Green Plains Inc.
Green Plains Renewable Energy, Inc. (Form: 10-Q, Received: 08/01/2013 16:22:12)

 

 

 

 

 

                                                                                                                      

 

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, 2013

 

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.)

 

 

450 Regency Parkway, Suite 400 , 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.

 

S 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).

S 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 T      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   S No

 

The number of shares of common stock, par value $0.001 per share, outstanding as of July   30 , 2013   was   3 0 , 1 98,098   shares.

 

 


 

 

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I – FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets  

2

 

 

 

 

Consolidated Statements of Operations

3

 

 

 

 

Consolidated Statements of Comprehensive Incom e  

4

 

 

 

 

Consolidated Statements of Cash Flows  

5

 

 

 

 

Notes to Consolidated Financial Statements  

7

 

 

 

Item 2.

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

24

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk  

38

 

 

 

Item 4.

Controls and Procedures

40

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

40

 

 

 

Item 1A.

Risk Factors

40

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

 

 

 

Item 3.

Defaults Upon Senior Securities

42

 

 

 

Item 4.

Mine Safety Disclosures

42

 

 

 

Item 5.

Other Information

42

 

 

 

Item 6.

Exhibits

43

 

 

 

Signatures  

44

 

 

 

 

1

 


 

 

GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

 

  CONSOLIDATED BALANCE SHEETS

 

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

2013

 

2012

 

(unaudited)

 

 

 

ASSETS

Current assets

 

 

 

 

 

Cash and cash equivalents

$

213,463 

 

$

254,289 

Restricted cash

 

13,087 

 

 

25,815 

Accounts receivable, net of allowances of $219

 

105,987 

 

 

80,537 

Inventories

 

106,401 

 

 

172,009 

Prepaid expenses and other

 

6,541 

 

 

12,314 

Deferred income taxes

 

15,359 

 

 

2,133 

Derivative financial instruments

 

18,848 

 

 

20,938 

Total current assets

 

479,686 

 

 

568,035 

Property and equipment, net of accumulated depreciation of

 

 

 

 

 

$189,683 and $164,445, respectively

 

702,891 

 

 

708,110 

Goodwill

 

40,877 

 

 

40,877 

Other assets

 

40,593 

 

 

32,712 

Total assets

$

1,264,047 

 

$

1,349,734 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

 

 

 

 

 

Accounts payable

$

79,369 

 

$

95,564 

Accrued and other liabilities

 

28,844 

 

 

32,475 

Unearned revenue

 

4,854 

 

 

3,617 

Short-term notes payable and other borrowings

 

104,752 

 

 

171,302 

Current maturities of long-term debt

 

67,053 

 

 

129,426 

Total current liabilities

 

284,872 

 

 

432,384 

 

 

 

 

 

 

Long-term debt

 

400,110 

 

 

362,549 

Deferred income taxes

 

77,282 

 

 

60,082 

Other liabilities

 

4,009 

 

 

4,217 

Total liabilities

 

766,273 

 

 

859,232 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

Common stock, $0.001 par value; 75,000,000 shares authorized;

 

 

 

 

 

37,398,098 and 36,903,777 shares issued, and 30,198,098

 

 

 

 

 

and 29,703,777 shares outstanding, respectively

 

37 

 

 

37 

Additional paid-in capital

 

447,563 

 

 

445,198 

Retained earnings

 

116,060 

 

 

107,540 

Accumulated other comprehensive income (loss)

 

(78)

 

 

3,535 

Treasury stock, 7,200,000 shares

 

(65,808)

 

 

(65,808)

Total stockholders' equity

 

497,774 

 

 

490,502 

Total liabilities and stockholders' equity

$

1,264,047 

 

$

1,349,734 

 

See accompanying notes to the consolidated financial statements.

