Green Plains Inc.
Green Plains Inc. (Form: 10-Q, Received: 07/31/2015 16:21:33)

 

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

 

For the Quarterly Period Ended June 30 , 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, outstand ing as of July 28, 20 1 5 was 3 8 , 086 , 537   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  

38

 

 

 

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

45

 

 

 

Item 3.

Defaults Upon Senior Securities

45

 

 

 

Item 4.

Mine Safety Disclosures

45

 

 

 

Item 5.

Other Information

45

 

 

 

Item 6.

Exhibits

45

 

 

 

Signatures  

48

 

 

 

 

1

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

  CONSOLIDATED BALANCE SHEETS

 

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

2015

 

2014

 

 

 

 

 

 

 

(unaudited)

 

 

 

ASSETS

Current assets

 

 

 

 

 

Cash and cash equivalents

$

399,488 

 

$

425,510 

Restricted cash

 

17,468 

 

 

29,742 

Accounts receivable, net of allowances of $1,335 and $1,231, respectively

 

116,051 

 

 

138,073 

Income taxes receivable

 

12,541 

 

 

 -

Inventories

 

215,847 

 

 

254,967 

Prepaid expenses and other

 

13,672 

 

 

18,776 

Deferred income taxes

 

 -

 

 

7,495 

Derivative financial instruments

 

37,772 

 

 

36,347 

Total current assets

 

812,839 

 

 

910,910 

Property and equipment, net of accumulated depreciation of
$305,650 and $274,543, respectively

 

819,555 

 

 

825,210 

Goodwill

 

40,877 

 

 

40,877 

Other assets

 

52,957 

 

 

51,560 

Total assets

$

1,726,228 

 

$

1,828,557 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

 

 

 

 

 

Accounts payable

$

98,377 

 

$

170,199 

Accrued and other liabilities

 

32,438 

 

 

61,118 

Income taxes payable

 

 -

 

 

2,907 

Unearned revenue

 

8,593 

 

 

3,965 

Short-term notes payable and other borrowings

 

199,591 

 

 

209,886 

Current maturities of long-term debt

 

9,289 

 

 

63,465 

Current deferred income taxes

 

1,298 

 

 

 -

Total current liabilities

 

349,586 

 

 

511,540 

 

 

 

 

 

 

Long-term debt

 

443,555 

 

 

399,440 

Deferred income taxes

 

121,009 

 

 

115,235 

Other liabilities

 

4,865 

 

 

4,893 

Total liabilities

 

919,015 

 

 

1,031,108 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

Common stock, $0.001 par value; 75,000,000 shares authorized;
45,284,888 and 44,808,982 shares issued, and 38,084,888
and 37,608,982 shares outstanding, respectively

 

45 

 

 

45 

Additional paid-in capital

 

573,632 

 

 

569,431 

Retained earnings

 

297,498 

 

 

299,101 

Accumulated other comprehensive income (loss)

 

1,846 

 

 

(5,320)

Treasury stock, 7,200,000 shares

 

(65,808)

 

 

(65,808)

Total stockholders' equity

 

807,213 

 

 

797,449 

Total liabilities and stockholders' equity

$

1,726,228 

 

$

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
June 30,

 

Six Months Ended
June 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

744,490 

 

$

837,858 

 

$

1,482,878 

 

$

1,571,747 

Cost of goods sold

 

697,164 

 

 

759,543 

 

 

1,409,997 

 

 

1,392,683 

Gross profit

 

47,326 

 

 

78,315 

 

 

72,881 

 

 

179,064 

Selling, general and administrative expenses

 

22,924 

 

 

19,369 

 

 

44,375 

 

 

41,774 

Operating income

 

24,402 

 

 

58,946 

 

 

28,506 

 

 

137,290 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

210 

 

 

143 

 

 

430 

 

 

255 

Interest expense

 

(10,564)

 

 

(9,704)

 

 

(19,722)

 

 

(19,463)

Other, net

 

(1,034)

 

 

704 

 

 

(1,965)

 

 

1,734 

Total other income (expense)

 

(11,388)

 

 

(8,857)

 

 

(21,257)

 

 

(17,474)

Income before income taxes

 

13,014 

 

 

50,089 

 

 

7,249 

 

 

119,816 

Income tax expense

 

5,222 

 

 

17,775 

 

 

2,775 

 

 

44,299 

Net income

$

7,792 

 

$

32,314 

 

$

4,474 

 

$

75,517 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.20 

 

$

0.86 

 

