Green Plains Renewable Energy, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; fourth-quarter figures are unaudited. The company operates across ethanol production, corn oil, agribusiness, and marketing and distribution.
Financial results and position
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $3,476.9 million | $3,553.7 million |
| Gross profit / margin | $96.8 million / 2.8% | $172.2 million / 4.8% |
| Operating income | $64.9 million | $99.0 million |
| Net income attributable to Green Plains | $11.8 million | $38.4 million |
| Diluted EPS | $0.39 | $1.01 |
| EBITDA (company-defined, unaudited) | $115.5 million | $148.6 million |
| Cash from operating activities | $(10.7) million | $108.9 million |
- Revenue declined 2.2%; gross profit fell 43.8% and attributable net income fell 69.4%. Lower ethanol prices and reduced distillers-grains sales contributed to the revenue decline; compressed ethanol margins drove the gross-profit decline.
- Operating income included a $47.1 million gain on the December sale of grain assets. Excluding that gain, operating income was approximately $17.8 million.
- FY 2012 ethanol output was 676.8 million gallons, about 91% of stated capacity, versus 721.3 million gallons in 2011. Management reduced production at several plants, cutting aggregate capacity utilization by approximately 9% in response to unfavorable margins. The ethanol production segment recorded a $20.4 million operating loss.
- Cash and equivalents were $254.3 million; current assets were $568.0 million and current liabilities $432.4 million (working capital of $135.7 million; current ratio about 1.31). Cash excludes $25.8 million of restricted cash.
- Total debt was $663.3 million, including $171.3 million of short-term notes and borrowings. The company reported $121.4 million available under subsidiary revolvers, subject to borrowing-base limits and other conditions. Approximately $481.4 million of subsidiary net assets were restricted from transfer to the parent under debt agreements.
- Investing cash flow was $81.4 million, principally reflecting $117.7 million of cash proceeds from the grain-asset sale; financing cash flow was $8.5 million. Capital expenditures were $26.8 million.
Material changes and unusual items
- In December 2012, the company sold 12 grain elevators, approximately 32.6 million bushels of storage capacity, and all agronomy and retail petroleum operations. The sale generated a $47.1 million pretax gain and $117.7 million in cash proceeds. The divested businesses had accounted for approximately 91% of 2012 agribusiness revenue and 93% of its gross profit.
- The sale reduced grain storage outside the ethanol plants; the remaining agribusiness business comprised three elevators with about 5.8 million bushels of capacity. The company also acquired a 1.9-million-bushel Nebraska elevator in January 2012.
- Corn oil sales increased to 145.8 million pounds from 96.3 million pounds, while average selling price declined 15%. Marketing and distribution operating income rose to $17.3 million from $9.5 million, including contribution from crude-oil marketing and railcar use.
- Fourth-quarter 2012 revenue was $883.7 million and attributable net income was $33.0 million, or $1.11 basic EPS. Fourth-quarter operating income of $68.4 million included the $47.1 million asset-sale gain; the first three quarters reported net losses.
- A 2012 settlement of litigation with Aventine included a cash payment and an agreement to purchase ethanol; the company recorded a $2.4 million after-tax charge.
Outlook, risks, and contingencies
- Management expected approximately $20 million of 2013 capital spending, primarily for grain-storage expansion, and stated it expected cash from operations and available credit to fund working capital, capital expenditures, and debt service. It planned to add 5–10 million bushels of grain storage annually over the following two years. These are management expectations, not earnings guidance.
- Management anticipated that ethanol margins in 2013 would remain sensitive to corn prices, ethanol supply and demand, and production levels. The 2012 Midwest drought drove corn prices to record highs; elevated corn costs and excess ethanol stocks compressed margins. Brazilian imports also increased, partly to meet advanced-biofuel obligations.
- The company was in compliance with debt covenants at year-end and said it expected to remain compliant over the next 12 months, while cautioning that forecasts may not be achieved. It expected to extend or refinance several 2013 maturities, including approximately $81 million of specified ethanol-facility debt, and renew the grain revolver due October 2013.
- Key risks include commodity-price and basis volatility, hedge effectiveness and margin-call liquidity needs, variable-rate debt, restrictive covenants, refinancing and subsidiary cash-transfer constraints, and the possibility of reduced production or plant shutdowns. A 10% interest-rate change was estimated to affect annual interest cost by about $2.0 million.
- Regulatory risks include potential changes to renewable-fuel mandates, E15 adoption and environmental requirements. Expansion may require additional permits or emissions measures. Management reported no goodwill impairment after interim and annual reviews, but prolonged weak margins or lower market capitalization could create future impairment risk.
- The company reported ordinary-course litigation that it did not believe would materially affect its financial position, results, or cash flows, in addition to the Aventine settlement. It also disclosed an underfunded frozen pension plan with a $0.7 million deficit.
Important facts for investors to verify
- How much of 2012 operating income and fourth-quarter earnings depended on the one-time $47.1 million disposal gain, and what recurring earnings power remains after the agribusiness divestiture?
- Whether cash generation and margins recover, given negative operating cash flow in 2012, the ethanol segment operating loss, and substantial commodity and working-capital exposure.
- Progress on refinancing near-term maturities and renewing credit facilities, including covenant headroom and the availability of subsidiary cash to the parent.
- Whether planned grain-storage expansion, the Birmingham terminal, and the 49%-owned BioProcess Algae venture earn acceptable returns; the filing provides no quantified earnings forecast for these initiatives.
- Exposure to derivative valuation timing, margin calls, counterparty performance, and the assumptions underlying the company’s liquidity and goodwill assessments.
The filing reports that the independent auditor gave an unqualified opinion on the consolidated financial statements and internal control over financial reporting; management also concluded disclosure controls and internal controls were effective at December 31, 2012.