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| AVRWD > SEC Filings for AVRWD > Form 10-Q/A on 4-Oct-2012 | All Recent SEC Filings |
4-Oct-2012
Quarterly Report
In this Quarterly Report on Form 10-Q, the terms the "Company", "we", "our", and "us" refer to Aventine Renewable Energy Holdings, Inc. and its subsidiaries on a consolidated basis, unless the context otherwise requires.
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to current or historical fact, but address events or developments that we anticipate will occur in the future. Forward-looking statements include statements regarding our goals, beliefs, plans or current expectations, taking into account the information currently available to our management. When we use words such as "anticipate," "intend," "expect," "believe," "plan," "may," "should" or "would" or other words that convey uncertainty of future events or outcome, we are making forward-looking statements. Statements relating to future sales, earnings, operating performance, restructuring strategies, plant expansions, capital expenditures and sources and uses of cash, for example, are forward-looking statements.
These forward-looking statements are subject to various risks and uncertainties which could cause actual results to differ materially from those stated or implied by such forward-looking statements. We undertake no obligation to publicly release any revision of any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof, or to reflect the occurrence of unanticipated events. Information concerning risk factors is contained under Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2011. You should carefully consider all of the risks and all other information contained in or incorporated by reference in this report and in our filings with the Securities and Exchange Commission (the "SEC"). These risks are not the only ones we face. Additional risks and uncertainties not presently known to us, or which we currently consider immaterial, also may adversely affect us. If any of these risks actually occur, our business, financial condition and results of operations could be materially and adversely affected.
Business Summary
We are a producer and marketer of ethanol. Through our production facilities, we market and distribute ethanol to many of the leading energy companies in the United States (the "U.S."). Our revenues are principally derived from the sale of ethanol and from the sale of co-products and bio-products that we produce as by-products during the production of ethanol at our plants.
Recent Developments
In mid-February 2012, we temporarily brought down the Mt. Vernon facility in order to perform needed maintenance. Margins at Mt. Vernon have been under pressure due to strong corn basis in that region which could not be passed on to our customers. When margins return, we will be prepared to bring this plant back on line and continue its progress to full rate.
On March 19, 2012, we entered into a separation agreement (the "Separation
Agreement") with Ben Borgen ("Mr. Borgen"), Senior Vice President, Commodity
Risk Management, pursuant to which Mr. Borgen resigned from all positions held
with us and our affiliates. Under the terms of the Separation Agreement, Mr.
Borgen received, among other things, (i) a termination payment of $700,000,
which was paid to Mr. Borgen within thirty (30) days following his departure and
(ii) 22,596 shares of our common stock, which were delivered to Mr. Borgen
within thirty (30) days following his departure. In addition, Mr. Borgen will
receive 26,666 shares of our common stock in respect of his previously-vested
restricted stock units, which will be settled six (6) months following his
departure. Mr. Borgen has previously vested in 42,750 stock options, which
remained exercisable for thirty (30) days following his departure. Mr. Borgen's
unvested stock options and all hybrid equity units, whether vested or unvested,
have terminated.
Business Environment
The following discussion includes trends and factors that may affect future operating results.
Commodity Pricing
Our operations are highly dependent on commodity prices, especially prices for ethanol, corn and natural gas.
Ethanol. During the first quarter of 2012, ethanol prices averaged approximately $2.23 per gallon compared to an average price of $2.43 per gallon during the first quarter of 2011. At March 31, 2012, we had contracts for delivery of ethanol totaling 38.8 million gallons through December 2012, of which 2 million gallons were based on fixed-price contracts and 36.8 million were at spot prices using Platts and Oil Price Information Service ("OPIS") indices.
Corn. During the first quarter of 2012, corn prices averaged approximately $6.41 per bushel compared to an average price of $6.70 per bushel during the first quarter of 2011, a decrease of approximately 4%.
