In early June of 2012, it stopped raining in the corn belt. For the rest of the summer, rain was scarce and the Midwest suffered through the worst drought experienced in recent history. In spite of these conditions, corn producers harvested the eighth largest corn crop in U.S. history. The 2012 drought had an impact on prices of agricultural commodities around the globe and when combined with the end of the ethanol tax credit, the uncertainty in the U.S. economy and lower demand for motor fuels, the industry suffered through an extended compressed margin environment.
We battled through this situation, keeping all nine of our ethanol plants running, producing 677 million gallons, or approximately 91% of our operating capacity, during the year. Over the last four years, we have grown organically and through acquisitions in order to reduce our reliance on ethanol production and become more diversified. Our non-ethanol businesses provided a significant contribution in 2012 as we generated a record $62 million in non-ethanol operating income, excluding the gain on the sale of agribusiness assets, from the corn oil production, marketing and distribution, and agribusiness segments.
Operating income in our marketing and distribution segment grew 82% last year over 2011. This was a result of new initiatives and the discovery of opportunities that exist through the optionality of our platform. We redeployed railcar assets that we have under long-term leases as they had more value in moving other products. This initiative generated $7.5 million in operating income for 2012 and we believe it will generate about $15 million in 2013, temporarily replacing the operating income lost due to the sale of a significant portion of our agribusiness assets. We also opened our BlendStar unit train terminal in Birmingham, Alabama in the fourth quarter. Our initial customer response has been strong and we anticipate generating approximately $4 million in operating income in 2013 as a result of this investment. We are evaluating similar opportunities at our other BlendStar terminal locations.
“We ended 2012 with the strongest financial position we have had in our young company’s history.“
In the fourth quarter of 2012, we completed the sale of 12 grain elevators and the associated agronomy and petroleum business. Net cash proceeds from the sale were approximately $118 million and the buyer assumed $28 million of debt in the transaction. This sale significantly improved our balance sheet resulting in a $200 million positive swing when you include the reduction in working capital required to manage this business. I believe the transaction unlocked real value for our shareholders. I also want to be very clear that by no means should the sale of these assets be taken as an exit from U.S. agribusiness.
We ended 2012 with the strongest financial position we have had in our young company’s history. We had $280 million in cash, or $9.30 in gross cash per share, and our ethanol plant debt was just under $400 million, or $0.54 per gallon of capacity. Our current liquidity position can provide Green Plains with significant flexibility to sustain a prolonged compressed ethanol margin environment and provide growth capital to continue our strategy to diversify the company.
We firmly believe that ethanol is a permanent part of the fuel supply for the U.S. and a growing part of the world’s fuel usage. Ethanol is the best, most economical source of octane and oxygenate for transportation fuel.
In 2009, we supported the Green Jobs Waiver Act put forward to the U.S. Environmental Protection Agency seeking approval to blend up to 15 percent ethanol in gasoline. It is our belief that the introduction of E15 to the market will provide the needed impetus to expand ethanol’s share of the consumer’s gas tank.
We are well positioned to take advantage of our situation in the marketplace. Everything we do at Green Plains is an evolution of our long-term strategy of monetizing all aspects of the value chain. We are still very committed to the handling of agricultural commodities. Last year, we tested a new grain storage strategy at three of our ethanol locations. We added one million bushels of flat storage at each plant. This turned out to be a great success as we originated first handle harvest corn that we were able to segregate and capture margins normally reserved for commercial grain companies. The storage build was executed at well below $1 per bushel of capital cost and it leverages our ethanol plant’s infrastructure of roads, scales and people. In 2013, we plan to roll out this strategy broadly across our ethanol platform with the goal to add an additional 25 million bushels of capacity at multiple locations over the next two years. When combined with our existing storage, we will have 42 million bushels in total capacity. As a point of reference, we currently process 260 million bushels, or 7 million tons, of corn at our nine ethanol plants which gives us great confidence we can compete for harvest corn from local farmers.
Another major initiative that we are embarking on is to monetize our trade flows around our supply chain. We plan to hire between 10 and 20 physical cross country grain traders and marketers to leverage our logistics infrastructure. We want to be able to take advantage of all of the investments we have made over the last several years and stop allowing others to profit off of our trade flows.
BioProcess Algae is making solid progress. We are expanding the footprint of this joint venture by building additional commercial scale 900-foot Grower Harvester™ reactors which are in final engineering and procurement phase, and we expect the completion of these reactors later this year. When completed and combined with our existing algae reactors, we expect our total annual capacity will be between 350 and 400 tons of dry wholesale algae, or approximately one ton per day. There are multiple initiatives underway with various large strategic partners for joint development in the feed, food and pharmaceutical sectors.
As I have written to you in the past, risk management, operational excellence and operating our facilities in a safe manner have never wavered as our core fundamental values. This past year has shown that our business has been built to take a punch in the form of an extended compressed margin environment. As we enter 2013 with the best balance sheet position in our history, we will continue to manage all aspects around the commodities we process as well as carry on with diversifying Green Plains even more.
We do this because our focus firmly remains on long-term shareholder value. If that means selling assets when values are high, we will do it. If that means heading down a new path into other businesses that allow us to utilize our expertise to earn a return for our shareholders, we will not hesitate to do that as well.
Thank you for keeping up-to-date on our growth, progress and performance.
President and Chief Executive Officer
This Annual Report contains “forward-looking statements” within the meaning of the federal securities laws. See the discussion under “Cautionary Information Regarding Forward-Looking Statements” in our 2012 Form 10-K for matters to be considered in this regard.