Green Plains Inc.
Green Plains Inc. (Form: 10-Q, Received: 07/31/2014 16:58:34)

 

 

 

 

 

 

 

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 , 2014

 

Commission File Number 001-32924

 

Green Plains 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.

 

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).

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      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   No

 

The number of shares of common stock, par value $0.001 per share, outstanding as of July 28, 2014 was 37,564,050   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 Loss  

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

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk  

40

 

 

 

Item 4.

Controls and Procedures

42

 

 

 

 

 

 

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

44

 

 

 

Item 3.

Defaults Upon Senior Securities

44

 

 

 

Item 4.

Mine Safety Disclosures

44

 

 

 

Item 5.

Other Information

44

 

 

 

Item 6.

Exhibits

44

 

 

 

Signatures  

46

 

 

 

 

1

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

  CONSOLIDATED BALANCE SHEETS

 

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

2014

 

2013

 

(unaudited)

 

 

 

ASSETS

Current assets

 

 

 

 

 

Cash and cash equivalents

$

333,379 

 

$

272,027 

Restricted cash

 

41,278 

 

 

26,994 

Accounts receivable, net of allowances of $360 and $308 , respectively

 

120,902 

 

 

106,808 

Inventories

 

135,039 

 

 

158,328 

Prepaid expenses and other

 

11,409 

 

 

12,893 

Deferred income taxes

 

8,255 

 

 

7,619 

Derivative financial instruments

 

62,664 

 

 

48,636 

Total current assets

 

712,926 

 

 

633,305 

Property and equipment, net of accumulated depreciation of

 

 

 

 

 

$244,105 and $215,519 , respectively

 

818,738 

 

 

806,046 

Goodwill

 

40,877 

 

 

40,877 

Other assets

 

53,350 

 

 

51,817 

Total assets

$

1,625,891 

 

$

1,532,045 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

 

 

 

 

 

Accounts payable

$

111,724 

 

$

112,001 

Accrued and other liabilities

 

41,120 

 

 

37,949 

Income taxes payable

 

24,731 

 

 

696 

Unearned revenue

 

7,236 

 

 

4,118 

Short-term notes payable and other borrowings

 

131,589 

 

 

171,500 

Current maturities of long-term debt

 

38,226 

 

 

82,933 

Total current liabilities

 

354,626 

 

 

409,197 

 

 

 

 

 

 

Long-term debt

 

461,913 

 

 

480,746 

Deferred income taxes

 

96,465 

 

 

91,294 

Other liabilities

 

5,521 

 

 

5,450 

Total liabilities

 

918,525 

 

 

986,687 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

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

 

 

 

 

 

44,764,050 and 37,703,946 shares issued, and 37,564,050

 

 

 

 

 

and 30,503,946 shares outstanding, respectively

 

45 

 

 

38 

Additional paid-in capital

 

565,939 

 

 

468,962 

Retained earnings

 

221,129 

 

 

148,505 

Accumulated other comprehensive loss

 

(13,939)

 

 

(6,339)

Treasury stock, 7,200,000 shares

 

(65,808)

 

 

(65,808)

Total stockholders' equity

 

707,366 

 

 

545,358 

Total liabilities and stockholders' equity

$

1,625,891 

 

$

1,532,045 

 

See accompanying notes to the consolidated financial statements.

 

2

 


 

 

GREEN PLAINS 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,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

837,858 

 

$

804,696 

 

$

1,571,747 

 

$

1,570,172 

Cost of goods sold

 

759,543 

 

 

772,085 

 

 

1,392,683 

 

 

1,510,347 

Gross profit

 

78,315 

 

 

32,611 

 

 

179,064 

 

 

59,825 

Selling, general and administrative expenses

 

19,369 

 

 

14,049 

 

 

41,774 

 

 

28,558 

Operating income

 

58,946 

 

 

18,562 

 

 

137,290 

 

 

31,267 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

143 

 

 

63 

 

 

