Green Plains Inc.
Green Plains Inc. (Form: 10-Q, Received: 10/30/2014 16:50:08)

 

 

 

 

 

 

 

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, 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 October 28, 2014 was 37, 61 1 ,0 04 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 Income  

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  

39

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

42

 

 

 

Item 1A.

Risk Factors

42

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

 

 

 

Item 3.

Defaults Upon Senior Securities

44

 

 

 

Item 4.

Mine Safety Disclosures

44

 

 

 

Item 5.

Other Information

44

 

 

 

Item 6.

Exhibits

44

 

 

 

Signatures  

45

 

 

 

 

1

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

  CONSOLIDATED BALANCE SHEETS

 

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2014

 

2013

 

(unaudited)

 

 

 

ASSETS

Current assets

 

 

 

 

 

Cash and cash equivalents

$

401,113 

 

$

272,027 

Restricted cash

 

13,162 

 

 

26,994 

Accounts receivable, net of allowances of $1,355 and $308, respectively

 

108,761 

 

 

106,808 

Inventories

 

188,416 

 

 

158,328 

Prepaid expenses and other

 

8,208 

 

 

12,893 

Deferred income taxes

 

199 

 

 

7,619 

Derivative financial instruments

 

62,971 

 

 

48,636 

Total current assets

 

782,830 

 

 

633,305 

Property and equipment, net of accumulated depreciation of

 

 

 

 

 

$258,934 and $215,519, respectively

 

827,292 

 

 

806,046 

Goodwill

 

40,877 

 

 

40,877 

Other assets

 

52,581 

 

 

51,817 

Total assets

$

1,703,580 

 

$

1,532,045 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

 

 

 

 

 

Accounts payable

$

132,750 

 

$

112,001 

Accrued and other liabilities

 

51,494 

 

 

37,949 

Income taxes payable

 

11,587 

 

 

696 

Unearned revenue

 

7,484 

 

 

4,118 

Short-term notes payable and other borrowings

 

120,443 

 

 

171,500 

Current maturities of long-term debt

 

41,501 

 

 

82,933 

Current deferred income taxes

 

4,531 

 

 

 -

Total current liabilities

 

369,790 

 

 

409,197 

 

 

 

 

 

 

Long-term debt

 

453,632 

 

 

480,746 

Deferred income taxes

 

101,831 

 

 

91,294 

Other liabilities

 

4,982 

 

 

5,450 

Total liabilities

 

930,235 

 

 

986,687 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

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

 

 

 

 

 

44,810,004 and 37,703,946 shares issued, and 37,610,004

 

 

 

 

 

and 30,503,946 shares outstanding, respectively

 

45 

 

 

38 

Additional paid-in capital

 

568,192 

 

 

468,962 

Retained earnings

 

259,872 

 

 

148,505 

Accumulated other comprehensive income (loss)

 

11,044 

 

 

(6,339)

Treasury stock, 7,200,000 shares

 

(65,808)

 

 

(65,808)

Total stockholders' equity

 

773,345 

 

 

545,358 

Total liabilities and stockholders' equity

$

1,703,580 

 

$

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
September 30,

 

Nine Months Ended
September 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

833,925 

 

$

757,971 

 

$

2,405,672 

 

$

2,328,142 

Cost of goods sold

 

735,842 

 

 

716,947 

 

 

2,128,524 

 

 

2,227,294 

Gross profit

 

98,083 

 

 

41,024 

 

 

277,148 

 

 

100,848 

Selling, general and administrative expenses

 

23,028 

 

 

15,490 

 

 

64,803 

 

 

44,048 

Operating income

 

75,055 

 

 

25,534 

 

 

212,345 

 

 

56,800 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

164 

 

 

64 

 

 

420 

 

 

166 

Interest expense

 

(10,288)

 

 

(7,608)

 

 

(29,751)

 

 

(23,440)

Other, net

 

1,068 

 

 

(947)

 

 

2,802 

 

 

(2,077)

Total other expense

 

(9,056)

 

 

(8,491)

 

 

(26,529)

 

 

(25,351)

Income before income taxes

 

65,999 

 

 

17,043 

 

 

185,816 

 

 

31,449 

Income tax expense

 

24,250 

 

 

7,633 

 

 

68,550 

 

 

13,519 

Net income

$

41,749 

 

$

9,410 

 

$

117,266 

 

$

17,930 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

1.11 

 

$

0.31 

 

$

3.25 

 

$

0.60 

Diluted

$

1.03 

 

$

0.28 

 

$

2.90 

 

$

0.56 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

37,588 

 

 

30,204 

 

