Ethanol and By-Products
At April 30, 2020, investments in our ethanol business include 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:
Trailing 12 Current Effective
Months REX's Ownership of
Ethanol Current Trailing 12
Gallons Effective Months Ethanol
Entity Shipped Ownership Gallons Shipped
Interest
One Earth Energy, LLC 138.3 M 75.2% 104.0 M
NuGen Energy, LLC 84.0 M 99.5% 83.6 M
Big River Resources, LLC:
Big River Resources W Burlington, LLC 113.7 M 10.3% 11.7 M
Big River Resources Galva, LLC 121.8 M 10.3% 12.5 M
Big River United Energy, LLC 131.6 M 5.7% 7.5 M
Big River Resources Boyceville, LLC 60.6 M 10.3% 6.2 M
Total 650.0 M 225.5 M
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
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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 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 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 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 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, in conjunction with
certain of our grain procurement activities.
Refined Coal
On August 10, 2017, we purchased the entire ownership interest of an entity that
owns a refined coal facility, through a 95.35% owned subsidiary, for
approximately $12.0 million. We began operating the refined coal facility
immediately after the acquisition. We expect that the revenues from the sale of
refined coal produced in the facility will be subsidized by federal production
tax credits through November 2021, subject to meeting qualified emissions
reductions as governed by Section 45 of the Internal Revenue Code. In order to
maintain compliance with Section 45 of the Internal Revenue Code, we are
required to test the effectiveness of our process with respect to emissions
reductions every six months through an independent laboratory. Annually, the IRS
publishes the amount of federal income tax credit earned per ton of refined coal
produced and sold. We expect to earn credits at the rate of approximately $7.30
per ton of refined coal produced and sold during calendar year 2020. The tax
credits can be earned for refined coal produced and sold by our facility through
November 2021.
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The refined coal facility is located at the site of a utility-owned electrical
generating power station, which is our refined coal operation's sole customer.
Refined coal production and sales vary depending on fluctuations in demand from
the site host utility, which generally changes based upon weather conditions in
the geographic markets the utility serves and competing energy prices and
supplies and the state of the economy. We have contracted with an experienced
third party to operate and maintain the refined coal facility and to provide us
with management reporting and operating data as required. We do not have any
employees on site at the refined coal facility.
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 ("Future Energy").
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 have funded all costs relating to new intellectual property,
consultants, research and development, pilot field tests and equipment purchases
with respect to the proposed commercialization stage of the technology. To date,
we have paid and expensed approximately $2.4 million cumulatively primarily for
patents, purchases of certain equipment and other expenses. We have not yet
tested or proven the commercial feasibility of the technology.
Critical Accounting Policies and Estimates
During the three months ended April 30, 2020, we did not change any of our
critical accounting policies as disclosed in our 2019 Annual Report on Form 10-K
as filed with the Securities and Exchange Commission on April 1, 2020.
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 2020" means the period February
1, 2020 to January 31, 2021.
Results of Operations
For a detailed analysis of period to period changes, see the segment discussion
that follows this section as that discussion reflects how management views and
monitors our business.
Trends and Uncertainties
During fiscal years 2020 and 2019, operating results in our ethanol and
by-products segment have been adversely affected by a weak margin environment
highlighted by higher costs for corn, lower availability of local corn, lower
oil prices resulting from an oversupply of oil, the EPA granting small
24
refiner waivers, and in the first quarter of fiscal year 2020, the outbreak of a
new strain of the coronavirus "COVID-19".
Weather conditions delayed, and in some cases prevented the planting of corn in
much of the United States, and there continues to be uncertainty regarding the
availability of corn on a regional basis. Weather also contributed to
intermittent logistical delays during fiscal year 2019. Throughout the first
three months of fiscal year 2020 and throughout most of fiscal year 2019, we
struggled to obtain adequate supplies of corn at our NuGen facility, on a
consistent basis, at acceptable price levels. Consequently, we were not able to
operate our NuGen ethanol plant at production levels near our historical
averages. We cannot reasonably predict the likelihood of future period
production levels compared to historical averages.
