The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated financial condition and results of operations. This discussion should be read in conjunction with the consolidated financial statements included herewith and notes to the consolidated financial statements thereto and the risk factors contained herein. Overview We are a leading, vertically-integrated producer, marketer and distributer of ethanol. We focus on generating stable operating margins through our diversified business segments and our risk management strategy. We believe that owning and operating assets throughout the ethanol value chain enables us to mitigate changes in commodity prices and differentiates us from companies focused only on ethanol production. Today, we have operations throughout the ethanol value chain, beginning upstream with our grain handling and storage operations, continuing through our ethanol, distillers grains and corn oil production operations, and ending downstream with our ethanol marketing, distribution and blending facilities. In
March 2011, we acquired an ethanol plant and certain other assets near Fergus Falls, Minnesota. The plant has production capacity of approximately 60 mmgy, adding to our ethanol, distillers grains and corn oil production and is part of our ethanol production segment.
December 2012, we sold 12 grain elevators located in northwestern Iowaand western Tennesseeconsisting of approximately 32.6 million bushels of our grain storage capacity and all of our agronomy and retail petroleum operations. We believe the sale of assets represented an opportunity to maximize shareholder value. Revenues and gross profit generated by the sold operations represented approximately 91% and 93%, respectively, of 2012 agribusiness segment results. We will continue to participate in grain handling and storage activities through our remaining grain handling assets and future grain storage expansion at or near our ethanol plants. In June 2013, we acquired an ethanol plant located in Atkinson, Nebraska. The plant, which is part of our ethanol production segment, has production capacity of approximately 50 mmgy, adding to our ethanol and distillers grains production. Corn oil extraction technology was installed at the plant in the fourth quarter of 2013. Also, in June 2013, we acquired a grain elevator in Archer, Nebraska, which is included in our agribusiness segment. In November 2013, we acquired two ethanol plants located in Wood River, Nebraskaand Fairmont, Minnesota. The plants, which are part of our ethanol production segment, have combined production capacity of 230 mmgy, adding to our ethanol, distillers grains and corn oil production. The Fairmont, Minnesotaplant, which was not operational at the time of its acquisition, began operations in January 2014. 32
Our management reviews our operations in four separate operating segments:
· Ethanol Production. We are
operate twelve ethanol plants in
bushels of corn per year and produce over one billion gallons of ethanol and
approximately 2.9 million tons of distillers grains annually.
· Corn Oil Production. We operate corn oil extraction systems at our ethanol
plants, with the capacity to produce approximately 250 million pounds annually.
The corn oil systems are designed to extract non-edible corn oil, a value-added
product, from the whole stillage immediately prior to production of distillers
grains. Industrial uses for corn oil include feedstock for biodiesel, livestock
feed additives, rubber substitutes, rust preventatives, inks, textiles, soaps
· Agribusiness. Within our bulk grain business, we have four grain elevators
with approximately 8.2 million bushels of total storage capacity. Our ethanol
plants have approximately 22.6 million bushels of storage capacity. We believe
our bulk grain business provides synergies with our ethanol production segment
as it supplies a portion of the feedstock for our ethanol plants.
· Marketing and Distribution. Our in-house marketing business is responsible for
the sale, marketing and distribution of all ethanol, distillers grains and corn
oil produced at our ethanol plants. We also market and provide logistical
services for ethanol and other commodities for a third-party producer. We
purchase and sell ethanol, distillers grains, corn oil, grain, natural gas and
other commodities and participate in other merchant trading activities in
various markets. Additionally, our wholly-owned subsidiary,
operates eight blending or terminaling facilities with approximately 822
million gallons per year, or mmgy, of total throughput capacity in seven south
central U.S. states. To optimize the value of our assets, we utilize a portion
of our railcar fleet to transport crude oil for third parties.
We intend to continue to take a disciplined approach in evaluating new opportunities related to potential acquisition of additional ethanol plants by considering whether the plants meet our design, engineering, valuation and geographic criteria. In our marketing and distribution segment, our strategy is to expand our marketing efforts by entering into new or renewal contracts with other ethanol producers and realize additional profit margins by optimizing our commodity logistics. In 2013, we began to implement a plan to realign our agribusiness operations by adding grain storage capacity located at or near our ethanol plants to take advantage of our current infrastructure and enhance our corn origination and trading capabilities. We intend to continue to add grain storage capacity with the goal of owning approximately 50 million bushels of total storage capacity by the end of 2015. We also intend to pursue opportunities to develop or acquire additional grain elevators, specifically those located near our ethanol plants. We believe that owning additional grain handling and storage operations in close proximity to our ethanol plants enables us to strengthen relationships with local corn producers, allowing us to source corn more effectively and at a lower average cost. We have majority ownership in a joint venture that is focused on developing technology to grow and harvest algae, which consume carbon dioxide, in commercially viable quantities. In 2013, we began operation of
Green Plains Asset Management LLC, or GPAM, a registered commodity trading advisor and wholly-owned subsidiary that uses discretionary trading strategies driven by fundamental research and technical analysis to trade primarily in agricultural and energy commodity markets. GPAM uses the market knowledge derived from our ethanol production, grain merchandising, grain warehousing and fuel terminal businesses under strict risk management limits. GPAM has a team of experienced professionals with years of commodity trading experience and expertise in asset and fund management. GPAM is included in our Marketing and Distribution segment.