 

 

2

 


 

 

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,

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

804,696 

 

$

870,356 

 

$

1,570,172 

 

$

1,645,750 

Cost of goods sold

 

772,085 

 

 

852,222 

 

 

1,510,347 

 

 

1,618,846 

Gross profit

 

32,611 

 

 

18,134 

 

 

59,825 

 

 

26,904 

Selling, general and administrative expenses

 

14,049 

 

 

19,217 

 

 

28,558 

 

 

39,078 

Operating income (loss)

 

18,562 

 

 

(1,083)

 

 

31,267 

 

 

(12,174)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

63 

 

 

58 

 

 

102 

 

 

99 

Interest expense

 

(7,762)

 

 

(9,842)

 

 

(15,833)

 

 

(18,909)

Other, net

 

(610)

 

 

(832)

 

 

(1,130)

 

 

(1,411)

Total other expense

 

(8,309)

 

 

(10,616)

 

 

(16,861)

 

 

(20,221)

Income (loss) before income taxes

 

10,253 

 

 

(11,699)

 

 

14,406 

 

 

(32,395)

Income tax expense (benefit)

 

4,288 

 

 

(4,145)

 

 

5,886 

 

 

(12,145)

Net income (loss)

 

5,965 

 

 

(7,554)

 

 

8,520 

 

 

(20,250)

Net loss attributable to noncontrolling interests

 

 -

 

 

 

 

 -

 

 

Net income (loss) attributable to Green Plains

$

5,965 

 

$

(7,550)

 

$

8,520 

 

$

(20,242)

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Green Plains - basic

$

0.20 

 

$

(0.25)

 

$

0.28 

 

$

(0.65)

Net income (loss) attributable to Green Plains - diluted

$

0.19 

 

$

(0.25)

 

$

0.28 

 

$

(0.65)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

30,160 

 

 

29,614 

 

 

30,047 

 

 

30,926 

Diluted

 

36,804 

 

 

29,614 

 

 

30,367 

 

 

30,926 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.

3

 


 

 

GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

5,965 

 

$

(7,554)

 

$

8,520 

 

$

(20,250)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on derivatives arising during period,

 

 

 

 

 

 

 

 

 

 

 

net of tax (expense) benefit of $10,807, $(7,116), $18,438 and

 

 

 

 

 

 

 

 

 

 

 

$(7,106), respectively

 

(15,084)

 

 

11,857 

 

 

(28,592)

 

 

11,935 

Reclassification of realized (gains) losses on derivatives, net

 

 

 

 

 

 

 

 

 

 

 

of tax expense (benefit) of $(12,470), $858, $(16,108) and

 

 

 

 

 

 

 

 

 

 

 

$(669), respectively

 

17,405 

 

 

(1,430)

 

 

24,979 

 

 

1,125 

Total other comprehensive income (loss), net of tax

 

2,321 

 

 

10,427 

 

 

(3,613)

 

 

13,060 

Comprehensive income (loss)

 

8,286 

 

 

2,873 

 

 

4,907 

 

 

(7,190)

Comprehensive loss attributable to noncontrolling interests

 

 -

 

 

 

 

 -

 

 

Comprehensive income (loss) attributable to Green Plains

$

8,286 

 

$

2,877 

 

$

4,907 

 

$

(7,182)

 

 

See accompanying notes to the consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 


 

 

 

 

GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited and in thousands)

 

 

 

 

 

 

 

 

Six Months Ended
June 30,

 

2013

 

2012

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

$

8,520 

 

$

(20,250)

Adjustments to reconcile net income (loss) to net cash

 

 

 

 

 

used by operating activities:

 

 

 

 

 

Depreciation and amortization

 

25,044 

 

 

26,417 

Amortization of debt issuance costs

 

1,841 

 

 

1,553 

Deferred income taxes

 

6,303 

 

 

(10,627)

Stock-based compensation expense

 

1,892 

 

 

2,112 

Undistributed equity in loss of affiliates

 

1,130 

 

 

1,411 

Allowance for doubtful accounts

 

 -

 

 

95 

Other

 

