# REX AMERICAN RESOURCES Corp: Form 10-Q for the period ended Jul 31, 2022

- Company: [REX AMERICAN RESOURCES Corp](/companies/rex.md) (CIK 744187)
- Form: 10-Q
- Filed: 2022-09-01
- Accepted by EDGAR: Sep 1, 2022, 14:25 ET
- Period: 2022-07-31
- Accession: 0000930413-22-001577
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/744187/000093041322001577/c104398_10q-ixbrl.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/744187/000093041322001577/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-07-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-05-01 to 2022-07-31 | $240.3m | us-gaap:Revenues |
| Revenue | 6 months, 2022-02-01 to 2022-07-31 | $434.6m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2022-05-01 to 2022-07-31 | $223.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2022-02-01 to 2022-07-31 | $406.1m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-05-01 to 2022-07-31 | $16.6m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2022-02-01 to 2022-07-31 | $28.5m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2022-05-01 to 2022-07-31 | $9.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2022-02-01 to 2022-07-31 | $14.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Income tax | 3 months, 2022-05-01 to 2022-07-31 | $4.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-02-01 to 2022-07-31 | $6.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-05-01 to 2022-07-31 | $11.2m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-02-01 to 2022-07-31 | $16.4m | us-gaap:NetIncomeLoss |
| Operating cash flow | 6 months, 2022-02-01 to 2022-07-31 | $771.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2022-02-01 to 2022-07-31 | $2.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2022-02-01 to 2022-07-31 | $6.2m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-07-31 | $54.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-07-31 | $357.3m | us-gaap:AssetsCurrent |
| Total assets | at 2022-07-31 | $559.9m | us-gaap:Assets |
| Current liabilities | at 2022-07-31 | $42.0m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2022-07-31 | $442.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 37,297 characters.

### Ethanol and By-Products

At July 31, 2022, we had investments in three ethanol limited liability companies, in two of which we have a majority ownership interest. The following table is a summary of ethanol entity ownership interests at July 31, 2022:

| Entity | REX’s Current Ownership Interest |
| --- | ---: |
| One Earth Energy, LLC | 75.8% |
| NuGen Energy, LLC | 99.7% |
| Big River Resources, LLC: |  |
| Big River Resources W Burlington, LLC | 10.3% |
| Big River Resources Galva, LLC | 10.3% |
| Big River United Energy, LLC | 5.7% |
| Big River Resources Boyceville, LLC | 10.3% |

Our ethanol operations and the results thereof are highly dependent on commodity prices, especially prices for corn, ethanol, distillers grains, non-food grade corn oil and natural gas, and availability of corn. As a result of price volatility for these commodities, our operating results can fluctuate substantially. The price and availability of corn is subject to significant fluctuations depending upon several factors that affect commodity prices in general, including crop conditions, the amount of corn stored on farms, weather, federal policy and foreign trade. Because the market prices of ethanol and distillers grains are not always directly related to corn prices (for example, demand for crude and other energy and related prices, the export market demand for ethanol and distillers grains, soybean meal prices, and the results of federal policy decisions and trade negotiations can impact ethanol and distillers grains prices), at times ethanol and distillers grains prices may not follow movements in corn prices and, in an environment of higher corn prices or lower ethanol or distillers grains prices, reduce the overall margin structure at the plants. As a result, at times, we may operate our plants at negative or minimally positive operating margins.

We expect our ethanol plants to produce at least 2.8 gallons of denatured ethanol for each bushel of grain processed in the production cycle. We refer to the actual gallons of denatured ethanol produced per bushel of grain processed as the realized yield. We refer to the difference between the price per gallon of ethanol and the price per bushel of grain (divided by the realized yield) as the “crush spread”. Should the crush spread decline, it is possible that our ethanol plants will generate operating results that do not provide adequate cash flows for sustained periods of time. In such cases, production at the ethanol plants may be reduced or stopped altogether in order to minimize variable costs at individual plants.

