Filing summary
Entity mismatch: The request identifies Green Brick Partners, Inc., but the supplied filing is BioFuel Energy Corp.’s Form 10-Q. The summary below covers the filing provided, not Green Brick Partners.
Business context and reporting period
BioFuel Energy produces ethanol and distillers grain at plants in Wood River, Nebraska, and Fairmont, Minnesota, with combined nameplate capacity of about 220 million gallons annually. This unaudited 10-Q covers the quarter and nine months ended September 30, 2011; amounts below are in U.S. dollars unless stated otherwise.
Financial performance and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Net sales | $162.5 million, up 41.7% from $114.7 million | $489.1 million, up 56.8% from $312.0 million |
| Gross profit (loss) | $7.0 million; 4.3% margin, versus $4.6 million; 4.0% | $1.1 million; 0.2% margin, versus a $6.3 million loss; (2.0)% |
| Operating income (loss) | $4.5 million, versus $1.0 million | Loss of $6.6 million, versus loss of $16.1 million |
| Net income (loss) | $2.5 million consolidated; $2.2 million attributable to common stockholders, versus a $1.8 million consolidated loss and $1.4 million attributable loss | Loss of $14.8 million consolidated; $12.5 million attributable to common stockholders, versus respective losses of $24.2 million and $18.9 million |
| Operating cash flow | Not separately provided for the quarter | $14.1 million, versus $11.8 million |
For the nine months, investing cash outflow was $2.1 million and financing cash outflow was $9.8 million; cash increased $2.2 million to $9.7 million. At September 30, current assets were $57.8 million and current liabilities $31.6 million. Total debt was $182.9 million, including $179.9 million under the senior facility; tax increment financing was another $5.4 million. The senior facility’s weighted-average rate was 3.2%, and its term loans mature in September 2014. The company reported $11.9 million payable to Cargill for corn purchases.
Changes versus prior comparable periods
- Higher market prices drove revenue growth, while production and ethanol gallons sold fell: quarterly ethanol sales were 50.7 million gallons versus 56.2 million; nine-month sales were 162.4 million versus 167.7 million.
- Average ethanol prices rose to $2.72 per gallon for the quarter and $2.54 for nine months, from $1.84 and $1.64, respectively. Average corn cost rose to $7.05 and $6.81 per bushel, from $3.83 and $3.66.
- Improved third-quarter commodity margins returned the company to quarterly profitability, but first-half narrow margins left a substantial nine-month loss.
- A February 2011 rights offering and concurrent LLC placement raised $46.0 million gross. Proceeds helped repay the bridge and subordinated debt and part of Cargill debt. The company also issued 6.6 million common shares to Cargill to extinguish remaining debt. Common shares outstanding rose materially during the period.
- In June, the company ended its long-term Cargill distillers-grain marketing agreements and entered one-year agreements with independent marketers.
Outlook, risks, contingencies, and unusual items
- Management emphasized that results depend heavily on volatile corn, natural gas, ethanol, and distillers-grain prices and the resulting “crush spread.” It expects continued crush-spread fluctuations and gave no specific earnings or revenue guidance.
- Liquidity remains limited. Management warned that a prolonged return to narrow margins could leave insufficient cash to operate plants and service debt, potentially causing default and, absent lender accommodation, a bankruptcy filing. Minimum senior-debt principal payments are $3.15 million quarterly, plus interest.
- The company relies on Cargill’s extended corn-payment terms; that arrangement may be terminated on little or no notice. Cargill accounted for 85% of third-quarter and 90% of nine-month sales, and 93% of receivables at September 30.
- Hedging is limited by available financial resources and potential collateral requirements. A modeled 10% adverse price change for fourth-quarter 2011 projected production and sales showed significant potential effects on pretax income; a 100-basis-point rate increase would add an estimated $1.8 million to annual interest expense.
- Management reported no impairment indicators for plant assets at September 30 and no material legal proceedings. Operating lease commitments totaled $49.3 million; deferred Cargill lease and ethanol-commission payments totaled $3.2 million.
- After quarter-end, on October 28, 2011, operating leases were arranged to fund most costs of corn-oil extraction systems. Management expected corn-oil revenue to begin no later than the first quarter of 2012; this was a forward-looking expectation, not reported-period revenue.
- The filing’s cover marks “No” for having filed all required Exchange Act reports during the preceding 12 months. This is an item to investigate; the supplied text does not explain the response.
Most important facts to verify
- Confirm the intended issuer: the supplied filing is for BioFuel Energy Corp., not Green Brick Partners, Inc.
- Investigate the cover-page “No” response regarding timely filing of required reports.
- Assess near-term liquidity, the Cargill payment-term arrangement, debt covenants, and the ability to meet quarterly principal payments.
- Review the effect of commodity spreads, limited hedging, and customer and supplier concentration on margins and cash generation.
- Verify share-count changes and dilution from the rights offering, LLC placement, Cargill debt settlement, and outstanding exchangeable Class B shares.