0 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 through 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 are 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 can be earned for refined coal produced and sold by our facility through November 18, 2021. Absent the tax credits, our refined coal operations would not be profitable and we expect to cease operations at that time. At the conclusion of the operations we are obligated to remove the equipment from the site but do not expect the cost to be significant.

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 have 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.



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").

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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, pilot field tests 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 July 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 segment 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 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 on our business operations, including the recent Delta variant, cannot be reasonably estimated at this time, although a prolonged production stoppage at our plants could have a material adverse impact on our results of operations, financial condition and cash flows in future periods.

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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 over Chicago Board of Trade for corn during the first six 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 final 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. 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.

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 small refiner waivers (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 handling of SRWs.

Throughout fiscal year 2020 and the first six months of fiscal year 2021, operating results in our refined coal segment were affected by inconsistent utility plant demand (our only customer). By November 18, 2021, we expect to cease these operations and the resulting earning of production tax credits, as based upon current legislation this facility will no longer be eligible to earn additional tax credits beyond that date.

Should these trends and uncertainties continue, our future operating results are likely to be negatively impacted.

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Comparison of Three and Six Months Ended July 31, 2021 and 2020

The following sections discuss the results of operations for each of our business segments and corporate and other. Amounts in the corporate and other category include activities that are not separately reportable or related to a segment. We have two reportable segments: i) ethanol and by-products; and ii) refined coal. We evaluate the performance of each reportable segment using net income attributable to REX common shareholders. Segment profitability measures are determined using the same accounting policies used in the preparation of the consolidated financial statements. The following tables summarizes segment and other results (amounts in thousands):



                                Three Months Ended           Six Months Ended
                                     July 31,                    July 31,
                                 2021          2020         2021          2020
Net sales and revenue:
Ethanol and by-products       $  195,678     $ 39,242     $ 359,720     $ 122,477
Refined coal 1                       165           85           227           100
Total net sales and revenue   $  195,843     $ 39,327     $ 359,947     $ 122,577




1 The Company records sales in the refined coal segment net of the cost of coal
as the Company purchases the coal feedstock from the customer to which refined
coal is sold.



                                              Three Months Ended             Six Months Ended
                                                   July 31,                      July 31,
                                             2021           2020           2021            2020
Segment gross profit (loss):
Ethanol and by-products                    $  14,155      $     553      $  33,631      $  (7,670)
Refined coal                                 (3,081)        (1,884)        (4,755)         (2,991)
Total gross profit (loss)                  $  11,074      $ (1,331)      $  28,876      $ (10,661)

Income (loss) before income taxes:
Ethanol and by-products                    $  10,732      $ (3,259)      $  21,820      $ (15,610)
Refined coal                                 (3,455)        (2,118)        (5,260)         (2,965)
Corporate and other                            (902)          (702)        (1,758)         (1,247)

Total income (loss) before income taxes $ 6,375 $ (6,079) $ 14,802 $ (19,822)


(Provision) benefit for income taxes:
Ethanol and by-products                    $ (1,985)      $     893      $ (4,423)      $    5,054
Refined coal                                   5,441          2,919          7,639           3,878
Corporate and other                              221            234            432             427
Total benefit for income taxes             $   3,677      $   4,046      $   3,648      $    9,359


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                                             Three Months Ended             Six Months Ended
                                                  July 31,                      July 31,
                                            2021           2020           2021           2020
Net income (loss) (net of
noncontrolling interests):
Ethanol and by-products                   $   6,418      $ (2,178)      $  14,374      $ (9,611)
Refined coal                                  2,139            898          2,612          1,048
Corporate and other                           (681)          (468)        (1,326)          (820)
Net income (loss) attributable to REX
common shareholders                       $   7,876      $ (1,748)      $  15,660      $ (9,383)



The following table summarizes net sales and revenue from the ethanol and by-products segment (amounts in thousands):



                                            Three Months Ended           Six Months Ended
                                                 July 31,                    July 31,
                                             2021          2020         2021          2020
Ethanol                                   $  153,990     $ 32,524     $ 280,059     $  93,121
Dried distillers grains                       31,573        5,480        62,691        24,398
Non-food grade corn oil                        9,813        1,313        15,407         4,501
Modified distillers grains                     1,934          209         4,227           666
Derivative financial instruments losses      (1,638)        (298)       (2,764)         (298)
Other                                              6           14           100            89
Total                                     $  195,678     $ 39,242     $ 359,720     $ 122,477


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The following table summarizes selected data from the ethanol and by-products
segment:



                                             Three Months Ended             Six Months Ended
                                                  July 31,                      July 31,
                                             2021           2020          2021           2020
Average selling price per gallon of
ethanol (net of hedging)                  $     2.21      $   1.23      $    2.02      $    1.25
Gallons of ethanol sold (in millions)           69.0          26.5          139.0           74.8
Average selling price per ton of dried
distillers grains                         $   206.78      $ 135.54      $  207.84      $  143.24

