Green Plains Inc.
Green Plains Inc. (Form: 10-Q, Received: 05/05/2016 16:52:36)

 









 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________



FORM 10-Q



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



For the Quarterly Period Ended March 31, 2016



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 May 2, 2016, was 38,464,374 shares .

 

 


 

 

TABLE OF CONTENTS





 

 



 

 



Page

 Commonly Used Defined Terms

2

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

 



 

 



Consolidated Balance Sheets  

3



 

 



Consolidated Statements of Operations

4



 

 



Consolidated Statements of Comprehensive Income (Loss)  

5



 

 



Consolidated Statements of Cash Flows  

6



 

 



Notes to Consolidated Financial Statements  

8



 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26



 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk  

35



 

 

Item 4.

Controls and Procedures

36



 

 



 

 

PART II – OTHER INFORMATION

 



 

 

Item 1.

Legal Proceedings

37



 

 

Item 1A.

Risk Factors

37



 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37



 

 

Item 3.

Defaults Upon Senior Securities

37



 

 

Item 4.

Mine Safety Disclosures

37



 

 

Item 5.

Other Information

37



 

 

Item 6.

Exhibits

38



 

 

 Signatures

39



 

1

 


 

 







Commonly Used Defined Terms



Green Plains Inc. and Subsidiaries:





 

Green Plains; the company

Green Plains Inc. and its subsidiaries

Green Plains Cattle

Green Plains Cattle Company LLC

Green Plains Grain

Green Plains Grain Company LLC

Green Plains Fairmont

Green Plains Fairmont LLC

Green Plains Hereford

Green Plains Hereford LLC

Green Plains Holdings II

Green Plains Holdings II LLC

Green Plains Hopewell

Green Plains Hopewell LLC

Green Plains Obion

Green Plains Obion LLC

Green Plains Otter Tail

Green Plains Otter Tail LLC

Green Plains Partners; the partnership

Green Plains Partners LP

Green Plains Processing

Green Plains Processing LLC and its subsidiaries

Green Plains Superior

Green Plains Superior LLC

Green Plains Trade

Green Plains Trade Group LLC

Green Plains Wood River

Green Plains Wood River LLC



Accounting Defined Terms:





 

ASC

Accounting Standards Codification

EBITDA

Earnings before interest, income taxes, depreciation and amortization

EPS

Earnings per share

Exchange Act

Securities Exchange Act of 1934, as amended

GAAP

U.S. Generally Accepted Accounting Principles

IPO

Initial public offering of Green Plains Partners LP

LIBOR

London Interbank Offered Rate

LTIP

Green Plains Partners LP 2015 Long-Term Incentive Plan

Nasdaq

The Nasdaq Global Market

SEC

Securities and Exchange Commission

Securities Act

Securities Act of 1933, as amended



Industry Defined Terms:





 

BTU

British Thermal Units

EIA

U.S. Energy Information Administration

Mmg

Million gallons

Mmgy

Million gallons per year

Reform Act

Dodd-Frank Wall Street Reform and Consumer Protection Act

U.S.

United States

USDA

U.S. Department of Agriculture

WASDE

World Agriculture Supply and Demand Estimates











2

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

  CONSOLIDATED BALANCE SHEETS



(in thousands, except share amounts)









 

 

 

 

 



 

 

 

 

 



March 31,

 

December 31,



2016

 

2015



 

 

 

 

 



(unaudited)

 

 

 

ASSETS

Current assets

 

 

 

 

 

Cash and cash equivalents

$

383,442 

 

$

384,867 

Restricted cash

 

17,263 

 

 

27,018 

Accounts receivable, net of allowances of $388 and $285, respectively

 

106,083 

 

 

96,150 

Income taxes receivable

 

5,627 

 

 

9,104 

Inventories

 

363,519 

 

 

353,957 

Prepaid expenses and other

 

9,748 

 

 

10,941 

Derivative financial instruments

 

32,485 

 

 

30,540 

Total current assets

 

918,167 

 

 

912,577 

Property and equipment, net of accumulated depreciation of
$357,795 and $338,558, respectively

 

920,451 

 

 

922,070 

Goodwill

 

40,877 

 

 

40,877 

Other assets

 

39,917 

 

 

42,396 

Total assets

$

1,919,412 

 

$

1,917,920 



 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

 

 

 

 

 

Accounts payable

$

104,513 

 

$

166,963 

Accrued and other liabilities

 

51,253 

 

 

40,271 

Short-term notes payable and other borrowings

 

277,355 

 

 

226,928 

Current maturities of long-term debt

 

4,513 

 

 

4,507 

Total current liabilities

 

437,634 

 

 

438,669 

Long-term debt

 

484,004 

 

 

432,139 

Deferred income taxes

 

61,459 

 

 

81,797 

Other liabilities

 

6,493 

 

 

6,406 

Total liabilities

 

989,590 

 

 

959,011 



 

 

 

 

 

Stockholders' equity

 

 

 

 

 

Common stock, $0.001 par value; 75,000,000 shares authorized;
45,859,074 and 45,281,571 shares issued, and 38,467,374
and 37,889,871 shares outstanding, respectively

 

46 

 

 

45 

Additional paid-in capital

 

577,679 

 

 

577,787 

Retained earnings

 

262,221 

 

 

290,974 

Accumulated other comprehensive loss

 

(1,066)

 

 

(1,165)

Treasury stock, 7,391,700 shares

 

(69,811)

 

 

(69,811)

Total Green Plains stockholders' equity

 

769,069 

 

 

797,830 

Noncontrolling interest

 

160,753 

 

 

161,079 

Total stockholders' equity

 

929,822 

 

 

958,909 

Total liabilities and stockholders' equity

$

1,919,412 

 

$

1,917,920 



See accompanying notes to the consolidated financial statements.

