REX AMERICAN RESOURCES Corp - Quarter Report: 2021 July (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

Commission File Number 001-09097

REX AMERICAN RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)

(937) 276-3931
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.              Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).              Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

At the close of business on September 2, 2021 the registrant had 5,970,938 shares of Common Stock, par value $.01 per share, outstanding.

REX AMERICAN RESOURCES CORPORATION AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

REX AMERICAN RESOURCES CORPORATION AND SUBSIDIARIES

Consolidated Condensed Balance Sheets

Unaudited

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

REX AMERICAN RESOURCES CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Operations

Unaudited

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

REX AMERICAN RESOURCES CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Equity

For the Three and Six Months Ended July 31, 2021 and 2020

Unaudited

(In Thousands)

Continued on the following page

REX AMERICAN RESOURCES CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Equity

Unaudited

(In Thousands)

Continued from the previous page

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

REX AMERICAN RESOURCES CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows

Unaudited

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

REX AMERICAN RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 31, 2021

Note 1. Consolidated Condensed Financial Statements

References to the Company – References to “REX” or the “Company” in the consolidated condensed financial statements and in these notes to the consolidated condensed financial statements refer to REX American Resources Corporation, a Delaware corporation, and its majority and wholly owned subsidiaries.

The consolidated condensed financial statements included in this report have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments necessary to state fairly the information set forth therein. Any such adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. Financial information as of January 31, 2021 included in these financial statements has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2021 (fiscal year 2020). It is suggested that these unaudited consolidated condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2021. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the year.

Basis of Consolidation – The consolidated condensed financial statements in this report include the operating results and financial position of the Company. All intercompany balances and transactions have been eliminated. The Company consolidates the results of its four majority owned subsidiaries. The Company includes the results of operations of One Earth Energy, LLC (“One Earth”) in its Consolidated Condensed Statements of Operations on a delayed basis of one month as One Earth has a fiscal year end of December 31.

Nature of Operations – The Company has two reportable segments: i) ethanol and by-products; and ii) refined coal. Within the ethanol and by-products segment, the Company has equity investments in three ethanol limited liability companies, two of which are majority ownership interests. Within the refined coal segment, the Company has a majority equity interest in one refined coal limited liability company.

Note 2. Accounting Policies

The interim consolidated condensed financial statements have been prepared in accordance with the accounting policies described in the notes to the consolidated financial statements included in the Company’s fiscal year 2020 Annual Report on Form 10-K. While management believes that the procedures followed in the preparation of interim financial information are reasonable, the accuracy of some estimated amounts is dependent upon facts that will exist or calculations that will be accomplished at fiscal year-end. Examples of such estimates include accrued liabilities, such as management bonuses, and

the provision for income taxes. Any adjustments pursuant to such estimates during the quarter were of a normal recurring nature. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents includes bank deposits as well as short-term, highly liquid investments with original maturities of three months or less.

Revenue Recognition

For ethanol and by-products segment sales, the Company recognizes sales of ethanol, distillers grains and non-food grade corn oil when obligations under the terms of the respective contracts with customers are satisfied; this occurs with the transfer of control of products, generally upon shipment from the ethanol plant or upon loading of the rail car used to transport the products. For refined coal segment sales, the Company recognizes sales of refined coal when obligations under the term of the contract with its customer are satisfied; this occurs when title and control of the product transfers to its customer, generally upon the coal leaving the refined coal plant. Refined coal sales are recorded net of the cost of coal as the Company purchases the coal feedstock from the customer to which the processed refined coal is sold.

Cost of Sales

Cost of sales includes depreciation, costs of raw materials, inbound freight charges, purchasing and receiving costs, inspection costs, other distribution expenses, warehousing costs, plant management, certain compensations costs and general facility overhead charges.

Selling, General and Administrative (“SG&A”) Expenses

The Company includes non-production related costs such as professional fees, outbound freight charges, selling charges and certain payroll in SG&A expenses. Outbound freight charges were approximately $1,561,000 and $839,000 in the second quarter of fiscal years 2021 and 2020, respectively and approximately $7,156,000 and $2,162,000 in the first six months of fiscal years 2021 and 2020, respectively.

Financial Instruments

Certain of the forward grain purchase and ethanol, distillers grains and non-food grade corn oil sale contracts are accounted for under the “normal purchases and normal sales” scope exemption of Accounting Standards Codification (“ASC”) 815, “Derivatives and Hedging” (“ASC 815”) because these arrangements are for purchases of grain that will be delivered in quantities expected to be used by the Company and sales of ethanol, distillers grains and non-food grade corn oil quantities expected to be produced by the Company over a reasonable period of time in the normal course of business.

