Green Plains Inc.
Green Plains Inc. (Form: 10-Q, Received: 04/30/2015 16:21:51)

 

 

 

 

 

 

 

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 March 31, 2015

 

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 April 28, 201 5 was 37, 94 9 , 3 68 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

24

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk  

36

 

 

 

Item 4.

Controls and Procedures

38

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

39

 

 

 

Item 1A.

Risk Factors

39

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

 

 

 

Item 3.

Defaults Upon Senior Securities

39

 

 

 

Item 4.

Mine Safety Disclosures

39

 

 

 

Item 5.

Other Information

39

 

 

 

Item 6.

Exhibits

39

 

 

 

Signatures  

41

 

 

 

 

1

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

  CONSOLIDATED BALANCE SHEETS

 

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

2015

 

2014

 

(unaudited)

 

 

 

ASSETS

Current assets

 

 

 

 

 

Cash and cash equivalents

$

405,899 

 

$

425,510 

Restricted cash

 

14,647 

 

 

29,742 

Accounts receivable, net of allowances of $1,255 and $1,231 , respectively

 

101,692 

 

 

138,073 

Inventories

 

269,127 

 

 

254,967 

Prepaid expenses and other

 

10,853 

 

 

18,776 

Deferred income taxes

 

1,759 

 

 

7,495 

Derivative financial instruments

 

36,261 

 

 

36,347 

Total current assets

 

840,238 

 

 

910,910 

Property and equipment, net of accumulated depreciation of

 

 

 

 

 

$289,954 and $274,543 , respectively

 

819,734 

 

 

825,210 

Goodwill

 

40,877 

 

 

40,877 

Other assets

 

49,806 

 

 

51,560 

Total assets

$

1,750,655 

 

$

1,828,557 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

 

 

 

 

 

Accounts payable

$

99,141 

 

$

170,199 

Accrued and other liabilities

 

31,592 

 

 

61,118 

Income taxes payable

 

 -

 

 

2,907 

Unearned revenue

 

3,683 

 

 

3,965 

Short-term notes payable and other borrowings

 

239,350 

 

 

209,886 

Current maturities of long-term debt

 

62,220 

 

 

63,465 

Total current liabilities

 

435,986 

 

 

511,540 

 

 

 

 

 

 

Long-term debt

 

398,623 

 

 

399,440 

Deferred income taxes

 

117,955 

 

 

115,235 

Other liabilities

 

4,922 

 

 

4,893 

Total liabilities

 

957,486 

 

 

1,031,108 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

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

 

 

 

 

 

45,148,068 and 44,808,982 shares issued, and 37,948,068

 

 

 

 

 

and 37,608,982 shares outstanding, respectively

 

45 

 

 

45 

Additional paid-in capital

 

570,257 

 

 

569,431 

Retained earnings

 

292,751 

 

 

299,101 

Accumulated other comprehensive loss

 

(4,076)

 

 

(5,320)

Treasury stock, 7,200,000 shares

 

(65,808)

 

 

(65,808)

Total stockholders' equity

 

793,169 

 

 

797,449 

Total liabilities and stockholders' equity

$

1,750,655 

 

$

1,828,557 

 

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
March 31,

 

2015

 

2014

 

 

 

 

 

 

Revenues

$

738,388 

 

$

733,889 

Cost of goods sold

 

712,833 

 

 

633,140 

Gross profit

 

25,555 

 

 

100,749 

Selling, general and administrative expenses

 

21,451 

 

 

22,406 

Operating income

 

4,104 

 

 

78,343 

Other income (expense)

 

 

 

 

 

Interest income

 

220 

 

 

113 

Interest expense

 

(9,158)

 

 

(9,759)

Other, net

 

(931)

 

 

1,031 

Total other income (expense)

 

(9,869)

 

 

(8,615)

Income (loss) before income taxes

 

(5,765)

 

 

69,728 

Income tax expense (benefit)

 

(2,447)

 

 

26,525 

Net income (loss)

$

(3,318)

 

$

43,203 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

Basic

$

(0.09)

 

$

1.30 

Diluted

$

(0.09)

 

$

1.04 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

37,803 

 

 

33,153 

Diluted

 

37,803 

 

 

43,251 

 

 

 

 

 

 

Cash dividend declared per share

$

0.08 

 

$

0.04 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.