We continuously purchase corn for physical delivery from suppliers using forward purchase contracts in order to assure supply. As we do this, we have in the past often shorted a like amount of Chicago Board of Trade ("CBOT") corn futures with similar dates to lock in the basis differential. We have also occasionally used CBOT futures contracts to lock in the price of corn by taking long positions in CBOT contracts in order to reduce our risk of price increases. Exchange traded forward contracts for commodities are marked to market each period. Our forward physical purchases of corn are not marked to market. At March 31, 2012, we had fixed the price of 1.5 million bushels of corn through April 30, 2012 and we had future contracts to purchase 50 thousand bushels of corn.
Natural Gas. Natural gas is an important input in our ethanol and co-product production process. We use natural gas primarily to dry distillers grains for storage and transportation over longer distances. This allows us to market distillers grains to broader livestock markets in the U.S. The price fluctuation in natural gas prices over the first three months of 2012, based on the New York Mercantile Exchange daily futures data, has ranged from a high of $3.10 per MMBtu at the beginning of January to a low of $2.13 per MMBtu at the end of March. Our current natural gas usage is approximately 400,000 MMBtus per month. The price fluctuation in natural gas prices over the first three months of 2011, based on the New York Mercantile Exchange daily futures data, ranged from a high of $4.74 per MMBtu at the end of January to a low of $3.78 per MMBtu at the beginning of March.
Financial Statement Overview
The following general factors should be considered in analyzing our results of operations:
Results of Operations
The following discussion summarizes the significant factors affecting our consolidated operating results for the three months ended March 31, 2012 and 2011. This discussion should be read in conjunction with our condensed consolidated financial statements and notes to our condensed consolidated financial statements contained herein and the consolidated financial statements and related notes for the year ended December 31, 2011 in our Annual Report on Form 10-K.
Overview
For the three months ended March 31, 2012 and 2011, we incurred net losses of $22.5 million and $19.3 million, respectively. The loss in the three months ended March 31, 2012 as compared to the loss for the three months ended March 31, 2011 is due primarily to a decreased spread between ethanol prices and corn costs. CBOT spreads between ethanol and corn were positive for the three months ended March 31, 2011 at an average of approximately $0.03 per gallon compared to an average negative spread of approximately ($0.09) per gallon for the three months ended March 31, 2011. In addition, the three months ended March 31, 2011 included a $9.4 million loss incurred on the early extinguishment of the Notes. See Note 8 in the accompanying condensed consolidated financial statements.
Total gallons of ethanol marketed and distributed were as follows:
Three Months Ended Three Months Ended
March 31, March 31,
2012 2011
(In millions of gallons)
Equity production 58.2 61.8
Purchase/resale 6.9 0.7
Decrease in inventory 3.2 1.1
Total gallons 68.3 63.6
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The decrease in equity production of 3.6 million gallons for the three months ended March 31, 2012 compared to the same period in 2011 is primarily the result of the shutdown of the Mt. Vernon facility in early 2012. The majority of the production decline due to the Mt. Vernon facility shutdown was offset by increased production at our Pekin, Illinois and Nebraska facilities. The increase in gallons marketed and distributed of 4.7 million is primarily attributable to the additional gallons purchased of 6.2 million and the additional decrease in inventory of 2.1 million gallons, partially offset by the decreased production due to the shutdown of our Mt. Vernon facility. We purchased 6.9 million gallons for resale in the first quarter of 2012 in order to fulfill sales contracts during the shutdown of our Mt. Vernon facility.
