Aventine Reports Third Quarter Results
Ethanol Price Decline Negatively Impacts Results
• Net income for Q3’07 was $3.0 million, and fully diluted EPS was $0.07 share
• Cash flow from operations for Q3’07 was $8.8 million
• Commodity spread fell as a result of declining ethanol prices and high corn prices
• Company added $50 million of availability to its liquidity facility
• Economic impact of declining ethanol prices on quarter-end inventory was $10.6 million
• Previously unrecognized tax benefits totaling $9.6 million favorably impacted earnings as
a result of concluding standard Internal Revenue Service examination
• Reduction in effective tax rate from 32.5% to 23.4% also favorably impacted earnings by
$3.9 million
• Air permits received for Aurora West and Mt. Vernon projects
PEKIN, IL, (October 30, 2007) – Aventine Renewable Energy Holdings, Inc. (NYSE: AVR), a
leading producer, marketer and end-to-end provider of clean renewable energy, today released its
results for the third quarter and nine months ended September 30, 2007.
Ron Miller, Aventine’s President and Chief Executive Officer said, “Ethanol prices fell
significantly beginning in August. This, combined with high corn prices, resulted in a difficult
operating environment. Ethanol has significant value as a motor fuel in today’s scarce energy
marketplace. This value is further enhanced given its huge pricing discount to gasoline, coupled
with the 51 cent tax credit that oil companies and other blenders currently enjoy on blending
ethanol. This large arbitrage is the result of a temporary supply/demand imbalance as a wave of
new ethanol production seeks to find a home in the discretionary conventional gasoline market.
We believe that higher mandated use and increased discretionary blending by refiners and
independent distributors should close this arbitrage and lead to increased margins for ethanol
producers.”
Miller added, “Our capacity expansion plans are moving forward, as we gave the go ahead in the
third quarter to proceed with construction of our new ethanol facilities in Aurora, Nebraska and
Mt. Vernon, Indiana. We remain positive about the longer-term ethanol marketplace and these
expansions make strategic sense for Aventine. Yet, we continue to assess the pace of our growth
strategy in light of prevailing weak margins.”
Miller concluded, “Our unique mix of assets gives us certain advantages in today’s difficult
operating environment. Higher co-product recovery rates from our wet mill become more
important in a difficult margin environment. Our distribution system and customer relationships
place us in a leading position. Our balance sheet is strong.”
Third Quarter 2007 Financial Highlights
Revenue in Q3’07 decreased 8.7% over Q2’07, as a result of significantly lower ethanol prices,
offset partially by higher volumes sold. Revenue totaled $360.7 million in Q3’07. Co-product
revenue increased slightly to $24.0 million in Q3’07, from $23.2 million in Q2’07. Total gallons
of ethanol sold were 162.0 million gallons in Q3’07, versus 158.7 million gallons in Q2’07,
reflecting increased purchases from marketing alliance partners and an increase in purchase/resale
gallons, offset by decreased equity production. The average gross sales price of ethanol in Q3’07
was $2.01 per gallon, down sharply from $2.29 per gallon received in Q2’07. The average
inventory cost of $1.61 per gallon at the end of the Q3’07 versus $1.98 at the end of Q2’07, using
our weighted-average FIFO approach to calculating inventory, reflects the sharp decline in
ethanol prices during the quarter. The economic impact of selling gallons that were previously
held in inventory in Q2’ 07 during a period of declining prices, was $9.0 million. Such decline in
value was further affected by a $1.6 million lower of cost or market adjustment.
Gallons sold in Q3’07 totaled 162.0 million gallons, as compared to 158.7 million gallons in
Q2’07. In the third quarter of 2007, we produced 46.8 million gallons, purchased 84.6 million
gallons from our marketing alliance partners, purchased 28.8 million gallons from unaffiliated
producers and marketers and decreased inventory by 1.8 million gallons. Equity production
decreased in Q3’07 over Q2’07 by approximately 7.7%. Equity production declined as a result of
normal maintenance downtime taken during the third quarter at our Pekin wet mill and our
decision to reduce the percentage of denaturant we blend from 4.76% to 1.96%.
