Green Plains Renewable Energy, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed February 17, 2012. The filing reports full-year results and unaudited quarterly data, including fourth-quarter results. Amounts below are U.S. dollars unless indicated.
Business context
The company operated as a vertically integrated ethanol producer, marketer and distributor, with agribusiness and corn-oil businesses. It had nine ethanol plants with approximately 740 million gallons per year of capacity, corn-oil extraction at all plants, 15 grain elevators, and nine blending or terminaling facilities. Its strategy emphasizes commodity-margin risk management, operating efficiency and selective acquisitions.
Financial performance and liquidity
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $3,553.7 million | $2,133.9 million |
| Gross profit / margin | $172.2 million / 4.8% | $152.5 million / 7.1% |
| Operating income / margin | $99.0 million / 2.8% | $92.1 million / 4.3% |
| Net income attributable to Green Plains | $38.4 million | $48.0 million |
| Diluted EPS | $1.01 | $1.51 |
| EBITDA, company-defined | $148.6 million | $129.6 million |
| Cash from operating activities | $108.9 million | $34.8 million |
| Capital expenditures | $42.5 million | $20.0 million |
- Revenue rose about 67%, primarily reflecting acquisitions, higher commodity prices and increased volumes. Gross profit grew, but margins contracted as corn costs rose faster than ethanol prices.
- Ethanol production segment gross profit fell to $87.0 million from $105.1 million; operating income declined to $73.2 million from $93.4 million. Corn consumption increased to 255.4 million bushels from 194.3 million, and the average corn cost per bushel rose 56.9%, while the average ethanol price rose 43.1%.
- Corn-oil segment operating income was $27.0 million, compared with $0.9 million in 2010, as production expanded. Agribusiness operating income increased to $11.7 million from $5.6 million. Marketing and distribution operating income was $9.5 million versus $9.7 million.
- Fourth-quarter 2011 revenue was $922.8 million and net income attributable to Green Plains was $13.3 million, compared with $757.0 million and $16.4 million, respectively, in fourth-quarter 2010. Q4 operating income was $32.2 million versus $32.7 million.
- Year-end cash and cash equivalents were $175.0 million, down from $233.2 million; restricted cash was an additional $19.6 million. Current assets were $576.4 million and current liabilities $361.0 million, for working capital of approximately $215.5 million and a current ratio of 1.60.
- Total debt was $636.8 million, versus $669.0 million a year earlier; long-term debt was $493.4 million. Approximately $400.0 million of debt carried variable interest rates. Subsidiaries had $221.6 million of borrowing availability under revolving facilities, subject to borrowing-base and other conditions. Approximately $528.6 million of subsidiary net assets were restricted from transfer to the parent.
- Operating, investing and financing cash flows were $108.9 million, negative $54.5 million and negative $112.6 million, respectively. Debt repayments included $13.1 million in free-cash-flow payments; financing cash outflows also included the $28.2 million share repurchase.
Material changes and unusual items
- Acquired a 60-million-gallon-per-year Minnesota ethanol plant in March 2011, grain storage in Missouri in June, and the remaining 49% of BlendStar in July. The January 2012 St. Edward, Nebraska grain-elevator acquisition was subsequent to year-end.
- Completed corn-oil system deployment across all nine ethanol plants during 2011; corn oil sales increased to 96.3 million pounds from 5.0 million pounds in 2010.
- Interest expense rose to $36.6 million from $26.1 million, reflecting acquisition financing and the $90 million convertible notes issued in 2010. Income-tax expense increased to $23.7 million from $17.9 million and was primarily deferred.
- Derivative activity affected reported results materially. Management reported derivative losses of $45.3 million in revenue and $39.5 million in cost of goods sold; the filing notes that derivative results and related physical transactions can be recognized in different periods.
- Repurchased 3.5 million shares from NTR plc for $28.2 million ($8.00 per share). The company had no ongoing repurchase program and reported no intention to retire the shares. It had not paid dividends and did not expect to declare them in the foreseeable future.
Outlook, risks and contingencies
- Management expected 2012 capital expenditures of approximately $31.3 million and said existing cash and borrowing availability, together with operating cash flow, should support working capital, capital spending and debt service. This is subject to operating performance and lender conditions.
- Management reported that, in early 2012, it reduced production at two plants by approximately 30% each, representing about 5% of total capacity, due to unfavorable margins. It linked the weaker margin environment to increased industry production and year-end excess inventories.
- The planned Birmingham ethanol unit-train terminal was expected to be completed in 2012; the filing gives different target quarters (third quarter in the liquidity discussion and fourth quarter in the business discussion).
- Key risks include volatile corn, natural-gas, ethanol and co-product prices; hedge and counterparty exposure; margin calls and liquidity demands; debt covenants, refinancing and subsidiary cash-transfer restrictions; competition and ethanol demand; and changes to renewable-fuel mandates, tax incentives, tariffs or environmental rules. The blender’s tax credit and import tariff expired December 31, 2011.
- The Aventine bankruptcy-related complaint alleges $24.4 million in preferential transfers or, alternatively, $28.4 million in fraudulent transfers, plus an unspecified amount tied to a rail-car termination agreement. The company said the outcome and exposure were not predictable and that it would defend the claims. The EPA proposed an approximately $197,000 fine for alleged Clean Air Act violations at the Bluffton plant; the company cited possible mitigating factors and recourse against a vendor.
- The company’s 35%-owned BioProcess Algae venture was testing commercial viability. A potential 400-acre build-out was estimated to cost $40–$60 million; replication at all ethanol plants could require $300–$500 million, subject to further decisions and financing.
- KPMG issued unqualified audit opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether ethanol-to-corn and natural-gas spreads recover, and how much further production is curtailed.
- Whether operating cash flow can sustain debt service, margin calls, planned capital spending and covenant compliance, particularly given restrictions on moving subsidiary cash to the parent.
- Debt maturities, revolver renewals and the effect of variable rates; confirm the impact of the February 2012 Holdings II and Bluffton credit amendments.
- How the Aventine claims and the Bluffton EPA matter develop, including any eventual financial exposure.
- Whether corn-oil and algae initiatives produce durable returns, and whether terminal construction meets schedule and budget.
- The sustainability of reported earnings after considering acquisition contributions, tax effects and the timing differences between derivative and physical-commodity results.