 

3

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

2015

 

2014

 

 

 

 

 

 

Net income (loss)

$

(3,318)

 

$

43,203 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

Unrealized gains (losses) on derivatives arising during period,

 

 

 

 

 

net of tax (expense) benefit of $(5,708) and $86,015 , respectively

 

9,755 

 

 

(137,287)

Reclassification of realized (gains) losses on derivatives, net

 

 

 

 

 

of tax expense (benefit) of $4,980 and $(32,577) , respectively

 

(8,511)

 

 

51,996 

Total other comprehensive income (loss), net of tax

 

1,244 

 

 

(85,291)

Comprehensive loss

$

(2,074)

 

$

(42,088)

 

 

See accompanying notes to the consolidated financial statements.

 

4

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited and in thousands)

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

2015

 

2014

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

$

(3,318)

 

$

43,203 

Adjustments to reconcile net income (loss) to net cash

 

 

 

 

 

provided (used) by operating activities:

 

 

 

 

 

Depreciation and amortization

 

15,381 

 

 

14,627 

Amortization of debt issuance costs and debt discount

 

1,962 

 

 

2,005 

Deferred income taxes

 

8,800 

 

 

23,791 

Stock-based compensation

 

(1,345)

 

 

2,139 

Undistributed equity in (income) loss of affiliates

 

933 

 

 

(1,031)

Other

 

24 

 

 

 -

Changes in operating assets and liabilities before

 

 

 

 

 

effects of business combinations:

 

 

 

 

 

Accounts receivable

 

36,357 

 

 

(3,764)

Inventories

 

(14,160)

 

 

(21,422)

Derivative financial instruments

 

2,062 

 

 

(127,314)

Prepaid expenses and other assets

 

7,982 

 

 

2,305 

Accounts payable and accrued liabilities

 

(99,152)

 

 

2,804 

Income taxes payable

 

(1,388)

 

 

Unearned revenues

 

(282)

 

 

11,625 

Other

 

366 

 

 

814 

Net cash used by operating activities

 

(45,778)

 

 

(50,216)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(14,332)

 

 

(14,777)

Investments in unconsolidated subsidiaries

 

(334)

 

 

12 

Net cash used by investing activities

 

(14,666)

 

 

(14,765)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from the issuance of long-term debt

 

39,800 

 

 

127,842 

Payments of principal on long-term debt

 

(41,043)

 

 

(88,848)

Proceeds from short-term borrowings

 

775,744 

 

 

802,174 

Payments on short-term borrowings

 

(746,280)

 

 

(845,244)

Payments of cash dividends

 

(3,032)

 

 

(1,396)

Change in restricted cash

 

15,095 

 

 

4,101 

Payments of loan fees

 

(57)

 

 

(37)

Proceeds from exercises of stock options

 

606 

 

 

1,396 

Net cash provided (used) by financing activities

 

40,833 

 

 

(12)

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(19,611)

 

 

(64,993)

Cash and cash equivalents, beginning of period

 

425,510 

 

 

272,027 

Cash and cash equivalents, end of period

$

405,899 

 

$

207,034 

 

 

 

 

 

 

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

 

 

 

 

 

 

Three Months Ended
March 31,

 

2015

 

2014

 

 

 

 

 

 

Supplemental disclosures of cash flow:

 

 

 

 

 

Cash paid for income taxes

$

3,558 

 

$

547 

Cash paid for interest

$

5,914 

 

$

7,990 

 

 

 

 

 

 

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, 2014 .

 

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. The Company bases its estimates on historical experience and other assumptions that it believes are proper and reasonable under the circumstances. The Company regularly evaluates the appropriateness of estimates and assumptions used in the preparation of its consolidated financial statements. Actual results could differ from those estimates. Key accounting policies, including but not limited to those relating to revenue recognition, depreciation of property and equipment, impairment of long-lived assets and goodwill, derivative financial instruments, and accounting for income taxes, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements.

 

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 fuel terminals, collectively referred to as marketing and distribution. The Company also is a partner in a joint venture to commercialize advanced 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.

 

7

 


 

 

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 fuel terminal operations, which include ethanol transload services, are recognized when these services are completed.

 

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 sales 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, cattle 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

8

 


 

 

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.

