Green Plains Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; filed February 10, 2015. Green Plains is a vertically integrated ethanol producer and marketer, with agribusiness, corn-oil production, marketing and distribution operations. It operated 12 ethanol plants with capacity exceeding 1 billion gallons annually. The filing also provides unaudited fourth-quarter results.
Financial performance and liquidity
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | $3.236 billion | $3.041 billion |
| Gross profit / gross margin | $374.8 million / 11.6% | $173.0 million / 5.7% |
| Operating income / operating margin | $286.3 million / 8.8% | $107.9 million / 3.5% |
| Net income | $159.5 million | $43.4 million |
| Basic / diluted EPS | $4.37 / $3.96 | $1.44 / $1.26 |
| EBITDA (non-GAAP) | $350.7 million | $156.6 million |
| Cash from operating activities | $221.6 million | $107.3 million |
Revenue rose 6.4%, while gross profit and net income increased substantially. Management attributed the improvement chiefly to stronger ethanol production margins, higher production volumes and additional output from plants acquired in 2013. Net income included a $2.2 million gain from forgiveness of debt and a $4.2 million insurance gain; business-interruption insurance proceeds of $10.5 million reduced cost of goods sold.
Fourth-quarter 2014 revenue was $829.9 million, operating income $73.9 million, net income $42.2 million, and diluted EPS $1.07. In fourth-quarter 2013, the respective figures were $712.9 million, $51.1 million, $25.5 million, and $0.65.
- Cash and liquidity: Cash and cash equivalents were $425.5 million at year-end, versus $272.0 million a year earlier. Current assets were $910.9 million and current liabilities $511.5 million; the current ratio was approximately 1.78.
- Debt: Total debt was approximately $672.8 million, down from $735.2 million at year-end 2013. About $536.4 million was variable-rate debt. The company reported covenant compliance at year-end.
- Cash uses: Capital expenditures were $61.5 million in 2014. Net cash used in investing activities was $78.6 million; financing activities provided $10.5 million. Dividends paid were $8.9 million.
Material changes versus the prior year
- Operating income increased $178.4 million, led by improved ethanol margins and increased volumes; SG&A rose $23.4 million, reflecting higher personnel costs and expanded operations.
- Ethanol production segment gross profit increased to $236.1 million from $79.1 million. Ethanol sold rose to 966.2 million gallons from 734.5 million; corn consumed rose to 343.9 million bushels. Management reported production at approximately 96% of daily average capacity.
- Corn-oil sales volume increased to 234.6 million pounds from 170.4 million, while average realized price fell 15%.
- Agribusiness revenue increased sharply, partly reflecting higher intersegment grain sales and the June 2014 acquisition of a Kansas cattle-feedlot business. The feedlot has capacity for about 70,000 head and 3.8 million bushels of grain storage.
- Cash from operations more than doubled, although working-capital needs increased, including higher inventories and receivables.
- The company issued a $225 million Term Loan B facility and used it to refinance debt at several ethanol plants. Approximately $89.95 million of its $90 million 5.75% convertible notes converted into shares in 2014; the remainder was redeemed.
Outlook, risks and unusual items
- Outlook and planned spending: No specific earnings or production guidance was provided. Management expected 2015 capital spending of approximately $91 million, including ethanol-capacity expansion, process improvements and grain-storage projects. It targeted approximately 50 million bushels of grain-storage capacity by the end of 2015.
- Industry and commodity risks: Profitability depends on volatile spreads among corn, natural gas, ethanol, distillers grains and corn oil. Management may reduce or suspend production when margins are compressed. Hedging may not fully offset price changes and can require substantial, sudden margin-call cash.
- Policy and market risks: Demand is affected by Renewable Fuel Standard requirements, EPA rulemaking and RIN prices, ethanol blend limits and consumer acceptance of E15/E85. The EPA had delayed finalizing 2014 RFS percentage standards. Management noted potential risks from changes to mandates and restrictions on higher ethanol blends.
- Debt and liquidity: Variable rates, subsidiary-level borrowing restrictions, debt covenants and cash trapped at subsidiaries constrain flexibility. Approximately $681.4 million of subsidiary net assets was restricted from transfer to the parent; $187.5 million of subsidiary revolving capacity was available, subject to borrowing-base and other conditions. A sustained downturn could pressure liquidity and covenant compliance.
- Other risks and contingencies: Railcar lease costs or proposed safety requirements could raise transportation costs. The company disclosed ongoing litigation over consideration for the Fairmont and Wood River plant acquisition; a favorable outcome could produce a future gain, with no impact expected from an unfavorable outcome. Other ordinary-course litigation was not considered material by management. The company’s majority-owned BioProcess Algae venture remained in development and was not consolidated; commercial viability and funding remain uncertain.
- Controls and audit: Management and KPMG concluded internal control over financial reporting was effective; KPMG issued an unqualified opinion on the financial statements. The acquired cattle-feedlot operation was excluded from the controls assessment.
Key facts for investors to verify
- Whether 2014’s significant improvement in ethanol margins and earnings is sustainable under current commodity prices, production levels and RFS/RIN conditions.
- The composition and availability of cash, particularly subsidiary restrictions, borrowing-base availability, and the timing of debt maturities and mandatory cash-flow payments.
- Hedge positions and accounting effects: the filing reports significant derivative losses and says year-end accumulated derivative losses were expected to be reclassified into operating income over the following 12 months.
- Whether planned 2015 capital spending and expansion projects can be funded while maintaining covenant compliance and liquidity.
- Potential outcomes of the plant-acquisition consideration litigation, railcar regulation changes, and the algae venture’s commercialization and funding plans.