The Three Months Ended March 31, 2012 Compared With the Three Months Ended March 31, 2011
Three Months Ended Three Months Ended
March 31, March 31,
2012 2011
(In millions)
Net sales $ 200.5 $ 198.1
Cost of goods sold (209.5 ) (192.7 )
Gross profit (9.0 ) 5.4
Selling, general and administrative expenses (6.6 ) (9.4 )
Other operating expense (0.7 ) (1.2 )
Operating income (loss) (16.3 ) (5.2 )
Other income (expense):
Interest expense (6.4 ) (5.3 )
Loss on available for sale securities (0.1 ) -
Loss on early retirement of debt - (9.4 )
Gain (loss) on derivative transactions (0.1 ) 0.9
Other non-operating income (expense) 0.1 (0.1 )
Income tax benefit (expense) 0.3 (0.2 )
Net loss $ (22.5 ) $ (19.3 )
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Net sales were generated from the following products:
Three Months Ended Three Months Ended
March 31, March 31,
2012 2011
(In millions)
Ethanol $ 150.6 $ 151.1
By-Products 49.9 47.0
Total $ 200.5 $ 198.1
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Ethanol net sales remained relatively flat during the three months ended March 31, 2012 compared to the three months ended March 31, 2011 as an increase in gallons marketed and sold was predominantly offset by a decrease in average price per gallon sold. During the first quarter of 2012, we produced 58.2 million gallons of ethanol compared to 61.8 million gallons produced during the quarter ended March 31, 2011. We marketed and sold 68.3 million gallons of ethanol during the three months ended March 31, 2012 for an average sales price of $2.20 per gallon compared to 63.6 million gallons for an average sales price of $2.38 per gallon during the three months ended March 31, 2011.
By-product revenues increased primarily as a result of increases in the price per ton and in the volume sold. We sold 297 thousand tons during the three months ended March 31, 2012 for an average price of $167.72 per ton compared to 290 thousand tons during the three months ended March 31, 2011 for an average price of $161.92 per ton. By-product revenues, as a percentage of corn costs, rose to 34.6% during the three months ended March 31, 2012 compared to 30.9% during the three months ended March 31, 2011. Co-products produced by the dry mill process have less value historically than those produced by the wet mill process. As a result of the shutdown of the Mt. Vernon dry mill, our overall product mix between wet and dry co-products produced changed from 45% higher-value wet mill products and 55% lower-value dry mill products during the first quarter of 2011, to approximately 47% higher-value wet mill products and 53% lower-value dry mill products during the first quarter of 2012.
Cost of goods sold consists of corn costs, conversion costs (the cost to produce ethanol at our own facilities), the cost of purchased ethanol, the cost changes in our inventory, freight and logistics to ship ethanol and co-products and depreciation and amortization expense. Cost of goods sold was approximately $209.5 million and $192.7 million during the three months ended March 31, 2012 and 2011, respectively. The increase in cost of goods sold from the three months ended March 31, 2011 compared to the three months ended March 31, 2012 is principally the result of purchased ethanol and changes in inventory, partially offset by the reduction in corn costs.
Corn costs for the three months ended March 31, 2012 and 2011 were $144.2 million and $151.9 million, respectively. The decrease in corn costs is primarily due to a decrease in the number of bushels used in production. This reduction is partially offset by an increase in the price per bushel. We used 21.9 million bushels of corn in production during the first quarter of 2012 compared to 23.4 million bushels during the quarter ended March 31, 2011. During the three months ended March 31, 2012, corn used in production was approximately $6.59 per bushel compared to $6.48 per bushel for the three months ended March 31, 2011.
Conversion costs for the three months ended March 31, 2012 and 2011 are as follows:
Three Months Ended Three Months Ended
March 31, March 31,
2012 2011
(In millions)
Utilities $ 11.7 $ 14.5
Salary and benefits 6.3 5.9
Materials and supplies 6.9 6.9
Denaturant 2.8 3.2
Outside services 2.3 2.1
Other - 0.2
$ 30.0 $ 32.8
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Conversion costs per gallon were $0.52 for the three months ended March 31, 2012 compared to $0.53 for the three months ended March 31, 2011. Conversion costs for the three months ended March 31, 2012 included excess costs related to carrying our Mt. Vernon facility during its shutdown. Excluding these excess costs would reduce our conversion costs to an average of approximately $0.49.
Purchased ethanol is included in our cost of goods sold. For the three months ended March 31, 2012 and 2011, we purchased 6.9 million gallons and 725 thousand gallons, respectively. Purchased ethanol totaled $13.2 million and $1.8 million for the three months ended March 31, 2012 and 2011, respectively. The cost per gallon purchased was $1.91 during the three months ended March 31, 2012 compared to $2.44 during the three months ended March 31, 2011.
