NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles of Consolidation
–
The accompanying financial statements consolidate the operating results and financial position of REX American
Resources Corporation and its wholly-owned and majority owned subsidiaries (the “Company” or “REX”). All
intercompany balances and transactions have been eliminated. As of January 31, 2018, the Company owns interests in five entities
– four are consolidated and one is accounted for using the equity method of accounting.
Fiscal Year –
All references in these consolidated financial statements to a particular fiscal year are to the Company’s fiscal
year ended January 31. For example, “fiscal year 2017” means the period February 1, 2017 to January 31,
2018. The Company refers to its fiscal year by reference to the year immediately preceding the January 31 fiscal year end date.
Segments
–
In fiscal year 2017, the Company began reporting the results of its refined coal operation as a new segment as a result of the
August 10, 2017 acquisition of an entity that operates a refined coal facility (see Note 3). Prior to the acquisition, the Company
had one reportable segment, ethanol. Beginning with the third quarter of fiscal year 2017, the Company has two reportable segments:
i) ethanol and by-products and ii) refined coal. Within the ethanol and by-products segment, the Company has equity investments
in three ethanol limited liability companies, two of which are majority ownership interests. Within the refined coal segment,
the Company has a majority equity interest in one refined coal limited liability company.
In applying the criteria set
forth in ASC 280, the Company determined that based on the nature of the products and production process and the expected financial
results, the Company’s operations at its ethanol plants are aggregated into one reporting segment.
Use of Estimates –
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents –
Cash equivalents are principally short-term investments with original maturities of less than three months. The carrying
amount of cash equivalents approximates fair value.
Concentrations of
Risk –
The Company maintains cash and cash equivalents in accounts with financial institutions which exceed
federally insured limits. The Company has not experienced any losses in such accounts. The Company does not believe there is
significant credit risk related to its cash and cash equivalents. Six (fiscal year 2017), five (fiscal year 2016) and four
(fiscal year 2015) customers accounted for approximately 87%, 83% and 75% of the Company’s net sales and revenue during
fiscal years 2017, 2016 and 2015, respectively. At January 31, 2018 and 2017, these customers represented approximately 89%
and 88%, respectively, of the Company’s accounts receivable balance.
Inventory
–
Inventories are carried at the lower of cost or market on a first-in, first-out basis. Inventory includes direct production costs
and certain overhead costs such as depreciation, property taxes and utilities related to producing ethanol and related by-products
and refined coal. Inventory is
permanently
written down for instances when cost exceeds estimated net realizable value; such write-downs are based primarily upon commodity
prices as the market value of inventory is often dependent upon changes in commodity prices. There was no significant write-down
of inventory during fiscal years 2017, 2016 or 2015. Fluctuations in the write-down of inventory generally relate to the levels
and composition of such inventory at a given point in time and commodity prices
.
The components of inventory at
January 31, 2018, and January 31, 2017 are as follows (amounts in thousands):
|
|
January 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Ethanol and other finished goods
|
|
$
|
8,402
|
|
|
$
|
5,262
|
|
Work in process
|
|
|
2,824
|
|
|
|
2,359
|
|
Grain and other raw materials
|
|
|
9,529
|
|
|
|
9,436
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,755
|
|
|
$
|
17,057
|
|
Property and Equipment
–
Property and equipment is recorded at cost or the fair value on the date of acquisition (for property and equipment
acquired in a business combination). Depreciation is computed using the straight-line method. Estimated useful lives are 5 to
40 years for buildings and improvements, and 2 to 20 years for fixtures and equipment. The components of property and equipment
at January 31, 2018 and 2017 are as follows (amounts in thousands):
|
|
January 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
$
|
21,074
|
|
|
$
|
20,951
|
|
Buildings and improvements
|
|
|
23,272
|
|
|
|
23,203
|
|
Machinery, equipment and fixtures
|
|
|
288,832
|
|
|
|
255,348
|
|
Construction in progress
|
|
|
3,155
|
|
|
|
1,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
336,333
|
|
|
|
300,548
|
|
Less: accumulated depreciation
|
|
|
(138,506
|
)
|
|
|
(117,787
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
197,827
|
|
|
$
|
182,761
|
|
In accordance with ASC 360-05
“
Impairment or Disposal of Long-Lived Assets
”, the carrying value of long-lived assets is assessed for recoverability
by management when changes in circumstances indicate that the carrying amount may not be recoverable, based on an analysis of
undiscounted future expected cash flows from the use and ultimate disposition of the asset. The Company recorded no impairment
charges in fiscal years 2017 and 2016. The Company recorded impairment charges of $125,000 (related to the Company’s former
retail operations) in fiscal year 2015, all of which is included in cost of sales in the Consolidated Statement of Operations.
This impairment charge is primarily related to unfavorable changes in real estate conditions in local markets. Impairment charges
result from the Company’s management performing cash flow analysis and represent management’s estimate of the excess
of net book value over fair value.
The Company tests for recoverability
of an asset group by comparing its carrying amount to its estimated undiscounted future cash flows. If the carrying amount of
an asset group exceeds its estimated undiscounted future cash flows, the Company recognizes an impairment charge for the
amount by which the asset group’s
carrying amount exceeds its fair value, if any. The Company generally determines the fair value of the asset group using a discounted
cash flow model based on market participant assumptions (for income producing asset groups) or by obtaining appraisals based on
the market approach and comparable market transactions (for non-income producing asset groups).
Depreciation expense was approximately
$21,462,000, $19,519,000 and $18,638,000 in fiscal years 2017, 2016 and 2015, respectively.
Investments –
The method of
accounting applied to long-term investments, whether consolidated, equity or cost, involves an evaluation of the significant terms
of each investment that explicitly grant or suggest evidence of control or influence over the operations of the investee and also
includes the identification of any variable interests in which the Company is the primary beneficiary. The Company consolidates
the results of two majority owned subsidiaries, One Earth and NuGen. The results of One Earth are included on a delayed basis
of one month lag as One Earth has a fiscal year end of December 31. NuGen has the same fiscal year as the parent, and therefore,
there is no lag in reporting the results of NuGen. The Company accounts for investments in limited liability companies in which
it may have a less than 20% ownership interest, using the equity method of accounting when the factors discussed in ASC 323 are
met. The excess of the carrying value over the underlying equity in the net assets of equity method investees is allocated to
specific assets and liabilities. Any unallocated excess is treated as goodwill and is recorded as a component of the carrying
value of the equity method investee. Investments in businesses that the Company does not control but for which it has the ability
to exercise significant influence over operating and financial matters are accounted for using the equity method. The Company
accounts for its investments in Big River and Patriot (through May 31, 2015 – see Note 2 for a discussion of the sale of
the Company’s equity interest in Patriot) using the equity method of accounting and includes the results of these entities
on a delayed basis of one month as they have a fiscal year end of December 31.