We attempt to manage the risk related to the volatility of commodity prices by utilizing forward grain purchase, forward ethanol, distillers grains and corn oil sale contracts and commodity futures agreements, as management deems appropriate. We attempt to match quantities of these sale contracts with an appropriate quantity of grain purchase contracts over a given period of time when we can obtain an adequate gross margin resulting from the crush spread inherent in the contracts we have executed. However, the market for future ethanol sales contracts generally lags the spot market with respect to ethanol price. Consequently, we generally execute fixed price ethanol contracts for no more than four months into the future at any given time and we may lock in our corn or ethanol price without having a corresponding locked in ethanol or corn price for short durations of time. As a result of the relatively short period of time our fixed price contracts cover, we generally cannot predict the future movements in our realized crush spread for more than four months; thus, we are unable to predict the likelihood or amounts of future income or loss from the operations of our ethanol facilities. We utilize derivative financial instruments, primarily exchange traded commodity future contracts and swap contracts, in conjunction with certain of our grain procurement activities and commodity marketing activities.

### Refined Coal

On August 10, 2017, we purchased, through a 95.35% owned subsidiary, for approximately $12.0 million, the entire ownership interest of an entity that owned a refined coal facility. We began operating the refined coal facility immediately after the acquisition. As the plant was no longer eligible to receive federal production tax credits beginning on November 18, 2021, we ceased operations on that date. We began classifying this operation as discontinued operations in the third quarter of fiscal 2021.

### Carbon Sequestration

The Company is working with the University of Illinois and is in the exploratory stage of a carbon sequestration project near the One Earth Energy ethanol plant. A test well has been drilled and three-dimensional seismic testing has been performed. We are working on simulation models to predict the movement of carbon dioxide injection into the subsurface, additional testing and completion of a class VI permit application. A front-end engineering design study has been completed for a carbon dioxide liquification facility for the One Earth Energy plant. We have received bids on construction of the facility and are in the review process. At this time we do not know total cost to complete or the feasibility of the project.

### Future Energy

During fiscal year 2013, we entered into a joint venture to file and defend patents for eSteam technology. The patented technology is an enhanced method of heavy oil recovery involving zero emissions downhole steam generation. To date, we have not successfully had a field operation nor demonstrated that the technology is commercially feasible. We own 60% and our partner owns 40% of the entity named Future Energy, LLC, an Ohio limited liability company. We have no current plans to operate this technology and are maintaining patents in limited countries.

### Critical Accounting Policies and Estimates

During the three months ended July 31, 2022, we did not change any of our critical accounting policies as disclosed in our 2021 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on April 6, 2022.

### Fiscal Year

All references in this report to a particular fiscal year are to REX’s fiscal year ended January 31. For example, “fiscal year 2022” means the period February 1, 2022 to January 31, 2023.

### Results of Operations

### Trends and Uncertainties

Renewable Fuel Standard II (“RFS II”), established in October 2010, has been an important factor in the growth of ethanol usage in the United States. In recent years, there has been much uncertainty on the enforcement of RFS II. When it was originally established, RFS II required the volume of “conventional” or corn derived ethanol to be blended with gasoline to increase each year until it reached 15.0 billion gallons in 2015 and required that it remain at that level through 2022. There are no established congressional target volumes beginning in 2023. The EPA has the authority to waive the biofuel mandate, in whole or in part, if there is inadequate domestic renewable fuel supply or the requirement severely harms the domestic economy or environment. In addition, under RFS II, a small refiner that processes less than 75,000 barrels of oil per day can petition the EPA for a waiver of their requirement to submit renewable identification numbers (“RINs”). The EPA, through consultation with the Department of Energy and the Department of Agriculture, can grant the refiner a full or partial waiver, or deny the waiver. The EPA issued 85 refinery exemptions for 2016-2018 compliance years, undercutting the statutory renewable fuel volumes by a total of 4.0 billion gallons.

The EPA has finalized volumes for 2021 and 2022 and reduced the previously finalized volumes for 2020 to account for challenges for that year including the COVID-19 pandemic. The volumes for conventional biofuels are 13.8 billion gallons and 15.0 billion gallons for 2021 and 2022, respectively. The 2020 volumes were reduced to 12.5 billion gallons, down from the previously finalized 15.0 billion gallons. In addition, the EPA at the same time denied all pending applications for Small Refinery Exemptions (SREs). The EPA also added 250 million gallons of “supplemental obligation” to the 2022 proposed volumes and stated its intent to add another 250 million gallons to 2023 to address the remand of the 2016 waiver by the D.C Circuit. There are multiple legal challenges to how the EPA has handled SREs and RFS II rulemakings.