3

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS



(unaudited and in thousands, except per share amounts)









 

 

 

 

 



 

 

 

 

 



Three Months Ended
March 31,



2016

 

2015



 

 

 

 

 

Revenues

 

 

 

 

 

Product revenues

$

747,183 

 

$

736,303 

Service revenues

 

2,021 

 

 

2,085 

Total revenues

 

749,204 

 

 

738,388 



 

 

 

 

 

Costs and expenses

 

 

 

 

 

Cost of goods sold

 

724,688 

 

 

692,429 

Operations and maintenance expenses

 

8,645 

 

 

7,032 

Selling, general and administrative expenses

 

20,372 

 

 

18,976 

Depreciation and amortization expenses

 

18,145 

 

 

15,847 

Total costs and expenses

 

771,850 

 

 

734,284 

Operating income (loss)

 

(22,646)

 

 

4,104 



 

 

 

 

 

Other income (expense)

 

 

 

 

 

Interest income

 

410 

 

 

220 

Interest expense

 

(10,798)

 

 

(9,158)

Other, net

 

(1,675)

 

 

(931)

Total other expense

 

(12,063)

 

 

(9,869)

Loss before income taxes

 

(34,709)

 

 

(5,765)

Income tax benefit

 

(14,893)

 

 

(2,447)

Net loss

 

(19,816)

 

 

(3,318)

Net income attributable to noncontrolling interest

 

4,322 

 

 

 -

Net loss attributable to Green Plains

$

(24,138)

 

$

(3,318)



 

 

 

 

 

Earnings per share:

 

 

 

 

 

Net loss attributable to Green Plains - basic

$

(0.63)

 

$

(0.09)

Net loss attributable to Green Plains - diluted

$

(0.63)

 

$

(0.09)

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

38,197 

 

 

37,803 

Diluted

 

38,197 

 

 

37,803 



 

 

 

 

 

Cash dividend declared per share

$

0.12 

 

$

0.08 



 

 

 

 

 





See accompanying notes to the consolidated financial statements.



4

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)



(unaudited and in thousands)







 

 

 

 

 



 

 

 

 

 



Three Months Ended
March 31,



2016

 

2015



 

 

 

 

 

Net loss

$

(19,816)

 

$

(3,318)

Other comprehensive income (loss), net of tax

 

 

 

 

 

Unrealized gains on derivatives arising during period,
net of tax expense of $756 and $5,708, respectively

 

1,526 

 

 

9,755 

Reclassification of realized gains on derivatives, net
of tax expense of $707 and $4,980, respectively

 

(1,427)

 

 

(8,511)

Total other comprehensive income, net of tax

 

99 

 

 

1,244 

Comprehensive loss

 

(19,717)

 

 

(2,074)

Comprehensive income attributable to noncontrolling interest

 

4,322 

 

 

 -

Comprehensive loss attributable to Green Plains

$

(24,039)

 

$

(2,074)





See accompanying notes to the consolidated financial statements.



5

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS



(unaudited and in thousands)





 

 

 

 

 



 

 

 

 

 



Three Months Ended
March 31,



2016

 

2015

Cash flows from operating activities:

 

 

 

 

 

Net loss

$

(19,816)

 

$

(3,318)

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

 

 

 

 

 

Depreciation and amortization

 

18,145 

 

 

15,847 

Amortization of debt issuance costs and debt discount

 

3,665 

 

 

1,962 

Deferred income taxes

 

(20,387)

 

 

8,800 

Stock-based compensation

 

147 

 

 

(1,345)

Undistributed equity in loss of affiliates

 

1,675 

 

 

933 

Other

 

103 

 

 

24 

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

 

 

 

 

 

Accounts receivable

 

(10,036)

 

 

36,357 

Inventories

 

(9,562)

 

 

(14,160)

Derivative financial instruments

 

(1,797)

 

 

2,062 

Prepaid expenses and other assets

 

760 

 

 

7,982 

Accounts payable and accrued liabilities

 

(49,190)

 

 

(99,434)

Current income taxes

 

3,216 

 

 

(1,388)

Other

 

1,154 

 

 

(100)

Net cash used by operating activities

 

(81,923)

 

 

(45,778)



 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(18,571)

 

 

(14,332)

Distributions from (investments in) unconsolidated subsidiaries

 

260 

 

 

(334)

Net cash used by investing activities

 

(18,311)

 

 

(14,666)



 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from the issuance of long-term debt

 

56,000 

 

 

39,800 

Payments of principal on long-term debt

 

(5,947)

 

 

(41,043)

Proceeds from short-term borrowings

 

954,363 

 

 

775,744 

Payments on short-term borrowings

 