 

36,101 

 

 

30,100 

Diluted

 

40,542 

 

 

37,483 

 

 

41,130 

 

 

36,818 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividend declared per share

$

0.08 

 

$

0.04 

 

$

0.16 

 

$

0.04 

 

 

 

 

 

 

 

 

 

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
September 30,

 

Nine Months Ended
September 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

41,749 

 

$

9,410 

 

$

117,266 

 

$

17,930 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on derivatives arising during period,

 

 

 

 

 

 

 

 

 

 

 

net of tax benefit of $15,668, $6,307, $90,605

 

 

 

 

 

 

 

 

 

 

 

and $24,746, respectively

 

(24,836)

 

 

(9,092)

 

 

(141,166)

 

 

(37,683)

Reclassification of realized losses on derivatives, net

 

 

 

 

 

 

 

 

 

 

 

of tax benefit of $31,428, $6,797, $101,762

 

 

 

 

 

 

 

 

 

 

 

and $22,906, respectively

 

49,819 

 

 

9,903 

 

 

158,549 

 

 

34,881 

Total other comprehensive income (loss), net of tax

 

24,983 

 

 

811 

 

 

17,383 

 

 

(2,802)

Comprehensive income

$

66,732 

 

$

10,221 

 

$

134,649 

 

$

15,128 

 

 

See accompanying notes to the consolidated financial statements.

 

4

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited and in thousands)

 

 

 

 

 

 

 

 

Nine Months Ended
September 30,

 

2014

 

2013

Cash flows from operating activities:

 

 

 

 

 

Net income

$

117,266 

 

$

17,930 

Adjustments to reconcile net income to net cash

 

 

 

 

 

provided (used) by operating activities:

 

 

 

 

 

Depreciation and amortization

 

44,467 

 

 

37,807 

Amortization of debt issuance costs and debt discount

 

6,905 

 

 

2,697 

Deferred income taxes

 

11,655 

 

 

12,897 

Stock-based compensation

 

4,396 

 

 

2,863 

Undistributed equity in loss of affiliates

 

2,511 

 

 

2,078 

Other

 

1,047 

 

 

33 

Changes in operating assets and liabilities before

 

 

 

 

 

effects of business combinations:

 

 

 

 

 

Accounts receivable

 

4,938 

 

 

3,522 

Inventories

 

(24,359)

 

 

56,309 

Derivative financial instruments

 

14,212 

 

 

(10,121)

Prepaid expenses and other assets

 

5,116 

 

 

2,239 

Accounts payable and accrued liabilities

 

25,186 

 

 

(12,614)

Income taxes payable

 

10,891 

 

 

(2,729)

Unearned revenues

 

3,102 

 

 

7,282 

Other

 

(1,766)

 

 

903 

Net cash provided by operating activities

 

225,567 

 

 

121,096 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(44,242)

 

 

(12,593)

Acquisition of businesses, net of cash acquired

 

(23,900)

 

 

(15,305)

Investments in unconsolidated subsidiaries

 

(3,460)

 

 

(3,147)

Net cash used by investing activities

 

(71,602)

 

 

(31,045)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from the issuance of long-term debt

 

493,892 

 

 

185,600 

Payments of principal on long-term debt

 

(475,866)

 

 

(110,476)

Proceeds from short-term borrowings

 

2,716,499 

 

 

2,489,569 

Payments on short-term borrowings

 

(2,767,575)

 

 

(2,564,337)

Payments of cash dividends

 

(5,899)

 

 

(1,207)

Change in restricted cash

 

16,033 

 

 

(1,811)

Payments of loan fees

 

(6,387)

 

 

(7,766)

Proceeds from exercises of stock options

 

4,424 

 

 

597 

Net cash used by financing activities

 

(24,879)

 

 

(9,831)

 

 

 

 

 

 

Net change in cash and cash equivalents

 

129,086 

 

 

80,220 

Cash and cash equivalents, beginning of period

 

272,027 

 

 

254,289 

Cash and cash equivalents, end of period

$

401,113 

 

$

334,509 

 

 

 

 

 

 

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

 

 

 

 

 

 

Nine Months Ended
September 30,

 

2014

 

2013

 

 

 

 

 

 

Supplemental disclosures of cash flow:

 

 

 

 

 

Cash paid for income taxes

$

42,503 

 

$

2,069 

Cash paid for interest

$

26,134 

 

$

22,209 

 

 

 

 

 

 

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 and agribusiness segment s   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. Tot al consideration was  $ 114.3 million and a cquisition-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 s 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

 

112,274 

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

 

$

114,318 

 

The amounts above reflect the final purchase price allocation, which did not change materiall y from the initial allocation. There is ongoing litigation related to this acquisition. To the extent that this litigation is resolved favorably for the Company, it will result in a gain in a future period with no impact in the event of a negative outcome .  