Due to the Russian-Ukraine conflict, the corn and natural gas supplies worldwide have been adversely affected, and have had a negative impact on prices for both commodities and corn availability in the United States.

The recently enacted Inflation Reduction Act of 2022 has numerous potential impacts on our business which we are still evaluating. The economics for carbon sequestration will benefit from raising the carbon capture tax credit from $50 per metric ton to $85 per metric ton. The credit will be “direct pay”, meaning it would be a refundable credit, for the first five years, starting with the year the facility is placed in service, but not beyond December 31, 2032. In addition, the law would provide other potential impacts to our business or industry, such as (a) creating a new Clean Fuel Production Credit that would be dependent on the level of greenhouse gas emissions reduction for each gallon; (b) extending the biodiesel tax credit, which could impact our renewable corn oil values, as this co-product serves as a low-carbon feedstock for renewable diesel and biomass based diesel production; (c) creating a new tax credit for sustainable aviation fuel; (d) funding biofuel refueling infrastructure which could impact the availability of higher level ethanol blended fuel; and (e) providing for the production and purchase credits for electric vehicles, which could impact the amount of internal combustion engines on the road over time, and ultimately reduce the demand for gasoline, diesel fuels and ethanol.

On August 25, 2022, the California Air Resources Board approved the Advanced Clean Cars II rule that requires all new cars and light trucks sold in the state be zero-emissions vehicles, including plug-in hybrid electric vehicles beginning in 2035.

Should these trends and uncertainties continue, our future operating results could be negatively impacted.

### Comparison of Three and Six Months Ended July 31, 2022 and 2021

The following table summarizes our results from operations (amounts in thousands):

|  | Three Months Ended July 31, 2022 | 2021 | Six Months Ended July 31, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net sales and revenue | $240,328 | $195,678 | $434,556 | $359,720 |
| Cost of sales | 223,744 | 181,524 | 406,060 | 326,089 |
| Gross profit | $16,584 | $14,154 | $28,496 | $33,631 |
| Income before income taxes | $19,215 | $9,806 | $28,049 | $19,993 |
| Provision for income taxes | $(4,330) | $(1,767) | $(6,178) | $(3,991) |
| Net income attributable to REX common shareholders (continuing operations) | $11,170 | $5,710 | $16,352 | $12,979 |
| Net income attributable to REX common shareholders (discontinued operations) | $- | $2,166 | $- | $2,681 |

The following table summarizes net sales and revenue by product group (amounts in thousands):

|  | Three Months Ended July 31, 2022 | 2021 | Six Months Ended July 31, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Ethanol | $190,807 | $153,990 | $337,269 | $280,059 |
| Dried distillers grains | 34,261 | 31,573 | 66,158 | 62,691 |
| Non-food grade corn oil | 14,223 | 9,813 | 25,325 | 15,407 |
| Modified distillers grains | 2,456 | 1,934 | 6,811 | 4,227 |
| Derivative financial instruments losses | (1,474) | (1,638) | (1,152) | (2,764) |
| Other | 55 | 6 | 145 | 100 |
| Total, continuing operations | $240,328 | $195,678 | $434,556 | $359,720 |
| Refined coal (discontinued operations) 1 | $- | $165 | $- | $227 |

1 Refined coal sales were recorded net of the cost of coal as the Company purchased the coal feedstock from the customer to which the processed refined coal was sold.

