Green Plains Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports unaudited fourth-quarter results. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions where appropriate.
Business context
Green Plains is a vertically integrated ethanol producer, marketer and distributor, operating across ethanol production, agribusiness, marketing and distribution, and fuel storage and transportation. At year-end, it operated 14 ethanol plants with stated annual capacity of approximately 1.2 billion gallons, alongside grain storage, cattle-feeding and logistics businesses. Its newly public Green Plains Partners LP is consolidated in the company’s financial statements.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $2,965.6 million | $3,235.6 million |
| Operating income | $61.1 million | $286.3 million |
| Net income | $15.2 million | $159.5 million |
| Net income attributable to Green Plains | $7.1 million | $159.5 million |
| Diluted EPS attributable to Green Plains | $0.18 | $3.96 |
| EBITDA (non-GAAP) | $127.8 million | $352.5 million |
| Cash from operating activities | $10.2 million | $221.6 million |
- Revenue declined 8.3%; operating income fell 78.7%, and EBITDA declined 63.7%. Management attributed weaker results mainly to lower realized ethanol and distillers-grains prices amid a low-margin environment and historically low crude-oil prices. Average realized ethanol price was 32% lower than in 2014; average corn cost per bushel was 10% lower.
- Operating margin was approximately 2.1% versus 8.9% in 2014. Net income attributable to Green Plains was approximately 0.2% of revenue versus 4.9%.
- Production segment ethanol output was 947.6 million gallons, about 91% of daily average capacity, compared with 966.2 million gallons in 2014 (about 95.6% of capacity). Marketing and distribution sold approximately 1.2 billion gallons in both years.
- FY2015 cash from operations dropped substantially, with management citing lower operating profits and working-capital changes, including higher inventories and lower accrued liabilities. Investing activities used $183.2 million, primarily for capital spending and acquisitions; financing activities provided $132.3 million, primarily reflecting the partnership IPO.
- At December 31, 2015, cash and cash equivalents were $384.9 million, current assets $912.6 million and current liabilities $438.7 million (current ratio approximately 2.1). The company reported $248.0 million available under revolving credit agreements, subject to restrictions and lending conditions. Restricted cash was $27.0 million.
- Book debt was approximately $675.0 million, including $226.9 million of short-term notes and borrowings and $448.1 million of long-term debt before current maturities. Cash less book debt was approximately $290 million. Approximately $542.2 million of debt bore variable interest rates; management estimated that a 10% rate increase would add about $2.8 million of annual interest cost. Subsidiaries had approximately $751 million of net assets restricted from transfer to the parent.
Fourth-quarter results and year-over-year changes
For the three months ended December 31, 2015, revenue was $739.9 million and operating income was $12.7 million, compared with $829.9 million and $73.9 million, respectively, in fourth-quarter 2014. Green Plains reported an attributable net loss of $3.6 million, or $0.09 per diluted share, versus attributable net income of $42.2 million, or $1.07 per diluted share, in the prior-year quarter. Quarterly operating income declined in every 2015 quarter versus the corresponding 2014 quarter.
Segment operating income in 2015 was $40.6 million for ethanol production (down from $281.3 million), $10.2 million for agribusiness (up from $8.5 million), $25.6 million for marketing and distribution (down from $48.5 million), and $13.3 million for the partnership segment (versus a $20.0 million loss). Partnership comparisons are affected by the July 2015 IPO and the commencement of related commercial agreements.
Developments, outlook and risks
- Green Plains acquired the approximately 100-million-gallon-per-year Hereford, Texas plant in November 2015 for approximately $78.8 million for the plant assets, with about $19.4 million of working capital acquired or assumed. It acquired the approximately 60-million-gallon-per-year Hopewell, Virginia plant in October for approximately $18.6 million, including assumed liabilities. Hopewell restarted ethanol production on February 8, 2016; corn-oil processing was expected to start in the second quarter of 2016.
- The company added 35 million gallons of production capacity through year-end at a cost of $29.6 million. It expected to add up to 50 million gallons over the following 12 months, with total Phase I expansion cost estimated at approximately $49 million. Planned 2016 capital spending was approximately $75 million, subject to review.
- Green Plains Partners completed its IPO on July 1, 2015, issuing 11.5 million units at $15 each and receiving net proceeds of $157.5 million. It distributed $155.3 million to Green Plains. Green Plains retained a 62.5% limited-partner interest, a 2.0% general-partner interest and all incentive distribution rights. On January 1, 2016, the partnership acquired certain Hopewell and Hereford storage and transportation assets for an initial $62.5 million.
- No formal earnings guidance is provided in the supplied filing text. Management said it expected ethanol exports to remain active in 2016 and described ethanol’s octane value, blending economics and renewable-fuel mandates as industry supports. It also cautioned that margins remained sensitive to commodity prices and policy.
- Principal risks include volatility in the spread between corn and natural gas costs and ethanol, distillers-grains and corn-oil prices; reduced or changed renewable-fuel mandates and RIN market conditions; limited liquidity during margin calls; variable-rate debt and restrictive covenants; and environmental, rail-safety, animal-feed regulation and export-market risks. The company reported covenant compliance at year-end and expected continued compliance based on forecasts, while warning actual results could differ.
- Operating cash flow, lower margins and working-capital demands are important liquidity considerations. The company stated it believed it had sufficient working capital for existing operations, but sustained unprofitable operations could strain liquidity and covenant compliance.
- Ordinary-course litigation was not expected by management to materially affect financial position, results or cash flows. Separate litigation concerning consideration for the 2013 Fairmont and Wood River acquisitions could produce a gain if resolved favorably; a negative outcome was stated to have no impact. No impairment charges were recorded for the periods presented.
- The filing states disclosure controls and internal control over financial reporting were effective at December 31, 2015. Management and the auditor excluded the newly acquired Hopewell and Hereford plants from the internal-control assessment; they represented approximately 6% of consolidated assets and 1% of 2015 revenue.
Most important facts for investors to verify
- Whether ethanol and co-product margins recovered after the 2015 decline, and how production utilization and realized prices developed.
- Whether the Hopewell restart, Hereford operations and planned capacity expansion met production, cost and timing expectations.
- Cash generation, working-capital needs, available borrowing capacity, subsidiary cash restrictions and covenant headroom, including the Grain facility maturity in August 2016.
- The partnership’s distribution capacity and its reliance on Green Plains commercial agreements, including minimum-volume and take-or-pay commitments.
- Effects of renewable-fuel requirements, RIN prices, rail-car regulations, export restrictions and animal-feed rules on demand, costs and margins.
- Potential dilution or cash requirements related to the 3.25% convertible notes due 2018, and the sustainability of Green Plains’ dividend and share-repurchase plans.