$

0.12 

 

$

2.14 

Diluted

$

0.19 

 

$

0.82 

 

$

0.11 

 

$

1.88 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

38,027 

 

 

37,467 

 

 

37,916 

 

 

35,322 

Diluted

 

40,075 

 

 

39,359 

 

 

39,565 

 

 

41,308 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividend declared per share

$

0.08 

 

$

0.04 

 

$

0.16 

 

$

0.08 

 

 

 

 

 

 

 

 

 

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
June 30,

 

Six Months Ended
June 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

7,792 

 

$

32,314 

 

$

4,474 

 

$

75,517 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on derivatives arising during period,
net of tax (expense) benefit of $2,470, $(12,364), $(3,327)
and $72,146, respectively

 

(4,108)

 

 

19,671 

 

 

5,558 

 

 

(119,121)

Reclassification of realized (gains) losses on derivatives, net
of tax expense (benefit) of $(6,031), $(36,471), $(962)
and $(67,543), respectively

 

10,030 

 

 

58,020 

 

 

1,608 

 

 

111,521 

Total other comprehensive income (loss), net of tax

 

5,922 

 

 

77,691 

 

 

7,166 

 

 

(7,600)

Comprehensive income

$

13,714 

 

$

110,005 

 

$

11,640 

 

$

67,917 

 

 

See accompanying notes to the consolidated financial statements.

 

4

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended
June 30,

 

2015

 

2014

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

$

4,474 

 

$

75,517 

Adjustments to reconcile net income to net cash provided
(used) by operating activities:

 

 

 

 

 

Depreciation and amortization

 

31,081 

 

 

29,362 

Amortization of debt issuance costs and debt discount

 

3,668 

 

 

4,549 

Deferred income taxes

 

11,323 

 

 

9,463 

Stock-based compensation

 

1,054 

 

 

3,037 

Undistributed equity in loss of affiliates

 

2,159 

 

 

871 

Other

 

104 

 

 

52 

Changes in operating assets and liabilities before
effects of business combinations:

 

 

 

 

 

Accounts receivable

 

21,918 

 

 

(6,509)

Inventories

 

39,120 

 

 

29,018 

Derivative financial instruments

 

10,033 

 

 

(26,232)

Prepaid expenses and other assets

 

5,220 

 

 

1,599 

Accounts payable and accrued liabilities

 

(100,228)

 

 

2,461 

Current income taxes

 

(13,021)

 

 

24,035 

Unearned revenues

 

4,628 

 

 

2,854 

Other

 

1,671 

 

 

936 

Net cash provided by operating activities

 

23,204 

 

 

151,013 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(28,690)

 

 

(28,935)

Acquisition of businesses, net of cash acquired

 

 -

 

 

(23,900)

Investments in unconsolidated subsidiaries

 

(3,309)

 

 

(3,277)

Net cash used by investing activities

 

(31,999)

 

 

(56,112)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from the issuance of long-term debt

 

178,400 

 

 

443,767 

Payments of principal on long-term debt

 

(188,744)

 

 

(419,699)

Proceeds from short-term borrowings

 

1,568,129 

 

 

1,782,974 

Payments on short-term borrowings

 

(1,577,555)

 

 

(1,822,904)

Payments of cash dividends

 

(6,077)

 

 

(2,893)

Change in restricted cash

 

12,275 

 

 

(12,084)

Payments of loan fees

 

(4,289)

 

 

(6,286)

Proceeds from exercises of stock options

 

634 

 

 

3,576 

Net cash used by financing activities

 

(17,227)

 

 

(33,549)

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(26,022)

 

 

61,352 

Cash and cash equivalents, beginning of period

 

425,510 

 

 

272,027 

Cash and cash equivalents, end of period

$

399,488 

 

$

333,379 

 

 

 

 

 

 

Continued on the following page

 

 

 

 

 

 

 

5

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continued from the previous page

 

 

 

 

 

 

Six Months Ended
June 30,

 

2015

 

2014

 

 

 

 

 

 

Supplemental disclosures of cash flow:

 

 

 

 

 

Cash paid for income taxes

$

4,552 

 

$

7,790 

Cash paid for interest

$

19,114 

 

$

18,117 

 

 

 

 

 

 

Supplemental investing and financing activities:

 

 

 

 

 

Assets acquired in acquisitions and mergers

$

 -

 

$

25,611 

Less: liabilities assumed

 

 -

 

 

(1,711)

Net assets acquired

$

 -

 

$

23,900 

 

 

 

 

 

 

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 energy commodity purchase and sale agreements. In certain instances, the Company intends to settle these transactions by transferring its obligations to other counterparties rather than by physical delivery. 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 approved 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 is 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 requires 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 amended guidance 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.