The following table summarizes selected operating data:

|  | Three Months Ended July 31, 2022 | 2021 | Six Months Ended July 31, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Average selling price per gallon of ethanol (net of hedging) | $2.65 | $2.21 | $2.47 | $2.02 |
| Gallons of ethanol sold (in millions) | 71.4 | 69.0 | 135.9 | 139.0 |
| Average selling price per ton of dried distillers grains | $249.62 | $206.78 | $233.80 | $207.84 |
| Tons of dried distillers grains sold | 137,250 | 152,689 | 282,964 | 301,640 |
| Average selling price per pound of non-food grade corn oil | $0.72 | $0.47 | $0.68 | $0.41 |
| Pounds of non-food grade corn oil sold (in millions) | 19.7 | 20.7 | 37.4 | 37.8 |
| Average selling price per ton of modified distillers grains | $128.50 | $90.54 | $121.65 | $79.13 |
| Tons of modified distillers grains sold | 19,110 | 21,361 | 55,989 | 53,421 |
| Average cost per bushel of grain | $7.78 | $6.45 | $7.18 | $5.86 |
| Average cost of natural gas (per MmBtu) | $7.04 | $3.30 | $6.48 | $3.24 |

Net sales and revenue in the quarter ended July 31, 2022 increased approximately 23% compared to the prior year’s second quarter. Net sales and revenue in the first six months ended July 31, 2022 increased approximately 21% compared to the first six months of fiscal year 2021. Quantities sold at our consolidated plants during the second quarter of fiscal year 2022 and the first six months of 2022 did not change significantly from the prior year comparable periods. The increase in net sales and revenue was driven primarily by stronger commodity pricing in the second quarter and first six months of 2022.

Ethanol sales increased in the second quarter of fiscal year 2022 compared to the second quarter of fiscal year 2021 as the average price per gallon sold increased 20%, along with a slight increase in gallons sold of 3%. Ethanol sales increased in the first six months of fiscal year 2022 compared to the first six months of fiscal year 2021 as the average price per gallon sold increased 22%, offset slightly by a decrease in gallons sold of 2%. The increase in the ethanol selling price resulted primarily from an increase in commodity prices.

Dried distillers grains sales increased in the second quarter of fiscal year 2022 compared to the second quarter of fiscal year 2021 as the average price per ton sold increased 21%, offset partially by a 10% decrease in tons sold. Dried distillers grains sales increased in the first six months of fiscal year 2022 compared to the first six months of fiscal year 2021 as the average price per ton sold increased 12%, offset slightly by a 6% decrease in tons sold. The increase in the dried distillers grains selling price resulted primarily from an increase in corn prices as dried distillers grains prices often correlate with corn pricing. Logistics issues contributed to the decrease in tons sold.

Non-food grade corn oil sales increased in the second quarter of fiscal year 2022 compared to the second quarter of fiscal year 2021 as the average selling price per pound increased 53% over the prior year second quarter, offset slightly by a decrease in pounds sold of 5%. Non-food grade corn oil sales increased in the first six months of fiscal year 2022 compared to the first six months of fiscal year 2021 as the average selling price per pound increased 66%, offset slightly by a decrease in pounds sold of 1%. The increase in the non-food grade corn oil selling price resulted primarily from an increase in demand from the biodiesel industry.

Modified distillers grains sales increased in the second quarter of fiscal year 2022 compared to the second quarter of fiscal year 2021 as the average price per ton sold increased 42%, offset partially by an 11% decrease in tons sold. Modified distillers grains sales increased in the first six months of fiscal year 2022 compared to the first six months of fiscal year 2021 as the average price per ton sold increased 54%, coupled with a 5% increase in tons sold. The increase in the modified distillers grains selling price resulted primarily from an increase in corn prices.

Losses on derivative financial instruments, included in net sales and revenue, of approximately $1.5 million in the second quarter of fiscal year 2022 related to our risk management activities and were impacted by the increase in ethanol prices during that quarter. There were losses on derivative financial instruments of approximately $1.6 million during the second quarter of fiscal year 2021. Losses on derivative financial instruments, included in net sales and revenue, were approximately $1.2 million in the first six months of fiscal year 2022 compared to $2.8 million in the first six months of fiscal year 2021.