The Company uses derivative financial instruments (exchange-traded futures contracts) to manage a portion of the risk associated with changes in commodity prices, primarily related to corn. The Company monitors and manages this exposure as part of its overall risk management policy. As such, the Company seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating

results. The Company may take hedging positions in these commodities as one way to mitigate risk. While the Company attempts to link its hedging activities to purchase and sales activities, there are situations in which these hedging activities can themselves result in losses. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The changes in fair value of these derivative financial instruments are recognized in current period earnings as the Company does not use hedge accounting.

Income Taxes

The Company determined that small changes in estimated “ordinary” income could 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 and 2020.

The Company provides for deferred tax liabilities and assets for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. The Company provides for a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company paid income taxes of $1.9 million and received no refunds of income taxes during the six months ended July 31, 2021. The Company paid income taxes of approximately $0.3 million and received refunds of income taxes of approximately $0.3 million during the six months ended July 31, 2020.

As of July 31, 2021, and January 31, 2021, total unrecognized tax benefits were approximately $8,655,000 and $8,380,000, respectively. Accrued penalties and interest were approximately $30,000 and approximately $20,000 at July 31, 2021 and January 31, 2021, respectively. If the Company were to prevail on all unrecognized tax benefits recorded, the provision for income taxes would be reduced by approximately $8.6 million. In addition, the impact of penalties and interest would also benefit the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense. On a quarterly basis, the Company accrues for the effects of open uncertain tax positions and the related potential penalties and interest.

Inventories

Inventories are carried at the lower of cost or net realizable value on a first-in, first-out basis. Inventory includes direct production costs and certain overhead costs such as depreciation, property taxes and utilities associated with producing ethanol and related by-products and refined coal. Inventory is written down for instances when cost exceeds estimated net realizable value; such write-downs are based primarily upon commodity prices as the market value of inventory is often dependent upon changes in commodity prices. The Company recorded approximately $1.3 million and approximately $1.0 million of inventory write-downs in cost of sales at July 31, 2021 and January 31, 2021, respectively. Fluctuations in the write-down of inventory generally relate to the levels and composition of such inventory and changes in

commodity prices at a given point in time. The components of inventory are as follows as of the dates presented (amounts in thousands):

Property and Equipment

Property and equipment is recorded at cost or the fair value on the date of acquisition (for property and equipment acquired in a business combination). Depreciation is computed using the straight-line method. Estimated useful lives are 5 to 40 years for buildings and improvements, and 2 to 20 years for fixtures and equipment.

In accordance with ASC 360-10 “Impairment or Disposal of Long-Lived Assets”, the carrying value of long-lived assets is assessed for recoverability by management when changes in circumstances indicate that the carrying amount may not be recoverable. The Company did not identify any indicators of impairment during the first six months of fiscal year 2021, thus there were no impairment charges in the first six months of fiscal year 2021. During fiscal year 2020, the Company concluded that the impact of the coronavirus (” COVID-19”) pandemic on the ethanol industry and the Company’s operating results was an indicator that impairment may exist related to certain of its long-lived assets. As a result, the Company performed a recoverability test and determined that there was no impairment for fiscal year 2020. There were no impairment charges in the first six months of fiscal year 2020.

The Company tests for recoverability of an asset group by comparing its carrying amount to its estimated undiscounted future cash flows. If the carrying amount exceeds its estimated undiscounted future cash flows, the Company recognizes an impairment charge for the amount by which the asset group’s carrying amount exceeds its fair value, if any.

Investments

The method of accounting applied to long-term investments, whether consolidated, equity or cost, involves an evaluation of the significant terms of each investment that explicitly grant or suggest evidence of control or influence over the operations of the investee and also includes the identification of any variable interests in which the Company is the primary beneficiary. The Company accounts for investments in a limited liability company in which it has a less than 20% ownership interest using the equity method of accounting when the factors discussed in ASC 323, “Investments-Equity Method and Joint Ventures” are met. The excess of the carrying value over the underlying equity in the net assets of equity method investees is allocated to specific assets and liabilities. Investments in businesses that the Company does not control but for which it has the ability to exercise significant influence over operating and financial matters are accounted for using the equity method. The Company accounts for its investment in Big River Resources, LLC (“Big River”) using the equity method of accounting and includes the results on a delayed basis of one month as Big River has a fiscal year end of December 31.

The Company periodically evaluates its investments for impairment due to declines in market value considered to be other than temporary. Such impairment evaluations include general economic and company-specific evaluations. If the Company determines that a decline in market value is other than temporary, then a charge to earnings is recorded in the Consolidated Condensed Statements of Operations and a new cost basis in the investment is established.

Short-term investments are considered held to maturity, and therefore are carried at amortized historical cost.

Comprehensive Income

The Company has no components of other comprehensive income, and therefore, comprehensive income equals net income.

