Green Plains Inc.
Green Plains Inc. (Form: 10-Q, Received: 11/05/2015 19:04:24)

 

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended September 30 , 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 November 2 , 201 5 was 3 7 , 889 , 871 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

26

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk  

42

 

 

 

Item 4.

Controls and Procedures

44

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

45

 

 

 

Item 1A.

Risk Factors

45

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

 

 

 

Item 3.

Defaults Upon Senior Securities

48

 

 

 

Item 4.

Mine Safety Disclosures

48

 

 

 

Item 5.

Other Information

48

 

 

 

Item 6.

Exhibits

48

 

 

 

Signatures  

50

 

 

 

 

1

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

  CONSOLIDATED BALANCE SHEETS

 

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2015

 

2014

 

 

 

 

 

 

 

(unaudited)

 

 

 

ASSETS

Current assets

 

 

 

 

 

Cash and cash equivalents

$

495,863 

 

$

425,510 

Restricted cash

 

16,658 

 

 

29,742 

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

 

141,020 

 

 

138,073 

Income taxes receivable

 

5,236 

 

 

 -

Inventories

 

263,012 

 

 

254,967 

Prepaid expenses and other

 

12,184 

 

 

18,776 

Deferred income taxes

 

 -

 

 

7,495 

Derivative financial instruments

 

33,792 

 

 

36,347 

Total current assets

 

967,765 

 

 

910,910 

Property and equipment, net of accumulated depreciation of
$321,418 and $274,543, respectively

 

820,600 

 

 

825,210 

Goodwill

 

40,877 

 

 

40,877 

Other assets

 

51,627 

 

 

51,560 

Total assets

$

1,880,869 

 

$

1,828,557 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

 

 

 

 

 

Accounts payable

$

140,595 

 

$

170,199 

Accrued and other liabilities

 

38,266 

 

 

65,083 

Income taxes payable

 

4,168 

 

 

2,907 

Short-term notes payable and other borrowings

 

199,732 

 

 

209,886 

Current maturities of long-term debt

 

4,499 

 

 

63,465 

Current deferred income taxes

 

2,854 

 

 

 -

Total current liabilities

 

390,114 

 

 

511,540 

Long-term debt

 

443,396 

 

 

399,440 

Deferred income taxes

 

70,227 

 

 

115,235 

Other liabilities

 

5,942 

 

 

4,893 

Total liabilities

 

909,679 

 

 

1,031,108 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

Common stock, $0.001 par value; 75,000,000 shares authorized;
45,283,060 and 44,808,982 shares issued, and 37,891,360
and 37,608,982 shares outstanding, respectively

 

45 

 

 

45 

Additional paid-in capital

 

575,915 

 

 

569,431 

Retained earnings

 

299,108 

 

 

299,101 

Accumulated other comprehensive income (loss)

 

4,625 

 

 

(5,320)

Treasury stock,7,391,700 and 7,200,000 shares, respectively

 

(69,811)

 

 

(65,808)

Total Green Plains stockholders' equity

 

809,882 

 

 

797,449 

Noncontrolling interest

 

161,308 

 

 

 -

Total liabilities and stockholders' equity

$

1,880,869 

 

$

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
September 30,

 

Nine Months Ended
September 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

Product revenues

$

740,634 

 

$

831,779 

 

$

2,219,319 

 

$

2,399,384 

Service revenues

 

2,163 

 

 

2,146 

 

 

6,356 

 

 

6,288 

Total revenues

 

742,797 

 

 

833,925 

 

 

2,225,675 

 

 

2,405,672 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold, excluding depreciation and amortization

 

679,348 

 

 

716,188 

 

 

2,048,379 

 

 

2,072,141 

Operations and maintenance expenses

 

7,715 

 

 

6,895 

 

 

21,850 

 

 

18,509 

Selling, general and administrative expenses

 

19,280 

 

 

20,217 

 

 

58,473 

 

 

56,898 

Depreciation and amortization expenses

 

16,621 

 

 

15,570 

 

 

48,634 

 

 

45,779 

Total costs and expenses

 

722,964 

 

 

758,870 

 

 

2,177,336 

 

 

2,193,327 

Operating income

 

19,833 

 

