Green Plains Inc.
Green Plains Inc. (Form: 10-Q, Received: 05/07/2018 16:45:37)



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, 2018



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.)



 

1811 Aksarben Drive , Omaha, NE 681 06

(402) 884-8700

(Address of principal executive offices, including zip code)

(Registrant’s telephone number, including area c ode)



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,  a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



 

Large accelerated filer      

Accelerated filer 



 

Non-accelerated filer      (Do not check if a smaller reporting company)



Smaller reporting company 

Emerging growth company 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Sect ion 13(a) of the Exchange Act. 



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 3 , 2 018 ,   was 4 1 , 3 8 3 , 299 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 Stat ements of Comprehensive Income  

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

3 0



 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk  

4 1



 

 

Item 4.

Controls and Procedures

4 3



 

 



 

 

PART II – OTHER INFORMATION



 

 

Item 1.

Legal Proceedings

4 4



 

 

Item 1A.

Risk Factors

4 4



 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4 5



 

 

Item 3.

Defaults Upon Senior Securities

4 6



 

 

Item 4.

Mine Safety Disclosures

4 6



 

 

Item 5.

Other Information

4 6

 

 

 

Item 6.

Exhibits

4 7



 

 

 Signatures

50



 

1

 


 

 







Commonly Used Defined Terms



The abbreviations, acronyms and industry terminology used in this quarterly report are defined as follows:



Green Plains Inc., Subsidiaries , and Partners :





 

Green Plains; the company

Green Plains Inc. and its subsidiaries

BioProcess Algae

BioProcess Algae LLC

DKGP

DKGP Energy Terminals LLC

Fleischmann’s Vinegar

Fleischmann’s Vinegar Company, Inc.

Green Plains Cattle

Green Plains Cattle Company LLC

Green Plains Grain

Green Plains Grain Company LLC

Green Plains Partners; the partnership

Green Plains Partners LP

Green Plains Processing

Green Plains Processing LLC and its subsidiaries

Green Plains Trade

Green Plains Trade Group 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

LIBOR

London Interbank Offered Rate

LTIP

Long-Term Incentive Plan

SEC

Securities and Exchange Commission

STIP

Short-Term Incentive Plan

VIE

Variable interest entity



Industry Defined Terms:





 

CAFE

Corporate Average Fuel Economy

D.C.

District of Columbia

E10

Gasoline blended with up to 10 % ethanol by volume

E15

Gasoline blended with up to 15% ethanol by volume

E85

Gasoline blended with up to 8 5% ethanol by volume

EIA

U.S. Energy Information Administration

EISA

Energy Independence and Security Act of 2017, as amended

EPA

U.S. Environmental Protection Agency

MmBtu

Million British Thermal Units

Mmg

Million gallons

MTBE

Methyl tertiary-butyl ether

RBOB

Reformulated blendstock for oxygenate blending

RFS II

Renewable Fuels Standard II

RIN

Renewable identification number

RVO

Renewable volume obligation

U.S.

United States

USDA

U.S. Department of Agriculture











2

 


 

 

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements.

GREEN PLAINS INC. AND SUBSIDIARIES

 

  CONSOLIDATED BALANCE SHEETS



(in thousands, except share amounts)









 

 

 

 

 



March 31,
2018

 

December 31,
2017



(unaudited)

 

 

 

ASSETS

Current assets

 

 

 

 

 

Cash and cash equivalents

$

240,964 

 

$

266,651 

Restricted cash

 

24,271 

 

 

45,709 

Accounts receivable, net of allowances of $212 and $217 , respectively

 

151,936 

 

 

151,122 

Income taxes receivable

 

32,753 

 

 

6,413 

Inventories

 

659,026 

 

 

711,878 

Prepaid expenses and other

 

17,129 

 

 

17,808 

Derivative financial instruments

 

19,991 

 

 

6,890 

Total current assets

 

1,146,070 

 

 

1,206,471 

Property and equipment, net of accumulated depreciation
and amortization of $539,496 and $514,585 , respectively

 

1,157,825 

 

 

1,176,707 

Goodwill

 

182,879 

 

 

182,879 

Other assets

 

173,095 

 

 

218,593 

Total assets

$

2,659,869 

 

$

2,784,650 



 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

 

 

 

 

 

Accounts payable

$

118,168 

 

$

205,479 

Accrued and other liabilities

 

46,617 

 

 

63,886 

Derivative financial instruments

 

12,086 

 

 

12,884 

Income taxes payable

 

 -

 

 

9,909 

Short-term notes payable and other borrowings

 

533,685 

 

 

526,180 

Current maturities of long-term debt

 

68,925 

 

 

67,923 

Total current liabilities

 

779,481 

 

 

886,261 

Long-term debt

 

767,784 

 

 

767,396 

Deferred income taxes

 

52,962 

 

 

56,801 

Other liabilities

 

14,066 

 

 

15,056 

Total liabilities

 

1,614,293 

 

 

1,725,514 



 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

 

 

 



 

 

 

 

 

Stockholders' equity

 

 

 

 

 

Common stock, $0.001 par value; 75,000,000 shares authorized;
46,701,912 and 46,410,405 shares issued, and 41,375,970
and 41,084,463 shares outstanding, respectively

