REX American Resources Corporation — FY2015 Form 10-K
Reporting period: Fiscal year ended January 31, 2016 (February 1, 2015–January 31, 2016). The request metadata says “2014 Q4,” but the filing is an annual report for FY2015, not that period.
Business context
REX operates in alternative energy, principally through two consolidated corn-ethanol plants, One Earth and NuGen, and a minority equity investment in Big River. The company sold its 27% interest in Patriot Holdings in June 2015. Its consolidated plants shipped 232.1 million gallons of ethanol during the year. Operations depend heavily on the crush spread and volatile prices for ethanol, corn, distillers grains, corn oil and natural gas.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales and revenue | $436.5 million | $572.2 million |
| Gross profit | $50.8 million; 11.6% margin | $141.9 million; 24.8% margin |
| Income from continuing operations | $37.4 million | $103.2 million |
| Net income attributable to REX shareholders | $31.4 million; diluted EPS $4.30 | $87.3 million; diluted EPS $10.76 |
| Cash provided by operating activities | $40.2 million | $137.2 million |
- Revenue declined 23.7%. Ethanol revenue fell to $333.2 million from $452.8 million, primarily reflecting lower selling prices.
- The average ethanol selling price fell to $1.44 per gallon from $2.00; the reported crush spread fell to approximately $0.17 per gallon from $0.59. Gross profit declined approximately $91.1 million.
- Cash and cash equivalents were $135.8 million at year-end, versus $137.7 million a year earlier; current assets were $179.4 million and current liabilities $19.6 million.
- REX reported no long-term debt and no interest expense. One Earth and NuGen each had a $10 million revolving credit facility, with no borrowings at year-end; the facilities matured April 1, 2016.
- Investing activities provided $32.2 million, including $45.5 million from the Patriot sale; capital expenditures were $15.5 million. Financing activities used $74.3 million, including $69.9 million for share repurchases. REX paid no common-stock dividends.
Material changes and unusual items
- The Patriot sale generated a reported pretax gain of $10.4 million; the company described the after-tax gain as approximately $6.6 million. REX also recorded $4.4 million of estimated escrow proceeds as a receivable, with final determination expected by December 2016.
- REX no longer recorded equity-method earnings from Patriot after the sale. Equity in income of unconsolidated ethanol affiliates fell to $9.0 million from $32.2 million, including Big River and Patriot earnings.
- Cash flow from operations dropped sharply from FY2014, alongside lower earnings and lower dividends received from equity-method investees ($11.2 million versus $22.9 million).
- Four customers represented approximately 75% of FY2015 sales; the same customer group accounted for 47% of year-end receivables. The company also reports cash deposits above federal insurance limits.
Outlook, risks and contingencies
- Management expects consolidated plants to produce approximately 215–240 million gallons of ethanol annually, assuming operation at or above nameplate capacity. Expected annual co-product sales are 550,000–625,000 tons of dried distillers grains, 50–70 million pounds of corn oil and 60,000–100,000 tons of modified distillers grains.
- Management said crush spreads remained pressured in the first quarter of FY2016 by low energy prices and ethanol oversupply; distillers grains prices were also below the prior-year level. China had initiated trade investigations concerning U.S. distillers grains.
- FY2016 capital expenditures were estimated at $6–10 million. The company was considering expansion of existing plants by approximately 10–15%, evaluating other investments and continuing its share-repurchase program; it did not plan to build a new ethanol plant.
- Commodity-price exposure is substantial: none of forecast ethanol sales and only about 2% of estimated corn usage for the next 12 months were under fixed-price contracts. The filing estimates that a 10% adverse price change could reduce revenue by about $38.5 million across ethanol and co-products, while a 10% corn-price increase could add about $30.7 million to annual costs.
- Other key risks include changes to federal renewable-fuel mandates, industry overcapacity, weather and feedstock availability, energy and transportation disruptions, environmental requirements, customer concentration, and limited control over minority-owned operations. The eSteam heavy-oil technology remains unproven; approximately $1.6 million had been spent, with no demonstrated commercial feasibility.
- The company reported no off-balance-sheet arrangements. It said ongoing legal proceedings were not expected to materially affect financial condition or results, and recorded no legal-contingency liability. The filing reports unqualified audit opinions and effective internal control over financial reporting.
Important facts for investors to verify
- Whether ethanol and corn prices, crush spreads and plant utilization support management’s 215–240 million-gallon production outlook.
- The timing and final amount of the $4.4 million Patriot escrow receivable, and the sustainability of earnings after the Patriot divestiture.
- Customer concentration, commodity contract coverage and the stated sensitivity of earnings and cash flows to price changes.
- Availability and renewal status of the plant revolvers after their April 1, 2016 maturity, and the extent to which subsidiary cash can be distributed to REX.
- Progress on the proposed capacity expansion, expected capital requirements, and the commercial and funding prospects for eSteam.