 

Certain qualifying derivatives related to ethanol production and agribusiness segments 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

 

The Company will be required to adopt the amended guidance in ASC Topic 606, Revenue from Contracts with Customers , which replaces existing revenue recognition guidance by requiring revenue recognition to reflect the transfer of promised goods or services to customers. The updated standard permits the use of either the retrospective or cumulative effect transition method. The Financial Accounting Standards Board has proposed deferral of required adoption of the amended guidance by one year, from January 1, 2017 to January 1, 2018. Early application beginning January 1, 2017 would be permitted. 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.

 

Effective January 1, 2016, the Company will adopt the amended guidance in ASC   Topic 835-30,   Interest - Imputation of Interest : Simplifying the Presentation of Debt Issuance Costs . The amended guidance require s that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments will be applied on a retrospective basis, wherein the balance sheet of each individual period presented will be adjusted to reflect the period-specific effects of applying the new guidance.

 

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.

 

9

 


 

 

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 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at March 31, 2015

 

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

$

405,899 

 

$

 -

 

$

 -

 

$

405,899 

Restricted cash

 

14,647 

 

 

 -

 

 

 -

 

 

14,647 

Margin deposits

 

28,631 

 

 

 -

 

 

(28,631)

 

 

 -

Inventories carried at market

 

 -

 

 

22,330 

 

 

 -

 

 

22,330 

Unrealized gains on derivatives

 

7,577 

 

 

15,235 

 

 

13,449 

 

 

36,261 

Total assets measured at fair value

$

456,754 

 

$

37,565 

 

$

(15,182)

 

$

479,137 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on derivatives

$

11,354 

 

$

12,436 

 

$

(15,182)

 

$

8,608 

Total liabilities measured at fair value

$

11,354 

 

$

12,436 

 

$

(15,182)

 

$

8,608 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 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

$

425,510 

 

$

 -

 

$

 -

 

$

425,510 

Restricted cash

 

29,742 

 

 

 -

 

 

 -

 

 

29,742 

Margin deposits

 

24,488 

 

 

 -

 

 

(24,488)

 

 

 -

Inventories carried at market

 

 -

 

 

36,411 

 

 

 -

 

 

36,411 

Unrealized gains on derivatives

 

11,877 

 

 

18,111 

 

 

6,359 

 

 

36,347 

Other assets

 

118 

 

 

 

 

 -

 

 

121 

Total assets measured at fair value

$

491,735 

 

$

54,525 

 

$

(18,129)

 

$

528,131 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on derivatives

$

18,129 

 

$

28,082 

 

$

(18,129)

 

$

28,082 

Total liabilities measured at fair value

$

18,129 

 

$

28,082 

 

$

(18,129)

 

$

28,082 

 

The Company believes the fair value of its debt approxim ated $702.7 million com pared to a book va lue of $700.2 million at March 31, 2015 and the fair value of its debt approximated $676.5 million compared to a book value of $672.8 million at December 31, 2014 . 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 $ 101.7 million and $ 99.1 million, res pectively, at March 31, 2015  a nd $ 138.1 million and $ 170.2 million, respe ctively, at December 31, 2014 .  

 

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.

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 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 fuel terminals, 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.

 

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

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

2015

 

2014

Revenues:

 

 

 

 

 

Ethanol production:

 

 

 

 

 

Revenues from external customers (1)

$

64,094 

 

$

(27,431)

Intersegment revenues

 

352,859 

 

 

565,803 

Total segment revenues

 

416,953 

 

 

538,372 

Corn oil production:

 

 

 

 

 

Revenues from external customers (1)

 

(13)

 

 

Intersegment revenues

 

16,809 

 

 

16,384 

Total segment revenues

 

16,796 

 

 

16,391 

Agribusiness:

 

 

 

 

 

Revenues from external customers (1)

 

58,334 

 

 

18,241 

Intersegment revenues

 

262,783 

 

 

304,238 

Total segment revenues

 

321,117 

 

 

322,479 

Marketing and distribution:

 

 

 

 

 

Revenues from external customers (1)

 

615,973 

 

 

743,072 

Intersegment revenues

 

39,375 

 

 

33,465 

Total segment revenues

 

655,348 

 

 

776,537 

Revenues including intersegment activity

 

1,410,214 

 