 

75,055 

 

 

48,339 

 

 

212,345 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

319 

 

 

164 

 

 

749 

 

 

420 

Interest expense

 

(10,196)

 

 

(10,288)

 

 

(29,918)

 

 

(29,751)

Other, net

 

(519)

 

 

1,068 

 

 

(2,484)

 

 

2,802 

Total other expense

 

(10,396)

 

 

(9,056)

 

 

(31,653)

 

 

(26,529)

Income before income taxes

 

9,437 

 

 

65,999 

 

 

16,686 

 

 

185,816 

Income tax expense (benefit)

 

(604)

 

 

24,250 

 

 

2,171 

 

 

68,550 

Net income

 

10,041 

 

 

41,749 

 

 

14,515 

 

 

117,266 

Net income attributable to noncontrolling interest

 

3,862 

 

 

 -

 

 

3,862 

 

 

 -

Net income attributable to Green Plains

$

6,179 

 

$

41,749 

 

$

10,653 

 

$

117,266 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Green Plains stockholders - basic

$

0.16 

 

$

1.11 

 

$

0.28 

 

$

3.25 

Net income attributable to Green Plains stockholders - diluted

$

0.16 

 

$

1.03 

 

$

0.27 

 

$

2.90 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

38,066 

 

 

37,588 

 

 

37,966 

 

 

36,101 

Diluted

 

38,556 

 

 

40,542 

 

 

39,266 

 

 

41,130 

Cash dividend declared per share

$

0.12 

 

$

0.08 

 

$

0.28 

 

$

0.16 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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
September 30,

 

Nine Months Ended
September 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

10,041 

 

$

41,749 

 

$

14,515 

 

$

117,266 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on derivatives arising during period,
net of tax (expense) benefit of $(2,232), $15,668, $(5,554)
and $90,605, respectively

 

3,682 

 

 

(24,836)

 

 

9,245 

 

 

(141,166)

Reclassification of realized (gains) losses on derivatives, net
of tax expense (benefit) of $547, $(31,428), $(420)
and $(101,762), respectively

 

(903)

 

 

49,819 

 

 

700 

 

 

158,549 

Total other comprehensive income, net of tax

 

2,779 

 

 

24,983 

 

 

9,945 

 

 

17,383 

Comprehensive income

 

12,820 

 

 

66,732 

 

 

24,460 

 

 

134,649 

Comprehensive income attributable to noncontrolling interest

 

3,862 

 

 

 -

 

 

3,862 

 

 

 -

Comprehensive income attributable to Green Plains

$

8,958 

 

$

66,732 

 

$

20,598 

 

$

134,649 

 

 

See accompanying notes to the consolidated financial statements.

 

4

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended
September 30,

 

2015

 

2014

Cash flows from operating activities

 

 

 

 

 

Net income

$

14,515 

 

$

117,266 

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

 

 

 

 

 

Depreciation and amortization

 

48,634 

 

 

45,779 

Amortization of debt issuance costs and debt discount

 

5,756 

 

 

6,905 

Deferred income taxes

 

(39,645)

 

 

11,655 

Stock-based compensation

 

3,207 

 

 

4,396 

Undistributed equity in loss of affiliates

 

2,678 

 

 

2,511 

Other

 

104 

 

 

1,047 

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

 

 

 

 

 

Accounts receivable

 

(3,051)

 

 

4,938 

Inventories

 

(8,045)

 

 

(24,359)

Derivative financial instruments

 

18,503 

 

 

14,212 

Prepaid expenses and other assets

 

6,732 

 

 

5,116 

Accounts payable and accrued liabilities

 

(56,636)

 

 

28,288 

Current income taxes

 

(1,532)

 

 

10,891 

Other

 

1,300 

 

 

(3,078)

Net cash provided (used) by operating activities

 

(7,480)

 

 

225,567 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchases of property and equipment

 

(44,464)

 

 

(44,242)

Acquisition of businesses, net of cash acquired

 

 -

 

 

(23,900)

Investments in unconsolidated subsidiaries

 

(3,309)

 

 

(3,460)

Net cash used by investing activities

 

(47,773)

 

 

(71,602)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from the issuance of long-term debt

 

178,400 

 