The Company periodically evaluates its investments
for impairment due to declines in market value considered to be other than temporary. Such impairment evaluations include, in
addition to persistent, declining market prices, general economic and company-specific evaluations. If the Company determines
that a decline in market value is other than temporary, then a charge to earnings is recorded in the Consolidated Statements of
Operations and a new cost basis in the investment is established.
Revenue Recognition
– For ethanol
and by-products segment sales, the Company recognizes sales from the production of ethanol, distillers grains and non-food grade
corn oil when title transfers to customers, generally upon shipment from the ethanol plant or upon loading of the rail car used
to transport the products. For refined coal segment sales, the Company recognizes sales from the production of refined coal when
title transfers to its customer, generally upon the coal leaving the refined coal plant. Refined coal sales are recorded net of
the cost of coal as the Company purchases the coal feedstock from the customer to which refined coal is sold (after processing).
Cost of Sales –
Cost of sales includes depreciation, costs of raw materials, inbound freight charges, purchasing and receiving costs,
inspection costs, shipping costs, other distribution expenses, warehousing costs, plant management, certain compensation costs
and general facility overhead charges.
Selling, General and
Administrative Expenses –
The Company includes non-production related costs such as professional fees, selling charges
and certain payroll in selling, general and administrative expenses.
Financial Instruments
– Certain of the forward grain purchase and ethanol, distillers grains and non-food grade corn oil sale contracts
are accounted for under the “normal purchases and normal sales” scope exemption of ASC 815, because these arrangements
are for purchases of grain that will be delivered in quantities expected to be used and sales of ethanol, distillers grains and
non-food grade corn oil that will be produced in quantities expected to be sold by us over a reasonable period of time in the
normal course of business. During the years ended January 31, 2018, 2017 and 2016 there were no material settlements of forward
contracts that were recorded at fair value. At January 31, 2018, the company recorded an asset of $0.1 million associated with
contracts not accounted for under the “normal purchases and normal sales” scope exemption of ASC 815. At January 31,
2017, the Company recorded an asset and a liability of $0.2 million and $0.1 million, respectively, associated with contracts
not accounted for under the “normal purchases and normal sales” scope exemption of ASC 815.
The Company uses derivative
financial instruments (exchange-traded futures contracts) to manage a portion of the risk associated with changes in commodity
prices, primarily related to corn. The Company monitors and manages this exposure as part of its overall risk management policy.
As such, the Company seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating
results. The Company may take hedging positions in these commodities as one way to mitigate risk. While the Company attempts to
link its hedging activities to purchase and sale activities, there are situations in which these hedging activities can themselves
result in losses. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The
changes in fair value of these derivative financial instruments are recognized in current period earnings as the Company does
not use hedge accounting.
Stock Compensation
–
The Company has a stock-based compensation plan, approved by its shareholders, which reserves a total of 550,000 shares of common
stock for issuance pursuant to its terms. The plan provides for the granting of shares of stock, including options to purchase
shares of common stock, stock appreciation rights tied to the value of common stock, restricted stock, and restricted stock unit
awards to eligible employees, non-employee directors and consultants. The Company measures share-based compensation grants at
fair value on the grant date, adjusted for estimated forfeitures. The Company records noncash compensation expense related to
equity and liability awards in its consolidated financial statements over the requisite service period on a straight-line basis.
See Note 12 for a further discussion of restricted stock.
Income Taxes
– The Company provides for deferred tax liabilities and assets for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. The Company provides for a valuation allowance if, based on the weight of available evidence,
it is more likely than not that some or all of the deferred tax assets will not be realized. The Company’s annual effective
tax rate includes the impact of its refined coal operation and the expected federal income tax credits to be earned in fiscal
year 2017 beginning on the date of the refined coal acquisition (see Note 3). In addition, for fiscal year 2017, the Company’s
annual effective tax rate includes a benefit related to remeasuring deferred tax liabilities at a federal income tax rate of 21%
compared to 35% in historical periods, a result of the Tax Act, which reduced the federal income tax rate on corporations from
35% to 21%.
Comprehensive Income
– The Company has no components of other comprehensive income, and therefore, comprehensive income equals net income.
New Accounting Pronouncements
–
In March 2016, the Financial Accounting Standards board (“FASB”) issued Accounting Standards Update
(“ASU”) 2016-09,
“Improvements to Employee Share-Based Payment Accounting”
(“ASU 2016-09”).
This standard simplifies the accounting treatment for
excess tax benefits and deficiencies,
forfeitures, and cash flow considerations related to share-based compensation. The Company adopted this standard February 1, 2017.
The adoption of ASU 2016-09 did not impact the Company’s consolidated financial statements and related disclosures.
Effective February 1, 2017,
the Company adopted the amended guidance in ASC Topic 330, “
Inventory: Simplifying the Measurement of Inventory
”,
which requires inventory to be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling
price (in the ordinary course of business), less reasonable estimable costs of completion, disposal and transportation. The amended
guidance was applied prospectively.
In November 2015, the FASB
issued ASU 2015-17 “
Balance Sheet Classification of Deferred Taxes”
, (“ASU 2015-17”) which requires
that for a particular tax-paying component of an entity and within a particular tax jurisdiction, all deferred tax liabilities
and assets shall be offset and presented as a single noncurrent amount. The Company prospectively adopted the amended guidance
effective February 1, 2017. Prior periods were not retrospectively adjusted. The adoption of ASU 2015-17 did not affect net income
attributable to REX common shareholders or retained earnings in the presented periods.
In August 2016, the FASB issued
ASU 2016-15 “
Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments
”.
This standard provides guidance on eight specific cash flow issues. The cash flow issues covered by this ASU are: 1) debt prepayment
or debt extinguishment costs; 2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates
that are insignificant in relation to the effective interest rate of the borrowing; 3) contingent consideration payments made
after a business combination; 4) proceeds from the settlement of insurance claims; 5) proceeds from the settlement of corporate-owned
life insurance policies, including bank-owned life insurance policies; 6) distributions received from equity method investees;
7) beneficial interests in securitization transactions; and 8) separately identifiable cash flows and application of the predominance
principle for distributions received from equity method investees in the Statement of Cash Flows. The Company prospectively adopted
this standard effective February 1, 2018. The adoption of ASU 2016-15 did not affect the consolidated financial statements and
related disclosures.
The Company will be required
to adopt the amended guidance in ASC Topic 606 “
Revenue from Contracts with Customers
”, which requires revenue
recognition to reflect the transfer of promised goods or services to customers and replaces existing revenue recognition guidance.
The updated standard permits the use of either the retrospective or cumulative effect transition method. The FASB has deferred
the required adoption of the amended guidance by one year, from February 1, 2017 to February 1, 2018. Early application beginning
February 1, 2017 is permitted. The Company has substantially completed its evaluation of adopting this guidance and does not expect
the adoption of this guidance to have a material impact on its consolidated financial statements with respect to the measurement
and recognition of revenue. The Company expects to adopt this guidance using the modified prospective method. The Company expects
disclosures regarding revenue from contracts with customers to expand as a result of adopting this guidance.
