Green Plains Inc. — FY 2016 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2016; quarterly figures below identify the fourth quarter where relevant. Green Plains operates ethanol production, agribusiness and energy services, food and food ingredients, and Green Plains Partners, its consolidated storage and transportation partnership. It operated 17 ethanol plants with approximately 1.5 billion gallons of annual capacity.
Key financial results
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $3.411 billion | $2.966 billion |
| Operating income | $91.7 million | $61.1 million |
| Net income | $30.5 million | $15.2 million |
| Net income attributable to Green Plains | $10.7 million | $7.1 million |
| Diluted EPS attributable to Green Plains | $0.28 | $0.18 |
| EBITDA (non-GAAP) | $174.4 million | $127.8 million |
| Cash from operating activities | $83.0 million | $10.2 million |
- Revenue increased 15%; operating margin was approximately 2.7%, compared with 2.1% in 2015. Net income attributable to Green Plains remained a small share of consolidated net income, in part because of noncontrolling interests in the partnership.
- Fourth-quarter 2016 revenue was $932.1 million and Green Plains-attributable net income was $18.7 million, compared with revenue of $739.9 million and an attributable net loss of $3.6 million in fourth-quarter 2015.
- Cash from operations improved, but investing activities used $572.6 million, principally for acquisitions and capital spending. Financing activities provided $409.0 million. Capital expenditures were $56.4 million.
Liquidity, debt and capital
- At year-end, cash and cash equivalents were $304.2 million; restricted cash was a further $52.0 million. Current assets were $1.001 billion and current liabilities $594.9 million, for a current ratio of approximately 1.68.
- Total debt was approximately $1.1 billion, up from about $664 million at year-end 2015. Of the year-end 2016 debt, $843.8 million had variable rates. Management estimated a 10% rise in interest rates would increase annual interest cost by approximately $4.6 million.
- Available revolving credit was reported at $120.8 million, subject to restrictions and lending conditions. Approximately $835 million of subsidiary net assets could not be transferred to the parent because of financing restrictions. The company reported compliance with debt covenants at December 31, 2016.
- Operating cash flow, cash and credit facilities are the stated liquidity sources. Management said working capital was sufficient for existing operations, while warning sustained unprofitable operations could strain liquidity.
Material changes and management commentary
- Revenue growth reflected higher ethanol sales volumes, increased cattle volumes and the October acquisition of Fleischmann’s Vinegar. Ethanol production segment operating income fell to $28.1 million from $43.3 million, as higher volumes and acquisitions did not prevent margin pressure and added costs. Management attributed first-half weakness in part to low crude oil prices and compressed margins; plants ran at approximately 90% of daily average capacity for the year.
- Operating income rose overall, primarily on improved cattle margins and the partnership’s full year of commercial operations. Partnership operating income increased to $60.9 million from $13.0 million; corporate expenses also rose, including acquisition-related costs.
- Acquisitions included three Abengoa ethanol plants for approximately $234.9 million in cash plus working-capital adjustments, and Fleischmann’s Vinegar for approximately $258.3 million in cash. The vinegar acquisition was partly financed with a $130 million term loan and $5 million of revolving borrowings. The company also issued $170 million of 4.125% convertible senior notes due 2022.
- Management projected approximately $55 million of capital spending for 2017, subject to review. No specific earnings or revenue guidance is provided in the supplied filing text. The company stated an intention to continue quarterly dividends, but future declarations remain subject to board approval and business conditions.
Risks, contingencies and unusual items
- Results are highly sensitive to the spread among corn, natural gas, ethanol, distillers grains, corn oil and cattle prices. Hedging can reduce exposure but can also cause losses and sudden margin calls; year-end broker margin deposits were $50.6 million.
- Policy and market risks include possible changes to the Renewable Fuel Standard, uncertainty around 2017 renewable volume obligations, competing fuels and ethanol imports, and export restrictions or tariffs. China increased tariffs on U.S. fuel ethanol and announced higher anti-dumping duties on U.S. distillers grains.
- In an acquisition-related dispute, the company reversed approximately $6.3 million of previously accrued contingent liabilities as a reduction in cost of goods sold. It estimated a further approximately $5.5 million might be due to it, but this gain contingency was not recorded and remains subject to dispute and possible appeal. The company said ordinary-course litigation was not expected to have a material adverse effect.
- Acquisition purchase-price allocations for the 2016 ethanol plants and vinegar business were preliminary at year-end. Management and the auditor excluded the acquired businesses’ internal controls from their year-end assessment; those businesses represented approximately 22% of consolidated assets and 4% of revenue. Management and the auditor otherwise reported effective internal controls, and the financial statements received an unqualified audit opinion.
Most important facts for investors to verify
- Whether ethanol production margins recover, and how commodity prices, plant utilization and hedge results affect cash generation.
- Whether acquisition integrations and preliminary purchase-price allocations, particularly for Fleischmann’s Vinegar, deliver expected performance without material additional costs.
- Debt maturities, variable-rate exposure, covenant headroom and the availability of subsidiary cash to support parent obligations.
- Developments in renewable-fuel mandates, RIN markets, export access and related policy or trade actions.
- Resolution and potential value of the acquisition litigation claim, and continued performance of internal controls as acquired businesses are incorporated.