Corn costs in the third quarter of 2007 decreased to $3.81 per bushel, somewhat lower than our
Q2’07 cost of $3.99 per bushel but higher than the Q3’07 CBOT average daily closing price of
$3.35 per bushel. We had previously fixed the price we would pay for corn through July to
protect against fluctuation in corn prices.
Co-product revenue for Q3’07 was $24.0 million, versus $23.2 million for Q2’07. Co-product
revenue, as a percentage of corn cost, increased to 35.8% during Q3’07. Lower volumes along
with lower pricing on DDGS were offset by higher prices for germ, meal and yeast. In Q3’07, we
sold 284.8 thousand tons, versus 297.1 thousand tons in Q2’07.
Conversion costs in the quarter increased $0.02 per gallon to $0.63 per gallon, as compared to
$0.61 per gallon in Q2’07. The increase in conversion costs was primarily the result of higher
labor and maintenance costs associated with scheduled maintenance performed at our Pekin wet
mill facility in Q3’07 combined with the corresponding reduction in gallons produced, offset
somewhat by lower denaturant costs. In Q3’07, we reduced the percentage of denaturant added
to our ethanol from 4.76% to 1.96%.
Freight and distribution costs in Q3’07 increased to $0.19 per gallon from $0.18 per gallon in
Q2’07. Freight/logistics cost per gallon is calculated by taking total freight/logistics expenses
incurred and dividing by the total ethanol gallons sold. Total freight/logistics costs also include
costs to ship co-products. The increase in freight costs was primarily due to higher general
freight and barge expenses. Fuel surcharges continue to impact general freight rates.
Depreciation expense for Q3’07 was $3.3 million, as compared to $3.0 million in Q2’07.
SG&A expenses were $9.4 million in Q3’07 as compared to $8.8 million in Q2’07. The increase
in SG&A expenses as compared to Q2’07 primarily reflects increased costs for outside
consultants for IT projects and for accounting and other consultants as a result of taking steps
necessary to become SOX compliant by year-end.
Other non-operating loss for the third quarter of 2007 includes $1.0 million of realized and
unrealized net losses on derivative contracts, including the effect of marking to market derivative
contracts, versus net gains in the second quarter of 2007 of $2.1 million. The losses recorded in
Q3’07 reflect mark to market losses on CBOT short corn positions totaling $0.2 million and
losses on short gasoline future positions totaling $0.8 million.
Interest income for Q3’07 totaled $3.6 million. Interest income decreased slightly due to a lower
level of funds available to invest as a result of continued spending on capacity expansion projects.
Interest expense for the third quarter was $5.4 million. Interest expense includes $7.5 million in
interest on $300 million aggregate principal amount of our 10.0% senior unsecured notes, $0.2
million of amortization of deferred financing fees, reduced by capitalized interest of $2.3 million.
The income tax benefit rate recorded for the third quarter of 2007, excluding the impact of the
recent standard IRS examination, was 52.2% versus an income tax expense rate of 28.9% in the
second quarter of 2007. We reduced our estimated tax provision rate to reflect a lower estimate
of taxable income for the remainder of the fiscal year. The change in estimate in the third quarter
adjusts the year-to-date estimated tax rate to 23.4%.
Our federal income tax returns covering fiscal years 2004 and 2005 had been under audit by the
Internal Revenue Service (“IRS”). The audit was completed in September 2007. As a result, the
Company was able to finalize positions relating to certain tax matters which required liability
recognition under FIN 48. The Company recognized in the third quarter of 2007 a previously
unrecorded favorable tax benefit of $9.6 million, which includes its previously recorded liability
for uncertain tax benefits, the related interest and the release of code section 382 valuation
allowances.