 

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 dates indicated (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at September 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

$

401,113 

 

$

 -

 

$

 -

 

$

401,113 

Restricted cash

 

13,162 

 

 

 -

 

 

 -

 

 

13,162 

Margin deposits

 

11,829 

 

 

 -

 

 

(11,829)

 

 

 -

Inventories carried at market

 

 -

 

 

18,642 

 

 

 -

 

 

18,642 

Unrealized gains on derivatives

 

11,779 

 

 

53,422 

 

 

(2,230)

 

 

62,971 

Other assets

 

118 

 

 

 -

 

 

 -

 

 

118 

Total assets measured at fair value

$

438,001 

 

$

72,064 

 

$

(14,059)

 

$

496,006 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on derivatives

$

12,458 

 

$

14,762 

 

$

(14,059)

 

$

13,161 

Total liabilities measured at fair value

$

12,458 

 

$

14,762 

 

$

(14,059)

 

$

13,161 

 

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 $619.8 million compared to a book value of $615.6 million at September 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 $ 108.8 million and $ 132.8 million, respectively, at September 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
September 30,

 

Nine Months Ended
September 30,

 

2014

 

2013

 

2014

 

2013

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Ethanol production:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

$

34,593 

 

$

39,766 

 

$

(63,893)

 

$

118,511 

Intersegment revenues

 

550,102 

 

 

477,103 

 

 

1,719,434 

 

 

1,437,821 

Total segment revenues

 

584,695 

 

 

516,869 

 

 

1,655,541 

 

 

1,556,332 

Corn oil production:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

 

 -

 

 

 -

 

 

 -

 

 

 -

Intersegment revenues

 

21,922 

 

 

17,290 

 

 

58,687 

 

 

49,304 

Total segment revenues

 

21,922 

 

 

17,290 

 

 

58,687 

 

 

49,304 

Agribusiness:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

 

23,747 

 

 

5,055 

 

 

75,476 

 

 

43,178 

Intersegment revenues

 

290,543 

 

 

274,100 

 

 

941,897 

 

 

498,189 

Total segment revenues

 

314,290 

 

 

279,155 

 

 

1,017,373 

 

 

541,367 

Marketing and distribution:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

 

775,585 

 

 

713,150 

 

 

2,394,089 

 

 

2,166,453 

Intersegment revenues

 

40,616 

 

 

9,629 

 

 

108,676 

 

 

13,042 

Total segment revenues

 

816,201 

 

 

722,779 

 

 

2,502,765 

 

 

2,179,495 

Revenues including intersegment activity

 

1,737,108 

 

 

1,536,093 

 

 

5,234,366 

 

 

4,326,498 

Intersegment eliminations

 

(903,183)

 

 

(778,122)

 

 

(2,828,694)

 

 

(1,998,356)

Revenues as reported

$

833,925 

 

$

757,971 

 

$

2,405,672 

 

$

2,328,142 

 

 

 

(1)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2014

 

2013

 

2014

 

2013

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

Ethanol production

$

59,869 

 

$

22,269 

 

$

166,728 

 

$

34,228 

Corn oil production

 

11,770 

 

 

9,649 

 

 

30,517 

 

 

25,431 

Agribusiness

 

2,432 

 

 

815 

 

 

7,907 

 

 

2,986 

Marketing and distribution

 

17,171 

 

 

8,615 

 

 

67,786 

 

 

39,074 

Intersegment eliminations

 

6,841 

 

 

(324)

 

 

4,210 

 

 

(871)

 

$

98,083 

 

$

41,024 

 

$

277,148 

 

$

100,848 

Operating income:

 

 

 

 

 

 

 

 

 

 

 

Ethanol production

$

54,858 

 

$

17,851 

 

$

151,195 

 

$

22,508 

Corn oil production

 

11,715 

 

 

9,596 

 

 

30,297 

 

 

25,226 

Agribusiness

 

1,136 

 

 

163 

 

 

3,341 

 

 

781 

Marketing and distribution

 

9,373 

 

 

4,456 

 

 

46,258 

 

 

26,654 

Intersegment eliminations

 

6,842 

 

 

(324)

 

 

4,271 

 

 

(826)

Corporate activities

 

(8,869)

 

 

(6,208)

 

 

(23,017)

 

 

(17,543)

 

$

75,055 

 

$

25,534 

 