Tons of dried distillers grains sold 152,689 40,429 301,640 170,324 Average selling price per pound of non-food grade corn oil

                   $     0.47      $   0.24      $    0.41      $    0.25
Pounds of non-food grade corn oil sold
(in millions)                                   20.7           5.4           37.8           18.1
Average selling price per ton of
modified distillers grains                $    90.54      $  31.87      $   79.13      $   49.32
Tons of modified distillers grains
sold                                          21,361         6,566         53,421         13,507

Average cost per bushel of grain $ 6.45 $ 3.63 $ 5.86 $ 3.86 Average cost of natural gas (per MmBtu)

                                    $     3.30      $   2.92      $    3.24      $    3.60




Net sales and revenue in the quarter ended July 31, 2021 increased approximately 398% compared to the prior year's second quarter. Net sales and revenue in the first six months of fiscal year 2021 increased approximately 194%. We had significantly lower production and sales volumes in our ethanol and by-products segment during the first six 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 six months of fiscal year 2021.

Ethanol sales increased in the second quarter of fiscal year 2021 compared to the second quarter of fiscal year 2020 as the number of gallons sold increased 160% and the average selling price per gallon increased 80% over the prior year second quarter. Ethanol sales increased in the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020 as the number of gallons sold increased 86% and the average selling price per gallon increased 62% 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 second quarter of fiscal year 2021 compared to the second quarter of fiscal year 2020 as the number of tons sold increased 278% and the average selling price per ton increased 53% over the prior year second quarter. Dried distillers grains sales increased in the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020 as the number of tons sold increased 77% and the average selling price per ton increased 45% over the prior fiscal year. The increase in the dried distillers grains selling price resulted primarily from increased demand and an increase in corn prices as dried distillers grains prices often correlate with corn pricing.

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Non-food grade corn oil sales increased in the second quarter of fiscal year 2021 compared to the second quarter of fiscal year 2020 as the number of pounds sold increased 283% and the average selling price per pound increased 96% over the prior year second quarter. Non-food grade corn oil sales increased in the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020 as the number of pounds sold increased 109% and the average selling price per pound increased 64% 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 second quarter of fiscal year 2021 compared to the second quarter of fiscal year 2020 as the number of tons sold increased 225% and the average selling price per ton increased 184% over the prior year second quarter. Modified distillers grains sales increased in the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020 as the number of tons sold increased 296% 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 $1.6 million in the second 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 $0.3 million during the second quarter of fiscal year 2020. Losses on derivative financial instruments, included in net sales and revenue, were approximately $2.8 million in the first six months of fiscal year 2021 compared to $0.3 million in the first six months of fiscal year 2020.

Gross profit for the second quarter of fiscal year 2021 increased approximately $12.4 million compared to the prior year's second quarter. This was primarily caused by significantly higher production and sales volumes in our ethanol and by-products segment during the second quarter of fiscal year 2021 compared to the reduced levels during the second quarter of fiscal year 2020 discussed above. The crush spread for the second quarter of fiscal year 2021 was approximately break-even per gallon of ethanol sold compared to $(0.04) per gallon of ethanol sold during the second quarter of fiscal year 2020. The selling price per gallon of ethanol sold increased 80% for the second quarter of fiscal year 2021 compared to the second quarter of fiscal year 2020, slightly outpacing the 78% increase in the cost per bushel of corn during the same periods. In addition, higher sales volumes discussed above and prices of by-products contributed to the increase in gross profit during the second quarter of fiscal year 2021 compared to the second quarter of fiscal year 2020. During the second 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 and resulted in the consolidated ethanol plants being idled for a portion of the quarter.

Grain accounted for approximately 86% ($156.2 million) of our cost of sales during the second quarter of fiscal year 2021 compared to approximately 68% ($26.1 million) during the second quarter of fiscal year 2020. Natural gas accounted for approximately 3% ($6.2 million) of our cost of sales during the second quarter of fiscal year 2021 compared to approximately 5% ($1.9 million) during the second quarter of fiscal year 2020. The grain and natural gas expenditure increases were primarily attributable to the higher production levels in the second quarter of fiscal year 2021 compared to the reduced production levels in the second quarter of fiscal year 2020 and the significant rise in corn prices during the second quarter of fiscal year 2021.