During the three months ended March 31, 2012, changes in inventory resulted in an increase of $6.7 million to cost of goods sold compared to a decrease in cost of goods sold of $7.2 million during the three months ended March 31, 2011. The increase in cost of goods sold for the three months ended March 31, 2012 was primarily the result of a change in both the volume and price of finished goods. The average inventory cost of ethanol was $2.19 per gallon at the end of the first quarter of 2012 compared to $2.34 per gallon at December 31, 2011.
Freight and logistics costs for the three months ended March 31, 2012 and 2011 were $8.6 million and $8.3 million, respectively. During the first quarter of 2012, we marketed and distributed approximately 68.3 million gallons of ethanol compared to 63.6 million gallons during the three months ended March 31, 2011. On a per gallon basis, freight and logistics costs were $0.13 per gallon for both the three months ended March 31, 2012 and 2011.
Depreciation and amortization expense for the three months ended March 31, 2012 and 2011 was $6.2 million and $5.1 million, respectively. The increase in depreciation expense is primarily related to our Mt. Vernon facility. We placed Mt. Vernon assets in-service for depreciation purposes in February 2011.
The average ethanol sales price for the three months ended March 31, 2012 was $2.20 compared to $2.38 for the three months ended March 31, 2011. This represents a 7.6% decrease in sales price per gallon. The average cost of corn bushels used was $6.59 for the three months ended March 31, 2012, compared to $6.48 for the three months ended March 31, 2011. This represents a 1.7% increase in cost per bushel used.
Three Months Ended Three Months Ended
March 31, March 31,
2012 2011
Average sales price per gallon of
ethanol $ 2.20 $ 2.38
Average cost per bushel of corn $ 6.59 $ 6.48
Co-product revenue as a percentage of
corn costs 34.6 % 30.9 %
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SG&A expenses decreased to $6.7 million for the three months ended March 31, 2012 as compared to $9.5 million for the three months ended March 31, 2011. This represents a $2.8 million decrease. The decrease is primarily related to a reduction in stock compensation expense, partially offset by a separation payment to a departing senior executive. Changes in stock compensation expense were the result of several factors, including certain award tranches becoming fully vested and expensed by March 31, 2011. In addition, some employees forfeited awards due to their departures after March 31, 2011.
Interest expense for the three months ended March 31, 2012 and 2011 was $6.4 million and $5.3 million, respectively. Interest expense for the three months ended March 31, 2012 includes $5.9 million related to the Term Loan Facility, $0.2 million of other interest expense, and $0.9 million of amortization of deferred financing fees, reduced by capitalized interest of $0.6 million. Interest expense for the three months ended March 31, 2011 includes $5.3 million related to the Term Loan Facility, $1.1 million related to the Notes, $0.2 million of other interest expense, and $0.6 million of amortization of deferred financing fees, reduced by capitalized interest of $1.9 million.
On January 21, 2011, we redeemed our $155 million Notes at a redemption price of 105% of the principal amount, plus accrued and unpaid interest. In connection with the redemption, we recognized a $9.4 million loss on the early extinguishment of debt.
Gain (loss) on derivative transactions, net for the three months ended March 31, 2012 includes $89 thousand of net realized and unrealized losses on corn and ethanol derivative contracts versus net realized and unrealized gains in the three months ended March 31, 2011 of $890 thousand. We do not mark to market forward physical contracts to purchase corn or sell ethanol as we account for these transactions as normal purchases and sales under ASC 815.
Our tax expense rate for the three months ended March 31, 2012 was a benefit of 1.2% of pre-tax loss compared to a tax expense rate for the three months ended March 31, 2011 of 1.0%, respectively, of pre-tax loss.
Facility Operating Data
The following table provides selected key operating statistics for our operating
facilities.
Three Months Ended Three Months Ended
March 31, March 31,
2012 2011
(In millions)
Pekin, Illinois:
Ethanol gallons produced 37.3 35.7
Corn consumed (bushels) 14.4 13.5
Nebraska Energy:
Ethanol gallons produced 11.6 7.5
Corn consumed (bushels) 4.2 3.0
Mt. Vernon:
Ethanol gallons produced 9.2 18.6
Corn consumed (bushels) 3.3 7.0
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In mid-February 2012, we temporarily brought down the Mt. Vernon facility in order to perform needed maintenance. Margins at Mt. Vernon have been under pressure due to strong corn basis in that region which could not be passed on to our customers. When margins return, we will be prepared to bring this plant back on line and continue its progress to full rate. For the three months ended March 31, 2012, production at our Nebraska facility increased 55% over the same quarter last year. This increase was primarily the product of the fermentation improvements made during the operational shutdown in
mid-2011. These improvements in fermentation have led to increased yields and additional throughput.