 

1,653,779 

Intersegment eliminations

 

(671,826)

 

 

(919,890)

Revenues as reported

$

738,388 

 

$

733,889 

 

 

 

(1)

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

 

11

 


 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

2015

 

2014

Gross profit (loss):

 

 

 

 

 

Ethanol production

$

(6,820)

 

$

71,688 

Corn oil production

 

10,385 

 

 

7,815 

Agribusiness

 

5,212 

 

 

2,976 

Marketing and distribution

 

12,154 

 

 

40,716 

Intersegment eliminations

 

4,624 

 

 

(22,446)

 

$

25,555 

 

$

100,749 

Operating income (loss):

 

 

 

 

 

Ethanol production

$

(13,143)

 

$

66,226 

Corn oil production

 

10,211 

 

 

7,708 

Agribusiness

 

3,210 

 

 

935 

Marketing and distribution

 

5,608 

 

 

32,494 

Intersegment eliminations

 

4,684 

 

 

(22,386)

Corporate activities

 

(6,466)

 

 

(6,634)

 

$

4,104 

 

$

78,343 

 

The following table sets forth revenues by product line (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

2015

 

2014

Revenues:

 

 

 

 

 

Ethanol

$

444,301 

 

$

530,039 

Distillers grains

 

109,388 

 

 

136,992 

Corn oil

 

19,081 

 

 

17,132 

Grain

 

99,086 

 

 

29,201 

Cattle

 

45,191 

 

 

 -

Other

 

21,341 

 

 

20,525 

 

$

738,388 

 

$

733,889 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

2015

 

2014

Total assets:

 

 

 

 

 

Ethanol production

$

898,762 

 

$

983,289 

Corn oil production

 

32,975 

 

 

31,405 

Agribusiness

 

283,301 

 

 

234,626 

Marketing and distribution

 

234,055 

 

 

305,675 

Corporate assets

 

312,984 

 

 

290,123 

Intersegment eliminations

 

(11,422)

 

 

(16,561)

 

$

1,750,655 

 

$

1,828,557 

 

12

 


 

 

4 .  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):

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

2015

 

2014

Finished goods

$

53,137 

 

$

34,639 

Grain held for sale

 

17,431 

 

 

23,027 

Raw materials

 

67,459 

 

 

78,095 

Work-in-process

 

110,257 

 

 

100,221 

Supplies and parts

 

20,843 

 

 

18,985 

 

$

269,127 

 

$

254,967 

 

 

5 .  GOODWILL

 

The Company did no t have any changes in the carrying amount of goodwill, which was $ 40.9 million during the three months ended March 31, 2015 . 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 March 31, 2015 , the Company’s consolidated balance she et reflects unrealized losses, net of tax, of $4.1 million in accumulated other comprehensive income . The Company expects that all of the unrealized losses at M arch 31, 2015 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

 

 

March 31,

 

December 31,

 

March 31,

 

December 31,

 

 

2015

 

2014

 

2015

 

2014

Derivative financial instruments (1)

 

$

7,630 

(2)

$

11,859 

(3)

$

 -

 

$

 -

Other assets

 

 

 -

 

 

 

 

 -

 

 

 -

Accrued and other liabilities

 

 

 -

 

 

 -

 

 

8,608 

 

 

28,082 

Total

 

$

7,630 

 

$

11,862 

 

$

8,608 

 

$

28,082 

 

(1) Derivative financial instruments as reflected on the consolidated balance sheets are net of related margin deposit assets of $ 28.6 million a n d $ 24.5 million at March 31, 20 15 and December 31, 2014 , respectively.

(2) Balance at March 31, 2015  i ncludes $ 3.5 million of net unrealized losses on deri vative financial instruments designated as cash flow hedging instruments.