 

493,892 

Payments of principal on long-term debt

 

(194,819)

 

 

(475,866)

Proceeds from short-term borrowings

 

2,382,589 

 

 

2,716,499 

Payments on short-term borrowings

 

(2,391,874)

 

 

(2,767,575)

Proceeds from issuance of Green Plains Partners common units, net

 

157,422 

 

 

 -

Payments for repurchase of common stock

 

(4,003)

 

 

 -

Payments of cash dividends

 

(10,646)

 

 

(5,899)

Change in restricted cash

 

13,085 

 

 

16,033 

Payments of loan fees

 

(5,314)

 

 

(6,387)

Proceeds from exercises of stock options

 

766 

 

 

4,424 

Net cash provided (used) by financing activities

 

125,606 

 

 

(24,879)

 

 

 

 

 

 

Net change in cash and cash equivalents

 

70,353 

 

 

129,086 

Cash and cash equivalents, beginning of period

 

425,510 

 

 

272,027 

Cash and cash equivalents, end of period

$

495,863 

 

$

401,113 

 

 

 

 

 

 

Continued on the following page

 

 

 

 

 

5

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continued from the previous page

 

 

 

 

 

 

Nine Months Ended
September 30,

 

2015

 

2014

 

 

 

 

 

 

Supplemental disclosures of cash flow

 

 

 

 

 

Cash paid for income taxes

$

43,347 

 

$

42,503 

Cash paid for interest

$

27,248 

 

$

26,134 

 

 

 

 

 

 

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

 

R eferences 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 company’s accounts and all significant intercompany balances and transactions are eliminated. Unconsolidated entities are included in the financial statements on an equity basis. Interim period results are not necessarily indicative of the results to be expected for the entire year.

 

The accompanying unaudited consolidated financial statements are prepared in accordance 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. Because they do not include all of the information and footnotes required by GAAP, 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 adjustments which are, in the opinion of management, necessary for a fair presentation of results of operations, financial position and cash flows for the periods presented. The adjustments are normal and recurring in nature, unless otherwise noted.

 

Reclassifications

 

Certain prior year amounts were reclassified to conform with the current year presentation. These reclassifications did not affect total revenues, costs and expenses, net income or stockholders’ equity.

 

Use of Estimates in the Preparation of Consolidated Financial Statements

 

P reparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported assets and liabilities, contingent assets and liabilities at the date of the consolidated financial statements and reported revenues and expenses during the reporting period. The company bases its estimates on historical experience and assumptions it believes are proper and reasonable under the circumstances. The company regularly evaluates the appropriateness of these estimates and assumptions. Actual results could differ from those estimates. Key accounting policies, including those related to revenue recognition, depreciation of property and equipment, asset retirement obligations, impairment of long-lived assets and goodwill, derivative financial instruments and accounting for income taxes   are affected by judgments, assumptions and estimates used to prepare the consolidated financial statements.

 

Description of Business

 

Green Plains is the fourth largest ethanol producer in North America. The company operates within four business segments: (1) ethanol production, which includes the production of ethanol, distillers grains and corn oil, (2) agribusiness, which includes grain handling and storage and cattle feedlot operations, (3) marketing and distribution, which includes marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil and other commodities, and (4) partnership, which includes fuel storage and transportation services. The company is also a partner in a joint venture focused on developing technology to grow and harvest algae in commercially viable quantities.

 

Revenue Recognition

 

The company recognizes revenue when the following criteria are satisfied: persuasive evidence that an arrangement exists, title of product and risk of loss are transferred to the customer, price is fixed and determinable and collectability is reasonably assured.

 

7

 


 

 

Sales of ethanol, distillers grains, corn oil and other commodities by the company’s marketing business are recognized when title of product and risk of loss are transferred to an external customer. Revenues related to marketing for third parties are presented on a gross basis when the company takes title of the product and assumes risk of loss. Unearned revenue is recorded for goods in transit when the company has received payment but the title has not yet been transferred to the customer. Revenues for receiving, storing, transferring and transporting ethanol and other fuels are recognized when the product is delivered to the customer.