(906,115)

 

 

(746,280)

Payments of cash dividends and distributions

 

(9,248)

 

 

(3,032)

Change in restricted cash

 

9,756 

 

 

15,095 

Payments of loan fees

 

 -

 

 

(57)

Proceeds from exercises of stock options

 

 -

 

 

606 

Net cash provided by financing activities

 

98,809 

 

 

40,833 



 

 

 

 

 

Net change in cash and cash equivalents

 

(1,425)

 

 

(19,611)

Cash and cash equivalents, beginning of period

 

384,867 

 

 

425,510 

Cash and cash equivalents, end of period

$

383,442 

 

$

405,899 



 

 

 

 

 

Continued on the following page

 

 

 

 

 

6

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



(unaudited and in thousands)











 

 

 

 

 



 

 

 

 

 

Continued from the previous page

 

 

 

 

 



Three Months Ended
March 31,



2016

 

2015



 

 

 

 

 

Supplemental disclosures of cash flow

 

 

 

 

 

Cash paid for income taxes

$

2,276 

 

$

3,558 

Cash paid for interest

$

9,343 

 

$

5,914 



 

 

 

 

 







See accompanying notes to the consolidated financial statements.

7

 


 

 

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 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 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, 2015.



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 r eclassified to conform to 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



The preparation of the 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 assumptions it believes are proper and reasonable under the circumstances and regularly evaluates the appropriateness of its estimates and assumptions. 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 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.



8

 


 

 

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. 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.



A substantial portion of the partnership revenues are derived from fixed-fee commercial agreements for storage, terminal or transportation services. The partnership recognizes revenue when there is evidence an arrangement exists; risk of loss and title transfer to the customer; the price is fixed or determinable; and collectability is reasonably ensured. Revenues from base storage, terminal or transportation services are recognized once these services are performed, which occurs when the product is delivered to the customer.



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 and cattle feedlot 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, process chemicals, cattle and veterinary supplies. 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 and feedlot utilities, repairs and maintenance, yard expenses and outbound freight charges. Shipping costs incurred by the company, including railcar 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 market wher e the terms of the contract is 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.



Operations and Maintenance Expenses



In the partnership segment, transportation expenses represent the primary component of operations and maintenance expenses. Transportation expenses includes rail car leases, freight and shipping of the company’s ethanol and co-products, as well as costs incurred storing ethanol at destination terminals.



Derivative Financial Instruments



The 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 the hedging activities themselves result in losses.

9

 


 

 



By using derivatives to hedge exposures to changes in commodity prices, the company is exposed 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 cont ract. The company minimizes 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 strategies the company can use and the degree of market risk it can take using derivative instruments.



The company evaluates its physical deliver y contracts to determine if they qualify for normal purchase or sale exemptions which 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 to use , 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 adopted 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 i n the balance sheet as a deduction from the carryi ng amount of the debt , consistent with debt discounts. The amended guidance has been applied on a retrospective basis, and the balance sheet of each individual period presented has been adjusted to reflect the period-specific effects of the new guidance.



Effective January 1, 2017, the company will adopt the amended guidance in ASC 718, Compensation – Stock Compensation , which requires all income tax effects of awards to be recognized in the income statement when the awards vest or settle. The amended guidance also will allow an employer to repurchase more of an employee’s shares than it can currently for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. Early application is permitted. The company is currently evaluating the impact the adoption of the amended guidance will have on the consolidated financial statements and related disclosures.



Effective January 1, 2018, the company will adopt the amended guidance in ASC 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 does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.



Effective January 1, 2019 , the company will adopt the amended guidance in ASC 842, Leases , which aims to make leasing activities more transparent and comparable and requires substantially all leases to be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. Early application is permitted. The company is currently evaluating the impact the adoption of the amended guidance will have on the consolidated financial statements and related disclosures.

10

 


 

 

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 company, closed its initial public offering, or the IPO. In conjunction with the IPO, the company contributed its downstream ethanol transportation and storage assets to the partnership. A total of 11,500,000 common units, representing limited partner interests including 1,500,000 common units pursuant to the underwriters’ overallotment option, were sold to the public for $15.00 per common unit. The partnership received net proceeds of approximately $157.5 million, after deducting underwriting discounts, structuring fees and offering expenses. The partnership used the proceeds to make a distribution to the company 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 $1.3 million was retained for general partnership purposes. The company now owns a 62.5% limited partner interest, consisting of 4,389,642 common units and 15,889,642 subordinated units, and a 2.0% general partner interest in the partnership. The public owns the remaining 35.5% limited partner interest in the partnership. As such, the partnership is consolidated in the company’s financial statements.



The partnership 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 busine sses. The partnership’s assets include (i) 30 ethanol storage facilities, located at or near the company’s 14 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 company’s ethanol production plants, (ii) eight fuel terminal facilities, located near major rail lines, which enable the partnership to receive, store and deliver fuels from and to markets that seek a ccess to renewable fuels, and (iii) transportation assets, including a leased railcar fleet of approximately 2,600 railcars , which is contracted to transport ethanol from the company’s ethanol p roduction plants to refineries throughout the United States and international export terminals. The partnership expects to be the company’s primary downstream logistics provider to support its over one billion gallons per year ethanol marketing and distribution business since the partnership’s assets are the principal method of storing and delivering the ethanol the company produces.



