Green Plains Inc.
Green Plains Renewable Energy, Inc. (Form: 10-Q, Received: 10/31/2013 17:14:01)

 

 

 

 

 

 

 

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 September 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.

 

x Yes   o 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   o 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   o      Accelerated filer x      Non-accelerated filer o     Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

 

o Yes   x No

 

The number of shares of common stock, par value $0.001 per share, outstanding as of October   28 , 2013 was   3 0 , 477,300   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  

40

 

 

 

Item 4.

Controls and Procedures

42

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

43

 

 

 

Item 1A.

Risk Factors

43

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

 

 

 

Item 3.

Defaults Upon Senior Securities

45

 

 

 

Item 4.

Mine Safety Disclosures

45

 

 

 

Item 5.

Other Information

45

 

 

 

Item 6.

Exhibits

46

 

 

 

Signatures  

47

 

 

 

 

1

 


 

 

GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

 

  CONSOLIDATED BALANCE SHEETS

 

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2013

 

2012

 

(unaudited)

 

 

 

ASSETS

Current assets

 

 

 

 

 

Cash and cash equivalents

$

334,509 

 

$

254,289 

Restricted cash

 

27,626 

 

 

25,815 

Accounts receivable, net of allowances of $252 and $219, respectively

 

76,982 

 

 

80,537 

Inventories

 

116,098 

 

 

172,009 

Prepaid expenses and other

 

7,766 

 

 

12,314 

Deferred income taxes

 

6,373 

 

 

2,133 

Derivative financial instruments

 

26,372 

 

 

20,938 

Total current assets

 

595,726 

 

 

568,035 

Property and equipment, net of accumulated depreciation of

 

 

 

 

 

$202,338 and $164,445, respectively

 

697,751 

 

 

708,110 

Goodwill

 

40,877 

 

 

40,877 

Other assets

 

48,778 

 

 

32,712 

Total assets

$

1,383,132 

 

$

1,349,734 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

 

 

 

 

 

Accounts payable

$

84,989 

 

$

95,564 

Accrued and other liabilities

 

28,531 

 

 

32,475 

Unearned revenue

 

10,899 

 

 

3,617 

Short-term notes payable and other borrowings

 

96,432 

 

 

171,302 

Current maturities of long-term debt

 

62,846 

 

 

129,426 

Total current liabilities

 

283,697 

 

 

432,384 

 

 

 

 

 

 

Long-term debt

 

487,926 

 

 

362,549 

Deferred income taxes

 

84,414 

 

 

60,082 

Other liabilities

 

5,039 

 

 

4,217 

Total liabilities

 

861,076 

 

 

859,232 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

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

 

 

 

 

 

37,407,240 and 36,903,777 shares issued, and 30,207,240

 

 

 

 

 

and 29,703,777 shares outstanding, respectively

 

37 

 

 

37 

Additional paid-in capital

 

462,831 

 

 

445,198 

Retained earnings

 

124,263 

 

 

107,540 

Accumulated other comprehensive income

 

733 

 

 

3,535 

Treasury stock, 7,200,000 shares

 

(65,808)

 

 

(65,808)

Total stockholders' equity

 

522,056 

 

 

490,502 

Total liabilities and stockholders' equity

$

1,383,132 

 

$

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
September 30,

 

Nine Months Ended
September 30,

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

757,971 

 

$

947,413 

 

$

2,328,142 

 

$

2,593,163 

Cost of goods sold

 

716,947 

 

 

919,516 

 

 

2,227,294 

 

 

2,538,363 

Gross profit

 

41,024 

 

 

27,897 

 

 

100,848 

 

 

54,800 

Selling, general and administrative expenses

 

15,490 

 

 

19,273 

 

 

44,048 

 

 

58,350 

Operating income (loss)

 

25,534 

 

 

8,624 

 

 

56,800 

 

 

(3,550)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

64 

 

 

46 

 

 

166 

 

 

144 

Interest expense

 

(7,608)

 

 

(9,832)

 

 

(23,440)

 

 

(28,741)

Other, net

 

(947)

 

 

(448)

 

 