In February 2016, the FASB
issued ASU 2016-02, “
Leases
”. This standard requires that virtually all leases will be recognized by lessees
on their balance sheet as a right-of-use asset and a corresponding lease liability, including leases currently accounted for as
operating leases. The Company will be required to adopt this standard effective February 1, 2019. The Company has not completed
its analysis of adopting this guidance but it does expect the adoption of this guidance to have a material impact on its Consolidated
Balance Sheet related to the right-of-use asset and lease obligation liability to be recognized upon adoption of this guidance.
The related leases are currently accounted for as operating leases (see Note 8).
In November 2016, the FASB
issued ASU 2016-18 “
Statement of Cash Flows (Topic 230), Restricted Cash
”. This standard requires that the
statements of cash flows explain the changes in the combined total of restricted and unrestricted cash balances. Amounts generally
described as restricted cash will be combined with unrestricted cash and cash equivalents when reconciling the beginning and end
of period balances on the statements of cash flows. The Company will be required to adopt this standard effective February 1,
2018. Upon adoption, the Company will include restricted cash with cash and cash equivalents when reconciling the beginning of
period and end of period total amounts on the Consolidated Statement of Cash Flows.
The Company’s equity method
investment in Big River is accounted for under ASC 323. The following table summarizes the investment at January 31, 2018 and
2017 (amounts in thousands):
|
|
January 31,
2018
|
|
|
January 31,
2017
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
$
|
34,549
|
|
|
$
|
37,833
|
|
|
|
|
|
|
|
|
|
|
Ownership percentage
|
|
|
10.3
|
%
|
|
|
9.7
|
%
|
The Company invested $20.0
million in Big River which is a holding company for several entities. Big River Resources West Burlington, LLC, a wholly owned
subsidiary of Big River, operates an ethanol manufacturing plant in West Burlington, Iowa. During fiscal year 2017, the plant
shipped 108 million gallons of ethanol. The plant has been in operation since 2004. Big River Resources Galva, LLC, a wholly owned
subsidiary of Big River, operates an ethanol manufacturing plant in Galva, Illinois. During fiscal year 2017, the plant shipped
126 million gallons of ethanol. The plant has been in operation since 2009. Big River Resources United Energy, LLC, a 55.3% owned
subsidiary of Big River, operates an ethanol manufacturing plant in Dyersville, Iowa. During fiscal year 2017, the plant shipped
130 million gallons of ethanol. Big River acquired a 50.5% ownership interest in this plant in 2009 and increased its ownership
to 55.3% during fiscal year 2015. Big River Resources Boyceville, LLC, a wholly owned subsidiary of Big River, operates an ethanol
manufacturing plant in Boyceville, Wisconsin. During fiscal year 2017, the plant shipped 57 million gallons of ethanol. Big River
acquired its interest in this plant in 2011. The Company recorded income of approximately $3.2 million, $6.1 million and $6.0
million as its share of earnings from Big River during fiscal years 2017, 2016 and 2015, respectively. The Company received dividends
of approximately $6.5 million, $7.0 million and $7.5 million from Big River during fiscal years 2017, 2016 and 2015, respectively.
At January 31, 2018, the carrying value of the investment in Big River is approximately $34.5 million; the amount of underlying
equity in the net assets of Big River is approximately $32.2 million.
On June 1, 2015, Patriot Holdings,
LLC (“Patriot”) and a subsidiary of CHS Inc. (“CHS”) completed a merger that resulted in CHS acquiring
100% of the ownership interest in Patriot. The Company received a cash payment of approximately $45.5 million at the closing,
representing its proportionate share of the merger consideration for its 27% ownership interest. The total merger consideration
was approximately $196 million in cash subject to certain adjustments and certain escrow holdbacks. In connection with this transaction,
the Company recognized a gain of approximately $10.4 million during fiscal year 2015 (included in the ethanol and by-products
segment). During fiscal year 2016, the Company received proceeds of approximately $4.5 million as partial payment for certain
escrow holdbacks and adjustments to the purchase price. As a result, the Company recognized approximately $0.2 million as gain
on sale of investment during the first quarter of fiscal year 2016. The Company does not expect any further proceeds or gain/loss
on sale of investment to be significant.
The Company recorded income
of approximately $2.9 million as its share of earnings from Patriot during fiscal years 2015. The Company received dividends of
approximately $3.6 million from Patriot during fiscal year 2015.
Summarized financial information
for the Company’s equity method investee as of its fiscal year end is presented in the following table (amounts in thousands):
Big River
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
149,436
|
|
|
$
|
175,299
|
|
Non current assets
|
|
|
261,443
|
|
|
|
311,450
|
|
Total assets
|
|
$
|
410,879
|
|
|
$
|
486,749
|
|
Current liabilities
|
|
$
|
49,130
|
|
|
$
|
50,798
|
|
Long-term liabilities
|
|
|
10,599
|
|
|
|
—
|
|
Total liabilities
|
|
$
|
59,729
|
|
|
$
|
50,798
|
|
Noncontrolling interests
|
|
$
|
38,412
|
|
|
$
|
52,336
|
|
Summarized financial information
for each of the Company’s equity method investees is presented in the following table for the years ended December 31, 2017,
2016 and 2015 (amounts in thousands):
|
|
Year Ended December 31,
|
|
Big River
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net sales and revenue
|
|
$
|
817,112
|
|
|
$
|
851,434
|
|
Gross profit
|
|
$
|
60,259
|
|
|
$
|
88,841
|
|
Income from continuing operations
|
|
$
|
32,243
|
|
|
$
|
63,292
|
|
Net income
|
|
$
|
32,243
|
|
|
$
|
63,292
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patriot (1)
|
|
|
Big River
|
|
|
|
|
|
|
|
|
Net sales and revenue
|
|
$
|
115,614
|
|
|
$
|
863,554
|
|
Gross profit
|
|
$
|
14,424
|
|
|
$
|
85,451
|
|
Income from continuing operations
|
|
$
|
11,100
|
|
|
$
|
62,193
|
|
Net income
|
|
$
|
11,100
|
|
|
$
|
62,193
|
|
|
(1)
|
For Patriot, results are for the five month period ended
May 31, 2015 as the Company’s equity interest in Patriot was sold June 1, 2015.
|
Big River has debt agreements
that limit and restrict amounts the entity can pay in the form of dividends or advances to owners. The restricted net assets of
Big River at January 31, 2018 are approximately $202.6 million. At January 31, 2018, the Company’s proportionate share of
restricted net assets of Big River is approximately $20.9 million.
On August 10, 2017, the Company,
through a 95.35% owned subsidiary, purchased the entire ownership interest of an entity that owns a refined coal facility. The
Company began operating its refined coal facility immediately after the acquisition. The Company expects that the revenues from
the sale of refined coal produced in the facility will be subsidized by federal production tax credits through November 2021,
subject to meeting qualified emissions reductions as governed by Section 45 of the Internal Revenue Code.