Accounting Changes and Recently Issued Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The Company adopted this update effective February 1, 2021. The adoption of this update did not impact the consolidated financial statements.

Note 3. Net Sales and Revenue

The Company recognizes sales of products when obligations under the terms of the respective contracts with customers are satisfied. This occurs with the transfer of control of products, generally upon shipment from the ethanol plant or upon loading of the rail car used to transport the products. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods. Sales, value added and other taxes the Company collects concurrent with revenue producing activities are excluded from net sales and revenue.

The majority of the Company’s sales have payment terms ranging from 5 to 10 days after transfer of control. The Company has determined that sales contracts do not generally include a significant financing component. The Company has not historically, and does not intend to, enter into sales contracts in which payment is due from a customer prior to transferring product to the customer. Thus, the Company does not record unearned revenue.

See Note 14 for disaggregation of net sales and revenue by operating segment and by product.

Note 4. Leases

At July 31, 2021, the Company has lease agreements, as lessee, for railcars. All of the leases are accounted for as operating leases. The lease agreements do not contain a specified implicit interest rate; therefore, the Company’s estimated incremental borrowing rate was used to determine the present value of future minimum lease payments. The exercise of any lease renewal is at the Company’s sole discretion. The lease term for all of the Company’s leases includes the noncancelable period of the lease and any

periods covered by renewal options that the Company is reasonably certain to exercise. Certain leases include rent escalations pre-set in the agreements, which are factored into the lease payment stream. The components of lease expense, classified as SG&A expenses on the Consolidated Condensed Statement of Operations are as follows:

The following table is a summary of future minimum rentals on such leases at July 31, 2021 (amounts in thousands):

At July 31, 2021, the weighted average remaining lease term is 2.7 years, and the weighted average discount rate is 4.88% for the above leases.

The following table is a summary of future minimum rentals on such leases at January 31, 2021 (amounts in thousands):

At January 31, 2021, the weighted average remaining lease term was 3.0 years, and the weighted average discount rate was 5.26% for the above leases.

Note 5. Fair Value

The Company applies ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), which provides a framework for measuring fair value under accounting principles generally accepted in the United States of 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.

To ensure the prudent application of estimates and management judgment 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 July 31, 2021 are summarized below (amounts in thousands):

Financial assets and liabilities measured at fair value on a recurring basis at January 31, 2021 are summarized below (amounts in thousands):

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

(2) The forward purchase contracts and commodity futures assets are included in “Prepaid expenses and other current assets” on the accompanying Consolidated Condensed Balance Sheets.

(3) The commodity futures liability is included in “Accrued expenses and other current liabilities” 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 July 31, 2021 or January 31, 2021.

Note 6. Property and Equipment

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

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. 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 natural gas) 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 changes in fair value of these derivative financial instruments are recognized in current period earnings as the Company does not use hedge accounting.

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 liabilities are included in accrued expenses and other current liabilities. These contracts are short/sell positions for approximately 8.6 million bushels of corn at July 31, 2021. These contracts are short/sell positions for approximately 6.9 million bushels of corn at January 31, 2021. Commodity futures assets are included in prepaid expenses and other assets. These contracts are

long/buy positions for approximately 5.8 million bushels of corn at July 31, 2021. There were no long/buy positions at January 31, 2021.

(2) Forward purchase contracts assets are included in prepaid expenses and other current assets. These contracts are for purchases of approximately 10.6 million bushels of corn at July 31, 2021 and 6.4 million bushels of corn at January 31, 2021.

As of July 31, 2021, and January 31, 2021, all of the derivative financial instruments held by the Company were subject to enforceable master netting arrangements with the counterparty. The Company’s accounting policy is to offset positions and amounts owed or owing with the same counterparty. As of July 31, 2021, and January 31, 2021, 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. The Company was required to maintain collateral in the amount of approximately $6,758,000 and approximately $1,657,000 to secure the Company’s derivative position at July 31, 2021 and January 31, 2021, respectively.

See Note 5 which contains fair value information related to derivative financial instruments.

The Company recognized losses (included in net sales and revenue) on derivative financial instruments of approximately $1,638,000 and $298,000 for the second quarter of fiscal years 2021 and 2020, respectively. The Company recognized losses (included in net sales and revenue) on derivative financial instruments of approximately $2,764,000 and $298,000 for the first six months of fiscal years 2021 and 2020, respectively.

The Company recognized losses (included in cost of sales) on derivative financial instruments of approximately $6,142,000 and approximately $4,613,000 for the second quarter of fiscal years 2021 and 2020, respectively. The Company recognized losses (included in cost of sales) on derivative financial instruments of approximately $8,036,000 and approximately $1,758,000 for the first six months of fiscal years 2021 and 2020, respectively.