During the early months of 2020, COVID-19 spread into the United States and
other countries. In an effort to contain the spread of this virus, there have
been various government mandated restrictions, in addition to voluntary
privately implemented restrictions, including limiting public gatherings, retail
store closures, restrictions on employees working and the quarantining of people
who may have been exposed to the virus. This has led to reduced demand for
gasoline and ethanol. The duration of the resulting downturn in economic
activity is unknown both on a macro and a micro level and has led to
historically low ethanol pricing. Consequently, we idled our NuGen and One Earth
ethanol plants in March of 2020. In May of 2020, businesses and other activities
slowly began to reopen, which led to an increase in demand for gasoline and
ethanol, and in related prices. As a result, we resumed production operations at
the One Earth ethanol plant on May 27, 2020. In addition, recent actions by the
Federal Reserve, related to the COVID-19 outbreak, have reduced interest rates.
Given the amount of cash and short-term investments we have, this will
significantly reduce our interest income in future periods, depending on the
length of time interest rates remain at these levels. The impacts of the
COVID-19 outbreak on our business operations, including the duration and impact
on ethanol demand, cannot be reasonably estimated at this time, although a
prolonged production stoppage at our plants would have a material adverse impact
on our results of operations, financial condition and cash flows in fiscal year
2020.
Under the Renewable Fuel Standard "RFS", the EPA assigns individual refiners,
blenders and importers the volume of renewable fuels they are obligated to use
based on their percentage of total domestic transportation fuel sales. The EPA
can waive the obligation for individual small refineries that are experiencing
"disproportionate economic hardship" due to compliance with the RFS. Until
recent years, the EPA approved relatively few such waivers. The EPA has approved
31 small refiner waivers related to their 2018 Renewable Fuel Standard
compliance obligations, which is estimated to effectively reduce the obligation
for ethanol in 2018 by 1.4 billion gallons. The EPA previously granted waivers
for 2016 and 2017 totaling approximately 2.6 billion gallons. These actions
affect current year demand as obligated parties such as refiners can use the
waivers granted by the EPA to help them meet their obligations in different
years. There continues to be uncertainty regarding how the EPA will administer
the small refiner waivers for 2019 and future years. We believe the waivers have
resulted in reduced domestic ethanol demand. There are 27 small refiner waivers
pending for the 2019 compliance year.
During the first three months of fiscal year 2020 and throughout fiscal year
2019, operating results in our refined coal segment have been adversely affected
by lower utility plant demand (our only customer). Projections, provided by the
utility plant, for the next twelve months indicate this trend may continue and
may be further impacted by the COVID-19 pandemic. While this leads to lower
pre-tax
25
losses from this segment, it also leads to lower tax benefits from Section 45
credits being recognized. Ultimately, this results in lower amounts of segment
profit.
Should these trends and uncertainties continue, our future operating results are
likely to be negatively impacted.
Comparison of Three Months Ended April 30, 2020 and 2019
Net sales and revenue in the quarter ended April 30, 2020 were approximately
$83.3 million compared to approximately $104.6 million in the prior year's first
quarter, representing a decrease of approximately $21.3 million, which was
primarily caused by lower sales in our ethanol and by-products segment of
approximately $21.2 million. The decline in ethanol and by-products segment net
sales and revenue reflects significantly lower production volumes during fiscal
year 2020. This relates primarily to operations at NuGen as diminished local
availability of corn, the effects of the COVID-19 outbreak and lower ethanol
pricing resulted in the idling of the NuGen ethanol plant in March of 2020.
Gross loss for the first quarter of fiscal year 2020 was approximately $9.3
million, which was compared to gross profit of approximately $3.6 million for
the first quarter of fiscal year 2019. Gross profit for the first quarter of
fiscal year 2020 decreased by approximately $14.3 million compared to the prior
year first quarter as a result of operations in the ethanol and by-products
segment. Gross loss in the refined coal segment was $1.1 million in the first
quarter of fiscal year 2020 compared to $2.5 million in the first quarter of
fiscal year 2019.
SG&A expenses were approximately $4.6 million for the first quarter of fiscal
year 2020, which was consistent with the approximately $4.7 million of expenses
for the first quarter of fiscal year 2019.
During the first quarter of fiscal year 2020, we recognized a loss of
approximately $0.5 million compared to income of approximately $0.1 million for
the first quarter of fiscal year 2019, from our equity investment in Big River,
which is included in our ethanol and by-products segment results. Big River has
interests in four ethanol production plants that shipped approximately 428
million gallons in the trailing twelve months ended April 30, 2020 and has an
effective ownership of ethanol gallons shipped for the same period of
approximately 369 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 $0.7 million for the first quarter
of fiscal year 2020 versus approximately $1.1 million for the first quarter of
fiscal year 2019. Income has decreased as yields on our excess cash decreased
compared to fiscal year 2019 and excess cash investment balances decreased
compared to fiscal year 2019.
