Green Plains Inc.
Green Plains Renewable Energy, Inc. (Form: 10-Q, Received: 08/03/2011 17:16:00)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

Quarterly Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2011

Commission File Number 001-32924

 

 

GREEN PLAINS RENEWABLE ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Iowa   84-1652107

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

9420 Underwood Avenue, Suite 100, Omaha, NE 68114   (402) 884-8700
(Address of principal executive offices, including zip code)   (Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x   Yes     ¨   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x   Yes     ¨   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨   Yes     x   No

The number of shares of common stock, par value $0.001 per share, outstanding as of July 29, 2011 was 36,414,508 shares.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page  
PART I – FINANCIAL INFORMATION   

Item 1.

  

Financial Statements

  
  

Consolidated Balance Sheets

     2   
  

Consolidated Statements of Operations

     3   
  

Consolidated Statements of Cash Flows

     4   
  

Notes to Consolidated Financial Statements

     6   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     25   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     39   

Item 4.

  

Controls and Procedures

     41   
PART II – OTHER INFORMATION   

Item 1.

  

Legal Proceedings

     42   

Item 1A.

  

Risk Factors

     42   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     43   

Item 3.

  

Defaults Upon Senior Securities

     43   

Item 4.

  

(Removed and Reserved)

     43   

Item 5.

  

Other Information

     43   

Item 6.

  

Exhibits

     44   

Signatures

     45   

 

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GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

     June 30,
2011
    December 31,
2010
 
     (unaudited)        
ASSETS     

Current assets

    

Cash and cash equivalents

   $ 136,403      $ 233,205   

Restricted cash

     27,784        27,783   

Accounts receivable, net of allowances of $212 and $121, respectively

     89,486        89,170   

Inventories

     159,116        184,888   

Prepaid expenses and other

     9,219        7,222   

Deferred income taxes

     17,594        8,463   

Deposits

     10,082        11,091   

Derivative financial instruments

     66,272        44,864   
                

Total current assets

     515,956        606,686   

Property and equipment, net of accumulated depreciation of $92,971 and $76,063, respectively

     788,639        747,421   

Investment in unconsolidated subsidiaries

     3,245        2,768   

Goodwill

     40,937        23,125   

Other assets

     17,076        17,779   
                

Total assets

   $ 1,365,853      $ 1,397,779   
                
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities

    

Accounts payable

   $ 100,123      $ 155,084   

Accrued and other liabilities

     24,442        23,770   

Unearned revenue

     11,917        22,581   

Current maturities of long-term debt

     158,819        141,068   
                

Total current liabilities

     295,301        342,503   

Long-term debt

     524,157        527,900   

Deferred income taxes

     35,470        25,079   

Other liabilities

     4,158        4,655   
                

Total liabilities

     859,086        900,137   
                

Stockholders’ equity

    

Common stock, $0.001 par value; 75,000,000 and 50,000,000 shares authorized; 36,414,508 and 35,793,501 shares issued and outstanding, respectively

     36        36   

Additional paid-in capital

     433,222        431,289   

Retained earnings

     70,065        57,343   

Accumulated other comprehensive loss

     (5,778     (420
                

Total Green Plains stockholders’ equity

     497,545        488,248   

Noncontrolling interests

     9,222        9,394   
                

Total stockholders’ equity

     506,767        497,642   
                

Total liabilities and stockholders’ equity

   $ 1,365,853      $ 1,397,779   
                

See accompanying notes to the consolidated financial statements.

 

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GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share amounts)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

Revenues

   $ 861,393      $ 453,359      $ 1,673,546      $ 879,833   

Cost of goods sold

     826,314        422,687        1,601,018        811,687   
                                

Gross profit

     35,079        30,672        72,528        68,146   

Selling, general and administrative expenses

     17,474        13,597        35,105        26,566   
                                

Operating income

     17,605        17,075        37,423        41,580   
                                

Other income (expense)

        

Interest income

     72        99        164        126   

Interest expense

     (9,255     (5,659     (16,811     (10,315

Other, net

     (551     (110     (1,014     (110
                                

Total other expense

     (9,734     (5,670     (17,661     (10,299
                                

Income before income taxes

     7,871        11,405        19,762        31,281   

Income tax expense

     2,852        2,517        7,212        6,907   
                                

Net income

     5,019        8,888        12,550        24,374   

Net (income) loss attributable to noncontrolling interests

     (37     (204     172        (114
                                

Net income attributable to Green Plains

   $ 4,982      $ 8,684      $ 12,722      $ 24,260   
                                

Earnings per share:

        

Income attributable to Green Plains stockholders - basic

   $ 0.14      $ 0.28      $ 0.35      $ 0.84   
                                

Income attributable to Green Plains stockholders - diluted

   $ 0.14      $ 0.27      $ 0.34      $ 0.83   
                                

Weighted average shares outstanding:

        

Basic

     36,415        31,359        36,308        28,956   
                                

Diluted

     42,953        31,678        42,858        29,302   
                                

See accompanying notes to the consolidated financial statements.

 

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GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

 

     Six Months Ended
June 30,
 
     2011     2010  

Cash flows from operating activities:

    

Net income

   $ 12,550      $ 24,374   

Adjustments to reconcile net income to net cash provided (used) by operating activities:

    

Depreciation and amortization

     25,225        17,873   

Gain on sale or property and equipment

     (3     —     

Deferred income taxes

     1,260        6,609   

Stock-based compensation expense

     1,829        1,728   

Undistributed equity in loss of affiliates

     186        323   

Allowance for doubtful accounts

     91        —     

Changes in operating assets and liabilities before effects of business combinations:

    

Accounts receivable

     (296     (19,067

Inventories

     30,592        15,342   

Deposits

     1,009        4,939   

Derivative financial instruments

     (18,613     (166

Prepaid expenses and other assets

     (1,259     1,808   

Accounts payable and accrued liabilities

     (61,302     (15,166

Unearned revenues

     (10,664     (5,053

Other

     (200     (1,004
  

 

 

   

 

 

 

Net cash provided (used) by operating activities

     (19,595     32,540   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property and equipment

     (27,045     (4,971

Investment in unconsolidted subsidiaries

     (663     —     

Acquisition of businesses, net of cash acquired

     (8,418     (22,388

Other

     (134     —     
  

 

 

   

 

 

 

Net cash used by investing activities

     (36,260     (27,359
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from the issuance of long-term debt

     —          22,683   

Payments of principal on long-term debt

     (35,340     (29,646

Proceeds from revolving debt

     1,782,514        905,749   

Payments on revolving debt

     (1,787,550     (904,379

Proceeds from issuance of common stock

     —          79,743   

Change in restricted cash

     (1     4,631   

Payments of loan fees

     (674     (847

Other

     104        102   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (40,947     78,036   
  

 

 

   

 

 

 

Net change in cash and equivalents

     (96,802     83,217   

Cash and cash equivalents, beginning of period

     233,205        89,779   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 136,403      $ 172,996   
  

 

 

   

 

 

 

Continued on the following page

 

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GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

Continued from the previous page

 

     Six Months Ended
June 30,
 
     2011     2010  

Supplemental disclosures of cash flow:

    

Cash paid for income taxes

   $ 52      $ 59   
                

Cash paid for interest

   $ 18,105      $ 13,729   
                

Supplemental noncash investing and financing activities:

    

Assets acquired in acquisitions and mergers

   $ 63,452      $ 28,213   

Less: liabilities assumed

     (55,034     (5,825
                

Net assets acquired

   $ 8,418      $ 22,388   
                

See accompanying notes to the consolidated financial statements.

 

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GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

References to the Company

References to “we,” “us,” “our,” “Green Plains” or the “Company” in the consolidated financial statements and in these notes to the consolidated financial statements refer to Green Plains Renewable Energy, Inc., an Iowa corporation, and its subsidiaries.

Consolidated Financial Statements

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and entities which it controls. Intercompany balances and transactions are eliminated on a consolidated basis for reporting purposes. Unconsolidated entities are included in the financial statements on an equity basis. Results for the interim periods presented are not necessarily indicative of results to be expected for the entire year.

The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP, for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The financial statements should be read in conjunction with the Company’s annual report filed on Form 10-K for the year ended December 31, 2010, as amended.

The unaudited financial information reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. The adjustments are of a normal recurring nature, except as otherwise noted.

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Description of Business

The Company is a vertically-integrated producer, marketer and distributor of ethanol. The Company has operations throughout the value chain, beginning upstream with agronomy and grain handling operations, continuing through approximately 740 million gallons per year, or mmgy, of ethanol production capacity as of June 30, 2011 and ending downstream with ethanol marketing, distribution and blending facilities.

Revenue Recognition

The Company recognizes revenue when all of the following criteria are satisfied: persuasive evidence of an arrangement exists; risk of loss and title transfer to the customer; the price is fixed and determinable; and collectability is reasonably assured.

For sales of ethanol, distillers grains and corn oil by Green Plains Trade Group LLC, the Company’s marketing business, revenue is recognized when title to the product and risk of loss transfer to an external customer. Revenues related to the Company’s marketing operations for third parties are recorded on a gross basis in the consolidated financial statements, as Green Plains Trade takes title to the product and assumes risk of loss. Unearned revenue is reflected on the consolidated balance sheet for goods in transit for which the Company has received payment and title has not been transferred to the customer. Revenues of Blendstar LLC, a wholly-owned biofuel terminal operator that offers ethanol transload and splash blending services, are recognized as these services are rendered.

 

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The Company routinely enters into fixed-price, physical-delivery ethanol sales agreements. In certain instances, the Company intends to settle the transaction by open market purchases of ethanol rather than by delivery from its own production. These transactions are reported net as a component of revenues. Revenues also include related realized gains and losses on derivative financial instruments, ineffectiveness on cash flow hedges, and reclassifications of realized gains and losses on effective cash flow hedges from accumulated other comprehensive income (loss).

Sales of agricultural commodities, fertilizers and other similar products are recognized when title to the product and risk of loss transfer to the customer, which is dependent on the agreed upon sales terms with the customer. These sales terms provide for passage of title either at the time shipment is made or at the time the commodity has been delivered to its destination and final weights, grades and settlement prices have been agreed upon with the customer. Shipping and handling costs are presented gross in the statements of operations with amounts billed included in revenues and also as a component of cost of goods sold. Revenues from grain storage are recognized as services are rendered. Revenues related to grain merchandising are presented gross.

Cost of Goods Sold

Cost of goods sold includes costs for direct labor, materials and certain plant overhead costs. Direct labor includes all compensation and related benefits of non-management personnel involved in the operation of the Company’s ethanol plants. Grain purchasing and receiving costs, other than labor costs for grain buyers and scale operators, are also included in cost of goods sold. Direct materials consist of the costs of corn feedstock, denaturant and process chemicals. Corn feedstock costs include unrealized gains and losses on related derivative financial instruments not designated as cash flow hedges, inbound freight charges, inspection costs and internal transfer costs. Corn feedstock costs also include related realized gains and losses on derivative financial instruments, ineffectiveness on cash flow hedges, and reclassifications of realized gains and losses on effective cash flow hedges from accumulated other comprehensive income (loss). Plant overhead costs primarily consist of plant utilities, plant depreciation and outbound freight charges. Shipping costs incurred directly by the Company, including railcar lease costs, are also reflected in cost of goods sold.

The Company uses exchange-traded futures and options contracts to minimize the effects of changes in the prices of agricultural commodities on the agribusiness segment’s grain inventories and forward purchase and sales contracts. Exchange-traded futures and options contracts are valued at quoted market prices. Commodity inventories, forward purchase contracts and forward sale contracts in the agribusiness segment are valued at market prices, where available, or other market quotes adjusted for differences, primarily transportation, between the exchange-traded market and the local markets on which the terms of the contracts are based. Changes in the market value of grain inventories, forward purchase and sale contracts, and exchange-traded futures and options contracts in the agribusiness segment, are recognized in earnings as a component of cost of goods sold. These contracts are predominantly settled in cash. The Company is exposed to loss in the event of non-performance by the counter-party to forward purchase and forward sales contracts.

Derivative Financial Instruments

To minimize the risk and the effects of the volatility of commodity price changes primarily related to corn, natural gas and ethanol, the Company uses various derivative financial instruments, including exchange-traded futures, and exchange-traded and over-the-counter options contracts. The Company monitors and manages this exposure as part of its overall risk management policy. As such, the Company seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results. The Company may take hedging positions in these commodities as one way to mitigate risk. While the Company attempts to link its hedging activities to purchase and sales activities, there are situations where these hedging activities can themselves result in losses.

By using derivatives to hedge exposures to changes in commodity prices, the Company has exposures on these derivatives to credit and market risk. The Company is exposed to credit risk that the counterparty might fail to fulfill its performance obligations under the terms of the derivative contract. The Company minimizes its credit risk by entering into transactions with high quality counterparties, limiting the amount of financial exposure it has with each counterparty and monitoring the financial condition of its counterparties. Market risk is the risk that the value of the financial instrument might be adversely affected by a change in commodity prices or interest rates. The Company manages market risk by incorporating monitoring parameters within its risk management strategy that limit the types of derivative instruments and derivative strategies the Company uses, and the degree of market risk that may be undertaken by the use of derivative instruments.

 

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The Company evaluates its contracts that involve physical delivery to determine whether they may be deemed “normal purchases or normal sales” that are expected to be used or sold over a reasonable period in the normal course of business. Any contracts that do not meet the normal purchase or normal sales criteria are recorded at fair value with the change in fair value recorded in operating income unless the contracts qualify for, and the Company elects, hedge accounting treatment.

Certain qualifying derivatives within the ethanol production segment are designed as cash flow hedges. Prior to entering into cash flow hedges the Company evaluates the derivative instrument to ascertain its effectiveness. For cash flow hedges, any ineffectiveness is recognized in current period results, while other unrealized gains and losses are reflected in accumulated other comprehensive income/loss until gains and losses from the underlying hedged transaction are realized. In the event that it becomes probable that a forecasted transaction will not occur, the Company would discontinue cash flow hedge treatment, which would affect earnings. These derivative financial instruments are recognized in other current assets or liabilities at fair value.

Reclassifications

Certain amounts previously reported within the consolidated financial statements have been reclassified to conform to the current year presentation. The Company previously reported margin deposits required for exchange-traded activity as deposits in the consolidated balance sheet. The liabilities associated with this exchange-traded activity were previously reported as a derivative financial instrument liability. Since this activity has a right of offset, the Company reclassified cash deposits of approximately $43.4 million at December 31, 2010, and derivative liabilities of approximately $32.1 million at December 31, 2010, to derivative financial instruments in current assets.

Recent Accounting Pronouncements

Effective January 1, 2011, the Company adopted the second phase of the amended guidance in ASC Topic 820, Fair Value Measurements and Disclosures, which requires the Company to disclose information in the reconciliation of recurring Level 3 measurements regarding purchases, sales, issuances and settlements on a gross basis, with a separate reconciliation for assets and liabilities. The Company did not experience an impact from the additional disclosure requirements.

Effective January 1, 2012, the Company will be required to adopt the third phase of amended guidance in ASC Topic 820, Fair Value Measurements and Disclosures. The purpose of the amendment is to achieve common fair value measurement and disclosure requirements by improving comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and those prepared in conformity with International Financial Reporting Standards, or IFRS. The amended guidance clarifies the application of existing fair value measurement requirements and requires additional disclosure for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. The Company currently would not be impacted by the additional disclosure requirements as the Company does not have any recurring Level 3 measurements.

Effective January 1, 2012, the Company will be required to adopt the amended guidance in ASC Topic 220, Comprehensive Income . This accounting standards update, which helps to facilitate the convergence of GAAP and IFRS, is aimed at increasing the prominence of other comprehensive income in the financial statement by eliminating the option to present other comprehensive income in the statement of stockholders’ equity, and rather requiring comprehensive income to be reported in either a single continuous statement or in two separate but consecutive statements reporting net income and other comprehensive income. The Company has determined that the changes to the accounting standards will affect the presentation of consolidated financial information but will not have a material effect on the Company’s financial position or results of operations.

 

2. ACQUISITIONS

Acquisition of Global Ethanol, LLC

In October 2010, the Company acquired Global Ethanol, LLC. Global owned two operating ethanol plants which have an estimated combined annual production capacity of approximately 160 million gallons. The Company valued the transaction at approximately $174.2 million, including approximately $147.6 million for the ethanol production facilities and the balance in working capital. The value of the transaction includes the assumption of outstanding debt, which totaled approximately $97.7 million at that time. Upon closing, Global was renamed Green Plains Holdings II LLC, or Holdings II. At closing of the transaction, all outstanding units of Global were exchanged for aggregate consideration consisting of 4,386,027 shares of restricted Company common stock valued at $53.9 million, warrants to purchase 700,000 shares of restricted Company common stock, valued at $3.1 million and $19.5 million in cash. The warrants, recorded as a component of additional paid-in capital, are not transferable, except in certain limited circumstances, and are exercisable for a period of three years from the closing date at a price of $14.00. In conjunction with the transaction, Holdings II entered into an amendment to its existing credit agreement and the Company contributed $10.0 million of cash equity to Holdings II, $6.0 million of which was utilized to reduce outstanding debt. The operating results of Holdings II have been included in the Company’s consolidated financial statements since October 22, 2010.

 

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Amounts of identifiable assets acquired

and liabilities assumed

(in thousands)

 

Inventory

   $ 12,749   

Other current assets

     15,005   

Property and equipment, net

     133,970   

Current liabilities

     (11,143

Other, net

     (110
        

Total identifiable net assets

     150,471   

Goodwill

     23,734   
        

Purchase price

   $ 174,205   
        

During the second quarter of 2011, the purchase price allocation for the acquisition was finalized. The revisions to the allocation resulted in a reduction of net property and equipment and an increase in goodwill of $15.2 million. Depreciation expense for the three months ended June 30, 2011 has been reduced by approximately $462 thousand for the cumulative effect of previously-recorded depreciation expense based on the preliminary purchase price allocation relating to the period from date of acquisition through March 31, 2011. The effect of prospectively recognizing the finalized purchase price allocation in the consolidated financial statements is not material to the current or any prior periods. Goodwill related to the acquisition is tax deductible and results largely from economies of scale expected to be realized in the Company’s operations.

Acquisition of Otter Tail

On March 24, 2011, the Company acquired an ethanol plant and certain other assets near Fergus Falls, Minnesota from Otter Tail Ag Enterprises, LLC, or Otter Tail, with an annual expected production capacity of 60 mmgy for $60.3 million. Consideration included $19.2 million of indebtedness to MMCDC New Markets Fund II, LLC and $35.0 million in financing from a group of nine lenders, led by AgStar Financial Services. The remaining $6.1 million was paid in cash. The operating results of Otter Tail have been included in the Company’s consolidated financial statements since March 24, 2011.

 

Amounts of identifiable assets acquired

and liabilities assumed

(in thousands)

 

Inventory

   $ 4,983   

Other current assets

     738   

Property and equipment, net

     52,250   

Current liabilities

     (350
        

Total identifiable net assets

     57,621   

Goodwill

     2,660   
        

Purchase price

   $ 60,281   
        

The amounts above are preliminary purchase price allocations to each of the asset and liabilities identified above pending completion of the valuation by an independent appraisal firm. Goodwill related to the acquisition is tax deductible and results largely from economies of scale expected to be realized in the Company’s operations. The Company expects to finalize the purchase price allocations during the third quarter of 2011 and does not expect it will materially impact the preliminary amounts shown above.

 

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Consolidated pro forma revenue and operating income, had the acquisitions of the Global and Otter Tail ethanol plants occurred on January 1, 2010, would have been $1.7 billion and $37.5 million, respectively, for the six months ended June 30, 2011, $861.4 million and $17.6 million, respectively, for the three months ended June 30, 2011, $1.1 billion and $56.9 million, respectively, for the six months ended June 30, 2010 and $555.3 million and $29.1 million, respectively, for the three months ended June 30, 2010. This unaudited information is based on historical results of operations, and is not necessarily indicative of the results that would have been achieved had the acquisitions occurred on such date.

 

3. FAIR VALUE DISCLOSURES

The following methods, assumptions and valuation techniques were used in estimating the fair value of the Company’s financial instruments:

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 1 unrealized gains and losses on commodity derivatives relate to exchange-traded open trade equity and option values in the Company’s brokerage accounts.

Level 2 – directly or indirectly observable inputs such as quoted prices for similar assets or liabilities in active markets other than quoted prices included within Level 1; quoted prices for identical or similar assets in markets that are not active; and other inputs that are observable or can be substantially corroborated by observable market data by correlation or other means. Grain inventories held for sale in the agribusiness segment are valued at nearby futures values, plus or minus nearby basis levels.

Level 3 – unobservable inputs that are supported by little or no market activity and that are a significant component of the fair value of the assets or liabilities. The Company currently does not have any recurring Level 3 financial instruments.

There have been no changes in valuation techniques and inputs used in measuring fair value. On June 30, 2011, exchange-traded futures for corn and wheat were classified as a Level 2 measurement to reflect the price limit set by the exchange for that day.