 

Effective January 1, 2017, the Company will adopt the amended guidance in ASC Topic 330, Inventory: Simplifying the Measurement of Inventory . The amended guidance requires inventory to be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The amended guidance will be applied prospectively.

 

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.

 

9

 


 

 

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 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at June 30, 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

$

399,488 

 

$

 -

 

$

 -

 

$

399,488 

Restricted cash

 

17,468 

 

 

 -

 

 

 -

 

 

17,468 

Margin deposits

 

15,037 

 

 

 -

 

 

(15,037)

 

 

 -

Inventories carried at market

 

 -

 

 

13,979 

 

 

 -

 

 

13,979 

Unrealized gains on derivatives

 

11,519 

 

 

21,968 

 

 

4,285 

 

 

37,772 

Total assets measured at fair value

$

443,512 

 

$

35,947 

 

$

(10,752)

 

$

468,707 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on derivatives

$

8,261 

 

$

12,592 

 

$

(10,752)

 

$

10,101 

Total liabilities measured at fair value

$

8,261 

 

$

12,592 

 

$

(10,752)

 

$

10,101 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 $654.3 million compa red to a book va lue of $652.4 million at June 30, 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 $ 116.1 million and $ 98.4 million, respectively, at June 30, 2015 and $ 138.1 million and $ 170.2 million, respectively, 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
June 30,

 

Six Months Ended
June 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Ethanol production:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

$

38,856 

 

$

(71,054)

 

$

102,950 

 

$

(98,486)

Intersegment revenues

 

411,582 

 

 

603,529 

 

 

764,441 

 

 

1,169,332 

Total segment revenues

 

450,438 

 

 

532,475 

 

 

867,391 

 

 

1,070,846 

Corn oil production:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

 

 -

 

 

(7)

 

 

(13)

 

 

 -

Intersegment revenues

 

17,027 

 

 

20,381 

 

 

33,836 

 

 

36,765 

Total segment revenues

 

17,027 

 

 

20,374 

 

 

33,823 

 

 

36,765 

Agribusiness:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

 

78,642 

 

 

33,488 

 

 

136,976 

 

 

51,729 

Intersegment revenues

 

264,935 

 

 

347,116 

 

 

527,718 

 

 

651,354 

Total segment revenues

 

343,577 

 

 

380,604 

 

 

664,694 

 

 

703,083 

Marketing and distribution:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

 

626,992 

 

 

875,431 

 

 

1,242,965 

 

 

1,618,504 

Intersegment revenues

 

31,887 

 

 

34,595 

 

 

71,262 

 

 

68,060 

Total segment revenues

 

658,879 

 

 

910,026 

 

 

1,314,227 

 

 

1,686,564 

Revenues including intersegment activity

 

1,469,921 

 

 

1,843,479 

 

 

2,880,135 

 

 

3,497,258 

Intersegment eliminations

 

(725,431)

 

 

(1,005,621)

 

 

(1,397,257)

 

 

(1,925,511)

Revenues as reported

$

744,490 

 

$

837,858 

 

$

1,482,878 

 

$

1,571,747 

 

 

 

(1)

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

 

11

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit (loss):

 

 

 

 

 

 

 

 

 

 

 

Ethanol production

$

24,284 

 

$

35,171 

 

$

17,464 

 

$

106,859 

Corn oil production

 

9,625 

 

 

10,931 

 

 

20,010 

 

 

18,746 

Agribusiness

 

4,006 

 

 

2,499 

 

 

9,218 

 

 

5,475 

Marketing and distribution

 

10,714 

 

 

9,899 

 

 

22,868 

 

 

50,615 

Intersegment eliminations

 

(1,303)

 

 

19,815 

 

 

3,321 

 

 

(2,631)

 

$

47,326 

 

$

78,315 

 

$

72,881 

 

$

179,064 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

Ethanol production

$

18,230 

 

$

30,111 

 

$

5,087 

 

$

96,337 

Corn oil production

 

9,567 

 

 

10,874 

 

 

19,778 

 

 

18,582 

Agribusiness

 

2,258 

 

 

1,269 

 

 

5,468 

 

 

2,205 

Marketing and distribution

 

4,564 

 

 

4,391 

 

 