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Gross profit for the first six months of fiscal year 2021 increased approximately $39.5 million compared to the first six months of the prior year. This was primarily the result of significantly higher production and sales volumes in our ethanol and by-products segment during the first six months of fiscal year 2021 compared to the reduced levels during the first six months of fiscal year 2020 discussed above. The crush spread for the first six months of fiscal year 2021 was approximately $0.02 per gallon of ethanol sold compared to $(0.08) per gallon of ethanol sold during the first six months of fiscal year 2020. The selling price per gallon of ethanol sold increased 62% for the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020, outpacing the 52% increase in the cost per bushel of corn during the same periods. In addition, higher sales volumes discussed above and prices of by-products contributed to the increase in gross profit during the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020. During the first six months 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 and resulted in the consolidated ethanol plants being idled for a portion of the year and the large gross loss.

Grain accounted for approximately 85% ($278.2 million) of our cost of sales during the first six months of fiscal year 2021 compared to approximately 73% ($94.8 million) during the first six months of fiscal year 2020. Natural gas accounted for approximately 3% ($9.9 million) of our cost of sales during the first six months of fiscal year 2021 compared to approximately 6% ($7.3 million) during the first six months of fiscal year 2020. The grain increase was primarily attributable to the higher production levels in the first six months of fiscal year 2021 compared to the reduced production levels in the first six months of fiscal year 2020 and the significant rise in corn prices during the first six months of fiscal year 2021. The natural gas unit price decrease was primarily attributable to 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 $6.6 million for the second quarter of fiscal year 2021, significantly higher than the approximately $4.4 million of expenses for the second quarter of fiscal year 2020. SG&A expenses were approximately $16.6 million for the first six months of fiscal year 2021, significantly higher than the approximately $9.0 million of expenses for the first six months of fiscal year 2020. A majority of the increase results from higher shipping costs as more sales contracts in our ethanol and by-products segment provided for shipping to be paid by us in the second quarter of fiscal year 2021 compared to the second quarter of fiscal year 2020. In addition, there was an increase in incentive compensation associated with higher profitability in fiscal year 2021.

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During the second quarter of fiscal year 2021, we recognized income of approximately $1.8 million compared to a loss of approximately $0.5 million for the second quarter of fiscal year 2020, from our equity investment in Big River, which is included in our ethanol and by-products segment results. We recognized income of approximately $2.4 million during the first six months of fiscal year 2021 compared to a loss of approximately $1.0 million during the first six months of fiscal year 2020. Big River has interests in four ethanol production plants that shipped approximately 417 million gallons in the trailing twelve months ended July 31, 2021 and has an effective ownership of ethanol gallons shipped for the same period of approximately 361 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 $39,000 for the second quarter of fiscal year 2021 versus approximately $197,000 for the second quarter of fiscal year 2020. Interest and other income was approximately $82,000 for the first six months of fiscal year 2021 versus approximately $866,000 for the first six months of fiscal year 2020. Interest income decreased as yields on our excess cash decreased in the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020.

As a result of the foregoing, income before income taxes was approximately $6.4 million for the second quarter of fiscal year 2021 versus a loss of approximately $6.1 million for the second quarter of fiscal year 2020. Income before income taxes was approximately $14.8 million versus a loss of approximately $19.8 million for the first six months of fiscal years 2021 and 2020, respectively.

We 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 six months ended July 31, 2021 and 2020. Our income tax benefit was approximately $3.7 million and approximately $4.0 million for the three months ended July 31, 2021 and 2020, respectively, and was approximately $3.6 million and approximately $9.4 million for the six months ended July 31, 2021 and 2020, respectively We had a higher benefit in the prior year periods based upon pre-tax losses for those periods versus pre-tax income in the current periods. The benefit is also largely impacted by the level of tax credits generated from the refined coal operation. Through its refined coal operation, the Company earns production tax credits pursuant to IRC Section 45. The credits can be used to reduce future income tax liabilities for up to 20 years. Our income tax benefit for the first six months of fiscal year 2020 includes approximately $1.8 million related to the lengthening of a net operating loss carryback allowed by the CARES Act.

As a result of the foregoing, net income was approximately $10.1 million for the second quarter of fiscal year 2021 compared to net loss of approximately $2.0 million for the second quarter of fiscal year 2020. Net income was approximately $18.5 million for the first six months of fiscal year 2021 compared to net loss of approximately $10.5 million for the first six months of fiscal year 2020.

Income related to noncontrolling interests was approximately $2.2 million for the second quarter of fiscal year 2021 compared to a loss of $0.3 million for the second quarter of fiscal years 2020. Income related to noncontrolling interests was approximately $2.8 million for the six months of fiscal year 2021 compared to a loss of approximately $1.1 million for the first six months of fiscal years 2020. These amounts represent the other owners' share of the income or loss of NuGen, One Earth and the refined coal entity.

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As a result of the foregoing, net income attributable to REX common shareholders for the second quarter of fiscal year 2021 was approximately $7.9 million, an increase of approximately $9.6 million from net loss attributable to REX common shareholders of approximately $1.7 million for the second quarter of fiscal year 2020. Net income attributable to REX common shareholders for the first six months of fiscal year 2021 was approximately $15.7 million, an increase of approximately $25.0 million from net loss attributable to REX common shareholders of approximately $9.4 million for the first six months of fiscal year 2020.