Note 9. Investments

The following table summarizes the Company’s equity method investment at July 31, 2021 and January 31, 2021 (dollars in thousands):

Undistributed earnings of the Company’s equity method investee totaled approximately $11.8 million and approximately $9.4 million at July 31, 2021 and January 31, 2021, respectively. The Company did not receive any dividends from its equity method investee in the first six months of fiscal year 2021 and received dividends of approximately $2.0 million in the first six months of fiscal year 2020.

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

At July 31, 2021, the Company owned certificates of deposit that had an amortized cost, or carrying value, of approximately $33,282,000. The contractual maturity of these investments was less than one year. The yield to maturity rate was approximately 0.1%. Unrealized gains or losses were insignificant.

At January 31, 2021, the Company owned certificates of deposit that had an amortized cost, or carrying value, of approximately $36,194,000. The contractual maturity of these investments was less than one year. The yield to maturity rate was approximately 0.2%. Unrealized gains or losses were insignificant.

Note 10. 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. Since plan inception, the Company has only granted restricted stock awards. 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, 2021, 471,027 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 grant date. 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 on the grant date. The Company’s board of directors has determined that the grant date will be June 15^th, or the next business day if June 15^th is not a business day, for all grants of restricted stock.

At July 31, 2021 and January 31, 2021, unrecognized compensation cost related to nonvested restricted stock was approximately $155,000 and $272,000, respectively. The following tables summarize non-vested restricted stock award activity for the periods presented:

The above tables include 5,714 and 14,777 non-vested shares at July 31, 2021 and 2020, respectively, which are included in the number of weighted average shares outstanding used to determine basic and diluted earnings per share attributable to REX common shareholders. Such shares are treated, for accounting purposes, as being fully vested at the grant date as they were granted to recipients who were retirement eligible at the time of grant.

Note 11. Income Taxes

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 and 2020.

The Company’s income tax benefit was approximately $3.7 million and approximately $4.0 million for the three months ended July 31, 2021 and 2020, respectively. The Company’s income tax benefit was approximately $3.6 million and approximately $9.4 million for the six months ended July 31, 2021 and 2020, respectively. We had a higher benefit in the prior year periods based upon pre-tax losses for those periods versus pre-tax income in the current periods. The benefit is also largely impacted by the level of tax credits generated from the refined coal operation. Through its refined coal operation, the Company earns production tax credits pursuant to IRC Section 45. The credits can be used to reduce future income tax liabilities for up to 20 years. In addition, the Company’s income tax benefit for the first six months of fiscal year 2020 includes approximately $1.8 million related to the lengthening of a net operating loss carryback allowed by the CARES Act.

The Company assessed all available positive and negative evidence to determine whether it expects sufficient future taxable income will be generated to allow for the realization of existing federal deferred tax assets. For the three year period ended July 31, 2021, the Company has a cumulative pre-tax book loss on a comprehensive basis, including the impact of an operation that has historically produced pre-tax book losses, but after tax net income. The Company expects that this entity will cease operations by November 18, 2021. There is sufficient objectively verifiable income for management to conclude that it is more likely than not that the Company will utilize available federal deferred tax assets prior to their expiration.

The Company files a U.S. federal income tax return and various state income tax 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, 2014 and prior. The Company is currently undergoing a federal income tax examination for the years ended January 31, 2015 through January 31, 2020.

On a quarterly and annual basis, the Company accrues for the effects of open uncertain tax positions and the related potential penalties and interest. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will increase or decrease during the next 12 months; however, the Company does not expect the change to have a material effect on results of operations or financial position. A reconciliation of the beginning and ending amount of unrecognized tax benefits, including interest and penalties, is as follows (amounts in thousands):

Note 12. Commitments and Contingencies

The Company may be involved in various legal actions arising in the normal course of business, from time to time. After taking into consideration legal counsels’ evaluations of any such action(s),

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 10.6 million bushels of corn, the principal raw material for their ethanol plants, and they have combined forward purchase contracts for approximately 639,000 MmBtu (million british thermal units) of natural gas.

One Earth and NuGen have combined sales commitments for approximately 31.7 million gallons of ethanol, approximately 46,000 tons of distillers grains and approximately 9.6 million pounds of non-food grade corn oil.

The refined coal entity has various agreements (site license, operating agreements, etc.) containing payment terms based upon production of refined coal under which the Company is required to pay various fees. These fees totaled approximately $2.2 million and approximately $1.1 million in the second quarter of fiscal years 2021 and 2020, respectively. Such fees totaled approximately $3.1 million and approximately $1.4 million for the six months ended July 31, 2021 and 2020, respectively.