The following tables set forth the Company’s assets and liabilities by level that were accounted for the periods indicated (in thousands):

 

    Fair Value Measurements at
June 30, 2011
 
    Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
    Significant Other
Observable Inputs

(Level 2)
    Reclassification for
Balance Sheet
Presentation
    Total  

Assets

       

Cash and cash equivalents

  $ 136,403      $ —        $ —        $ 136,403   

Restricted cash

    29,985        —          —          29,985   

Margin deposits

    39,188        —          —          39,188   

Inventories carried at market

    —          41,117        —          41,117   

Unrealized gains on derivatives

    11,723        36,576        (21,215     27,084   
                               

Total assets measured at fair value

  $ 217,299      $ 77,693      $ (21,215   $ 273,777   
                               

Liabilities

       

Unrealized losses on derivatives

  $ 3,003      $ 27,508      $ (21,215   $ 9,296   
                               

Total liabilities measured at fair value

  $ 3,003      $ 27,508      $ (21,215   $ 9,296   
                               

 

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Table of Contents
    Fair Value Measurements at
December 31, 2010
 
    Quoted Prices in
Active  Markets for
Identical Assets
(Level 1)
    Significant Other
Observable Inputs

(Level 2)
    Reclassification for
Balance Sheet
Presentation
    Total  

Assets

       

Cash and cash equivalents

  $ 233,205      $ —        $ —        $ 233,205   

Restricted cash

    29,983        —          —          29,983   

Margin deposits

    43,394        —          —          43,394   

Inventories carried at market

    —          96,916        —          96,916   

Unrealized gains on derivatives

    3,303        30,663        (32,087     1,879   
                               

Total assets measured at fair value

  $ 309,885      $ 127,579      $ (32,087   $ 405,377   
                               

Liabilities

       

Unrealized losses on derivatives

  $ 32,317      $ 2,569      $ (32,087   $ 2,799   
                               

Total liabilities measured at fair value

  $ 32,317      $ 2,569      $ (32,087   $ 2,799   
                               

The Company believes the fair value of its debt approximates book value, which was $683.0 million and $669.0 million at June 30, 2011 and December 31, 2010, respectively. The Company also believes the fair value of its accounts receivable and accounts payable approximate book value, which were $89.5 million and $100.1 million, respectively, at June 30, 2011 and $89.2 million and $155.1 million, respectively, at December 31, 2010.

Although the Company currently does not have any recurring Level 3 financial measurements, the fair values of the tangible assets and goodwill acquired in the Global and Otter Tail acquisitions represent Level 3 measurements and were derived using a combination of the income approach, the market approach and the cost approach as considered appropriate for the specific assets being valued.

 

4. SEGMENT INFORMATION

Company management reviews financial and operating performance in the following four separate operating segments: (1) production of ethanol and distillers grains, collectively referred to as ethanol production, (2) corn oil production, (3) grain warehousing and marketing, as well as sales and related services of agronomy and petroleum products, collectively referred to as agribusiness, and (4) marketing and distribution of Company-produced and third-party ethanol, distillers grains and corn oil, collectively referred to as marketing and distribution. Selling, general and administrative expenses, primarily consisting of compensation of corporate employees, professional fees and overhead costs not directly related to a specific operating segment, are reflected in the table below as corporate activities.

In the second quarter of 2011, the Company redefined its operating segments to include corn oil production as a reportable segment. Corn oil production, which the Company initiated in October 2010, was previously reported as a component of the marketing and distribution segment. The Company added the corn oil production segment to reflect the manner in which the Company’s executive management currently manages, allocates resources, and measures performance of its businesses. Prior period segment results have been reclassified to reflect this change.

During the normal course of business, the Company enters into transactions between segments. Examples of these intersegment transactions include, but are not limited to, the ethanol production segment selling ethanol to the marketing and distribution segment and the agribusiness segment selling grain to the ethanol production segment. These intersegment activities are recorded by each segment at prices approximating market and treated as if they are third-party transactions. Consequently, these transactions impact segment performance. However, revenues and corresponding costs are eliminated in consolidation and do not impact the Company’s consolidated results.

 

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Table of Contents

The following are certain financial data for the Company’s operating segments for the periods indicated (in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

Revenues:

        

Ethanol production

   $ 543,425      $ 240,550      $ 1,011,122      $ 490,603   

Corn oil production

     10,520        —          14,842        —     

Agribusiness

     125,535        62,565        239,579        104,846   

Marketing and distribution

     759,495        397,226        1,471,877        785,322   

Intersegment eliminations

     (577,582     (246,982     (1,063,874     (500,938
                                
   $ 861,393      $ 453,359      $ 1,673,546      $ 879,833   
                                

Gross profit:

        

Ethanol production

   $ 15,605      $ 18,443      $ 38,812      $ 50,202   

Corn oil production

     6,366        —          8,456        —     

Agribusiness

     6,133        5,675        12,075        8,444   

Marketing and distribution

     5,565        5,223        12,226        9,404   

Intersegment eliminations

     1,410        1,331        959        96   
                                
   $ 35,079      $ 30,672      $ 72,528      $ 68,146   
                                

Operating income:

        

Ethanol production

   $ 11,593      $ 15,763      $ 31,020      $ 44,951   

Corn oil production

     6,339        —          8,408        —     

Agribusiness

     758        984        1,652        454   

Marketing and distribution

     2,493        2,390        5,119        3,731   

Intersegment eliminations

     1,419        1,331        984        96   

Corporate activities

     (4,997     (3,393     (9,760     (7,652
                                
   $ 17,605      $ 17,075      $ 37,423      $ 41,580   
                                

The following table sets forth revenues by product line for the periods indicated (in thousands):

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2011      2010      2011      2010  

Revenues

           

Ethanol

   $ 664,138       $ 369,809       $ 1,318,622       $ 734,312   

Corn oil

     10,520         —           14,842         —     

Distillers grains

     105,952         39,096         193,225         76,101   

Grain

     49,700         17,677         104,988         35,527   

Agronomy products

     23,690         20,291         31,147         25,165   

Other

     7,393         6,486         10,722         8,728   
                                   

Total revenues

   $ 861,393       $ 453,359       $ 1,673,546       $ 879,833   
                                   

 

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The following are total assets for our operating segments for the periods indicated (in thousands):

 

     June 30,
2011
    December 31,
2010
 

Total assets:

    

Ethanol production

   $ 901,079      $ 882,136   

Corn oil production

     22,104        7,204   

Agribusiness

     159,410        239,595   

Marketing and distribution

     187,215        169,148   

Corporate

     126,635        142,666   

Intersegement eliminations

     (30,590     (10,883
                
   $ 1,365,853      $ 1,429,866   
                

 

5. INVENTORIES

Inventories are carried at the lower of cost or market, except grain held for sale, which is valued at market value. The components of inventories are as follows (in thousands):

 

     June 30,
2011
     December 31,
2010
 

Finished goods

   $ 46,960       $ 38,231   

Grain held for sale

     41,117         96,916   

Raw materials

     36,919         23,306   

Petroleum & agronomy items held for sale

     11,678         9,011   

Work-in-process

     13,712         9,408   

Supplies and parts

     8,730         8,016   
                 
   $ 159,116       $ 184,888   
                 

 

6. GOODWILL

Changes in the carrying amount of goodwill attributable to each business segment during the six-month period ended June 30, 2011 were as follows (in thousands):

 

     Ethanol
Production
     Marketing and
Distribution
     Total  

Balance, December 31, 2010

   $ 12,527       $ 10,598       $ 23,125   

Adjustment to Global purchase price allocation

     15,152         —           15,152   

Acquisition of Otter Tail

     2,660         —           2,660   
                          

Balance, June 30, 2011

   $ 30,339       $ 10,598       $ 40,937   
                          

 

7. DERIVATIVE FINANCIAL INSTRUMENTS

At June 30, 2011, the Company’s consolidated balance sheet reflects unrealized losses, net of tax, of $5.8 million in accumulated other comprehensive loss. The Company expects all of the deferred losses at June 30, 2011 will be reclassified into income over the next 12 months as a result of hedged transactions that are forecasted to occur. The amount ultimately realized in income, however, will differ as commodity prices change.

Fair Values of Derivative Instruments

The following table provides information about the fair values of our derivative financial instruments and the line items in the consolidated balance sheets in which the fair values are reflected.

 

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Table of Contents
     Asset Derivatives     Liability Derivatives  

Derivative Instruments

   Fair Value at     Fair Value at  

Consolidated Balance Sheet Location

   June 30,
2011
    December 31,
2010
    June 30,
2011
     December 31,
2010
 

Derivative financial instruments (1)

   $ 27,084 (2)    $ 1,470 (3)    $ —         $ —     

Financing costs and other

     —          409        —           —     

Accrued and other liabilities

     —          —          9,107         2,570   

Other liabilities

     —          —          189         229   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total

   $ 27,084      $ 1,879      $ 9,296       $ 2,799   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

(1) Derivative financial instruments per the balance sheet include margin deposits of $39.2 million and $43.4 million at June 30, 2011 and December 31, 2010, respectively.
(2) Balance at June 30, 2011, includes $7.6 million of net unrealized losses on derivative financial instruments designated as cash flow hedging instruments.
(3) Balance at December 31, 2010, includes $477 thousand of net unrealized gains on derivative financial instruments designated as cash flow hedging instruments.

Refer to Note 3 - Fair Value Disclosures , which also contains fair value information related to derivative financial instruments.

Effect of Derivative Instruments on Consolidated Statements of Operations and Consolidated Statements of Stockholders’ Equity and Comprehensive Income

The following tables provide information about the gain or loss recognized in income and other comprehensive income on our derivative financial instruments and the line items in the financial statements in which such gains and losses are reflected.

 

Gains (Losses) on Derivative Instruments Not

Designated in a Hedging Relationship

   Three Months Ended
June 30,
    Six Months Ended
June 30,
 

Consolidated Statements of Operations Location

   2011     2010     2011     2010  

Revenue

   $ (1,533   $ (182   $ (918   $ 498   

Cost of goods sold

     5,128        2,513        (20,112     9,655   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) recognized in earnings

   $ 3,595      $ 2,331      $ (21,030   $ 10,153   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Locations of Gain (Loss) Due to Ineffectiveness of

Cash Flow Hedges

   Three Months Ended
June 30,
     Six Months Ended
June 30,
 

Consolidated Statements of Operations Location

   2011     2010      2011     2010  

Revenue

   $ 99      $ —         $ (19   $ —     

Cost of goods sold

     (675     9         (656     9   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net decrease recognized in earnings

   $ (576   $ 9       $ (675   $ 9   
  

 

 

   

 

 

    

 

 

   

 

 

 

Location of Gains (Losses) Reclassified

from Accumulated Other Comprehensive

Income (Loss) into Net Income

   Three Months Ended
June 30,
     Six Months Ended
June 30,
 

Consolidated Statements of Operations Location

   2011     2010      2011     2010  

Revenue

   $ (17,033   $ —         $ (21,489   $ —     

Cost of goods sold

     10,447        —           13,991        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Net increase (decrease) recognized in earnings

   $ (6,586   $ —         $ (7,498   $ —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Effective Portion of Cash Flow Hedges

Recognized in

Other Comprehensive Income (Loss)

   Three Months Ended
June 30,
     Six Months Ended
June 30,
 
   2011     2010      2011     2010  

Commodity Contracts

   $ (8,672   $ 300       $ (16,225   $ 177   
  

 

 

   

 

 

    

 

 

   

 

 

 

There were no gains or losses due to the discontinuance of cash flow hedge treatment during the six months ended June 30, 2011.

 

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Table of Contents

The table below summarizes the volumes of open commodity derivative positions as of June 30, 2011 (in thousands):

 

     June 30, 2011
     Exchange Traded     Non-Exchange Traded     Unit of
Measure
  

Commodity

Derivative

Instruments

   Net Long &
(Short) (1)
    Long (2)      (Short) (2)       

Futures

     (18,040        Bushels    Corn, Soybeans and Wheat

Futures

     36,235 (3)         Bushels    Corn

Futures

     (4,180        Gallons    Ethanol

Futures

     (145,782 )(3)         Gallons    Ethanol

Options

     101           Bushels    Corn

Options

     (1,584        Gallons    Ethanol

Options

     326           mmBTU    Natural Gas

Forwards

       25,896         (6,764   Bushels    Corn, Soybeans and Wheat

Forwards

       25,960         (24,326   Gallons    Ethanol

Forwards

       48         (37   Tons    Distillers Grains

 

(1) Exchange traded futures and options are presented on a net long and (short) position basis.
Options are presented on a delta-adjusted basis.
(2) Non-exchange traded forwards are presented on a gross long and (short) position basis.
(3) Futures used for cash flow hedges.

Energy trading contracts that do not involve physical delivery are presented net in revenues on the consolidated statements of operations. Revenues and cost of goods sold under such contracts are summarized in the table below for the periods indicated (in thousands).

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2011      2010      2011      2010  

Revenue

   $ 12,538       $ 11,682       $ 23,812       $ 14,120   

Cost of goods sold

     11,927         11,002         22,799         13,722   

 

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Table of Contents
8. LONG-TERM DEBT

The principal balances of the components of long-term debt are as follows (in thousands):

 

     June 30,
2011
    December 31,
2010
 

Green Plains Bluffton:

    

$70.0 million term loan

   $ 51,535      $ 56,000   

$20.0 million revolving term loan

     20,000        20,000   

$22.0 million revenue bond

     19,880        20,615   

Green Plains Central City:

    

$55.0 million term loan

     49,000        52,200   

$30.5 million revolving term loan

     30,500        30,500   

$11.0 million revolver

     7,239        6,239   

Equipment financing loan

     201        230   

Green Plains Holdings II:

    

$34.1 million term loan

     30,914        34,136   

$42.6 million revolving term loan

     38,359        42,214   

$15.0 million revolver

     15,000        15,000   

Other

     387        387   

Green Plains Obion:

    

$60.0 million term loan

     30,470        40,930   

$37.4 million revolving term loan

     36,200        36,200   

Note payable

     105        124   

Equipment financing loan

     519        591   

Economic development grant

     1,469        1,514   

Green Plains Ord:

    

$25.0 million term loan

     22,417        23,800   

$13.0 million revolving term loan

     13,000        13,000   

$5.0 million revolver

     2,500        2,500   

Green Plains Otter Tail:

    

$30.3 million term loan

     29,599        —     

$4.7 million revolver

     4,675        —     

$19.2 million note payable

     19,175        —     

Capital lease payable

     220        —     

Green Plains Shenandoah:

    

$30.0 million term loan

     8,468        13,368   

$17.0 million revolving term loan

     17,000        17,000   

Economic development loan

     15        45   

Green Plains Superior:

    

$40.0 million term loan

     23,500        26,250   

$10.0 million revolving term loan

     10,000        10,000   

Equipment financing loan

     188        219   

Green Plains Grain:

    

$20.0 million term loan

     18,000        19,000   

$100.0 million revolving loans

     49,219        68,004   

Equipment financing loans

     615        915   

Notes payable

     2,000        3,288   

Green Plains Trade:

    

$70.0 million revolving loan

     37,783        21,179   

Corporate:

    

$90.0 million convertible debt

     90,000        90,000   

Other

     2,824        3,520   
                

Total debt

     682,976        668,968   

Less: current portion

     (158,819     (141,068
                

Long-term debt

   $ 524,157      $ 527,900   
                

 

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Table of Contents

Ethanol Production Segment

Loan Repayment Terms

 

   

Term Loans – The term loans were available for advances until construction for each of the plants was completed.

 

   

Scheduled principal payments (plus interest) are as follows:

 

•      Green Plains Bluffton

  $0.6 million per month

•      Green Plains Central City

  $0.6 million per month

•      Green Plains Holdings II

  $1.5 million per quarter

•      Green Plains Obion

  $2.4 million per quarter

•      Green Plains Ord

  $0.3 million per month

•      Green Plains Otter Tail

  $0.5 million per month

•      Green Plains Shenandoah

  $1.2 million per quarter

•      Green Plains Superior

  $1.4 million per quarter

 

   

Final maturity dates (at the latest) are as follows:

 

•      Green Plains Bluffton

  November 19, 2013

•      Green Plains Central City

  July 1, 2016

•      Green Plains Holdings II

  January 1, 2015

•      Green Plains Obion

  August 20, 2014

•      Green Plains Ord

  July 1, 2016

•      Green Plains Otter Tail

  September 1, 2018

•      Green Plains Shenandoah

  May 20, 2014

•      Green Plains Superior

  July 20, 2015

 

   

Revolving Term Loans – The revolving term loans are generally available for advances throughout the life of the commitment, subject to borrowing base restrictions. Allowable advances under the Green Plains Shenandoah loan agreement are reduced by $2.4 million each six-month period commencing on the first day of the month beginning approximately six months after repayment of the term loan, but in no event later than November 1, 2014. Allowable advances under the Green Plains Superior loan agreement are reduced by $2.5 million each six-month period commencing on the first day of the month beginning approximately six months after repayment of the term loan, but in no event later than January 1, 2016. Interest-only payments are due each month on all revolving term loans until the final maturity date for the Green Plains Bluffton, Green Plains Central City, Green Plains Ord, Green Plains Otter Tail, Green Plains Shenandoah, and Green Plains Superior loan agreements. The Green Plains Obion loan agreement requires additional semi-annual payments of $4.675 million beginning March 1, 2015. The Green Plains Holdings II loan agreement requires semi-annual payments of $2.7 million.

 

   

Final maturity dates (at the latest) are as follows:

 

•      Green Plains Bluffton

  November 19, 2013

•      Green Plains Central City

  July 1, 2016

•      Green Plains Holdings II

  April 1, 2016

•      Green Plains Obion

  September 1, 2018

•      Green Plains Ord

  July 1, 2016

•      Green Plains Otter Tail

  March 23, 2012

•      Green Plains Shenandoah

  November 1, 2017

•      Green Plains Superior

  July 1, 2017

Bluffton Revenue Bond

 

   

Green Plains Bluffton also received $22.0 million in Subordinate Solid Waste Disposal Facility Revenue Bond funds from the City of Bluffton, Indiana. The revenue bond requires: (1) semi-annual principal and interest payments of approximately $1.5 million during the period commencing on March 1, 2010 through March 1, 2019, and (2) a final principal and interest payment of $3.745 million on September 1, 2019.

 

   

At June 30, 2011, Green Plains Bluffton had $1.3 million of cash that was restricted as to use for payment towards the current maturity and interest of the revenue bond.

 

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Table of Contents

During the quarter ended June 30, 2011, amendments were made to the Green Plains Central City, Green Plains Holdings II, Green Plains Obion, Green Plains Ord and Green Plains Superior agreements. None of the amendments entered into in the second quarter of 2011 resulted in material changes to the agreements, as amended. All of the Company’s ethanol production subsidiaries were in compliance with their debt covenants relating to the period ended June 30, 2011.

Agribusiness Segment

The Green Plains Grain loan, amended on May 31, 2011, is comprised of a $20.0 million amortizing term loan, a $45.0 million revolving term loan, a $20.0 million seasonal revolver and a $42.0 million bulge seasonal revolver. Scheduled payments under the term loan of $0.5 million are due on the first business day of each calendar quarter, with any remaining amount payable at expiration on August 1, 2013. The bulge seasonal revolver was reduced from a $42.0 million facility to a $35.0 million facility on April 1, 2011 and matures on November 1, 2011. The revolving term loan and the seasonal revolver mature on November 1, 2011. During the quarter ended June 30, 2011, amendments were made to the Green Plains Grain debt agreement. The amendments entered into in the second quarter of 2011 did not result in material changes to the agreement, as amended. We intend to negotiate a new credit facility for Green Plains Grain prior to its maturity on November 1, 2011. As of June 30, 2011, Green Plains Grain was in compliance with all debt covenants.

Marketing and Distribution Segment

The Green Plains Trade loan is comprised of a senior secured revolving credit facility. Under the loan agreement, as amended in January 2011, the lender will loan up to $70.0 million, subject to a borrowing base equal to 85% of eligible receivables. At June 30, 2011, Green Plains Trade had $26.4 million cash that was restricted as to use for payment towards the loan agreement. Such cash is presented in restricted cash on the consolidated balance sheet. The amended revolving credit facility expires on March 31, 2014. As of June 30, 2011, Green Plains Trade was in compliance with all debt covenants.

Corporate Activities

In November 2010, the Company issued $90.0 million of 5.75% Convertible Senior Notes due 2015, or Notes. The Notes represent senior, unsecured obligations of the Company, with interest payable on May 1 and November 1 of each year. The Notes may be converted into shares of the Company’s common stock and cash in lieu of fractional shares of the common stock based on a conversion rate initially equal to 69.7788 shares of the common stock per $1,000 principal amount of Notes, which is equal to an initial conversion price of $14.33 per share. The conversion rate is subject to adjustment upon the occurrence of specified events. The Company may redeem for cash all, but not less than all, of the Notes at any time on and after November 1, 2013, if the last reported sale price of the Company’s common stock equals or exceeds 140% of the applicable conversion price for a specified time period, at a redemption price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest.