As a result of the foregoing, loss before income taxes was approximately $13.7
million for the first quarter of fiscal year 2020 versus income of approximately
$0.2 million for the first quarter of fiscal year 2019.
We 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
26
method to calculate the provision or benefit for income taxes for the three
months ended April 30, 2020 and 2019. Our tax benefit was approximately 38.7%
and approximately 2,124.6% for the three months ended April 30, 2020 and 2019,
respectively. The fluctuation in the rate results primarily from the production
tax credits we expect to receive associated with our refined coal segment
relative to pre-tax income or loss. Our income tax benefit for the first quarter
of fiscal year 2020 includes approximately $1.4 million related to the
lengthening of a net operating loss carryback allowed by the recently passed
CARES Act.
As a result of the foregoing, net loss was approximately $8.4 million for the
first quarter of fiscal year 2020 compared to net income of approximately $3.7
million for the first quarter of fiscal year 2019.
Loss (income) related to noncontrolling interests was approximately $0.8 million
and approximately $(0.9) million during the first quarters of fiscal years 2020
and 2019, respectively. These amounts represent the other owners' share of the
income or loss of NuGen, One Earth and the refined coal entity.
As a result of the foregoing, net loss attributable to REX common shareholders
for the first quarter of fiscal year 2020 was approximately $7.6 million, a
decrease of approximately $10.5 million from net income attributable to REX
common shareholders of approximately$2.8 million for the first quarter of fiscal
year 2019.
Business Segment Results
We have two reportable segments: i) ethanol and by-products; and ii) refined
coal. We evaluate the performance of each reportable segment based on segment
profit. Segment profit excludes indirect interest income and certain other items
that are included in net income determined in accordance with accounting
principles generally accepted in the United States of America. Segment profit
includes realized and unrealized gains and losses on derivative financial
instruments and the provision/benefit for income taxes.
27
The following sections discuss the results of operations for each of our
business segments and corporate and other. Amounts in the corporate and other
category include activities that are not separately reportable or related to a
segment. The following tables summarizes segment and other results (amounts in
thousands):
Three Months Ended
April 30,
2020 2019
Net sales and revenue:
Ethanol and by-products $ 83,235 $ 104,453
Refined coal 1 15 122
Total net sales and revenue $ 83,250 $ 104,575
1 We record sales in the refined coal segment net of the cost of coal as we
purchase the coal feedstock from the customer to which refined coal is sold.
Segment gross (loss) profit:
Ethanol and by-products $ (8,223) $ 6,115
Refined coal (1,107) (2,469)
Total gross (loss) profit $ (9,330) $ 3,646
(Loss) income before income taxes:
Ethanol and by-products $ (12,351) $ 3,205
Refined coal (847) (2,676)
Corporate and other (545) (362)
Total (loss) income before income taxes $ (13,743) $ 167
Benefit (provision) for income taxes:
Ethanol and by-products $ 4,161 $ (486)
Refined coal 959 3,946
Corporate and other 193 88
Total benefit for income taxes $ 5,313 $ 3,548Segment (loss) profit (net of noncontrolling interests):
Ethanol and by-products
$ (7,433) $ 1,709
Refined coal 150 1,386
Corporate and other (352) (274)
Net (loss) income attributable to REX common shareholders $ (7,635) $ 2,821
Ethanol and by-Products
The ethanol and by-products segment includes the consolidated financial results
of One Earth and NuGen, our equity investment in Big River and certain
administrative expenses.