Gross profit for the second quarter of fiscal year 2022 increased approximately $2.4 million compared to the prior year’s second quarter. Selling prices overall increased significantly year over year, but were offset by a significant increase in the price of corn and natural gas. The crush spread decreased slightly from break-even in the second quarter of 2021 to $(0.02) in the second quarter of 2022. In addition, fewer ethanol contracts were sold net of freight in the second quarter of fiscal year 2022 compared to fiscal year 2021, which increased revenue in fiscal year 2022. The selling price per gallon of ethanol sold increased 20% for the second quarter of fiscal year 2022 compared to the second quarter of fiscal year 2021. There was a 21% increase in the cost per bushel of corn during the same periods.

Grain accounted for approximately 84% ($186.9 million) of our cost of sales during the second quarter of fiscal year 2022 compared to approximately 86% ($156.2 million) during the second quarter of fiscal year 2021. Natural gas accounted for approximately 6% ($12.8 million) of our cost of sales during the second quarter of fiscal year 2022 compared to approximately 3% ($6.2 million) during the second quarter of fiscal year 2021. The grain and natural gas expenditure increases were primarily attributable to the higher costs of both corn and natural gas with stable production levels in the second quarter of fiscal year 2022 compared to the second quarter of fiscal year 2021.

Gross profit for the first six months of fiscal year 2022 decreased approximately $5.1 million compared to the first six months of fiscal year 2021. Selling prices increased significantly year over year, but were offset by the significant increase in the cost of corn. The crush spread did not change from $0.02 over the first six months of fiscal year 2021 compared to the first six months of fiscal year 2022. However, more ethanol contracts were sold net of freight in the first six months of fiscal year 2022 compared to fiscal year 2021, which reduced revenue in fiscal year 2022. The selling price per gallon of ethanol sold increased 22% for the first six months of fiscal year 2022 compared to the first half of fiscal year 2021. There was a 23% increase in the cost per bushel of corn during the same periods.

Grain accounted for approximately 84% ($339.6 million) of our cost of sales during the first six months of fiscal year 2022 compared to approximately 85% ($278.2 million) during the first six months of fiscal year 2021. Natural gas accounted for approximately 6% ($23.7 million) of our cost of sales during the first six months of fiscal year 2022 compared to approximately 3% ($9.9 million) during the first six months of fiscal year 2021. The grain and natural gas expenditure increases were primarily attributable to the higher costs of both corn and natural gas with stable production levels in the first six months of fiscal year 2022 compared to the first six months of fiscal year 2021.

We attempt to match quantities of ethanol, distillers grains and non-food grade corn oil sales contracts with an appropriate quantity of grain purchase contracts over a given time period when we can obtain a satisfactory margin resulting from the crush spread inherent in the contracts we have executed. However, the market for future ethanol sales contracts generally lags the spot market with respect to ethanol price. Consequently, we generally execute fixed price sales contracts for no more than four months into the future at any given time and we may lock in our corn or ethanol price without having a corresponding locked in ethanol or corn price for short durations of time. As a result of the relatively short period of time our contracts cover, we generally cannot predict the future movements in our realized crush spread for more than four months.

SG&A expenses were approximately $9.1 million for the second quarter of fiscal year 2022, higher than the approximately $6.2 million of expenses for the second quarter of fiscal year 2021. Higher shipping costs of $1.1 million contributed to a portion of the increase in the second quarter of fiscal year 2022 as more sales contracts provided for shipping to be paid by us compared to the second quarter of fiscal year 2021. In addition, performance bonuses increased approximately $0.9 million in the second quarter of fiscal year 2022 compared to the second quarter of fiscal year 2021. SG&A expenses were approximately $14.4 million for the first six months of fiscal year 2022, slightly lower than the approximately $16.1 million of expenses for the first six months of fiscal year 2021. Shipping costs declined approximately $4.3 million for the six months ended July 31, 2022 comparted to the prior year as fewer ethanol contracts required us to pay the freight. This was offset by increases in railcar lease expense of approximately $0.7 million and performance bonus of approximately $0.9 million in the first six months of fiscal year 2022 compared to the first six months of fiscal year 2021.