Liquidity and Capital Resources

Net cash provided by operating activities was approximately $17.2 million for the first six months of fiscal year 2021, compared to cash used of approximately $9.0 million for the first six months of fiscal year 2020. For the first six months of fiscal year 2021, cash was provided by net income of approximately $18.5 million, adjusted for non-cash items of approximately $6.6 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. An increase in the balance of accounts receivable used cash of approximately $9.8 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 increased by approximately $3.9 million, primarily a result of the timing of receipt of raw materials and the shipment of finished goods, as well as an increase in the pricing of raw materials. A decrease in the balance of other assets of approximately $0.3 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 $0.9 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 $5.5 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 $0.9 million, which was primarily a result of operating lease payments.

Net cash used in operating activities was approximately $9.0 million for the first six months of fiscal year 2020. For the first six months of fiscal year 2020, cash was used by a net loss of approximately $10.5 million, adjusted for non-cash items of approximately $9.3 million, which consisted of depreciation, amortization of operating lease right-of-use assets, loss 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 $2.0 million during the first six months of fiscal year 2020. A decrease in the balance of accounts receivable provided cash of approximately $3.2 million, which was primarily a result of the timing of customer shipments and payments as well as lower commodity prices. Inventories decreased by approximately $5.3 million, which was primarily a result of the timing of receipt of raw materials, shipments of finished goods and lower commodity prices. An increase in the balance of refundable income taxes of approximately $4.6 million primarily relates to a net operating loss we intend to carry back for federal income tax purposes. A decrease in the balance of accounts payable used cash of approximately $10.3 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 $2.9 million, which was primarily a result of payments of operating leases and incentive compensation.

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At July 31, 2021, working capital was approximately $246.0 million, compared to approximately $228.0 million at January 31, 2021. The ratio of current assets to current liabilities was 7.4 to 1 at July 1, 2021 and 8.4 to 1 at January 31, 2021.

Cash of approximately $0.3 million was provided by investing activities for the first six months of fiscal year 2021, compared to approximately $12.4 million used during the first six months of fiscal year 2020. During the first six months of fiscal year 2021, we had capital expenditures of approximately $2.7 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 six months of fiscal year 2021, we purchased certificates of deposit (classified as short-term investments) of approximately $49.3 million. During the first six months of fiscal year 2021, certificates of deposit (classified as short-term investments) of approximately $52.2 million matured. The certificates of deposit had maturities of less than one year. 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.

Cash of approximately $12.4 million was used in investing activities for the first six months of fiscal year 2020. During the first six months of fiscal year 2020, we had capital expenditures of approximately $5.7 million, primarily for the purchase of land at One Earth Energy. During the first six months of fiscal year 2020, we purchased certificates of deposit (classified as short-term investments) of approximately $45.5 million. During the first six months of fiscal year 2020, certificates of deposit (classified as short-term investments) of approximately $39.0 million matured.

Cash of approximately $2.5 million was used in financing activities for the first six months of fiscal year 2021, compared to approximately $5.7 million for the first six months of fiscal year 2020. During the first six months of fiscal year 2021, we used cash of approximately $1.4 million to purchase approximately 17,000 shares of our common stock in open market transactions. We also made payments of approximately $1.3 million to noncontrolling interests holders.

Cash of approximately $5.7 million was used in financing activities for the first six months of fiscal year 2020 as we used cash of approximately $5.6 million to purchase approximately 109,000 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 subsequent to the end of the fiscal 2021 second quarter completed a 500,000 share buyback authorization from the Board of Directors and obtained authorization to repurchase an additional 500,000 shares. We also plan to seek and evaluate investment opportunities including ethanol and/or energy related, carbon dioxide 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 seismic survey has been completed and the data is being sent for processing. Further work and research is needed to determine if this will be a feasible location for carbon sequestration and storage.

35




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 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).

36

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Financials (USD)
Sales 2022 723 M - -
Net income 2022 35,0 M - -
Net Debt 2022 - - -
P/E ratio 2022 15,6x
Yield 2022 -
Capitalization 540 M 540 M -
Capi. / Sales 2022 0,75x
Capi. / Sales 2023 0,77x
Nbr of Employees 119
Free-Float 17,6%
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Number of Analysts 1
Last Close Price 90,40 $
Average target price 100,00 $
Spread / Average Target 10,6%
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Managers and Directors
Zafar A. Rizvi President, Chief Executive Officer, COO & Director
Douglas L. Bruggeman CFO, Treasurer & Vice President-Finance
Stuart Alan Rose Executive Chairman & Head-Corporate Development
David S. Harris Lead Independent Director
Charles A. Elcan Independent Director
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