we have executed. However, the market for future ethanol sales contracts is not a mature market. Consequently, we generally execute contracts for no more than three months into the future at any given time. As a result of the relatively short period of time our contracts cover, we generally cannot predict the future movements in the crush spread for more than three months. Approximately 4% of our forecasted ethanol and distillers grains production during the next 12 months has been sold under fixed-price contracts. As a result of these positions, the effect of a 10% adverse change in the price of ethanol from the current pricing would result in a decrease in revenues of approximately $23.9 million. Similarly, approximately 5% of our estimated corn usage for the next 12 months was subject to fixed-price contracts. As a result of these positions, the effect of a 10% adverse change in the price of corn from current pricing would result in an increase in cost of goods sold of approximately $20.1 million.
Selling, general and administrative expenses were approximately $4.7 million in the current year, a $1.0 million increase from approximately $3.7 million in the prior year. Selling related expenses increased at One Earth from higher commissions and other charges related to distillers grains sales, which is the majority of the increase in selling, general and administrative expenses in the current year. We expect selling, general and administrative expenses at One Earth to remain consistent with the first nine months of fiscal year 2011 results in future periods. We expect selling, general and administrative expenses to increase on a consolidated basis beginning in the fourth quarter of fiscal year 2011 as a result of consolidating the results of NuGen.
Interest expense decreased $2.1 million in the current year from the prior year to approximately $1.8 million. This decrease is primarily a result of including the results of Levelland Hockley in the prior year but not in the current year. Based on current interest rates, we expect interest expense, at One Earth, in future quarters to be consistent with the first nine months of fiscal year 2011 levels based on current debt levels. We expect interest expense to increase on a consolidated basis beginning in the fourth quarter of fiscal year 2011 as a result of consolidating the results of NuGen.
Income from equity method investments in Big River, Patriot and NuGen increased from approximately $7.6 million in the prior year to approximately $15.8 million in the current year. We recognized approximately $4.4 million of income from Big River in the current year compared to approximately $3.5 million in the prior year. We recognized approximately $3.4 million of income from Patriot in the current year compared to approximately $3.5 million in the prior year. We recognized approximately $8.1 million of income from NuGen in the current year compared to approximately $0.6 million in the prior year. Given that the acquisition of our interest in NuGen was effective July 1, 2010, only three months of income were recognized in the prior year at October 31, 2010. Given the inherent volatility in the factors that affect the crush spread, we cannot predict the likelihood that the trend with respect to income from equity method investments will continue in future periods.
Losses on derivative financial instruments held by One Earth were approximately $1.2 million in the current year compared to approximately $2.5 million in the prior year.
Since the gains or losses on these derivative financial instruments are primarily a function of the movement in interest rates, we cannot predict the likelihood that such gains or losses in future periods will be consistent with current year results.
As a result of the factors discussed above, segment profit increased to approximately $22.8 million in the current year compared to approximately $18.6 million in the prior year.
Real Estate
The real estate segment includes all owned real estate including those previously used as retail store and distribution center operations, our real estate leasing activities and certain administrative expenses. It excludes results from discontinued operations.
At October 31, 2011, we have lease agreements, as landlord, for all or parts of five owned former retail stores (55,000 square feet leased and 9,000 square feet vacant). We also have seasonal (temporary) lease agreements, as landlord, for four owned properties. We have 15 owned former retail stores (190,000 square feet) that are vacant at October 31, 2011. We are marketing these vacant properties for lease or sale. In addition, one former distribution center is partially leased (221,000 square feet), partially occupied by our corporate office personnel (10,000 square feet) and partially vacant (246,000 square feet).
Segment Results – Third Quarter Fiscal Year 2011 Compared to Third Quarter Fiscal Year 2010
Net sales and revenue of $380,000 were consistent with the prior year amount of $282,000. We expect lease revenue for the remainder of fiscal year 2011 to be consistent with the first nine months of fiscal year 2011 based upon leases currently executed.
Gross loss in the current year was $1,000 compared to $175,000 in the prior year. The decrease in gross loss compared to the prior year is primarily a result of having fewer vacant properties in the current year compared to the prior year. We expect gross loss for the remainder of fiscal year 2011 to be consistent with the prior year results based upon leases currently executed.
As a result of the factors discussed above, segment loss decreased to $47,000 in the current year from $219,000 in the prior year.
