Note 4.Fair Value

The Company applies ASC 820, “Fair Value Measurements and Disclosures”, (“ASC 820”) which provides a framework for measuring fair value underaccounting principles generally accepted in the United States of America.America. This accounting standard defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company determines the fair market values of its financial instruments based on the fair value hierarchy established by ASC 820 which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values which are provided below. The Company carries certain cash equivalents, investments and derivative instruments at fair value.

The fair values of derivative assets and liabilities traded in the over-the-counter market are determined using quantitative models that require the use of multiple market inputs including interest rates, prices and indices to generate pricing and volatility factors, which are used to value the position. The predominance of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. Estimation risk is greater for derivative asset and liability positions that are either option-based or have longer maturity dates where observable market inputs are less readily available or are unobservable, in which case interest rate, price or index scenarios are extrapolated in order to determine the fair value. The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality, the Company’s own credit standing and other specific factors, where appropriate. The fair values of property and equipment are determined by using various models that discount future expected cash flows.

To ensure the prudent application of estimates and management judgementjudgment in determining the fair value of derivative assets and liabilities, investments and property and equipment, various processes and controls have been adopted, which include: (i) model validation that requires a review and approval for

pricing, financial statement fair value determination and risk quantification; and (ii) periodic review and substantiation of profit and loss reporting for all derivative instruments. Financial assets and liabilities measured at fair value on a recurring basis at OctoberJuly 31, 20162017 are summarized below (amounts in thousands):

Financial assets and liabilities measured at fair value on a recurring basis at January 31, 20162017 are summarized below (amounts in thousands):

(1) Commodity futures are included in “Prepaid expenses and other current assets” on the accompanying Consolidated Condensed Balance Sheets.

(2) The investment in cooperative is included in “Other assets” on the accompanying Consolidated Condensed Balance Sheets.

(3) The forward purchase contract liability is included in “Accrued expenses and other current liabilities” on the accompanying Consolidated Condensed Balance Sheets.

(4) The forward purchase contract asset is included in “Prepaid expenses and other current assets” on the accompanying Consolidated Condensed Balance Sheets.

The Company determined the fair value of the investment in cooperative by using a discounted cash flow analysis on the expected cash flows. Inputs used in the analysis include the face value of the allocated equity amount, the projected term for repayment based upon a historical trend, and a risk adjusted discount rate based on the expected compensation participants would demand because of the uncertainty of the future cash flows. The inherent risk and uncertainty associated with unobservable inputs could have a significant effect on the actual fair value of the investment.

There were no assets measured at fair value on a non-recurring basis at OctoberJuly 31, 20162017 or January 31, 2016.2017.

Note 5.Property and Equipment

The components of property and equipment are as follows for the periods presented (amounts in thousands):

Note 6.Other Assets

The components of other assets are as follows for the periods presented (amounts in thousands):

Real estate taxes refundable represent amounts due One Earth associated with refunds of previously paid taxes in connection with a tax increment financing arrangement with local taxing authorities. Deposits are with utility and other vendors.

Note 7.Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities are as follows for the periods presented (amounts in thousands):

Note 8.Revolving Lines of Credit

Effective April 1, 2016, One Earth and NuGen each entered into $10.0 million revolving loan facilities that maturematured April 1, 2017. Any borrowings will be secured byDuring the inventory and accounts receivablesecond quarter of One Earth or NuGen, specific to which entity borrows money under these facilities. These revolving loan facilities are recourse only tofiscal year 2017, One Earth and NuGen and not to REX American Resources Corporation or any of its other subsidiaries. Borrowings under theserenewed the revolving loan facilities, bear interest at the one month LIBOR rate plus 250 basis points.which now mature June 1, 2018. Neither One Earth nor NuGen had outstanding borrowings on the revolving loans during the ninesix months ended OctoberJuly 31, 2016. One Earth2017 and NuGen are also subject to certain financial covenants under the revolving loan facilities, including working capital requirements, should they borrow on the loans.2016.