(2,077)

 

 

(1,859)

Total other expense

 

(8,491)

 

 

(10,234)

 

 

(25,351)

 

 

(30,456)

Income (loss) before income taxes

 

17,043 

 

 

(1,610)

 

 

31,449 

 

 

(34,006)

Income tax expense (benefit)

 

7,633 

 

 

(604)

 

 

13,519 

 

 

(12,749)

Net income (loss)

 

9,410 

 

 

(1,006)

 

 

17,930 

 

 

(21,257)

Net loss attributable to noncontrolling interests

 

 -

 

 

 

 

 -

 

 

13 

Net income (loss) attributable to Green Plains

$

9,410 

 

$

(1,002)

 

$

17,930 

 

$

(21,244)

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Green Plains - basic

$

0.31 

 

$

(0.03)

 

$

0.60 

 

$

(0.70)

Net income (loss) attributable to Green Plains - diluted

$

0.28 

 

$

(0.03)

 

$

0.56 

 

$

(0.70)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

30,204 

 

 

29,655 

 

 

30,100 

 

 

30,499 

Diluted

 

37,483 

 

 

29,655 

 

 

36,818 

 

 

30,499 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividend declared per share

$

0.04 

 

$

 -

 

$

0.04 

 

$

 -

 

 

 

 

 

 

 

 

 

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
September 30,

 

Nine Months Ended
September 30,

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

9,410 

 

$

(1,006)

 

$

17,930 

 

$

(21,257)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on derivatives arising during period,

 

 

 

 

 

 

 

 

 

 

 

net of tax (expense) benefit of $6,307, $(9,957), $24,746 and

 

 

 

 

 

 

 

 

 

 

 

$(17,045), respectively

 

(9,092)

 

 

16,540 

 

 

(37,683)

 

 

28,493 

Reclassification of realized (gains) losses on derivatives, net

 

 

 

 

 

 

 

 

 

 

 

of tax expense (benefit) of $(6,797), $4,245, $(22,906) and

 

 

 

 

 

 

 

 

 

 

 

$3,557, respectively

 

9,903 

 

 

(7,052)

 

 

34,881 

 

 

(5,945)

Total other comprehensive income (loss), net of tax

 

811 

 

 

9,488 

 

 

(2,802)

 

 

22,548 

Comprehensive income

 

10,221 

 

 

8,482 

 

 

15,128 

 

 

1,291 

Comprehensive loss attributable to noncontrolling interests

 

 -

 

 

 

 

 -

 

 

13 

Comprehensive income attributable to Green Plains

$

10,221 

 

$

8,486 

 

$

15,128 

 

$

1,304 

 

 

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)

 

 

 

 

 

 

 

 

Nine Months Ended
September 30,

 

2013

 

2012

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

$

17,930 

 

$

(21,257)

Adjustments to reconcile net income (loss) to net cash

 

 

 

 

 

provided (used) by operating activities:

 

 

 

 

 

Depreciation and amortization

 

37,807 

 

 

39,922 

Amortization of debt issuance costs

 

2,697 

 

 

2,314 

Deferred income taxes

 

12,897 

 

 

741 

Stock-based compensation expense

 

2,863 

 

 

3,149 

Undistributed equity in loss of affiliates

 

2,078 

 

 

1,858 

Allowance for doubtful accounts

 

33 

 

 

225 

Changes in operating assets and liabilities before

 

 

 

 

 

effects of business combinations:

 

 

 

 

 

Accounts receivable

 

3,522 

 

 

3,492 

Inventories

 

56,309 

 

 

(11,297)

Derivative financial instruments

 

(10,121)

 

 

(2,858)

Prepaid expenses and other assets

 

2,239 

 

 

(971)

Accounts payable and accrued liabilities

 

(15,343)

 

 

(21,319)

Unearned revenues

 

7,282 

 

 

(11,151)

Other

 

903 

 

 

(270)

Net cash provided (used) by operating activities

 

121,096 

 

 

(17,422)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(12,593)

 

 

(23,892)

Acquisition of businesses, net of cash acquired

 

(15,305)

 

 