$

212,345 

 

$

56,800 

 

12

 


 

 

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,

 

2014

 

2013

 

2014

 

2013

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Ethanol

$

617,153 

 

$

595,152 

 

$

1,765,576 

 

$

1,798,297 

Distillers grains

 

132,233 

 

 

110,426 

 

 

412,920 

 

 

364,866 

Corn oil

 

24,865 

 

 

19,375 

 

 

64,193 

 

 

53,749 

Grain

 

42,061 

 

 

23,081 

 

 

115,433 

 

 

78,703 

Other

 

17,613 

 

 

9,937 

 

 

47,550 

 

 

32,527 

 

$

833,925 

 

$

757,971 

 

$

2,405,672 

 

$

2,328,142 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2014

 

2013

Total assets:

 

 

 

 

 

Ethanol production

$

957,875 

 

$

911,315 

Corn oil production

 

32,941 

 

 

28,569 

Agribusiness

 

144,014 

 

 

165,570 

Marketing and distribution

 

297,401 

 

 

258,361 

Corporate assets

 

275,128 

 

 

175,210 

Intersegment eliminations

 

(3,779)

 

 

(6,980)

 

$

1,703,580 

 

$

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):

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2014

 

2013

Finished goods

$

66,863 

 

$

56,664 

Grain held for sale

 

957 

 

 

23,782 

Raw materials

 

55,128 

 

 

51,726 

Work-in-process

 

47,115 

 

 

11,506 

Supplies and parts

 

18,353 

 

 

14,650 

 

$

188,416 

 

$

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 nine months ended September 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 September 30, 2014 , the Company’s consolidated balance sheet reflects unrealized gains , net of ta x, of $11.0 million in accumulated other comprehensive income . The Company expects that all of the unrealized gains at September 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

 

 

September 30,

 

December 31,

 

September 30,

 

December 31,

 

 

2014

 

2013

 

2014

 

2013

Derivative financial instruments (1)

 

$

51,142 

(2)

$

(28,466)

(3)

$

 -

 

$

 -

Accrued and other liabilities

 

 

 -

 

 

 -

 

 

13,154 

 

 

4,612 

Other liabilities

 

 

 -

 

 

 -

 

 

 

 

 -

Total

 

$

51,142 

 

$

(28,466)

 

$

13,161 

 

$

4,612 

 

(1) Derivative financial instruments as reflected on the consolidated balance sheets are net of related margin deposit assets of $ 11.8 million and $77.1 million at September 30, 2014 and December 31, 2013, respectively.

(2) Balance at September 30, 2014 includes $ 12.3 million of net unrealized gains 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
September 30,

 

Nine Months Ended
September 30,

Designated in a Hedging Relationship

 

2014

 

2013

 

2014

 

2013

Revenues

 

$

11,627 

 

$

(2,241)

 

$

24,992 

 

$

(16,724)

Cost of goods sold

 

 

419 

 

 

2,982 

 

 

2,817 

 

 

14,189 

Net increase (decrease) recognized in earnings before tax

 

$

12,046 

 

$

741 

 

$

27,809 

 

$

(2,535)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (Losses) Due to Ineffectiveness

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

of Cash Flow Hedges

 

2014

 

2013

 

2014

 

2013

Revenues

 

$

(196)

 

$

53 

 

$

(278)

 

$

26 

Cost of goods sold

 

 

1,095 

 

 

(410)

 

 

345 

 

 

(434)

Net increase (decrease) recognized in earnings before tax

 

$

899 

 

$

(357)

 

$

67 

 

$

(408)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

into Net Income

 

2014

 

2013

 

2014

 

2013

Revenues

 

$

(15,484)

 

$

(11,642)

 

$

(228,806)

 

$

(45,862)

Cost of goods sold

 

 

(65,763)

 

 

(5,058)

 

 

(31,505)

 

 

(11,925)

Net decrease recognized in earnings before tax

 

$

(81,247)

 

$

(16,700)

 

$

(260,311)

 

$

(57,787)

 

14

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Portion of Cash Flow
Hedges Recognized in

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

Other Comprehensive Income (Loss)

 

2014

 

2013

 

2014

 

2013

Commodity Contracts

 

$

(40,504)

 

$

(15,399)

 

$

(231,771)

 

$

(62,429)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (Losses) from Fair Value

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

Hedges of Inventory

 

2014

 

2013

 

2014

 

2013

Cost of goods sold (effect of change in inventory value)

 

$

(611)

 

$

 -

 

$

1,842 

 

$

 -

Cost of goods sold (effect of fair value hedge)

 

 

715