Note 9.Derivative Financial Instruments

The Company is exposed to various market risks, including changes in commodity prices (raw materials and finished goods). To manage risks associated with the volatility of these natural business exposures, the Company enters into commodity agreements and forward purchase (corn) and sale (ethanol, distillers grains and non-food grade corn oil) contracts. The Company does not purchase or sell derivative financial instruments for trading or speculative purposes. The Company does not purchase or sell

derivative financial instruments for which a lack of marketplace quotations would require the use of fair value estimation techniques.

The following table provides information about the fair values of the Company’s derivative financial instruments (that are not accounted for under the “normal purchases and normal sales” scope exemption of ASC 815) and the line items on the Consolidated Condensed Balance Sheets in which the fair values are reflected (in thousands):

(1) Commodity futures are included in other prepaid expenseexpenses and other current assets. These futures contracts are short/sell positions for approximately 0.31.9 million and 0.7 million bushels of corn at OctoberJuly 31, 2016.2017 and January 31, 2017, respectively.

(2) Forward purchase contracts assets are included in prepaid expenses and other current assets while forward purchase contracts liabilities are included in accrued expenses and other current liabilities. These contracts are for purchases of approximately 4.510.3 million and approximately 0.75.3 million bushels of corn at OctoberJuly 31, 20162017 and January 31, 2016,2017, respectively.

As of OctoberJuly 31, 2016,2017, all of the derivative financial instruments held by the Company were subject to enforceable master netting arrangements. The Company’s accounting policy is to offset positions amounts owed or owing with the same counterparty. As of OctoberJuly 31, 2016,2017, the gross positions of the enforceable master netting agreements are not significantly different from the net positions presented in the table above. Depending on the amount of an unrealized loss on a derivative contract held by the Company, the counterparty may require collateral to secure the Company’s derivative contract position. As of OctoberJuly 31, 2016,2017, the Company was required to maintain collateral with the counterparty in the amount of approximately $46,000$379,000 to secure the Company’s derivative liability position.

See Note 4 which contains fair value information related to derivative financial instruments.

Gains of approximately $115,000 and $108,000 for the third quarters of fiscal years 2016 and 2015, respectively, on the Company’s derivative financial instruments of approximately $853,000 and $1,136,000 for the second quarters of fiscal years 2017 and 2016, respectively, were included in cost of sales on the Consolidated Condensed Statements of Operations. Gains of approximately $1,740,000 and $184,000 for the first nine months of fiscal years 2016 and 2015, respectively, on the Company’s derivative financial instruments of approximately $977,000 and $1,625,000 for the first six months of fiscal years 2017 and 2016, respectively, were included in cost of sales on the Consolidated Condensed Statements of Operations.

Note 10.Investments

The following table summarizes the Company’s equity method investment at OctoberJuly 31, 20162017 and January 31, 20162017 (dollars in thousands):

The following table summarizes income recognized from equity method investments for the periods presented (dollars in thousands):

Undistributed earnings of the Company’s equity method investee totaled approximately $17.9$16.6 million and $18.7$17.8 million at OctoberJuly 31, 20162017 and January 31, 2016,2017, respectively. DuringThe Company received dividends from its equity method investee of approximately $2.0 million and $1.5 million during the first ninesix months of fiscal years 20162017 and 2015, the Company received dividends from equity method investees of approximately $4.0 million and $7.6 million,2016, respectively.

Summarized financial information for each of the Company’s equity method investeesinvestee is presented in the following table for the periods presented (amounts in thousands):

Big River has debt agreements that limit amounts Big River can pay in the form of dividends or advances to owners. The restricted net assets of Big River at OctoberJuly 31, 20162017 and January 31, 20162017 are approximately $298.9$279.5 million and $306.3$278.7 million, respectively.