A substantial portion of the partnership’s revenues are derived from long-term, fee-based commercial agreements with Green Plains Trade, a subsidiary of the company. In connection with the IPO, the partnership (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 partnership’s Birmingham, Alabama-unit train terminal; and (ii) various other terminal services agreements for its other fuel terminal facilities, each with Green Plains Trade. The partnership’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 company also has agreements which establish fees for general and administrative, and operational and maintenance services it provides. These transactions are eliminated in the presentation of consolidated financial results.



3.   ACQUISITION



Acquisition of Hereford Ethanol Plant

 

On November 12, 2015, the company acquired an ethanol production facility in Hereford, Texas, with an annual production capacity of approximately 100 mmgy for approximately $78.8 million for the ethanol plant assets, as well as working capital acquired or assumed of approximately $19.4 million. The following is a summary of assets acquired and liabilities assumed (in thousands):







 

 

 

 



 

 

 

 

Amounts of Identifiable Assets Acquired
and Liabilities Assumed

Inventory

 

$

20,487 

Derivative financial instruments

 

2,625 

Property and equipment, net

 

78,786 



 

 

 

 

Current liabilities

 

(2,542)

Other liabilities

 

(1,128)



Total identifiable net assets

$

98,228 

11

 


 

 













4 .  FAIR VALUE DISCLOSURES



The following methods, assumptions and valuation techniques were used to estimate the fair value of the company’s financial instruments:



Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities the company can 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 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.



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 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 company’s assets and liabilities by level are as follows (in thousands):





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Fair Value Measurements at March 31, 2016



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

$

383,442 

 

$

 -

 

$

 -

 

$

383,442 

Restricted cash

 

17,263 

 

 

 -

 

 

 -

 

 

17,263 

Margin deposits

 

11,858 

 

 

 -

 

 

(11,858)

 

 

 -

Inventories carried at market

 

 -

 

 

37,749 

 

 

 -

 

 

37,749 

Unrealized gains on derivatives

 

13,013 

 

 

11,656 

 

 

7,816 

 

 

32,485 

Other assets

 

116 

 

 

 -

 

 

 -

 

 

116 

Total assets measured at fair value

$

425,692 

 

$

49,405 

 

$

(4,042)

 

$

471,055 



 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on derivatives

$

3,298 

 

$

21,563 

 

$

(4,042)

 

$

20,819 

Total liabilities measured at fair value

$

3,298 

 

$

21,563 

 

$

(4,042)

 

$

20,819 



12

 


 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2015



Quoted Prices in Active Markets for Identical Assets

 

Significant Other Observable Inputs

 

Reclassification for Balance Sheet

 

 

 



(Level 1)

 

(Level 2)

 

Presentation

 

Total



 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

384,867 

 

$

 -

 

$

 -

 

$

384,867 

Restricted cash

 

27,018 

 

 

 -

 

 

 -

 

 

27,018 

Margin deposits

 

7,658 

 

 

 -

 

 

(7,658)

 

 

 -

Inventories carried at market

 

 -

 

 

43,936 

 

 

 -

 

 

43,936 

Unrealized gains on derivatives

 

19,756 

 

 

7,145 

 

 

3,639 

 

 

30,540 

Other assets

 

117 

 

 

 -

 

 

 -

 

 

117 

Total assets measured at fair value

$

439,416 

 

$

51,081 

 

$

(4,019)

 

$

486,478 



 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on derivatives

$

4,492 

 

$

7,772 

 

$

(4,019)

 

$

8,245 

Total liabilities measured at fair value

$

4,492 

 

$

7,772 

 

$

(4,019)

 

$

8,245 



The company believes the fair value of its debt was approximately $765.6 million compared with a book value of $765.9 million at March 31, 2016 ,   and the fair value of its debt was approximately $661.8 million compared with a book value of $663.6 million at December 31, 2015. The company estimated the fair value of its outstanding debt using Leve l 2 inputs. The company believes the fair values of its ac counts receivable and accounts payable approximated book value, which were $ 106.1 million and $ 104.5 million, respectively , at March 31, 2016 ,   and $ 96.2 million and $ 167.0 million, respectively, at December 31, 2015.



Although the company 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 .



5 .  SEGMENT INFORMATION



Company management r eports the financ ial and operating performance in 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.



Under GAAP, when transferring assets between entities under common control, 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. Effective January 1, 2016, the partnership acquired the storage and transportati on assets of the Hereford and Hopewell production facilities in a transfer between entities under common control for approximately $62.3 million and entered into amendments to the related commercial agreements with Green Plains Trade . The transferred assets and liabilities are recognized at our 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 the ethanol storage and railcar assets in the partnership segment prior to their respective transfers to the partnership, when th e related commercial agreements with Green Plains Trade became effective.



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



13

 


 

 

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.