During the second quarter of fiscal year 2022, we recognized income of approximately $3.6 million compared to income of approximately $1.8 million for the second quarter of fiscal year 2021, from our equity investment in Big River. We recognized income of approximately $5.5 million during the first six months of fiscal year 2022 compared to income of approximately $2.4 million during the first six months of fiscal year 2021. During the second quarter of 2022, COVID-19 relief grants from the U.S. Department of Agriculture (USDA) received by Big River contributed $1.6 million to the increase in income we recognized in 2022. Big River has interests in four ethanol production plants that shipped approximately 429 million gallons in the trailing twelve months ended July 31, 2022 and has an effective ownership of ethanol gallons shipped for the same period of approximately 372 million gallons. Big River’s operations also include agricultural elevators. Due to the inherent volatility of commodity prices within the ethanol industry, we cannot predict the likelihood of future operating results from Big River being similar to historical results.

Interest and other income was approximately $8.2 million for the second quarter of fiscal year 2022 versus approximately $39,000 for the second quarter of fiscal year 2021. Interest and other income was approximately $8.4 million for the first six months of fiscal year 2022 versus approximately $82,000 for the first six months of fiscal year 2021. During the second quarter of 2022, the Company’s consolidated plants received COVID-19 relief grants from the USDA totaling approximately $7.8 million based on reduced production in 2020. The remaining increase is due to an increase in interest income as yields on our excess cash increased in the second quarter and first six months of fiscal year 2022 compared to the second quarter and first six months of fiscal year 2021.

As a result of the foregoing, income before income taxes was approximately $19.2 million for the second quarter of fiscal year 2022 versus approximately $9.8 million for the second quarter of fiscal year 2021. Income before income taxes was approximately $28.0 million for the first six months of fiscal year 2022 versus approximately $20.0 million for the first six months of fiscal year 2021.

Prior to the third quarter of fiscal year 2021, the Company determined that small changes in estimated “ordinary” income would result in significant changes in the estimated annual effective tax rate. Thus, the Company used a discrete effective tax rate method to calculate the provision or benefit for income taxes for the three and six months ended July 31, 2021. Beginning on November 18, 2021, we are unable to earn tax credit related to the refined coal business, and as such, have ceased operation of that business. As earning these credits is what had caused the significant changes in the estimated annual effective tax rate from small changes in estimated “ordinary” income and we have now classified the refined coal business as discontinued operations, we have returned to using the annual effective tax rate method to calculate the provision or benefit for income taxes from continuing operations beginning in the three and nine month periods ending October 31, 2021. Our income tax provision from continuing operations was approximately $4.3 million and approximately $1.8 million for the three months ended July 31, 2022 and 2021, respectively. Our income tax provision from continuing operations was approximately $6.2 millions and approximately $4.0 million for the six months ended July 31, 2022 and 2021, respectively.

As a result of the foregoing, net income from continuing operations was approximately $14.9 million for the second quarter of fiscal year 2022 compared to approximately $8.0 million for the second quarter of fiscal year 2021. Net income from continuing operations was approximately $21.9 million for the first six months of fiscal year 2022 compared to approximately $16.0 million for the first six months of fiscal year 2021.

Income from continuing operations related to noncontrolling interests was approximately $3.7 million for the second quarter of fiscal year 2022 compared to $2.3 million for the second quarter of fiscal year 2021. Income from continuing operations related to noncontrolling interests was approximately $5.5 million for the first six months of fiscal year 2022 compared to $3.0 million for the first six months of fiscal year 2021. These amounts represent the other owners’ share of the income or loss of NuGen and One Earth. Noncontrolling interests related to the refined coal entity is included in discontinued operations.

As a result of the foregoing, net income attributable to REX common shareholders from continuing operations for the second quarter of fiscal year 2022 was approximately $11.2 million, an increase of approximately $5.5 million from net income attributable to REX common shareholders from continuing operations of approximately $5.7 million for the second quarter of fiscal year 2021. Net income attributable to REX common shareholders from continuing operations for the first six months of fiscal year 2022 was approximately $16.4 million, an increase of approximately $3.4 million from net income attributable to REX common shareholders from continuing operations of approximately $13.0 million for the first six months of fiscal year 2021.