1,402 

 

 

 -

Changes in operating assets and liabilities before

 

 

 

 

 

effects of business combinations:

 

 

 

 

 

Accounts receivable

 

(25,450)

 

 

(8,815)

Inventories

 

66,006 

 

 

43,195 

Derivative financial instruments

 

(3,896)

 

 

(3,325)

Prepaid expenses and other assets

 

6,323 

 

 

6,953 

Accounts payable and accrued liabilities

 

(20,432)

 

 

(69,152)

Unearned revenues

 

1,237 

 

 

(9,559)

Other

 

(136)

 

 

(424)

Net cash provided (used) by operating activities

 

69,784 

 

 

(40,416)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(4,948)

 

 

(14,404)

Acquisition of businesses, net of cash acquired

 

(15,305)

 

 

(1,490)

Other

 

(803)

 

 

(5,771)

Net cash used by investing activities

 

(21,056)

 

 

(21,665)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from the issuance of long-term debt

 

39,700 

 

 

34,000 

Payments of principal on long-term debt

 

(72,635)

 

 

(55,680)

Proceeds from short-term borrowings

 

1,658,400 

 

 

1,538,854 

Payments on short-term borrowings

 

(1,726,284)

 

 

(1,501,905)

Payments for repurchase of common stock

 

 -

 

 

(10,445)

Change in restricted cash

 

12,728 

 

 

3,460 

Payments of loan fees

 

(1,936)

 

 

(301)

Other

 

473 

 

 

(207)

Net cash provided (used) by financing activities

 

(89,554)

 

 

7,776 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(40,826)

 

 

(54,305)

Cash and cash equivalents, beginning of period

 

254,289 

 

 

174,988 

Cash and cash equivalents, end of period

$

213,463 

 

$

120,683 

 

 

 

 

 

 

Continued on the following page

 

 

 

 

 

 

5

 


 

 

 

 

 

 

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,

 

2013

 

2012

 

 

 

 

 

 

Supplemental disclosures of cash flow:

 

 

 

 

 

Cash paid for income taxes

$

1,831 

 

$

457 

Cash paid for interest

$

16,072 

 

$

17,085 

 

 

 

 

 

 

Supplemental noncash investing and financing activities:

 

 

 

 

 

Assets acquired in acquisitions and mergers

$

15,870 

 

$

1,590 

Less: liabilities assumed

 

(565)

 

 

(100)

Net assets acquired

$

15,305 

 

$

1,490 

 

 

 

 

 

 

Short-term note payable issued to repurchase common stock

$

 -

 

$

27,162 

 

 

 

See accompanying notes to the consolidated financial statements.

6

 


 

 

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 “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. All significant intercompany balances and transactions have been 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 consolidated financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2012.

 

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

 

Green Plains is North America’s fourth largest ethanol producer. The Company operates its business within four segments: (1) production of ethanol and distillers grains, collectively referred to as ethanol production, (2) corn oil production, (3) grain handling and storage, collectively referred to as agribusiness, and (4) marketing and logistics services for Company-produced and third-party ethanol, distillers grains, corn oil and other commodities, and the operation of blending and terminaling facilities, collectively referred to as marketing and distribution. Additionally, the Company is a partner in a joint venture that was formed to commercialize advanced photo-bioreactor technologies for the growing and harvesting of algal biomass.

 

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 other commodities by 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 marketing operations for third parties are recorded on a gross basis as the Company takes title to the product and assumes risk of loss. Unearned revenue is reflected on the consolidated balance sheets for goods in transit for which the Company has received payment and title has not been transferred to the customer. Revenues from the Company’s biofuel terminal operations, which include ethanol transload and splash blending services, are recognized as these services are rendered.

 

7

 


 

 

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 realized gains and losses on related 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 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. Revenues related to grain merchandising are presented gross in the statements of operations with amounts billed for shipping and handling included in revenues and also as a component of cost of goods sold.   Revenues from grain storage are recognized as services are rendered.