The results of the Company’s
refined coal operations (approximately $0.4 million of net sales and revenue and approximately $5.6 million of net income attributable
to REX common shareholders, including the income tax benefit of estimated Section 45 credits to be earned) have been included
in the consolidated financial statements subsequent to the acquisition date and are included in the Company’s refined coal
segment. Pro forma net sales and revenue and net income attributable to REX common shareholders, had the acquisition occurred
on February 1, 2016 would have been $453.8 million and $29.2 million, respectively for the year ended January 31, 2017. Basic
and diluted earnings per share would have been $4.43 for the year ended January 31, 2017. Pro forma net sales and revenue and
net income attributable to REX common shareholders, had the acquisition occurred on February 1, 2016 would have been $452.6 million
and $40.4 million, respectively for the year ended January 31, 2018. Basic and diluted earnings per share would have been $6.12
for the year ended January 31, 2018.
The purchase price was $12,049,000,
which was paid in cash. The acquisition was recorded by allocating the total purchase price to the assets acquired, based on their
estimated fair values at the acquisition date. The purchase price allocation is based on the preliminary results of a valuation
analysis. The purchase price allocation is preliminary until the valuation analysis is completed. The income approach was used
to determine the fair values of assets acquired. The following table summarizes the estimated fair values of the assets acquired
at the acquisition date (amounts in thousands):
Inventory
|
|
$
|
49
|
|
Property, plant and equipment
|
|
|
12,000
|
|
Total assets acquired and purchase price
|
|
$
|
12,049
|
|
Transaction costs totaled
approximately $2.5 million during fiscal year 2017 and are included in selling, general and administrative expenses in the Consolidated
Statement of Operations.
The Company applies ASC 820,
“
Fair Value Measurements and Disclosures
” (“ASC 820”) which defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date.
The Company determines the
fair market values of its financial instruments based on the fair value hierarchy established by ASC 820, which requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes
three levels of inputs that may be used to measure fair values which are provided below. The Company carries certain cash equivalents,
investments and derivative financial instruments at fair value.
Level
1 – Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and
equity securities and derivative contracts that are traded in an active
exchange
market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets.
Level
2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities. Level 2 assets and liabilities include derivative contracts whose value is determined
using a pricing model with inputs that are observable in the market or can be derived principally or corroborated by observable
market data.
Level
3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of
the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing
models, discounted cash flow methods, or similar techniques, as well as instruments for which the determination of fair value
requires significant management judgment or estimation. Unobservable inputs are developed based on the best information available,
which may include the Company’s own data.
The fair values of derivative
assets and liabilities traded in the over-the-counter market are determined using quantitative models that require the use of
multiple market inputs including interest rates, prices and indices to generate pricing and volatility factors, which are used
to value the position. The predominance of market inputs are actively quoted and can be validated through external sources, including
brokers, market transactions and third-party pricing services. Estimation risk is greater for derivative asset and liability positions
that are either option-based or have longer maturity dates where observable market inputs are less readily available or are unobservable,
in which case interest rate, price or index scenarios are extrapolated in order to determine the fair value. The fair values of
derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality, the Company’s own
credit standing and other specific factors, where appropriate. The fair values of property and equipment are determined by using
various models that discount future expected cash flows.
To ensure the prudent application
of estimates and management judgment in determining the fair value of derivative assets and liabilities and property and equipment,
various processes and controls have been adopted, which include: (i) model validation that requires a review and approval for
pricing, financial statement fair value determination and risk quantification; and (ii) periodic review and substantiation of
profit and loss reporting for all derivative instruments. Financial assets and liabilities measured at fair value at January 31,
2018 on a recurring basis are summarized below (amounts in thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
Fair
Value
|
|
Forward purchase contracts asset (4)
|
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
—
|
|
|
$
|
72
|
|
Investment in cooperative (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
333
|
|
|
|
333
|
|
Total assets
|
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
333
|
|
|
$
|
405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity futures (5)
|
|
$
|
—
|
|
|
$
|
87
|
|
|
$
|
—
|
|
|
$
|
87
|
|
Forward purchase contracts liability (2)
|
|
|
—
|
|
|
|
34
|
|
|
|
—
|
|
|
|
34
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
121
|
|
|
$
|
—
|
|
|
$
|
121
|
|
Financial assets and liabilities measured at fair
value at January 31, 2017 on a recurring basis are summarized below (amounts in thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
Fair
Value
|
|
Commodity futures (3)
|
|
$
|
—
|
|
|
$
|
45
|
|
|
$
|
—
|
|
|
$
|
45
|
|
Forward purchase contracts asset (4)
|
|
|
—
|
|
|
|
163
|
|
|
|
—
|
|
|
|
163
|
|
Investment in cooperative (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
333
|
|
|
|
333
|
|
Total assets
|
|
$
|
—
|
|
|
$
|
208
|
|
|
$
|
333
|
|
|
$
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts liability (2)
|
|
$
|
—
|
|
|
$
|
136
|
|
|
$
|
—
|
|
|
$
|
136
|
|
|
(1)
|
The investment in cooperative is included in “Other
assets” on the accompanying Consolidated Balance Sheets.
|
|
|
|
|
(2)
|
The forward purchase contract liability is included in “Accrued
expenses and other current liabilities” on the accompanying Consolidated Balance Sheets.
|
|
|
|
|
(3)
|
The commodity futures asset is included in “Prepaid expenses and
other” on the accompanying Consolidated Balance Sheets.
|
|
|
|
|
(4)
|
The forward purchase contract asset is included in “Prepaid expenses
and other” on the accompanying Consolidated Balance Sheets.
|
|
|
|
|
(5)
|
The commodity futures liability is included in “Accrued expenses
and other current liabilities” on the accompanying Consolidated Balance Sheets.
|
The Company determined the fair value of the investment in cooperative by using a discounted cash flow analysis on the expected cash flows. Inputs used in the analysis include the face value of the allocated equity amount, the projected term for repayment based upon a historical trend, and a risk adjusted discount rate based on the expected compensation participants would demand because of the uncertainty of the future cash flows. The inherent risk and uncertainty associated with unobservable inputs could have a significant effect on the actual fair value of the investment.
No other financial instruments were elected to be measured at fair value in accordance with ASC 470-20-25-21.
There were no assets measured
at fair value at January 31, 2018 and 2017 on a non-recurring basis. As discussed in Note 3, the Company estimated the fair values
of refined coal assets acquired using the income approach. This estimated fair value is a level 3 measurement.
The components of other noncurrent assets at January
31, 2018 and 2017 are as follows (amounts in thousands):
|
|
January 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Real estate taxes refundable
|
|
$
|
6,719
|
|
|
$
|
5,923
|
|
Deposits
|
|
|
5
|
|
|
|
155
|
|
Other
|
|
|
730
|
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,454
|
|
|
$
|
6,913
|
|
Real estate taxes refundable
represent amounts due One Earth associated with refunds of previously paid taxes in connection with a tax increment financing
arrangement with local taxing authorities. Deposits are with vendors and governmental authorities.
