Green Plains Renewable Energy, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; comparisons are with Q1 2011 unless otherwise noted. Amounts are in U.S. dollars, in millions except per-share data and operating volumes. The filing describes a vertically integrated ethanol producer and marketer with nine ethanol plants, approximately 740 million gallons of annual production capacity, corn oil operations, agribusiness, and marketing and distribution activities.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 / prior period |
|---|---|---|
| Revenue | $775.4 | $812.3 |
| Gross profit | $8.8; 1.1% margin | $37.6; 4.6% margin |
| Operating income (loss) | $(11.1); (1.4)% margin | $20.0; 2.5% margin |
| Net income (loss) attributable to Green Plains | $(12.7); $(0.39) per diluted share | $7.7; $0.20 per diluted share |
| EBITDA, company-defined non-GAAP measure | $1.5 | $32.0 |
| Net cash used by operating activities | $(92.9) | $(91.2) |
| Capital expenditures | $5.7 | $11.6 |
- At March 31, cash and cash equivalents were $135.0, restricted cash was $24.8, and current assets exceeded current liabilities by approximately $173.7. The company reported up to $152.4 of additional revolving-credit availability, some subject to borrowing-base limits or other conditions.
- Total debt was $739.7, compared with $636.8 at December 31, 2011. This included $169.6 of short-term borrowings and $83.8 of current maturities; long-term debt was $486.3. Debt fair value was stated to approximate book value.
- Operating cash outflow reflected substantial working-capital movements, including payments of accounts payable and accrued liabilities and higher inventories. Financing activities provided $60.0, partly reflecting short-term borrowing; cash declined $40.0 during the quarter.
Material changes and segment results
- Revenue fell $36.9, while gross profit declined $28.9 and operating results swung from income to loss. Management attributed the deterioration principally to compressed ethanol margins, lower ethanol prices and volumes, lower marketing activity, and unfavorable commodity-price movements. SG&A rose $2.2 and interest expense increased $0.9.
- Ethanol production reported a $10.0 gross loss and a $13.9 operating loss, compared with gross profit of $23.3 and operating income of $19.5 in Q1 2011. The company reduced output at two plants by about 30%, representing approximately 5% of total production, in response to unfavorable margins. It produced 175.8 million gallons and sold 169.6 million gallons.
- Corn oil production operating income increased to $7.8 from $2.1 as extraction expanded to all nine plants; sales rose to 33.5 million pounds from 10.1 million.
- Agribusiness operating income was $0.7 versus $1.0. Marketing and distribution operating income was $0.5 versus $2.6, reflecting lower profits from ethanol and distillers-grains trading and reduced third-party ethanol volumes.
- On March 9, the company repurchased 3.7 million shares from a former major shareholder for $37.2. It paid approximately $10.1 in cash and issued a secured $27.2 one-year note at 5%; the company said it had no share-repurchase program and did not intend to retire the shares.
Outlook, risks and unusual items
- Management said ethanol margins had been near break-even since late 2011 following elevated industry inventories; it described Q2 2012 margins as improving but still affected by industry supply, weaker motor-fuel demand, and other market conditions. It provided no numerical earnings or revenue guidance.
- Management expected approximately $25.6 of capital spending for the remainder of 2012, primarily for a Birmingham unit-train terminal targeted to be operational in Q4. It said available borrowings and operating cash flows should support working capital, capital spending, and debt service for the foreseeable future, while cautioning that sustained unprofitable operations could strain liquidity and covenant compliance.
- Commodity-price volatility is a central risk: corn, ethanol, natural gas, distillers grains, and corn oil prices can move unpredictably and may not be correlated. Derivatives can create margin calls requiring liquidity on short notice. The company reported $460.6 of variable-rate debt; a 10% interest-rate change was estimated to affect annual interest cost by approximately $2.0.
- Approximately $541.5 of subsidiary net assets were restricted from transfer to the parent by credit agreements. Management reported covenant compliance at quarter-end, but noted that a subsidiary default could permit lenders to terminate commitments or accelerate debt. Several revolvers were due to mature in 2012–2013; management expected to renew specified facilities but gave no assurance of renewal.
- The Aventine bankruptcy-related dispute was settled in April 2012: the company agreed to a cash payment and to buy 20 million gallons of ethanol over four months beginning in May. A $2.4 after-tax settlement charge was recorded in Q1. The filing also reports a resolved EPA air-permit matter at the Bluffton plant, with a fine substantially below the initially proposed approximately $197,000.
- Other disclosed exposures include federal and state renewable-fuel and emissions regulation, the uncertain commercial prospects and potential funding needs of the BioProcess Algae venture, and ordinary-course litigation. No off-balance-sheet arrangements with a material current or expected effect were reported.
Important facts for investors to verify
- Whether ethanol crush margins and plant utilization recovered after the reported Q1 reductions, and whether the company’s Q2 margin commentary translated into improved results.
- Cash generation and working-capital needs, including inventory growth, commodity-related margin calls, and the availability and restrictions on subsidiary credit facilities.
- Debt maturities, covenant headroom, and renewal of near-term revolvers, particularly given higher total debt and the short-term note issued for the share repurchase.
- Execution, cost, and timing of the Birmingham terminal project and the company’s stated remaining-2012 capital plan.
- Actual settlement cash costs and ethanol purchases under the Aventine agreement, alongside the effects of commodity hedging and the company’s reported segment performance.