 

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 transfer costs. Corn feedstock costs also include realized gains and losses on related 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 its agribusiness segment’s grain inventories and forward purchase and sales contracts. Exchange-traded futures and options contracts are valued at quoted market prices. Grain inventories held for sale, 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 fair value of grain inventories held for sale, 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, ethanol and natural gas, 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 in which 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.

 

The Company evaluates its contracts that involve physical delivery to determine whether they may qualify for the normal purchases or normal sales exemption and 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 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.

8

 


 

 

 

Certain qualifying derivatives within the ethanol production segment are designated 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 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 current assets or other current liabilities at fair value.

 

At times, the Company hedges its exposures to changes in the value of inventories and designates certain qualifying derivatives as fair value hedges. The carrying amount of the hedged inventory is adjusted through current period results for changes in the fair value arising from changes in underlying prices. Any ineffectiveness is recognized in current period results to the extent that the change in the fair value of the inventory is not offset by the change in the fair value of the derivative.

 

Recent Accounting Pronouncements

 

Effective January 1, 2013, the Company adopted the amended guidance in ASC Topic 210, Balance Sheet. The amended guidance addresses disclosure of offsetting financial assets and liabilities. It requires entities to add disclosures showing both gross and net information about instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. The updated disclosures have been implemented retrospectively and do not impact the Company’s financial position or results of operations.

 

Effective January 1, 2013, the Company adopted the amended guidance in ASC Topic 220, Comprehensive Income. The amended guidance requires entities to disclose additional information about reclassification adjustments, including (1) changes in accumulated other comprehensive income by component and (2) significant items reclassified out of accumulated other comprehensive income by presenting the amount reclassified and the individual income statement line items affected. The updated disclosures have been implemented prospectively and do not impact our financial position or results of operations. Refer to   Note 10, Stockholders’ Equity , for expanded disclosures.

 

2 .  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.

 

9

 


 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at June 30, 2013

 

Quoted Prices in Active Markets for Identical Assets

 

Significant Other Observable Inputs

 

Reclassification for Balance Sheet

 

 

 

 

(Level 1)

 

(Level 2)

 

Presentation

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

213,463 

 

$

 -

 

$

 -

 

$

213,463 

Restricted cash

 

15,287 

 

 

 -

 

 

 -

 

 

15,287 

Margin deposits

 

26,244 

 

 

 -

 

 

(26,244)

 

 

 -

Inventories carried at market

 

 -

 

 

12,496 

 

 

 -

 

 

12,496 

Unrealized gains on derivatives

 

3,238 

 

 

3,985 

 

 

11,625 

 

 

18,848 

Total assets measured at fair value

$

258,232 

 

$

16,481 

 

$

(14,619)

 

$

260,094 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on derivatives

$

14,619 

 

$

6,944 

 

$

(14,619)

 

$

6,944 

Other

 

56 

 

 

 -

 

 

 -

 

 

56 

Total liabilities measured at fair value

$

14,675 

 

$

6,944 

 

$

(14,619)

 

$

7,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2012

 

Quoted Prices in Active Markets for Identical Assets

 

Significant Other Observable Inputs

 

Reclassification for Balance Sheet

 

 

 

 

(Level 1)

 

(Level 2)

 

Presentation

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

254,289 

 

$

 -

 

$

 -

 

$

254,289 

Restricted cash

 

28,015 

 

 

 -

 

 

 -

 

 

28,015 

Margin deposits

 

12,847 

 

 

 -

 

 

(12,847)

 

 

 -

Inventories carried at market

 

 -

 

 

61,763 

 

 

 -

 

 

61,763 

Unrealized gains on derivatives

 

7,337 

 

 

3,254 

 

 

10,347 

 

 

20,938 

Total assets measured at fair value

$

302,488 

 

$

65,017 

 

$

(2,500)

 

$

365,005 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on derivatives

$

2,544 

 