6.
|
ACCRUED
EXPENSES AND OTHER CURRENT LIABILITIES
|
The components of accrued expenses and other current
liabilities at January 31, 2018 and 2017 are as follows (amounts in thousands):
|
|
January 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Accrued payroll and related items
|
|
$
|
5,108
|
|
|
$
|
4,279
|
|
Accrued utility charges
|
|
|
2,639
|
|
|
|
2,414
|
|
Accrued real estate taxes
|
|
|
2,678
|
|
|
|
2,716
|
|
Accrued income taxes
|
|
|
61
|
|
|
|
2,120
|
|
Other
|
|
|
3,230
|
|
|
|
1,819
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,716
|
|
|
$
|
13,348
|
|
The Company reports net income
per share in accordance with ASC 260, “
Earnings per Share
”. Basic net income per share is computed by dividing
net income available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted
net income per share is computed by dividing net income available to common shareholders by the weighted average number of shares
outstanding and dilutive common share equivalents during the year. Common share equivalents include the number of shares issuable
upon the exercise of restricted stock awards, less the shares that could be purchased under the treasury stock method.
The following table reconciles
the basic and diluted net income per share computations for fiscal year 2015 (amounts in thousands, except per-share amounts):
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share attributable to REX common shareholders
|
|
$
|
31,436
|
|
|
|
7,297
|
|
|
$
|
4.31
|
|
Effect of restricted stock
|
|
|
|
|
|
|
10
|
|
|
|
|
|
Diluted net income per share attributable to REX common shareholders
|
|
$
|
31,436
|
|
|
|
7,307
|
|
|
$
|
4.30
|
|
At January 31, 2018, the Company
has lease agreements, as lessee, for rail cars and a natural gas pipeline. All of the leases are accounted for as operating leases.
As of January 31, 2018, future minimum annual rentals on such leases are as follows (amounts in thousands):
Years Ended
|
|
|
Minimum
|
|
January 31,
|
|
|
Rentals
|
|
|
|
|
|
|
|
2019
|
|
|
|
7,209
|
|
2020
|
|
|
|
5,700
|
|
2021
|
|
|
|
3,931
|
|
2022
|
|
|
|
3,299
|
|
2023
|
|
|
|
1,734
|
|
Thereafter
|
|
|
|
4,130
|
|
|
|
|
$
|
26,003
|
|
During fiscal year 2017, the
Company did not purchase any of its common stock. During fiscal years 2016 and 2015, the Company purchased 87,904 shares and 1,254,344
shares, respectively, of its common stock for approximately $4,353,000 and $70,208,000, respectively. At January 31, 2018, the
Company had prior authorization by its Board of Directors to purchase, in open market transactions, an additional 155,334 shares
of its common stock. Information regarding the Company’s common stock is as follows (amounts in thousands):
|
|
January 31,
|
|
|
|
2018
|
|
|
2017
|
|
Authorized shares
|
|
|
45,000
|
|
|
|
45,000
|
|
Issued shares
|
|
|
29,853
|
|
|
|
29,853
|
|
Outstanding shares
|
|
|
6,566
|
|
|
|
6,561
|
|
10.
|
REVOLVING
LINES OF CREDIT
|
Effective April 1, 2016, One
Earth and NuGen each entered into $10.0 million revolving loan facilities that matured April 1, 2017. During the second quarter
of fiscal year 2017, One Earth and NuGen renewed the revolving loan facilities, which now mature June 1, 2018. Any borrowings
will be secured by the inventory and accounts receivable of One Earth or NuGen, specific to which entity borrows money under these
facilities. These revolving loan facilities are recourse only to One Earth and NuGen, respectively, and not to REX American Resources
Corporation or any of its other subsidiaries. Borrowings under these facilities bear interest at the one month LIBOR rate plus
225 basis points. Neither One Earth nor NuGen had outstanding borrowings on the revolving loans during the years ended January
31, 2018 or 2017.
11.
|
DERIVATIVE
FINANCIAL INSTRUMENTS
|
The Company is exposed to various market risks,
including changes in commodity prices (raw materials and finished goods). To manage risks associated with the volatility of these
natural business exposures, the Company enters into commodity agreements and forward purchase (corn) and sale (ethanol, distillers
grains and non-food grade corn oil) contracts. The Company does not purchase or sell derivative financial instruments for trading
or speculative purposes. The Company does not purchase or sell derivative financial instruments for which a lack of marketplace
quotations would require the use of fair value estimation techniques. The changes in fair value of these derivative financial
instruments are recognized in current period earnings as the Company does not use hedge accounting.
The following table provides information about
the fair values of the Company’s derivative financial instruments and the line items on the Consolidated Balance Sheets
in which the fair values are reflected (in thousands):
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Fair Value at
January 31,
|
|
|
Fair Value at
January 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity futures (1)
|
|
$
|
—
|
|
|
$
|
45
|
|
|
$
|
87
|
|
|
$
|
—
|
|
Forward purchase contracts (2)
|
|
$
|
72
|
|
|
$
|
163
|
|
|
$
|
34
|
|
|
$
|
136
|
|
|
(1)
|
Commodity futures liabilities are included in accrued expenses
and other current liabilities. Commodity futures assets are included in prepaid expense and other. These
contracts are short/sell positions for approximately 2.5 million bushels of corn and approximately 2.8 million gallons of
ethanol and long/buy positions for approximately 2.8 million gallons of ethanol at January 31, 2018. These contracts
are short/sell positions for approximately 0.7 million bushels of corn at January 31, 2017.
|
|
|
|
|
(2)
|
Forward purchase contracts assets are included in prepaid expenses and
other while forward purchase contracts liabilities are included in accrued expenses and other current liabilities. These
contracts are for purchases of approximately 11.7 million bushels of corn at January 31, 2018 and 5.3 million bushels of corn
at January 31, 2017.
|
As of January 31, 2018 and
2017, all of the derivative financial instruments held by the Company were subject to enforceable master netting arrangements.
The Company’s accounting policy is to offset positions owed or owing with the same counterparty. As of January 31, 2018
and 2017, the gross positions of the enforceable master netting agreements are not significantly different from the net
positions
presented in the table above. Depending on the amount of an unrealized loss on a derivative contract held by the Company, the
counterparty may require collateral to secure the Company’s derivative contract position. As of January 31, 2018, the Company
was required to maintain collateral with the counterparty in the amount of approximately $354,000 to secure the Company’s
derivative liability position. See Note 4 which contains fair value information related to derivative financial instruments.
The Company recognized gains (included in cost
of sales) on derivative financial instruments of approximately $1,317,000, $2,131,000 and $382,000 in fiscal years 2017, 2016
and 2015, respectively.