(3) Balance at December 31, 2014 includ es $ 0.6 million of net unrealized losses on deri vative 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 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
March 31,

Designated in a Hedging Relationship

 

2015

 

2014

Revenues

 

$

(4,484)

 

$

18,250 

Cost of goods sold

 

 

(5,190)

 

 

(1,163)

Net increase (decrease) recognized in earnings before tax

 

$

(9,674)

 

$

17,087 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (Losses) Due to Ineffectiveness

 

Three Months Ended
March 31,

of Cash Flow Hedges

 

2015

 

2014

Revenues

 

$

(31)

 

$

(346)

Cost of goods sold

 

 

(471)

 

 

860 

Net increase (decrease) recognized in earnings before tax

 

$

(502)

 

$

514 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Three Months Ended
March 31,

into Net Income

 

2015

 

2014

Revenues

 

$

11,849 

 

$

(88,146)

Cost of goods sold

 

 

1,642 

 

 

3,573 

Net increase (decrease) recognized in earnings before tax

 

$

13,491 

 

$

(84,573)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Portion of Cash Flow
Hedges Recognized in

 

Three Months Ended
March 31,

Other Comprehensive Income (Loss)

 

2015

 

2014

Commodity Contracts

 

$

15,463 

 

$

(223,302)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (Losses) from Fair Value

 

Three Months Ended
March 31,

Hedges of Inventory

 

2015

 

2014

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

 

$

(1,368)

 

$

3,146 

Cost of goods sold (effect of fair value hedge)

 

 

3,083 

 

 

(2,778)

Ineffectiveness recognized in earnings before tax

 

$

1,715 

 

$

368 

 

There were no gains or losses due to the discontinuance of cash flow hedge or fair value hedge treatment during the three months ended March 31, 2015 and 2014 .  

 

14

 


 

 

The following table summarizes volumes of open commodity derivative positions as of March 31, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

Exchange Traded

 

Non-Exchange Traded

 

 

 

 

Derivative Instruments

 

Net Long & (Short) (1)

 

Long (2)

 

(Short) (2)

 

Unit of Measure

 

Commodity

Futures

 

(5,205)

 

 

 

 

 

Bushels

 

Corn, Soybeans and Wheat

Futures

 

15,475 

(3)

 

 

 

 

Bushels

 

Corn

Futures

 

(8,200)

(4)

 

 

 

 

Bushels

 

Corn

Futures

 

89,292 

 

 

 

 

 

Gallons

 

Ethanol

Futures

 

(31,374)

(3)

 

 

 

 

Gallons

 

Ethanol

Futures

 

(2,253)

 

 

 

 

 

mmBTU

 

Natural Gas

Futures

 

(1,773)

(4)

 

 

 

 

mmBTU

 

Natural Gas

Futures

 

2,000 

 

 

 

 

 

Pounds

 

Cattle

Futures

 

(9,600)

(3)

 

 

 

 

Pounds

 

Cattle

Futures

 

(68)

 

 

 

 

 

Pounds

 

Soybean Oil

Options

 

11,903 

 

 

 

 

 

Bushels

 

Corn, Soybeans and Wheat

Options

 

4,039 

 

 

 

 

 

Gallons

 

Ethanol

Options

 

(37)

 

 

 

 

 

Barrels

 

Crude Oil

Options

 

(58)

 

 

 

 

 

mmBTU

 

Natural Gas

Options

 

(4,130)

 

 

 

 

 

Pounds

 

Cattle

Forwards

 

 

 

23,333 

 

(7,547)

 

Bushels

 

Corn and Soybeans

Forwards

 

 

 

2,217 

 

(160,208)

 

Gallons

 

Ethanol

Forwards

 

 

 

109 

 

(458)

 

Tons

 

Distillers Grains

Forwards

 

 

 

3,552 

 

(44,692)

 

Pounds

 

Corn Oil

Forwards

 

 

 

16,113 

 

(7,494)

 

mmBTU

 

Natural Gas

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Exchange traded futures and options are presented on a net long and (short) position basis. Options are presented on a delta-adjusted basis.

(2)

Non-exchange traded forwards are presented on a gross long and (short) position basis including both fixed-price and basis contracts.

(3)

Futures used for cash flow hedges.

(4)

Futures used for fair value hedges.

 

 

Energy trading contracts that do not involve physical delivery are presented net in revenues on the consolidated statements of operations .   Included in reve nues are net gains of $5.4   million   and   net losses   of $1.1   million   for the three months ended March 31, 2015 and 2014 , respectively , on energy trading contracts.