(1,490)

Investments in unconsolidated subsidiaries

 

(3,147)

 

 

(6,513)

Net cash used by investing activities

 

(31,045)

 

 

(31,895)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from the issuance of long-term debt, including convertible notes

 

185,600 

 

 

53,200 

Payments of principal on long-term debt

 

(110,476)

 

 

(87,690)

Proceeds from short-term borrowings

 

2,489,569 

 

 

2,457,848 

Payments on short-term borrowings

 

(2,564,337)

 

 

(2,398,289)

Payments for repurchase of common stock

 

 -

 

 

(10,445)

Payment of dividend

 

(1,207)

 

 

 -

Change in restricted cash

 

(1,811)

 

 

46 

Payments of loan fees

 

(7,766)

 

 

(306)

Proceeds from exercises of stock options

 

597 

 

 

142 

Net cash provided (used) by financing activities

 

(9,831)

 

 

14,506 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

80,220 

 

 

(34,811)

Cash and cash equivalents, beginning of period

 

254,289 

 

 

174,988 

Cash and cash equivalents, end of period

$

334,509 

 

$

140,177 

 

 

 

 

 

 

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

 

 

 

 

 

 

Nine Months Ended
September 30,

 

2013

 

2012

 

 

 

 

 

 

Supplemental disclosures of cash flow:

 

 

 

 

 

Cash paid for income taxes

$

2,069 

 

$

495 

Cash paid for interest

$

22,209 

 

$

24,479 

 

 

 

 

 

 

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 September 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

$

334,509 

 

$

 -

 

$

 -

 

$

334,509 

Restricted cash

 

27,626 

 

 

 -

 

 

 -

 

 

27,626 

Margin deposits

 

28,290 

 

 

 -

 

 

(28,290)

 

 

 -

Inventories carried at market

 

 -

 

 

90 

 

 

 -

 

 

90 

Derivative financial instruments

 

2,690 

 

 

8,603 

 

 

15,079 

 

 

26,372 

Other assets (1)

 

2,200 

 

 

 -

 

 

 -

 

 

2,200 

Total assets measured at fair value

$

395,315 

 

$

8,693 

 

$

(13,211)

 

$

390,797 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

$

13,211 

 

$

4,972 

 

$

(13,211)

 

$

4,972 

Other

 

93 

 

 

 -

 

 

 -

 

 

93 

Total liabilities measured at fair value

$

13,304 

 

$

4,972 

 

$

(13,211)

 

$

5,065 

(1) Represents long-term restricted cash   related to the $22.0 million revenue bond of Green Plains Bluffton.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

25,815 

 

 

 -

 

 

 -

 

 

25,815 

Margin deposits

 

12,847 

 

 

 -

 

 

(12,847)

 

 

 -

Inventories carried at market

 

 -

 

 

61,763 

 

 

 -

 

 

61,763 

Derivative financial instruments

 

7,337 

 

 

3,254 

 

 

10,347 

 

 

20,938 

Other assets (1)

 

2,200 

 

 

 -

 

 

 -

 

 

2,200 

Total assets measured at fair value

$

302,488 

 

$

65,017 

 

$

(2,500)

 

$

365,005 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

$

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 

(1) Represents long-term restricted cash   related to the $22.0 million revenue bond of Green Plains Bluffton.

 

The Company believes the fair value of its debt approximated $ 676.0 million compared to a book value of $647.2 million at September 30, 2013.   The Company estimates the fair value of its outstanding debt using Level 2 inputs.   The Company believes the fair values of its accounts receivable and accounts payable, which were   $ 77.0 million and $ 85.0 million , respectively, at September 30 , 201 3 approximated book value.   The Company believes the fair values of its debt, accounts receivable and accounts payable , which were  $ 663. 3 million ,  $ 80.5 million and $ 95.6 million, respectively ,   at December 31, 201 2 approximated book value .  

 

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 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   on July 25, 2013. Also in June 2013, the Company acquired a grain elevator in Archer, Nebraska .   During the third quarter of 2013, the Company completed construct ion of additional stor age capacity of 2.4 million bushels at its grain elevators and 7.0 million bushels at its ethanol plants.