The Company ceased operation of its refined coal business as tax credits could no longer be earned on its operation beginning November 18, 2021. Beginning in the third quarter of fiscal year 2021, the results of the operation of the refined coal business have been recognized as discontinued operations. The refined coal business operated at a pre-tax loss but generated tax credits that normally exceeded the operating loss. There was no activity related to discontinued operations in the first six months of fiscal year 2022. Net income attributable to REX common shareholders from discontinued operations, net of tax, for the three and six months ended July 31, 2021 was approximately $2.2 million and $2.7 million, respectively.

Through its refined coal operation, the Company earned production tax credits pursuant to IRC Section 45. The credits can be used to reduce future income tax liabilities for up to 20 years. The income tax benefit generated from discontinued operations was approximately $5.4 million and approximately $7.6 million for the three and six months ended July 31, 2021.

### Liquidity and Capital Resources

Net cash provided by operating activities was approximately $0.8 million for the first six months of fiscal year 2022, compared to cash provided by operating activities of approximately $17.2 million for the first six months of fiscal year 2021. For the first six months of fiscal year 2022, cash was provided by net income from continuing operations of approximately $21.9 million, adjusted for non-cash items of approximately $10.8 million, which consisted of depreciation, amortization of operating lease right-of-use assets, income from equity method investments, interest income from short-term investments, the deferred income tax provision and stock based compensation expense. An increase in the balance of accounts receivable used cash of approximately $12.7 million, primarily a result of the timing of products shipped and the receipt of customer payments at One Earth and NuGen in addition to higher sales and pricing. Inventories increased by approximately $7.7 million, primarily a result of the timing of receipt of raw materials and the shipment of finished goods, as well as an increase in commodity prices. An increase in the balance of other assets of approximately $2.2 million primarily relates to changes in the carrying value of forward purchase contracts recorded at fair value. A decrease in the balance of refundable income taxes of approximately $0.8 million primarily relates to amount currently payable on income from the first three months of the fiscal year. A decrease in the balance of accounts payable used cash of approximately $11.3 million, which was primarily a result of the timing of inventory receipts and vendor payments. An increase in the balance of other liabilities provided cash of approximately $1.2 million.

Net cash provided by operating activities was approximately $17.2 million for the first six months of fiscal year 2021. For the first six months of fiscal year 2021, cash was provided by net income from continuing operations of approximately $16.0 million, adjusted for non-cash items of approximately $13.1 million, which consisted of depreciation, amortization of operating lease right-of-use assets, income from equity method investments, interest income from short-term investments, the deferred income tax provision and stock based compensation expense. An increase in the balance of accounts receivable used cash of approximately $9.8 million, primarily a result of the timing of products shipped and the receipt of customer payments at One Earth and NuGen in addition to higher sales and pricing. Inventories increased by approximately $3.9 million, primarily a result of the timing of receipt of raw materials and the shipment of finished goods, as well as an increase in the pricing of raw materials. A decrease in the balance of other assets of approximately $0.3 million primarily relates to changes in the carrying value of forward purchase contracts recorded at fair value. An increase in the balance of refundable income taxes of approximately $1.1 million primarily relates to estimated federal and state income tax payments made during fiscal year 2021. An increase in the balance of accounts payable provided cash of approximately $4.8 million, which was primarily a result of the timing of inventory receipts and vendor payments. An increase in the balance of other liabilities provided cash of approximately $0.9 million, which was primarily a result of operating lease payments. Discontinued operations used cash of $3.1 million during the first six months of 2021.

At July 31, 2022, working capital was approximately $315.4 million, compared to approximately $294.7 million at January 31, 2022. The ratio of current assets to current liabilities was 8.5 to 1 at July 31, 2022 and 6.8 to 1 at January 31, 2022.

Cash of approximately $167.0 million was used in investing activities for the first six months of fiscal year 2022, compared to approximately $0.3 million provided by investing activities during the first six months of fiscal year 2021. During the first six months of fiscal year 2022, we had capital expenditures of approximately $2.9 million, primarily for improvements at the One Earth and NuGen facilities. We expect capital expenditures to be in the range of approximately $10.0 million to $15.0 million for the remainder of fiscal year 2022. During the first six months of fiscal year 2022, we purchased short-term U.S. Treasury Bills of approximately $190.0 million while certificates of deposit of approximately $25.9 million matured. The certificates of deposit and U.S Treasury Bills had maturities of less than one year and we classified them as short-term investments. Depending on investment options available, we may elect to retain the funds, or a portion thereof, in cash, short-term investments or long-term investments.