 

The company routinely enters into fixed-price, physical-delivery energy commodity purchase and sale agreements. At times, the company settles these transactions by transferring its obligations to other counterparties rather than delivering the physical commodity. 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 or loss.

 

Sales of agricultural commodities, including cattle, are recognized when title of product and risk of loss are transferred to the customer, which depends on the agreed upon terms. The sales terms provide passage of title when shipment is made or the commodity is delivered and the customer has agreed to final weights, grades and settlement prices. Revenues related to grain merchandising are presented gross and include shipping and handling, which is also a component of cost of goods sold. Revenues from grain storage are recognized when services are rendered.

 

Cost of Goods Sold

 

Cost of goods sold includes direct labor, materials and plant overhead costs. Direct labor includes all compensation and related benefits of non-management personnel involved in ethanol plant operations. Grain purchasing and receiving costs, excluding labor costs for grain buyers and scale operators, are also included in cost of goods sold. Materials include the cost 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 as well as 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 or loss. Plant overhead consists primarily of plant utilities, depreciation and outbound freight charges. Shipping costs incurred 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 effect of price changes on the 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 and settled predominantly in cash. The company is exposed to loss when counterparties default on forward purchase and sale contracts. Grain inventories held for sale and forward purchase and sale contracts are valued at market prices when available or other market quotes adjusted for differences, primarily in transportation, between the exchange-traded market and local markets where 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 are recognized as a component of cost of goods sold.

 

Derivative Financial Instruments

 

T he company uses various derivative financial instruments, including exchange-traded futures and exchange-traded and over-the-counter options contracts, to minimize risk and the effect of price changes related to corn, ethanol, cattle and natural gas. The company monitors and manages this exposure as part of its overall risk management policy to reduce the adverse effect market volatility may have on its operating results. The company may hedge these commodities as one way to mitigate risk, however, there may be situations when these hedging activities 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’s exposure to credit risk includes the counterparty’s failure 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 their financial condition. 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 parameters to monitor exposure within its risk management strategy which limits the types of derivative instruments and derivative strategies the company can use and the degree of market risk it can take by the use of derivative instruments.

 

8

 


 

 

The company evaluates its physical delivery contracts to determine if they qualify for normal purchase or sale exemption s and are expected to be used or sold over a reasonable period in the normal course of business. Contracts that do not meet the normal purchase or sale criteria are recorded at fair value. Changes in fair value are recorded in operating income unless the contracts qualify for, and the company elects, hedge accounting treatment.

 

Certain qualifying derivatives related to the ethanol production and agribusiness segments are designated as cash flow hedges. The company evaluates the derivative instrument to ascertain its effectiveness prior to entering into cash flow hedges. Ineffectiveness is recognized in current period results, while other unrealized gains and losses are reflected in accumulated other comprehensive income until the gain or loss from the underlying hedged transaction is realized. When it becomes probable a forecasted transaction will not occur, the cash flow hedge treatment is discontinued, which affects earnings. These derivative financial instruments are recognized in current assets or other current liabilities at fair value.

 

At times, the company hedges its exposure to changes in the value of inventories and designates qualifying derivatives as fair value hedges. The carrying amount of the hedged inventory is adjusted in current period results for changes in fair value. Ineffectiveness is recognized in current period results to the extent the change in fair value of the inventory is not offset by the change in fair value of the derivative.

 

Recent Accounting Pronouncements

 

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 , which requires debt issuance costs related to a recognized debt liability to 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, and the balance sheet of each individual period presented will be adjusted to reflect the period-specific effects of the new guidance.

 

Effective January 1, 2016, the company will adopt the amended guidance in ASC Topic 810, Consolidation: Amendments to the Consolidation Analysis , which reduces the number of consolidation models and simplifies the guidance by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of related-party guidance when determining a controlling financial interest in a variable interest entity, and changing consolidation conclusions for companies in industries that typically make use of limited partnerships or variable interest entities. The amended guidance will be applied prospectively.

 

Effective January 1, 2017, the company will adopt the amended guidance in ASC Topic 330, Inventory: Simplifying the Measurement of Inventory , which requires inventory to be measured at 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.

 

E ffective January 1, 2018, the company will adopt the amended guidance in ASC Topic 606, Revenue from Contracts with Customers , which requires revenue recognition to reflect the transfer of promised goods or services to customers. The updated standard permits either the retrospective or cumulative effect transition method. 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.