On June 1, 2015, Patriot Holdings, LLC (“Patriot”) and a subsidiary of CHS Inc. (“CHS”) completed a merger that resulted in CHS acquiring 100% of the ownership interest in Patriot. During fiscal year 2015, the Company received a cash payment of approximately $45.5 million at the closing, representing its proportionate share of the merger consideration for its 27% ownership interest. The total merger consideration was approximately $196 million in cash subject to certain adjustments and certain escrow holdbacks. In connection with this transaction, the Company recognized a gain of approximately $10.4 million during the second quarter of fiscal year 2015. During the first quarter of fiscal year 2016, the Company received proceeds of approximately $2.3 million as partial payment for certain escrow holdbacks and adjustments to the purchase price. As a result, the Company recognized approximately $0.2 million as gain on sale of investment during the first quarter of fiscal year 2016. At October 31, 2016, the Company has approximately $2.3 million (recognized as gain in fiscal year 2015) in accounts receivable on the accompanying Consolidated Condensed Balance Sheet related to estimated escrow proceeds that were recognized as income. The Company expects that a determinationdoes not expect any further proceeds or gain/loss on sale of the final payment of escrowed proceedsinvestment to be received will occur by December 1, 2016.significant.

Note 1111.Employee Benefits

The Company maintains the REX 2015 Incentive Plan, approved by its shareholders, which reserves a total of 550,000 shares of common stock for issuance pursuant to its terms. The plan provides for the granting of shares of stock, including options to purchase shares of common stock, stock

appreciation rights tied to the value of common stock, restricted stock, and restricted stock unit awards to eligible employees, non-employee directors and consultants. The Company measures share-based compensation grants at fair value on the grant date, adjusted for estimated forfeitures. The Company records noncash compensation expense related to liability and equity awards in its consolidated financial statements over the requisite service period on a straight-line basis. At July 31, 2017, 511,174 shares remain available for issuance under the Plan. As a component of their compensation, restricted stock has been granted to directors at the closing market price of REX common stock on the date of the grant. In addition one third of executives’ incentive compensation is payable by an award of restricted stock based on the then closing market price of REX common stock.

At July 31, and January 31, 2017, unrecognized compensation cost related to nonvested restricted stock was approximately $321,000 and $214,000, respectively. The following table summarizes non-vested restricted stock award activity for the six months ended July 31, 2017 and 2016:

Note 12. Income Taxes

The effective tax rate on consolidated pre-tax income was 35.6% and 33.3% for the three months ended OctoberJuly 31, 2017 and 2016, and 14.8% for the three months ended October 31, 2015.respectively. The effective tax rate on consolidated pre-tax income was 32.9%

32.4% and 32.6% for the ninesix months ended OctoberJuly 31, 2017 and 2016, and 28.1% for the nine months ended October 31, 2015.respectively. The fluctuation in the effective tax rate primarily relates to the releaseimpact of valuation allowances against capital loss carryforwards, the domestic production activities deduction, a change in the apportionment of income to certain states, the expiration of statutes for years with uncertain tax positions and a decrease in state income tax rates. These items reducednoncontrolling interests. The Company expects the effective tax rate, approximately 17% for the quarter ended October 31, 2015 and approximately 7% forremainder of fiscal year 2017, to be significantly lower than the nine months ended October 31, 2015. The provision for uncertaincurrent year to date levels as the Company expects to earn federal income tax positions increased the effective tax rate approximately 1.9% and 1.4% for the quarter and nine months ended October 31, 2016, respectively.credits from its refined coal operation (see Note 16).

The Company files a U.S. federal income tax return and various state income tax returns in various states.returns. In general, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years ended January 31, 2010 and prior. A reconciliation of the beginning and ending

amount of unrecognized tax benefits, including interest and penalties, is as follows (amounts in thousands):

Note 12.13.Commitments and Contingencies

The Company is involved in various legal actions arising in the normal course of business. After taking into consideration legal counsels’ evaluations of such actions, management is of the opinion that their outcome will not have a material adverse effect on the Company’s Consolidated Condensed Financial Statements.

One Earth and NuGen have combined forward purchase contracts for approximately 7.611.4 million bushels of corn, the principal raw material for their ethanol plants. They expect to take delivery of the grain through FebruaryOctober 2017.

One Earth and NuGen have combined sales commitments for approximately 29.667.8 million gallons of ethanol, approximately 94,00079,000 tons of distillers grains and approximately 12.311.7 million pounds of non-food grade corn oil. They expect to deliver the ethanol, distillers grains and non-food grade corn oil through JanuaryDecember 2017.