 

15

 


 

 

 

 

7 .  DEBT

 

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

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

2015

 

2014

Green Plains Fairmont and Green Plains Wood River:

 

 

 

 

 

$62.5 million term loan

$

38,750 

 

$

40,000 

Green Plains Holdings II:

 

 

 

 

 

$46.8 million term loans

 

27,760 

 

 

29,510 

$20.0 million revolving term loan

 

9,000 

 

 

6,000 

Green Plains Obion:

 

 

 

 

 

$37.4 million revolving term loan

 

27,400 

 

 

27,400 

Economic development grant

 

1,133 

 

 

1,156 

Green Plains Processing:

 

 

 

 

 

$225.0 million term loan

 

213,213 

 

 

213,775 

Green Plains Superior:

 

 

 

 

 

$15.6 million revolving term loan

 

14,425 

 

 

15,025 

Corporate:

 

 

 

 

 

$120.0 million convertible notes

 

101,947 

 

 

100,845 

Other

 

27,215 

 

 

29,194 

Total long-term debt

 

460,843 

 

 

462,905 

Less: current portion of long-term debt

 

(62,220)

 

 

(63,465)

Long-term debt

$

398,623 

 

$

399,440 

 

Short-term notes payable and other borrowings at March 31, 2015 included working capital revolvers at Green Plains Cattle, Green Plains Grain and Green Plains Trade with outstanding b alances of   $87.9 million,  $ 93.0 million and $ 58.4 million, respectively. Short-term notes payable and other borrowings at December 31, 2014 included working capital revolvers at Green Plains Cattle, Green Plains Grain and Green Plains Trade with outstanding balances of $77.0 million, $ 37.0 million and $ 95.9 million, respectively.

 

Ethanol Production Segment

 

Term Loans

 

Scheduled principal payments are as follows:

 

 

 

 

 

•  

Green Plains Fairmont and Green Plains

 

 

Wood River

$1.3 million per quarter

•  

Green Plains Holdings II

$1.8 million per quarter

•  

Green Plains Processing

$0.6 million per quarter

 

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

 

 

 

 

 

•  

Green Plains Fairmont and Green Plains

 

 

Wood River

November 27, 2015

•  

Green Plains Holdings II

July 1, 2019

•  

Green Plains Processing

June 30, 2020

Revolving Term Loans – The revolving term loans are generally available for advances throughout the life of the commitment. Allowable advances under the Green Plains Superior loan agreement are reduced by $ 0.6 million each quarter commencing on October 20, 2014 . Allowable advances under the Green Plains Obion loan agreement are reduced by $0.8 million each quarter commencing on August 20, 2014. Interest-only payments are due each month on all revolving term loans until their final respective maturity dates.

 

16

 


 

 

Final maturity date s (at the latest) are as follows:

 

 

 

 

 

•  

Green Plains Holdings II

July 1, 2019

•  

Green Plains Obion

May 20, 2020

•  

Green Plains Superior

October 20, 2019

 

Allowable dividends and other non-overhead distributions from each respective subsidiary are subject to certain additional restrictions including compliance with all loan covenants, terms and conditions, as follows:

 

 

 

 

 

•  

Green Plains Fairmont and

Up to amounts equal to permitted tax distributions, as defined in the

 

Green Plains Wood River

loan agreement

•  

Green Plains Holdings II

Up to 40% of net profit before tax, and unlimited if working capital is greater

 

 

than or equal to $20.0 million

•  

Green Plains Obion

Up to 40% of net profit before tax, and unlimited if working capital is greater

 

 

than or equal to $15.0 million

•  

Green Plains Processing

Amounts may be distributed after quarterly free cash flow payment is made,

 

 

subject to certain limitations, as defined in the loan agreement

•  

Green Plains Superior

Up to 40% of net profit before tax, and unlimited after free cash flow payment

 

 

is made

 

Effective February 1, 2015, the Green Plains Fairmont and Green Plains Wood River $62.5 million term loan was amended to modify various financial covenants. The descriptions and covenants above reflect the most recent amendment.  