Capitalized Interest

The Company had no capitalized interest during the quarterly and six-month periods ended June 30, 2011 and 2010.

Restricted Net Assets

At June 30, 2011, there were approximately $501.1 million of net assets at the Company’s subsidiaries that were not available to be transferred to the parent company in the form of dividends, loans, or advances due to restrictions contained in the credit facilities of these subsidiaries.

Other Information

For further information on the long-term debt obligations of the Company, refer to Note 11, Long-Term Debt, in the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2010, as amended.

 

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Table of Contents
9. STOCK-BASED COMPENSATION

The Company records noncash compensation expense related to equity awards to employees and directors in the financial statements over the requisite service period. The Company measures share-based compensation grants at fair value on the grant date, adjusted for estimated forfeitures.

The Company has 2007 and 2009 Equity Incentive Plans which reserve a combined total of 3.5 million shares of common stock for issuance pursuant to the approved plans. The plans provide for the granting of shares of stock, including options to purchase shares of common stock, stock appreciation rights tied to the value of common stock, non-vested stock and non-vested stock unit awards to eligible employees, non-employee directors and consultants.

All of the Company’s existing share-based compensation awards have been determined to be equity awards. The Company recognizes compensation costs for stock option awards which vest with the passage of time with only service conditions on a straight-line basis over the requisite service period.

A summary of stock option activity for the six months ended June 30, 2011 is as follows:

 

     Shares     Weighted-
Average
Exercise
Price
     Weighted-
Average
Remaining
Contractual
     Aggregate
Intrinsic Value
(in thousands)
 

Outstanding at December 31, 2010

     1,170,500      $ 15.42         

Granted

     —          —           

Exercised

     (14,999     6.94          $ 73   

Forfeited

     (3,000     17.51         

Expired

     (3,250     17.29         
                

Outstanding at June 30, 2011

     1,149,251      $ 15.52         4.6       $ 1,827   

Exercisable at June 30, 2011

     932,585      $ 16.94         4.0       $ 1,314   

The Company’s option awards allow employees to exercise options through cash payment to the Company for the shares of common stock or through a simultaneous broker-assisted cashless exercise of a share option, through which the employee authorizes the exercise of an option and the immediate sale of the option shares in the open market. The Company uses newly-issued shares of common stock to satisfy its share-based payment obligations.

The following table summarizes non-vested stock award and DSU activity for the six months ended June 30, 2011:

 

     Weighted-
Average
Number of Non-
vested Shares
and DSU's
    Weighted-
Average
Grant-
Date Fair
Value
     Weighted-
Average

Remaining
Vesting Term

(in years)
 

Nonvested at December 31, 2010

     371,486      $ 10.15      

Granted

     392,056        12.01      

Forfeited

     —          —        

Vested

     (236,507     10.41      
             

Nonvested at June 30, 2011

     527,035      $ 11.41         2.1   

Compensation costs expensed for share-based payment plans described above were approximately $0.9 million and $2.6 million during the three and six months ended June 30, 2011. Compensation costs expensed for share-based payment plans described above were approximately $0.4 million and $1.7 million during the three and six months ended June 30, 2010. At June 30, 2011, there were $5.1 million of unrecognized compensation costs from share-based compensation arrangements, which is related to non-vested shares. This compensation is expected to be recognized over a weighted-average period of approximately 2.1 years. The potential tax benefit realizable for the anticipated tax deductions of the exercise of share-based payment arrangements generally would approximate 36% of these expense amounts.

 

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10. EARNINGS PER SHARE

Basic earnings per common shares (“EPS”) is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income on an as-if-converted basis available to common stockholders by the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of any outstanding dilutive securities. The calculation of diluted earnings per share gives effect to common stock equivalents, if dilutive. The reconciliations of net income to net income on an as-if-converted basis and basic and diluted earnings per share are as follows (in thousands):

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2011     2010      2011     2010  

Net income attributable to Green Plains

   $ 4,982      $ 8,684       $ 12,722      $ 24,260   

Weighted average shares outstanding - basic

     36,415        31,359         36,308        28,956   

Income attributable to Green Plains stockholders - basic

   $ 0.14      $ 0.28       $ 0.35      $ 0.84   

Net income attributable to Green Plains

   $ 4,982      $ 8,684       $ 12,722      $ 24,260   

Interest on convertible debt

     1,294        —           2,588        —     

Amortization of debt issuance costs related to convertible debt

     149        —           296        —     

Tax effect of interest on convertible debt

     (519     —           (1,038     —     
                                 

Net income attributable to Green Plains on an as-if-converted basis

   $ 5,906      $ 8,684       $ 14,568      $ 24,260   
                                 

Weighted average shares outstanding - basic

     36,415        31,359         36,308        28,956   

Effect of dilutive convertible debt

     6,280        —           6,280        —     

Effect of dilutive stock options

     258        319         270        346   
                                 

Total potential shares outstanding

     42,953        31,678         42,858        29,302   
                                 

Income attributable to Green Plains stockholders - diluted

   $ 0.14      $ 0.27       $ 0.34      $ 0.83   

Excluded from the computations of diluted EPS for the three and six months ended June 30, 2011 were stock-based compensation awards totaling 0.7 million and 0.9 million shares, respectively, and for the three and six months ended June 30, 2010 were stock-based compensation awards totaling 0.8 million and 0.7 million shares, respectively, because the exercise prices or the grant-date fair value, as applicable, of the corresponding awards were greater than the average market price of the Company’s common stock during the respective periods. As consideration for the Global acquisition, the Company issued warrants for 700,000 shares of its restricted stock at a price of $14.00 per share. The warrants are excluded from the computations of diluted EPS as the exercise price was greater than the average market price of the Company’s common stock for the three and six month periods ended June 30, 2011 and 2010.

 

11. COMPREHENSIVE INCOME

Comprehensive income is as follows (in thousands):

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2011     2010      2011     2010  

Net income attributable to Green Plains

   $ 4,982      $ 8,684       $ 12,722      $ 24,260   

Unrealized gain (loss) on derivatives

     (2,086     300         (8,727     177   

Tax effect

     768        —           3,369        —     
                                 

Comprehensive income attributable to Green Plains

   $ 3,664      $ 8,984       $ 7,364      $ 24,437   
                                 

 

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12. STOCKHOLDERS’ EQUITY

Components of stockholders’ equity are as follows (in thousands):

 

    

 

Common Stock

     Additional
Paid-in
Capital
     Retained
Earnings
     Accum.
Other
Comp.
Loss
    Total
Green Plains
Stockholders’
Equity
    Non-
controlling
Interest
    Total
Stockholders’
Equity
 
     Shares      Amount                 

Balance, December 31, 2010

     35,793       $ 36       $ 431,289       $ 57,343       $ (420   $ 488,248      $ 9,394      $ 497,642   

Net income (loss)

     —           —           —           12,722         —          12,722        (172     12,550   

Unrealized loss on derivatives, net of tax

     —           —           —           —           (5,358     (5,358     —          (5,358
                                      

Total comprehensive income

     —           —           —           —           —          7,364        (172     7,192   

Stock-based compensation

     607         —           1,829         —           —          1,829        —          1,829   

Stock options exercised

     15         —           104         —           —          104        —          104   
                                                                    

Balance, June 30, 2011

     36,415       $ 36       $ 433,222       $ 70,065       $ (5,778   $ 497,545      $ 9,222      $ 506,767   
                                                                    

 

13. INCOME TAXES

The Company records income tax expense during interim periods based on its best estimate of the annual effective tax rate. Certain items are given discrete period treatment and, as a result, the tax effects of such items are reported in full in the relevant interim period.

Income tax expense for the three and six months ended June 30, 2011 was $2.9 million and $7.2 million, respectively. Income tax expense for the three and six months ended June 30, 2010 was $2.5 million and $6.9 million, respectively. The effective tax rate (calculated as the ratio of income tax expense to income before income taxes) was approximately 36% and 22% for the first six months of 2011 and 2010, respectively. The effective tax rates for each of these periods reflect the release of a portion of valuation allowances provided against certain of the Company’s deferred tax assets, primarily federal and state net operating losses and tax credits due to anticipated income in future periods.

The Company’s unrecognized tax benefits at June 30, 2011 were $2.8 million, compared to $1.1 million at December 31, 2010. The increase is based on additional amounts related to prior period tax positions. The liability at June 30, 2011 consisted of approximately $107 thousand which, if recognized, would favorably impact the Company’s effective tax rate. The remaining liability was related to tax positions for which there are offsetting tax assets or uncertainty related to timing. The Company believes that it is reasonably possible that $2.7 million of its unrecognized tax benefits, related to the timing of a particular deduction, could be settled with the relevant tax authority in the next 12 months. There was no change in the Company’s liabilities related to accounting for uncertain income tax positions during the first six months of 2010.

The 2011 annual effective tax rate can be affected as a result of variances among the estimates and amounts of full-year sources of taxable income (among the various states), the realization of tax credits, adjustments that may arise from the resolution of tax matters under review, variances in the release of valuation allowances and the Company’s assessment of its liability for uncertain tax positions.

 

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14. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases certain facilities and parcels of land under agreements that expire at various dates. For accounting purposes, rent expense is based on a straight-line amortization of the total payments required over the lease term. The Company incurred lease expenses of $3.8 million and $7.5 million during the three and six-month periods ended June 30, 2011, respectively, and $3.0 million and $5.6 million during the three and six-month periods ended June 30, 2010, respectively. Aggregate minimum lease payments under these agreements for the remainder of 2011 and in future fiscal years are as follows (in thousands):

 

Year Ending December 31,

   Amount  

2011

   $ 7,897   

2012

     13,689   

2013

     11,718   

2014

     5,758   

2015

     3,872   

Thereafter

     5,891   
        

Total

   $ 48,825   
        

Commodities

As of June 30, 2011, the Company had contracted for future grain deliveries valued at approximately $411.7 million, natural gas deliveries valued at approximately $26.0 million, ethanol product deliveries valued at approximately $54.4 million and distillers grains product deliveries valued at approximately $9.4 million.

Legal

In April 2011, Aventine Renewable Energy, Inc. filed a complaint in the United States Bankruptcy Court for the District of Delaware in connection with its Chapter 11 bankruptcy naming as defendants Green Plains Renewable Energy, Inc., Green Plains Obion LLC, Green Plains Bluffton LLC, Green Plains VBV LLC and Green Plains Trade Group LLC. This action alleges $24.4 million of damages from preferential transfers or, in the alternative, $28.4 million of damages from fraudulent transfers under an ethanol marketing agreement and an unspecified amount of damages for a continuing breach of a termination agreement related to rail cars. The Company is unable to predict the outcome of these matters at this time, and any views formed as to the viability of these claims or the financial exposure which could result, may change as the matters proceed through their course. The Company intends to defend these claims vigorously.

 

15. RELATED PARTY TRANSACTIONS

Note Receivable

On June 28, 2011, the Company issued a promissory note to BioProcess Algae LLC, an unconsolidated affiliate of which Green Plains holds a 35% ownership interest, in the amount of $500,000. All principal and unpaid interest in respect of this note is due and payable the fifth business day following written notice of demand from the Company, but not earlier than December 31, 2011. At June 30, 2011, $500,000 was outstanding on the note receivable.

Sales and Financing Contracts

Three subsidiaries of the Company have executed separate financing agreements for equipment with AXIS Capital Inc. Gordon F. Glade, President and Chief Executive Officer of AXIS Capital is a member of our Board of Directors. A total of $0.8 million and $1.1 million were included in debt at June 30, 2011 and December 31, 2010, respectively, under these financing arrangements. Payments, including principal and interest, totaled $0.2 million and $0.3 million during the three and six months ended June 30, 2011, respectively. Payments, including principal and interest, totaled $0.1 million and $0.2 million during the three and six months ended June 30, 2010, respectively. The highest amount outstanding during the six months ended June 30, 2011 was $0.9 million, and the weighted average interest rate for all financing agreements with AXIS Capital was 7.6%.

 

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The Company has entered into fixed-price ethanol purchase and sale agreements with Center Oil Company. Gary R. Parker, President and Chief Executive Officer of Center Oil, is a member of our Board of Directors. During the three and six months ended June 30, 2011, cash receipts from Center Oil totaled $22.1 million and $65.3 million, respectively. Payments to Center Oil totaled $1.0 million and $2.1 million for the same periods, respectively, on these contracts. During the three and six months ended June 30, 2010, cash receipts totaled $22.9 million and $43.9 million and payments totaled $2.7 million and $3.8 million, respectively, on these contracts. The Company had $1.0 million and $6.0 million included in accounts receivable from Center Oil at June 30, 2011 and December 31, 2010, respectively, and no outstanding payables in current liabilities under these purchase and sale agreements.

Aircraft Lease

The Company entered into an agreement with Hoovestol Inc. for the lease of an aircraft. Wayne B. Hoovestol, President of Hoovestol Inc., is Chairman of our Board of Directors. The Company has agreed to pay $6,667 per month for use of up to 100 hours per year of the aircraft. Any flight time in excess of 100 hours per year will incur additional hourly-based charges. During the three and six months ended June 30, 2011, payments related to this agreement totaled $41,000 and $71,000, respectively. During the three and six months ended June 30, 2010, payments related to this agreement totaled $58,000 and $68,000, respectively. The Company did not have outstanding payables to or receivables from Hoovestol Inc. at June 30, 2011 and December 31, 2010.

 

16. SUBSEQUENT EVENT

Since January 2009, the Company has held a 51% ownership interest in Blendstar, LLC, which operates nine blending and terminaling facilities with approximately 495 mmgy of total throughput capacity in seven states in the south central U.S. On July 19, 2011, the Company acquired the remaining 49% of Blendstar from the minority holders. Blendstar’s operations are included in the marketing and distribution segment.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated financial condition and results of operations. This discussion should be read in conjunction with the consolidated financial statements included herewith and notes to the consolidated financial statements thereto and our annual report filed on Form 10-K for the year ended December 31, 2010, as amended, including the consolidated financial statements, accompanying notes and the risk factors contained therein.

Cautionary Information Regarding Forward-Looking Statements

This report contains forward-looking statements based on current expectations that involve a number of risks and uncertainties. Forward-looking statements generally do not relate strictly to historical or current facts, but rather to plans and objectives for future operations based upon management’s reasonable estimates of future results or trends, and include statements preceded by, followed by, or that include words such as “anticipates,” “believes,” “continue,” “estimates,” “expects,” “intends,” “outlook,” “plans,” “predicts,” “may,” “could,” “should,” “will,” and words and phrases of similar impact, and include, but are not limited to, statements regarding future operating or financial performance, business strategy, business environment, key trends, and benefits of actual or planned acquisitions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we believe that our expectations regarding future events are based on reasonable assumptions, any or all forward-looking statements in this report may turn out to be incorrect. They may be based on inaccurate assumptions or may not account for known or unknown risks and uncertainties. Consequently, no forward-looking statement is guaranteed, and actual future results may vary materially from the results expressed or implied in our forward-looking statements. The cautionary statements in this report expressly qualify all of our forward-looking statements. In addition, we are not obligated, and do not intend, to update any of our forward-looking statements at any time unless an update is required by applicable securities laws. Factors that could cause actual results to differ from those expressed or implied in the forward-looking statements include, but are not limited to, those discussed in Part I, Item 1A – Risk Factors of our annual report on Form 10-K for the year ended December 31, 2010, as amended, and in Item 1A of Part II of this Quarterly Report for the quarter ended June 30, 2011. Specifically, we may experience significant fluctuations in future operating results due to a number of economic conditions, including, but not limited to, competition in the ethanol and other industries in which we compete, commodity market risks, financial market risks, counter-party risks, risks associated with changes to federal policy or regulation, the timely completion of corn oil extraction projects, expected corn oil recovery rates and operating expenses, risks related to closing and achieving anticipated results from acquisitions, and other risk factors detailed in our reports filed with the SEC. Actual results may differ from projected results due, but not limited, to unforeseen developments.

In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this report or in any document incorporated by reference might not occur. Investors are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference in this report. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We were formed in June 2004, incurring development costs until our first two plants were completed. Our plant in Shenandoah, Iowa commenced operations in August 2007 and our plant in Superior, Iowa commenced operations in July 2008. To complement and enhance our ethanol production facilities, in April 2008, we acquired Great Lakes Cooperative, a full-service farm cooperative in northwestern Iowa and southwestern Minnesota. As a result of our October 2008 merger with VBV LLC, we acquired two additional ethanol plants, located in Bluffton, Indiana and Obion, Tennessee. Operations commenced at the Bluffton and Obion plants in September 2008 and November 2008, respectively. In January 2009, we acquired a majority interest in Blendstar, LLC, which operates blending and terminaling facilities in the south central U.S. In July 2009, we acquired two limited liability companies that owned ethanol plants in Central City and Ord, Nebraska. In April 2010, we acquired five grain elevators in western Tennessee. In October 2010, we acquired Global Ethanol, LLC, which had two operating ethanol plants. In March 2011, we acquired an ethanol plant near Fergus Falls, Minnesota, bringing our total expected ethanol production capacity to approximately 740 mmgy. In June 2011, Green Plains Grain Company acquired 2.0 million bushels of grain storage capacity located in Hopkins, Missouri, which is approximately 45 miles from our Shenandoah, Iowa ethanol plant. In July 2011, we acquired all minority interests in Blendstar.

 

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We are a leading, vertically-integrated producer, marketer and distributer of ethanol. We focus on generating stable operating margins through our diversified business segments and our risk management strategy. We believe that owning and operating assets throughout the ethanol value chain enables us to mitigate changes in commodity prices and differentiates us from companies focused only on ethanol production. Today, we have operations throughout the ethanol value chain, beginning upstream with our agronomy and grain handling operations, continuing through our approximately 740 mmgy of ethanol production capacity and our corn oil production, and ending downstream with our ethanol marketing, distribution and blending facilities.

Management reviews our operations in the following four separate operating segments:

 

   

Ethanol Production. At June 30, 2011, we operated a total of nine ethanol plants in Indiana, Iowa, Michigan, Minnesota, Nebraska and Tennessee, with approximately 740 mmgy of total ethanol production capacity. At capacity, these plants collectively will consume approximately 265 million bushels of corn and produce approximately 2.1 million tons of distillers grains annually.

 

   

Corn Oil Production . At June 30, 2011, we were operating corn oil extraction systems at our Bluffton, Central City, Lakota, Obion, Ord, Riga, Shenandoah and Superior ethanol plants. We expect to complete the installation of corn oil extraction technology at our recently-acquired Otter Tail ethanol plant during 2011. The corn oil systems are designed to extract non-edible corn oil from the whole stillage process immediately prior to production of distillers grains. Industrial uses for corn oil include feedstock for biodiesel, livestock feed additives, rubber substitutes, rust preventatives, inks, textiles, soaps and insecticides.

 

   

Agribusiness. We operate three lines of business within our agribusiness segment: bulk grain, agronomy and petroleum. In June 2011, we expanded our agribusiness operations by acquiring a grain elevator in Hopkins, Missouri with 2.0 million bushels of grain storage capacity. We are currently constructing an estimated 2.1 million and 1.0 million bushels of additional grain storage capacity at our Tennessee and Iowa grain elevators, respectively, and plan to complete the expansions in the third quarter of 2011. In our bulk grain business, subsequent to our recent acquisition and grain storage expansion, we will have 14 grain elevators with approximately 36.1 million bushels of total storage capacity. We sell fertilizer and other agricultural inputs and provide application services to area producers, through our agronomy business. Additionally, we sell petroleum products including diesel, soydiesel, blended gasoline and propane, primarily to agricultural producers and consumers. We believe our bulk grain business provides synergies with our ethanol production segment as it supplies a portion of the feedstock for our ethanol plants.

 

   

Marketing and Distribution. Our in-house marketing business is responsible for the sale, marketing and distribution of all ethanol, distillers grains and corn oil produced at our nine ethanol plants. We also market and distribute ethanol for third-party ethanol producers. At June 30, 2011, expected production capacity of these third-party producers was approximately 260 mmgy. Additionally, we own Blendstar, LLC, which operates nine blending or terminaling facilities with approximately 495 mmgy of total throughput capacity in seven states in the south central United States.

In the second quarter of 2011, we redefined our operating segments to include corn oil production as a reportable segment. Corn oil production, which we initiated in October 2010, was previously reported as a component of our marketing and distribution segment. We added the corn oil production segment to reflect the way our executive management manages, allocates resources, and measures the performance of our businesses. All prior period segment results have been restated to reflect this change.

We intend to continue to take a disciplined approach in evaluating new opportunities related to potential acquisition of additional ethanol plants by considering whether the plants fit within the design, engineering and geographic criteria we have developed. In our marketing and distribution segment, our strategy is to renew existing marketing contracts, as well as enter new contracts with other ethanol producers. We also intend to pursue opportunities to develop or acquire additional grain elevators and agronomy businesses, specifically those located near our ethanol plants. We believe that owning additional agribusiness operations in close proximity to our ethanol plants enables us to strengthen relationships with local corn producers, allowing us to source corn more effectively and at a lower average cost. We also plan to continue to grow our downstream access to customers and are actively looking at new marketing opportunities with other ethanol producers.