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





 

 

 

 

 



Three Months Ended
March 31,



2016

 

2015



 

 

 

 

 

Revenues (1) :

 

 

 

 

 

Ethanol production:

 

 

 

 

 

Revenues from external customers

$

82,483 

 

$

64,082 

Intersegment revenues

 

341,107 

 

 

367,640 

Total segment revenues

 

423,590 

 

 

431,722 

Agribusiness:

 

 

 

 

 

Revenues from external customers

 

65,051 

 

 

58,334 

Intersegment revenues

 

320,341 

 

 

262,783 

Total segment revenues

 

385,392 

 

 

321,117 

Marketing and distribution:

 

 

 

 

 

Revenues from external customers

 

599,649 

 

 

613,887 

Intersegment revenues

 

67,067 

 

 

39,375 

Total segment revenues

 

666,716 

 

 

653,262 

Partnership:

 

 

 

 

 

Revenues from external customers

 

2,021 

 

 

2,085 

Intersegment revenues

 

21,768 

 

 

1,311 

Total segment revenues

 

23,789 

 

 

3,396 

Revenues including intersegment activity

 

1,499,487 

 

 

1,409,497 

Intersegment eliminations

 

(750,283)

 

 

(671,109)

Revenues as reported

$

749,204 

 

$

738,388 







(1)

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









 

 

 

 

 



Three Months Ended
March 31,



2016

 

2015



 

 

 

 

 

Cost of goods sold:

 

 

 

 

 

Ethanol production

$

433,670 

 

$

408,332 

Agribusiness

 

379,882 

 

 

315,665 

Marketing and distribution

 

665,523 

 

 

644,226 

Partnership

 

 -

 

 

 -

Intersegment eliminations

 

(754,387)

 

 

(675,794)



$

724,688 

 

$

692,429 

14

 


 

 









 

 

 

 

 



Three Months Ended
March 31,



2016

 

2015



 

 

 

 

 

Operating income (loss):

 

 

 

 

 

Ethanol production

$

(33,317)

 

$

3,419 

Agribusiness

 

3,228 

 

 

3,210 

Marketing and distribution

 

(1,904)

 

 

4,405 

Partnership

 

13,071 

 

 

(5,148)

Intersegment eliminations

 

4,104 

 

 

4,684 

Corporate activities

 

(7,828)

 

 

(6,466)



$

(22,646)

 

$

4,104 



The following table sets forth third-party r evenues by product line (in thousands):







 

 

 

 

 



Three Months Ended
March 31,



2016

 

2015



 

 

 

 

 

Revenues:

 

 

 

 

 

Ethanol

$

499,050 

 

$

444,206 

Distillers grains

 

112,218 

 

 

110,832 

Corn oil

 

20,875 

 

 

19,081 

Grain

 

51,055 

 

 

98,922 

Cattle

 

56,232 

 

 

45,251 

Service revenues

 

2,021 

 

 

2,085 

Other

 

7,753 

 

 

18,011 



$

749,204 

 

$

738,388 



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





 

 

 

 

 



March 31,

 

December 31,



2016

 

2015



 

 

 

 

 

Total assets (1) :

 

 

 

 

 

Ethanol production

$

965,028 

 

$

1,002,270 

Agribusiness

 

326,764 

 

 

300,364 

Marketing and distribution

 

230,739 

 

 

230,651 

Partnership

 

69,740 

 

 

81,430 

Corporate assets

 

333,057 

 

 

314,068 

Intersegment eliminations

 

(5,916)

 

 

(10,863)



$

1,919,412 

 

$

1,917,920 



(1)

Asset balances by segment exclude intercompany payable and receivable balances .

15

 


 

 



6 .  INVENTORIES



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



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







 

 

 

 

 



 

 

 

 

 



March 31,

 

December 31,



2016

 

2015



 

 

 

 

 

Finished goods

$

80,962 

 

$

71,595 

Commodities held for sale

 

35,989 

 

 

43,936 

Raw materials

 

117,711 

 

 

116,673 

Work-in-process

 

102,373 

 

 

96,950 

Supplies and parts

 

26,484 

 

 

24,803 



$

363,519 

 

$

353,957 















7 .  GOODWILL



The company did not have any changes in the carrying amount of goodwill, which was $ 40.9 million at March 31, 2016 and December 31, 2015 .   Goodwill of $ 30.3 million is attributable to the ethanol production segment and $ 10.6 million is attributable to the partnership segment.





8 .  DERIVATIVE FINANCIAL INSTRUMENTS



At March 31, 2016, the company’s consolidated balance she et reflect ed unrealized losses of $1.1 million, net of tax, in accumulated other comprehensive income. The company expects these losses  w i ll be reclassified in operating income over the next 12 months as a result of hedged transactions that are forecasted to occur. The amount realized in operating income, will differ as commodity prices change.



Fair Values of Derivative Instruments



The fair values of the company’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



 

March 31,

 

December 31,

 

March 31,

 

December 31,



 

2016

 

2015

 

2016

 

2015

Derivative financial instruments (1)

 

$

20,627 

(2)

$

22,882 

(3)

$

 -

 

$

 -

Accrued and other liabilities

 

 

 -

 

 

 -

 

 

20,819 

 

 

8,245 

Total

 

$

20,627 

 

$

22,882 

 

$

20,819 

 

$

8,245 



(1) Derivative financial instruments as reflected on the consolidated balance sheets are net of related margin deposit asse ts of $ 11.9 million and $ 7.7 million at March 31, 2016 and December 31, 2015 , respectively.