 

47 

 

 

46 

Additional paid-in capital

 

684,557 

 

 

685,019 

Retained earnings

 

299,250 

 

 

325,411 

Accumulated other comprehensive income (loss)

 

650 

 

 

(13,110)

Treasury stock, 5,325,942 shares

 

(55,184)

 

 

(55,184)

Total Green Plains stockholders' equity

 

929,320 

 

 

942,182 

Noncontrolling interests

 

116,256 

 

 

116,954 

Total stockholders' equity

 

1,045,576 

 

 

1,059,136 

Total liabilities and stockholders' equity

$

2,659,869 

 

$

2,784,650 



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,



2018

 

2017



 

 

 

 

 

Revenues

 

 

 

 

 

Product revenues

$

1,043,659 

 

$

886,212 

Service revenues

 

1,628 

 

 

1,472 

Total revenues

 

1,045,287 

 

 

887,684 



 

 

 

 

 

Costs and expenses

 

 

 

 

 

Cost of goods sold (excluding depreciation and amortization expenses reflected below)

 

988,335 

 

 

811,896 

Operations and maintenance expenses

 

8,400 

 

 

8,531 

Selling, general and administrative expenses

 

26,003 

 

 

23,782 

Depreciation and amortization expenses

 

26,474 

 

 

26,083 

Total costs and expenses

 

1,049,212 

 

 

870,292 

Operating income (loss)

 

(3,925)

 

 

17,392 



 

 

 

 

 

Other income (expense)

 

 

 

 

 

Interest income

 

637 

 

 

364 

Interest expense

 

(22,128)

 

 

(18,496)

Other, net

 

(66)

 

 

10 

Total other expense

 

(21,557)

 

 

(18,122)

Loss before income taxes

 

(25,482)

 

 

(730)

Income tax benefit

 

6,027 

 

 

2,381 

Net income (loss)

 

(19,455)

 

 

1,651 

Net income attributable to noncontrolling interests

 

4,662 

 

 

5,248 

Net loss attributable to Green Plains

$

(24,117)

 

$

(3,597)



 

 

 

 

 

Earnings per share:

 

 

 

 

 

Net loss attributable to Green Plains - basic

$

(0.60)

 

$

(0.09)

Net loss attributable to Green Plains - diluted

$

(0.60)

 

$

(0.09)

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

40,164 

 

 

38,420 

Diluted

 

40,164 

 

 

38,420 



 

 

 

 

 

Cash dividend declared per share

$

0.12 

 

$

0.12 





See accompanying notes to the consolidated financial statements.



4

 


 

 

GREEN PLAINS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



(unaudited and in thousands)







 

 

 

 

 



 

 

 

 

 



Three Months Ended
March 31,



2018

 

2017



 

 

 

 

 

Net income (loss)

$

(19,455)

 

$

1,651 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

Unrealized gains on derivatives arising during the period,
net of tax expense of $5,116 and $968 , respectively

 

17,150 

 

 

1,642 

Reclassification of realized gains on derivatives, net
of tax expense of $180 and $1,848 , respectively

 

(603)

 

 

(3,134)

Total other comprehensive income (loss), net of tax

 

16,547 

 

 

(1,492)

Comprehensive income (loss)

 

(2,908)

 

 

159 

Comprehensive income attributable to noncontrolling interests

 

4,662 

 

 

5,248 

Comprehensive loss attributable to Green Plains

$

(7,570)

 

$

(5,089)





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,



2018

 

2017

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

$

(19,455)

 

$

1,651 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

26,474 

 

 

26,083 

Amortization of debt issuance costs and debt discount

 

3,604 

 

 

4,020 

Deferred income taxes

 

(12,020)

 

 

(2,934)

Stock-based compensation

 

2,439 

 

 

2,511 

Undistributed equity loss of affiliates

 

137 

 

 

 -

Other

 

 -

 

 

23 

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

 

 

 

 

 

Accounts receivable

 

(814)

 

 

50,486 

Inventories

 

54,103 

 

 

(41,911)

Derivative financial instruments

 

7,472 

 

 

(12,584)

Prepaid expenses and other assets

 

618 

 

 

(1,228)

Accounts payable and accrued liabilities

 

(114,709)

 

 

(86,420)

Current income taxes

 

11,678 

 

 

178 

Other

 

(618)

 

 

(26)

Net cash used in operating activities

 

(41,091)

 

 

(60,151)



 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment, net

 

(7,352)

 

 

(14,902)

Acquisition of a business, net of cash acquired

 

(1,006)

 

 

(4,074)

Investments in unconsolidated subsidiaries

 

(14)

 

 

(2,399)

Other investing activities

 

7,500 

 

 

 -

Net cash used in investing activities

 

(872)

 

 

(21,375)



 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from the issuance of long-term debt

 

24,400 

 

 

14,700 

Payments of principal on long-term debt

 

(23,630)

 

 

(46,845)

Proceeds from short-term borrowings

 

1,010,077 

 

 

1,100,076 

Payments on short-term borrowings

 

(1,002,664)

 

 

(1,055,664)

Payments of cash dividends and distributions

 

(10,251)

 

 

(9,461)

Payments of loan fees

 