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The following table summarizes net sales and revenue from One Earth and NuGen by
product group (amounts in thousands):
Three Months Ended
April 30,
2020 2019
Sales of products, ethanol and by-products segment:
Ethanol $ 60,597 $ 77,618
Dried distillers grains 18,918 18,674
Non-food grade corn oil 3,188 4,983
Modified distillers grains 457 3,140
Other 75 38
Total $ 83,235 $ 104,453The following table summarizes selected operating data from One Earth and NuGen:
Three Months Ended
April 30,
2020 2019
Average selling price per gallon of ethanol $ 1.25 $ 1.27
Gallons of ethanol sold (in millions) 48.3 61.3
Average selling price per ton of dried distillers grains $ 145.64 $ 142.02
Tons of dried distillers grains sold
129,895 131,490
Average selling price per pound of non-food grade corn oil $ 0.25 $ 0.25
Pounds of non-food grade corn oil sold (in millions)
12.8 19.8
Average selling price per ton of modified distillers grains $ 65.82 $ 65.75
Tons of modified distillers grains sold
6,941 47,760
Average cost per bushel of grain $ 3.93 $ 3.53
Average cost of natural gas (per MmBtu) $ 3.93 $ 3.66Ethanol sales decreased from approximately $77.6 million in the first quarter of
fiscal year 2019 to approximately $60.6 million in the first quarter of fiscal
year 2020, primarily as a result of a 21% decrease in gallons sold compared to
the first quarter of fiscal year 2019. Dried distillers grains sales increased
from approximately $18.7 million in the first quarter of fiscal year 2019 to
approximately $18.9 million in the first quarter of fiscal year 2020, primarily
a result of a $3.62 increase in the price per ton sold compared to the first
quarter of fiscal year 2019. Modified distillers grains sales were approximately
$0.5 million in in the first quarter of fiscal year 2020 compared to
approximately $3.1 million in the first quarter of fiscal year 2019. The
decrease was primarily a result of a 85% decrease in tons sold compared to the
first quarter of fiscal year 2019 as NuGen shifted production to more dried
distillers grains instead of modified distillers grains. Non-food grade corn oil
sales were approximately $3.2 million in the first quarter of fiscal year
29
2020 compared to approximately $5.0 million in the first quarter of fiscal year
2019. The decrease was primarily a result of a 35% decrease in pounds sold
compared to the first quarter of fiscal year 2019. The volume decreases were
primarily a result of diminished local supplies of corn along with the impact of
the COVID-19 outbreak and lower ethanol pricing which prevented us from
operating our NuGen ethanol plant at or near historical production levels. In
March of 2020, we idled both of our consolidated ethanol plants as reduced
demand resulted in historically low ethanol pricing due to the impact of the
COVID-19 outbreak. Because of the uncertainty regarding the economic impact of
the COVID-19 outbreak, ethanol pricing and the availability of corn, we do not
have an estimate of future periods' sales volume. In May of 2020, businesses and
other activities slowly began to reopen, which led to an increase in demand for
gasoline and ethanol, and in related prices. As a result, we resumed production
operations at the One Earth ethanol plant on May 27, 2020.
Gross (loss) profit for the first quarter of fiscal year 2020 was approximately
$(8.2) million compared to approximately $6.1 million of gross profit for the
first quarter of fiscal year 2019. The crush spread for the first quarter of
fiscal year 2020 was approximately $(0.08) per gallon of ethanol sold compared
to $0.02 per gallon of ethanol sold during the first quarter of fiscal year
2019. We recognized inventory writedowns of approximately $9.1 million and
approximately $0.2 million during the first quarter of fiscal years 2020 and
2019, respectively. These inventory writedowns were related to lower of cost or
net realizable value calculations. The inventory writedowns were partially
offset by hedging gains on our derivative financial instruments of approximately
$3.1 million and approximately $0.4 million during the first quarters of fiscal
years 2020 and 2019, respectively. During the first quarter of fiscal year 2020
the impact from the COVID-19 outbreak and lower oil pricing resulted in lower
ethanol and corn pricing which severely impacted the inventory writedowns. The
decrease of approximately $4.5 million in sales of non-food grade corn oil and
modified distillers grains compared to the first quarter of fiscal year 2019
negatively affected gross profit.
Grain accounted for approximately 75% ($68.5 million) of our cost of sales
during the first quarter of fiscal year 2020 compared to approximately 77%
($75.6 million) during the first quarter of fiscal year 2019. Natural gas
accounted for approximately 6% ($5.4 million) of our cost of sales during the
first quarter of fiscal year 2020 compared to approximately 6% ($6.2 million)
during the first quarter of fiscal year 2019. Both the grain and natural gas
dollar decreases were primarily attributable to the lower production levels
incurred in the first quarter of fiscal year 2020 compared to the first quarter
of fiscal year 2019 levels.
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 for the first quarter of fiscal year 2020 were approximately $4.1
million, consistent with the first quarter of fiscal year 2019 amount of
approximately $3.9 million.
30
During the first quarter of fiscal year 2020 we recognized a loss of
approximately $0.5 million compared to income of approximately $0.1 million for
the first quarter of fiscal year 2019, from our equity investment in Big River.