(2) Balance at March 31, 2016   includes $ 0.5 million of net unrealized gains on derivative financial instruments designated as cash flow hedging instruments.

(3) Balance at December 31, 2015 includ es $ 2.3 million of net unrealized losses on deri vative financial instruments designated as cash flow hedging instruments.





Refer to Note 4 - Fair Value Disclosures , which contains fair value information related to derivative financial instruments.



16

 


 

 

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 other comprehensive income related to the company’s derivative financial instruments and the line items on the consolidated financial statements where they are reported are as follows (in thousands):





 

 

 

 

 

 

Losses on Derivative Instruments Not

 

Three Months Ended
March 31,

Designated in a Hedging Relationship

 

2016

 

2015

Revenues

 

$

(2,794)

 

$

(3,781)

Cost of goods sold

 

 

(5,846)

 

 

(6,975)

Net decrease recognized in earnings before tax

 

$

(8,640)

 

$

(10,756)







 

 

 

 

 

 

Losses Due to Ineffectiveness

 

Three Months Ended
March 31,

of Cash Flow Hedges

 

2016

 

2015

Revenues

 

$

 -

 

$

(31)

Cost of goods sold

 

 

 -

 

 

(471)

Net decrease recognized in earnings before tax

 

$

 -

 

$

(502)







 

 

 

 

 

 

Gains Reclassified from Accumulated
Other Comprehensive Income (Loss)

 

Three Months Ended
March 31,

into Net Income

 

2016

 

2015

Revenues

 

$

245 

 

$

11,849 

Cost of goods sold

 

 

1,889 

 

 

1,642 

Net increase recognized in earnings before tax

 

$

2,134 

 

$

13,491 







 

 

 

 

 

 

Effective Portion of Cash Flow
Hedges Recognized in

 

Three Months Ended
March 31,

Other Comprehensive Income (Loss)

 

2016

 

2015

Commodity Contracts

 

$

2,282 

 

$

15,463 







 

 

 

 

 

 

Gains (Losses) from Fair Value

 

Three Months Ended
March 31,

Hedges of Inventory

 

2016

 

2015

Revenues (effect of change in inventory value)

 

$

1,760 

 

$

 -

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

 

 

(4,898)

 

 

(1,368)

Revenues (effect of fair value hedge)

 

 

(1,760)

 

 

 -

Cost of goods sold (effect of fair value hedge)

 

 

5,808 

 

 

3,083 

Ineffectiveness recognized in earnings before tax

 

$

910 

 

$

1,715 



There were no gains or losses from discontinuing cash flow or fair value hedge treatment during the three months ended March 31, 2016 and 2015.  



17

 


 

 

The open commodity derivative positions as of March 31, 2016, are as follows (in thousands):







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

March 31, 2016



 

Exchange Traded

 

Non-Exchange Traded

 

 

 

 

Derivative Instruments

 

Net Long & (Short) (1)

 

Long (2)

 

(Short) (2)

 

Unit of Measure

 

Commodity



 

 

 

 

 

 

 

 

 

 

Futures

 

(3,375)

 

 

 

 

 

Bushels

 

Corn, Soybeans and Wheat

Futures

 

5,950 

(3)

 

 

 

 

Bushels

 

Corn

Futures

 

(18,910)

(4)

 

 

 

 

Bushels

 

Corn

Futures

 

13,566 

 

 

 

 

 

Gallons

 

Ethanol

Futures

 

(630)

(3)

 

 

 

 

Gallons

 

Ethanol

Futures

 

160 

 

 

 

 

 

Pounds

 

Livestock

Futures

 

(64,770)

(3)

 

 

 

 

Pounds

 

Livestock

Futures

 

920 

 

 

 

 

 

mmBTU

 

Natural Gas

Futures

 

(7,343)

(4)

 

 

 

 

mmBTU

 

Natural Gas

Futures

 

(736)

 

 

 

 

 

Barrels

 

Crude Oil

Futures

 

(6,600)

 

 

 

 

 

Pounds

 

Soybean Oil

Options

 

2,348 

 

 

 

 

 

Bushels

 

Corn, Soybeans and Wheat

Options

 

9,340 

 

 

 

 

 

Gallons

 

Ethanol

Options

 

(8,228)

 

 

 

 

 

Pounds

 

Livestock

Options

 

44 

 

 

 

 

 

mmBTU

 

Natural Gas

Options

 

(14)

 

 

 

 

 

Barrels

 

Crude Oil

Forwards

 

 

 

21,444 

 

(10,303)

 

Bushels

 

Corn and Soybeans

Forwards

 

 

 

25,896 

 

(203,257)

 

Gallons

 

Ethanol

Forwards

 

 

 

156 

 

(327)

 

Tons

 

Distillers Grains

Forwards

 

 

 

35,235 

 

(212,277)

 

Pounds

 

Corn Oil

Forwards

 

 

 

 -

 

(44,000)

(4)

Pounds

 

Corn Oil

Forwards

 

 

 

10,586 

 

(385)

 

mmBTU

 

Natural Gas

Forwards

 

 

 

1,189 

 

(803)

 

Barrels

 

Crude Oil



 

 

 

 

 

 

 

 

 

 



(1)

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

(2)

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

(3)

Futures used for cash flow hedges.