 

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We continue our support of the BioProcess Algae joint venture, which is focused on developing technology to grow and harvest algae, which consume carbon dioxide, in commercially viable quantities. Construction of Phase II, which began during the third quarter of 2010, was completed and the Grower Harvesters bioreactors were successfully started up in January 2011. As the next step in this process, BioProcess Algae is currently constructing an outdoor Grower Harvester™ system next to our Shenandoah ethanol plant and is planning to break ground on a five acre algae farm this fall at the same location. Phase II allows for verification of growth rates, energy balances and operating expenses, which are considered to be some of the key steps to commercialization. The Iowa Power Fund awarded BioProcess Algae an additional grant of $2.0 million to continue the research and development of the Grower Harvester technology. The remaining cost of the Phase II project is being shared by the joint venture partners. As part of the Phase II funding, we increased our ownership in BioProcess Algae to 35%.

Industry Factors Affecting our Results of Operations

Variability of Commodity Prices. Our operations and our industry are highly dependent on commodity prices, especially prices for corn, ethanol, distillers grains and natural gas. Because the market prices of these commodities are not always correlated, at times ethanol production may be unprofitable. As commodity price volatility poses a significant threat to our margin structure, we have developed a risk management strategy focused on locking in favorable operating margins when available. We continually monitor market prices of corn, natural gas and other input costs relative to the prices for ethanol and distillers grains at each of our production facilities. We create offsetting positions by using a combination of derivative instruments, fixed-price purchases and sales contracts, or a combination of strategies within strict limits. Our primary focus is not to manage general price movements of individual commodities, for example to minimize the cost of corn consumed, but rather to lock in favorable profit margins whenever possible. By using a variety of risk management tools and hedging strategies, including our internally-developed real-time margin management system, we believe we are able to maintain a disciplined approach to price risks.

Reduced Availability of Capital. Some ethanol producers have faced financial distress over the past few years, culminating with bankruptcy filings by several companies. This, in combination with continued volatility in the capital markets has resulted in reduced availability of capital for the ethanol industry in general. In this market environment, we may experience limited access to incremental financing.

Legislation. Federal and state governments have enacted numerous policies, incentives and subsidies to encourage the usage of domestically-produced alternative fuel solutions. Passed in 2007 as part of the Energy Independence and Security Act, a federal Renewable Fuels Standard, or RFS, has been and we expect will continue to be a driving factor in the growth of ethanol usage. To further drive growth in the increased adoption of ethanol, Growth Energy, an ethanol industry trade association, and a number of ethanol producers requested a waiver from the EPA to increase the allowable amount of ethanol blended into gasoline from the current 10% level, or E10, to a 15% level, or E15. In October 2010, the EPA approved E15 for use in model year 2007 and newer model passenger vehicles, including cars, SUVs, and light pickup truck. In January 2011, the EPA ruled that E15 was also approved for use in model year 2001 to 2006 passenger vehicles.

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Reform Act, which, among other things, aims to improve transparency and accountability in derivative markets. While the Reform Act increases the regulatory authority of the Commodity Futures Trading Commission, or CFTC, regarding over-the-counter derivatives, there is uncertainty on several issues related to market clearing, definitions of market participants, reporting, and capital requirements. While many details remain to be addressed in CFTC rulemaking proceedings, at this time we do not anticipate any material impact to our risk management strategy.

On June 16, 2011, a legislative proposal to end the volumetric ethanol tax credit, or VEETC (often referred to as the “blender’s credit”), was passed by the U.S. Senate. The blender’s credit, which is currently set to expire on December 31, 2011, allows gasoline distributors who blend ethanol with gasoline to receive a federal excise tax credit of $0.45 per gallon of ethanol used, or $0.045 per gallon for E10 and $0.3825 per gallon for E85. It is not certain whether the proposal which would terminate VEETC early will be enacted, and whether it would occur through a stand-alone bill or by attachment to other legislation.

Merger and Acquisition Activity

In March 2011, we acquired an ethanol plant and certain other assets near Fergus Falls, Minnesota from Otter Tail Ag Enterprises, LLC or Otter Tail, with an annual expected production capacity of 60 mmgy for consideration totaling approximately $60.3 million, consisting of $6.1 million in cash and $54.2 million in debt. We are constructing 1.6 million bushels of additional grain storage capacity at the Otter Tail plant with completion expected in 2011. The operating results of Otter Tail have been included in the Company’s consolidated financial statements since March 24, 2011.

 

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In June 2011, we acquired 2.0 million bushels of grain storage capacity located in Hopkins, Missouri. The grain elevator is located approximately 45 miles from our Shenandoah, Iowa ethanol plant. The operating results of this grain elevator have been included in the Company’s consolidated financial statements since June 3, 2011. Combining this acquisition with our existing storage capacity and expansions of our Iowa and Tennessee grain assets, we will have 36.1 million bushels of grain storage capacity within our agribusiness segment by the fall 2011 harvest.

Since January 2009, we have held a 51% ownership interest in Blendstar, LLC, which operates nine blending and terminaling facilities with approximately 495 mmgy of total throughput capacity in seven states in the south central U.S. On July 19, 2011, we acquired the remaining 49% of Blendstar from the minority holders. Blendstar’s operations are included in the marketing and distribution segment.

Critical Accounting Policies and Estimates

This disclosure is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe are proper and reasonable under the circumstances. We continually evaluate the appropriateness of estimates and assumptions used in the preparation of our consolidated financial statements. Actual results could differ materially from those estimates. Key accounting policies, including but not limited to those relating to revenue recognition, property and equipment, impairment of long-lived assets and goodwill, derivative financial instruments, and accounting for income taxes, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements. See further discussion of our critical accounting policies and estimates, as well as significant accounting policies, in our annual report on Form 10-K for the year ended December 31, 2010, as amended.

Recent Accounting Pronouncements

Effective January 1, 2011, we adopted the second phase of the amended guidance in ASC Topic 820, Fair Value Measurements and Disclosures , which requires us to disclose information in the reconciliation of recurring Level 3 measurements regarding purchases, sales, issuances and settlements on a gross basis, with a separate reconciliation for assets and liabilities. We did not experience an impact from the additional disclosure requirements.

Effective January 1, 2012, we will be required to adopt the third phase of amended guidance in ASC Topic 820, Fair Value Measurements and Disclosures. The purpose of the amendment is to achieve common fair value measurement and disclosure requirements by improving comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and those prepared in conformity with International Financial Reporting Standards, or IFRS. The amended guidance clarifies the application of existing fair value measurement requirements and requires additional disclosure for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. We currently would not be impacted by the additional disclosure requirements as we do not have any recurring Level 3 measurements.

Effective January 1, 2012, we will be required to adopt the amended guidance in ASC Topic 220, Comprehensive Income . This accounting standards update, which helps to facilitate the convergence of GAAP and IFRS, is aimed at increasing the prominence of other comprehensive income in the financial statement by eliminating the option to present other comprehensive income in the statement of stockholders’ equity, and rather requiring comprehensive income to be reported in either a single continuous statement or in two separate but consecutive statements reporting net income and other comprehensive income. We have determined that the changes to the accounting standards will affect the presentation of consolidated financial information but will not have a material effect on the Company’s financial position or results of operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, results of operations or liquidity.

 

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Components of Revenues and Expenses

Revenues . In our ethanol production segment, our revenues are derived primarily from the sale of ethanol and distillers grains, which are co-products of the ethanol production process. In our corn oil production segment, revenues result from the sale of corn oil produced at our ethanol plants. In our agribusiness segment, the sale of grain, fertilizer and petroleum products are our primary sources of revenue. In our marketing and distribution segment, the sale of ethanol, distillers grains and corn oil that we market for our nine ethanol plants and the sale of ethanol we market for the ethanol plants owned by third parties represent our primary sources of revenue. Revenues also include net gains or losses from derivatives related to ethanol, distillers grains and corn oil.

Cost of Goods Sold. Cost of goods sold in our ethanol production segment includes costs for direct labor, materials and certain plant overhead costs. Direct labor includes all compensation and related benefits of non-management personnel involved in the operation of our ethanol plants. Plant overhead costs primarily consist of plant utilities, plant depreciation and outbound freight charges. Our cost of goods sold is mainly affected by the cost of ethanol, corn, natural gas and transportation. In this segment, corn is our most significant raw material cost. We purchase natural gas to power steam generation in our ethanol production process and to dry our distillers grains. Natural gas represents our second largest cost in this business segment. Cost of goods sold also includes net gains or losses from derivatives related to corn and natural gas.

Cost of goods sold in our corn oil production segment includes costs for direct materials, certain plant overhead costs and amounts reimbursed to the ethanol production segment for the reduction in distillers grains produced. Costs of corn oil production have become more significant as we have implemented corn oil extraction technology at eight of our nine ethanol plants.

Grain, fertilizer and petroleum acquisition costs represent the primary components of cost of goods sold in our agribusiness segment. Grain inventories, forward purchase contracts and forward sale contracts are valued at market prices, where available, or other market quotes adjusted for differences, primarily transportation, between the exchange-traded market and the local markets on which the terms of the contracts are based. Changes in the market value of grain inventories, forward purchase and sale contracts, and exchange-traded futures and options contracts are recognized in earnings as a component of cost of goods sold.

In our marketing and distribution segment, purchases of ethanol, distillers grains and corn oil represent the largest components of cost of goods sold. Transportation expenses are also a major component of our cost of goods sold in this segment. Transportation expense includes rail car leases, freight and shipping of our ethanol and co-products, as well as costs incurred in storing ethanol at destination terminals.

Selling, General and Administrative Expenses. Selling, general and administrative expenses are recognized at the operating segment level, as well as at the corporate level. These expenses consist of employee salaries, incentives and benefits; office expenses; board fees; and professional fees for accounting, legal, consulting, and investor relations activities. Personnel costs, which include employee salaries, incentives and benefits, are the largest single category of expenditures in selling, general and administrative expenses. We refer to selling, general and administrative expenses that are not allocable to a segment as corporate activities.

Other Income (Expense). Other income (expense) includes interest earned, interest expense, amortization of debt financing costs and other non-operating items.

Results of Operations

Segment Results

Our operations fall within the following four segments: (1) production of ethanol and related distillers grains, collectively referred to as ethanol production, (2) corn oil production, (3) grain warehousing and marketing, as well as sales and related services of agronomy and petroleum products, collectively referred to as agribusiness, and (4) marketing and distribution of Company-produced and third-party ethanol, distillers grains and corn oil, collectively referred to as marketing and distribution. Selling, general and administrative expenses, primarily consisting of compensation of corporate employees, professional fees and overhead costs not directly related to a specific operating segment, are reflected in the table below as corporate activities. When our management evaluates segment performance, they review the information provided below, as well as segment earnings before interest, income taxes, noncontrolling interest, depreciation and amortization.

 

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In the second quarter of 2011, we redefined our operating segments to include corn oil production as a reportable segment. Corn oil production, which we initiated in October 2010, was previously reported as a component of our marketing and distribution segment. We added the corn oil production segment to reflect the manner by which our executive management currently manages, allocates resources to, and measures the performance of our businesses. Prior period segment results have been reclassified to reflect this change.

During the normal course of business, our operating segments enter into transactions with one another. For example, our ethanol production segment sells ethanol to our marketing and distribution segment and our agribusiness segment sells grain to our ethanol production segment. These intersegment activities are recorded by each segment at prices approximating market and treated as if they are third-party transactions. Consequently, these transactions impact segment performance. However, intersegment revenues and corresponding costs are eliminated in consolidation, and do not impact our consolidated results.

The table below reflects selected operating segment financial information for the periods indicated (in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

Revenues:

        

Ethanol production

   $ 543,425      $ 240,550      $ 1,011,122      $ 490,603   

Corn oil production

     10,520        —          14,842        —     

Agribusiness

     125,535        62,565        239,579        104,846   

Marketing and distribution

     759,495        397,226        1,471,877        785,322   

Intersegment eliminations

     (577,582     (246,982     (1,063,874     (500,938
                                
   $ 861,393      $ 453,359      $ 1,673,546      $ 879,833   
                                

Gross profit:

        

Ethanol production

   $ 15,605      $ 18,443      $ 38,812      $ 50,202   

Corn oil production

     6,366        —          8,456        —     

Agribusiness

     6,133        5,675        12,075        8,444   

Marketing and distribution

     5,565        5,223        12,226        9,404   

Intersegment eliminations

     1,410        1,331        959        96   
                                
   $ 35,079      $ 30,672      $ 72,528      $ 68,146   
                                

Operating income:

        

Ethanol production

   $ 11,593      $ 15,763      $ 31,020      $ 44,951   

Corn oil production

     6,339        —          8,408        —     

Agribusiness

     758        984        1,652        454   

Marketing and distribution

     2,493        2,390        5,119        3,731   

Intersegment eliminations

     1,419        1,331        984        96   

Corporate activities

     (4,997     (3,393     (9,760     (7,652
                                
   $ 17,605      $ 17,075      $ 37,423      $ 41,580   
                                

Three Months Ended June 30, 2011 Compared to the Three Months Ended June 30, 2010

Consolidated Results

Revenues increased $408.0 million for the three months ended June 30, 2011 compared to the same period in 2010 as a result of acquired operations and increases in commodity prices. We acquired agribusiness operations in western Tennessee in April 2010, and our Lakota and Riga ethanol plants in October 2010. Also, in March 2011, we acquired our Otter Tail ethanol plant. Despite the significant increase in revenue, gross profit yielded a marginal increase when comparing the three months ended June 30, 2011 with the three months ended June 30, 2010, which resulted in a decrease in profit margin. This was due primarily to an increase in cost of goods sold as a result of higher corn prices and greater variability of commodity prices overall. Operating income increased $0.5 million in the three months ended June 30, 2011 compared to the same period in 2010. In addition to the higher cost of goods sold, selling, general and administrative expenses were $3.9 million higher for the three months ended June 30, 2011 compared to the same period in 2010 due to the expanded scope of our operations.

 

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In addition to the factors listed above, income before taxes was also affected by an increase in interest expense of $3.6 million due to debt issued to finance the acquisitions and the $90.0 million convertible debt issued in November 2010. Income tax expense of $2.8 million and $2.5 million for the three-month periods ended June 30, 2011 and 2010, respectively, was favorably impacted by the release of a portion of valuation allowances against certain deferred tax assets, established in prior years due to the uncertainty of realization.

The following discussion of segment results provides greater detail on period-to-period results.

Ethanol Production Segment

The table below presents key operating data within our ethanol production segment for the periods indicated:

 

     Three Months Ended
June 30,
 
     2011      2010  

Ethanol sold

     

(thousands of gallons)

     183,925         130,103   

Distillers grains sold

     

(thousands of equivalent dried tons)

     514         373   

Corn consumed

     

(thousands of bushels)

     64,804         46,424   

Revenues for the ethanol production segment increased $302.9 million for the three months ended June 30, 2011 compared to the same period in 2010. Revenues for the three months ended June 30, 2011, included production from our Lakota and Riga ethanol plants which were acquired in October 2010 as well as production from our Otter Tail ethanol plant, which was acquired in March 2011. The Lakota, Riga and Otter Tail plants contributed $154.9 million in combined revenues for the three months ended June 30, 2011. The remaining increase in revenues was due to increased volume from production efficiencies at our other ethanol plants compounded by increases in ethanol and distillers grains prices.

Cost of goods sold in the ethanol production segment increased $305.7 million for the three months ended June 30, 2011 compared to the same period in 2010. The increase was due primarily to the consumption of 18.4 million additional bushels of corn and a 95.9% increase in the average cost per bushel during the second quarter of 2011 compared to the same period in 2010. The volume increase was due to a full quarter of production at our Lakota, Riga and Otter Tail plants. Gross profit for the ethanol production segment decreased by $2.8 million for the three months ended June 30, 2011 compared to the same period in 2010 due to the factors listed above.

Operating income for the segment decreased by $4.2 million for the three months ended June 30, 2011 compared to the same period in 2010 due in large part to the factors discussed above and the increase in depreciation expense. Depreciation expense for the ethanol production segment was $10.4 million during the three months ended June 30, 2011 compared to $7.8 million during the same period in 2010.

Corn Oil Production Segment

We initiated corn oil production in the fourth quarter of 2010. By June 30, 2011, we had deployed corn oil extraction technology at eight of our nine ethanol plants with plans to implement the technology at our recently-acquired Otter Tail plant by the end of third quarter of 2011. During the three months ended June 30, 2011, we produced 21.5 million pounds of corn oil.

 

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Agribusiness Segment

The table below presents key operating data within our agribusiness segment for the periods indicated:

 

     Three Months Ended
June 30
 
     2011      2010  

Grain sold

     

(thousands of bushels)

     14,021         10,600   

Fertilizer sold

     

(tons)

     34,902         32,400   

Our agribusiness segment had an increase of $63.0 million in revenues, an increase of $0.5 million in gross profit, and a decrease in operating income of $0.2 million for the three months ended June 30, 2011 compared to the same period in 2010. Revenue and gross profit increased primarily due to additional volumes from our agribusiness locations in Iowa and the agribusiness operations acquired in western Tennessee in April 2010. The total grain sold was 14.0 million bushels for the three months ended June 30, 2011 compared to 10.6 million bushels sold during the same period in 2010. The agribusiness segment sold 35 thousand tons of fertilizer for the three months ended June 30, 2011, up from 32 thousand tons in the three months ended June 30, 2010. The decrease in operating income is due to increases in selling, general and administrative expenses due to the expanded scope of our operations. The agribusiness segment’s quarterly performance fluctuates on a seasonal basis with generally stronger results expected in the second and fourth quarters each year. In the second quarter of 2011, despite the increase in volumes, the results from our agribusiness segment were not as strong as anticipated due to compressed fertilizer margins compared to the second quarter of 2010.

Marketing and Distribution Segment

Marketing and distribution revenues increased $362.3 million for the three months ended June 30, 2011 compared to the same period in 2010. The increase in revenues was primarily due to an increase in ethanol revenues of $314.1 million and an increase in distillers grains revenues of $37.8 million. The remainder of the increase in revenue is attributable to sales of corn oil, produced by our corn oil production segment. We sold 256.1 million gallons of ethanol within the marketing and distribution segment during the quarter ended June 30, 2011 compared to 227.9 million gallons sold during the same period in 2010 and experienced an increase in revenue per gallon of ethanol. The increase in ethanol volumes is due to the expanded production of our own plants as a result of efficiency improvements and a full quarter of operations from the Lakota, Riga and Otter Tail plants partially offset by a decrease in marketing and distribution for third-party ethanol producers of 25.6 million gallons.

Gross profit and operating income for the marketing and distribution segment increased $0.3 million and $0.1 million, respectively, for the three months ended June 30, 2011 compared to the same period in 2010. The increases in gross profit and operating income were due primarily to increased ethanol and distillers grains prices and volumes sold and the production of corn oil. During the quarter ended June 30, 2011, we sold 21.5 million pounds of corn oil.

Intersegment Eliminations

Intersegment eliminations of revenues increased $330.6 million for the three months ended June 30, 2011 compared to the same period in 2010 due to a $261.7 million increase in ethanol and a $30.8 million increase in distillers grains sold from our ethanol production segment to our marketing and distribution segment, as well as a $28.3 million increase in corn sold from our agribusiness segment to our ethanol production segment. These increases are a result of the expanded scope of our operations and higher commodity prices. The remainder of the increase is due to the addition of corn oil production which generated intersegment revenues of $10.5 million for the three months ended June 30, 2011. Corn oil is produced within the corn oil production segment and is sold to the marketing and distribution segment for marketing to third parties.

Corporate Activities

Operating income was impacted by an increase in operating expenses for corporate activities of $1.6 million for the three months ended June 30, 2011 compared to the same period in 2010, primarily due to an increase in general and administrative expenses and personnel costs related to expanded operations.

 

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Income Taxes

We record income tax expense during interim periods based on our best estimate of the annual effective tax rate. Income tax expense for the three months ended June 30, 2011 and 2010 was $2.8 million and $2.5 million, respectively. The effective tax rate (calculated as the ratio of income tax expense to income before income taxes) was approximately 36% and 22% for the second quarter of 2011 and 2010, respectively. The effective tax rates for each period reflect the release of a portion of valuation allowances provided against certain of our deferred tax assets, primarily federal and state net operating losses and tax credits.

Six Months Ended June 30, 2011 Compared to the Six Months Ended June 30, 2010

Consolidated Results

Revenues increased $793.7 million for the six months ended June 30, 2011 compared to the same period in 2010 as a result of acquired operations and changes in commodity prices. We acquired agribusiness operations in western Tennessee in April 2010, and our Lakota and Riga ethanol plants in October 2010. Also, in the first quarter of 2011, we acquired an ethanol plant with an annual expected production capacity of 60 mmgy. Despite the significant increase in revenue, gross profit yielded a marginal increase of $4.4 million when comparing the six months ended June 30, 2011 with the six months ended June 30, 2010 which resulted in a decrease in profit margin. This was due primarily to an increase in cost of goods sold as a result of higher corn prices and greater variability of commodity prices overall. Operating income decreased $4.2 million in the six months ended June 30, 2011 compared to the same period in 2010. In addition to the higher cost of goods sold, selling, general and administrative expenses were $8.5 million higher for the six months ended June 30, 2011 compared to the same period in 2010 due to the expanded scope of our operations.