 

Agribusiness Segment

 

Green Plains Grain has a $125.0 million senior secured asset-based revolving credit facility with various lenders to provide for working capital financing. The lenders will make loans up to the maximum commitment based on eligible collateral. The amount of eligible collateral is determined by a calculated borrowing base value equal to the sum of percentages of eligible cash, eligible receivables and eligible inventories, less certain miscellaneous adjustments. Advances are subject to interest charges at a rate per annum equal to the LIBOR rate plus the applicable margin or the base rate plus the applicable margin. The revolving credit facility matures on August 26, 2016. The revolvi ng credit facility includes total revolving credit c ommitments of $125.0 million and an accordion feature whereby amounts available under the facility may be increased by up to $75.0 million of new lender commitments upon agent approval. The facility also allows for additional seasonal borrowings up to $50.0 million. The total commitments outstanding under the facility cannot exceed $250.0 million. As security for the revolving credit facility, the lender received a first priority lien on certain cash, inventory, accounts receivable a nd other assets owned by subsidiaries within the agribusiness segment. The loan agreement includes affirmative covenants and negative covenants including maintenance of working capital of $18 .0 million, maintenance of net worth of $26.3 million, maintenance of a fixed charge coverage ratio of 1.25 to 1.00, maintenance of an annual leverage ratio of 6.00 to 1.00 and capital expenditure limitation of $15.0 million annually. In addition to other customary covenants, this revolving credit facility contains restrictions on distributions with respect to capital stock, with exceptions for distributions of up to 40% of net profit bef ore tax, subject to certain conditions.  

 

Green Plains Cattle has a $1 00 .0 million senior secured asset-based revolving credit facility with various lenders to provide for working c apital financing for the cattle feedlot operations .   The lender s will make loans up to the maximum commitment based on eligible collateral. The amount of eligible collateral is determined by a calculated borrowing base value equal to the sum of percentages of eligible receivables , eligible inventories and eligible other current assets , less certain miscellaneous adjustments. Advances are subject to interest charges at a variable rate per annum equal to the LIBOR rate for the outstanding period plus 3.00% , 2.50%, or 2.00%, depending upon availability .   The revolving credit facility matures on October 31, 2017 . The revolving credit facility includes total revolving credit commitments of $100.0 million and an accordion feature whereby amounts available under the facility may be increased by up to $50.0 million of new lender commitments upon agent approval. The loan agreement includes affirmative covenants and negative covenants including maintenance of working capital of $15.0 million, maintenance of net worth of $20.0 million plus 50% of prior year net income, maintenance of an annual leverage ratio of 3.50 to 1.00 and capital expenditure limitation of $3.0 million annually. As security for the revolving credit facility, the lender received a first priority lien on certain cash, inventory, accounts receivable, property and equipment and other assets owned by Green Plains Cattle.

 

17

 


 

 

Marketing and Distribution Segment

 

Green Plains Trade has a $1 5 0.0 million senior secured asset-based revolving credit facility with various lenders to provide for working capital financing. The lenders will make loans up to $1 5 0.0 million based on eligible collateral. The amount of eligible collateral is determined by a calculated borrowing base value equal to the sum of percentages of eligible receivables and eligible inventories, less certain miscellaneous adjustments. The outstanding balance, if any, is subject to interest charges at the lender’s floating base rate plus the applicable margin or LIBOR plus the applicable margin. The revolving credit facility matures on November 26 , 201 9 .   In addition to other customary covenants, this revolving credit facility contains restrictions on distributions with respect to capital stock, with exceptions for distributions with respect to tax obligations, subject to certain conditions, whereby distributions may be made in an amount up to 50% of net income if (a) undrawn availability under this facility, on a pro forma basis, is greater than $10.0 million for the preceding 30 days and (b) as of the date of the distribution, the borrower would be in compliance with the fixed charge coverage ratio on a pro forma basis. The loan agreement includes affirmative covenants and negative covenants including maintenance of a fixed charge coverage ratio of 1.15 to 1.00 and capital expenditure limitation of $1.0 million annually. At March 31, 2015 , Green Plains Trade had $7.8 million pr esented as restricted cash on the consolidated balance sheets, the use of which was restricted for repayment towards the outstanding loan balance.

