Filing summary
Entity and period: The supplied filing is BioFuel Energy Corp.’s Form 10-K for the fiscal year ended December 31, 2012, filed April 1, 2013. It does not appear to be a Green Brick Partners filing; the company and filing identity should be verified.
Business context and reporting period
BioFuel Energy produced ethanol and related co-products at dry-mill plants in Wood River, Nebraska, and Fairmont, Minnesota, each with nameplate capacity of 110 million gallons per year. Cargill supplied all corn and marketed all ethanol. The company’s results were highly exposed to the price difference between corn and ethanol (the “crush spread”).
Midwest drought reduced the 2012 corn crop, raising corn costs while ethanol prices did not keep pace. Fairmont was idled in September 2012; in February 2013 staffing there was reduced, and management expected it to remain idle until the 2013 harvest season. The annual comparison below is 2012 versus 2011; fourth-quarter figures are unaudited.
Financial and operating metrics
| Metric | 2012 | 2011 |
|---|---|---|
| Net sales | $463.3 million | $653.1 million |
| Gross profit (loss) | ($30.6 million); margin (6.6%) | $10.6 million; margin 1.6% |
| Operating loss | ($40.5 million) | ($0.2 million) |
| Net loss | ($46.3 million) | ($10.4 million) |
| Net loss attributable to common stockholders | ($39.8 million); loss per share $7.65 | ($8.7 million); loss per share $1.84 |
| Cash from operating activities | $1.5 million | $23.6 million |
| Cash and cash equivalents at year-end | $9.3 million | $15.1 million |
| Total assets | $250.4 million | $299.6 million |
| Total current liabilities | $185.2 million | $24.5 million |
| Senior debt principal outstanding | $170.5 million | $176.8 million |
Cash from operations in 2012 included working-capital sources of $18.0 million, chiefly lower receivables and inventories following the Fairmont shutdown. Cash declined by $5.8 million during the year. The balance sheet classified the entire senior facility as current after the payment default. Cash included $8.6 million at the LLC and $0.7 million at operating subsidiaries subject to lenders’ liens.
For the fourth quarter of 2012, net sales were $84.9 million, gross loss was $7.8 million, operating loss was $10.4 million, net loss was $11.5 million, and loss attributable to common stockholders was $10.0 million, or $1.89 per share.
Material changes versus the prior year
- Sales fell 29.1%, primarily due to lower ethanol prices and lower production and sales volumes. Ethanol revenue declined $196.7 million; co-product revenue rose $6.9 million, including $14.5 million from corn oil sales begun in 2012.
- Ethanol sold declined to 161.7 million gallons from 216.7 million; corn ground fell to 57.6 million bushels from 78.3 million.
- Gross results deteriorated from a $10.6 million profit to a $30.6 million loss as commodity margins narrowed. Corn remained the largest cost, at $397.9 million in 2012.
- Cash from operations decreased to $1.5 million from $23.6 million. Year-end cash declined, while current liabilities rose sharply because senior debt was classified as current.
- Interest expense decreased to $7.3 million from $10.1 million, primarily reflecting lower average debt and the prior-year payoff of subordinated debt and a bridge loan.
Outlook, risks and unusual items
- Default and going concern: Operating subsidiaries missed scheduled principal and interest payments beginning September 28, 2012. Missed payments totaled $8.2 million through year-end; the lenders’ short-lived forbearance expired November 15, 2012. The auditor reported substantial doubt about the company’s ability to continue as a going concern, while expressing an unqualified opinion on the financial statements.
- Strategic alternatives: In March 2013, the company engaged a financial adviser. Alternatives included a plant or asset sale, restructuring, additional financing, or transferring substantially all operating assets to lenders in satisfaction of debt. Lenders indicated willingness to provide a grace period through July 30, 2013, subject to milestones and formal documentation. No outcome or residual shareholder value was assured.
- Liquidity and operations: Management warned that further narrowing of crush spreads could lead to curtailment or idling of Wood River. Cargill payment-term accommodations were a source of working capital and could be terminated on little or no notice; $9.0 million was owed to Cargill for corn purchases at year-end.
- Commodity exposure: The company said it could hedge only on a limited basis because of its financial constraints. A hypothetical 10% adverse price movement in 2013 was estimated to reduce pretax income by $35.1 million for corn and $31.2 million for ethanol, independently. These sensitivities used production assumptions that included Fairmont resuming normal operations in October 2013; they are not guidance.
- Environmental obligation: Fairmont was required to cease off-site surface-water discharge by December 31, 2013 under a state agreement. The planned zero-liquid-discharge system was expected to require significant capital spending; feasibility and timing were not assured.
- Other notable risks: Substantially all operating assets secured the senior debt. The company depended heavily on Cargill for corn supply and product marketing; Cargill represented 75% of 2012 sales. The filing also cited ethanol oversupply, policy uncertainty, export tariffs, operating reliability, and environmental compliance as risks.
Important facts for investors to verify
- Confirm the filing is for the intended issuer: this document names BioFuel Energy Corp., not Green Brick Partners, Inc.
- Check subsequent filings for the status of the default, any signed lender grace-period or restructuring agreement, and whether lenders exercised remedies or the company entered bankruptcy proceedings.
- Verify the outcome of any sale, asset transfer, or other strategic transaction, including proceeds after senior debt and any value remaining for common shareholders.
- Review current liquidity, cash restrictions, Cargill payment terms, and the operating status of both plants.
- Check the cost, completion status, and regulatory compliance of the Fairmont water-treatment project and any resulting capital requirements.