In addition to the factors listed above, income before taxes was also affected by an increase in interest expense of $6.5 million due to debt issued to finance the acquisitions and the $90.0 million convertible debt issued in November 2010. Income tax expense of $7.2 million and $6.9 million for the six months ended June 30, 2011 and 2010, respectively, was favorably impacted by the release of a portion of valuation allowances against certain deferred tax assets, established in prior years due to the uncertainty of realization.

The following discussion of segment results provides greater detail on period to period results.

Ethanol Production Segment

The table below presents key operating data within our ethanol production segment for the periods indicated:

 

     Six Months Ended
June 30,
 
     2011      2010  

Ethanol sold

     

(thousands of gallons)

     356,019         253,858   

Distillers grains sold

     

(thousands of equivalent dried tons)

     1,001         729   

Corn consumed

     

(thousands of bushels)

     125,175         91,059   

Revenues for the ethanol production segment increased $520.5 million for the six months ended June 30, 2011 compared to the same period in 2010. Revenues for the six months ended June 30, 2011, included production from our Lakota and Riga ethanol plants which were acquired in October 2010 as well as production from our Otter Tail ethanol plant, which was acquired in late March 2011. The Lakota and Riga plants contributed $220.5 million in combined revenues for the six months ended June 30, 2011 and the Otter Tail plant contributed revenues of $44.1. The remaining increase in revenues was due to increased volume from production efficiencies at our other ethanol plants compounded by increases in ethanol and distillers grains prices.

Cost of goods sold in the ethanol production segment increased $531.9 million for the six months ended June 30, 2011 compared to the same period in 2010. The increase was due primarily to the consumption of 34.1 million additional bushels of corn and an 84.3% increase in the average cost per bushel during the first half of 2011 compared to the same period in

 

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2010. The volume increase was due to two full quarters of production at our Lakota and Riga plants and one quarter of production at our Otter Tail plant. Gross profit for the ethanol production segment decreased by $11.4 million for the six months ended June 30, 2011 compared to the same period in 2010 due to the factors listed above.

Operating income for the segment, decreased $13.9 million for the six months ended June 30, 2011 compared to the same period in 2010 due in large part to the factors discussed above. In addition, depreciation expense for the ethanol production segment was $21.0 million during the six months ended June 30, 2011 compared to $15.3 million during the same period in 2010.

Corn Oil Production Segment

We initiated corn oil production in the fourth quarter of 2010. By June 30, 2011, we had deployed corn oil extraction technology at eight of our nine ethanol plants with plans to implement the technology at our recently-acquired Otter Tail plant by the end of the third quarter of 2011. During the six months ended June 30, 2011, we produced 31.6 million pounds of corn oil.

Agribusiness Segment

The table below presents key operating data within our agribusiness segment for the periods indicated:

 

     Six Months Ended
June 30
 
     2011      2010  

Grain sold

     

(thousands of bushels)

     27,975         18,400   

Fertilizer sold

     

(tons)

     38,010         32,526   

Our agribusiness segment had an increase of $134.7 million in revenues, an increase of $3.6 million in gross profit, and an increased operating income of $1.2 million for the six months ended June 30, 2011 compared to the same period in 2010. Revenue, gross profit and operating income increased primarily due to additional volumes from agribusiness locations in Iowa and the agribusiness operations acquired in western Tennessee in April 2010. Total grain sold was 28.0 million bushels for the six months ended June 30, 2011 compared to 18.4 million bushels sold during the same period in 2010. We sold 38 thousand tons of fertilizer for the six months ended June 30, 2011, up from 33 thousand tons in the six months ended June 30, 2010. The Tennessee agribusiness operations contributed $86.6 million in revenue for the six months ended June 30, 2011 compared with $12.5 million included in our operations for the six months ended June 30, 2010. The agribusiness segment’s quarterly performance fluctuates on a seasonal basis with generally stronger results expected in the second and fourth quarters each year. In the first six months of 2011, despite the increase in volumes, the results from our agribusiness segment were not as strong as anticipated due to compressed fertilizer margins compared to the first six months of 2010.

Marketing and Distribution Segment

Marketing and distribution revenues increased $686.6 million for the six months ended June 30, 2011 compared to the same period in 2010. The increase in revenues was primarily due to an increase in ethanol revenues of $609.5 million and an increase in distillers grains revenues of $63.9 million. The remainder of the increase in revenue is attributable to sales of corn oil, which we began producing in October 2010. We sold 533.6 million gallons of ethanol within the marketing and distribution segment during the six months ended June 30, 2011 compared to 428.9 million gallons sold during the same period in 2010 and experienced an increase in revenue per gallon of ethanol. The increase in ethanol volumes is due to the expanded production of our own plants as a result of efficiency improvements and additional capacity from recently acquired operations including two quarters of operations from our Lakota and Riga plants and one quarter of operations from our Otter Tail plant. Marketing and distribution volumes from third-party ethanol producers were consistent when comparing the six months ended June 30, 2011 to the same period in 2010.

Gross profit and operating income for the marketing and distribution segment increased $2.8 million and $1.4 million, respectively, for the six months ended June 30, 2011 compared to the same period in 2010. The increases in gross profit and operating income were due primarily to increased ethanol and distillers grains prices and volumes sold and the production of corn oil. During the first half of 2011, we sold 31.6 million pounds of corn oil.

 

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Intersegment Eliminations

Intersegment eliminations of revenues increased $562.9 million for the six months ended June 30, 2011 compared to the same period in 2010 due to a $438.5 million increase in ethanol and a $51.9 million increase in distillers grains sold from our ethanol production segment to our marketing and distribution segment, as well as a $60.3 million increase in corn sold from our agribusiness segment to our ethanol production segment. These increases are a result of the expanded scope of our operations and higher commodity prices. The remainder of the increase is due to the addition of corn oil production, which generated intersegment revenues of $13.8 million for the six months ended June 30, 2011. Corn oil is produced by the corn oil production segment and is sold to the marketing and distribution segment for marketing to third parties.

Corporate Activities

Operating income was impacted by an increase in operating expenses for corporate activities of $2.1 million for the six months ended June 30, 2011 compared to the same period in 2010, primarily due to an increase in general and administrative expenses and personnel costs related to expanded operations.

Income Taxes

We record income tax expense during interim periods based on our best estimate of the annual effective tax rate. Income tax expense for the six-month periods ended June 30, 2011 and 2010 was $7.2 million and $6.9 million, respectively. The effective tax rate (calculated as the ratio of income tax expense to income before income taxes) was approximately 36% and 22% for the first half of 2011 and 2010, respectively. The effective tax rates for each period reflect the release of a portion of valuation allowances provided against certain of our deferred tax assets, primarily federal and state net operating losses and tax credits.

EBITDA

Management uses earnings before interest, income taxes, noncontrolling interests, depreciation and amortization, or EBITDA, to measure our financial performance and to internally manage our businesses. Management believes that EBITDA provides useful information to investors as a measure of comparison with peer and other companies. EBITDA should not be considered an alternative to, or more meaningful than, net income or cash flow as determined in accordance with generally accepted accounting principles. EBITDA calculations may vary from company to company. Accordingly, our computation of EBITDA may not be comparable with a similarly titled measure of another company. The following sets forth the reconciliation of net income to EBITDA for the periods indicated (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2011      2010      2011     2010  

Net income attributable to Green Plains

   $ 4,982       $ 8,684       $ 12,722      $ 24,260   

Net income (loss) attributable to noncontrolling interests

     37         204         (172     114   

Interest expense

     9,255         5,659         16,811        10,315   

Income taxes

     2,852         2,517         7,212        6,907   

Depreciation and amortization

     12,646         9,222         25,225        17,873   
  

 

 

    

 

 

    

 

 

   

 

 

 

EBITDA

   $ 29,772       $ 26,286       $ 61,798      $ 59,469   
  

 

 

    

 

 

    

 

 

   

 

 

 

Liquidity and Capital Resources

On June 30, 2011, we had $164.2 million in cash and equivalents, comprised of $67.1 million held at our parent company and the remainder at our subsidiaries. We also had up to an additional $89.9 million available at our subsidiaries under our revolving credit agreements, subject to borrowing base restrictions or other specified lending conditions at June 30, 2011. Funds held at our subsidiaries are generally required for their ongoing operational needs. Further, distributions from our subsidiaries are restricted pursuant to these loan agreements. At June 30, 2011, there were approximately $501.1 million of net assets at our subsidiaries that were not available to be transferred to the parent company in the form of dividends, loans or advances due to restrictions contained in the credit facilities of these subsidiaries. We incurred capital expenditures of $27.0 million in the first half of 2011 primarily for the installation of corn oil extraction facilities and grain storage expansions. Capital spending for the remainder of 2011 is expected to be approximately $14.1 million, including completion

 

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of grain storage expansion at our Otter Tail ethanol plant and at our agribusiness locations as well as installation of corn oil extraction technology at our Otter Tail ethanol plant. The remainder of our capital spending primarily relates to other recurring capital expenditures in the ordinary course of business. We believe available borrowings under our credit facilities and cash provided by operating activities will be sufficient to support our working capital, capital expenditures and debt service requirements for the foreseeable future.

Net cash used by operating activities was $19.6 million for the six months ended June 30, 2011. This was primarily a result of the reductions of accounts payable and accrued liabilities offset by the sale of grain inventories in our agribusiness segment and an increased investment in derivative financial instruments in our ethanol production segment. Many agricultural producers defer receipt of payment for their grain sales until after the end of the calendar year, which results in significant cash outflows for accounts payable in the first quarter. Net cash used by investing activities was $36.3 million for the six months ended June 30, 2011, primarily due to the acquisitions of our Otter Tail ethanol plant and the additional grain storage under construction and purchases of property and equipment. Net cash used by financing activities was $40.9 million for the six months ended June 30, 2011 due to the repayment of debt. Green Plains Trade and Green Plains Grain utilize revolving credit facilities to finance working capital requirements. These facilities are frequently drawn upon and repaid resulting in significant cash movements that are reflected on a gross basis within financing activities. In addition, we made scheduled principal payments and $13.1 million in free cash flow payments for a total of $35.3 million in debt reduction on our term debt facilities during the six months ended June 30, 2011.

Our business is highly impacted by commodity prices, including prices for corn, ethanol, distillers grains and natural gas. We attempt to reduce the market risk associated with fluctuations in commodity prices through the use of derivative financial instruments. Sudden changes in commodity prices may require cash deposits with brokers, or margin calls. Depending on our open derivative positions, we may require significant liquidity with little advanced notice to meet margin calls. We continuously monitor our exposure to margin calls and believe that we will continue to maintain adequate liquidity to cover such margin calls from operating results and borrowings. Recent increases in grain and ethanol prices and our expanded grain handling capacity have led to more frequent and larger margin calls. Accordingly, in November 2010, we expanded Green Plains Grain’s short-term borrowing capacity under its revolving credit facilities from $65 million to $107 million. Amounts available under these revolving credit facilities decreased to $100 million on April 1, 2011. We intend to negotiate a new credit facility for Green Plains Grain prior to its maturity on November 1, 2011.

We are in compliance with our debt covenants at June 30, 2011. Based upon our current forecasts, we believe we will maintain compliance at each of our subsidiaries for the upcoming twelve months, or if necessary have sufficient liquidity available on a consolidated basis to resolve a subsidiary’s noncompliance; however, no obligation exists to provide such liquidity for a subsidiary’s compliance. No assurance can be provided that actual operating results will approximate our forecasts or that we will inject the necessary capital into a subsidiary to maintain compliance with its respective covenants. In the event actual results differ significantly from our forecasts and a subsidiary is unable to comply with its respective debt covenants, the subsidiary’s lenders may determine that an event of default has occurred. Upon the occurrence of an event of default, and following notice, the lenders may terminate any commitment and declare the entire unpaid balance due and payable.

We believe that we have sufficient working capital for our existing operations. However, we can provide no assurance that we will be able to secure additional funding for any of our operations. A sustained period of unprofitable operations may strain our liquidity and make it difficult to maintain compliance with our financing arrangements. While we may seek additional sources of working capital in response, we can provide no assurance that we will be able to secure this funding if necessary. We may sell additional equity or borrow additional amounts to improve or preserve our liquidity; expand our ethanol plants; build additional or acquire existing ethanol plants; or build additional or acquire existing agribusiness and ethanol distribution facilities. We can provide no assurance that we will be able to secure the funding necessary for these additional projects or for additional working capital needs at reasonable terms, if at all.

Long-Term Debt

For additional information related to our long-term debt, see Note 8 – Long-Term Debt included herein as part of the Notes to Consolidated Financial Statements.

Ethanol Production Segment

Each of our ethanol production segment subsidiaries have credit facilities with lender groups that provide for term and revolving term loans to finance construction and operation of the production facilities.

 

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The Green Plains Bluffton loan is comprised of a $70.0 million amortizing term loan and a $20.0 million revolving term loan. At June 30, 2011, $51.5 million related to the term loan was outstanding, along with the entire revolving term loan. The term loan requires monthly principal payments of approximately $0.6 million. The loans mature on November 19, 2013.

The Green Plains Central City loan is comprised of a $55.0 million amortizing term loan and a $30.5 million revolving term loan as well as a statused revolving credit supplement (revolver) of up to $11.0 million. At June 30, 2011, $49.0 million related to the term loan was outstanding, along with $30.5 million on the revolving term loan and $7.2 million on the revolver. The term loan requires monthly principal payments of $0.6 million which began in June 2011. The term loan and the revolving term loan mature on July 1, 2016 and the revolver matures on June 29, 2012 with an option to renew.

The Green Plains Holdings II loan is comprised of a $34.1 million amortizing term loan, a $42.6 million revolving term loan and a $15.0 million revolving line of credit loan. At June 30, 2011, $30.9 million was outstanding on the term loan, along with $38.4 million on the revolving term loan and $15.0 million on the revolving line of credit loan. The term loan requires quarterly principal payments of $1.5 million. The revolving term loan requires semi-annual principal payments of approximately $2.7 million. The amortizing term loan will mature on January 1, 2015. The revolving term loan will mature on April 1, 2016. The revolving line of credit will mature on April 30, 2013.

The Green Plains Obion loan is comprised of a $60.0 million amortizing term loan and a revolving term loan of $37.4 million. At June 30, 2011, $30.5 million related to the term loan and $36.2 million on the revolving term loan was outstanding. The term loan requires quarterly principal payments of $2.4 million. The term loan matures on August 20, 2014 and the revolving term loan matures on September 1, 2018.

The Green Plains Ord loan is comprised of a $25.0 million amortizing term loan and a $13.0 million revolving term loan as well as a statused revolving credit supplement (revolver) of up to $5.0 million. At June 30, 2011, $22.4 million related to the term loan was outstanding, $13.0 million on the revolving term loan, along with $2.5 million on the revolver. The term loan requires monthly principal payments of $0.3 million which began in June 2011. The term loan and the revolving term loan mature on July 1, 2016 and the revolver matures on June 29, 2012 with an option to renew.

The Green Plains Otter Tail loan is comprised of a $30.3 million amortizing term loan, a $4.7 million revolver and a $19.2 million note payable. At June 30, 2011, $29.6 million related to the term loan, $4.7 million on the revolver and $19.2 million on the note payable were outstanding. The term loan requires monthly principal and interest payments of $0.5 million which began on May 1, 2011 and the note payable requires monthly principal payments of $0.3 million beginning October 1, 2014. The term loan matures on September 1, 2018 and the revolver matures on March 23, 2012.

The Green Plains Shenandoah loan is comprised of a $30.0 million amortizing term loan and a $17.0 million revolving term loan. At June 30, 2011, $8.5 million related to the term loan was outstanding along with the entire $17.0 million on the revolving term loan. The term loan requires quarterly principal payments of $1.2 million. The term loan matures on May 20, 2014 and the revolving term loan matures on November 1, 2017.

The Green Plains Superior loan is comprised of a $40.0 million amortizing term loan and a $10.0 million revolving term loan. At June 30, 2011, $23.5 million related to the term loan was outstanding, along with the entire $10.0 million on the revolving term loan. The term loan requires quarterly principal payments of $1.375 million. The term loan matures on July 20, 2015 and the revolving term loan matures on July 1, 2017.

Each term loan, except for the Green Plains Holdings II and Green Plains Otter Tail agreements, has a provision that requires us to make annual special payments equal to a percentage ranging from 50% to 75% of the available free cash flow from the related entity’s operations (as defined in the respective loan agreements), subject to certain limitations. During the six months ended June 30, 2011, $13.1 million was paid under these requirements.

With certain exceptions, the revolving term loans are generally available for advances throughout the life of the commitment. Interest-only payments are due each month on all revolving term facilities until the final maturity date, with the exception of the Green Plains Obion loan, which requires additional semi-annual payments of $4.675 million beginning March 1, 2015.

The term loans and revolving term loans bear interest at LIBOR plus 1.5% to 4.50% or lender-established prime rates. Some have established a floor on the underlying LIBOR index. In some cases, the lender may allow us to elect to pay interest at a fixed interest rate to be determined. As security for the loans, the lenders received a first-position lien on all personal property and real estate owned by the respective entity borrowing the funds, including an assignment of all contracts and rights pertinent to construction and on-going operations of the plant. Additionally, debt facilities within Green Plains Central City and Green Plains Ord are cross-collateralized. These borrowing entities are also required to maintain certain financial and non-financial covenants during the terms of the loans.

 

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Green Plains Bluffton also received $22.0 million in Subordinate Solid Waste Disposal Facility Revenue Bond funds from the city of Bluffton, Indiana, of which $19.9 million remained outstanding at June 30, 2011. The revenue bond requires: semi-annual principal and interest payments of approximately $1.5 million during the period commencing on March 1, 2010 through March 1, 2019; and a final principal and interest payment of $3.745 million on September 1, 2019. The revenue bond bears interest at 7.50% per annum.

Agribusiness Segment

The Green Plains Grain loan, as amended on May 31, 2011, is comprised of a $20.0 million amortizing term loan, a $45.0 million revolving term loan, a $20.0 million seasonal revolver and a $35.0 million bulge seasonal revolver. The term loan expires on August 1, 2013 and the remainder of the bulge seasonal revolver, the revolving term loan and the seasonal revolver expire on November 1, 2011. Payments of $0.5 million under the term loan are due on the first business day of each calendar quarter, with any remaining amount payable at the expiration of the loan term. The loans bear interest at three-month LIBOR plus 4.25% on the term loan, LIBOR plus 3.5% on the revolving term loan, and one-month LIBOR plus 3.75% on the seasonal revolver, all subject to an interest rate floor of 4.5%. Loan proceeds are used primarily for working capital purposes. At June 30, 2011, $18.0 million on the term loan and $49.2 million on the various revolving loans were outstanding. As security for the loans, the lender received a first-position lien on real estate, equipment, inventory, and accounts receivable owned by Green Plains Grain. We intend to negotiate a new credit facility for Green Plains Grain prior to its maturity on November 1, 2011.

Marketing and Distribution Segment

The Green Plains Trade loan is comprised of a senior secured revolving credit facility of up to $70.0 million, subject to a borrowing base of 85% of eligible receivables. At June 30, 2011, $37.8 million on the revolving credit facility was outstanding. The revolving credit facility expires on March 31, 2014 and bears interest at the lender’s commercial floating rate plus 2.5% or LIBOR plus 3.5%. As security for the loan, the lender received a first-position lien on accounts receivable, inventory and other collateral owned by Green Plains Trade.

Corporate Activities

We also have $90.0 million of 5.75% Convertible Senior Notes due 2015. The Notes represent senior, unsecured obligations, with interest payable on May 1 and November 1 of each year. The Notes may be converted into shares of common stock and cash in lieu of fractional shares of the common stock based on a conversion rate initially equal to 69.7788 shares of the common stock per $1,000 principal amount of Notes, which is equal to an initial conversion price of $14.33 per share. The conversion rate is subject to adjustment upon the occurrence of specified events. We may redeem for cash all, but not less than all, of the Notes at any time on and after November 1, 2013, if the last reported sale price of our common stock equals or exceeds 140% of the applicable conversion price for a specified time period, at a redemption price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest.