Big River has interests in four ethanol production plants that shipped
approximately 428 million gallons in the trailing twelve months ended April 30,
2020 and has an effective ownership of ethanol gallons shipped for the same
period of approximately 329 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 $0.5 million for the first quarter
of fiscal year 2020 compared to approximately $0.8 million for the first quarter
of fiscal year 2019. Income has decreased as yields on our excess cash decreased
compared to fiscal year 2019 and excess cash investment balances decreased
compared to fiscal year 2019.
The benefit for income taxes was approximately $4.2 million in the first quarter
of fiscal year 2020 compared to a provision of approximately $0.5 million in the
first quarter of fiscal year 2019. The fluctuation in segment income tax benefit
or provision is primarily related to the large pre tax loss incurred in fiscal
year 2020.
Loss (income) related to noncontrolling interests was approximately $0.8 million
and approximately $(1.0) million during the first quarters of fiscal years 2020
and 2019, respectively. These amounts represent the other owners' share of the
income of NuGen and One Earth.
Segment loss for the first quarter of fiscal year 2020 was approximately $7.4
million, which was a decrease of approximately $9.1 million compared to the
prior year first quarter segment profit of approximately $1.7 million. The
decrease from fiscal year 2019 results is primarily related to lower gross
profit levels in fiscal year 2020 compared to fiscal year 2019.
Refined Coal
The refined coal segment includes the consolidated financial results of our
refined coal entity and certain administrative expenses. We acquired the refined
coal entity during the third quarter of fiscal year 2017. The following table
summarizes sales from refined coal operations by product group (amounts in
thousands):
Three Months Ended
April 30,
2020 2019
Sales of products, refined coal segment:
Refined coal 1 $ 15 $ 1221 We record sales in the refined coal segment net of the cost of coal as we
purchase the coal feedstock from the customer to which refined coal is sold.
Refined coal sales were approximately $15,000 and approximately $122,000 in the
first quarters of fiscal years 2020 and 2019, respectively. During fiscal year
2020, operating results have been adversely affected by lower utility plant
demand (our only customer). Refined coal sales vary depending on
31
fluctuations in demand from the site host utility, which generally change based
upon weather conditions in the geographic markets the utility serves and
competing energy prices and supplies and the state of the economy. Based upon
current year operations and projections from the site host utility, we expect
lower demand for refined coal in future periods compared to historical results.
Gross loss was approximately $1.1 million and approximately $2.5 million in the
first quarters of fiscal years 2020 and 2019, respectively. We expect future
period gross losses to vary like the sales fluctuations described above. Based
upon the agreements in place that govern the operation, sales and purchasing
activities of the refined coal plant, we expect the refined coal operation to
continue operating at a gross loss. We expect that the ongoing losses will be
subsidized by federal production income tax credits.
SG&A expenses were approximately $(0.3) million and approximately $0.2 million
in the first quarters of fiscal years 2020 and 2019, respectively. We expect
future period expenses to be less than $1.0 million per quarter. The fiscal year
2020 expenses were lower as estimates of future refined coal production and the
resulting commissions we would pay have been reduced.
Loss related to noncontrolling interests was approximately $38,000 and
approximately $116,000 in the first quarters of fiscal years 2020 and 2019,
respectively. This amount represents the other owner's share of the pre-tax loss
of refined coal operations.
The benefit for income taxes was approximately $1.0 million and approximately
$3.9 million in the first quarters of fiscal years 2020 and 2019, respectively.
The refined coal segment tax benefit is comprised of an estimated statutory
benefit of its pre-tax losses and an estimated benefit from the federal
production tax credits we expect to earn from producing and selling refined
coal. The amount of benefit we recognize during interim periods will fluctuate
based on actual production and profitability levels.
As a result of the foregoing, including the benefit of federal production tax
credits associated with refined coal production and sales, segment profit was
approximately $0.2 million and approximately $1.4 million for the first quarters
of fiscal years 2020 and 2019, respectively.
Corporate and Other
SG&A expenses were approximately $0.7 million for each of the first quarters of
fiscal years 2020 and 2019.
Interest and other income was approximately $0.2 million and approximately $0.3
million for the first quarters of fiscal years 2020 and 2019, respectively.