255 

 

 

102 

Interest expense

 

(9,704)

 

 

(7,762)

 

 

(19,463)

 

 

(15,833)

Other, net

 

704 

 

 

(610)

 

 

1,734 

 

 

(1,130)

Total other expense

 

(8,857)

 

 

(8,309)

 

 

(17,474)

 

 

(16,861)

Income before income taxes

 

50,089 

 

 

10,253 

 

 

119,816 

 

 

14,406 

Income tax expense

 

17,775 

 

 

4,288 

 

 

44,299 

 

 

5,886 

Net income

$

32,314 

 

$

5,965 

 

$

75,517 

 

$

8,520 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.86 

 

$

0.20 

 

$

2.14 

 

$

0.28 

Diluted

$

0.82 

 

$

0.19 

 

$

1.88 

 

$

0.28 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

37,467 

 

 

30,160 

 

 

35,322 

 

 

30,047 

Diluted

 

39,359 

 

 

36,804 

 

 

41,308 

 

 

30,367 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividend declared per share

$

0.04 

 

$

 -

 

$

0.08 

 

$

 -

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.

 

3

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

32,314 

 

$

5,965 

 

$

75,517 

 

$

8,520 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on derivatives arising during period,

 

 

 

 

 

 

 

 

 

 

 

net of tax (expense) benefit of ($12,364) ,   $10,807 ,   $72,146

 

 

 

 

 

 

 

 

 

 

 

and $18,438 , respectively

 

19,671 

 

 

(15,084)

 

 

(119,121)

 

 

(28,592)

Reclassification of realized (gains) losses on derivatives, net

 

 

 

 

 

 

 

 

 

 

 

of tax benefit of $36,471 ,   $12,470 ,   $67,543

 

 

 

 

 

 

 

 

 

 

 

and $16,108 , respectively

 

58,020 

 

 

17,405 

 

 

111,521 

 

 

24,979 

Total other comprehensive income (loss), net of tax

 

77,691 

 

 

2,321 

 

 

(7,600)

 

 

(3,613)

Comprehensive income

$

110,005 

 

$

8,286 

 

$

67,917 

 

$

4,907 

 

 

See accompanying notes to the consolidated financial statements.

 

4

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited and in thousands)

 

 

 

 

 

 

 

 

Six Months Ended
June 30,

 

2014

 

2013

Cash flows from operating activities:

 

 

 

 

 

Net income

$

75,517 

 

$

8,520 

Adjustments to reconcile net income to net cash

 

 

 

 

 

provided (used) by operating activities:

 

 

 

 

 

Depreciation and amortization

 

29,362 

 

 

25,044 

Amortization of debt issuance costs

 

2,473 

 

 

1,841 

Amortization of debt discount

 

2,076 

 

 

 -

Deferred income taxes

 

9,463 

 

 

6,303 

Stock-based compensation

 

3,037 

 

 

1,892 

Undistributed equity in (income) loss of affiliates

 

871 

 

 

1,130 

Other

 

52 

 

 

1,402 

Changes in operating assets and liabilities before

 

 

 

 

 

effects of business combinations:

 

 

 

 

 

Accounts receivable

 

(6,509)

 

 

(25,450)

Inventories

 

29,018 

 

 

66,006 

Derivative financial instruments

 

(26,232)

 

 

(3,896)

Prepaid expenses and other assets

 

1,599 

 

 

6,323 

Accounts payable and accrued liabilities

 

2,461 

 

 

(18,935)

Income taxes payable

 

24,035 

 

 

(1,497)

Unearned revenues

 

2,854 

 

 

1,237 

Other

 

936 

 

 

(136)

Net cash provided by operating activities

 

151,013 

 

 

69,784 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(28,935)

 

 

(4,948)

Acquisition of businesses, net of cash acquired

 

(23,900)

 

 

(15,305)

Investments in unconsolidated subsidiaries

 

(3,277)

 

 

(803)