Segment Results – Nine Months Ended October 31, 2011 Compared to Nine Months Ended October 31, 2010
Net sales and revenue increased in the current year to $926,000 from $729,000 in the prior year. This increase is primarily the result of three leases we entered into subsequent to the second quarter of fiscal year 2010. We expect lease revenue for the remainder of fiscal year 2011 to be consistent with the prior year results based upon leases currently executed.
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Gross loss in the current year was $1,389,000 compared to $472,000 in the prior year. The increase in gross loss compared to the prior year is primarily a result of impairment charges of $1,153,000 related to the warehouse location. We expect gross loss for the remainder of fiscal year 2011 to be consistent with the prior year results based upon leases currently executed.
As a result of the factors discussed above, segment loss increased to $1,538,000 in the current year from $638,000 in the prior year.
Corporate and Other
Corporate and other includes certain administrative expenses of the corporate headquarters, interest expense and investment income not directly allocated to the alternative energy or real estate segments.
Corporate and Other Results – Third Quarter Fiscal Year 2011 Compared to Third Quarter Fiscal Year 2010
Selling, general and administrative expenses were approximately $0.5 million in the current year compared to approximately $0.6 million in the prior year. We expect selling, general and administrative expenses for the remainder of fiscal year 2011 to be consistent with the first nine months of fiscal year 2011 results.
Interest income and interest expense were consistent with the prior year amounts.
Corporate and Other Results – Nine Months Ended October 31, 2011 Compared to Nine Months Ended October 31, 2010
Selling, general and administrative expenses were approximately $1.7 million in the current year compared to approximately $2.1 million in the prior year. We expect selling, general and administrative expenses for the remainder of fiscal year 2011 to be consistent with the first nine months of fiscal year 2011 results.
Interest income and interest expense were consistent with the prior year amounts.
Liquidity and Capital Resources
Net cash provided by operating activities was approximately $22.5 million for the first nine months of fiscal year 2011, compared to approximately $18.2 million for the first nine months of fiscal year 2010. For the first nine months of fiscal year 2011, cash was provided by net income of $15.9 million, adjusted for non-cash items of $(5.8) million, which consisted of depreciation and amortization, impairment charges, income from equity method and synthetic fuel investments, gain on disposal of real estate and property and equipment, deferred income, losses on derivative financial instruments, the deferred income tax provision and other items. Dividends received from our equity method investees were $2.3 million in the first nine months of fiscal year 2011. In addition, prepaid expense and other current and long term assets provided cash of $9.5 million, primarily a result of federal income tax refunds received. Accounts receivable provided cash of $2.3 million, a result of normal variations in production and sales
38
levels. Other liabilities provided cash of approximately $2.0 million, generally a result of normal variations in accrued liabilities. The primary uses of cash were an increase in inventory of $2.3 million and a decrease in accounts payable of $1.5 million. These fluctuations were the result of normal variations in production, purchasing and grain prices.
Net cash provided by operating activities was approximately $18.2 million for the first nine months of fiscal year 2010. For the first nine months of fiscal year 2010, cash was provided by net income of approximately $11.8 million, adjusted for non-cash items of approximately $5.4 million, which consisted of depreciation and amortization, impairment charges, income from equity method investments, gain on disposal of real estate and property and equipment, deferred income, losses on derivative financial instruments and the deferred income tax provision. Dividends received from our equity method investees were approximately $1.1 million in the first nine months of fiscal year 2010. In addition, prepaid expense and other current and long term assets provided cash of approximately $5.7 million, primarily a result of federal income tax refunds received. Accounts receivable and inventory used cash of approximately $3.1 million and approximately $1.9 million, respectively, a result of normal variations in production and sales levels. A decrease in other liabilities also used cash of approximately $0.8 million which is the result of paying certain real estate taxes.
At October 31, 2011, working capital was $84.3 million compared to $101.3 million at January 31, 2011. This decrease is primarily a result of debt repayments and repurchases of our common stock. The ratio of current assets to current liabilities was 4.4 to 1 at October 31, 2011 and 5.1 to 1 at January 31, 2011.
Cash of approximately $5.6 million was provided by investing activities for the first nine months of fiscal year 2011, compared to approximately $4.5 million of cash used during the first nine months of fiscal year 2010. During the first nine months of fiscal year 2011, we had capital expenditures of approximately $0.7 million, primarily related to improvements at the One Earth ethanol plant. One Earth expects to spend approximately $4 million on corn oil extraction equipment during the next four months. During the first nine months of fiscal year 2011, we received a payment of $2.8 million related to the final settlement of a synthetic fuel partnership sale. We will not receive additional money related to sales of synthetic fuel partnerships. We received approximately $3.4 million as proceeds from the sale of six real estate properties and ethanol related equipment during the first nine months of fiscal year 2011.