 

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Contractual Obligations

Our contractual obligations as of June 30, 2011 were as follows (in thousands):

 

     Payments Due By Period  

Contractual Obligations

   Total      Less than
1 year
     1-3 years      3-5 years      More than
5 years
 

Long-term debt obligations (1)

   $ 682,976       $ 158,819       $ 170,960       $ 189,034       $ 164,163   

Interest and fees on debt obligations (2)

     87,082         25,517         35,712         20,659         5,194   

Operating lease obligations (3)

     48,825         15,241         21,793         7,820         3,971   

Deferred tax liabilities

     35,470         —           —           —           35,470   

Purchase obligations

              

Forward grain purchase contracts (4)

     411,750         410,416         1,334         —           —     

Other commodity purchase contracts (5)

     63,831         63,831         —           —           —     

Other

     10,125         10,033         92         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 1,340,329       $ 683,857       $ 229,891       $ 217,513       $ 209,068   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes current portion of long-term debt.
(2) Interest amounts are calculated over the terms of the loans using current interest rates, assuming scheduled principle and interest amounts are paid pursuant to the debt agreements. Includes administrative and/or commitment fees on debt obligations.
(3) Operating lease costs are primarily for railcars and office space.
(4) Purchase contracts represent index-priced and fixed-price contracts. Index purchase contracts are valued at current quarter-end prices.
(5) Includes fixed-price ethanol, dried distillers grains and natural gas purchase contracts.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to various market risks, including changes in commodity prices and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices. In the ordinary course of business, we enter into various types of transactions involving financial instruments to manage and reduce the impact of changes in commodity prices and interest rates. At this time, we do not expect to have exposure to foreign currency risk as we expect to conduct all of our business in U.S. dollars.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from holding term and revolving loans that bear variable interest rates. Specifically, we have $683.0 million outstanding in debt as of June 30, 2011, $477.5 million of which is variable-rate in nature. Interest rates on our variable-rate debt are determined based upon the market interest rate of either the lender’s prime rate or LIBOR, as applicable. A 10% change in interest rates would affect our net income by approximately $2.0 million per year in the aggregate. Other details of our outstanding debt are discussed in the notes to the consolidated financial statements included as a part of this report.

Commodity Price Risk

We produce ethanol, distillers grains and corn oil from corn and our business is sensitive to changes in the prices of each of these commodities. The price of corn is subject to fluctuations due to unpredictable factors such as weather; corn planted and harvested acreage; changes in national and global supply and demand; and government programs and policies. We use natural gas in the ethanol production process and, as a result, our business is also sensitive to changes in the price of natural gas. The price of natural gas is influenced by such weather factors as extreme heat or cold in the summer and winter, or other natural events like hurricanes in the spring, summer and fall. Other natural gas price factors include North American exploration and production, and the amount of natural gas in underground storage during both the injection and withdrawal seasons. Ethanol prices are sensitive to world crude-oil supply and demand; crude-oil refining capacity and utilization; government regulation; and consumer demand for alternative fuels. Distillers grains prices are sensitive to various demand factors such as numbers of livestock on feed, prices for feed alternatives, and supply factors, primarily production by ethanol plants and other sources.

 

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We attempt to reduce the market risk associated with fluctuations in the price of corn, natural gas, distillers grains, corn oil and ethanol by employing a variety of risk management and economic hedging strategies. Strategies include the use of forward fixed-price physical contracts and derivative financial instruments, such as futures and options executed on the Chicago Board of Trade and/or the New York Mercantile Exchange.

We focus on locking in operating margins based on a model that continually monitors market prices of corn, natural gas and other input costs against prices for ethanol and distillers grains at each of our production facilities. We create offsetting positions by using a combination of forward fixed-price physical purchases and sales contracts and derivative financial instruments. As a result of this approach, we frequently have gains on derivative financial instruments that are conversely offset by losses on forward fixed-price physical contracts or inventories and vice versa. In our ethanol production segment, gains and losses on derivative financial instruments are recognized each period in operating results while corresponding gains and losses on physical contracts are generally designated as normal purchases or normal sales contracts and are not recognized until quantities are delivered or utilized in production. For cash flow hedges, any ineffectiveness is recognized in current period results, while other unrealized gains and losses are reflected in accumulated other comprehensive income until gains and losses from the underlying hedged transaction are realized. In the event that it becomes probable that a forecasted transaction will not occur, we would discontinue cash flow hedge treatment, which would affect earnings. During the six months ended June 30, 2011, revenues and cost of goods sold included net losses from derivative financial instruments of $22.4 million and $6.8 million respectively. To the extent the net gains or losses from settled derivative instruments are related to hedging current period production, they are generally offset by physical commodity purchases or sales resulting in the realization of the intended operating margins. However, our results of operations are impacted when there is a mismatch of gains or losses associated with the change in fair value of derivative instruments at the reporting period when the physical commodity purchase or sales has not yet occurred since they are designated as a normal purchase or normal sale.

In our agribusiness segment, inventory positions, physical purchase and sale contracts, and financial derivatives are marked to market with gains and losses included in results of operations. The market value of derivative financial instruments such as exchange-traded futures and options has a high, but not perfect, correlation to the underlying market value of grain inventories and related purchase and sale contracts.

Ethanol Production Segment

A sensitivity analysis has been prepared to estimate our ethanol production segment exposure to ethanol, corn, distillers grains and natural gas price risk. Market risk related to these factors is estimated as the potential change in net income resulting from hypothetical 10% changes in prices of our expected corn and natural gas requirements, and ethanol and distillers grains output for a one-year period from June 30, 2011. This analysis includes the impact of risk management activities that result from our use of fixed-price purchase and sale contracts and derivatives. The results of this analysis, which may differ from actual results, are as follows (in thousands):

 

Commodity

   Estimated Total
Volume
Requirements for

the Next 12 Months
     Unit of
Measure
   Net Income Effect
of Approximate

10% Change
in Price
 

Ethanol

     740,000       Gallons    $ 75,723   

Corn

     265,000       Bushels    $ 69,655   

Distillers grains

     2,100       Tons(1)    $ 17,651   

Natural gas

     20,513       MMBTU(2)    $ 4,293   

 

(1) Distillers grains quantities are stated on an equivalent dried ton basis.
(2) Millions of British Thermal Units

Corn Oil Production Segment

A sensitivity analysis has been prepared to estimate our corn oil production segment exposure to corn oil price risk. Market risk related to these factors is estimated as the potential change in net income resulting from hypothetical 10% changes in prices of our expected corn oil output for a one-year period from June 30, 2011. This analysis includes the impact of risk management activities that result from our use of fixed-price sale contracts. Market risk at June 30, 2011, based on the estimated net income effect resulting from a hypothetical 10% change in such prices, was approximately $2.1 million.

 

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Agribusiness Segment

The availability and price of agricultural commodities are subject to wide fluctuations due to unpredictable factors such as weather, plantings, foreign and domestic government farm programs and policies, changes in global demand created by population changes and changes in standards of living, and global production of similar and competitive crops. To reduce price risk caused by market fluctuations in purchase and sale commitments for grain and grain held in inventory, we enter into exchange-traded futures and options contracts that function as economic hedges. The market value of exchange-traded futures and options used for economic hedging has a high, but not perfect correlation, to the underlying market value of grain inventories and related purchase and sale contracts. The less correlated portion of inventory and purchase and sale contract market value, known as basis, is much less volatile than the overall market value of exchange-traded futures and tends to follow historical patterns. We manage this less volatile risk by constantly monitoring our position relative to the price changes in the market. In addition, inventory values are affected by the month-to-month spread relationships in the regulated futures markets, as we carry inventories over time. These spread relationships are also less volatile than the overall market value and tend to follow historical patterns, but also represent a risk that cannot be directly offset. Our accounting policy for our futures and options, as well as the underlying inventory positions and purchase and sale contracts, is to mark them to the market and include gains and losses in the consolidated statement of operations in sales and merchandising revenues.

A sensitivity analysis has been prepared to estimate agribusiness segment exposure to market risk of our commodity position (exclusive of basis risk). Our daily net commodity position consists of inventories related to purchase and sale contracts and exchange-traded contracts. The fair value of our position, which is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures market prices, is approximately $67 thousand at June 30, 2011. Market risk at that date, based on the estimated net income effect resulting from a hypothetical 10% change in such prices, was approximately $4 thousand.

 

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, or Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosure.

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. These disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosure. Based upon that evaluation, our management, including our Chief Executive Officer and the Chief Financial Officer, concluded that our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles. In the second quarter of 2011, we implemented process and information system enhancements in our Iowa grain operations that are reported as part of the agribusiness segment. These process and information systems enhancements resulted in modifications to internal controls over the sales, customer service, inventory management and accounts payable processes related to grain handling. There were no other material changes in our internal control over financial reporting that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

In April 2011, Aventine Renewable Energy, Inc. filed a complaint in the United States Bankruptcy Court for the District of Delaware in connection with its Chapter 11 bankruptcy naming as defendants Green Plains Renewable Energy, Inc., Green Plains Obion LLC, Green Plains Bluffton LLC, Green Plains VBV LLC and Green Plains Trade Group LLC. This action alleges $24.4 million of damages from preferential transfers or, in the alternative, $28.4 million of damages from fraudulent transfers under an ethanol marketing agreement and an unspecified amount of damages for a continuing breach of a termination agreement related to rail cars. We are unable to predict the outcome of these matters at this time, and any views formed as to the viability of these claims of the financial exposure which could result may change as the matters proceed through their course. We intend to defend these claims vigorously.

 

Item 1A. Risk Factors.

Our investors should consider the risks that could affect us and our business as set forth in Part I, Item 1A, “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2010, as amended. Although we have attempted to discuss key factors, our investors need to be aware that other risks may prove to be important in the future. New risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance. Investors should also consider the discussion of risks and the other information included in this quarterly report on Form 10-Q, including Cautionary Information Regarding Forward-Looking Information, which is included in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The following risk factor should be considered in conjunction with the other information included in, or incorporated by reference in, this quarterly report on Form 10-Q.

We may fail to realize the anticipated benefits of our joint venture to commercialize algae production.

We have 35% ownership in a joint venture that is focused on developing technology to grow and harvest algae, which consume carbon dioxide, in commercially viable quantities. The algae produced have the potential to be used for advanced bio-fuel production, high quality animal feed, or as biomass for energy production, but our current primary focus is on efficiently growing, and developing primary markets for, algae on a large scale. We believe this technology has specific applications with facilities, including ethanol plants that emit carbon dioxide. We may fail to realize the expected benefits of capturing carbon dioxide to grow and harvest algae as acceptable production rates, operating costs, capital requirements and product market prices may not be achieved.

The following risk factor, which modifies a previously-filed risk factor, should be considered in conjunction with the other information included in, or incorporated by reference in, this quarterly report on Form 10-Q.

The ethanol industry is highly dependent on government usage mandates affecting ethanol production and favorable tax benefits for ethanol blending and any changes to such regulation could adversely affect the market for ethanol and our results of operations.

The domestic market for ethanol is largely dictated by federal mandates for blending ethanol with gasoline. The RFS mandate level for 2011 of 12.6 billion gallons approximates current domestic production levels. Future demand will be largely dependent upon the economic incentives to blend based upon the relative value of gasoline versus ethanol, taking into consideration the blender’s credit and the RFS. Any significant increase in production capacity beyond the RFS level might have an adverse impact on ethanol prices. Additionally, the RFS mandate with respect to ethanol derived from corn could be reduced or waived entirely. A reduction or waiver of the RFS mandate could adversely affect the prices of ethanol and our future performance.

The volumetric ethanol excise tax credit, or VEETC, is currently set to expire on December 31, 2011. Referred to as the blender’s credit, VEETC provides companies with a tax credit to blend ethanol with gasoline. The Food, Conservation and Energy Act of 2008, or the 2008 Farm Bill, amended the amount of tax credit provided under VEETC to 45 cents per gallon of pure ethanol and 38 cents per gallon for E85, a blended motor fuel containing 85% ethanol and 15% gasoline. On June 16, 2011, a legislative proposal to end the VEETC was passed by the U.S. Senate. It is not certain whether the proposal which would terminate VEETC early will be enacted, and whether it would occur through a stand-alone bill or by attachment to other legislation.

 

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Federal law mandates the use of oxygenated gasoline. If these mandates are repealed, the market for domestic ethanol would be diminished significantly. Additionally, flexible-fuel vehicles receive preferential treatment in meeting corporate average fuel economy, or CAFE, standards. However, high blend ethanol fuels such as E85 result in lower fuel efficiencies. Absent the CAFE preferences, it may be unlikely that auto manufacturers would build flexible-fuel vehicles. Any change in these CAFE preferences could reduce the growth of E85 markets and result in lower ethanol prices.

To the extent that such federal or state laws are modified, the demand for ethanol may be reduced, which could negatively and materially affect our ability to operate profitably.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Employees surrender shares upon the vesting of restricted stock grants to satisfy payroll tax withholding obligations. The following table sets forth the shares that were surrendered by month during the second quarter of 2011.

 

Month

   Total Number of
Shares Withheld
     Average Price
Paid per Share
 

April

     7,209       $ 12.29   

May

     8,750       $ 10.75   

June

     —         $ —     
                 

Total

     15,959       $ 11.45   
                 

 

Item 3. Defaults Upon Senior Securities.

None.

 

Item 4. (Removed and Reserved).

 

Item 5. Other Information.

None.

 

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Item 6. Exhibits.

EXHIBIT INDEX

 

Exhibit
No.

  

Description

  3.1    Second Amended and Restated Articles of Incorporation of Green Plains Renewable Energy, Inc., as amended
10.1    Second Amendment dated May 31, 2011 to Second Amended and Restated Credit Agreement dated April 19, 2010 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, and First National Bank of Omaha
10.2    Third Amendment dated July 28, 2011 to Second Amended and Restated Credit Agreement dated April 19, 2010 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, and First National Bank of Omaha
10.3    Fourth Amendment dated May 31, 2011 to Second Amended and Restated Credit Agreement dated April 19, 2010 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, and First National Bank of Omaha
10.4    Fifth Amendment dated July 28, 2011 to Second Amended and Restated Credit Agreement dated April 19, 2010 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, and First National Bank of Omaha
10.5    Second Amendment dated June 30, 2011 to the Credit Agreement dated July 2, 2009 by and among Green Plains Central City LLC, Green Plains Holdings LLC, AgStar Financial Services, PCA as Administrative Agent and the Banks named therein
10.6    Third Amendment dated June 30, 2011 to the Credit Agreement dated July 2, 2009 by and among Green Plains Central City LLC, Green Plains Holdings LLC, AgStar Financial Services, PCA as Administrative Agent and the Banks named therein
10.7    First Amendment dated June 30, 2011 to Credit Agreement dated July 2, 2009 by and among Green Plains Ord LLC, Green Plains Holdings LLC, AgStar Financial Services, PCA as Administrative Agent and the Banks named therein
10.8    Second Amendment dated June 30, 2011 to Credit Agreement dated July 2, 2009 by and among Green Plains Ord LLC, Green Plains Holdings LLC, AgStar Financial Services, PCA as Administrative Agent and the Banks named therein
10.9    Master Loan Agreement dated June 20, 2011 by and among Green Plains Superior LLC and Farm Credit Services of America, FLCA
10.10    Term Loan Supplement dated June 20, 2011 by and among Green Plains Superior LLC and Farm Credit Services of America, FLCA
10.11    Revolving Term Loan Supplement dated June 20, 2011 by and among Green Plains Superior LLC and Farm Credit Services of America, FLCA
10.12    Master Loan Agreement dated June 13, 2011 by and among Green Plains Obion LLC and Farm Credit Services of Mid-America, FLCA
10.13    Fifth Amendment dated March 11, 2011 to Forbearance Agreement and Consent to Sale of Certain Assets dated October 22, 2010 by and among Green Plains Holdings II and CoBank
31.1    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
31.2    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
32.1    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101    The following information from Green Plains Renewable Energy, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheet, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement of Cash Flows, and (iv) the Notes to Consolidated Financial Statements (tagged as blocks of text).

 

44


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

GREEN PLAINS RENEWABLE ENERGY, INC.

(Registrant)

Date: August 3, 2011   By:  

/s/ Todd A. Becker

    Todd A. Becker
   

President and Chief Executive Officer

(Principal Executive Officer)

Date: August 3, 2011   By:  

/s/ Jerry L. Peters

    Jerry L. Peters
   

Chief Financial Officer

(Principal Financial Officer)

 

45

Exhibit 3.1

SECOND AMENDED AND RESTATED

ARTICLES OF INCORPORATION OF

GREEN PLAINS RENEWABLE ENERGY, INC.

Pursuant to the provisions of Section 490.1001 through 490.1009 of the Iowa Business Corporation Act (the “Act”), the undersigned corporation adopts the following Second Amended and Restated Articles of Incorporation as of this date and hereby certifies as follows:

 

  1. The name of the corporation is Green Plains Renewable Energy, Inc.

 

  2. These Articles of Restatement supersede the original Articles of Incorporation, the Amended and Restated Articles of Incorporation, and all amendments thereto.

 

  3. This amendment and restatement of the Articles of Incorporation was adopted by the directors of the corporation by resolution, effective June 11, 2008, and duly approved by the shareholders on October 10, 2008, effective 12:01 AM, October 15, 2008, in accordance with the Iowa Business Corporation Act.

ARTICLE I NAME

The name of this corporation shall be: GREEN PLAINS RENEWABLE ENERGY, INC.

ARTICLE II SHARES

The number of shares of stock authorized is 50,000,000 COMMON STOCK PAR VALUE $.001.

ARTICLE III DIRECTORS

The number of directors constituting the entire board of directors shall be as set forth in the Bylaws.

Directors shall serve staggered terms and shall be divided into three groups (Groups I, II, and III), as nearly equal in numbers as the then total number of directors constituting the entire Board of Directors permits, with the term of office of one Group expiring each year. The initial term of Group I shall expire at the first annual shareholders’ meeting of the corporation in 2009. At that time, a director, or directors, shall be elected to serve in Group I, and to hold office for a three-year term expiring at the third succeeding annual meeting. The initial term of Group II shall expire at the second annual shareholders’ meeting of the corporation in 2010. At that time, a director, or directors, shall be elected to serve in Group II, and to hold office for a three-year term expiring at the third succeeding annual meeting. The initial term of Group III shall expire at the third annual shareholders’ meeting of the corporation in 2011. At that time, a new director, or directors, shall be elected to serve in Group III, for a three-year term expiring at the third succeeding annual meeting. At each annual shareholders’ meeting held thereafter, directors


Exhibit 3.1

shall be chosen for a term of three years to serve in the Group that has expired at that meeting to succeed those whose terms expire. Any vacancies in the Board of Directors for any reason may be filled by the shareholders or by the Board of Directors in accordance with the Bylaws, and any directors so chosen shall hold office until the next election of the Group for which such directors shall have been chosen and until their successors shall be elected and qualified. Subject to the foregoing, at each annual meeting of shareholders the successors to the Group of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting.

Notwithstanding any other provision in the Articles of Incorporation or the Bylaws (and notwithstanding the fact that some lesser percentage may be specified by law, in the Articles of Incorporation or in the Bylaws), any director or the entire board of directors of the corporation may be removed at any time for cause by the affirmative vote of the holders of not less than two-thirds of the outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the shareholders called for that purpose.

ARTICLE IV PURPOSE

The purpose, or purposes, for which the Corporation is organized:

To build an Ethanol Plant and to engage in any activity or business permitted under the laws of the State of Iowa.


Exhibit 3.1

IN WITNESS WHEREOF, the undersigned signs and executes these Amended and Restated Articles of Incorporation and certifies to the truth of the facts herein stated, this 10th day of October , 2008.

 

/s/ Wayne B. Hoovestol, Chief Executive Officer

   
NAME, TITLE    


Exhibit 3.1

ARTICLES OF AMENDMENT

TO SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION OF

GREEN PLAINS RENEWABLE ENERGY, INC.

Pursuant to the provisions of Section 490.1001 through 490.1009 of the Iowa Business Corporation Act (the “Act”), the undersigned corporation adopts the following Articles of Amendment to its Second Amended and Restated Articles of Incorporation as of this date and hereby certified as follows:

1. The name of the corporation is Green Plains Renewable Energy, Inc.

2. This amendment of the Second Amended and Restated Articles of Incorporation was duly adopted by the directors of the corporation by resolution effective March 2, 2011, and duly approved by the shareholders of the corporation on May 4, 2011, effective on the filing hereof, in accordance with the Iowa Business Corporation Code.

3. The amendment to the Second Amended and Restated Articles of Incorporation is as follows, ARTICLE II shall be replaced in its entirely with:

ARTICLE II SHARES

The number of shares of stock authorized is 75,000,000 COMMON STOCK PAR VALUE $.001.

IN WITNESS WHEREOF, the undersigned signs and executes these ARTICLES OF AMENDMENT TO SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION and certifies to the truth of the facts herein states this 9 th day of May, 2011.

 

    /s/ Michelle Mapes

   
By:  Michelle Mapes    
Title: EVP-General Counsel & Corporate Secretary    

Exhibit 10.1

SECOND AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT NOTE

This Second Amendment to Second Amended and Restated Revolving Credit Note (as the same may from time to time be amended, restated, modified or otherwise supplemented, this “ Second Amendment ”) is dated this 31 st day of May, 2011 from Green Plains Grain Company LLC, a Delaware limited liability company (“ IA Borrower ”), and Green Plains Grain Company TN, LLC, a Delaware limited liability company (“ TN Borrower ”, together with IA Borrower and their successors and assigns, each a “ Borrower ” and collectively, the “ Borrowers ”), to and in favor of First National Bank of Omaha, a national banking association (together with its successors and assigns, the “ Lender ”). Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Credit Agreement (defined below).