(254)

 

 

 -

Payments related to tax withholdings for stock-based compensation

 

(2,890)

 

 

(3,801)

Proceeds from exercise of stock options

 

50 

 

 

50 

Net cash used in financing activities

 

(5,162)

 

 

(945)



 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

(47,125)

 

 

(82,471)

Cash, cash equivalents and restricted cash, beginning of period

 

312,360 

 

 

406,791 

Cash, cash equivalents and restricted cash, end of period

$

265,235 

 

$

324,320 



 

 

 

 

 

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,



2018

 

2017

Reconciliation of total cash, cash equivalents and restricted cash:

 

 

 

 

 

Cash and cash equivalents

$

240,964 

 

$

256,468 

Restricted cash

 

24,271 

 

 

67,852 

Total cash, cash equivalents and restricted cash

$

265,235 

 

$

324,320 



 

 

 

 

 

Supplemental disclosures of cash flow:

 

 

 

 

 

Cash paid (received) for income taxes

$

(4,592)

 

$

336 

Cash paid for interest

$

19,499 

 

$

15,804 







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. The company owns a 62.5% limited partner interest and a 2.0% general partner interest in Green Plains Partners LP. Public investors own the remaining 35.5% limited partner interest in the partnership. The company determined that the limited partners in the partnership with equity at risk lack the power, through voting rights or similar rights, to direct the activities that most significantly impact partnership’s economic performance; therefore, the partnership is considered a VIE. The company, through its ownership of the general partner interest in the partnership, has the power to direct the activities that most significantly affect economic performance and the obligation to absorb losses or the right to receive benefits that could be potentially significant to the partnership; therefore, the company is considered the primary beneficiary and consolidates the partnership in the company’s financial statements . The assets of the partnership cannot be used by the company for general corporate purposes. The partnership’s consolidated total assets as of March 31, 2018 and December 31, 2017 , excluding intercompany balances, are $ 7 5.6  million and $74.9  million, respectively, and primarily consist of property and equipment and goodwill. The partnership’s consolidated total liabilities as of March 31, 2018 and December 31, 2017 , excluding intercompany balances, are $ 158.9 million and $153.0  million, respectively, which primarily consist of long-term debt as discussed in Note 9 – Debt . The liabilities recognized as a result of consolidating the partnership do not represent additional claims on our general assets. The company also   owns a 90.0% interest in BioProcess Algae, a joint venture formed in 2008, and consolidate s their results in its co nsolidated financial statements.



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 notes 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, 2017 .



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. Interim period results are not necessarily indicative of the results to be expected for the entire year.



Reclassifications



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



Use of Estimates in the Preparation of Consolidated Financial Statements



The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The company bases its estimates on historical experience and 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, carrying value of intangible assets, 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.



8

 


 

 

Description of Business



The company operates within four business segments: (1) ethanol production, which inc ludes the production of ethanol and distillers grains , and recovery of corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes cattle feeding, vinegar production and food-grade corn oil operations and (4) partnership, which includes fuel storage and transportation services.



Cash and Cash Equivalents



Cash and cash equ ivalents includes bank deposits as well as short-term, highly liquid investments with original maturities of three months or less.



Restricted Cash



The company has restricted cash, which can only be used for the funding of letters of credit or for payment towards a revolving credit agreement. Restricted cash also includes cash margins and securities pledged to commodity exchange clearinghouses .   To the degree these segregated balances are cash and cash equivalents, they are considered restricted cash on the consolidated statement s of cash flows.



Revenue Recognition



The company recognizes revenue at the point in time when the product or service is transferred to the customer.



Sales of ethanol, distillers grains, corn oil, natural gas and other commodities by the company’s marketing business are recognized when obligations under the terms of a contract with a customer are satisfied. Generally this occurs with the transfer of control of products or services. Revenues related to marketing for third parties are presented on a gross basis as the company controls the product prior to the sale to the end customer, takes title of the product and has inventory risk. Unearned revenue is recorded for goods in transit when the company has received payment but control has not yet been transferred to the customer. Revenues for receiving, storing, transferring and transporting ethanol and other fuels are recognized when the produc t is delivered to the customer.



The company routinely enters into physical-delivery energy commodity purchase and sale agreements. At times, the company settles these transactions by transferring its obligations to other counterparties rather than del ivering the physical commodity. Energy trading transactions are reported net as a component of revenue. All other transactions are reported net as either a component of revenue or cost of goods sold, depending on their position as a gain or loss. Revenues also include realized gains and losses on related derivative financial instruments and reclassifications of realized gains and losses on cash flow hedges from accumulated other comprehensive income or loss.



Sales of products, including agricultural commodities, cattle and vinegar, are recognized when control of the product is transferred to the customer, which depends on the agreed upon shipment or delivery terms .   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 upon transfer of control of product from its storage tanks and fuel terminals, when railcar volumetric capacity is provided, and as truck transportation services are performed.



Shipping and Handling Costs  



We account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated products. Accordingly, we record customer payments associated with shipping and handling costs as a component of revenue , and classify such costs as a component of cost of goods sold .