(4)

Futures or non-exchange traded forwards used for fair value hedges.





Energy trading contracts that do not involve physical delivery are presented net in revenues on the consolidated statements of operations. Included in revenues are net gains on energy trading contracts of $3.4 million and $5.4 million for the three months ended March 31, 2016 and 2015, respectively.

18

 


 

 





9 .  DEBT



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











 

 

 

 

 



 

 

 

 

 



March 31,

 

December 31,



2016

 

2015



 

 

 

 

 

Green Plains Partners:

 

 

 

 

 

$100.0 million revolving credit facility

$

51,000 

 

$

 -

Green Plains Processing:

 

 

 

 

 

$345.0 million term loan

 

306,010 

 

 

306,439 

Corporate:

 

 

 

 

 

$120.0 million convertible notes

 

104,467 

 

 

103,072 

Other

 

27,040 

 

 

27,135 

Total long-term debt

 

488,517 

 

 

436,646 

Less: current portion of long-term debt

 

(4,513)

 

 

(4,507)

Long-term debt

$

484,004 

 

$

432,139 



Short-term notes payable and other borrowings at March 31, 2016 , include working capital revolvers at Green Plains Cattle, Green Plains Grain an d Green Plains Trade with outstanding balance s of $74.0 million, $ 112.0 million and $ 91.4 million, respectively. Short-term notes payable and other borrowings at December 31, 2015 , include working capital revolvers at Green Plains Cattle, Green Plains Grain and Green Plains Trade with outstanding balances of $69.7 million, $ 77.0 million and $ 80.2 million, respectively.



Effective January 1, 2016, the company adopted ASC 835-30, Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs , which resulted in the reclassification of approximately $11.4 million from other assets to long-term debt within the balance sheet as of December 31, 2015. As of March 31, 2016, there is $10.8 million of deb t issuance costs recorded as a reduction of the carrying value of the company’s long-term debt.



Ethanol Production Segment



Green Plains Processing has a $345.0 million senior secured credit facility, which is guaranteed by the company and subsidiaries of Green Plains Processing and secured by the stock and substantially all of the assets of Green Plains Processing. The interest rate is 5.50% plus LIBOR, subject to a 1.00% floor .   The terms of the credit facility require the borrower to maintain a maximum total leverage ratio of 4.00 to 1.00 at the end of each quarter, decreasing to 3.25 to 1.00 over the life of the credit facility and a minimum fixed charge coverage ratio of 1.25 to 1.00. The credit facility also has a provision requiring the company to make special quarterly payments of 50% to 75% of its available free cash flow, subject to certain limitations.



At March 31, 2016 , the interest rate on this term debt was 6.50% . Scheduled principal payments are $0.9 million each quarter.



Agribusiness Segment



Green Plains Grain has a $125.0 million senior secured asset-based revolving credit facility, which matures on August 26, 2016, to finance working capital up to the maximum commitment based on eligible collateral equal to the sum of percentages of eligible cash, receivables and inventories, less miscellaneous adjustments. Advances are subject to an interest rate equal to LIBOR plus 3.25% or the base rate plus 2.25%. The credit facility also includes an accordion feature that enables the facility to be increased by up to $75.0 million with agent approval. The credit facility can also be increased by up to $50.0 million for seasonal borrowings. Total commitments outstanding cannot exceed $250.0 million.



Lenders receive a first priority lien on certain cash, inventory, accounts receivable a nd other assets owned by subsidiaries in the agribusiness segment as security on the credit facility. The terms impose affirmative and negative covenants, including maintaining working capital of $20.3 million and tangible net worth of $26.3 million for 2016. Capital expenditures are limited to $8.0 million per year under the credit facility, plus equity contributions from the company and unused amounts from the previous year. In addition, the credit facility requires the company to maintain a fixed charge coverage ratio of 1.25 to 1.00 and an annual leverage ratio of 6.00 to 1.00 at the end of each quarter. The credit facility also contains restrictions on

19

 


 

 

distributions related to capital stock, with exceptions for distributions up to 50% of net profit bef ore tax, subject to certain conditions. 



Green Plains Cattle has a $100.0 million senior secured asset-based revolving credit facility, which matures on October 31, 2017, to finance working capital for the cattle feedlot operations up to the maximum commitment based on eligible collateral equal to the sum of percentages of eligible receivables, inventories and other current assets, less miscellaneous adjustments. Advances are subject to variable interest rates equal to LIBOR plus 2.00% to 3.00% ,   or the base rate plus 0.00% to 0.25% , depending upon availability. The credit facility also includes an accordion feature that enables the credit facility to be increased by up to $50.0 million with agent approval.



Lenders receive a first priority lien on certain cash, inventory, accounts receivable, property and equipment and other assets owned by Green Plains Cattle as security on the credit facility. The terms impose affirmative and negative covenants, including maintaining working capital of $15.0 million and tangible net worth of $20.3 million for 2016 and maintain a total debt to tangible net worth ratio of 3.50 to 1.00. Capital expenditures are limited to $3.0 million per year under the credit facility, plus unused amounts from the previous year.



