Green Plains Renewable Energy, Inc. — Q1 2013 Form 10-Q
Business context and period. The filing covers the three months ended March 31, 2013; financial statements are unaudited. Green Plains operates ethanol and co-product production, corn oil production, agribusiness, and marketing and distribution businesses. It reported nine ethanol plants with approximately 740 million gallons of annual capacity. Results are interim and are not necessarily indicative of full-year performance.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Revenue | $765.5 million | $775.4 million; down 1.3% |
| Gross profit / margin | $27.2 million / 3.6% | $8.8 million / 1.1% |
| Operating income (loss) | $12.7 million | $(11.1) million |
| Net income (loss) attributable to Green Plains | $2.6 million; diluted EPS $0.08 | $(12.7) million; diluted loss per share $0.39 |
| Operating cash flow | $(11.1) million | $(92.9) million |
| Cash and cash equivalents at quarter-end | $229.8 million | $254.3 million at Dec. 31, 2012 |
| Total debt, including short-term borrowings | $639.1 million | $663.3 million at Dec. 31, 2012 |
Operating margin was approximately 1.7%, versus negative 1.4% a year earlier; net margin was approximately 0.3%, versus negative 1.6%. The company used $2.7 million in investing activities and $10.7 million in financing activities. Cash declined by $24.5 million during the quarter. Current assets were $523.7 million and current liabilities $339.2 million, implying working capital of approximately $184.4 million and a current ratio of 1.54. Restricted cash was reported separately from cash and cash equivalents.
Material changes and drivers
- Improved ethanol and marketing margins drove the turnaround in operating results. Management attributed the more favorable ethanol environment to reduced industry production and lower inventories; Green Plains operated at about 92% of capacity in Q1.
- Ethanol production segment operating loss narrowed to $2.3 million from $13.9 million. Marketing and distribution operating income rose to $13.0 million from $0.5 million, supported by commodity trading and logistics, crude-oil railcar use, and the Birmingham unit-train terminal.
- Agribusiness operating income declined to $0.4 million from $0.7 million, primarily reflecting the December 2012 sale of grain elevators and related businesses. The divestiture also reduced consolidated revenue and SG&A compared with the prior period.
- Interest expense decreased by $1.0 million to $8.1 million. The company paid in full a $27.2 million note payable to a subsidiary of former largest shareholder NTR plc.
- Net income was accompanied by a $5.9 million after-tax other comprehensive loss, primarily from derivative movements; accumulated other comprehensive income of $3.5 million at year-end became a $2.4 million loss.
Outlook, risks, and other notable items
- Management expected approximately $18.1 million of capital spending for the remainder of 2013, including grain-storage expansion. It planned to add 5–10 million bushels of grain storage capacity in 2013–2014. No full-year earnings or revenue guidance was provided.
- Management said it believed liquidity was sufficient for current operations, but warned that sustained unprofitable operations could strain liquidity. It reported up to $107 million of subsidiary revolving-credit availability, subject to borrowing-base and other conditions; approximately $424.1 million of subsidiary net assets were restricted from transfer to the parent.
- Commodity-price swings can reduce margins and trigger significant, short-notice margin calls. The company reported $513.5 million of variable-rate debt; a 10% interest-rate change was estimated to affect annual interest cost by approximately $1.8 million.
- All subsidiaries were in covenant compliance at March 31, 2013. Management nevertheless said certain ethanol subsidiaries might need parent-company capital injections to maintain compliance during 2013; it had no obligation to provide that support. Failure to meet covenants could permit lenders to accelerate debt.
- Near-term financing points included a $195 million agribusiness revolver maturing October 2013 and several plant revolvers maturing in June 2013; management expected to extend or refinance the specified facilities. The $90 million 5.75% convertible notes mature in 2015. April 2013 amendments increased Green Plains Trade’s credit facility to $130 million and amended the Bluffton loan.
- Regulatory and market risks include changes to the Renewable Fuel Standard, proposed legislation to repeal it, uncertain E15 adoption, fuel demand, and competition from imported ethanol. Derivative gains and losses may not align in timing with physical transactions.
- BioProcess Algae, in which Green Plains held approximately 52% but did not have control, was selected for a U.S. Department of Energy grant of up to $6.4 million; the venture must provide at least 50% matching funds. Phase IV completion was expected in early 2014. Ordinary-course litigation was not believed by management to be material.
Investor verification points
- Confirm that improved ethanol and marketing margins were sustainable, and review realized versus unrealized derivative effects and hedge positions.
- Assess available liquidity, restricted cash and subsidiary funds, working-capital needs, and the timing and refinancing of upcoming revolver maturities.
- Monitor subsidiary covenant headroom and whether parent support is required, given restrictions on transferring subsidiary assets.
- Evaluate grain-elevator divestiture effects on comparable agribusiness results and progress against the stated capital-spending and storage plans.
- Review subsequent amendments to the Bluffton and Trade facilities, the BioProcess Algae grant’s funding conditions, and developments in renewable-fuel policy and E15 demand.