 

2.  GREEN PLAINS PARTNERS LP

 

Initial Public Offering of Subsidiary

 

On July 1, 2015, Green Plains Partners LP, or the partnership, a newly formed subsidiary of the c ompany, closed its initia l public offering, or the IPO .   In conjunction with the IPO, the c ompany contributed its downstream ethanol transporta tion and storage assets to the p artnership. A total of 11,500,000 common units , representing li mited partner interests including   1,500,000 common units pursuant to the underwriters’ overallotment o ption, were sold to the public for $15.00 per common unit. The p artnership received net proceeds of approximately $157.4 million, after deducting underwriting discount s , structuring f ees and offering expenses. The p artnership used the proceeds to make a distribution to the c ompany of $155.3 million and to pay approximately $0.9 million in origination fees under its new $100.0 million revolving credit facility . The remaining $1.2 million was retained for general partnership purposes. The c ompany now owns a 62.5% limited partner interest , c onsisting of 4,389,642 common units and 15,889,642 subordinated units , and a 2.0%  g eneral partner interest in the p artnership . The public owns the remaining 35.5%  l imited partner interest in the p artnership . As such, the p art nership is consolidated in the c ompany’s financial statements.

 

9

 


 

 

During the subordinati on period, which is described in the partnership a greement for Green Plains Partners , holders of the subordinated units are not entitled to receive distribution s until the common units have received the minimum quarterly distribution plus any arrearages of the minimum quarterly distributio n from prior quarters. If the p artnership does not pay distributions on the subordinated units, the subordinated units will not accrue arrearages for those unpaid distributions. Each subordinated unit will convert into one common unit at the end of the subordination period.

 

The p artnership is a fee-based master limited partnership formed by Green Plains to provide fuel storage and transportation services by owning, operating, developing and acquiring ethanol and fuel storage tanks, terminals, transportation assets and other related assets and businesses. The p artnership’s initial assets include (i) 27 ethanol storage fac ilities, located at or near the c ompany’s 12 ethanol production plants , which have the ability to efficiently and effectively store and load railcars and tanker trucks with all of the ethanol produced at the c ompany’s ethanol production plants, (ii) eight fuel terminal facilities ,   located near m ajor rail lines, which enable the p artnership to receive, store and deliver fuels from and to markets that seek access to renewable fuels, and (iii) transportation assets, including a leased railcar fleet of approximately 2,200 railcars with an aggregate capacity of 66.3 million gallons, or mmg, as of September 30, 2015 which is contracted to transport ethanol from the c ompany’s ethanol p roduction plants to refineries throughout the United States and international export terminals. The partnership expects to be the c ompany’s primary downstream logistics provider to support i ts over   one billion gallons per year, or bgy, ethanol marketing and dis tribution business since the p artnership’s assets are the principal method of storing and delivering the ethanol the c ompany produces.

 

A substantial portion of the p artnership’s revenue s are derived from long-term, fee-based commercial agreements with Green Plains Trade, a subsidiary of the c ompany. In connection with the IPO, the p artnership (1) entered into (i) a ten -year fee-based storage and throughput agreement; (ii) a six -year fee-based rail transportation services agreement; and (iii) a one -year fee-based trucking transportation agreement, and (2) assumed (i) an approximately 2.5 -year terminal services agreement for the p artnership’s Birmingham, Alabama-unit train terminal; and (ii) various other terminal services agreements for its other fuel terminal facilities, eac h with Green Plains Trade. The p artnership’s storage and throughput agreement, and certain terminal services agreements, including the terminal services agreement for the Birmingham facility, are supported by minimum volume commitments . The partnership’s rail transportation services agreement is supported by minimum take-or-pay capacity commitments. The c ompany also has agreements which establish fees for general and administrative ,   and operational and maintenance services it provides . These transactions are eliminated when the c ompany consolidates its financial results .

 

Noncontrolling Interest

 

Green Plains   owns a 62.5% limited partner interest ,   a 2 .0 % g eneral partner interest in the p artnership and all of the p artnership’s incentive distribution rights, with the remaining 35.5% limited partner inter est owned by public common unit holders as of September 30, 2015.