Marketing and Distribution Segment



Green Plains Trade has a $ 150.0 million senior secured asset-based revolving credit facility, which matures on November 26, 2019, to finance working capital for marketing and distribution activities based on eligible collateral equal to the sum of percentages of eligible receivables and inventories, less miscellaneous adjustments. The outstanding balance is subject to the lender’s floating base rate plus the applicable margin or LIBOR plus the applicable margin.



The terms impose affirmative and negative covenants, including maintaining a fixed charge coverage ratio of 1.15 to 1.00. Capital expenditures are limited to $1.5 million per year under the credit facility. The credit facility also contains restrictions on distributions related to capital stock, with exceptions for distributions up to 50% of net income if on a pro forma basis, (a) availability has been greater than $10.0 million for the last 30 days and (b) the borrower would be in compliance with the fixed charge coverage ratio on the distribution date.



At March 31, 2016 , Green Plains T rade had $6.9 million pr esented as restricted cash on the consolidated balance sheet, the use of which was restricted for repayment towards the outstanding loan balance.  



Partnership Segment



Green Plains Partners, through a wholly owned subsidiary, has a $100.0 million revolving credit facility, which matures in July 2020, to fund working capital, acquisitions, distributions, capital expenditures and other general partnership purposes. Advances under this credit facility are subject to a floating interest rate based on the partnership’s maximum consolidated net leverage ratio equal to (a) a base rate plus 0.75% to 1.75% or ( b) a LIBOR rate plus 1.75% to 2.75% .   The credit facility may be increased up to $50.0 million without the consent of the lenders.



The partnership’s obligations under the credit facility are secured by a first priority lien on (i) the capital stock of the partnership’s present and future subsidiaries, (ii) all of the partnership’s present and future personal property, such as investment property, general intangibles and contract rights, including rights under agreements with Green Plains Trade, and (iii) all proceeds and products of the equity interests of the partnership’s present and future subsidiaries and its personal property. The terms impose affirmative and negative covenants including restricting the partnership’s ability to incur additional debt, acquire and sell assets, create liens, invest capital, pay distributions and materially amend the partnership’s commercial agreements with Green Plains Trade. The credit facility also requires the partnership to maintain a maximum consolidated net leverage ratio of no more than 3.50 to 1.00, and a minimum consolidated interest coverage ratio of no less than 2.75 to 1.00.



Corporate Activities



In September 2013, the company issued $120.0 million of 3.25% convertible senior notes due 2018, or the 3.25% notes. The 3.25% notes are senior, unsecured obligations of the company, with interest payable on April 1 and October 1 of each year. T he company may settle the 3.25% notes in cash, common stock or a combination of cash and common stock . The company intends to repay the 3.25% notes with cash for the principal and cash or common stock for the conversion premium. 



Prior to April 1, 2018, the 3.25% notes are not convertible unless certain cond itions are satisfied. The conversion rate is

20

 


 

 

subject to adjustment when the quarterly cash dividend exceeds $0.04 per share. The conversion rate was recently adjusted to 48.8834 shares of common stock per $1,000 of principal which is equal to a conversion price of approximately $20.46 per share. The company may be obligated to increase the conversion rate in certain events, including redemption of the 3.25% notes .  



The company may redeem all of the 3.25% notes at any time on or after October 1, 2016 if the company’s common stock equals or exceeds 140% of the applicable conversion price for a specified time period ending on the trading day immediately prior to the date the company delivers notice of the redemption. The redemption price will equal 100% of the principal plus any accrued and unpaid interest. Holders of the 3.25% notes have the option to require the company to repurchase the 3.25% notes in cash at a price equal to 100% of the principal plus accrued and unpaid interest when there is a fundamental change, such as change in control. Default on any loan in excess of $10.0 million constitutes an event of default, which could result in the 3.25% notes being declared due and payable.



Covenant Compliance



The company was in compliance with its debt covenants as of March 31, 2016 .



Capitalized Interest



The company had $ 358 thousand and $175 thousand of capitalized interest during the three months ended March 31, 2016 and 2015 , respectively.



Restricted Net Assets



At March 31, 2016 , there were approximatel y $ 674.3 million of net assets at the company’s subsidiaries that could not be transferred to the parent company in the form of dividends, loans or advances due to restrictions contained in the credit facilities of these subsidiaries .



10 STOCK-BASED COMPENSATION



The company has an equity incentive plan that reserves 3.5 million shares of common stock for issuance to its directors and employees . The plan provides for shares, including options to purchase shares of common stock, stock appreciation rights tied to the value of common stock, restricted stock, and restricted and deferred stock unit awards, to be granted to eligible employees, non-employee directors and consultants. The company measures stock -based compensation at fair value on the grant date, adjusted for estimated forfeitures. The company records noncash compensation expense related to equity awards in its consolidated financial statements over the requisite period on a straight-line basis. Substantially all of the existing stock-based compensation has been equity awards.



The activity related to the exercisable stock option s for the three months ended March 31, 2016, is as follows:









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



Shares

 

Weighted-Average Exercise Price

 

Weighted-Average Remaining Contractual Term (in years)

 

Aggregate Intrinsic Value (in thousands)



 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2015

298,750 

 

$

9.81 

 

2.4

 

$

3,866 

Granted

 -

 

 

 -

 

-

 

 

 -

Exercised

 -

 

 

 -