Green Plains Renewable Energy, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011; unaudited consolidated results. The company was a vertically integrated ethanol producer, marketer and distributor, with approximately 740 million gallons per year of production capacity across nine plants.
Financial performance
Amounts are in millions of dollars except per-share data, percentages and operating volumes.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $861.4 | $453.4 | $1,673.5 | $879.8 |
| Gross profit / margin | $35.1 / 4.1% | $30.7 / 6.8% | $72.5 / 4.3% | $68.1 / 7.7% |
| Operating income / margin | $17.6 / 2.0% | $17.1 / 3.8% | $37.4 / 2.2% | $41.6 / 4.7% |
| Net income attributable to Green Plains | $5.0 | $8.7 | $12.7 | $24.3 |
| Diluted EPS | $0.14 | $0.27 | $0.34 | $0.83 |
| EBITDA, as reported by the company | $29.8 | $26.3 | $61.8 | $59.5 |
- Cash flow: First-half operating cash flow was negative $19.6 million, investing cash flow negative $36.3 million and financing cash flow negative $40.9 million. Capital expenditures were $27.0 million.
- Liquidity: June 30 cash and equivalents were $136.4 million; restricted cash was $27.8 million. Management reported $164.2 million in cash and equivalents including restricted amounts, and up to $89.9 million of additional subsidiary revolver availability, subject to borrowing-base and other conditions.
- Debt: Total debt was $683.0 million, including $158.8 million current maturities and $524.2 million long-term debt. $477.5 million was variable-rate. The company reported $501.1 million of subsidiary net assets restricted from transfer to the parent.
Changes versus comparable periods
- Revenue rose 90% year over year in Q2 and 90% in the first half, primarily from acquired operations and higher commodity prices. Acquisitions and expanded plant volumes increased ethanol and related product sales.
- Despite higher revenue, gross profit increased only modestly: $4.4 million for the first half. Gross and operating margins declined as higher corn costs and commodity-price variability pressured profitability.
- First-half operating income fell $4.2 million and attributable net income fell $11.5 million. Higher SG&A, depreciation and interest expense contributed; interest expense increased $6.5 million year over year for the first half.
- First-half ethanol production segment operating income declined to $31.0 million from $45.0 million. Corn oil production, a separately reported segment beginning in 2011, generated $14.8 million of first-half revenue and $8.4 million of operating income.
Outlook, commentary and risks
- Management expected approximately $14.1 million of additional capital spending in the remainder of 2011, including Otter Tail corn-oil extraction and grain-storage projects. The company planned to complete corn-oil installations at Otter Tail and grain-storage expansions during 2011.
- Management said available borrowings and operating cash flow should support working capital, capital expenditures and debt service for the foreseeable future, but cautioned that sustained unprofitable operations could strain liquidity. It reported covenant compliance at June 30 and forecast continued compliance, while noting no assurance actual results would match forecasts.
- Green Plains Grain’s revolving facilities were scheduled to mature November 1, 2011; management intended to negotiate a replacement facility before maturity. Otter Tail’s $4.7 million revolver matured March 23, 2012.
- Commodity prices and hedging create significant earnings and liquidity volatility. Management noted larger and more frequent margin calls amid rising grain and ethanol prices. First-half derivative losses included $22.4 million in revenues and $6.8 million in cost of goods sold; the filing explains that derivative and physical-contract timing can produce earnings mismatches.
- Key policy uncertainties included the Renewable Fuel Standard and the federal ethanol blender’s credit, then scheduled to expire December 31, 2011; a Senate proposal to end the credit early had passed, but its enactment was uncertain. Other stated risks included commodity and interest-rate exposure, counterparty risk, financing access, acquisition execution and debt-covenant compliance.
- Aventine Renewable Energy’s bankruptcy-related complaint sought $24.4 million for alleged preferential transfers or, alternatively, $28.4 million for alleged fraudulent transfers, plus unspecified damages relating to rail-car termination. The company said it could not predict the outcome and intended to defend the claims.
- After quarter-end, on July 19, 2011, the company acquired the remaining 49% interest in Blendstar. It also reported a 35% interest in BioProcess Algae; commercialization depends on achieving viable production rates, costs, capital needs and markets.
Important facts for investors to verify
- Whether the company renewed Green Plains Grain’s facilities before their November 1, 2011 maturity, and the resulting borrowing availability and terms.
- Whether ethanol production margins improved or remained pressured by corn costs, commodity volatility and hedging outcomes.
- Cash available to the parent versus restricted or subsidiary-held cash, and liquidity required for margin calls and debt service.
- Progress and cost of the Otter Tail corn-oil and grain-storage projects, and the operating contribution from recent acquisitions and Blendstar.
- Developments in the Aventine litigation, ethanol policy and tax-credit rules, and subsidiary covenant compliance.