$

2,103 

 

$

(2,500)

 

$

2,147 

Other

 

107 

 

 

 -

 

 

 -

 

 

107 

Total liabilities measured at fair value

$

2,651 

 

$

2,103 

 

$

(2,500)

 

$

2,254 

 

The Company believes the fair value s of its debt , accounts receivable and accounts payable approximate book value, which were  $ 571.9 million ,   $ 106.0 million and $ 79.4 million, respectively, at June 30 , 201 3   and $ 663. 3 million ,  $ 80.5 million and $ 95.6 million, respectively, at December 31, 201 2 . The Company estimates the fair value of its outstanding debt using Level 2 inputs.

 

Although the Company currently does not have any recurring Level 3 financial measurements, the fair values of the tangible assets and goodwill acquired 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.

 

 

 

10

 


 

 

3.  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 handling and storage, collectively referred to as agribusiness, and (4) marketing and logistics services for Company-produced and third-party ethanol, distillers grains, corn oil and other commodities, and the operation of blending and terminaling facilities, 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.

 

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.

 

In December 2012, the Company sold twelve grain elevators located in northwestern Iowa and western Tennessee. The transaction involved approximately 32.6 million bushels, or 83 %, of the Company’s reported agribusiness grain storage capacity and all of its agronomy and retail petroleum operations. The divested assets were reported within the Company’s agribusiness segment.

 

In June 2013, the Company acquired an ethanol plant located in Atkinson, Nebraska for approximately $15.2 million, with the capacity to produce approximately 50 million gallons of ethanol per year.   The plant began ethanol production during the third quarter of 2013. Also in June 2013, the Company acquired a grain elevator in Archer, Nebraska with current storage capacity of 0.2 million bushels . The Company has begun construction of a flat storage facility to add 1.0 million bushels of grain storage capacity at this location before the 2013 fall harvest.

 

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,

 

2013

 

2012

 

2013

 

2012

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Ethanol production:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

$

34,338 

 

$

50,776 

 

$

78,745 

 

$

96,133 

Intersegment revenues

 

496,066 

 

 

416,114 

 

 

960,717 

 

 

828,934 

Total segment revenues

 

530,404 

 

 

466,890 

 

 

1,039,462 

 

 

925,067 

Corn oil production:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

 -

 

 

 

 

 -

 

 

516 

Intersegment revenues

 

16,315 

 

 

15,463 

 

 

32,014 

 

 

28,474 

Total segment revenues

 

16,315 

 

 

15,470 

 

 

32,014 

 

 

28,990 

Agribusiness:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

15,998 

 

 

101,782 

 

 

38,124 

 

 

174,606 

Intersegment revenues

 

159,170 

 

 

39,068 

 

 

224,088 

 

 

84,470 

Total segment revenues

 

175,168 

 

 

140,850 

 

 

262,212 

 

 

259,076 

Marketing and distribution:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

754,360 

 

 

717,791 

 

 

1,453,303 

 

 

1,374,495 

Intersegment revenues

 

2,123 

 

 

124 

 

 

3,413 

 

 

191 

Total segment revenues

 

756,483 

 

 

717,915 

 

 

1,456,716 

 

 

1,374,686 

Revenues including intersegment activity

 

1,478,370 

 

 

1,341,125 

 

 

2,790,404 

 

 

2,587,819 

Intersegment eliminations

 

(673,674)

 

 

(470,769)

 

 

(1,220,232)

 

 

(942,069)

Revenues as reported

$

804,696 

 

$

870,356 

 

$

1,570,172 

 

$

1,645,750 

 

 

 

 

11

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2013

 

2012

 

2013

 

2012

Gross profit (loss):

 

 

 

 

 

 

 

 

 

 

 

Ethanol production

$

10,729 

 

$

(6,875)

 

$

11,959 

 

$

(16,910)

Corn oil production

 

7,873 

 

 

9,405 

 

 

15,782 

 

 

