REX American Resources Corporation — FY2016 Form 10-K
Period: Fiscal year ended January 31, 2017 (February 1, 2016–January 31, 2017). The request metadata says “2015 Q4,” but the supplied filing is the FY2016 annual report, not a quarterly filing.
Business context
REX is primarily an ethanol producer and investor, with two majority-owned plants consolidated and a minority investment in Big River Resources. It also has a small, unproven eSteam heavy-oil technology venture. The ethanol business depends heavily on corn, ethanol, distillers-grains, corn-oil and natural-gas prices.
Key financial metrics
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $453.8 million | $436.5 million |
| Gross profit | $71.0 million | $50.8 million |
| Gross margin | 15.7% | 11.6% |
| Net income attributable to REX shareholders | $32.3 million | $31.4 million |
| Diluted earnings per share | $4.91 | $4.30 |
| Cash from operating activities | $69.1 million | $40.2 million |
| Cash and cash equivalents at year-end | $188.6 million | $135.8 million |
| Long-term debt | None | None |
Current assets were $226.5 million and current liabilities were $22.5 million at year-end. Total shareholders’ equity was $340.4 million. Capital expenditures were $14.2 million; investing activities used $7.7 million, while financing activities used $8.6 million. REX paid no common-stock dividends. Two plant-level revolving credit facilities of $10 million each were unused at year-end.
Material changes versus FY2015
- Revenue rose 4.0%, mainly as ethanol gallons sold increased 6.4% to 246.9 million; average ethanol selling price edged up to $1.45 per gallon from $1.44.
- Gross profit increased about $20.2 million, with the reported crush spread improving to approximately $0.25 per gallon from $0.17.
- Dried distillers-grains revenue declined to $71.2 million from $81.1 million as average price fell to $123.97 per ton from $145.50. Corn-oil revenue increased to $18.5 million from $15.5 million.
- Operating cash flow rose to $69.1 million from $40.2 million. Year-end cash increased by $52.8 million, supported by operations and partly offset by investment and financing outflows.
- FY2015 included a $10.4 million pre-tax gain from selling REX’s Patriot investment; FY2016 included only a $0.2 million gain from later escrow and purchase-price adjustments. REX received $4.5 million of related proceeds in FY2016.
- REX repurchased about 87,900 shares for $4.4 million in FY2016, versus approximately 1.25 million shares for $70.2 million in FY2015.
Outlook, risks and contingencies
- Management expected consolidated plants to produce 240–270 million gallons of ethanol annually if margins were adequate. Planned FY2017 capital expenditures were approximately $20–30 million, principally for plant capacity expansion; management expected to fund them from plant cash.
- Management reported weaker crush spreads early in FY2017, citing lower ethanol prices amid oversupply and lower distillers-grains prices affected by Chinese trade duties. The filing does not provide a quantified earnings forecast.
- Commodity exposure is substantial: none of forecast ethanol sales for the next 12 months were fixed-price contracted, and only about 1% of estimated corn usage was fixed-price. A 10% adverse move in ethanol prices was estimated to reduce revenue by about $38.8 million; a comparable corn-price increase could raise cost of goods sold by about $32.3 million.
- Key risks include commodity-price and supply volatility, ethanol-industry capacity and demand, changes to renewable-fuel mandates and other regulation, export barriers, plant interruptions, customer concentration, and transportation and rail costs. Five customers accounted for about 83% of FY2016 revenue; those customers represented 88% of year-end receivables.
- Big River’s debt agreements restrict distributions; REX’s proportionate share of its restricted net assets was approximately $27.0 million. REX also reported about $2.1 million of unrecognized tax benefits and related interest and penalties excluded from contractual-obligation totals.
- REX had spent approximately $1.7 million on eSteam, whose commercial feasibility had not been demonstrated. Management said current legal proceedings were not expected to have a material adverse effect and recorded no legal-contingency liabilities.
- The independent auditor gave an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective.
Important facts for investors to verify
- Whether ethanol and co-product prices, corn and natural-gas costs, and realized crush spreads support the planned output and expansion.
- Whether Chinese duties and other export or regulatory developments continue to pressure distillers-grains and ethanol pricing.
- Customer concentration, receivables collection, and the extent to which plant cash is available for parent-company needs or dividends.
- Actual FY2017 capital spending, capacity additions, production levels, and any financing or liquidity changes after year-end.
- Progress, additional funding needs, and potential impairment exposure for the unproven eSteam investment.