10,172 

 

 

36,885 

Intersegment eliminations

 

(1,303)

 

 

19,815 

 

 

3,381 

 

 

(2,571)

Corporate activities

 

(8,914)

 

 

(7,514)

 

 

(15,380)

 

 

(14,148)

 

$

24,402 

 

$

58,946 

 

$

28,506 

 

$

137,290 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Ethanol

$

468,998 

 

$

618,386 

 

$

913,299 

 

$

1,148,427 

Distillers grains

 

128,503 

 

 

143,695 

 

 

237,891 

 

 

280,687 

Corn oil

 

19,619 

 

 

22,196 

 

 

38,700 

 

 

39,328 

Grain

 

53,688 

 

 

44,172 

 

 

152,774 

 

 

73,372 

Cattle

 

66,287 

 

 

3,431 

 

 

111,478 

 

 

3,431 

Other

 

7,395 

 

 

5,978 

 

 

28,736 

 

 

26,502 

 

$

744,490 

 

$

837,858 

 

$

1,482,878 

 

$

1,571,747 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

2015

 

2014

 

 

 

 

 

 

Total assets:

 

 

 

 

 

Ethanol production

$

875,086 

 

$

983,289 

Corn oil production

 

31,990 

 

 

31,405 

Agribusiness

 

230,037 

 

 

234,626 

Marketing and distribution

 

264,795 

 

 

305,675 

Corporate assets

 

334,207 

 

 

290,123 

Intersegment eliminations

 

(9,887)

 

 

(16,561)

 

$

1,726,228 

 

$

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

2015

 

2014

 

 

 

 

 

 

Finished goods

$

43,820 

 

$

34,639 

Grain held for sale

 

6,653 

 

 

23,027 

Raw materials

 

39,000 

 

 

78,095 

Work-in-process

 

104,719 

 

 

100,221 

Supplies and parts

 

21,655 

 

 

18,985 

 

$

215,847 

 

$

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 six months ended June 30, 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 June 30, 2015, the Company’s consolidated balance she et reflects unrealized gain s, net of tax, of $1.8 million in accumulated other comprehensive income. The Company expects that all of the unrealized gains at June 30, 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

 

 

June 30,

 

December 31,

 

June 30,

 

December 31,

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments (1)

 

$

22,735 

(2)

$

11,859 

(3)

$

 -

 

$

 -

Other assets

 

 

 -

 

 

 

 

 -

 

 

 -

Accrued and other liabilities

 

 

 -

 

 

 -

 

 

10,101 

 

 

28,082 

Total

 

$

22,735 

 

$

11,862 

 

$

10,101 

 

$

28,082 

 

(1) Derivative financial instruments as reflected on the consolidated balance sheets are net of related margin deposit assets of $ 15.0 million a n d $ 24.5 million at June 30, 2015 and December 31, 2014, respectively.

(2) Balance at June 30, 2015 i ncludes $ 1.2 million of net unrealized gains 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
June 30,

 

Six Months Ended
June 30,

Designated in a Hedging Relationship

 

2015

 

2014

 

2015

 

2014

Revenues

 

$

3,617 

 

$

(4,884)

 

$

(166)

 

$

13,366 

Cost of goods sold

 

 

(11,233)

 

 

3,560 

 

 

(18,209)

 

 

2,398 

Net increase (decrease) recognized in earnings before tax

 

$

(7,616)

 

$

(1,324)

 

$

(18,375)

 

$

15,764 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (Losses) Due to Ineffectiveness

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

of Cash Flow Hedges

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

(28)

 

$

264 

 

$

(59)

 

$

(82)

Cost of goods sold

 

 

494 

 

 

(1,610)

 

 

23 

 

 

(750)

Net increase (decrease) recognized in earnings before tax

 

$

466 

 

$

(1,346)

 

$

(36)

 

$

(832)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

into Net Income

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

(8,141)

 

$

(125,177)

 

$

3,708 

 

$

(213,323)

Cost of goods sold

 

 

(7,920)

 

 

30,686 

 

 

(6,278)

 

 

34,259 

Net increase (decrease) recognized in earnings before tax

 

$

(16,061)

 

$

(94,491)

 

$

(2,570)

 

$

(179,064)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Portion of Cash Flow
Hedges Recognized in

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

Other Comprehensive Income (Loss)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Contracts

 

$

(6,578)

 

$

32,035 

 

$

8,885 

 

$

(191,267)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (Losses) from Fair Value

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

Hedges of Inventory