Cost of Goods Sold



Cost of goods sold includes direct l abor, materials, shipping and plant overhead costs. Direct labor includes all compensation and related benefits of non-management personnel involved in ethanol and vinegar production , and cattle feeding 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

9

 


 

 

veterinary supplies. Corn feedstock costs include 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 reclassifications of gains and losses on 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 and forward purchase and sales contracts to attempt to minimize the effect of price changes on grain , natural gas and cattle inventories . 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 where the terms of the contract is based. Changes in forward purchase 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 include railcar 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 attempt to minimize risk and the effect of commodity price changes including but not limited to, corn, ethanol, cattle, natural gas and crude oil. 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 commodit ies 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 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 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 strategies the company can use and the degree of market risk it can take using derivative instruments.



The company evaluates its physical delivery 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, cash flow hedge accounting treatmen t.  



Certain qualifying derivatives related to ethanol production, agribusiness and energy services , and food and ingredients segments are designated as cash flow hedges. The company evaluates the derivative instrument to ascertain its effectiveness prior to entering into cash flow hedges. Unrealized gains and losses are reflected in accumulated other comprehensive income or loss 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 inventory values and designates qualifying derivatives as fair value hedges. The carrying amount of the hedged inventory is adjusted in the current period for changes in fair value. Ineffectiveness of the hedges is recognized in the current period to the extent the change in fair value of the inventory is not offset by the change in fair value of the derivative.



10

 


 

 

Recent Accounting Pronouncements

 

Effective January 1, 2018, the company adopted the amended guidance in ASC Topic 606, Revenue from Contracts with Customers. Please refer to Note 2 – Revenue for further details.



Effective January 1, 2018, the company adopted the amended guidance in ASC Topic 230, Statement of Cash Flows: Restricted Cash , which requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amended guidance was applied retrospectively. As a result, net cash used in operating activities for the three months ended March 31, 2017 was adjusted to exclude the change in restricted cash   and de creased the previously reported balance by $ 21.7 million . N et cash provided by financing activities for the th ree months ended March 31, 2017 was adjusted to exclude the change in restricted cash and decreased the previously reported balance by $13.0 million.



Effective January 1, 2018, the company adopted the amended guidance in ASC Topic 740, Income Taxes: Intra-Entity Transfers of Assets other than Inventory , which requires the recognition of current and deferred income tax consequences of an intra-entity transfer of an asset other than inven tory when the transfer occurs. The amended guidance is required on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The adoption of the guidance did not have an impact to the financial statements.



Effective January 1, 2018, the company adopted the amended guidance in ASC Topic 805, Business Combinations: Clarifying the Definition of a Business , which clarifies the definition of a business a nd provides guidance to assist companies and oth er reporting organizations evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amended guidance will be applied prospectively.



Effective January  1, 2018, the company early adopted the amended guidance in ASC Topic 350, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment , which simplifies the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The annual goodwill impairment test will be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge equal to the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that repor ting unit, would be recognized. The amended guidance will be applied prospectively, and used wh en the annual impairment test is performed in the current year. The company does not expect the impact of adopting the amended guidance to have a material impact on the consolidated financial statements.



Effective January 1, 2018, the company early adopted the amended guidance in ASC Topic 220, Income Statement – Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendment eliminates the stranded tax effects resulting from the Tax Cuts and Jobs Act and is intended to improve the usefulness of information reported . As a result, the company recorded a $2.8 million reclassification from accumulated other comprehensive income to retained earnings as o f the beginning of the period. It is the company’s policy to release income tax effects from accumulated other comprehensive income using the portfolio approach.



Effective January 1, 2019, the company will adopt the amended guidance in ASC Topic 842, Leases , which aims to make leasing activities more transparent and comparable, requiring substantially all leases to be recognized by lessees on the balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. The new standard is effective for fiscal years and interim periods within those years, beginning after December 15, 2018, and allows for early adoption. The company has established an implementation team to evaluate the impact of the new standard. The new standard will significantly increase right-of-use assets and lease liabilities on the company’s consolidated balance sheet, primarily due to operating leases that are currently not recognized on the balance sheet. The company anticipates adopting the amended guidance using the modified retrospective transition method.  



11

 


 

 

2 REVENUE



Adoption of ASC Topic 606



On January 1, 2018, the company adopted the amended guidance in ASC Topic 606, Revenue from Contracts with Customers , and all related amendments (“new revenue s tandard”) and applied it to all contracts using the modified retrospective transition method. There were no adjustment s to the consolidated January 1, 2018 balance sheets for the adoption of the new revenue s tandard. As such, c omparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. In addition, there was no impact of adoption on the consolidated statements of operations or balance sheets for the three months ended March 31, 2018. The company expects the impact of the adopting the new revenue s tandard   to be immaterial to net income on an ongoing basis.



Revenue Recognition



Revenue is recognized when obligations under the terms of a contract with a customer are satisfied. Generally this occurs with the transfer of control of products or services. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services. Sales, value add, and other taxes the company collects concurrent with revenue-producing activities are excluded from revenue.