 

The c ompany consolidates the financial results of the p artnership and records a noncontrolling interest in the p artnership held by public common unit holders. Noncontrolling interest on the consolidated statements of operations includes the portion of net income attributable to the economic interest held by the partnership’s public common unit holders. Noncontrolling interest on the consolidated balance sheets includes the portion of net assets attributable to the partnership’s public common un it holders.

 

3 .  FAIR VALUE DISCLOSURES

 

The following methods, assumptions and valuation techniques were used to es timate the fair value of the c ompany’s financial instruments:

 

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities the c ompany can access at the measurement date. Level 1 unrealized gains and losses on commodity derivatives relate to exchange-traded open trade e quity and option values in the c ompany’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 through correlation or other means. Grain inventories held for sale in the agribusiness segment are valued at nearby futures values, plus or minus nearby basis.

 

10

 


 

 

Level 3 – unobservable inputs that are supported by little or no market activity and comprise a significant component of the fair value of the assets or liabilities. The c ompany 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 c ompany’s assets and liabilities by level are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at September 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

$

495,863 

 

$

 -

 

$

 -

 

$

495,863 

Restricted cash

 

16,658 

 

 

 -

 

 

 -

 

 

16,658 

Margin deposits

 

13,752 

 

 

 -

 

 

(13,752)

 

 

 -

Inventories carried at market

 

 -

 

 

19,802 

 

 

 -

 

 

19,802 

Unrealized gains on derivatives

 

13,286 

 

 

12,307 

 

 

8,199 

 

 

33,792 

Total assets measured at fair value

$

539,559 

 

$

32,109 

 

$

(5,553)

 

$

566,115 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on derivatives

$

2,261 

 

$

10,200 

 

$

(5,553)

 

$

6,908 

Other

 

 -

 

 

26 

 

 

 -

 

 

26 

Total liabilities measured at fair value

$

2,261 

 

$

10,226 

 

$

(5,553)

 

$

6,934 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 c ompany believes the fair value of its debt was approximate ly   $646.0 million compared with a book value of $647.6 million at September 30, 2015 and the fair value of its debt was approximate ly   $676.5 million comp ared with a book value of $672.8 million at December 31, 2014. Th e company estimated the fair value of its outstanding debt using Level 2 inputs. The c ompany believes the fair values of its accounts receivable and accounts payable approximated book value, which were $ 141.0 million and $ 140.6 million, respectively, at September 30, 2015 and $ 138.1 million and $ 170.2 million, respectively, at December 31, 2014.

 

Although the c ompany currently does not have any recurring Level 3 financial measurements, the fair values of tangible assets and goodwill acquired and equity component of convertible debt represent Level 3 measurements which were derived using a combination of the income approach, market approach and cost approach for the specific assets or liabilities being valued.

11

 


 

 

4.  SEGMENT INFORMATION

 

As a result of the IPO, the company implemented organizational changes during the third quarter of 2015. Company management now reviews the financial and operating performance of the following four operating segments: (1) ethanol production, which includes the production of ethanol, distillers grains and corn oil, (2) agribusiness, which includes grain handling and storage and cattle feedlot operations, (3) marketing and distribution, which includes marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil and other commodities, and (4) partnership, which includes fuel storage and transportation services. Prior periods have been reclassified to conform to the revised segment presentation.

 

When transferring assets between entities under common control under GAAP, the entity receiving the net assets initially recognizes the carrying amounts of the assets and liabilities at the date of transfer. The transferee’s prior period financial statements are restated for all periods its operations were part of the parent’s consolidated financial statements. On July 1, 2015, Green Plains Partners received ethanol storage and railcar assets and liabilities in a transfer between entities under common control. The transferred assets and liabilities are recognized at the company’s historical cost and reflected retroactively in the segment information of the consolidated financial statements presented in this Form 10-Q. The assets of Green Plains Partners were previously included in the ethanol production and marketing and distribution segments. Expenses related to the ethanol storage and railcar assets, such as depreciation, amortization and railcar lease expenses, are also reflected retroactively in the following segment information. There are no revenues related to the operation of these ethanol storage and railcar assets in the partnership seg ment prior to July 1, 2015, the date the related commercial agreements with Green Plains Trade became effective.