 

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.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2013

 

2012

 

2013

 

2012

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Ethanol production:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

$

39,766 

 

$

52,982 

 

$

118,511 

 

$

149,115 

Intersegment revenues

 

477,103 

 

 

439,917 

 

 

1,437,821 

 

 

1,268,851 

Total segment revenues

 

516,869 

 

 

492,899 

 

 

1,556,332 

 

 

1,417,966 

Corn oil production:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

 -

 

 

 

 

 -

 

 

518 

Intersegment revenues

 

17,290 

 

 

14,530 

 

 

49,304 

 

 

43,003 

Total segment revenues

 

17,290 

 

 

14,531 

 

 

49,304 

 

 

43,521 

Agribusiness:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

5,055 

 

 

125,446 

 

 

43,178 

 

 

300,051 

Intersegment revenues

 

274,100 

 

 

50,254 

 

 

498,189 

 

 

134,725 

Total segment revenues

 

279,155 

 

 

175,700 

 

 

541,367 

 

 

434,776 

Marketing and distribution:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

713,150 

 

 

768,984 

 

 

2,166,453 

 

 

2,143,479 

Intersegment revenues

 

9,629 

 

 

111 

 

 

13,042 

 

 

302 

Total segment revenues

 

722,779 

 

 

769,095 

 

 

2,179,495 

 

 

2,143,781 

Revenues including intersegment activity

 

1,536,093 

 

 

1,452,225 

 

 

4,326,498 

 

 

4,040,044 

Intersegment eliminations

 

(778,122)

 

 

(504,812)

 

 

(1,998,356)

 

 

(1,446,881)

Revenues as reported

$

757,971 

 

$

947,413 

 

$

2,328,142 

 

$

2,593,163 

 

 

11

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2013

 

2012

 

2013

 

2012

Gross profit (loss):

 

 

 

 

 

 

 

 

 

 

 

Ethanol production

$

22,269 

 

$

(3,701)

 

$

34,228 

 

$

(20,610)

Corn oil production

 

9,649 

 

 

7,865 

 

 

25,431 

 

 

25,205 

Agribusiness

 

815 

 

 

12,513 

 

 

2,986 

 

 

27,357 

Marketing and distribution

 

8,615 

 

 

10,980 

 

 

39,074 

 

 

21,769 

Intersegment eliminations

 

(324)

 

 

240 

 

 

(871)

 

 

1,079 

 

$

41,024 

 

$

27,897 

 

$

100,848 

 

$

54,800 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

Ethanol production

$

17,851 

 

$

(7,520)

 

$

22,508 

 

$

(32,435)

Corn oil production

 

9,596 

 

 

7,811 

 

 

25,226 

 

 

25,011 

Agribusiness

 

163 

 

 

5,849 

 

 

781 

 

 

8,916 

Marketing and distribution

 

4,456 

 

 

7,162 

 

 

26,654 

 

 

10,546 

Intersegment eliminations

 

(324)

 

 

240 

 

 

(826)

 

 

1,113 

Corporate activities

 

(6,208)

 

 

(4,918)

 

 

(17,543)

 

 

(16,701)

 

$

25,534 

 

$

8,624 

 

$

56,800 

 

$

(3,550)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2013

 

2012

 

2013

 

2012

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Ethanol

$

595,152 

 

$

672,177 

 

$

1,798,297 

 

$

1,887,376 

Distillers grains

 

110,426 

 

 

111,432 

 

 

364,866 

 

 

310,962 

Corn oil

 

19,375 

 

 

15,255 

 

 

53,749 

 

 

44,041 

Grain

 

23,081 

 

 

113,567 

 

 

78,703 

 

 

252,490 

Agronomy products

 

83 

 

 

10,294 

 

 

183 

 

 

42,612 

Other

 

9,854 

 

 

24,688 

 

 

32,344 

 

 

55,682 

 

$

757,971 

 

$

947,413 

 

$

2,328,142 

 

$

2,593,163 

 

 

The following table sets forth total assets by operating segment for the periods indicated (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2013