RECITALS

WHEREAS, Borrowers executed and delivered to Lender a Second Amended and Restated Revolving Credit Note dated April 19, 2010 and First Amendment to Second Amended and Restated Revolving Credit Note dated November 18, 2010 (as the same may from time to time be amended, restated, modified or otherwise supplemented, collectively the “ Original Revolving Credit Note ”);

WHEREAS, the Original Revolving Credit Note was given in connection with, and governed by, the Second Amended and Restated Credit Agreement dated April 19, 2010, First Amendment to Second Amended and Restated Credit Agreement dated June 18, 2010, Second Amendment to Second Amended and Restated Credit Agreement dated November 18, 2010, Third Amendment to Second Amended and Restated Credit Agreement dated February 28, 2011 and Fourth Amendment to Second Amended and Restated Credit Agreement dated May 31, 2011, in each case, by and among Borrowers and Lender (as the same may from time to time be amended, restated, modified or otherwise supplemented, collectively the “ Credit Agreement ”);

WHEREAS, Borrowers and Lender desire to amend and modify certain terms and conditions of the Original Revolving Credit Note.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

AGREEMENT

1. The Original Revolving Credit Note is hereby amended by deleting the third (3 rd ) paragraph in its entirety and substituting the following paragraph in its place:

The Revolving Credit Loans which are evidenced by this Revolving Credit Note consist of (a) a forty-five million dollar ($45,000,000) Base Facility, (b) a twenty million dollar ($20,000,000) Seasonal Facility and (iii) a Bulge Facility in the amount of forty-two million dollars ($42,000,000) from the date hereof through March 31, 2011, which amount shall decrease to thirty-five million dollars ($35,000,000) from April 1, 2011 through the Revolving Credit Maturity Date. Subject to the other terms and conditions of the Credit Agreement, the periods during which the Base Facility, Seasonal Facility and Bulge Facility are available shall be determined in accordance with the Revolving Credit Commitment and Section 2.1(a) of the Credit Agreement.

2. Except as specifically amended herein, the Original Revolving Credit Note shall remain in full force and effect as originally executed.

3. This Second Amendment shall be binding on the successors and assigns of the parties hereto.


4. This Second Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute but one and the same agreement.

[Signature Page Follows]

 

2


IN WITNESS WHEREOF, the parties have executed this Second Amendment as of the day and year first set forth above.

 

BORROWERS:
Green Plains Grain Company LLC
By:  

    /s/ Ron B. Gillis

  Name: Ron Gillis
  Title:   EVP – Finance, Treasurer
Green Plains Grain Company TN LLC
By:  

    /s/ Ron B. Gillis

  Name: Ron Gillis
  Title:   EVP – Finance, Treasurer
Lender:
First National Bank of Omaha
By:  

    /s/ Kenneth Feaster

  Name: Kenneth Feaster
  Title:   Vice President

 

3

Exhibit 10.2

THIRD AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT NOTE

This Third Amendment to Second Amended and Restated Revolving Credit Note (as the same may from time to time be amended, restated, modified or otherwise supplemented, this “ Third Amendment ”) is dated this 28 th day of July, 2011 from Green Plains Grain Company LLC, a Delaware limited liability company (“ IA Borrower ”), and Green Plains Grain Company TN, LLC, a Delaware limited liability company (“ TN Borrower ”, together with IA Borrower and their successors and assigns, each a “ Borrower ” and collectively, the “ Borrowers ”), to and in favor of First National Bank of Omaha, a national banking association (together with its successors and assigns, the “ Lender ”). Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Credit Agreement (defined below).

RECITALS

WHEREAS, Borrowers executed and delivered to Lender a Second Amended and Restated Revolving Credit Note dated April 19, 2010, First Amendment to Second Amended and Restated Revolving Credit Note dated November 18, 2010 and Second Amendment to Second Amended and Restated Revolving Credit Note dated May 31, 2011 (as the same may from time to time be amended, restated, modified or otherwise supplemented, collectively the “ Original Revolving Credit Note ”);

WHEREAS, the Original Revolving Credit Note was given in connection with, and governed by, the Second Amended and Restated Credit Agreement dated April 19, 2010, First Amendment to Second Amended and Restated Credit Agreement dated June 18, 2010, Second Amendment to Second Amended and Restated Credit Agreement dated November 18, 2010, Third Amendment to Second Amended and Restated Credit Agreement dated February 28, 2011, Fourth Amendment to Second Amended and Restated Credit Agreement dated May 31, 2011 and Fifth Amendment to Second Amended and Restated Credit Agreement dated July 28, 2011, in each case, by and among Borrowers and Lender (as the same may from time to time be amended, restated, modified or otherwise supplemented, collectively the “ Credit Agreement ”);

WHEREAS, Borrowers and Lender desire to amend and modify certain terms and conditions of the Original Revolving Credit Note.

NOW, THEREFORE, for and in consideration of the Recitals set forth above, which are incorporated herein by this reference, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

AGREEMENT

1. Each reference in the Original Revolving Credit Note to the principal amount of the Original Revolving Credit Note being “one hundred seven million dollars” or “$107,000,000,” respectively, is hereby amended to state “one hundred million dollars” or “$100,000,000,” respectively.

2. The Original Revolving Credit Note is hereby amended by deleting the third (3 rd ) paragraph in its entirety and substituting the following paragraph in its place:

The Revolving Credit Loans which are evidenced by this Revolving Credit Note consist of (a) a forty-five million dollar ($45,000,000) Base Facility, (b) a twenty million dollar ($20,000,000) Seasonal Facility and (iii) a thirty-five million dollar ($35,000,000) Bulge Facility. Subject to the other terms and conditions of the Credit Agreement, the periods during which the Base Facility, Seasonal Facility and Bulge Facility are available shall be determined in accordance with the Revolving Credit Commitment and Section 2.1(a) of the Credit Agreement.


3. The Original Revolving Credit Note is hereby amended by deleting the fourth (4 th ) paragraph in its entirety and substituting the following paragraph in its place:

Borrowers agree to pay to Lender the Revolving Credit Loans which are evidenced by this Revolving Credit Note on or before the earlier of (i) November 1, 2011, (ii) termination of the Revolving Credit Facility and (iii) termination of the Credit Agreement. Borrowers may prepay all or any part of the unpaid principal hereunder without premium or penalty at any time and reborrow, on a revolving basis, the principal amount available on this Revolving Credit Note, subject to the terms and conditions of the Credit Agreement. Notwithstanding the immediately preceding sentence, the Revolving Credit Loans outstanding under this Revolving Credit Note at any one time shall not exceed the Borrowing Base.

4. Except as specifically amended herein, the Original Revolving Credit Note shall remain in full force and effect as originally executed.

5. This Third Amendment shall be binding on the successors and assigns of the parties hereto.

6. This Third Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute but one and the same agreement.

[Signature Page Follows]

 

2


IN WITNESS WHEREOF, the parties have executed this Third Amendment as of the day and year first set forth above.

 

BORROWERS:  
Green Plains Grain Company LLC  
By:  

     /s/ Todd Becker

 
  Name: Todd Becker  
  Title:   President and Chief Executive Officer  
Green Plains Grain Company TN LLC  
By:  

     /s/ Todd Becker

 
  Name: Todd Becker  
  Title:   President and Chief Executive Officer  
Lender:  
First National Bank of Omaha  
By:  

    /s/ Kenneth Feaster

 
  Name: Kenneth Feaster  
  Title:   Vice President  

 

3

Exhibit 10.3

FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

This Fourth Amendment to Second Amended and Restated Credit Agreement (as the same may from time to time be amended, restated, modified or otherwise supplemented, this “ Fourth Amendment ”) is dated this 31 st day of May, 2011 by and among Green Plains Grain Company LLC, a Delaware limited liability company (“ IA Borrower ”), Green Plains Grain Company TN LLC, a Delaware limited liability company (“ TN Borrower ”, together with IA Borrower and their successors and assigns, each a “ Borrower ” and collectively, the “ Borrowers ”), and First National Bank of Omaha, a national banking association (together with its successors and assigns, the “ Lender ”). Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Credit Agreement (as defined below).

RECITALS

WHEREAS, Borrowers and Lender entered into that certain Second Amended and Restated Credit Agreement dated April 19, 2010, First Amendment to Second Amended and Restated Credit Agreement dated June 18, 2010, Second Amendment to Second Amended and Restated Credit Agreement dated November 18, 2010 and Third Amendment to Second Amended and Restated Credit Agreement dated February 28, 2011 (as the same may from time to time be amended, restated, modified or otherwise supplemented, collectively the “ Credit Agreement ”), pursuant to which Lender agreed to make loans to Borrowers; and

WHEREAS, Borrowers and Lender desire to amend and modify certain terms and conditions of the Credit Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

AGREEMENT

1. Section 1.1 of the Credit Agreement is hereby amended by deleting the definition of “Revolving Credit Commitment” in its entirety and substituting the following definition in its place:

Revolving Credit Commitment ” means an amount equal to (a) one hundred seven million dollars ($107,000,000) for the Base Facility, Seasonal Facility and Bulge Facility from the date hereof through March 31, 2011 and (b) one hundred million dollars ($100,000,000) for the Base Facility, Seasonal Facility and Bulge Facility from April 1, 2011 through the Revolving Credit Maturity Date.

2. Section 2.1 of the Credit Agreement is hereby amended by deleting paragraph (a) in its entirety and substituting the following paragraph (a) in its place:

 

  (a)

Subject to the other terms and conditions of this Agreement, Lender hereby agrees to make loans available for the benefit of Borrowers of up to one hundred twenty-seven million dollars ($127,000,000) consisting of (i) a one hundred seven million dollar ($107,000,000) revolving credit facility (the “ Revolving Credit Facility ”) and (ii) a twenty million dollar ($20,000,000) term loan facility (the “ Term Loan Facility ”). The Revolving Credit Facility shall consist of (i) a forty-five million dollar ($45,000,000) base facility (the “ Base Facility ”), (ii) a twenty million dollar ($20,000,000) seasonal facility (the “ Seasonal Facility ”) and (iii) a bulge facility in the amount of forty-two million dollars ($42,000,000) from the date hereof through

 

1


  March 31, 2011, which amount shall decrease to thirty-five million dollars ($35,000,000) from April 1, 2011 through the Revolving Credit Maturity Date. Subject to the other terms and conditions of this Agreement, the periods during which the Base Facility, Seasonal Facility and Bulge Facility are available shall be determined in accordance with the Revolving Credit Commitment and this Section 2.1(a).

3. The form of the Borrowing Base Report attached to the Credit Agreement as Exhibit D is hereby amended by deleting such form in its entirety and substituting the form attached hereto as Exhibit A in its place.

4. In connection with the execution of this Fourth Amendment, and as a condition precedent hereto, Borrowers shall execute and / or deliver to Lender the following on the date hereof:

 

  (a) A Second Amendment to Second Amended and Restated Revolving Credit Note dated May 31, 2011 from Borrowers to Lender (as the same may from time to time be amended, restated, modified or otherwise supplemented, the “ Second Revolving Credit Note Amendment ”), amending the Second Amended and Restated Revolving Credit Note dated April 19, 2010 and First Amendment to Second Amended and Restated Revolving Credit Note dated November 18, 2010, in each case, from Borrowers to the order of Lender (as the same may from time to time be amended, restated, modified or otherwise supplemented, collectively the “ Original Revolving Credit Note ”). The Second Revolving Credit Note Amendment is incorporated herein by reference, made a part hereof and shall be substantially in the form of Exhibit B attached hereto. References to “Revolving Credit Note” in the Credit Agreement are hereby amended so that such term includes the Original Revolving Credit Note, the Second Revolving Credit Note Amendment and any amendments, modifications or replacements of the same.

 

  (b) Such resolutions, certificates, written opinions of Borrowers’ independent counsel and other instruments, documents, agreements, information and reports as may be reasonably requested by Lender, in form and substance reasonably satisfactory to Lender.

5. Borrowers shall be responsible for paying all Expenses incurred by Lender in connection with this Fourth Amendment pursuant to Section 8.5 of the Credit Agreement.

6. Borrowers hereby represent and warrant that no Event of Default or Unmatured Event of Default has occurred and continues to exist under the Credit Agreement and the other Loan Documents and that all representations and warranties in the Credit Agreement and the other Loan Documents are reaffirmed to be true and correct as of the date hereof, which representations and warranties shall survive execution of this Fourth Amendment.

7. Borrowers have previously delivered to Lender all of the relevant organizational and governing documents and agreements of Borrowers and all such documents and agreements remain in full force and effect and have not been amended or modified since they were delivered to Lender.

 

2


8. Except as specifically amended herein, the Credit Agreement shall remain in full force and effect as originally executed. Except for any specific waiver set forth in this Fourth Amendment, nothing herein shall be deemed to be a consent to a waiver or amendment of any covenant or agreement contained in the Credit Agreement or the other Loan Documents and all such other covenants and agreements contained in the Credit Agreement and the other Loan Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect in accordance with their respective terms.

9. This Fourth Amendment shall be binding on the successors and assigns of the parties hereto.

10. This Fourth Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute but one and the same agreement.

[Signature Page Follows]

 

3


IN WITNESS WHEREOF, the parties have executed this Fourth Amendment as of the day and year first set forth above.

 

BORROWERS:  
Green Plains Grain Company LLC  
By:  

     /s/ Ron B. Gillis

 
  Name: Ron Gillis  
  Title:   EVP – Finance, Treasurer  
Green Plains Grain Company TN LLC  
By:  

    /s/ Ron B. Gillis

 
  Name: Ron Gillis  
  Title:   EVP – Finance, Treasurer  
LENDER:  
First National Bank of Omaha  
By:  

    /s/ Kenneth Feaster

Name: Kenneth Feaster

 
  Title:   Vice President  

 

4


EXHIBIT A

Borrowing Base Report


EXHIBIT B

Second Revolving Credit Note Amendment

Exhibit 10.4

FIFTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

This Fifth Amendment to Second Amended and Restated Credit Agreement (as the same may from time to time be amended, restated, modified or otherwise supplemented, this “ Fifth Amendment ”) is dated this 28 th day of July, 2011 by and among Green Plains Grain Company LLC, a Delaware limited liability company (“ IA Borrower ”), Green Plains Grain Company TN LLC, a Delaware limited liability company (“ TN Borrower ”, together with IA Borrower and their successors and assigns, each a “ Borrower ” and collectively, the “ Borrowers ”), and First National Bank of Omaha, a national banking association (together with its successors and assigns, the “ Lender ”). Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Credit Agreement (as defined below).

RECITALS

WHEREAS, Borrowers and Lender entered into that certain Second Amended and Restated Credit Agreement dated April 19, 2010, First Amendment to Second Amended and Restated Credit Agreement dated June 18, 2010, Second Amendment to Second Amended and Restated Credit Agreement dated November 18, 2010, Third Amendment to Second Amended and Restated Credit Agreement dated February 28, 2011 and Fourth Amendment to Second Amended and Restated Credit Agreement dated May 31, 2011 (as the same may from time to time be amended, restated, modified or otherwise supplemented, collectively the “ Credit Agreement ”), pursuant to which Lender agreed to make loans to Borrowers; and

WHEREAS, Borrowers and Lender desire to amend and modify certain terms and conditions of the Credit Agreement.

NOW, THEREFORE, for and in consideration of the Recitals set forth above, which are incorporated herein by this reference, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

AGREEMENT

1. Section 1.1 of the Credit Agreement is hereby amended by adding the following definition in alphabetical order:

Macquarie Agreements ” means agreements between Borrowers and Macquarie Commodities (USA) Inc. evidencing one or more purchase and sale transactions involving Grain Inventory; provided, that (a) the obligations of Borrowers thereunder do not exceed fifty million dollars ($50,000,000) in the aggregate at any one time outstanding and (b) an intercreditor agreement between Lender and Macquarie Commodities (USA) Inc. is in full force and effect.

2. Section 1.1 of the Credit Agreement is hereby amended by deleting the definition of “Revolving Credit Commitment” in its entirety and substituting the following definition in its place:

Revolving Credit Commitment ” means an amount equal to one hundred million dollars ($100,000,000) for the Base Facility, Seasonal Facility and Bulge Facility from the date hereof through the Revolving Credit Maturity Date.

 

1


3. Section 2.1 of the Credit Agreement is hereby amended by deleting paragraphs (a) and (d) in their entirety and substituting the following paragraph (a) and (d) in their place:

 

  (a) Subject to the other terms and conditions of this Agreement, Lender hereby agrees to make loans available for the benefit of Borrowers of up to one hundred twenty million dollars ($120,000,000) consisting of (i) a one hundred million dollar ($100,000,000) revolving credit facility (the “ Revolving Credit Facility ”) and (ii) a twenty million dollar ($20,000,000) term loan facility (the “ Term Loan Facility ”). The Revolving Credit Facility shall consist of (i) a forty-five million dollar ($45,000,000) base facility (the “ Base Facility ”), (ii) a twenty million dollar ($20,000,000) seasonal facility (the “ Seasonal Facility ”) and (iii) a thirty-five million dollar ($35,000,000) bulge facility (the “ Bulge Facility ”). Subject to the other terms and conditions of this Agreement, the periods during which the Base Facility, Seasonal Facility and Bulge Facility are available shall be determined in accordance with the Revolving Credit Commitment and this Section 2.1(a).

 

  (d) The term of the Revolving Credit Facility shall expire on November 1, 2011. All Revolving Credit Loans under the Revolving Credit Facility shall be repaid on or before the earlier of (i) November 1, 2011, (ii) termination of the Revolving Credit Facility and (iii) termination of this Agreement (the earliest of such dates, the “Revolving Credit Maturity Date”). After the Revolving Credit Maturity Date, no further Advances under the Revolving Credit Facility shall be available from Lender. The term of the Term Loan Facility shall expire on August 1, 2013. Any Term Loan under the Term Loan Facility shall be repaid on or before the earlier of (i) August 1, 2013, (ii) termination of the Term Loan Facility and (iii) termination of this Agreement (the earliest of such dates, the “Term Loan Maturity Date”).

4. Section 5.1(a) of the Credit Agreement is hereby amended by deleting paragraph (v) in its entirety and substituting the following paragraph (v) in its place:

 

  (v)

as soon as available, but in any event within (A) three (3) days after the entry into each purchase or sale transaction pursuant to the Macquarie Agreements, a Borrowing Base Report as of the date of each such transaction which is estimated in good faith based upon the information then available to Borrowers, (B) ten (10) days after the fifteenth (15 th ) of each month, a Borrowing Base Report as of the fifteenth (15 th ) of each such month which is estimated in good faith based upon the information then available to Borrowers and (C) fifteen (15) days after the end of each month, a Borrowing Base Report which is actual as of the end of each such month;

5. Section 5 of the Credit Agreement is hereby amended by adding the following Section 5.12 in its place:

5.12 Macquarie Agreements . Borrowers shall, promptly after execution or issuance, deliver to Lender copies of the Macquarie Agreements and any warehouse receipts or other documents issued pursuant to the Macquarie Agreements.

6. Section 6.1 of the Credit Agreement is hereby amended by deleting Section 6.1 in its entirety and substituting the following Section 6.1 in its place:

6.1 Debt. Borrowers shall not create, incur, assume or suffer to exist, voluntarily or involuntarily, any Debt, except (a) the Obligations, (b) purchase money obligations, obligations under Capitalized Leases and obligations under operating leases for rolling stock and equipment in an aggregate amount not to exceed three million dollars ($3,000,000) outstanding at any one time, (c) the Parent Sub Debt – Tranche 1 and Parent Sub Debt – Tranche 2, (d) the

 

2


Parent Sub Debt – Tranche 3 outstanding on or before August 1, 2011; provided, that the proceeds of the Parent Sub Debt – Tranche 3 shall only be used by Borrowers for financing of inventory, hedging transactions and other working capital matters, (e) unsecured and subordinated obligations owing to TN Sellers for the purchase price of the TN Acquisitions not in excess of three million three hundred thousand dollars ($3,300,000) in the aggregate at any one time outstanding and (f) the Macquarie Agreements. No payment of principal or interest shall be made by Borrowers with respect to the Parent Sub Debt – Tranche 1, Parent Sub Debt – Tranche 2 or Parent Sub Debt – Tranche 3 if an Unmatured Event of Default or Event of Default would occur as a result of such payment.

7. The form of the Borrowing Base Report attached to the Credit Agreement as Exhibit D is hereby amended by deleting such form in its entirety and substituting the form attached hereto as Exhibit A in its place.