The Company maintains the
REX 2015 Incentive Plan, approved by its shareholders, which reserves a total of 550,000 shares of common stock for issuance pursuant
to its terms. The plan provides for the granting of shares of stock, including options to purchase shares of common stock, stock
appreciation rights tied to the value of common stock, restricted stock, and restricted stock unit awards to eligible employees,
non-employee directors and consultants. The Company measures share-based compensation grants at fair value on the grant date,
adjusted for estimated forfeitures. The Company records noncash compensation expense related to liability and equity awards in
its consolidated financial statements over the requisite service period on a straight-line basis. At January 31, 2018, 511,174
shares remain available for issuance under the Plan. As a component of their compensation, restricted stock has been granted to
directors at the market price of REX common stock on the date of the grant. In addition one third of executives’ incentive
compensation is payable by an award of restricted stock based on the then market price of REX common stock.
At January 31, 2018 and 2017,
unrecognized compensation cost related to nonvested restricted stock was approximately $233,000 and $214,000, respectively. The
following table summarizes non-vested
restricted stock award activity
for the fiscal years 2017, 2016 and 2015:
|
|
2017
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
Average Grant
|
|
|
Average Remaining
|
|
|
|
Non-Vested
|
|
|
Date Fair Value
|
|
|
Vesting Term
|
|
|
|
Shares
|
|
|
(000’s)
|
|
|
(in years)
|
|
Non-Vested at January 31, 2017
|
|
|
23,350
|
|
|
$
|
1,386
|
|
|
|
2
|
|
Granted
|
|
|
14,156
|
|
|
|
1,370
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Vested
|
|
|
8,091
|
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested at January 31, 2018
|
|
|
29,415
|
|
|
$
|
2,275
|
|
|
|
2
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
Average Grant
|
|
|
Average Remaining
|
|
|
|
Non-Vested
|
|
|
Date Fair Value
|
|
|
Vesting Term
|
|
|
|
Shares
|
|
|
(000’s)
|
|
|
(in years)
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested at January 31, 2016
|
|
|
3,168
|
|
|
$
|
200
|
|
|
|
2
|
|
Granted
|
|
|
21,502
|
|
|
|
1,269
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Vested
|
|
|
1,320
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested at January 31, 2017
|
|
|
23,350
|
|
|
$
|
1,386
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
Average Grant
|
|
|
Remaining Vesting
|
|
|
|
Non-Vested
|
|
|
Date Fair Value
|
|
|
Vesting Term
|
|
|
|
Shares
|
|
|
(000’s)
|
|
|
(in years)
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested at January 31, 2015
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Granted
|
|
|
3,168
|
|
|
|
200
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested at January 31, 2016
|
|
|
3,168
|
|
|
$
|
200
|
|
|
|
2
|
|
The above tables include 24,711
and 18,541 non-vested shares at January 31, 2018 and 2017, respectively, which are included in the number of weighted average
shares outstanding used to determine basic and diluted earnings per share attributable to REX common shareholders. Such shares
are treated, for accounting purposes, as being fully vested at the grant date as they were granted to recipients who were retirement
eligible at the time of grant.
One Earth and NuGen have combined
forward purchase contracts for approximately 14.1 million bushels of corn, the principal raw material for their ethanol plants.
They expect to take delivery of a majority of the corn through May 2018.
One Earth and NuGen have combined
sales commitments for approximately 29.4 million gallons of ethanol, 118,000 tons of distillers grains and 12.8 million pounds
of non-food grade corn oil. They expect to deliver the ethanol, distillers grains and corn oil through March 2018.
One Earth has entered into
an agreement with an unrelated party for the use of a portion of the party’s natural gas pipeline. The term of the agreement
is 10 years, and the amount is $4,380,000, which is paid over 120 equal monthly installments of $36,500. Payments began in
February 2009. An additional lease for a term of 15 years will be effective February 1, 2019 and will require monthly payments
of $29,250. One Earth paid approximately $438,000 pursuant to the lease in each of fiscal years 2017, 2016 and 2015.
One Earth and NuGen have entered
into agreements with unrelated parties for the lease of railcars used to ship ethanol and distillers grains. These leases expire
on various dates through February 1, 2024. One Earth and NuGen pay a monthly lease amount per railcar. One Earth and NuGen incurred
combined expenses of approximately $8,600,000, $8,515,000 and $7,221,000 pursuant to the leases in fiscal years 2017, 2016 and
2015, respectively.
One Earth and NuGen each have
a contract with an unrelated party (“Distillers Grains Marketer”) for distillers grains marketing services. Under
the terms of the contracts, the Distillers Grains Marketers will purchase all of One Earth’s and NuGen’s distillers grains
production during the term of the contracts. The contracts call for One Earth and NuGen to pay a fee per ton of distillers grains
for the Distillers Grains Marketers’ services. The terms of the agreements are for one year and shall renew automatically
for additional one year terms, unless either party sends notice to the other party of its intent to terminate the agreement at
least 90 days prior to the expiration of the then current term of the agreement. One Earth and NuGen incurred fees of approximately
$1,354,000, $1,194,000 and $1,169,000 in fiscal years 2017, 2016 and 2015, respectively, for these marketing services.
One Earth has a grain origination
agreement with a minority equity owner, under which it purchased 100% of its grain during fiscal years 2017, 2016 and 2015. One
Earth pays a certain amount per bushel for procurement fees. The agreement expires October 31, 2018, and renews automatically
for additional one year terms, unless either party sends notice to the other party of its intent to terminate the agreement at
least 180 days prior to the expiration of the then current term of the agreement.
The refined coal entity has
various agreements (site license, operating agreements, etc.) containing payment terms based upon production of refined coal under
which the Company is required to pay various fees. These fees totaled approximately $5.5 million in fiscal year 2017.
The (benefit) provision for
income taxes for fiscal years 2017, 2016 and 2015 consists of the following (amounts in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(2,094
|
)
|
|
$
|
12,197
|
|
|
$
|
15,804
|
|
Deferred
|
|
|
(19,528
|
)
|
|
|
3,568
|
|
|
|
(2,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,622
|
)
|
|
|
15,765
|
|
|
|
12,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and Local:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
1,180
|
|
|
|
2,153
|
|
|
|
2,651
|
|
Deferred
|
|
|
923
|
|
|
|
(525
|
)
|
|
|
(1,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,103
|
|
|
|
1,628
|
|
|
|
1,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit) provision for income taxes
|
|
$
|
(19,519
|
)
|
|
$
|
17,393
|
|
|
$
|
14,108
|
|
The tax effects of significant
temporary differences representing deferred tax assets and liabilities are as follows as of January 31, 2018 and 2017 (amounts
in thousands):
|
|
January 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Section 45 credit carryforward
|
|
$
|
3,897
|
|
|
$
|
—
|
|
Accrued liabilities
|
|
|
687
|
|
|
|
539
|
|
State net operating loss carryforward
|
|
|
241
|
|
|
|
412
|
|
Other items
|
|
|
576
|
|
|
|
513
|
|
Valuation allowance
|
|
|
(241
|
)
|
|
|
(417
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,160
|
|
|
|
1,047
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Basis in pass through entities, including depreciation
|
|
|
(26,717
|
)
|
|
|
(41,080
|
)
|
Other
|
|
|
(149
|
)
|
|
|
(278
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(26,866
|
)
|
|
|
(41,358
|
)
|
Net deferred tax liability
|
|
$
|
(21,706
|
)
|
|
$
|
(40,311
|
)
|
The Company has a valuation
allowance of approximately $241,000 and $417,000 at January 31, 2018 and 2017, respectively. The Company decreased the valuation
allowance by $176,000, $734,000 and $601,000 in fiscal years 2017, 2016 and 2015, respectively. These adjustments to the valuation
allowance are a result of estimates of realizing certain future state tax benefits and federal capital loss carryforwards.