 

Corporate activities include selling , general and administrative expenses, consisting primarily of corporate employee compensation, professional fees and overhead costs not directly related to a specific operating segment.

 

During the normal course of business, the operating segments do business with each other. For example, the ethanol production segment sells ethanol to the marketing and distribution segment, the agribusiness segment sells grain to the ethanol production segment and the partnership segment provides fuel storage and transportation services for the marketing and distribution segment. These intersegment activities are treated like third-party transactions and recorded at market values. Consequently, these transactions affect segment performance; however, they do not impact the company’s consolidated results since the revenues and corresponding costs are eliminated in consolidation .

 

12

 


 

 

Revenues, cost of goods sold, excluding depreciation and amortization , and operating income by segments are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Ethanol production:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

$

37,702 

 

$

34,593 

 

$

140,640 

 

$

(63,893)

Intersegment revenues

 

352,215 

 

 

568,938 

 

 

1,145,879 

 

 

1,764,734 

Total segment revenues

 

389,917 

 

 

603,531 

 

 

1,286,519 

 

 

1,700,841 

Agribusiness:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

 

54,519 

 

 

23,747 

 

 

191,495 

 

 

75,476 

Intersegment revenues

 

255,671 

 

 

290,543 

 

 

783,388 

 

 

941,897 

Total segment revenues

 

310,190 

 

 

314,290 

 

 

974,883 

 

 

1,017,373 

Marketing and distribution:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

 

648,413 

 

 

773,439 

 

 

1,887,184 

 

 

2,387,801 

Intersegment revenues

 

21,914 

 

 

40,616 

 

 

93,176 

 

 

108,677 

Total segment revenues

 

670,327 

 

 

814,055 

 

 

1,980,360 

 

 

2,496,478 

Partnership:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

 

2,163 

 

 

2,146 

 

 

6,356 

 

 

6,288 

Intersegment revenues

 

19,247 

 

 

1,255 

 

 

21,895 

 

 

3,267 

Total segment revenues

 

21,410 

 

 

3,401 

 

 

28,251 

 

 

9,555 

Revenues including intersegment activity

 

1,391,844 

 

 

1,735,277 

 

 

4,270,013 

 

 

5,224,247 

Intersegment eliminations

 

(649,047)

 

 

(901,352)

 

 

(2,044,338)

 

 

(2,818,575)

Revenues as reported

$

742,797 

 

$

833,925 

 

$

2,225,675 

 

$

2,405,672 

 

 

 

(1)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold, excluding depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

Ethanol production

$

365,348 

 

$

512,621 

 

$

1,184,595 

 

$

1,448,082 

Agribusiness

 

307,995 

 

 

311,691 

 

 

962,979 

 

 

1,009,246 

Marketing and distribution

 

656,934 

 

 

800,100 

 

 

1,950,327 

 

 

2,437,813 

Partnership

 

 -

 

 

 -

 

 

 -

 

 

 -

Intersegment eliminations

 

(650,929)

 

 

(908,224)

 

 

(2,049,522)

 

 

(2,823,000)

 

$

679,348 

 

$

716,188 

 

$

2,048,379 

 

$

2,072,141 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

Ethanol production

$

5,528 

 

$

72,836 

 

$

43,139 

 

$

198,359 

Agribusiness

 

365 

 

 

1,136 

 

 

5,833 

 

 

3,341 

Marketing and distribution

 

9,406 

 

 

8,378 

 

 

17,446 

 

 

43,446 

Partnership

 

11,030 

 

 

(5,268)

 

 

416 

 

 

(14,054)

Intersegment eliminations

 

1,882 

 

 

6,842 

 

 

5,264 

 

 

4,270 

Corporate activities

 

(8,378)

 

 

(8,869)

 

 

(23,759)

 

 

(23,017)

 

$

19,833 

 

$

75,055 

 

$

48,339 

 

$

212,345 

 

13

 


 

 

Revenues by product are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Ethanol

$

468,005 

 

$

617,130 

 

$

1,381,203 

 

$

1,765,561 

Distillers grains

 

121,273 

 

 

132,233 

 