Revenue by Source



The following table disaggregates revenue by major source for the three months ended March 31, 2018 (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended March 31, 2018



Ethanol Production

 

Agribusiness & Energy Services

 

Food & Ingredients

 

Partnership

 

Eliminations

 

Total

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from contracts with customers under ASC Topic 606:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Distillers grains

$

29,997 

 

$

 -

 

$

 -

 

$

 -

 

$

 -

 

$

29,997 

 Cattle and vinegar

 

 -

 

 

 -

 

 

267,416 

 

 

 -

 

 

 -

 

 

267,416 

 Service revenues

 

 -

 

 

 -

 

 

 -

 

 

1,218 

 

 

 -

 

 

1,218 

 Other

 

131 

 

 

677 

 

 

 -

 

 

 -

 

 

 -

 

 

808 

 Intersegment revenues

 

662 

 

 

 -

 

 

42 

 

 

 -

 

 

(704)

 

 

 -

Total revenues from contracts with customers

 

30,790 

 

 

677 

 

 

267,458 

 

 

1,218 

 

 

(704)

 

 

299,439 

Revenues from contracts accounted for as derivatives under ASC Topic 815 (1) :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Ethanol

 

445,039 

 

 

122,541 

 

 

 -

 

 

 -

 

 

 -

 

 

567,580 

 Distillers grains

 

67,709 

 

 

21,212 

 

 

 -

 

 

 -

 

 

 -

 

 

88,921 

 Corn oil

 

16,470 

 

 

8,670 

 

 

2,287 

 

 

 -

 

 

 -

 

 

27,427 

 Grain

 

133 

 

 

14,286 

 

 

 -

 

 

 -

 

 

 -

 

 

14,419 

 Cattle and vinegar

 

 -

 

 

 -

 

 

8,406 

 

 

 -

 

 

 -

 

 

8,406 

 Other

 

4,284 

 

 

34,401 

 

 

 -

 

 

 -

 

 

 -

 

 

38,685 

 Intersegment revenues

 

1,291 

 

 

11,429 

 

 

 -

 

 

2,172 

 

 

(14,892)

 

 

 -

Total revenues from contracts accounted for as derivatives

 

534,926 

 

 

212,539 

 

 

10,693 

 

 

2,172 

 

 

(14,892)

 

 

745,438 

 Leasing revenues under ASC Topic 840 (2)

 

 -

 

 

 -

 

 

 -

 

 

22,495 

 

 

(22,085)

 

 

410 

Total Revenues

$

565,716 

 

$

213,216 

 

$

278,151 

 

$

25,885 

 

$

(37,681)

 

$

1,045,287 











(1)

Revenues from contracts accounted for as derivatives represent physically settled derivative sales that are outside the scope of ASC Topic 606, Revenue from Contracts with Customers   (ASC Topic 606), where the company recognizes revenue when control of the inventory is transferred within the meaning of ASC Topic 606 as required by ASC Topic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets .

(2)

Leasing revenue s do not represent revenues recognized from contracts with customers un der ASC Topic 606, and continue to be accounted for under ASC Topic 840, Leases .



Payment Terms



The company has standard payment terms, which vary depending upon the nature of the services provided, with the majority falling within 10 to 30 days after transfer of control or completion of services. In instances where the timing of revenue recognition differs from the timing of invoicing, the company has determined that contracts generally do not include a significant financing component.





12

 


 

 

Contract Liabilities



The company records unearned revenue , which represents a contract liability, when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract.



The following table reflects the changes in unearned revenue from contracts with customers for the three months ended March 31, 2018 (in thousands):



 

 

 

 

 

 

 

 



 

March 31, 2018

 

 

December 31, 2017

 

Three Month Change

Unearned revenue

$

228 

 

$

194 

 

$

34 



During the three months ended March 31, 2018, the company recognized revenue of  $194 thousa nd that was included in the corresponding contract liability balance at the beginning of the period.



During the three months ended March 31, 2018, unearned revenue in creased by $ 34   thousand , primarily as a result of fluctuations in customer inventory levels for the partnership’s tank storage .   T he company expects to recognize all of the unearned revenue associated as of March 31, 2018 in the subsequent quarter when the inventory is withdrawn from the partnership’s tank storage.



Practical Expedients



Under the new revenue standard , companies may elect various practical expedients upon adoption. As a result, t he company elected to recognize the cost for shipping and handling activities that occur after the customer obtains control of the promised goods as fulfillment activities and not when performance obligations are met . The company also elected to exclude sales taxes from transaction prices.







3 .  ACQUISITIONS



Acquisition of Cattle Feeding Operations



On May 16, 2017 , the company acquired two cattle-feeding operations from Car gill Cattle Feeders, LLC for $58 .7  million, including certain working capital adjustments. The transaction included the feed yards located in Leoti, Kansas and Eckley, Colorado, which added combined feedlot capacity of 155,000 head of cattle to the company’s operations. The transaction was financed using cash on hand. There were no material acquisition costs recorded for the acquisition.



As part of the transaction, the company also entered into a long-term cattle supply agreement with Cargill Meat Solutions Corporation. Under the cattle supply agreement, all cattle placed in the Leoti and Eckley feedlots are sold exclusively to Cargill Meat Solutions under an agreed upon pricing arrangement.