Net cash used by investing activities

 

(56,112)

 

 

(21,056)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from the issuance of long-term debt

 

443,767 

 

 

39,700 

Payments of principal on long-term debt

 

(419,699)

 

 

(72,635)

Proceeds from short-term borrowings

 

1,782,974 

 

 

1,658,400 

Payments on short-term borrowings

 

(1,822,904)

 

 

(1,726,284)

Payment of cash dividends

 

(2,893)

 

 

 -

Change in restricted cash

 

(12,084)

 

 

12,728 

Payments of loan fees

 

(6,286)

 

 

(1,936)

Proceeds from exercises of stock options

 

3,576 

 

 

473 

Net cash used by financing activities

 

(33,549)

 

 

(89,554)

 

 

 

 

 

 

Net change in cash and cash equivalents

 

61,352 

 

 

(40,826)

Cash and cash equivalents, beginning of period

 

272,027 

 

 

254,289 

Cash and cash equivalents, end of period

$

333,379 

 

$

213,463 

 

 

 

 

 

 

Continued on the following page

 

 

 

 

 

 

 

 

 

5

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continued from the previous page

 

 

 

 

 

 

Six Months Ended
June 30,

 

2014

 

2013

 

 

 

 

 

 

Supplemental disclosures of cash flow:

 

 

 

 

 

Cash paid for income taxes

$

7,790 

 

$

1,831 

Cash paid for interest

$

18,117 

 

$

16,072 

 

 

 

 

 

 

Supplemental investing and financing activities:

 

 

 

 

 

Assets acquired in acquisitions and mergers

$

25,611 

 

$

15,870 

Less: liabilities assumed

 

(1,711)

 

 

(565)

Net assets acquired

$

23,900 

 

$

15,305 

 

 

 

 

 

 

Common stock issued for conversion of 5.75% Notes

$

89,950 

 

$

 -

 

 

 

See accompanying notes to the consolidated financial statements.

6

 


 

 

GREEN PLAINS 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 Inc., an Iowa corporation, and its subsidiaries.

 

Consolidated Financial Statements

 

The consolidated financial statements include the accounts of the Company and its controlled subsidiaries. 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, 2013.

 

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 and cattle feedlot operations , collectively referred to as agribusiness, and (4) marketing, merchant trading 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. The Company also is a partner in a joint venture to commercialize advanced technologies for 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   when these services are completed .

 

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 , including cattle, 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 and cattle inventories and forward purchase and sale contracts. Exchange-traded futures and options contracts are valued at quoted market prices. 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 sale contracts. 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.

 

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 purchase or normal sale 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 sale 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 related to 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, 2017, the Company will adopt the amended guidance in ASC Topic 606, Revenue from Contracts with Customers . The amended guidance requires revenue recognition to reflect the transfer of promised goods or services to customers and replaces existing revenue recognition guidance. The updated standard permits the use of either the retrospective or cumulative effect transition method. The Company has not yet selected a transition method nor has it determined the effect of the updated standard on its consolidated financial statements and related disclosures.

 

2 .  ACQUISITION

 

Acquisition of Fairmont and Wood River Ethanol Plants

 

In November 2013, the Company acquired two ethanol plants, located in Fairmont, Minnesota and Wood River, Nebraska, with a combined annual production capacity of 230 million gallons, from Ethanol Holding Company, LLC, an entity composed of the predecessor owners’ lender group. Consideration of $108.0 million, which included a preliminary amount for working capital, was paid in cash and acquisition-related costs of $0.8 million were recorded in selling, general and administrative expenses. The Company issued approximately $77.0 million of short-term notes payable and term debt shortly after the acquisition, with the acquired assets serving as collateral for these loans, and entered into capital leases totaling $10.0 million for grain facilities that were previously leased by the predecessor owner of the acquired assets. At the time of acquisition, the ethanol plant in Fairmont, Minnesota was not operational; however, upon completion of certain maintenance and enhancement projects, the Company began operations at the plant in early January 2014. The following is a summary of assets acquired and liabilities assumed (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Amounts of Identifiable Assets Acquired
and Liabilities Assumed