The Tax Act signed into law on December
22, 2017, reduced the federal corporate income tax rate to 21% effective January 1, 2018. The Tax Act also makes numerous other
changes to the U.S. tax code, including, but not limited to, permitting full expensing of qualified property acquired after September
27, 2017, and expanding prior limitations on the deductibility of certain executive compensation.
The SEC issued Staff Account bulleting 118 (“SAB 118”),
which provides guidance on accounting for the tax effects of the Tax Act. In recognition of the inherent complexities associated
with accounting for the effects of the Tax Act, SAB 118 provides a measurement period of up to one year from enactment of the Tax
Act for companies to complete the accounting for the tax effects of the Tax Act. Although the accounting for the tax effects of
the Tax Act are not yet complete, at January 31, 2018 the Company made a preliminary estimate of the effect of the tax rate reducing
on the existing deferred tax balances and recorded a tax benefit of approximately $14,362,000 to remeasure the deferred tax liability
at the new 21% rate. The Company will continue to refine the calculation as additional analysis is completed; including a final
determination of the deferred tax balances at January 31, 2018 after the federal income tax return is filed, and as further guidance
is provided by the Internal Revenue Service.
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.
The Company paid income taxes
of approximately $6,920,000, $7,090,000 and $20,253,000 in fiscal years 2017, 2016 and 2015, respectively. The Company received
refunds of income taxes of approximately $476,000, $150,000 and $132,000 in fiscal years 2017, 2016 and 2015, respectively.
The effective income tax rate
on consolidated pre-tax income or loss differs from the federal income tax statutory rate for fiscal years 2017, 2016 and 2015
as follows:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax at statutory rate
|
|
|
33.8
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local taxes, net of federal tax benefit
|
|
|
3.2
|
|
|
|
2.3
|
|
|
|
(1.3
|
)
|
Section 45 production tax credits
|
|
|
(45.4
|
)
|
|
|
—
|
|
|
|
—
|
|
Tax Cuts and Jobs Act
|
|
|
(56.6
|
)
|
|
|
—
|
|
|
|
—
|
|
Net change in valuation allowance
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.2
|
)
|
Domestic production activities deduction
|
|
|
(5.9
|
)
|
|
|
(2.9
|
)
|
|
|
(1.7
|
)
|
Uncertain tax positions
|
|
|
1.4
|
|
|
|
0.8
|
|
|
|
1.0
|
|
Noncontrolling interest
|
|
|
(7.6
|
)
|
|
|
(4.6
|
)
|
|
|
(4.4
|
)
|
Other
|
|
|
0.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(76.9
|
)%
|
|
|
30.6
|
%
|
|
|
27.4
|
%
|
The Company files a U.S. federal
income tax return and income tax returns in various states. In general, the Company is no longer subject to U.S. federal, state
or local income tax examinations by tax authorities for fiscal years ended January 31, 2013 and prior.
The Company applies the provisions
of ASC 740-10-25-5 for uncertain tax positions. As of January 31, 2018, total unrecognized tax benefits were approximately $1,963,000,
and accrued penalties and interest were approximately $362,000. If the Company were to prevail on all unrecognized tax benefits
recorded, the provision for income taxes would be reduced by approximately $1,518,000. In addition, the impact of penalties and
interest would also benefit the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded
within income tax expense.
On a quarterly and annual
basis, the Company accrues for the effects of open uncertain tax positions and the related potential penalties and interest. It
is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will
increase or decrease during the next 12 months; however, the Company does not expect the change to have a material effect on results
of operations or financial position. A reconciliation of the beginning and ending amount of
unrecognized tax benefits,
including interest and penalties, is as follows (dollars in thousands):
|
|
Years Ended
|
|
|
|
January 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, beginning of year
|
|
$
|
2,096
|
|
|
$
|
987
|
|
Changes for tax positions for prior years
|
|
|
269
|
|
|
|
1,109
|
|
Changes for tax positions for current year
|
|
|
(40
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, end of year
|
|
$
|
2,325
|
|
|
$
|
2,096
|
|
The Company is involved in
various legal actions arising in the normal course of business. After taking into consideration legal counsels’ evaluation
of such actions, management is of the opinion that their outcome will not have a material effect on the Company’s consolidated
financial statements. There were no liabilities recorded at January 31, 2018 or 2017 as the Company did not believe that there
was a probable and reasonably estimable loss associated with any legal contingencies.
In the third quarter of fiscal
year 2017, the Company began reporting the results of its refined coal operations as a new segment as a result of the refined
coal acquisition (see Note 3). The Company has two segments: ethanol and by-products and refined coal. Historical amounts have
been reclassified to conform to the current year segment reporting presentation. The Company evaluates the performance of each
reportable segment based on net income attributable to REX common shareholders. The
following tables summarize
segment and other results and assets (amounts in thousands):
|
|
Fiscal Year
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
452,153
|
|
|
$
|
453,799
|
|
|
$
|
436,488
|
|
Refined coal
1
|
|
|
433
|
|
|
|
—
|
|
|
|
—
|
|
Total net sales and revenue
|
|
$
|
452,586
|
|
|
$
|
453,799
|
|
|
$
|
436,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
51,509
|
|
|
$
|
71,039
|
|
|
$
|
50,834
|
|
Refined coal
|
|
|
(7,348
|
)
|
|
|
—
|
|
|
|
—
|
|
Total gross profit
|
|
$
|
44,161
|
|
|
$
|
71,039
|
|
|
$
|
50,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
38,352
|
|
|
$
|
59,447
|
|
|
$
|
53,469
|
|
Refined coal
|
|
|
(10,021
|
)
|
|
|
—
|
|
|
|
—
|
|
Corporate and other
|
|
|
(2,938
|
)
|
|
|
(2,536
|
)
|
|
|
(1,951
|
)
|
Total income (loss) before income taxes
|
|
$
|
25,393
|
|
|
$
|
56,911
|
|
|
$
|
51,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
3,245
|
|
|
$
|
(18,259
|
)
|
|
$
|
(14,690
|
)
|
Refined coal
|
|
|
15,168
|
|
|
|
—
|
|
|
|
—
|
|
Corporate and other
|
|
|
1,106
|
|
|
|
866
|
|
|
|
582
|
|
Total benefit (provision) for income taxes
|
|
$
|
19,519
|
|
|
$
|
(17,393
|
)
|
|
$
|
(14,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
35,880
|
|
|
$
|
33,950
|
|
|
$
|
32,734
|
|
Refined coal
|
|
|
5,628
|
|
|
|
—
|
|
|
|
—
|
|
Corporate and other
|
|
|
(1,802
|
)
|
|
|
(1,617
|
)
|
|
|
(1,298
|
)
|
Net income attributable to REX common shareholders
|
|
$
|
39,706
|
|
|
$
|
32,333
|
|
|
$
|
31,436
|
|
1
Sales in the
refined coal segment are recorded net of the cost of coal as the Company purchases the coal feedstock from the customer to which
refined coal is sold.