Note 13. Related-Party Transactions

During the second quarters of fiscal years 2021 and 2020, One Earth and NuGen purchased approximately $20.7 million and approximately $4.9 million, respectively, of corn (and other supplies) from minority equity investors and board members of those subsidiaries. Such purchases totaled approximately $37.4 million and approximately $17.2 million for the six months ended July 31, 2021 and 2020, respectively. The Company had amounts payable to related parties of approximately $2.5 million and approximately $0.7 million at July 31, 2021 and January 31, 2021, respectively.

During each of the second quarters of fiscal years 2021 and 2020, the Company recognized commission expense of approximately $0.2 million, payable to the minority investor in the refined coal entity. During the first six months of fiscal years 2021 and 2020, the company recognized commission expense of approximately $0.2 million and income of approximately $0.1 million, respectively. The commission expense is associated with the refined coal segment. The Company had accrued liabilities and accounts payable related to the commission expense of approximately $0.1 million at July 31, 2021 and January 31, 2021.

Note 14. Segment Reporting

The Company has two reportable segments: i) ethanol and by-products; and ii) refined coal. The Company evaluates the performance of each reportable segment based on net income attributable to REX common shareholders. Segment profitability measures are determined using the same accounting policies used in the preparations of the consolidated condensed financial statements. The following tables summarize segment and other results and assets (amounts in thousands):

¹ The Company records sales in the refined coal segment net of the cost of coal as the Company purchases the coal feedstock from the customer to which refined coal is sold.

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

Ethanol and By-Products

At July 31, 2021, 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:

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 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 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, 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, along with a minority partner, for approximately $12.0 million. We own 95.35% of the entity. 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 18, 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 $7.38 per ton of refined coal produced and sold during calendar year 2021. The tax credits can be earned for refined coal produced and sold by our facility through November 18, 2021. Absent the tax credits, our refined coal operations would not be profitable and we expect to cease operations at that time. At the conclusion of the operations we are obligated to remove the equipment from the site but do not expect the cost to be significant.

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, competing energy prices, lack of supplies and the state of the local 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 $2.5 million cumulatively to purchase our ownership interest and fund patent 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 July 31, 2021, we did not change any of our critical accounting policies as disclosed in our 2020 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on April 12, 2021.

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 2021” means the period February 1, 2021 to January 31, 2022.

Results of Operations

Trends and Uncertainties

In recent years, operating results in our ethanol and by-products segment have been, at times affected by a weak margin environment including such factors as higher costs for corn, including increased basis over index pricing, lower availability of local corn, lower ethanol demand and the EPA granting small refiner waivers.

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 were 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 led to reduced demand for gasoline and ethanol, which consequently resulted in historically low ethanol pricing. As a result, 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 in late May of 2020 and at NuGen in late June of 2020. In addition, actions by the Federal Reserve related to the COVID-19 outbreak, reduced interest rates. Given the amount of cash and short-term investments we have, this has reduced our interest income and could continue 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 recent Delta variant, cannot be reasonably estimated at this time, although a prolonged production stoppage at our plants could have a material adverse impact on our results of operations, financial condition and cash flows in future periods.

Congress passed the CARES Act in March 2020, which provided the United States department of Agriculture (“USDA”) with additional funding from the “Commodity Credit Corporation. The USDA is using this additional funding to provide direct payments to farmers, including farmers that we purchase corn from. Such direct payments to farmers could cause further delays in marketing decisions. Consequently, this could reduce the supply of available corn and could result in a price increase. In addition, China has been purchasing large quantities of corn, which has led to higher prices for corn. We have experienced an increase in the local basis price paid over Chicago Board of Trade for corn during the first six months of fiscal year 2021.

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. When it was originally established by Congress, 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 was to 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. On December 19, 2019, the EPA announced the final 2020 renewable volume obligation for conventional ethanol, which met the 15.0 billion gallons congressional target. The EPA has missed its deadline and has not yet released a draft renewable volume obligation rule for the 2021 volumes. On April 15, 2020, five state Governors sent a letter to the EPA requesting a general waiver of the RFS II requirements due to the drop in demand caused by COVID-19 travel restrictions. On October 21, 2020, 15 U.S. Senators sent a letter to the EPA requesting a general waiver of the RFS II requirements to reduce the 2021 renewable volume obligation, citing the reduced demand for fuels due to COVID-19.

On June 25, 2021, the Supreme Court of the United States ruled in favor of small refiners and reversed a portion of the decision by the U.S. Court of Appeals for the 10th Circuit on small refiner waivers (SRWs). It only reversed the interpretation of “extension” of a waiver but not the economic hardship portion of the decision. It remains unclear how the Supreme Court decision may impact the EPA’s handling of SRWs.

Throughout fiscal year 2020 and the first six months of fiscal year 2021, operating results in our refined coal segment were affected by inconsistent utility plant demand (our only customer). By November 18, 2021, we expect to cease these operations and the resulting earning of production tax credits, as based upon current legislation this facility will no longer be eligible to earn additional tax credits beyond that date.