Accounts receivable

 

$

119 

Inventory

 

 

8,680 

Prepaid expenses and other

 

 

2,696 

Property and equipment, net

 

105,956 

Other assets

 

 

4,193 

 

Current liabilities

 

(4,260)

Long-term portion of capital leases and

 

tax increment financing bond

(7,895)

Other liabilities

 

 

 

(1,489)

Total identifiable net assets

 

$

108,000 

 

The amounts above reflect an updated preliminary purchase price allocation, which did not change materially from the initial allocation.  Later this year, upon finalization of the purchase price, including working capital adjustments, the Company will complete the allocation, which it does not expect to differ materially from the preliminary amounts shown above.

 

9

 


 

 

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. 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, 2014

 

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

$

333,379 

 

$

 -

 

$

 -

 

$

333,379 

Restricted cash

 

41,278 

 

 

 -

 

 

 -

 

 

41,278 

Margin deposits

 

69,387 

 

 

 -

 

 

(69,387)

 

 

 -

Inventories carried at market

 

 -

 

 

20,099 

 

 

 -

 

 

20,099 

Unrealized gains on derivatives

 

6,914 

 

 

29,282 

 

 

26,468 

 

 

62,664 

Other assets

 

119 

 

 

 -

 

 

 -

 

 

119 

Total assets measured at fair value

$

451,077 

 

$

49,381 

 

$

(42,919)

 

$

457,539 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on derivatives

$

34,820 

 

$

20,184 

 

$

(42,919)

 

$

12,085 

Total liabilities measured at fair value

$

34,820 

 

$

20,184 

 

$

(42,919)

 

$

12,085 

 

10

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 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

$

272,027 

 

$

 -

 

$

 -

 

$

272,027 

Restricted cash

 

26,994 

 

 

 -

 

 

 -

 

 

26,994 

Margin deposits

 

77,102 

 

 

 -

 

 

(77,102)

 

 

 -

Inventories carried at market

 

 -

 

 

23,782 

 

 

 -

 

 

23,782 

Unrealized gains on derivatives

 

3,629 

 

 

18,712 

 

 

26,295 

 

 

48,636 

Other assets (1)

 

2,200 

 

 

 -

 

 

 -

 

 

2,200 

Total assets measured at fair value

$

381,952 

 

$

42,494 

 

$

(50,807)

 

$

373,639 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on derivatives

$

50,807 

 

$

4,612 

 

$

(50,807)

 

$

4,612 

Other

 

 

 

 -

 

 

 -

 

 

Total liabilities measured at fair value

$

50,816 

 

$

4,612 

 

$

(50,807)

 

$

4,621 

(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 $636.1 million compared to a book value of $631.7 million at June 30, 2014 and the fair value of its debt approximated $775.7 million compared to a book value of $735.2 million at December 31, 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 approximated book value, which were $120.9 million and $111.7 million, respectively, at June 30, 2014 and $106.8 million and $112.0 million, respectively, at December 31, 2013.

 

Although the Company currently does not have any recurring Level 3 financial measurements, the fair values of the tangible assets and goodwill acquired and the equity component of convertible debt 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 or liabilities 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 handling and storage and cattle feedlot operations, collectively referred to as agribusiness, and (4) marketing, merchant trading 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.