Third Quarter 2007 versus Third Quarter 2006
Net income decreased in Q3’07 to $3.0 million, or $0.07 per diluted share, as compared to net
income of $5.3 million, or $0.12 per diluted share, in Q3’06. Net income decreased primarily as
a result of significantly lower ethanol revenue per gallon sold along with significantly higher corn
costs. The commodity spread, defined as gross ethanol selling price per gallon less net corn cost
per gallon, declined in Q3’07 to $1.09 per gallon, from $1.89 per gallon in Q3’06. The average
sales price per gallon of ethanol declined in Q3’07 to $2.01 per gallon from the $2.37 average
received in Q3’06. Corn costs during the third quarter of 2007 averaged $3.81 per bushel,
significantly higher than our third quarter 2006 cost of $2.31 per bushel. A decrease in the
conversion cost in Q3’07 to $0.63 per gallon as compared to $0.67 per gallon in Q3’06 was not
sufficient to offset the decline in the commodity spread.
Both Q3’07 and Q3’06 results were negatively affected by declining ethanol prices, as quarter
end inventory valuations reflect lower ethanol prices using our weighted average FIFO approach
to calculating inventory. The economic impact of selling gallons that were previously held in
inventory in Q2’ 07 during a period of declining prices, was $9.0 million. Such decline in value
was further affected by a $1.6 million lower of cost or market adjustment. In 2006, inventory
valuations fell from an average of $2.19 at the end of Q2’06 to $1.94 at the end of Q3’06. Higher
selling, general and administrative expenses in Q3’07 also attributed to the decline in net income
from Q3’06.
Gallons of ethanol sold in the third quarter of 2007 decreased slightly to 162.0 million gallons, as
compared to 163.3 million gallons in the third quarter of 2006. Ethanol sales for the quarter
decreased as a result of lower marketing alliance purchases, offset somewhat by increases in
equity production and purchases from other producers. Ethanol production in the quarter was
46.8 million gallons, up from 32.1 million gallons in the third quarter of 2006. The increase in
production is the result of the capacity increase from our Pekin dry mill that began operation in
Q1’07.
Operational Highlights
The Company received air construction permits from both the Indiana Department of
Environmental Management and the Nebraska Department of Environmental Quality. Each
permit allows for construction of a 226 million gallon fuel-grade ethanol facility at Mt. Vernon,
Indiana and Aurora, Nebraska. Construction of the first 113 million gallon phase at each of these
sites has now begun. Kiewit Energy Company is the contractor for these projects and Delta-T is
the technology provider.
During the third quarter of 2007, we spent approximately $71.5 million on capital projects. Of
this amount, $2.9 million was spent on maintenance and regulatory projects, while $68.6 million
was spent on capacity additions. For the year, we have spent $149.9 million on capital projects,
of which $11.5 million was for maintenance and regulatory projects, and $138.3 million was
spent on capacity additions. Our total capital expenditures on capacity expansion projects is
expected to be approximately $250 million for 2007. Capital expenditures on non-expansion
related maintenance and regulatory items is now expected to total approximately $14 million for
2007.
Our marketing alliance annualized volume at the end of Q3’07 remained at 361 million gallons.
We expect to increase our marketing alliance volumes during Q4’07 by 100 million gallons on an
annualized basis. Our expectation is based on the start-up of, an expansion by Glacial Lakes
Ethanol, of Watertown, SD and a new plant called E Energy Adams, LLC, in Adams, NE, both
with an annual nameplate capacity of 50 million gallons. When these new plant/expansions
becomes operational, and including our own recently built Pekin dry mill, we will be marketing,
excluding any purchase/resale gallons, 668 million gallons of ethanol in the U.S. annually, nearly
matching the total at the end of 2006. In addition, we have signed marketing agreements with
another 17 plants with nameplate production capacity of 1.5 billion gallons, with 301 million
gallons currently under construction and 1.2 billion gallons for projects that have been
announced, but for which completion dates are uncertain.
In Q3’07, the Company increased the amount of availability under its secured revolving credit
facility by $50 million, as allowed under the terms of its existing liquidity facility. Such
additional availability was secured by property, plant and equipment. Our liquidity facility is a
$200 million facility, subject to collateral availability, and is expandable under certain conditions
to $300 million. Total liquidity available to us at the end of Q3’07 was $438.5 million,
comprised of $322.3 million in cash and short term investments and $116.2 million available
under our liquidity facility.