 

359,164 

 

 

412,920 

Corn oil

 

28,949 

 

 

24,866 

 

 

67,649 

 

 

64,198 

Grain

 

47,106 

 

 

42,085 

 

 

199,982 

 

 

115,448 

Cattle

 

56,904 

 

 

12,728 

 

 

168,381 

 

 

16,158 

Service revenues

 

2,163 

 

 

2,146 

 

 

6,356 

 

 

6,288 

Other

 

18,397 

 

 

2,737 

 

 

42,940 

 

 

25,099 

 

$

742,797 

 

$

833,925 

 

$

2,225,675 

 

$

2,405,672 

 

Total assets by segment are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2015

 

2014

 

 

 

 

 

 

Total assets (1) :

 

 

 

 

 

Ethanol production

$

866,871 

 

$

991,260 

Agribusiness

 

238,611 

 

 

234,626 

Marketing and distribution

 

259,342 

 

 

259,246 

Partnership

 

77,630 

 

 

76,762 

Corporate assets

 

445,938 

 

 

290,123 

Intersegment eliminations

 

(7,523)

 

 

(23,460)

 

$

1,880,869 

 

$

1,828,557 

 

(1)

Asset balances by segment exclude intercompany payable and receivable balances .

 

 

5 .  INVENTORIES

 

Inventories are carried at lower of cost or market, except for grain held for sale and fair value hedged inventories, which are reported at market value.

 

The components of inventories are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2015

 

2014

 

 

 

 

 

 

Finished goods

$

51,953 

 

$

34,639 

Grain held for sale

 

5,401 

 

 

23,027 

Raw materials

 

94,129 

 

 

78,095 

Work-in-process

 

88,348 

 

 

100,221 

Supplies and parts

 

23,181 

 

 

18,985 

 

$

263,012 

 

$

254,967 

 

 

6 .  GOODWILL

 

The c ompany did not have any changes in the carrying amount of goodwill, which was $40.9 million during the nine months ended September 30, 2015 .   Goodwill of $ 30.3 million is attributable to the ethanol production segment and $ 10.6 million is attributable to the partnership segment.

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7 .  DERIVATIVE FINANCIAL INSTRUMENTS

 

At September 30, 2015, the c ompany’s consolidated balance she et reflect ed unrealized gains of $4.6 million, net of tax ,   in accumulated o ther comprehensive income. The c ompany expects these gains w ill be reclassified as operating income over the next 12 months as a result of hedged transactions that are forecasted to occur. The amount reali zed in operating income , will differ as commodity prices change.

 

Fair Values of Derivative Instruments

 

The fair values of the c ompany’s derivative financial instruments and the line items on the consolidated balance sheets where they are reported are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Derivatives'

 

Liability Derivatives'

 

 

Fair Value

 

Fair Value

 

 

September 30,

 

December 31,

 

September 30,

 

December 31,

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments (1)

 

$

20,040 

(2)

$

11,859 

(3)

$

 -

 

$

 -

Other assets

 

 

 -

 

 

 

 

 -

 

 

 -

Accrued and other liabilities

 

 

 -

 

 

 -

 

 

6,908 

 

 

28,082 

Other liabilities

 

 

 -

 

 

 -

 

 

26 

 

 

 -

Total

 

$

20,040 

 

$

11,862 

 

$

6,934 

 

$

28,082 

 

(1) Derivative financial instruments as reflected on the consolidated balance sheets are net of related margin deposit assets of $ 13.8 million and $ 24.5 million at September 30, 2015 and December 31, 2014, respectively.

(2) Balance at September 30, 2015 includes $ 2.3 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 3 - Fair Value Disclosures , which contains fair value information related to derivative financial instruments.

 

Effect of Derivative Instruments on Consolidated Statements of Operations and Consolidated Statements of Stockholders’ Equity and Comprehensive Income

 

The gains or losses recognized in income and oth er comprehensive income related to the c ompany’s derivative financial instruments and the line items on the consolidated financial statements where they are reported are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (Losses) on Derivative Instruments Not

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

Designated in a Hedging Relationship

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

(9,431)

 

$

11,627 

 

$

(9,597)

 

$

24,992 

Cost of goods sold