Th e following is a summary of the preliminary purchase price of   assets acquired and liabilities assumed (in thousands):







 

 

 

 

Amounts of Identifiable Assets Acquired
and Liabilities Assumed

Inventory

 

$

21,827 

Prepaid expenses and other

 

 

52 

Property and equipment, net

 

36,960 



 

 

 

 

Current liabilities

 

(180)



Total identifiable net assets

$

58,659 





The amounts above reflect a working capital payment by the company of $1.0 million made during the first quarter of 2018.











13

 


 

 

4 .  FAIR VALUE DISCLOSURES



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



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



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.



Derivative contracts include exchange-traded commodity futures and options contracts and forward commodity purchase and sale contracts. Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified in Level 1. The majority of the company’s exchange-traded futures and options contracts ar e cash-settled on a daily basis .



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, 2018



Quoted Prices in
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

 

 



(Level 1)

 

(Level 2)

 

Total



 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

240,964 

 

$

 -

 

$

240,964 

Restricted cash

 

24,271 

 

 

 -

 

 

24,271 

Inventories carried at market

 

 -

 

 

123,502 

 

 

123,502 

Unrealized gains on derivatives

 

 -

 

 

12,190 

 

 

12,190 

Other assets

 

114 

 

 

25 

 

 

139 

Total assets measured at fair value

$

265,349 

 

$

135,717 

 

$

401,066 



 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable (1)

$

 -

 

$

10,826 

 

$

10,826 

Unrealized losses on derivatives

 

 -

 

 

12,086 

 

 

12,086 

Other

 

 -

 

 

 

 

Total liabilities measured at fair value

$

 -

 

$

22,918 

 

$

22,918 





14

 


 

 



 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2017



Quoted Prices in
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

 

 



(Level 1)

 

(Level 2)

 

Total



 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

266,651 

 

$

 -

 

$

266,651 

Restricted cash

 

45,709 

 

 

 -

 

 

45,709 

Inventories carried at market

 

 -

 

 

26,834 

 

 

26,834 

Unrealized gains on derivatives

 

 -

 

 

12,045 

 

 

12,045 

Other assets

 

115 

 

 

 -

 

 

115 

Total assets measured at fair value

$

312,475 

 

$

38,879 

 

$

351,354 



 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable (1)

$

 -

 

$

37,401 

 

$

37,401 

Unrealized losses on derivatives

 

 -

 

 

12,884 

 

 

12,884 

Other liabilities

 

 -

 

 

92 

 

 

92 

Total liabilities measured at fair value

$

 -

 

$

50,377 

 

$

50,377 



(1)

Accounts payable is generally stated at historical amounts with the exception of $ 10.8 million and  $ 37.4 million at Marc h 31, 2018 and December 31, 2017 , respectively, related to certain delivered inventory for which the payable fluctuates based on changes in commodity prices. These payables are hybrid financial instruments for which the company has elected the fair value option.



The company believes the fair value of its debt approximated book value, which was $1.4 billion a t   March 31, 2018 and December 31, 2017 .   The company estimated the fair value of its outstanding debt using Level 2 inputs. The company believes the fair values of its accounts receivable app roximated book value, which was  $ 151.9 million and $1 51.1 million at March 31, 2018 and December 31, 2017 , respectively .



Although the company currently does not have any recurring Level 3 financial measurements, the fair values of tangible assets and goodwill acquired and the equity component of convertible debt issued 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



The company reports the financial and operating performance for the following four operating segments: (1) ethanol production, which inc ludes the production of ethanol and distillers grains , and recovery of corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes cattle feeding, vinegar production and food-grade corn oil operations and (4) partnership, which includes fuel storage and transportation services.



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.



During the normal course of business, the operating segments conduct business with each other. For example, the agribusiness and energy services segment procures grain and natural gas and sells products, including ethanol, distillers grains and corn oil for the ethanol production segment. The partnership segment provides fuel storage and transportation services for the agribusiness and energy services segment. These intersegment activities are treated like third-party transactions with origination, marketing and storage fees charged at estimated 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.  





15

 


 

 

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









 

 

 

 

 



Three Months Ended
March 31,



2018

 

2017

Revenues:

 

 

 

 

 

Ethanol production:

 

 

 

 

 

Revenues from external customers

$

563,763 

 

$

619,879 

Intersegment revenues

 

1,953 

 

 

1,496 

Total segment revenues

 

565,716 

 

 

621,375 

Agribusiness and energy services:

 

 

 

 

 

Revenues from external customers

 

201,787 

 

 

168,311 

Intersegment revenues

 

11,429 

 

 

9,492 

Total segment revenues

 

213,216 

 

 

177,803 

Food and ingredients:

 

 

 

 

 

Revenues from external customers

 

278,109 

 

 

98,022 

Intersegment revenues

 

42 

 

 

38 

Total segment revenues

 

278,151 

 

 

98,060 

Partnership:

 

 

 

 

 

Revenues from external customers

 

1,628 

 

 

1,472 

Intersegment revenues

 

24,257 

 

 

25,757 

Total segment revenues

 

25,885 

 

 

27,229 

Revenues including intersegment activity

 

1,082,968 

 

 

924,467 

Intersegment eliminations

 

(37,681)

 

 

(36,783)

Revenues as reported

$

1,045,287 

 

$

887,684 



Refer to Note 2 - Revenue ,   for further disaggregation of revenue by operating segment.