8. In connection with the execution of this Fifth Amendment, and as a condition precedent hereto, Borrowers shall execute and / or deliver to Lender the following on the date hereof:

 

  (a) A Third Amendment to Second Amended and Restated Revolving Credit Note dated July 28, 2011 from Borrowers to Lender (as the same may from time to time be amended, restated, modified or otherwise supplemented, the “ Third Revolving Credit Note Amendment ”), amending the Second Amended and Restated Revolving Credit Note dated April 19, 2010, First Amendment to Second Amended and Restated Revolving Credit Note dated November 18, 2010 and Second Amendment to Second Amended and Restated Revolving Credit Note dated May 31, 2011, in each case, from Borrowers to the order of Lender (as the same may from time to time be amended, restated, modified or otherwise supplemented, collectively the “ Original Revolving Credit Note ”). The Third Revolving Credit Note Amendment is incorporated herein by reference, made a part hereof and shall be substantially in the form of Exhibit B attached hereto. References to “Revolving Credit Note” in the Credit Agreement are hereby amended so that such term includes the Original Revolving Credit Note, the Third Revolving Credit Note Amendment and any amendments, modifications or replacements of the same.

 

  (b) Such resolutions, certificates, written opinions of Borrowers’ independent counsel and other instruments, documents, agreements, information and reports as may be reasonably requested by Lender, in form and substance reasonably satisfactory to Lender.

9. Borrowers shall be responsible for paying all Expenses incurred by Lender in connection with this Fifth Amendment pursuant to Section 8.5 of the Credit Agreement.

10. Borrowers hereby represent and warrant that no Event of Default or Unmatured Event of Default has occurred and continues to exist under the Credit Agreement and the other Loan Documents and that all representations and warranties in the Credit Agreement and the other Loan Documents are reaffirmed to be true and correct as of the date hereof, which representations and warranties shall survive execution of this Fifth Amendment.

11. Borrowers have previously delivered to Lender all of the relevant organizational and governing documents and agreements of Borrowers and all such documents and agreements remain in full force and effect and have not been amended or modified since they were delivered to Lender.

 

3


12. Except as specifically amended herein, the Credit Agreement shall remain in full force and effect as originally executed. Except for any specific waiver set forth in this Fifth Amendment, nothing herein shall be deemed to be a consent to a waiver or amendment of any covenant or agreement contained in the Credit Agreement or the other Loan Documents and all such other covenants and agreements contained in the Credit Agreement and the other Loan Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect in accordance with their respective terms.

13. This Fifth Amendment shall be binding on the successors and assigns of the parties hereto.

14. This Fifth Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute but one and the same agreement.

[Signature Page Follows]

 

4


IN WITNESS WHEREOF, the parties have executed this Fifth Amendment as of the day and year first set forth above.

 

BORROWERS:
Green Plains Grain Company LLC

By:

 

    /s/ Todd Becker

  Name: Todd Becker
  Title:   President and Chief Executive Officer
Green Plains Grain Company TN LLC

By:

 

    /s/ Todd Becker

  Name: Todd Becker
  Title:   President and Chief Executive Officer
LENDER:
First National Bank of Omaha

By:

 

    /s/ Kenneth Feaster

  Name: Kenneth Feaster
  Title:   Vice President

 

5


EXHIBIT A

Borrowing Base Report


EXHIBIT B

Third Revolving Credit Note Amendment

Exhibit 10.5

SECOND AMENDMENT TO

CREDIT AGREEMENT

THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this “ Amendment ”) is entered into to be effective as of June 30, 2011 (the “ Effective Date ”), among GREEN PLAINS CENTRAL CITY LLC, a Delaware limited liability company (“ GPCC ”), GREEN PLAINS HOLDINGS LLC, a Delaware limited liability company (“ Holdings ” and together with GPCC the “ Borrower ”), AGSTAR FINANCIAL SERVICES, PCA (“ AgStar ”) and the other commercial, banking or financial institutions whose signatures appear on the signature pages hereof or which hereafter become parties to the Credit Agreement (collectively, the “ Banks ”), and AGSTAR FINANCIAL SERVICES, PCA, and its successors and assigns, as Administrative Agent for itself and the other Banks (“ Agent ”).

RECITALS

A. Borrower, Agent, and the Banks entered into a Credit Agreement dated as of July 2, 2009, and a First Amendment to Credit Agreement dated as of December 31, 2010 (as amended, restated or otherwise modified from time to time, the “ Credit Agreement ”) under which the Banks agreed to extend certain financial accommodations to Borrower.

B. At the request of Borrower, the Banks have agreed to make certain modifications to the Credit Agreement, all in accordance with the terms and conditions of this Amendment.

C. All terms used and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.

 

1


Exhibit 10.5

 

AGREEMENT

NOW THEREFORE, in consideration of the premises herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Defined Terms . As of the Effective Date, the following definitions as used in the Credit Agreement and other Loan Documents shall be amended, restated, replaced, or added, as the case may be as follows:

a. The following defined terms as defined in Section 1.01 and as used in the Credit Agreement and other Loan Documents shall be amended, restated and replaced by the following:

Fixed Charge Coverage Ratio ” means, for the measurement period of twelve (12) consecutive months, the ratio of (a) EBITDA divided by (b) the sum of (i) scheduled principal payments for the Loans, (ii) scheduled principal payments for Subordinated Debt, (iii) interest on the Loans, (iv) interest on Subordinated Debt, (v) Distributions, (vi) Maintenance Capital Expenditures, and (vii) less Equity Contributions, all as computed on a consolidated basis with the Affiliated Borrower. Solely for purposes of the computation of the Fixed Charge Coverage Ratio, Equity Contributions shall be reduced by the amount that Capital Expenditures, other than Maintenance Capital Expenditures, exceeds One Million and No/100 Dollars ($1,000,000.00), if any.

Working Capital ” means the current assets of GPCC plus, in the event the Term Loan and Term Revolving Loan are deemed to be Long Term Debt, the unused portion of the Term Revolving Loan, less the current liabilities of GPCC as determined in accordance with GAAP. For clarification purposes, in the event the Term Revolving Loan and Term Loan are deemed to be current liabilities strictly due to the accounting reclassification as a result of (i) Term Loan and Term Revolving Loan Maturity Dates being less than twelve (12) months from the date of covenant measurement, or (ii) projections, forecasts or other forward looking statements concerning future business conditions provided to certified public accountants, the available portion of the unused Term Revolving Loan will not be made available as an element of the current assets for Working Capital purposes, and the Term Loan and Term Revolving Loan shall be excluded from the current liabilities in the Working Capital covenant measurement. Reclassification of the Term Loan and the Term Revolving Loan as a result of an Event of Default shall result in the inclusion of all outstanding Loans in current liabilities. Should the Term Loan and Term Revolving Loan not be paid in full following the Maturity Date, the Term Loan and Term Revolver shall be included in current liabilities for Working Capital covenant purposes, all as computed on a consolidated basis with the Affiliated Borrower.

b. The following term shall be added to Section 1.01 of the Credit Agreement and shall have the following meaning in the Credit Agreement and Loan Documents:

Equity Contributions ” means for any period, the sum of all amounts received by a Borrower that would, in accordance with GAAP consistently applied, be included as additions to such Borrower’s owner equity.

 

2


Exhibit 10.5

 

2. Other Amendments . As of the Effective Date, the following sections and subsections of the Credit Agreement shall be amended, restated and replaced as follows:

a. Section 2.20 of the Credit Agreement is hereby amended and restated as follows:

Excess Cash Flow . In addition to all other payments of principal and interest required under this Agreement and the Notes, at the end of each fiscal year during the term of the Loans and not later than one hundred twenty (120) days after the end of each fiscal year, GPCC shall remit to the Agent for the account of the Banks, an amount equal to seventy-five percent (75%) of Borrower’s Excess Cash Flow, calculated based upon Borrower’s interim fiscal year end financial statements (the “ Excess Cash Flow Payment ”); provided that the total Excess Cash Flow Payment required hereunder shall not exceed Four Million and No/100 Dollars ($4,000,000.00) in any fiscal year (the “ Maximum Excess Cash Flow Payment ”); and provided that immediately prior to the payment of each Excess Cash Flow Payment, or after giving effect thereto, no Default or Event of Default shall exist. If the payment of any Excess Cash Flow Payment would result in a Default or an Event of Default under this Agreement, then that Excess Cash Flow Payment required to be paid for that year shall be reduced by an amount necessary to permit a payment, if any, that would not result in a Default or Event of Default under this Agreement. Each Excess Cash Flow Payment made shall be applied first to the reduction of the outstanding principal of any variable rate Term Loan and then to the reduction of the outstanding principal balance of the Term Revolving Loan. Each Excess Cash Flow Payment shall be recalculated annually based upon audited fiscal year-end financial statements required by Section 5.01(c)(i) of this Agreement; and following such recalculation, Borrower shall, within thirty (30) days of Agent’s request, remit to the Agent for the benefit of the Banks, any additional amounts due under this Section 2.20, up to the Maximum Excess Cash Flow Payment amount for the applicable fiscal year. For clarity, if based on a recalculation of the Excess Cash Flow Payment it is determined that an overpayment has been made, no Excess Cash Flow Payment which has been made and applied to the reduction of the principal amount of the Term Loan may be reborrowed. No Excess Cash Flow Payment shall constitute a prepayment with respect to which a prepayment fee under this Agreement is required to be paid. In addition, the total Excess Cash Flow Payments required and made under this Section 2.20 shall not exceed Sixteen Million and No/100 Dollars ($16,000,000.00) over the term of this Agreement. No Excess Cash Flow Payments shall be required during any calendar year should the Tangible Owner’s Equity of the Borrower be greater than seventy percent (70%) at the end of the immediately preceding fiscal year of the Borrower.

 

3


Exhibit 10.5

 

b. Section 5.02(c) of the Credit Agreement is hereby amended and restated as follows:

Capital Expenditures . Make any investment in fixed assets in excess of Two Million and No/100 Dollars ($2,000,000.00), in the aggregate, during any fiscal year of the Borrower during the term of this Agreement.

c. Section 6.01(c) of the Credit Agreement is hereby amended and restated as follows:

Borrower shall fail to perform or observe any term, covenant or agreement contained in Sections 5.01(d) or (e), or take any action as prohibited by Section 5.02; provided, however, that and notwithstanding anything to the contrary contained in this Section 6.01, in the event that Borrower fails to comply with Sections 5.01(d) or (e) hereof, Borrower shall have the right (“ Cure Right ”) at any time until the date that is five (5) days after the date the Compliance Certificate is required to be delivered pursuant to Section 5.01(c)(ii) of this Agreement to issue equity interests for cash or otherwise receive Equity Contributions in such amounts as to permit Borrower’s compliance with such financial covenants (“ Cure Amount ”), and thereupon Borrower’s compliance with Sections 5.01(d) or (e) shall be recalculated giving effect to the Cure Amount as if the cure had occurred during the fiscal period covered by the Compliance Certificate. If, after giving effect to the foregoing recalculations, the requirements of Sections 5.01(d) or (e) shall be satisfied, then such requirements shall be deemed satisfied for the relevant fiscal period with the same effect as though there had been no failure to comply therewith for such period, and the applicable breach or default shall be deemed cured for the purposes of this Agreement; or

3. Effect on Credit Agreement . Except as expressly amended by this Amendment, all of the terms of the Credit Agreement shall be unaffected by this Amendment and shall remain in full force and effect. Nothing contained in this Amendment shall be deemed to constitute a waiver of any rights of the Banks or to affect, modify, or impair any of the rights of the Banks as provided in the Credit Agreement.

4. Conditions Precedent to Effectiveness of this Amendment . The obligations of the Banks hereunder are subject to the conditions precedent that Agent shall have received the following, in form and substance satisfactory to Agent:

a. this Amendment duly executed by Borrower, Agent, and the Banks; and

b. all other documents, instruments, or agreements required to be delivered to Agent under the Credit Agreement and not previously delivered to Agent.

 

4


Exhibit 10.5

 

5. Representations and Warranties of Borrower . Borrower hereby agrees with, reaffirms, and acknowledges as follows:

a. The execution, delivery and performance by Borrower of this Amendment is within Borrower’s power, has been duly authorized by all necessary action, and does not contravene: (i) the certificate of formation or operating agreement of Borrower; or (ii) any law or any contractual restriction binding on or affecting Borrower; and does not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties;

b. This Amendment is, and each other Loan Document to which Borrower is a party when delivered will be, legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditor’s rights generally and by general principles of equity; and

c. All other representations, warranties and covenants contained in the Credit Agreement and the other Loan Documents are true and correct and in full force and effect.

6. Counterparts . It is understood and agreed that this Amendment may be executed in several counterparts each of which shall, for all purposes, be deemed an original and all of which, taken together, shall constitute one and the same agreement even though all of the parties hereto may not have executed the same counterpart of this Amendment. Electronic delivery of an executed counterpart of a signature page to this Amendment shall be effective as delivery of an original executed counterpart to this Amendment.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers and duly authorized, as of the date first above written.

[SIGNATURE PAGE TO IMMEDIATELY FOLLOW THIS PAGE]

 

5


Exhibit 10.5

 

SIGNATURE PAGE TO

SECOND AMENDMENT TO CREDIT AGREEMENT

BY AND AMONG

GREEN PLAINS CENTRAL CITY LLC (as Borrower),

GREEN PLAINS HOLDINGS LLC (as Borrower),

AGSTAR FINANCIAL SERVICES, PCA (AS AGENT), AND

THE BANKS

Dated to be effective as of June 30, 2011

BORROWER:

GREEN PLAINS CENTRAL CITY LLC,

a Delaware limited liability company

 

       /s/ Ron B. Gillis

By: Ron B. Gillis

Its: EVP Finance, Treasurer

and

GREEN PLAINS HOLDINGS LLC,

a Delaware limited liability company

       /s/ Ron B. Gillis

By: Ron B. Gillis

Its: EVP Finance, Treasurer

 

6


Exhibit 10.5

 

SIGNATURE PAGE TO

SECOND AMENDMENT TO CREDIT AGREEMENT

BY AND AMONG

GREEN PLAINS CENTRAL CITY LLC (as Borrower),

GREEN PLAINS HOLDINGS LLC (as Borrower),

AGSTAR FINANCIAL SERVICES, PCA (AS AGENT), AND

THE BANKS

Dated to be effective as of June 30, 2011

 

AGENT:

AGSTAR FINANCIAL SERVICES, PCA,

as Administrative Agent

       /s/ Mark Schmidt

By: Mark Schmidt

Its: Vice President

AGSTAR, as a Bank

AGSTAR FINANCIAL SERVICES, PCA,

       /s/ Mark Schmidt

By: Mark Schmidt

Its: Vice President

 

7


Exhibit 10.5

 

SIGNATURE PAGE TO

SECOND AMENDMENT TO CREDIT AGREEMENT

BY AND AMONG

GREEN PLAINS CENTRAL CITY LLC (as Borrower),

GREEN PLAINS HOLDINGS LLC (as Borrower),

AGSTAR FINANCIAL SERVICES, PCA (AS AGENT), AND

THE BANKS

Dated to be effective as of June 30, 2011

1st FARM CREDIT SERVICES, PCA/FLCA, as a Bank

 

    /s/ Dale A. Richardson

By: Dale A. Richardson
Its: VP Illinois Capital Markets Group

 

8


Exhibit 10.5

 

SIGNATURE PAGE TO

SECOND AMENDMENT TO CREDIT AGREEMENT

BY AND AMONG

GREEN PLAINS CENTRAL CITY LLC (as Borrower),

GREEN PLAINS HOLDINGS LLC (as Borrower),

AGSTAR FINANCIAL SERVICES, PCA (AS AGENT), AND

THE BANKS

Dated to be effective as of June 30, 2011

AGCOUNTRY FARM CREDIT SERVICES, FLCA, as a Bank

 

    /s/ James F. Baltezore

By: James F. Baltezore

Its: Vice President

 

9


Exhibit 10.5

 

SIGNATURE PAGE TO

SECOND AMENDMENT TO CREDIT AGREEMENT

BY AND AMONG

GREEN PLAINS CENTRAL CITY LLC (as Borrower),

GREEN PLAINS HOLDINGS LLC (as Borrower),

AGSTAR FINANCIAL SERVICES, PCA (AS AGENT), AND

THE BANKS

Dated to be effective as of June 30, 2011

AGFIRST FARM CREDIT BANK, as a Bank

 

    /s/ Bruce B. Fortner

By: Bruce B. Fortner

Its: Vice President

 

10


Exhibit 10.5

 

SIGNATURE PAGE TO

SECOND AMENDMENT TO CREDIT AGREEMENT

BY AND AMONG

GREEN PLAINS CENTRAL CITY LLC (as Borrower),

GREEN PLAINS HOLDINGS LLC (as Borrower),

AGSTAR FINANCIAL SERVICES, PCA (AS AGENT), AND

THE BANKS

Dated to be effective as of June 30, 2011

BADGERLAND FINANCIAL, ACA, as a Bank

 

    /s/ Larry Coulthard

By: Larry Coulthard

Its: VP Loan Participations & Capital Markets

 

11


Exhibit 10.5

 

SIGNATURE PAGE TO

SECOND AMENDMENT TO CREDIT AGREEMENT

BY AND AMONG

GREEN PLAINS CENTRAL CITY LLC (as Borrower),

GREEN PLAINS HOLDINGS LLC (as Borrower),

AGSTAR FINANCIAL SERVICES, PCA (AS AGENT), AND

THE BANKS

Dated to be effective as of June 27, 2011

COFINA FINANCIAL, LLC, as a Bank

 

    /s/ Brian Legried

By: Brian Legried

Its: President

 

12


Exhibit 10.5

 

SIGNATURE PAGE TO

SECOND AMENDMENT TO CREDIT AGREEMENT

BY AND AMONG

GREEN PLAINS CENTRAL CITY LLC (as Borrower),

GREEN PLAINS HOLDINGS LLC (as Borrower),

AGSTAR FINANCIAL SERVICES, PCA (AS AGENT), AND

THE BANKS

Dated to be effective as of June 23, 2011

FEDERAL AGRICULTURAL MORTGAGE CORPORATION, as a Bank

 

    /s/ Timothy L McLaughlin

By: Timothy L. McLaughlin

Its: Senior Credit Analyst

 

13


Exhibit 10.5

 

SIGNATURE PAGE TO

SECOND AMENDMENT TO CREDIT AGREEMENT

BY AND AMONG

GREEN PLAINS CENTRAL CITY LLC (as Borrower),

GREEN PLAINS HOLDINGS LLC (as Borrower),

AGSTAR FINANCIAL SERVICES, PCA (AS AGENT), AND

THE BANKS

Dated to be effective as of June 30, 2011

FARM CREDIT SERVICES OF MID-AMERICA, PCA, as a Bank

 

    /s/ Ralph M. Bowman

By: Ralph M. Bowman
Its: Vice President

 

14


Exhibit 10.5

 

SIGNATURE PAGE TO

SECOND AMENDMENT TO CREDIT AGREEMENT

BY AND AMONG

GREEN PLAINS CENTRAL CITY LLC (as Borrower),

GREEN PLAINS HOLDINGS LLC (as Borrower),

AGSTAR FINANCIAL SERVICES, PCA (AS AGENT), AND

THE BANKS

Dated to be effective as of June 30, 2011

FIRST NATIONAL BANK OF OMAHA, as a Bank

 

    /s/ Fallon Savage

By: Fallon Savage

Its: Vice President

 

15


Exhibit 10.5

 

SIGNATURE PAGE TO

SECOND AMENDMENT TO CREDIT AGREEMENT

BY AND AMONG

GREEN PLAINS CENTRAL CITY LLC (as Borrower),

GREEN PLAINS HOLDINGS LLC (as Borrower),

AGSTAR FINANCIAL SERVICES, PCA (AS AGENT), AND

THE BANKS

Dated to be effective as of June 30, 2011

MLIC ASSET HOLDINGS LLC, as a Bank

BY: TRANSMOUNTAIN LAND & LIVESTOCK COMPANY

ITS: MANAGER

 

    /s/ Steve D. Craig

By: Steve D. Craig

Its: Director

 

16


Exhibit 10.5

 

SIGNATURE PAGE TO

SECOND AMENDMENT TO CREDIT AGREEMENT

BY AND AMONG

GREEN PLAINS CENTRAL CITY LLC (as Borrower),

GREEN PLAINS HOLDINGS LLC (as Borrower),

AGSTAR FINANCIAL SERVICES, PCA (AS AGENT), AND

THE BANKS

Dated to be effective as of June 30, 2011

UNITED FCS, PCA, as a Bank

 

    /s/ Jeffrey A. Schmidt

By: Jeffrey A. Schmidt

Its: CCO

 

17

Exhibit 10.6

THIRD AMENDMENT TO

CREDIT AGREEMENT

THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this “ Amendment ”) is entered into to be effective as of June 30, 2011 (the “ Effective Date ”), among GREEN PLAINS CENTRAL CITY LLC, a Delaware limited liability company (“ GPCC ”), GREEN PLAINS HOLDINGS LLC, a Delaware limited liability company (“ Holdings ” and together with GPCC the “ Borrower ”), AGSTAR FINANCIAL SERVICES, PCA (“ AgStar ”) and the other commercial, ba