Green Plains Renewable Energy, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. The filing identifies the registrant as Green Plains Renewable Energy, Inc. Financial statement amounts below are in millions of dollars unless otherwise noted. Interim results are unaudited.
Financial results and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $804.7 | $870.4 | $1,570.2 | $1,645.8 |
| Gross profit | $32.6 | $18.1 | $59.8 | $26.9 |
| Gross margin | 4.1% | 2.1% | 3.8% | 1.6% |
| Operating income (loss) | $18.6 | $(1.1) | $31.3 | $(12.2) |
| Net income (loss) attributable to Green Plains | $6.0 | $(7.6) | $8.5 | $(20.2) |
| Diluted EPS | $0.19 | $(0.25) | $0.28 | $(0.65) |
| EBITDA, as defined by the company | $30.5 | $11.4 | $55.3 | $12.9 |
- Cash flow: First-half operating cash flow was $69.8, versus cash used of $40.4 in 2012. Investing activities used $21.1, including $15.3 for acquisitions and $4.9 of capital expenditures. Financing activities used $89.6, primarily reflecting debt repayments and reduced short-term borrowings. Cash and equivalents declined $40.8 from year-end to $213.5; restricted cash was $13.1 on the balance sheet.
- Balance sheet and liquidity: At June 30, cash and equivalents were $213.5, current assets $479.7, and current liabilities $284.9 (working capital $194.8; current ratio about 1.68). Debt was approximately $571.9, including short-term borrowings and current maturities; long-term debt was $400.1. Management reported up to $220.2 of additional subsidiary revolver availability, subject to borrowing-base and other conditions. Approximately $539.0 of subsidiary net assets were restricted from transfer to the parent.
- Margins and segment performance: Improved ethanol production and marketing and distribution margins drove the return to operating and net profitability. Q2 segment operating income was $7.0 for ethanol production and $9.2 for marketing and distribution. Agribusiness operating income was $0.2, while corn oil operating income was $7.8.
Material changes versus the prior comparable period
- Q2 revenue fell $65.7 (about 7.5%), and first-half revenue fell $75.6 (about 4.6%). Lower grain and agronomy sales following the late-2012 elevator and business divestiture, and lower ethanol volumes, were partly offset by higher average ethanol and distillers grains prices.
- Gross profit rose $14.5 in Q2 and $32.9 in the first half; operating results improved by $19.6 and $43.4, respectively. Management attributed the improvement chiefly to better ethanol and marketing margins and lower SG&A after the divestiture. Interest expense also declined, by $2.1 in Q2 and $3.1 in the first half.
- The company sold 12 grain elevators in December 2012, representing about 83% of reported agribusiness storage capacity, and exited its agronomy and retail petroleum operations. This materially affects year-over-year comparability. Agribusiness gross profit declined $7.7 in Q2 and $12.7 in the first half.
- In June 2013, the company acquired an Atkinson, Nebraska ethanol plant for about $15.2, with annual capacity of approximately 50 million gallons; production began in Q3. It also acquired a small Archer, Nebraska grain elevator and began adding 1.0 million bushels of storage there.
Outlook, risks, contingencies, and unusual items
- Outlook: Management said ethanol margins had improved in the first half of 2013, but Q3 margins would depend on corn availability before harvest. Plants operated at about 93% of capacity in the first half. Planned second-half 2013 capital spending was approximately $15.1, including grain-storage expansion. The filing provides no earnings or revenue guidance.
- Liquidity and debt risks: The company expected to extend or refinance several facilities maturing in 2013, including the $195.0 agribusiness revolver due October 28 and certain plant revolvers or lines due in August. It reported covenant compliance at June 30, but said some ethanol subsidiaries might require parent capital injections to maintain compliance during 2013. A covenant default could allow lenders to accelerate debt. The company cautioned that sustained unprofitable operations could strain liquidity.
- Commodity and policy exposure: Results are sensitive to corn, ethanol, distillers grains, corn oil, and natural gas prices. Hedging may require significant margin-call cash at short notice; management noted that higher grain prices and hedging had increased the frequency and size of margin calls. Risks also include changes to Renewable Fuel Standard mandates, the ethanol blend wall, and RIN market pricing. The company warned that unknowingly trading fraudulent RINs could result in substantial penalties.
- Debt and financing items: $453.0 of the $571.9 total debt was variable-rate; management estimated a 10% interest-rate change would affect annual interest cost by about $1.6. The $90.0 convertible notes bear 5.75% interest and mature in 2015. A June New Markets Tax Credits transaction included a guarantee of tax credits with an anticipated face value of $5.0 if recaptured or reduced; management considered that outcome remote and recorded no liability.
- Other items: First-half derivative losses and gains affected reported revenue, cost of goods sold, and other comprehensive income; the filing says all $78,000 of net unrealized cash-flow-hedge losses in accumulated other comprehensive income were expected to be reclassified to operating income within 12 months, with realized amounts dependent on commodity prices. Ordinary-course litigation was not expected by management to have a material adverse effect. Disclosure controls were assessed as effective, with no material internal-control changes reported.
Important facts for investors to verify
- Whether ethanol and marketing margins remain improved, and how corn availability and prices affect Q3 production economics.
- Completion and terms of the expected extensions or refinancing of the 2013-maturity credit facilities, and subsidiary covenant compliance or need for parent support.
- Usable liquidity after accounting for restricted cash, borrowing-base limits, subsidiary distribution restrictions, and potential derivative margin calls.
- The comparability and future contribution of the acquired Atkinson plant, Archer storage expansion, and the divested agribusiness operations.
- Commodity-hedge mark-to-market effects, the timing of hedge reclassifications, RIN-related exposure, and the status of the tax-credit guarantee.