Cash of approximately $0.3 million was provided by investing activities for the first six months of fiscal year 2021. During the first six months of fiscal year 2021, we had capital expenditures of approximately $2.7 million, primarily for improvements at the One Earth and NuGen facilities. During the first six months of fiscal year 2021, we purchased certificates of deposit (classified as short-term investments) of approximately $49.3 million. During the first six months of fiscal year 2021, certificates of deposit (classified as short-term investments) of approximately $52.2 million matured.

Cash of approximately $7.8 million was used in financing activities for the first six months of fiscal year 2022, compared to approximately $2.7 million for the first six months of fiscal year 2021. During the first six months of fiscal year 2022, we used cash of approximately $6.2 million to purchase approximately 222,000 shares of our common stock in open market transactions. We also made payments of $1.6 million to noncontrolling interests holders.

Cash of approximately $2.7 million was used in financing activities from continuing operations in the first six months of 2021 as we used cash of approximately $1.4 million to purchase approximately 52,000 shares of our common stock in open market transactions and we made payments of approximately $1.3 million to noncontrolling interests holders.

We are investigating various uses for our excess cash and short-term investments. We have a stock buyback program, and given our current authorization level, can repurchase a total of approximately 1,126,000 shares at July 31, 2022. We typically repurchase our common stock when our stock price is trading at a price we deem to be a discount to the underlying value of our net assets. We plan to seek and evaluate various investment opportunities including ethanol and/or energy related, carbon sequestration related, agricultural or other ventures we believe fit our investment criteria.

### Forward-Looking Statements

This Form 10-Q contains or may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements can be identified by use of forward-looking terminology such as “may,” “expect,” “believe,” “estimate,” “anticipate” or “continue” or the negative thereof or other variations thereon or comparable terminology. Readers are cautioned that there are risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements. These risks and uncertainties include the risk factors set forth from time to time in the Company’s filings with the Securities and Exchange Commission and include among other things: the effect of pandemics such as COVID-19 on the Company’s business operations, including impacts on supplies, demand, personnel and other factors, the impact of legislative and regulatory changes, the price volatility and availability of corn, distillers grains, ethanol, non-food grade corn oil, gasoline and natural gas, commodity market risk, ethanol plants operating efficiently and according to forecasts and projections, logistical interruptions, changes in the international, national or regional economies, the impact of inflation, the ability to attract employees, weather, results of income tax audits, changes in income tax laws or regulations, the impact of U.S. foreign trade policy, changes in foreign currency exchange rates and the effects of terrorism or acts of war. The Company does not intend to update publicly any forward-looking statements except as required by law. Other factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022 (File No. 001-09097).

## Market risk

As filed, 942 characters.

We are exposed to the impact of market fluctuations associated with commodity prices as discussed below.

We manage a portion of our risk with respect to the volatility of commodity prices inherent in the ethanol industry by using forward purchase and sale contracts and exchange traded commodity futures contracts. Our exposure to market risk, which includes the impact of our risk management activities, is based on the estimated effect on pre-tax income starting on July 31, 2022 is as follows, assuming normal operating capacity (amounts in thousands):

| Commodity | Estimated Total Volume for 12 Months | Unit of Measure | Decrease in Pre-tax Income From a 10% Adverse Change in Price |
| --- | ---: | --- | ---: |
| Ethanol | 280,000 | Gallons | $66,933 |
| Corn | 100,000 | Bushels | $67,382 |
| Distillers Grains | 705 | Tons | $13,473 |
| Non-food grade Corn Oil | 76,000 | Pounds | $4,929 |
| Natural Gas | 7,400 | MmBtu | $4,004 |

## Controls and procedures

As filed, 1,088 characters.

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 136 characters.

There have been no material changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended January 31, 2022.

Filed Sep 1, 2022.
Source: SEC EDGAR, the filing index for accession 0000930413-22-001577. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.