 

2012

Total assets:

 

 

 

 

 

Ethanol production

$

814,178 

 

$

831,939 

Corn oil production

 

27,737 

 

 

27,751 

Agribusiness

 

66,769 

 

 

179,930 

Marketing and distribution

 

252,514 

 

 

184,541 

Corporate assets

 

223,147 

 

 

150,797 

Intersegment eliminations

 

(1,213)

 

 

(25,224)

 

$

1,383,132 

 

$

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):

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2013

 

2012

Finished goods

$

63,143 

 

$

58,080 

Grain held for sale

 

90 

 

 

61,763 

Raw materials

 

28,327 

 

 

28,494 

Work-in-process

 

12,508 

 

 

13,326 

Supplies and parts

 

12,030 

 

 

10,346 

 

$

116,098 

 

$

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 nine months ended September 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 September 30, 2013, the Company’s consolidated balance sheet reflects unrealized gains , net of tax, of $ 0.7   million in accumulated other comprehensive income . The Company expects that all of the unrealized gains at September 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

 

 

September 30,

 

December 31,

 

September 30,

 

December 31,

 

 

2013

 

2012

 

2013

 

2012

Derivative financial instruments (1)

 

$

(1,918)

(2)

$

8,091 

(3)

$

 -

 

$

 -

Accrued and other liabilities

 

 

 -

 

 

 -

 

 

4,972 

 

 

2,103 

Other liabilities

 

 

 -

 

 

 -

 

 

 -

 

 

44 

Total

 

$

(1,918)

 

$

8,091 

 

$

4,972 

 

$

2,147 

 

(1) Derivative financial instruments as reflected on the consolidated balance sheets are net of related margin deposit assets of $ 28.3 million and $12.8 million at September 30, 2013 and December 31, 2012, respectively.

(2) Balance at September 30, 2013 includes $ 8.6 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
September 30,

 

Nine Months Ended
September 30,

Designated in a Hedging Relationship

 

2013

 

2012

 

2013

 

2012

Revenues

 

$

(2,241)

 

$

(10,190)

 

$

(16,724)

 

$

(11,469)

Cost of goods sold

 

 

2,982 

 

 

(6,255)

 

 

14,189 

 

 

(10,580)

Net increase (decrease) recognized in earnings before tax

 

$

741 

 

$

(16,445)

 

$

(2,535)

 

$

(22,049)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) Due to Ineffectiveness

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

of Cash Flow Hedges

 

2013

 

2012

 

2013

 

2012

Revenues

 

$

53 

 

$

(22)

 

$

26 

 

$

(10)

Cost of goods sold

 

 

(410)

 

 

(405)

 

 

(434)

 

 

(29)

Net decrease recognized in earnings before tax

 

$

(357)

 

$

(427)

 

$

(408)

 

$

(39)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

into Net Income (Loss)

 

2013

 

2012

 

2013

 

2012

Revenues

 

$

(11,642)

 

$

(1,994)

 

$

(45,862)

 

$

1,563 

Cost of goods sold

 

 

(5,058)

 

 

13,291 

 

 

(11,925)

 

 

7,939 

Net increase (decrease) recognized in earnings before tax

 

$

(16,700)

 

$

11,297 

 

$

(57,787)

 

$

9,502 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Portion of Cash Flow
Hedges Recognized in

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

Other Comprehensive Income (Loss)

 

2013

 

2012

 

2013

 

2012

Commodity Contracts

 

$

(15,399)

 

$

26,497 

 

$

(62,429)

 

$

45,538 

 

 

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

 

14

 


 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2013

 

 

Exchange Traded

 

Non-Exchange Traded

 

 

 

 

Derivative Instruments

 

Net Long & (Short) (1)

 

Long (2)

 

(Short) (2)

 

Unit of Measure

 

Commodity

Futures

 

280 

 

 

 

 

 

Bushels

 

Corn, Soybeans and Wheat

Futures

 

28,915 

(3)

 

 

 

 

Bushels

 

Corn

Futures

 

(1,218)

 

 

 

 

 

Gallons

 

Ethanol