|
|
Fiscal Year
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products, ethanol and by-products segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol
|
|
$
|
359,239
|
|
|
$
|
358,349
|
|
|
$
|
333,200
|
|
Dried distillers grains
|
|
|
63,120
|
|
|
|
71,204
|
|
|
|
81,116
|
|
Non-food grade corn oil
|
|
|
21,195
|
|
|
|
18,518
|
|
|
|
15,510
|
|
Modified distillers grains
|
|
|
8,525
|
|
|
|
5,326
|
|
|
|
5,999
|
|
Other
|
|
|
74
|
|
|
|
402
|
|
|
|
663
|
|
Total sales
|
|
$
|
452,153
|
|
|
$
|
453,799
|
|
|
$
|
436,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products, refined coal segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refined coal
|
|
$
|
433
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
878
|
|
|
$
|
212
|
|
|
$
|
176
|
|
Refined coal
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Corporate and other
|
|
|
678
|
|
|
|
222
|
|
|
|
205
|
|
Total interest income
|
|
$
|
1,556
|
|
|
$
|
434
|
|
|
$
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
20,037
|
|
|
$
|
19,464
|
|
|
$
|
18,559
|
|
Refined coal
|
|
|
1,385
|
|
|
|
—
|
|
|
|
—
|
|
Corporate and other
|
|
|
40
|
|
|
|
55
|
|
|
|
79
|
|
Total depreciation expense
|
|
$
|
21,462
|
|
|
$
|
19,519
|
|
|
$
|
18,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
3,232
|
|
|
$
|
6,144
|
|
|
$
|
8,984
|
|
Refined coal
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Corporate and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total equity in income of unconsolidated affiliates
|
|
$
|
3,232
|
|
|
$
|
6,144
|
|
|
$
|
8,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain on sale of investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
(13
|
)
|
|
$
|
192
|
|
|
$
|
10,385
|
|
Refined coal
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Corporate and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total gain on sale of investment
|
|
$
|
(13
|
)
|
|
$
|
192
|
|
|
$
|
10,385
|
|
|
|
January 31,
|
|
Assets:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
384,997
|
|
|
$
|
371,464
|
|
|
$
|
348,779
|
|
Refined coal
|
|
|
12,165
|
|
|
|
—
|
|
|
|
—
|
|
Corporate and other
|
|
|
81,702
|
|
|
|
82,560
|
|
|
|
65,906
|
|
Total assets
|
|
$
|
478,864
|
|
|
$
|
454,024
|
|
|
$
|
414,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to other long lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
796
|
|
|
$
|
832
|
|
|
$
|
696
|
|
Refined coal
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Corporate and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total additions to other long lived assets
|
|
$
|
796
|
|
|
$
|
832
|
|
|
$
|
696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and by-products
|
|
$
|
24,017
|
|
|
$
|
14,208
|
|
|
$
|
15,495
|
|
Refined coal
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Corporate and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total additions to property and equipment
|
|
$
|
24,017
|
|
|
$
|
14,208
|
|
|
$
|
15,495
|
|
All of the Company’s
ethanol and distillers grains are sold in the domestic market. The Company’s marketers make all decisions with regard to
where products they purchase from the Company are distributed.
17.
|
QUARTERLY
UNAUDITED INFORMATION
|
The following tables set forth
the Company’s net sales and revenue, gross profit, net income and net income per share (basic and diluted) for each quarter
during the last two fiscal years. In the opinion of
management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
|
|
Quarters Ended
|
|
|
|
(In Thousands, Except Per Share Amounts)
|
|
|
|
April 30,
|
|
|
July 31,
|
|
|
October 31,
|
|
|
January 31,
|
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue
|
|
$
|
113,143
|
|
|
$
|
108,744
|
|
|
$
|
121,164
|
|
|
$
|
109,535
|
|
Gross profit
|
|
|
12,489
|
|
|
|
10,781
|
|
|
|
14,867
|
|
|
|
6,024
|
|
Net income
|
|
|
5,612
|
|
|
|
4,171
|
|
|
|
14,994
|
|
|
|
20,135
|
|
Net income attributable to REX common shareholders
|
|
|
4,544
|
|
|
|
2,941
|
|
|
|
13,168
|
|
|
|
19,053
|
|
Basic and diluted net income per share attributable to REX common shareholders (a)
|
|
$
|
0.69
|
|
|
$
|
0.45
|
|
|
$
|
2.00
|
|
|
$
|
2.89
|
|
|
|
|
|
|
|
Quarters Ended
|
|
|
|
(In Thousands, Except Per Share Amounts)
|
|
|
|
April 30,
|
|
|
July 31,
|
|
|
October 31,
|
|
|
January 31,
|
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue
|
|
$
|
100,222
|
|
|
$
|
115,707
|
|
|
$
|
116,283
|
|
|
$
|
121,587
|
|
Gross profit
|
|
|
8,422
|
|
|
|
17,284
|
|
|
|
20,162
|
|
|
|
25,171
|
|
Net income
|
|
|
3,466
|
|
|
|
9,029
|
|
|
|
11,474
|
|
|
|
15,549
|
|
Net income attributable to REX common shareholders
|
|
|
2,838
|
|
|
|
8,176
|
|
|
|
8,938
|
|
|
|
12,381
|
|
Basic and diluted net income per share attributable to REX common shareholders
|
|
$
|
0.43
|
|
|
$
|
1.24
|
|
|
$
|
1.36
|
|
|
$
|
1.88
|
|
|
a)
|
The total of the quarterly net income per share amounts do
not equal the annual net income per share amounts due to the impact of varying amounts of shares outstanding during the year.
|
During fiscal years 2017,
2016 and 2015, One Earth and NuGen purchased approximately $154.5 million, $148.5 million and $148.2 million, respectively, of
corn from minority equity investors. The Company had amounts payable to related parties for corn purchases of approximately $0.9
million and $1.7 million at January 31, 2018 and 2017, respectively.
During fiscal year 2017, the
Company recognized commission expense of approximately $1.8 million, payable to the minority investor in the refined coal entity.
The commission expense is associated with the refined coal acquisition. The Company had accrued liabilities related to the commission
expense of approximately $1.5 million at January 31, 2018.
During fiscal year 2017, the
Company received approximately $0.9 million in capital contributions from the minority investor in the refined coal entity.
On March 20, 2018, the Company’s
Board of Directors increased its share repurchase authorization by an additional 500,000 shares.
* * * * * *