 



 

 

 

 

 



Three Months Ended
March 31,



2018

 

2017

Cost of goods sold:

 

 

 

 

 

Ethanol production

$

564,559 

 

$

599,138 

Agribusiness and energy services

 

201,712 

 

 

166,394 

Food and ingredients

 

259,765 

 

 

83,035 

Partnership

 

 -

 

 

 -

Intersegment eliminations

 

(37,701)

 

 

(36,671)



$

988,335 

 

$

811,896 









 

 

 

 

 



Three Months Ended
March 31,



2018

 

2017

Operating income (loss):

 

 

 

 

 

Ethanol production

$

(27,529)

 

$

(6,598)

Agribusiness and energy services

 

7,064 

 

 

6,369 

Food and ingredients

 

12,585 

 

 

9,626 

Partnership

 

15,360 

 

 

16,619 

Intersegment eliminations

 

68 

 

 

(75)

Corporate activities

 

(11,473)

 

 

(8,549)



$

(3,925)

 

$

17,392 



 

 

 

 

 









16

 


 

 













 

 

 

 

 



Three Months Ended
March 31,



2018

 

2017

EBITDA:

 

 

 

 

 

Ethanol production

$

(7,095)

 

$

13,824 

Agribusiness and energy services

 

7,702 

 

 

7,013 

Food and ingredients

 

15,997 

 

 

12,514 

Partnership

 

16,623 

 

 

17,894 

Intersegment eliminations

 

68 

 

 

(75)

Corporate activities

 

(10,175)

 

 

(7,321)



$

23,120 

 

$

43,849 



 

 

 

 

 









 

 

 

 

 



Three Months Ended
March 31,



2018

 

2017

Depreciation and amortization:

 

 

 

 

 

Ethanol production

$

20,436 

 

$

20,342 

Agribusiness and energy services

 

630 

 

 

660 

Food and ingredients

 

3,404 

 

 

2,880 

Partnership

 

1,181 

 

 

1,254 

Corporate activities

 

823 

 

 

947 



$

26,474 

 

$

26,083 



The following table reconciles net income (loss) to EBITDA (in thousands):







 

 

 

 

 



Three Months Ended
March 31,



2018

 

2017

Net income (loss)

$

(19,455)

 

$

1,651 

Interest expense

 

22,128 

 

 

18,496 

Income tax benefit

 

(6,027)

 

 

(2,381)

Depreciation and amortization

 

26,474 

 

 

26,083 

EBITDA

$

23,120 

 

$

43,849 



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





 

 

 

 

 



March 31,
2018

 

December 31,
2017

Total assets (1) :

 

 

 

 

 

Ethanol production

$

1,072,614 

 

$

1,144,459 

Agribusiness and energy services

 

529,166 

 

 

554,981 

Food and ingredients

 

711,065 

 

 

725,232 

Partnership

 

75,649 

 

 

74,935 

Corporate assets

 

284,785 

 

 

295,217 

Intersegment eliminations

 

(13,410)

 

 

(10,174)



$

2,659,869 

 

$

2,784,650 



(1)

Asset balances by segment exclude intercompany receivable balances.





6 .  INVENTORIES



Inventories are carried at the lower of cost or net realizable value, except grain held for sale and fair-value hedged inventories. Commodities held for sale are reported at market value. During the qua rter ended March 31, 2018, the c ompany recorded a $19.2 million lower of cost or market adjustment and reclassified $19.2 million of net gains from accumulated other comprehensive income into earnings related to this inventory. Both amounts are reflected in cost of goods sold within the food and ingredients segment.





17

 


 

 

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









 

 

 

 

 



March 31,
2018

 

December 31,
2017

Finished goods

$

128,476 

 

$

146,269 

Commodities held for sale

 

45,328 

 

 

65,693 

Raw materials

 

157,390 

 

 

144,520 

Work-in-process

 

291,505 

 

 

320,664 

Supplies and parts

 

36,327 

 

 

34,732 



$

659,026 

 

$

711,878 











7 .  GOODWILL AND INTANGIBLE ASSETS



Goodwill



The company did no t have any changes in the carrying amount of goodwill, which was $182.9 million at March 31, 2018 ,   and December 31, 2017 . Goodwill of $ 30.3 million, $142.0 million and $ 10.6 million are attributable to the ethanol production segment , food and ingredient s segment and the partnership segment, respectively.



Intangible Assets



As of March 31, 2018, the company’s customer relationship intangible asset recognized in co nnection with the Fleischmann Vinegar’s acquisition is $72.0 million, net of $8.0 million of accumulated amortization, and has a remaining 13.5 -year weighted-average amortization period. As of March 31, 2018, the company also has an indefinite-lived trade name intangible asset of $10.5 million. The company recognized $1.3 million of amortization expense associated with the amortizing customer relationship intangible asset during both of the three months ended March 31, 2018 and 2017 , and expects estimated amortization expense for the next five years of $5. 3 million per annum. The company’s intangible assets are recorded within other assets on the consolidated balance sheets.