Should these trends and uncertainties continue, our future operating results are likely to be negatively impacted.

Comparison of Three and Six Months Ended July 31, 2021 and 2020

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. We have two reportable segments: i) ethanol and by-products; and ii) refined coal. We evaluate the performance of each reportable segment using net income attributable to REX common shareholders. Segment profitability measures are determined using the same accounting policies used in the preparation of the consolidated financial statements. The following tables summarizes segment and other results (amounts in thousands):

¹ The Company records sales in the refined coal segment net of the cost of coal as the Company purchases the coal feedstock from the customer to which refined coal is sold.

The following table summarizes net sales and revenue from the ethanol and by-products segment (amounts in thousands):

The following table summarizes selected data from the ethanol and by-products segment:

Net sales and revenue in the quarter ended July 31, 2021 increased approximately 398% compared to the prior year’s second quarter. Net sales and revenue in the first six months of fiscal year 2021 increased approximately 194%. We had significantly lower production and sales volumes in our ethanol and by-products segment during the first six months of fiscal year 2020, as diminished local availability of corn at the NuGen facility, the effects of the COVID-19 outbreak and lower ethanol pricing resulted in the idling of the NuGen and One Earth ethanol plants in March of 2020. We resumed production operations at One Earth in late May of 2020 and at NuGen in late June of 2020. Both of our consolidated plants produced at or near capacity during the first six months of fiscal year 2021.

Ethanol sales increased in the second quarter of fiscal year 2021 compared to the second quarter of fiscal year 2020 as the number of gallons sold increased 160% and the average selling price per gallon increased 80% over the prior year second quarter. Ethanol sales increased in the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020 as the number of gallons sold increased 86% and the average selling price per gallon increased 62% over the prior fiscal year. The increase in the ethanol selling price resulted primarily from an increase in demand and an increase in commodity prices.

Dried distillers grains sales increased in the second quarter of fiscal year 2021 compared to the second quarter of fiscal year 2020 as the number of tons sold increased 278% and the average selling price per ton increased 53% over the prior year second quarter. Dried distillers grains sales increased in the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020 as the number of tons sold increased 77% and the average selling price per ton increased 45% over the prior fiscal year. The increase in the dried distillers grains selling price resulted primarily from increased demand and an increase in corn prices as dried distillers grains prices often correlate with corn pricing.

Non-food grade corn oil sales increased in the second quarter of fiscal year 2021 compared to the second quarter of fiscal year 2020 as the number of pounds sold increased 283% and the average selling price per pound increased 96% over the prior year second quarter. Non-food grade corn oil sales increased in the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020 as the number of pounds sold increased 109% and the average selling price per pound increased 64% over the prior year fiscal year. 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 2021 compared to the second quarter of fiscal year 2020 as the number of tons sold increased 225% and the average selling price per ton increased 184% over the prior year second quarter. Modified distillers grains sales increased in the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020 as the number of tons sold increased 296% and the average selling price per ton increased 60% over the prior year fiscal year. The increase in the modified distillers grains selling price resulted primarily from an increase in corn prices and increased local demand.

Losses on derivative financial instruments, included in net sales and revenue, of approximately $1.6 million in the second quarter of fiscal year 2021 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 $0.3 million during the second quarter of fiscal year 2020. Losses on derivative financial instruments, included in net sales and revenue, were approximately $2.8 million in the first six months of fiscal year 2021 compared to $0.3 million in the first six months of fiscal year 2020.

Gross profit for the second quarter of fiscal year 2021 increased approximately $12.4 million compared to the prior year’s second quarter. This was primarily caused by significantly higher production and sales volumes in our ethanol and by-products segment during the second quarter of fiscal year 2021 compared to the reduced levels during the second quarter of fiscal year 2020 discussed above. The crush spread for the second quarter of fiscal year 2021 was approximately break-even per gallon of ethanol sold compared to $(0.04) per gallon of ethanol sold during the second quarter of fiscal year 2020. The selling price per gallon of ethanol sold increased 80% for the second quarter of fiscal year 2021 compared to the second quarter of fiscal year 2020, slightly outpacing the 78% increase in the cost per bushel of corn during the same periods. In addition, higher sales volumes discussed above and prices of by-products contributed to the increase in gross profit during the second quarter of fiscal year 2021 compared to the second quarter of fiscal year 2020. During the second quarter of fiscal year 2020 the impact from the COVID-19 outbreak and lower gasoline pricing resulted in lower ethanol and corn pricing which severely impacted operations and resulted in the consolidated ethanol plants being idled for a portion of the quarter.