17,340 

Agribusiness

 

945 

 

 

8,599 

 

 

2,171 

 

 

14,845 

Marketing and distribution

 

13,404 

 

 

6,603 

 

 

30,459 

 

 

10,790 

Intersegment eliminations

 

(340)

 

 

402 

 

 

(546)

 

 

839 

 

$

32,611 

 

$

18,134 

 

$

59,825 

 

$

26,904 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

Ethanol production

$

7,006 

 

$

(11,034)

 

$

4,657 

 

$

(24,914)

Corn oil production

 

7,821 

 

 

9,351 

 

 

15,631 

 

 

17,200 

Agribusiness

 

248 

 

 

2,398 

 

 

617 

 

 

3,067 

Marketing and distribution

 

9,210 

 

 

2,874 

 

 

22,196 

 

 

3,384 

Intersegment eliminations

 

(340)

 

 

402 

 

 

(500)

 

 

873 

Corporate activities

 

(5,383)

 

 

(5,074)

 

 

(11,334)

 

 

(11,784)

 

$

18,562 

 

$

(1,083)

 

$

31,267 

 

$

(12,174)

 

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,

 

2013

 

2012

 

2013

 

2012

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Ethanol

$

624,367 

 

$

632,088 

 

$

1,203,902 

 

$

1,215,057 

Distillers grains

 

123,020 

 

 

98,936 

 

 

254,440 

 

 

199,531 

Corn oil

 

17,276 

 

 

15,632 

 

 

34,372 

 

 

28,786 

Grain

 

28,547 

 

 

74,704 

 

 

54,867 

 

 

138,923 

Agronomy products

 

49 

 

 

25,200 

 

 

100 

 

 

32,318 

Other

 

11,437 

 

 

23,796 

 

 

22,491 

 

 

31,135 

 

$

804,696 

 

$

870,356 

 

$

1,570,172 

 

$

1,645,750 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

2013

 

2012

Total assets:

 

 

 

 

 

Ethanol production

$

803,385 

 

$

831,939 

Corn oil production

 

22,799 

 

 

27,751 

Agribusiness

 

114,098 

 

 

179,930 

Marketing and distribution

 

229,151 

 

 

184,541 

Corporate assets

 

95,491 

 

 

150,797 

Intersegment eliminations

 

(877)

 

 

(25,224)

 

$

1,264,047 

 

$

1,349,734 

 

 

 

12

 


 

 

4.  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,

 

December 31,

 

2013

 

2012

Finished goods

$

56,073 

 

$

58,080 

Grain held for sale

 

7,123 

 

 

61,763 

Raw materials

 

18,451 

 

 

28,494 

Work-in-process

 

13,054 

 

 

13,326 

Supplies and parts

 

11,700 

 

 

10,346 

 

$

106,401 

 

$

172,009 

 

 

5.  GOODWILL

 

The Company did not have any changes in the total carrying amount of goodwill, which was $ 40.9 million , during the six months ended June 30 , 2013 . Goodwill of $ 30.3 million is attributable to the ethanol production segment and $ 10.6 million is attributable to the marketing and distribution segment.

 

 

6.  DERIVATIVE FINANCIAL INSTRUMENTS

 

At June 30, 2013, the Company’s consolidated balance sheet reflects unrealized losses, net of tax, of $78 thousand in accumulated other comprehensive loss. The Company expects that all of the unrealized losses at June 30, 2013 will be reclassified into operating income over the next 12 months as a result of hedged transactions that are forecasted to occur. The amount ultimately realized in operating income, however, will differ as commodity prices change.