Note 13.14.Net Sales and Revenue

The following table summarizes sales for each product and service group for the periods presented (amounts in thousands):

Note 14.15.Related-Party Transactions

During the thirdsecond quarters of fiscal year 20162017 and 2015,2016, One Earth and NuGen purchased approximately $34.2$36.5 million and approximately $38.1$36.0 million, respectively, of corn from minority equity

investors and board members of those subsidiaries. Such purchases totaled approximately $114.6$78.7 million and approximately $114.4$80.4 million for the ninesix months ended OctoberJuly 31, 2017 and 2016, respectively. The Company had amounts payable to related parties for corn purchases of approximately $1.6 million and 2015,$1.7 million at July 31, 2017 and January 31, 2017, respectively.

Note 16. Subsequent Event

On August 10, 2017, the Company, through a 95.35% owned subsidiary, purchased the entire ownership interest of a refined coal facility for approximately $12 million in cash. The facility is in operation and will begin affecting the Company’s financial results during the third quarter of fiscal year 2017. The Company expects that the revenues from the sale of refined coal produced in the facility will be subsidized by federal production tax credits, subject to meeting qualified emissions reductions as governed by Section 45 of the Internal Revenue Code.

The impact on the combined results of operations of the Company and the refined coal facility, on a pro forma basis, as though the companies had been combined as of the beginning of fiscal year 2017 is insignificant as the refined coal facility has been inactive for several years up until the Company’s acquisition.

The Company expects to complete its analysis of transaction costs related to the acquisition of the refined coal facility and the estimated fair value of assets acquired and liabilities assumed during the third quarter of fiscal year 2017.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

At OctoberJuly 31, 2016,2017, we had equity investments in three ethanol limited liability companies, two of which we have a majority ownership interest in. The following table is a summary of ethanol gallons shipped at our plants:

Our ethanol operations are highly dependent on commodity prices, especially prices for corn, ethanol, distillers grains, non-food grade corn oil and natural gas. 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 a number of factors that affect commodity prices in general, including crop conditions, weather, federal policy and foreign trade. Because the market price of ethanol is not always directly related to corn prices (for example, crude and other energy prices can impact ethanol prices), at times ethanol prices may lag movements in corn prices and, in an environment of higher corn prices or lower ethanol prices, reduce the overall margin structure at the plants. As a result, at times, we may operate our plants at negative or marginally positive operating margins.

We expect our ethanol plants to produce approximately 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 2.8)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 also expect our ethanol plants to produce approximately 15.5 pounds of distillers grains and 0.7 pounds of non-food grade corn oil for each bushel of grain processed.

We attempt to manage the risk related to the volatility of commodity prices by utilizing forward grain purchase and 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 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 the 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, in conjunction with certain of our grain procurement activities.

Future Energy

During fiscal year 2013, we entered into a joint venture with Hytken HPGP, LLC (“Hytken”) to file and defend patents for eSteam technology relating to heavy oil and oil sands production methods, and to commercially exploit the technology to generate license fees, royalty income and development opportunities. The patented technology is an enhanced method of heavy oil recovery involving zero emissions downhole steam generation. We own 60% and Hytken owns 40% of the entity named Future Energy, LLC.

We have agreed to fund direct patent expenses relating to patent applications and defense, annual annuity fees and maintenance on a country by country basis, with the right to terminate funding and transfer related patent rights to Hytken. We may also fund, through loans, all costs relating to new intellectual property, consultants, and future research and development, pilot field tests and equipment purchases for commercialization stage of the patents. WeTo date, we have paid approximately $1,724,000$1.8 million cumulatively including $113,000 in fiscal year 2016 for our ownership interest, patent and other expenses. We have not tested or proven the commercial feasibility of the technology.

Critical Accounting Policies and Estimates

During the three months ended OctoberJuly 31, 2016,2017, we did not change any of our critical accounting policies as disclosed in our 20152016 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 25, 2016. All other accounting policies used in preparing our interim fiscal year 2016 Consolidated Condensed Financial Statements are the same as those described in our Form 10-K.27, 2017.

Fiscal Year