Grain accounted for approximately 86% ($156.2 million) of our cost of sales during the second quarter of fiscal year 2021 compared to approximately 68% ($26.1 million) during the second quarter of fiscal year 2020. Natural gas accounted for approximately 3% ($6.2 million) of our cost of sales during the second quarter of fiscal year 2021 compared to approximately 5% ($1.9 million) during the second quarter of fiscal year 2020. The grain and natural gas expenditure increases were primarily attributable to the higher production levels in the second quarter of fiscal year 2021 compared to the reduced production levels in the second quarter of fiscal year 2020 and the significant rise in corn prices during the second quarter of fiscal year 2021.

Gross profit for the first six months of fiscal year 2021 increased approximately $39.5 million compared to the first six months of the prior year. This was primarily the result of significantly higher production and sales volumes in our ethanol and by-products segment during the first six months of fiscal year 2021 compared to the reduced levels during the first six months of fiscal year 2020 discussed above. The crush spread for the first six months of fiscal year 2021 was approximately $0.02 per gallon of ethanol sold compared to $(0.08) per gallon of ethanol sold during the first six months of fiscal year 2020. The selling price per gallon of ethanol sold increased 62% for the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020, outpacing the 52% increase in the cost per bushel of corn during the same periods. In addition, higher sales volumes discussed above and prices of by-products contributed to the increase in gross profit during the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020. During the first six months of fiscal year 2020 the impact from the COVID-19 outbreak and lower gasoline pricing resulted in lower ethanol and corn pricing which severely impacted operations and resulted in the consolidated ethanol plants being idled for a portion of the year and the large gross loss.

Grain accounted for approximately 85% ($278.2 million) of our cost of sales during the first six months of fiscal year 2021 compared to approximately 73% ($94.8 million) during the first six months of fiscal year 2020. Natural gas accounted for approximately 3% ($9.9 million) of our cost of sales during the first six months of fiscal year 2021 compared to approximately 6% ($7.3 million) during the first six months of fiscal year 2020. The grain increase was primarily attributable to the higher production levels in the first six months of fiscal year 2021 compared to the reduced production levels in the first six months of fiscal year 2020 and the significant rise in corn prices during the first six months of fiscal year 2021. The natural gas unit price decrease was primarily attributable to gains realized on the sales of unused natural gas during the first quarter of fiscal year 2021. The sales were a result of unusual and significant increases in the spot price of natural gas during portions of the first quarter of fiscal year 2021 which resulted in an opportunity for us to sell forward natural gas purchases at a gain.

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 $6.6 million for the second quarter of fiscal year 2021, significantly higher than the approximately $4.4 million of expenses for the second quarter of fiscal year 2020. SG&A expenses were approximately $16.6 million for the first six months of fiscal year 2021, significantly higher than the approximately $9.0 million of expenses for the first six months of fiscal year 2020. A majority of the increase results from higher shipping costs as more sales contracts in our ethanol and by-products segment provided for shipping to be paid by us in the second quarter of fiscal year 2021 compared to the second quarter of fiscal year 2020. In addition, there was an increase in incentive compensation associated with higher profitability in fiscal year 2021.

During the second quarter of fiscal year 2021, we recognized income of approximately $1.8 million compared to a loss of approximately $0.5 million for the second quarter of fiscal year 2020, from our equity investment in Big River, which is included in our ethanol and by-products segment results. We recognized income of approximately $2.4 million during the first six months of fiscal year 2021 compared to a loss of approximately $1.0 million during the first six months of fiscal year 2020. Big River has interests in four ethanol production plants that shipped approximately 417 million gallons in the trailing twelve months ended July 31, 2021 and has an effective ownership of ethanol gallons shipped for the same period of approximately 361 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 $39,000 for the second quarter of fiscal year 2021 versus approximately $197,000 for the second quarter of fiscal year 2020. Interest and other income was approximately $82,000 for the first six months of fiscal year 2021 versus approximately $866,000 for the first six months of fiscal year 2020. Interest income decreased as yields on our excess cash decreased in the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020.

As a result of the foregoing, income before income taxes was approximately $6.4 million for the second quarter of fiscal year 2021 versus a loss of approximately $6.1 million for the second quarter of fiscal year 2020. Income before income taxes was approximately $14.8 million versus a loss of approximately $19.8 million for the first six months of fiscal years 2021 and 2020, respectively.

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 method to calculate the provision or benefit for income taxes for the three and six months ended July 31, 2021 and 2020. Our income tax benefit was approximately $3.7 million and approximately $4.0 million for the three months ended July 31, 2021 and 2020, respectively, and was approximately $3.6 million and approximately $9.4 million for the six months ended July 31, 2021 and 2020, respectively We had a higher benefit in the prior year periods based upon pre-tax losses for those periods versus pre-tax income in the current periods. The benefit is also largely impacted by the level of tax credits generated from the refined coal operation. Through its refined coal operation, the Company earns production tax credits pursuant to IRC Section 45. The credits can be used to reduce future income tax liabilities for up to 20 years. Our income tax benefit for the first six months of fiscal year 2020 includes approximately $1.8 million related to the lengthening of a net operating loss carryback allowed by the CARES Act.

