REX American Resources Corporation — Form 10-K
Period clarification: The filing covers the fiscal year ended January 31, 2014 (fiscal 2013, February 1, 2013–January 31, 2014), not 2012 Q4 as indicated in the request metadata. Unless otherwise noted, amounts below are in U.S. dollars.
Business context and reporting period
REX is principally an ethanol producer and investor, with a smaller real estate segment. It consolidates One Earth Energy (74%) and NuGen Energy (99%) and holds minority interests in Patriot Holdings (27%) and Big River Resources (10%). The former retail business was exited; its remaining service-plan activity is reported as discontinued operations. The company reported four leased former retail properties and seven vacant properties at year-end.
Financial results and position
| Metric | FY ended Jan. 31, 2014 | Prior year |
|---|---|---|
| Revenue | $666.1 million | $656.6 million |
| Gross profit / margin | $64.2 million / 9.6% | $13.6 million / 2.1% |
| Continuing-operations income before tax | $59.8 million | Loss of $3.8 million |
| Net income attributable to REX shareholders | $35.1 million; $4.31 per diluted share | Loss of $2.3 million; loss of $0.28 per diluted share |
| Operating cash flow | $64.4 million | $17.0 million |
| Cash and cash equivalents at year-end | $105.1 million | $69.1 million |
| Total debt at year-end | $75.7 million | $106.9 million |
Alternative energy segment profit was $63.2 million, versus a $1.0 million loss a year earlier. Equity-method income from Big River and Patriot totaled $17.2 million, compared with $0.6 million. Interest expense declined to $3.9 million from $4.8 million. Capital expenditures were $3.5 million. Financing cash outflow was $35.2 million, including $31.2 million of debt repayments and $3.5 million of share repurchases.
Current assets were $148.8 million and current liabilities $32.1 million. Approximately $41.8 million of cash was held by One Earth and NuGen, whose debt agreements restrict distributions. REX reported no parent-company debt at year-end; consolidated debt is principally at the ethanol subsidiaries and is non-recourse to REX. No dividends were paid to REX shareholders.
Material changes versus the prior comparable year
- Revenue rose 1.4%, while gross profit increased by about $50.5 million, reflecting improved ethanol crush spreads and lower corn costs in the second half of the year.
- Average ethanol selling price decreased to $2.20 per gallon from $2.23, but reported ethanol sales volume increased to approximately 227.2 million gallons from 222.0 million.
- Average grain cost fell to $6.27 per bushel from $7.14; natural gas cost rose to $4.54 per MMBtu from $3.75.
- Debt fell by approximately $31.2 million after scheduled, accelerated, and excess-cash-flow repayments. Cash increased by $36.1 million.
- The prior year included a $5.3 million continuing-operations loss attributable to REX; current-year results include gains on disposal of discontinued operations of $0.7 million after tax.
Outlook, commentary, risks, and unusual items
- Management expected consolidated ethanol production of approximately 200–230 million gallons annually, assuming the plants operated at or above nameplate capacity. It anticipated fiscal 2014 capital expenditures of $4–$8 million and interest expense of $2.2–$2.9 million.
- Management described crush spreads as favorable early in fiscal 2014, supported by lower corn prices and strong ethanol pricing, partly offset by higher natural gas costs. It cautioned that commodity volatility makes future earnings difficult to predict.
- Forward fixed-price contracts covered approximately 10% of forecast ethanol sales, 26% of distillers grains sales, 11% of corn-oil sales, and 8% of estimated corn usage for the next 12 months. The filing estimates that a 10% adverse price change could reduce revenue by $46.6 million for the products cited, or increase corn costs by $32.3 million; natural gas exposure was separately estimated at $4.0 million for a 10% adverse change.
- Key risks include volatile corn, ethanol, co-product and natural-gas prices; supply and demand, regulatory and trade changes; customer concentration; plant operating interruptions; subsidiary debt covenants and limits on distributions; and vacant real estate. Four customers represented 82% of annual sales and 91% of year-end receivables.
- REX held $19.8 million of alternative minimum tax credit carryforwards recorded as deferred tax assets; realization depends on future taxable income. The filing also reports $1.5 million of unrecognized tax benefits and $0.4 million of accrued interest and penalties.
- One Earth and NuGen were in compliance with their stated financial covenants at year-end. Both had previously received covenant waivers or amendments; management forecast compliance over the following 12 months, subject to operating assumptions.
- REX invested approximately $1.0 million in Future Energy’s unproven eSteam heavy-oil technology during the year. Commercial viability, patent defense, and permitting and resource requirements remain uncertain.
- The filing reports an unqualified audit opinion and an unqualified opinion on internal control over financial reporting. Legal proceedings were described as incidental, with no material loss recorded.
Most important facts for investors to verify
- Confirm the reporting-period mismatch: this is the fiscal-year 2013 10-K, not a 2012 Q4 filing.
- Assess whether improved earnings and cash flow are sustainable given crush-spread volatility and the large year-over-year earnings swing.
- Review subsidiary debt maturities, covenant requirements, cash restrictions, and the ability to upstream cash to REX.
- Monitor customer concentration, forward-contract coverage, and the sensitivity of margins to commodity-price changes.
- Evaluate recoverability of the AMT credits, leasing or sale prospects for vacant properties, and the funding and commercial prospects of eSteam.