REX American Resources Corporation — Form 10-Q Summary
Reporting period: Three months ended April 30, 2012 (fiscal 2012 first quarter), compared with the three months ended April 30, 2011. The financial statements are unaudited. The filing’s period is 2012 Q1, notwithstanding the request metadata identifying 2011 Q1.
Business context
REX operates in alternative energy and real estate. Its alternative-energy business includes ownership interests in ethanol producers; results include consolidated operations of One Earth and, since November 1, 2011, NuGen. REX had exited retail operations, with remaining service-plan activity reported as discontinued operations.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $151.0 million | $81.2 million |
| Gross profit / margin | $5.5 million / 3.6% | $4.7 million / 5.8% |
| Income from continuing operations before tax | $1.9 million | $7.7 million |
| Income from continuing operations | $1.3 million | $5.0 million |
| Net income attributable to REX shareholders | $0.9 million; $0.11 per diluted share | $4.7 million; $0.49 per diluted share |
| Operating cash flow | $5.0 million | $9.1 million |
Revenue increased approximately 86%, primarily because NuGen’s sales were consolidated in the current period; this is not a like-for-like growth comparison. Gross profit rose modestly, but gross margin contracted. The lower continuing income mainly reflected a sharp decline in equity-method investment income, lower alternative-energy segment profit, and higher interest expense.
At April 30, 2012, cash and cash equivalents were $72.1 million, working capital was $91.3 million, and the current ratio was 4.1:1. Total debt was approximately $116.9 million, comprising $12.7 million current and $104.2 million long-term debt. Debt was at subsidiary level and recourse only to the respective borrower, not REX or its other subsidiaries. Operating, investing, and financing cash flows were respectively $5.0 million provided, $0.8 million used, and $7.1 million used; cash declined $2.9 million during the quarter. Capital expenditures were $1.7 million.
Material changes and operating results
- Alternative-energy revenue rose to $150.7 million from $80.9 million, while segment profit fell to $2.5 million from $8.4 million. Consolidating NuGen contributed substantially to the revenue increase, but lower crush spreads and weaker equity-method income weighed on profit.
- Reported equity-method income fell to $0.4 million from $5.8 million. NuGen contributed $3.6 million in the prior-year comparison; it was consolidated rather than accounted for under the equity method in the current period. Big River income also declined, and Patriot recorded a loss.
- Average ethanol selling price fell to $2.14 per gallon from $2.35, while average dried distillers grains price increased to $197.82 per ton from $183.22. The reported ethanol crush spread was approximately negative $0.15 per gallon versus positive $0.01.
- Real-estate revenue was $0.35 million. Fifteen former retail stores were vacant; six were leased, and the distribution center was partly leased, occupied, and vacant.
- Debt payments of $6.8 million reduced cash. One Earth and NuGen were reported in compliance with applicable financial covenants at quarter-end; neither had drawn its revolving credit facility.
Outlook, risks, and contingencies
Management said it expected sufficient working capital and credit availability for the next 12 months and foreseeable future. It forecast annual production of approximately 200–230 million gallons of ethanol, 580,000–620,000 tons of dried distillers grains, and 35–45 million pounds of corn oil, assuming One Earth and NuGen operate at or near nameplate capacity. Management expected segment SG&A and interest expense to remain broadly consistent with first-quarter levels and planned $2.0–$2.5 million of additional plant projects during the remainder of fiscal 2012. REX may evaluate further alternative-energy investments, but gave no assurance of completing any.
Results are exposed to volatile corn, ethanol, distillers grains, corn oil, and natural-gas prices; plant operating performance; interest rates; and real-estate conditions. Management noted that forward sales contracts generally cover no more than about three months, limiting visibility into future crush spreads. The filing quantified significant potential revenue and cost exposure to adverse commodity-price movements. Variable-rate debt totaled approximately $115.9 million, of which $57.9 million was fixed through swaps; a disclosed 10% adverse interest-rate move would increase interest cost by approximately $479,000 over the debt term, subject to the NuGen rate floor. One Earth’s swap liability was reported at $3.9 million, with current-period derivative losses of $0.1 million.
One Earth and NuGen had combined purchase commitments for 9.8 million bushels of corn and sales commitments for 28.3 million gallons of ethanol, 37,000 tons of distillers grains, and 1.5 million pounds of corn oil. The filing gives differing expected corn-delivery end dates in separate sections (July and October 2012). Management said pending legal matters were not expected to materially affect the financial statements; no material risk-factor changes were reported for the quarter. Unrecognized tax benefits, including interest and penalties, were approximately $2.5 million.
Important facts for investors to verify
- Confirm the applicable comparison period and assess NuGen consolidation effects before interpreting revenue growth or earnings trends.
- Track crush spreads, commodity prices, production levels, and the extent to which future sales and grain costs are protected by contracts.
- Review subsidiary-level debt amortization, covenant compliance, cash restrictions, and swap exposure; subsidiary cash and assets may not be freely available to the parent.
- Reconcile the filing’s differing corn-delivery end dates and its separate commodity-price sensitivity disclosures.
- Monitor occupancy, leasing, and potential sale activity for vacant real-estate properties, as well as the resolution of uncertain tax positions.