 

11

 


 

 

The following tables set forth 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,

 

2014

 

2013

 

2014

 

2013

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Ethanol production:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

$

(71,054)

 

$

34,338 

 

$

(98,486)

 

$

78,745 

Intersegment revenues

 

603,529 

 

 

496,066 

 

 

1,169,332 

 

 

960,717 

Total segment revenues

 

532,475 

 

 

530,404 

 

 

1,070,846 

 

 

1,039,462 

Corn oil production:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

 

(7)

 

 

 -

 

 

 -

 

 

 -

Intersegment revenues

 

20,381 

 

 

16,315 

 

 

36,765 

 

 

32,014 

Total segment revenues

 

20,374 

 

 

16,315 

 

 

36,765 

 

 

32,014 

Agribusiness:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

 

33,488 

 

 

15,998 

 

 

51,729 

 

 

38,124 

Intersegment revenues

 

347,116 

 

 

159,170 

 

 

651,354 

 

 

224,088 

Total segment revenues

 

380,604 

 

 

175,168 

 

 

703,083 

 

 

262,212 

Marketing and distribution:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

 

875,431 

 

 

754,360 

 

 

1,618,504 

 

 

1,453,303 

Intersegment revenues

 

34,595 

 

 

2,123 

 

 

68,060 

 

 

3,413 

Total segment revenues

 

910,026 

 

 

756,483 

 

 

1,686,564 

 

 

1,456,716 

Revenues including intersegment activity

 

1,843,479 

 

 

1,478,370 

 

 

3,497,258 

 

 

2,790,404 

Intersegment eliminations

 

(1,005,621)

 

 

(673,674)

 

 

(1,925,511)

 

 

(1,220,232)

Revenues as reported

$

837,858 

 

$

804,696 

 

$

1,571,747 

 

$

1,570,172 

 

 

 

(1)

Revenues from external customers include realized gains and losses from derivative financial instruments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2014

 

2013

 

2014

 

2013

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

Ethanol production

$

35,171 

 

$

10,729 

 

$

106,859 

 

$

11,959 

Corn oil production

 

10,931 

 

 

7,873 

 

 

18,746 

 

 

15,782 

Agribusiness

 

2,499 

 

 

945 

 

 

5,475 

 

 

2,171 

Marketing and distribution

 

9,899 

 

 

13,404 

 

 

50,615 

 

 

30,459 

Intersegment eliminations

 

19,815 

 

 

(340)

 

 

(2,631)

 

 

(546)

 

$

78,315 

 

$

32,611 

 

$

179,064 

 

$

59,825 

Operating income:

 

 

 

 

 

 

 

 

 

 

 

Ethanol production

$

30,111 

 

$

7,006 

 

$

96,337 

 

$

4,657 

Corn oil production

 

10,874 

 

 

7,821 

 

 

18,582 

 

 

15,631 

Agribusiness

 

1,269 

 

 

248 

 

 

2,205 

 

 

617 

Marketing and distribution

 

4,391 

 

 

9,210 

 

 

36,885 

 

 

22,196 

Intersegment eliminations

 

19,815 

 

 

(340)

 

 

(2,571)

 

 

(500)

Corporate activities

 

(7,514)

 

 

(5,383)

 

 

(14,148)

 

 

(11,334)

 

$

58,946 

 

$

18,562 

 

$

137,290 

 

$

31,267 

 

12

 


 

 

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,

 

2014

 

2013

 

2014

 

2013

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Ethanol

$

618,386 

 

$

624,367 

 

$

1,148,427 

 

$

1,203,902 

Distillers grains

 

143,695 

 

 

123,020 

 

 

280,687 

 

 

254,440 

Corn oil

 

22,196 

 

 

17,276 

 

 

39,328 

 

 

34,372 

Grain

 

44,172 

 

 

28,547 

 

 

73,372 

 

 

54,867 

Other

 

9,409 

 

 

11,486 

 

 

29,933 

 

 

22,591 

 

$

837,858 

 

$

804,696 

 

$

1,571,747 

 

$

1,570,172 

 

The following table sets forth total assets by operating segment (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

2014

 

2013

Total assets:

 

 

 

 

 

Ethanol production

$

917,151 

 

$

911,315 

Corn oil production

 

34,951 

 

 

28,569 

Agribusiness

 

118,028 

 

 

165,570 

Marketing and distribution

 

299,156 

 

 

258,361 

Corporate assets

 