Cash of approximately $4.5 million was used in investing activities for the first nine months of fiscal year 2010. We acquired a 48% interest in NuGen during the second quarter of fiscal year 2010, which used approximately $9.2 million of cash. During the first nine months of fiscal year 2010, we had capital expenditures of approximately $3.8 million, primarily related to additional grain storage infrastructure at the One Earth ethanol plant, improvements at the Levelland Hockley ethanol plant and certain real estate properties. We received approximately $1.0 million from Patriot as repayments on their promissory note and received approximately $7.0 million from proceeds of sales of real estate and property and equipment.
Cash used in financing activities totaled approximately $32.4 million for the first nine months of fiscal year 2011 compared to approximately $26.5 million for the first nine months of
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fiscal year 2010. Cash of approximately $1.3 million was used to reduce the contingent consideration liability related to our acquisition of NuGen. Cash was used by debt payments of $8.2 million, primarily on One Earth’s term loans. Stock option activity generated cash of $0.3 million. We used $21.2 million to repurchase 1,249,801 shares of our common stock in open market transactions during the first nine months of fiscal year 2011. We used cash of $2.0 million to purchase shares from and pay dividends to noncontrolling members of One Earth. We do not expect to make any additional such payments to noncontrolling members of One Earth during the remainder of fiscal year 2011. However, we expect to make additional payments to noncontrolling members of One Earth in fiscal year 2012 based upon plant profitability for fiscal year 2011.
Cash used in financing activities totaled approximately $26.5 million for the first nine months of fiscal year 2010. Cash was used by debt payments of approximately $21.3 million, primarily on Levelland Hockley’s and One Earth’s term loans. Stock option activity generated cash of approximately $1.4 million. In addition, cash of approximately $6.7 million was used to repurchase approximately 415,000 shares of our common stock.
We believe we have sufficient working capital and credit availability to fund our commitments and to maintain our operations at their current levels for the next twelve months and foreseeable future.
We plan to seek and evaluate various investment opportunities. We can make no assurances that we will be successful in our efforts to find such opportunities. On November 1, 2011, we used cash of approximately $19.7 million in conjunction with our acquisition of an additional approximate 50% ownership interest in NuGen.
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 impact of legislative changes, the price volatility and availability of corn, distillers grains, ethanol, gasoline and natural gas, ethanol plants operating efficiently and according to forecasts and projections, changes in the national or regional economies, weather, the effects of terrorism or acts of war and changes in real estate market conditions. 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, 2011 (File No. 001-09097).
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Item 3.Quantitative and Qualitative Disclosures About Market Risk
We are exposed to the impact of market fluctuations associated with interest rates and commodity prices as discussed below.
Interest Rate Risk
We are exposed to market risk from changes in interest rates. Interest rate risk related to interest income is immaterial. Exposure to interest rate risk results primarily from holding term and revolving loans that bear variable interest rates. Specifically, we have approximately $71.7 million outstanding in debt as of October 31, 2011, that is variable-rate. Of this amount, $42.8 million is fixed by an interest rate swap. Interest rates on our variable-rate debt are determined based upon the market interest rate of LIBOR plus 280 to 300 basis points. A 10% adverse change (for example from 4.0% to 4.4%) in market interest rates would increase our interest cost on such debt by approximately $518,000 over the term of the debt.
One Earth entered into a forward interest rate swap in the notional amount of $50.0 million with the First National Bank of Omaha during fiscal year 2007. The swap fixed the variable interest rate of a portion of One Earth’s term loan at 7.9%. The swap settlements commenced on July 31, 2009; and terminate on July 8, 2014. A hypothetical 10% change (for example, from 4.0% to 3.6%) in market interest rates at September 30, 2011 would change the fair value of the interest rate swap by approximately $0.5 million.