 

Fair Values of Derivative Instruments

 

The following table provides information about the fair values of the Company’s derivative financial instruments and the line items on the consolidated balance sheets in which the fair values are reflected (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Derivatives'

 

Liability Derivatives'

 

 

Fair Value

 

Fair Value

 

 

June 30,

 

December 31,

 

June 30,

 

December 31,

 

 

2013

 

2012

 

2013

 

2012

Derivative financial instruments (1)

 

$

(7,396)

(2)

$

8,091 

(3)

$

 -

 

$

 -

Accrued and other liabilities

 

 

 -

 

 

 -

 

 

6,936 

 

 

2,103 

Other liabilities

 

 

 -

 

 

 -

 

 

 

 

44 

Total

 

$

(7,396)

 

$

8,091 

 

$

6,944 

 

$

2,147 

 

(1)   Margin deposit assets are presented on a net basis with derivative financial instruments on the balance sheet. Derivative financial instruments as reflected on the consolidated balance sheets include margin deposit assets of $26.2 million and $12.8 million at June 30, 2013 and December 31, 2012, respectively.

(2)   Balance at June 30, 2013 includes $8.0 million of net unrealized losses on derivative financial instruments designated as cash flow hedging instruments.

(3)    Balance at December 31, 2012 includes $2.1 million of net unrealized gains on derivative financial instruments designated as cash flow hedging instruments.

 

 

Refer to Note 2 - Fair Value Disclosures , which also contains fair value information related to derivative financial instruments.

 

13

 


 

 

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 the Company’s derivative financial instruments and the line items in the financial statements in which such gains and losses are reflected (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (Losses) on Derivative Instruments Not

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

Designated in a Hedging Relationship

 

2013

 

2012

 

2013

 

2012

Revenue

 

$

(2,815)

 

$

1,605 

 

$

(14,482)

 

$

(1,280)

Cost of goods sold

 

 

190 

 

 

(5,510)

 

 

11,207 

 

 

(4,325)

Net decrease recognized in earnings before tax

 

$

(2,625)

 

$

(3,905)

 

$

(3,275)

 

$

(5,605)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) Due to Ineffectiveness

 

Three Months Ended
June 30

 

Six Months Ended
June 30,

of Cash Flow Hedges

 

2013

 

2012

 

2013

 

2012

Revenue

 

$

(20)

 

$

 

$

(27)

 

$

12 

Cost of goods sold

 

 

 

 

439 

 

 

(24)

 

 

376 

Net increase (decrease) recognized in earnings before tax

 

$

(19)

 

$

446 

 

$

(51)

 

$

388 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (Losses) Reclassified from Accumulated
Other Comprehensive Income (Loss)

 

Three Months Ended
June 30

 

Six Months Ended
June 30,

into Net Income (Loss)

 

2013

 

2012

 

2013

 

2012

Revenue

 

$

(23,841)

 

$

2,941 

 

$

(34,220)

 

$

3,558 

Cost of goods sold

 

 

(6,034)

 

 

(653)

 

 

(6,867)

 

 

(5,352)

Net increase (decrease) recognized in earnings before tax

 

$

(29,875)

 

$

2,288 

 

$

(41,087)

 

$

(1,794)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Portion of Cash Flow
Hedges Recognized in

 

Three Months Ended
June 30

 

Six Months Ended
June 30,

Other Comprehensive Income (Loss)

 

2013

 

2012

 

2013

 

2012

Commodity Contracts

 

$

(25,891)

 

$

18,973 

 

$

(47,030)

 

$

19,041 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) from Fair Value

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

Hedges of Ethanol Inventory

 

2013

 

2012

 

2013

 

2012

Revenue (effect of change in inventory value)

 

$

(301)

 

$

(1,218)

 

$

 -

 

$

 -

Revenue (effect of fair value hedge)

 

 

301 

 

 

1,218 

 

 

 -

 

 

 -

Ineffectiveness recognized in earnings before tax

 

$

 -

 

$

 -

 

$

 -

 

$

 -

 

There were no gains or losses due to the discontinuance of cash flow hedge treatment or fair value hedge exposure during the six months ended June 30, 2013 and 2012.

 

14

 


 

 

The following table summarizes the volumes of open commodity derivative positions as of June 30, 2013 (in thousands):