266,272 

 

 

175,210 

Intersegment eliminations

 

(9,667)

 

 

(6,980)

 

$

1,625,891 

 

$

1,532,045 

 

 

5.  INVENTORIES

 

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

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

2014

 

2013

Finished goods

$

45,063 

 

$

56,664 

Grain held for sale

 

10,399 

 

 

23,782 

Raw materials

 

49,507 

 

 

51,726 

Work-in-process

 

13,127 

 

 

11,506 

Supplies and parts

 

16,943 

 

 

14,650 

 

$

135,039 

 

$

158,328 

 

 

6 .  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 , 2014 . Goodwill of $ 30.3 million is attributable to the ethanol production segment and $ 10.6 million is attributable to the marketing and distribution segment.

 

 

7.  DERIVATIVE FINANCIAL INSTRUMENTS

 

At June 30, 2014, the Company’s consolidated balance sheet reflects unrealized losses, net of tax, of $13.9 million in accumulated other comprehensive loss. The Company expects that all of the unrealized losses at June 30, 2014 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.

13

 


 

 

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,

 

 

2014

 

2013

 

2014

 

2013

Derivative financial instruments (1)

 

$

(6,723)

(2)

$

(28,466)

(3)

$

 -

 

$

 -

Accrued and other liabilities

 

 

 -

 

 

 -

 

 

12,085 

 

 

4,612 

Total

 

$

(6,723)

 

$

(28,466)

 

$

12,085 

 

$

4,612 

 

(1) Derivative financial instruments as reflected on the consolidated balance sheets are net of related margin deposit assets of $ 69.4 million and $ 77.1 million at June 30, 2014 and December 31, 2013, respectively.

(2) Balance at June 30, 2014 includes $ 42.2 million of net unrealized losses on derivative financial instruments designated as cash flow hedging instruments.

(3) Balance at December 31, 2013 includes $ 47.1 million of net unrealized losses 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 gains or losses recognized in income and other comprehensive income on the Company’s derivative financial instruments and the line items in the consolidated 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

 

2014

 

2013

 

2014

 

2013

Revenues

 

$

(4,884)

 

$

(2,815)

 

$

13,366 

 

$

(14,482)

Cost of goods sold

 

 

3,560 

 

 

190 

 

 

2,398 

 

 

11,207 

Net increase (decrease) recognized in earnings before tax

 

$

(1,324)

 

$

(2,625)

 

$

15,764 

 

$

(3,275)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (Losses) Due to Ineffectiveness

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

of Cash Flow Hedges

 

2014

 

2013

 

2014

 

2013

Revenues

 

$

264 

 

$

(20)

 

$

(82)

 

$

(27)

Cost of goods sold

 

 

(1,610)

 

 

 

 

(750)

 

 

(24)

Net increase (decrease) recognized in earnings before tax

 

$

(1,346)

 

$

(19)

 

$

(832)

 

$

(51)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

into Net Income

 

2014

 

2013

 

2014

 

2013

Revenues

 

$

(125,177)

 

$

(23,841)

 

$

(213,323)

 

$

(34,220)

Cost of goods sold

 

 

30,686 

 

 

(6,034)

 

 

34,259 

 

 

(6,867)

Net decrease recognized in earnings before tax

 

$

(94,491)

 

$

(29,875)

 

$

(179,064)

 

$

(41,087)

 

14

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Portion of Cash Flow
Hedges Recognized in

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

Other Comprehensive Income (Loss)

 

2014

 

2013

 

2014

 

2013

Commodity Contracts

 

$

32,035 

 

$

(25,891)

 

$

(191,267)

 

$

(47,030)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (Losses) from Fair Value

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

Hedges of Inventory

 

2014

 

2013

 

2014

 

2013

Revenues (effect of change in inventory value)

 

$

 -

 

$

(301)

 

$

 -

 

$

 -

Revenues (effect of fair value hedge)

 

 

 -

 

 

301