Liquidity and Capital Resources
Net cash used in operating activities was approximately $0.3 million for the
first quarter of fiscal year 2020, compared to cash provided of approximately
$1.5 million for the first quarter of fiscal year 2019. For the first quarter of
fiscal year 2020, cash was used by a net loss of approximately $8.4 million,
adjusted for non-cash items of approximately $5.3 million, which consisted of
depreciation, amortization of operating lease right-of-use assets, loss from
equity method investments, interest income from short-term
32
investments, the deferred income tax provision and stock based compensation
expense. We received dividends from Big River of approximately $2.0 million
during the first quarter of fiscal year 2020. A decrease in the balance of
accounts receivable provided cash of approximately $10.2 million, which was
primarily a result of idling production at the NuGen facility during the first
quarter of fiscal year 2020. Inventories decreased by approximately $8.4
million, which was primarily a result lower of cost or net realizable value
writedowns, the timing of receipt of raw materials, plant shutdowns and the
shipment of finished goods. An increase in the balance of other assets of
approximately $3.8 million primarily relates to a net operating loss we intend
to carry back for federal income tax purposes. A decrease in the balance of
accounts payable used cash of approximately $11.9 million, which was primarily a
result of the timing of inventory receipts, vendor payments and idling
production at the NuGen facility during the first quarter of fiscal year 2020. A
decrease in the balance of other liabilities used cash of approximately $2.0
million, which was primarily a result of payments of operating leases and
incentive compensation.
Net cash provided by operating activities was approximately $1.5 million for the
first quarter of fiscal year 2019. For the first quarter of fiscal year 2019,
cash was provided by net income of approximately $3.7 million, adjusted for
non-cash items of approximately $4.0 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 inventories used cash of approximately $1.7 million, which was primarily a
result of the timing of receipt of raw materials. A decrease in the balance of
accounts payable used cash of approximately $0.8 million, which was primarily a
result of the timing of inventory receipts and vendor payments. A decrease in
the balance of other liabilities used cash of approximately $3.4 million, which
was primarily a result of payments of operating leases and incentive
compensation as well as lower accruals for utilities.
At April 30, 2020, working capital was approximately $227.3 million, compared to
approximately $239.5 million at January 31, 2020. The ratio of current assets to
current liabilities was 12.4 to 1 at April 30, 2020 and 8.6 to 1 at January 31,
2020.
Cash of approximately $11.4 million was used in investing activities for the
first quarter of fiscal year 2020, compared to cash provided of approximately
$14.4 million during the first quarter of fiscal year 2019. During the first
quarter of fiscal year 2020, we had capital expenditures of approximately $4.7
million, primarily for the purchase of land at One Earth Energy. Because of the
uncertainty related to the COVID-19 outbreak, we do not have an estimate of our
capital expenditures for the remainder of fiscal year 2020. During the first
quarter of fiscal year 2020, we purchased certificates of deposit (classified as
short-term investments) of approximately $19.2 million. During the first quarter
of fiscal year 2020, we sold certificates of deposit (classified as short-term
investments) of approximately $12.8 million. The certificates of deposit both
purchased and sold, had maturities of less than one year. Depending on
investment options available, we may elect to retain the funds, or a portion
thereof, in cash investments, short-term investments or long-term investments.
Cash of approximately $14.4 million was provided by investing activities for the
first quarter of fiscal year 2019 as we sold United States treasury bills
(classified as short-term investments) of approximately $15.0 million. During
the first quarter of fiscal year 2019, we had capital expenditures of
approximately $0.6 million.
33
Cash of approximately $3.9 million was used in financing activities for the
first quarter of fiscal year 2020, compared to cash provided of approximately
$0.1 million during the first quarter of fiscal year 2019. During the first
quarter of fiscal year 2020, we used cash of approximately $3.9 million to
purchase approximately 78,000 shares of our common stock in open market
transactions.
Cash provided by financing activities was insignificant for the first quarter of
fiscal year 2019.
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 272,000 shares at
April 30, 2020. We also plan to seek and evaluate investment opportunities
including carbon sequestration, energy related, agricultural or other ventures
we believe fit our investment criteria in addition to investing in highly liquid
short-term securities.
We are working with the University of Illinois to explore the development of a
carbon sequestration project to be located near the One Earth ethanol plant. The
University of Illinois has received a United States Department of Energy award
through the CarbonSAFE program, and, will evaluate the greenhouse gas storage
potential beneath the site by drilling a test well and performing seismic
surveys. Further work and research is needed to determine if this will be a
feasible project.
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, natural gas, logistical delays, our ethanol and refined coal
plants operating efficiently and according to forecasts and projections, changes
in the international, national or regional economies, weather, results of income
tax audits, changes in income tax laws or regulations 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, 2020 (File No. 001-09097).
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