Liquidity and Capital Resources
The following table sets forth selected information concerning our financial
condition:
March 31, 2012 December 31, 2011
(In millions, except current ratio)
Cash and cash equivalents $ 20.2 $ 36.1
Net working capital $ 52.4 $ 70.6
Availability under revolver $ 16.4 $ 20.1
Total debt $ 216.1 $ 216.3
Current ratio 2.94 3.12
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Financing
At emergence from bankruptcy on March 15, 2010, we obtained approximately $98 million of proceeds through the issuance of $105 million principal amount of the Notes and 1,710,000 shares of common stock. In addition, on August 19, 2010, we issued and sold an additional $50 million in aggregate principal amount of Notes, resulting in gross proceeds of approximately $51 million (excluding accrued interest on the Notes through the issue date). Such Notes were redeemed on January 21, 2011 at a redemption price of 105% of the principal amount of $155 million, plus accrued and unpaid interest.
On December 22, 2010, we entered into the Term Loan Agreement, under which the lenders provided the aggregate principal amount of $200 million. Also on December 22, 2010, we gave notice of redemption pursuant to the indenture dated as of March 15, 2010 among ourselves, each of our direct and indirect wholly-owned subsidiaries, as guarantors, and Wilmington Trust FSB, as trustee and collateral agent, providing that we would redeem all $155 million aggregate principal amount of Notes at a redemption price of 105% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date. Concurrently with the closing of the Term Loan Agreement, we irrevocably deposited in trust with the trustee for the Notes, $164.8 million of the proceeds from the Term Loan Facility, funds sufficient to pay the redemption price for all $155 million aggregate principal amount of the Notes. We redeemed such Notes on January 21, 2011. In connection with the redemption, we paid $164.8 million, of which $155 million related to the principal amount of the Notes, $7.8 million related to a prepayment penalty on the Notes and $2 million related to interest on the Notes.
On April 7, 2011, we entered into the Incremental Agreement with Citibank, N.A., as administrative agent for the lenders under the Term Loan Agreement, and Macquarie, as lender, to our Term Loan Agreement. Pursuant to the Incremental Amendment, Macquarie loaned us an aggregate principal amount equal to $25 million, net of $1.3 million in fees. The loan under the Incremental Amendment has substantially the same terms as the existing loans under the Term Loan Agreement, including seniority, ranking in right of payment and of security, maturity date, applicable margin and interest rate floor. We continue to be subject to all other terms and restrictions contained in the original Term Loan Agreement.
On July 20, 2011, we entered into the New Revolving Facility with the Lenders
and Wells Fargo. In connection with the New Revolving Facility, the rights and
obligations of the lenders under the Revolving Facility were assigned from PNC
to Wells Fargo and the facility was terminated. Future borrowings under the New
Revolving Facility will be used for general corporate purposes. We terminated
the Revolving Credit Agreement with PNC and paid a $0.6 million early
termination fee. We capitalized $2.9 million in debt issuance costs for the
year ended December 31, 2011 related to the New Revolving Facility Agreement.
These costs will be amortized using the straight-line method over the term of
the New Revolving Facility Agreement. We recognized $0.2 million of expense for
the amortization of debt issuance costs related to the New Revolving Facility
Agreement during the three months ended March 31,
2012. We were in compliance with all of the covenants related to the New Revolving Facility Agreement at March 31, 2012.
On July 20, 2011, we entered into the Citi Amendment to the Term Loan Agreement with the lenders party thereto and the Term Loan Agent. Under the terms of the Citi Amendment, the amount of indebtedness that we are permitted to incur under the New Revolving Facility (including bank products and hedging obligations) is . . .
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