8 .  DERIVATIVE FINANCIAL INSTRUMENTS



At March 31, 2018, the company’s consolidated balance sheet reflected unrealized gains of $0.7 million, net of tax, in accumulated other comprehensive income . The company expects these gains will be reclassified as 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,
2018

 

December 31,
2017

 

March 31,
2018

 

December 31,
2017

Derivative financial instruments (1)

 

$

12,190 

 

$

12,045 

 

$

 -

 

$

12,884 

Other assets

 

 

25 

 

 

 -

 

 

 -

 

 

 -

Accrued and other liabilities

 

 

 -

 

 

 -

 

 

12,086 

 

 

 -

Other liabilities

 

 

 -

 

 

 -

 

 

 

 

92 

Total

 

$

12,215 

 

$

12,045 

 

$

12,092 

 

$

12,976 



(1) At March 31, 2018, derivative financial instruments, as reflecte d on the balance sheet, include net unrealized gains on exchange traded futures and options contracts of $7.8 million , which included $24.7   million of net unrealized gains on derivative financial instruments designated a s cash flow hedging instruments . At December 31, 2017, derivative financial instruments, as reflected on the balance sheet, includes net unrealized gains on exchange traded futures and options contracts of $8.5 million ,   which included $0.3 million of net unrealized gains on derivative financial instruments designated a s cash flow hedging instruments . .



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

18

 


 

 

Effect of Derivative Instruments on Consolidated Balance Sheets, Consolida ted Statements of Operations and Consolidated Statements of 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):





 

 

 

 

 

 

 



 

Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income

Location of Gain or (Loss) Reclassified from

 

Three Months Ended March 31,

Accumulated Other Comprehensive Income into Income

 

2018

 

2017

 

Revenues

 

$

1,761 

 

$

4,152 

 

Cost of goods sold

 

 

(978)

 

 

830 

 

Net increase recognized in earnings before tax

 

$

783 

 

$

4,982 

 











 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

Amount of Gain Recognized in Other Comprehensive Income on Derivatives

Gain Recognized in

 

Three Months Ended March 31,

Other Comprehensive Income on Derivatives

 

2018

 

2017

 

Commodity contracts

 

$

22,266 

 

$

2,610 

 











 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Location of Gain or

 

Amount of Gain or (Loss) Recognized in Income on Derivatives

Derivatives Not Designated

 

(Loss) Recognized in

 

Three Months Ended March 31,

as Hedging Instruments

 

Income on Derivatives

 

2018

 

2017

Commodity contracts

 

Revenues

 

$

936 

 

$

(5,048)

Commodity contracts

 

Costs of goods sold

 

 

(6,998)

 

 

11,936 



 

 

 

$

(6,062)

 

$

6,888 



As of March 31, 2018, the following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for the fair value hedged items (in thousands):







 

 

 

 

 

 

Line Item in the Consolidated Balance Sheet in Which the Hedged Item is Included

 

 

Carrying Amount of the Hedged Assets

 

 

Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets

Inventories

 

$

95,064 

 

$

8,336 



As of December 31, 2017, no amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for the fair value hedged items.



19

 


 

 

Effect of Cash Flow and Fair Value Hedge Accounting on the Statement of Financial Performance



The effect of cash flow and fair value hedges and the line items on the consolidated statements of operations where they are reported are as follows (in thousands):











 

 

 

 

 

 

 

 

 

 

 



 

Location and Amount of Gain or (Loss) Recognized in



 

Income on Cash Flow and Fair Value Hedging Relationships



 

for the Three Months Ended March 31,



 

2018

 

 

2017



 

Revenue

 

 

Cost of
Goods Sold

 

 

Revenue

 

 

Cost of
Goods Sold

Gain (loss) on cash flow hedging relationships:

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Commodity contracts:

 

 

 

 

 

 

 

 

 

 

 

Amount of gain (loss) reclassified from accumulated other comprehensive income into income

$

1,761 

 

$

(978)

 

$

4,152 

 

$

830 



 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on fair value hedging relationships:

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Commodity contracts:

 

 

 

 

 

 

 

 

 

 

 

Hedged item

 

 -

 

 

9,393 

 

 

1,421 

 

 

(1,928)

Derivatives designated as hedging instruments

 

 -

 

 

(8,432)

 

 

(1,095)

 

 

3,039 



 

 

 

 

 

 

 

 

 

 

 

Total amounts of income and expense line items presented in the statement of financial performance in which the effects of cash flow or fair value hedges are recorded

$

1,761 

 

$

(17)

 

$

4,478 

 

$

1,941 



There were no gains or losses from discontinuing cash flow or fair value hedge treatment during the three months ended March 31, 2018 and 2017.

20

 


 

 

The open commodity derivative positions as of March 31, 2018, are as follows (in thousands):







 

 

 

 

 

 

 

 

 

 

March 31, 2018



 

Exchange Traded

 

Non-Exchange Traded

 

 

 

 

Derivative
Instruments

 

Net Long &
(Short) (1)

 

Long (2)

 

(Short) (2)

 

Unit of
Measure

 

Commodity



 

 

 

 

 

 

 

 

 

 

Futures

 

(32,565)

 

 

 

 

 

Bushels

 

Corn, Soybeans and Wheat

Futures

 

500 

(3)

 

 

 

 

Bushels

 

Corn

Futures

 

(20,915)