Also during the third quarter of 2007, the Company repurchased 71,300 shares of its common
stock for $1.0 million under the Company’s stock repurchase program approved by the Board of
Directors in October 2006. The amount remaining under the authorization to repurchase stock is
approximately $47.8 million.
Third Quarter Conference Call
The Company will hold a conference call at 9:00 am central time (10:00 am eastern time) on
Wednesday, October 31, 2007 to discuss the contents of this press release. Dial in to the
conference call at (800) 510-0178 (U.S.) or (617) 614-3450 (International), access code:
20672174, ten minutes prior to the scheduled start time. A link to the broadcast can be found on
the Company’s website at www.aventinerei.com in the Investor Relations section under the
“Conference Calls” link. If you are unable to participate at this time, a replay will be available
through November 30, 2007 on this website or by dialing (888) 286-8010 (U.S.) or (617) 801-
6888 (International), access code: 92229776. Should you have any problems accessing the call
or the replay, please contact the Company at (309) 347-9377.
The tables and information following the text of this press release provide financial data that are
included in this press release and that will be discussed on the conference call. This includes a
reconciliation of net income to adjusted earnings before interest, taxes, depreciation and
amortization. This press release, including these financial details, is now available on the
Aventine website at www.aventinerei.com in the Investor Relations section under the heading
Press Releases.
About Aventine
Aventine is a leading producer, marketer and end-to-end distributor of ethanol to many leading
energy companies in the United States. Aventine is also a marketer and distributor of biodiesel.
In addition to ethanol, Aventine also produces distillers grains, corn gluten feed, corn germ and
brewers’ yeast. Our internet address is www.aventinerei.com.
Forward Looking Statements
Certain information included in this press release may be deemed to be “forward looking
statements” within the meaning of section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. All statements, other than statements of historical facts,
included in this press release, are forward looking statements. Any forward looking statements
are not guarantees of Aventine’s future performance and are subject to risks and uncertainties that
could cause actual results, developments and business decisions to differ materially from those
contemplated by such forward looking statements. Aventine disclaims any duty to update any
forward looking statements. Some of the factors that may cause Aventine’s actual results,
developments and business decisions to differ materially from those contemplated by such
forward looking statements include the following:
• Changes in or elimination of laws, tariffs, trade or other controls or enforcement practices
such as:
o National, state or local energy policy;
o Federal ethanol and biodiesel tax incentives;
o Regulation currently proposed and/or under consideration which may increase the
existing renewable fuel standard and other legislation mandating the usage of
ethanol or biodiesel;
o State and federal regulation restricting or banning the use of Methyl Tertiary Butyl
Ether;
o Environmental laws and regulations applicable to Aventine’s operations and the
enforcement thereof;
• Changes in weather and general economic conditions;
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• Overcapacity within the ethanol, biodiesel and petroleum refining industries;
• Total United States consumption of gasoline;
• Availability and costs of products and raw materials, particularly corn, coal and natural
gas;
• Labor relations;
• Fluctuations in petroleum prices;
• The impact on margins from a change in the relationship between prices received from
the sale of co-products and the price paid for corn;
• Aventine’s or its employees’ failure to comply with applicable laws and regulations;
• Aventine’s ability to generate free cash flow to invest in its business and service any
indebtedness;
• Limitations and restrictions contained in the instruments and agreements governing
Aventine’s indebtedness;
• Aventine’s ability to raise additional capital and secure additional financing, and our
ability to service such debt, if obtained;
• Aventine’s ability to retain key employees;
• Liability resulting from actual or potential future litigation;
• Competition;
• Plant shutdowns or disruptions at our plant or plants whose products we market;
• Availability of rail cars and barges;
• Renewal of alliance partner contracts;
• Our ability to receive and/or renew permits to construct and/or commence operations of
our proposed capacity additions in a timely manner, or at all; and
• Fluctuations in earnings resulting from increases or decreases in the value of ethanol or
biodiesel inventory
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