 

Corporate Activities

 

In September 2013, the Company issued $120.0 million of 3.25% Convertible Senior Notes due 2018, or the 3.25% Notes. The 3.25% Notes represent senior, unsecured obligations of the Company, with interest payable on April 1 and October 1 of each year. At the time the Company issued the 3.25% Notes, it was only permitted to settle conversions with shares of its common stock. The Company received shareholder approval at its 2014 annual meeting, held in the second quarter, to allow for flexible settlement which gives it the option to settle conversions in cash, shares of common stock, or any combination thereof. The Company intends to satisfy conversion of the 3.25% Notes with cash for the principal amount of the debt and cash or shares of common stock for any related conversion premium. The 3.25% Notes contain liability and equity components which were bifurcated and accounted for separately. The liability component of the 3.25% Notes, as of the issuance date, was calculated by estimating the fair value of a similar liability issued at an 8.21% effective interest rate, which was determined by considering the rate of return investors would require for comparable debt of the Company without conversion rights. The amount of the equity component was calculated by deducting the fair value of the liability component from the principal amount of the 3.25% Notes, resulting in the initial recognition of $24.5 million as debt discount costs recorded in additional paid-in capital. The carrying amount of the 3.25% Notes will be accreted to the principal amount over the remaining term to maturity , and the Company will record a corresponding amount of noncash interest expense. Additionally, the Company incurred debt issuance costs of $5.1 million related to the 3.25% Notes and allocated $4.0 million of debt issuance costs to the liability component of the 3.25% Notes. These costs will be amortized to noncash interest expense over the five-year term of the 3.25% Notes. Prior to April 1, 2018, the 3.25% Notes will not be convertible unless certain cond itions are satisfied. The conversion rate is subject to adjustment upon the occurrence of certain events, including the payment of a quarterly cash dividend that exceeds $0.04 per share. As a result , the conversion rate was recently adjusted to 48. 1383 shares of common stock per $1,000 principal amount of 3.25% Notes, which is equal to a current conversion price of approximately $20. 77 per share. In addition, the Company may be obligated to increase the conversion rate for any conversion that occurs in connection with certain corporate events, including the Company calling the 3.25% Notes for redemption.

 

The Company may redeem for cash all, but not less than all, of the 3.25% Notes at any time on or after October 1, 2016 if the sale price of the Company's common stock equals or exceeds 140% of the applicable conversion price for a specified time period ending on the trading day immediately prior to the date the Company delivers notice of the redemption. The redemption price will equal 100% of the principal amount of the 3.25% Notes, plus any accrued and unpaid interest. In addition, upon the occurrence of a fundamental change, such as a change in control, holders of the 3.25% Notes will have the right, at their option, to require the Company to repurchase their 3.25% Notes in cash at a price equal to 100% of the principal amount of the 3.25% Notes to be repurchased, plus accrued and unpaid interest. Default with respect to any loan in excess of $10.0 million constitutes an event of default under the 3.25% Notes, which could result in the 3.25% Notes being declared due and payable.

 

Covenant Compliance

 

The Company, including all of its subsidiaries, was in compliance with its debt covenants as of March 31, 2015 .

 

18

 


 

 

Capitalized Interest

 

The Company had $ 175 thousand   in capitalized interest during the three months ended March 31, 2015 .

 

Restricted Net Assets

 

At March 31, 2015 , there were approxim ately $ 633.4   million of net assets at the Company’s subsidiaries that were not available to be transferred to the parent company in the form of dividends, loans or advances due to restrictions contained in the credit faci lities of these subsidiaries.

 

8 STOCK-BASED COMPENSATION

 

The Company has an equity incentive plan which reserve s a total of 3.5 million shares of common stoc k for issuance pursuant to its terms. The plan provide s for the granting of shares of stock, including options to purchase shares of common stock, stock appreciation rights tied to the value of common stock, restricted stock, and restricted and deferred stock unit awards to eligible employees, non-employee directors and consultants. The Company measures share-based compensation grants at fair value on the grant date, adjusted for estimated forfeitures. The Company records noncash compensation expense related to equity awards in its consolidated financial statements over the requisite service period on a straight-line basis. Substantially all of the Company’s existing share-based compensation awards have been determined to be equity awards.

 

The following table summarizes   exercisable s tock option activity for the three months ended March 31, 2015 :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Weighted-Average Exercise Price

 

Weighted-Average Remaining Contractual Term (in years)

 

Aggregate Intrinsic Value (in thousands)

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2014

339,750 

 

$

10.82 

 

3.1

 

$

4,763 

Granted

 -

 

 

 -

 

-

 

 

 -

Exercised

(31,000)

 

 

19.88 

 

-

 

 

265 

Forfeited

 -

 

 

 -

 

-

 

 

 -

Expired

 -