Business context and reporting period
Filing identity mismatch: The request identifies Green Brick Partners, Inc., but the supplied filing is BioFuel Energy Corp.’s unaudited Form 10-Q for the quarter ended June 30, 2011. This summary reflects the supplied filing, not Green Brick Partners.
BioFuel Energy produced ethanol and distillers grains at two Midwest plants with combined nameplate capacity of approximately 220 million gallons annually. The filing reports the three and six months ended June 30, 2011, compared with the same periods in 2010.
Financial results and liquidity
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Net sales | $168.5m | $96.4m | $326.5m | $197.3m |
| Gross loss (margin) | $(3.8)m (-2.2%) | $(6.2)m (-6.4%) | $(5.9)m (-1.8%) | $(10.9)m (-5.5%) |
| Operating loss | $(6.3)m | $(9.4)m | $(11.1)m | $(17.1)m |
| Net loss | $(8.3)m | $(12.0)m | $(17.4)m | $(22.4)m |
| Net loss attributable to BioFuel common stockholders | $(7.0)m | $(9.4)m | $(14.7)m | $(17.6)m |
| Loss per share, basic and diluted | $(0.07) | $(0.37) | $(0.17) | $(0.69) |
| Cash from operating activities | Not separately presented for Q2 | $8.1m | $10.5m |
At June 30, 2011, cash was $8.0m, current assets $58.1m, current liabilities $37.0m, total assets $311.7m, and total equity $92.1m. Debt was $186.1m, including $183.1m under the senior facility; tax increment financing was another $5.4m. Senior debt carried a 3.2% weighted-average rate, required at least $3.15m in quarterly principal payments, and matured in September 2014. Cash increased $0.6m during the first half.
Material changes versus prior comparable periods
- Sales increased 74.8% in Q2 and 65.5% in the first half, principally because market prices for ethanol and distillers grains were higher. Ethanol gallons sold were nearly flat year over year in the first half.
- Higher corn prices substantially offset higher product prices. Average corn cost rose to $7.10 per bushel in Q2 from $3.48, and to $6.70 in the first half from $3.58.
- Gross losses narrowed, but the company remained loss-making. First-half operating cash flow declined to $8.1m from $10.5m despite the smaller net loss.
- A February equity offering and concurrent LLC placement raised $46.0m gross. Proceeds helped repay the bridge loan and subordinated debt and pay down Cargill debt. Cargill also received 6.6m common shares to extinguish remaining debt. Debt issuance costs expensed upon repayment contributed to higher first-half interest expense.
- Common shares outstanding increased substantially following the offering and debt-for-equity exchange. The company owned 84.7% of the LLC at quarter-end, with the balance recorded as noncontrolling interest.
- In June, the company terminated its long-term distillers-grains marketing agreements with Cargill and moved to separate one-year agreements with independent marketers, renewable by option.
Outlook, risks, contingencies, and unusual items
- Management provided no quantified earnings or production guidance. It expects continued volatility in the corn-to-ethanol “crush spread” and said margins could improve or worsen.
- Management warned that prolonged narrow margins could exhaust liquidity and leave insufficient cash to operate the plants or service debt; further deterioration could lead to curtailing or ceasing operations. Failure to meet debt payments could trigger default and, absent lender accommodation, potentially require bankruptcy protection.
- Liquidity depends in part on extended Cargill corn-payment terms. Cargill payables were $18.2m; the arrangement could be terminated on little or no notice. Cargill accounted for 93% of first-half sales and 94% of receivables at quarter-end, creating significant counterparty and concentration exposure.
- Commodity hedging was limited by financial resources. A hypothetical 10% adverse price move in specified second-half 2011 commodity exposures was estimated to reduce pretax income by $33.6m for ethanol, $30.1m for corn, $5.3m for dry distillers grains, $1.7m for natural gas, and $1.1m for wet distillers grains. A 100-basis-point increase in senior-debt rates was estimated to add $1.831m to annual interest expense.
- Operating lease commitments totaled $51.7m. Deferred Cargill lease payments and ethanol commissions were each $1.6m and deferred indefinitely. No material legal proceedings were reported. No impairment test was performed; management said no indicators of impairment existed at quarter-end.
- The company reported a $196m net operating loss carryforward and a full valuation allowance against deferred tax assets; no income tax provision or benefit was recorded.
Most important facts for investors to verify
- Confirm the issuer: the supplied document is BioFuel Energy Corp., not Green Brick Partners, Inc.
- Review the filing’s liquidity disclosures, Cargill’s ability to terminate extended payment terms, and the company’s ability to meet required debt service.
- Assess whether ethanol and distillers-grains prices can cover corn, natural gas, and other production costs; verify current crush spreads and hedging capacity.
- Check senior-debt covenants, cash restrictions, maturities, and any subsequent lender accommodations or changes in payment status.
- Reconcile the substantial share issuance, Cargill debt-for-equity settlement, LLC noncontrolling interest, and resulting dilution.
- The filing checks “No” on whether all required Exchange Act reports were filed during the preceding 12 months; verify the filing history and any related disclosures.