REX American Resources Corporation — Form 10-K Summary
Reporting period: The filing covers fiscal year 2020, February 1, 2020 through January 31, 2021. This does not match the request metadata of “2019 Q4”; the filing’s comparable year is fiscal 2019, ended January 31, 2020.
Business context
REX invests in ethanol and by-products production and refined coal. It holds majority interests in One Earth Energy and NuGen Energy, minority interests in Big River Resources, and a majority interest in a refined coal operation. The ethanol business is exposed to volatile corn, ethanol, distillers grains, corn oil and natural gas prices.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales and revenue | $372.8 million | $418.0 million |
| Gross profit | $13.9 million; 3.7% margin | $12.5 million; 3.0% margin |
| Income (loss) before tax | $(1.5) million | $(1.2) million |
| Income tax benefit | $7.1 million | $12.8 million |
| Net income attributable to REX shareholders | $3.0 million; $0.49 diluted EPS | $7.4 million; $1.18 diluted EPS |
| Net cash from operating activities | $8.6 million | $10.3 million |
Cash and cash equivalents were $144.5 million and short-term investments were $36.2 million at year-end, totaling $180.7 million, down from $205.7 million a year earlier. Current assets were $258.8 million and current liabilities $30.7 million. The balance sheet reports no borrowings; operating lease liabilities totaled $12.3 million. Operating cash flow less capital expenditures of $10.4 million was approximately negative $1.8 million. REX repurchased approximately 315,000 shares for $19.6 million during the year.
The ethanol segment shipped 217.1 million gallons, down from 235.3 million. Average ethanol selling price fell to $1.30 per gallon from $1.37, while average corn cost declined to $3.73 per bushel from $3.82. The segment’s reported crush spread narrowed to approximately $0.03 per gallon from $0.05.
Material changes versus FY2019
- Revenue fell 10.8%, primarily reflecting lower ethanol and by-product sales amid COVID-19-related demand declines, plant shutdowns and reduced shipment volumes.
- Both consolidated ethanol plants were idled in late March 2020: One Earth resumed in late May and NuGen in late June.
- REX’s attributable net income declined by about 60%, despite higher consolidated gross profit. The tax benefit fell by $5.7 million, mainly because lower refined coal production generated fewer Section 45 credits.
- Operating cash flow declined by $1.7 million. Capital expenditures rose to $10.4 million from $3.8 million.
- Interest and other income declined to $1.8 million from $4.2 million, reflecting lower yields on cash and investments.
Outlook, risks and unusual items
- Management forecast fiscal 2021 capital expenditures of approximately $5 million to $10 million, primarily for consolidated ethanol plants. It provided no earnings or revenue guidance and said future sales volumes could not be reasonably estimated.
- REX expects refined coal operations to cease on or before November 18, 2021, when Section 45 credits expire. The segment incurred a $5.7 million gross loss in FY2020; management says it would not be profitable without the credits. Production and tax benefits also depend on demand from a single utility customer and continued tax-credit qualification.
- COVID-19 effects, commodity-price volatility, local corn availability, ethanol demand, EPA small-refinery exemptions and renewable-fuel mandates remain material uncertainties. Forward commodity contracts and derivatives may not fully offset these exposures; FY2020 included derivative losses.
- The company reported $8.4 million of unrecognized tax benefits and is undergoing a federal tax examination for fiscal years ended January 31, 2015–2017. Management said a change in uncertain tax positions over the next 12 months was not expected to materially affect results or financial position.
- Approximately $40.6 million of general business tax-credit carryforwards are recognized among deferred tax assets. Their recoverability depends on future taxable income; the auditor identified valuation of deferred tax assets as a critical audit matter. The auditor issued an unqualified opinion on the financial statements and internal controls.
- Contractual obligations totaled $46.1 million, including $13.3 million of operating leases and $32.7 million of purchase obligations. Approximately $8.4 million of uncertain tax positions and related interest and penalties were excluded from that table.
- Management reported no material pending legal proceedings or off-balance-sheet arrangements. The filing notes customer concentration: seven customers accounted for approximately 89% of FY2020 revenue.
Key facts for investors to verify
- Confirm the intended period: this is the 10-K for the year ended January 31, 2021, not a 2019 Q4 filing.
- Assess whether ethanol margins, plant utilization and corn supply recovered after the COVID-related shutdowns, and whether current commodity hedges leave material exposure.
- Evaluate the sustainability of reported earnings given the large tax benefit, the expected end of refined coal tax credits, and the realizability of deferred tax assets.
- Review the outcome of the federal tax examination, the $8.4 million uncertain-tax-position balance, and the impact of the pending regulatory and RFS developments.
- Check cash accessibility: approximately $132.5 million was held by One Earth and NuGen, and Big River dividend payments are restricted by its debt agreements.