BUSINESS COMBINATIONS

12 Months Ended

Jan. 31, 2014

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

3. BUSINESS COMBINATIONS

On November 1, 2011, the Company acquired an additional 50% of the outstanding membership units of NuGen. This acquisition resulted in the Company owning approximately 98% of the outstanding membership units in NuGen and also resulted in the Company obtaining a controlling financial interest in NuGen. This has been accounted for as a business combination achieved in stages. NuGen operates an ethanol production facility in Marion, South Dakota that has an annual nameplate capacity of 100 million gallons of ethanol.

The results of NuGen’s operations have been included in the consolidated financial statements subsequent to the acquisition date and are included in the Company’s alternative energy segment. Subsequent to the acquisition date, and during fiscal year 2011, the Company included approximately $84.1 million of net sales and revenue and approximately $4.0 million of net income from NuGen in its Consolidated Statement of Operations. The Company paid approximately $10.4 million of cash for the acquisition, and the fair value of the Company’s previously held equity interest in NuGen was approximately $18.6 million.

Prior to this acquisition, the Company owned 48% of NuGen. In accordance with ASC 805, the Company accounted for this transaction as a business combination achieved in stages, and thus remeasured its previously held investment to fair value and recorded a $5.4 million remeasurement loss, determined based on the excess of carrying value ($24.0 million) over fair value ($18.6 million). This fair value was determined using both a market and income approach, both of which contain significant unobservable inputs.

Under the market approach, the Company used market data of comparable historical ethanol plant sales to estimate that the fair value of the property, plant and equipment acquired, which was $83.0 million (based on the low end of comparable pricing). The fair value of total net assets acquired (or equity value) was $42.9 million.

Under the income approach, the Company computed the present value of estimated discrete period cash flows using a discount rate of 23%. The sum of the present values of the discrete period cash flows and the terminal value indicated a fair value of property, plant and equipment of $74.2 million and a fair value of net assets acquired (or equity value) of $35.6 million.

The Company gave equal weight to the values derived under the market approach and the income approach, which indicated a fair value of property, plant and equipment of $78.6 million, and a fair value of total net assets (or equity value) of $39.0 million. The acquisition date fair value of the Company’s existing 48% equity interest in NuGen ($18.6 million) was derived by multiplying the $39.0 million equity value of NuGen by the Company’s 48% ownership interest as of the acquisition date.

Based on the indicated fair values of consideration transferred, assets acquired and liabilities assumed, the Company calculated a gain on bargain purchase as follows (amounts in thousands):

Consideration transferred:
Cash	$	10,413
Fair value of non-controlling interest		955
Fair value of 48% equity method investment		18,642
	$	30,010
Net assets acquired:
Cash	$	24,971
Accounts receivable		7,381
Inventory		8,491
Prepaid expenses and other current assets		711
Other assets		2,995
Property, plant and equipment		78,618
Current liabilities		(19,167	)
Long-term debt		(65,000	)
	$	39,000
Bargain purchase gain	$	8,990

Before recognizing the bargain purchase gain, the Company reassessed whether and confirmed that all of the assets acquired and all of the liabilities assumed had been correctly identified. The Company also considered various qualitative factors to evaluate if the former owners received an adequate rate of return on their investment despite the bargain purchase gain, including: 1) the seller was a farmer cooperative group primarily in the business of storing and selling corn. Prior to acquiring NuGen, the farmer cooperative group sold corn to the NuGen plant. The seller acquired NuGen in 2009 in order to preserve the farmer cooperative group’s ability to sell its corn (and not out of desire to enter the ethanol industry). After recovering their initial investment in NuGen via distributions from operations, the farmer cooperative group was no longer motivated to remain in, and thus desired to exit from, the ethanol industry; 2) the $10.4 million purchase price for an additional 50% equity interest in NuGen was determined based on an arms-length negotiation between REX management and the seller and represented a significant premium over the seller’s initial investment when it purchased NuGen at a bargain out of bankruptcy; 3) the seller desired liquidity for its grain operations expansion, unrelated to NuGen; and 4) by selling an additional 50% equity interest in NuGen to REX, the seller believed that it would continue doing business with a familiar, trusted business partner.

The seller’s desire to obtain liquidity on a short time frame, coupled with a keen interest in continuing to do business with a trusted business partner, contributed to the seller’s decision to negotiate a transaction with REX.

The gain on bargain purchase of approximately $8.9 million, combined with the loss related to the equity method investment remeasurement of approximately $5.4 million is recorded as “Bargain Purchase Gain, Net” of $3.5 million on the accompanying Consolidated Statements of Operations in fiscal year 2011.

The unaudited financial information in the table below summarizes the combined results of operations of the Company and NuGen, on a pro forma basis, as though the companies had been combined as of the beginning of fiscal year 2011 (in thousands, except per share amounts):

	Year Ended January 31, 2012
Net sales and revenue	$	684,615
Net income	$	34,939
Basic net income per share	$	3.83
Diluted net income per share	$	3.80

Transaction costs related to the acquisition of NuGen were insignificant.