As a result of the foregoing, net income was approximately $10.1 million for the second quarter of fiscal year 2021 compared to net loss of approximately $2.0 million for the second quarter of fiscal year 2020. Net income was approximately $18.5 million for the first six months of fiscal year 2021 compared to net loss of approximately $10.5 million for the first six months of fiscal year 2020.

Income related to noncontrolling interests was approximately $2.2 million for the second quarter of fiscal year 2021 compared to a loss of $0.3 million for the second quarter of fiscal years 2020. Income related to noncontrolling interests was approximately $2.8 million for the six months of fiscal year 2021 compared to a loss of approximately $1.1 million for the first six months of fiscal years 2020. 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 income attributable to REX common shareholders for the second quarter of fiscal year 2021 was approximately $7.9 million, an increase of approximately $9.6 million from net loss attributable to REX common shareholders of approximately $1.7 million for the second quarter of fiscal year 2020. Net income attributable to REX common shareholders for the first six months of fiscal year 2021 was approximately $15.7 million, an increase of approximately $25.0 million from net loss attributable to REX common shareholders of approximately $9.4 million for the first six months of fiscal year 2020.

Liquidity and Capital Resources

Net cash provided by operating activities was approximately $17.2 million for the first six months of fiscal year 2021, compared to cash used of approximately $9.0 million for the first six months of fiscal year 2020. For the first six months of fiscal year 2021, cash was provided by net income of approximately $18.5 million, adjusted for non-cash items of approximately $6.6 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 $0.9 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 $5.5 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.

Net cash used in operating activities was approximately $9.0 million for the first six months of fiscal year 2020. For the first six months of fiscal year 2020, cash was used by a net loss of approximately $10.5 million, adjusted for non-cash items of approximately $9.3 million, which consisted of depreciation, amortization of operating lease right-of-use assets, loss from equity method investments, interest income from short-term 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 six months of fiscal year 2020. A decrease in the balance of accounts receivable provided cash of approximately $3.2 million, which was primarily a result of the timing of customer shipments and payments as well as lower commodity prices. Inventories decreased by approximately $5.3 million, which was primarily a result of the timing of receipt of raw materials, shipments of finished goods and lower commodity prices. An increase in the balance of refundable income taxes of approximately $4.6 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 $10.3 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 $2.9 million, which was primarily a result of payments of operating leases and incentive compensation.

At July 31, 2021, working capital was approximately $246.0 million, compared to approximately $228.0 million at January 31, 2021. The ratio of current assets to current liabilities was 7.4 to 1 at July 1, 2021 and 8.4 to 1 at January 31, 2021.

Cash of approximately $0.3 million was provided by investing activities for the first six months of fiscal year 2021, compared to approximately $12.4 million used during the first six months of fiscal year 2020. 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. We expect capital expenditures to be in the range of approximately $3.0 million to $5.0 million for the remainder of fiscal year 2021. 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. The certificates of deposit 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 $12.4 million was used in investing activities for the first six months of fiscal year 2020. During the first six months of fiscal year 2020, we had capital expenditures of approximately $5.7 million, primarily for the purchase of land at One Earth Energy. During the first six months of fiscal year 2020, we purchased certificates of deposit (classified as short-term investments) of approximately $45.5 million. During the first six months of fiscal year 2020, certificates of deposit (classified as short-term investments) of approximately $39.0 million matured.

Cash of approximately $2.5 million was used in financing activities for the first six months of fiscal year 2021, compared to approximately $5.7 million for the first six months of fiscal year 2020. During the first six months of fiscal year 2021, we used cash of approximately $1.4 million to purchase approximately 17,000 shares of our common stock in open market transactions. We also made payments of approximately $1.3 million to noncontrolling interests holders.

Cash of approximately $5.7 million was used in financing activities for the first six months of fiscal year 2020 as we used cash of approximately $5.6 million to purchase approximately 109,000 shares of our common stock in open market transactions.

We are investigating various uses for our excess cash and short-term investments. We have historically had a stock buyback program and subsequent to the end of the fiscal 2021 second quarter completed a 500,000 share buyback authorization from the Board of Directors and obtained authorization to repurchase an additional 500,000 shares. We also plan to seek and evaluate investment opportunities including ethanol and/or energy related, carbon dioxide 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 by drilling a test well and performing seismic surveys. The seismic survey has been completed and the data is being sent for processing. Further work and research is needed to determine if this will be a feasible location for carbon sequestration and storage.

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, 2021 (File No. 001-09097).

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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, 2021 is as follows, assuming normal operating capacity (amounts in thousands):