Commodity Price Risk
We generally do not employ derivative instruments such as futures and options to hedge our commodity price risk. Our strategy is to “flat price” a portion of our electricity and natural gas requirements, and to purchase the remainder on a floating index. A sensitivity analysis has been prepared to estimate our exposure to ethanol, grain, distillers grains and natural gas price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in our average corn, distillers grains, natural gas and ethanol prices as of October 31, 2011. The volumes are based on our actual use and sale of these
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commodities for the quarter and nine months ended October 31, 2011. The results of this analysis are as follows:
| | | | | | | | | | | | | |
| | Volume for the
Quarter Ended
October 31, 2011 | | Unit of
Measure | | Hypothetical
Adverse
Change in
Price | | Approximate
Adverse
Change to
Income | |
Natural Gas | | | 715,135 | | | MMBtu | | | 10 | % | $ | 331,000 | |
Ethanol | | | 25,566,699 | | | Gallons | | | 10 | % | $ | 6,946,000 | |
Grain | | | 9,038,972 | | | Bushels | | | 10 | % | $ | 6,375,000 | |
Distillers Grains | | | 72,478 | | | Tons | | | 10 | % | $ | 1,465,000 | |
| | | | | | | | | | | | | |
| | Volume for the Nine
Months Ended
October 31, 2011 | | Unit of
Measure | | Hypothetical
Adverse
Change in
Price | | Approximate
Adverse
Change to
Income | |
Natural Gas | | | 2,214,136 | | | MMBtu | | | 10 | % | $ | 988,000 | |
Ethanol | | | 77,365,782 | | | Gallons | | | 10 | % | $ | 19,500,000 | |
Grain | | | 27,500,369 | | | Bushels | | | 10 | % | $ | 19,031,000 | |
Distillers Grains | | | 226,704 | | | Tons | | | 10 | % | $ | 4,347,000 | |
Item 4. Controls and Procedures
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.
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
We are not party to any legal proceedings that we believe would, individually or in the aggregate, have a material adverse effect on our financial condition, results of operations or cash flows.
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Item 1A.Risk Factors
During the quarter ended October 31, 2011, 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, 2011.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Dividend Policy
We did not pay dividends in the current or prior years. We currently have no restrictions on the payment of dividends. Our consolidated and unconsolidated ethanol subsidiaries have certain restrictions on their ability to pay dividends to us. During the first nine months of fiscal year 2011, One Earth paid dividends, pursuant to the terms of its loan agreement, of $6,873,000. Of this amount, $1,796,000 was paid to noncontrolling interests unit holders and $5,076,000 was paid to REX American Resources Corporation.
Issuer Purchases of Equity Securities
| | | | | | | | | | | | | |
Period | | Total Number
of Shares
Purchased | | Average
Price
Paid per
Share | | Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1) | | Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans
or Programs (1) | |
| |
| |
| |
| |
| |
August 1-31, 2011 | | | — | | $ | — | | | — | | | 275,939 | |
September 1-30, 2011 | | | 302,061 | | | 16.37 | | | 302,061 | | | 473,838 | |
October 1-31, 2011 | | | 755,635 | | | 17.35 | | | 755,635 | | | 218,243 | |
| |
|
| |
|
| |
|
| |
|
| |
Total | | | 1,057,696 | | $ | 17.07 | | | 1,057,696 | | | 218,243 | |
| |
|
| |
|
| |
|
| |
|
| |
| |
(1) | On September 27, 2011 and October 20, 2011, our Board of Directors increased our share repurchase authorization by an additional 500,000 on each date. At October 31, 2011, a total of 218,243 shares remained available to purchase under this authorization. |
Item 3.Defaults upon Senior Securities
None
Item 4.Removed and Reserved
Item 5.Other Information
None
Item 6.Exhibits.
The following exhibits are filed with this report:
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| | |
31 | | Rule 13a-14(a)/15d-14(a) Certifications |
| | |
32 | | Section 1350 Certifications |
| | |
101 | | The following information from REX American Resources Corporation Quarterly Report on Form 10-Q for the quarter ended October 31, 2011, formatted in XBRL: (i) Consolidated Condensed Balance Sheets, (ii) Consolidated Condensed Statements of Operations, (iii) Consolidated Condensed Statements of Equity, (iv) Consolidated Condensed Statements of Cash Flows and (v) Notes to Consolidated Condensed Financial Statements. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
| REX American Resources Corporation |
| Registrant |
| | | | |
Signature | | Title | | Date |
| |
| |
|
| | | | |
/s/ Stuart A. Rose | | Chairman of the Board
(Chief Executive Officer) | | December 2, 2011 |
| | |
(Stuart A. Rose) | | |
| | | | |
/s/ Douglas L. Bruggeman | | Vice President, Finance and Treasurer
(Chief Financial Officer) | | December 2, 2011 |
| | |
(Douglas L. Bruggeman) | | |
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