REX American Resources Corporation — Form 10-Q Summary
Reporting period: Quarter ended July 31, 2013 (REX fiscal 2014? No: the filing defines fiscal year 2013 as February 1, 2013–January 31, 2014, making this fiscal Q2 2013). The request metadata says “2012 Q2,” but the filing itself reports the quarter ended July 31, 2013 and compares it with 2012.
REX operates alternative-energy and real-estate segments. Alternative energy includes consolidated ethanol producers One Earth and NuGen, plus equity-method investments in Big River and Patriot. The former retail business is reported as discontinued operations.
Financial performance
Amounts below are in millions, except per-share data. Interim financial statements are unaudited.
| Metric | Three months ended July 31, 2013 | Three months ended July 31, 2012 | Six months ended July 31, 2013 | Six months ended July 31, 2012 |
|---|---|---|---|---|
| Revenue | $175.7 | $153.2 | $354.5 | $304.2 |
| Gross profit / margin | $11.0 / 6.3% | $7.0 / 4.5% | $20.1 / 5.7% | $12.5 / 4.1% |
| Income from continuing operations | $6.7 | $1.2 | $10.5 | $2.5 |
| Net income attributable to REX shareholders | $5.8 | $0.8 | $9.3 | $1.7 |
| Basic and diluted net income per share | $0.71 | $0.10 | $1.14 | $0.21 |
| Equity-method investment income (loss) | $4.6 | $(0.5) | $6.2 | $(0.04) |
| Net cash from operating activities | Not presented by quarter | $8.5 | $3.5 |
- Revenue growth was principally in alternative energy. For the quarter, alternative-energy revenue increased about $22.5 million; for the six months, it increased about $50.2 million.
- Quarterly ethanol sales prices rose to $2.38 per gallon from $2.12; average grain cost also increased, to $7.15 per bushel from $6.49. The reported crush spread remained negative, approximately $(0.17) per gallon, versus $(0.20) a year earlier.
- Equity-method income improved sharply as Big River and Patriot reported stronger results. Management attributed their improvement partly to better crush spreads and risk-management activity, while cautioning that future results are unpredictable.
- SG&A was $4.2 million for the quarter and $7.9 million for six months, up from $3.6 million and $6.2 million, respectively. Interest expense declined year over year, mainly because of scheduled debt repayments.
Financial position and liquidity
- At July 31, 2013, cash and cash equivalents were $68.8 million, restricted cash was $0.5 million, and total assets were $408.7 million. Cash and cash equivalents were $69.1 million at January 31, 2013.
- Current assets were $123.3 million and current liabilities $34.9 million, yielding working capital of approximately $88.4 million and a current ratio of 3.5 to 1. Total working capital was $83.5 million at January 31, 2013.
- Total debt carrying value was approximately $98.3 million: $16.8 million current and $81.5 million long term. Debt fair value was estimated at $98.3 million. Cash less debt was approximately $(29.5) million, before considering restricted cash and other liquidity restrictions.
- Operating cash flow of $8.5 million exceeded the prior-year $3.5 million. Working-capital movements included $5.8 million used by higher receivables and $4.5 million used by higher inventories. Capital expenditures were $0.3 million; debt repayments were $8.6 million; share repurchases used $0.9 million. Cash decreased by $0.3 million over the six months.
- One Earth and NuGen debt is secured by the respective subsidiary’s assets and is non-recourse to REX and its other subsidiaries. They had $52.6 million and $45.4 million of term debt outstanding, respectively, at July 31. Neither had borrowings on its revolving facility, although NuGen had $0.5 million of letters of credit.
- Cash held by One Earth and NuGen was approximately $21.2 million and is intended primarily for subsidiary liquidity and working capital. Their loan agreements restrict distributions; the filing also identifies substantial restricted net assets at the operating subsidiaries and equity-method investees.
Outlook, risks, and other notable items
- Management said it believes REX has sufficient working capital and credit availability for operations and commitments over the next 12 months. It also believes One Earth and NuGen can meet their liquidity needs and remain covenant-compliant, based on forecasts; actual results materially below forecast could impair liquidity and covenant compliance.
- For One Earth and NuGen, management expects annual output of 200–230 million gallons of ethanol, 575,000–625,000 tons of dried distillers grains, 50,000–70,000 tons of modified distillers grains, and 40–60 million pounds of non-food-grade corn oil, assuming plants operate near capacity and crush spreads support production. Combined plant capital spending of approximately $1–3 million was expected for the remainder of fiscal 2013. These are operating expectations, not full-year earnings guidance.
- Commodity exposure is significant. For the next 12 months, approximately 13% of forecast ethanol sales, 16% of distillers-grains sales, 23% of corn-oil sales, and 5% of estimated corn usage were fixed-price contracted. The filing estimates that a 10% adverse price move could reduce remaining forecast sales revenue by about $52 million in aggregate or increase corn costs by about $43 million; these are sensitivities, not forecasts of actual losses.
- Other risks include weather and crop conditions, availability and prices of corn, ethanol, coproducts and natural gas, plant operating performance, interest-rate movements, and real-estate market conditions. A $50 million-notional One Earth interest-rate swap fixed part of the rate at 7.9%; its reported fair-value liability was approximately $1.9 million. The swap expires July 8, 2014.
- Subsequent to quarter-end, on September 3, 2013, One Earth amended/refinanced its loan. The filing reports a refinance amount of approximately $44.1 million and additional principal payments after quarter-end, while retaining the covenant framework. Confirm the amended loan terms and payment treatment in the exhibit and related disclosures.
- REX reported no material change to its previously disclosed risk factors other than risks tied to Future Energy, its heavy-oil/oil-sands technology venture. The technology is unproven, commercialization may require significant spending and may produce no revenue, and prospects depend partly on crude-oil prices. Management said legal proceedings were not expected to have a material effect; disclosure controls were considered effective.
Important facts for investors to verify
- Confirm the reporting-period designation: the filing is for the quarter ended July 31, 2013, despite the request metadata stating 2012 Q2.
- Assess how much of reported earnings growth is sustainable from plant margins versus volatile equity-method income from Big River and Patriot.
- Review the September 3 One Earth refinancing, post-quarter principal payments, repayment schedule, and applicable covenants; both One Earth and NuGen had previously received covenant waivers or modifications.
- Track commodity prices, contracted coverage, crush spreads, plant utilization, and the sensitivity estimates disclosed for sales prices and corn costs.
- Distinguish consolidated cash from amounts held at subsidiaries or otherwise restricted, and evaluate the limits on subsidiary distributions and parent access to liquidity.