Industry Factors Affecting our Results of Operations
Variability of Commodity Prices. Our operations and our industry are highly dependent on commodity prices, especially prices for corn, ethanol, distillers grains and natural gas. Because the market prices of these commodities are not always correlated, at times ethanol production may be unprofitable. As commodity price volatility poses a significant threat to our margin structure, we have developed a risk management strategy focused on locking in favorable operating margins when available. We continually monitor market prices of corn, natural gas and other input costs relative to the prices for ethanol and distillers grains at each of our production facilities. We create offsetting positions by using derivative instruments, fixed-price purchases and sales contracts, or a combination of strategies within strict limits. Our primary focus is not to manage general price movements of individual commodities, for example to minimize the cost of corn consumed, but rather to lock in favorable profit margins whenever possible. By using a variety of risk management tools and hedging strategies, including 33 --------------------------------------------------------------------------------
our internally-developed real-time margin management system, we believe we are able to maintain a disciplined approach to price risks.
In 2013, U.S. ethanol production was 13.3 billion gallons compared with production of 13.2 billion gallons in 2012 and 13.8 billion gallons mandated by RFS II for 2013. As a result of the U.S. ethanol industry rationalizing production, inventory stocks reached a low of 628 million gallons at the end of
October 2013, the lowest level since October 2010. Domestic inventory stocks were 654 million gallons at December 31, 2013. Lower production, stocks and corn prices have had a positive effect on ethanol margins in 2013, especially in the fourth quarter, which were significantly better than 2012. A combination of factors resulted in compressed ethanol margins in 2012, including the expiration of the volumetric ethanol excise tax credit on December 31, 2011, which encouraged increased production and caused ethanol stocks to exceed normal levels at the end of 2011, and drought conditions in the Midwestern region of the United Statesthat caused corn prices to trade at all-time highs. Also, during 2012, sugarcane ethanol imported from Brazil, which totaled approximately 530 million gallons, was one of the most economical means for certain parties to comply with an RFS II requirement to blend, in the aggregate, 2.0 billion gallons of advanced biofuels in 2012. Effective May 1, 2013, the Brazilian government increased the required percentage of ethanol in vehicle fuel sold in Brazilto 25 percent (from 20 percent) which has reduced ethanol exports from Brazilinto the U.S. In 2013, ethanol imports were 0.4 billion gallons and ethanol exports were 0.6 billion gallons. We believe that U.S. ethanol production levels will continue to adjust to supply and demand factors for ethanol and corn. There may be periods of time that, due to the variability of commodity prices and compressed margins, we reduce or cease ethanol production operations at certain of our ethanol plants. In 2012, we reduced production volumes at several of our ethanol plants in direct response to unfavorable operating margins, and have continued our production during 2013 at approximately 94% of our total daily average capacity. In the fourth quarter of 2013, we increased production volumes to approximately 100% of our total daily average capacity. The reduced production rates increase ethanol yields and optimize cash flow in lower margin environments. Reduced Availability of Capital. Some ethanol producers have faced financial distress over the past few years, culminating with bankruptcy filings by several companies. This, in combination with continued volatility in the capital markets, has resulted in reduced availability of capital for the ethanol industry in general. In this market environment, we may experience limited access to incremental financing. Legislation. Federal and state governments have enacted numerous policies and incentives to encourage the usage of domestically-produced alternative fuels. RFS II has been, and we expect will continue to be, a driving factor in the growth of ethanol usage. Due to drought conditions in 2012 and claims that blending of ethanol into the motor fuel supply will be constrained by unwillingness of the market to accept greater than ten percent ethanol blends, or the blend wall, legislation, as described in Item 1. Business, aimed at reducing or eliminating the renewable fuel use required by RFS II has been introduced into congress. To further drive the increased adoption of ethanol, Growth Energy, an ethanol industry trade association, and a number of ethanol producers requested a waiver from the EPAto increase the allowable amount of ethanol blended into gasoline from the current 10% level, or E10, to a 15% level, or E15. Through a series of decisions beginning in October 2010, the EPAhas granted a waiver for the use of E15 in model year 2001 and newer passenger vehicles, including cars, sport utility vehicles, and light pickup trucks. In June 2012, the EPAgave final approval for the sale and use of E15 ethanol blends. On June 24, 2013the U.S. Supreme Courtdeclined to hear an appeal from the American Petroleum Instituteand other organizations challenging the EPA'sdecision to permit the sale of E15. According to the EPA, as of December 31, 2013, 79 fuel manufacturers were registered to sell E15. In January 2014, a major fuel retailer announced that it will begin offering E15 to customers with the objective to have 100 of its U.S. stores offering E15 in 2014. The Domestic Alternative Fuels Act of 2012 was introduced on January 18, 2012in the U.S. House of Representativesand was re-introduced March 15, 2013as H.R. 1214 to provide liability protection for claims based on the sale or use of certain fuels and fuel additives. Passage of this bill would provide liability protection to consumers in the event they unintentionally put any transportation fuel into their motor vehicle for which such fuel has not been approved. The American Fuel Protection Act of 2013 was introduced on June 5, 2013in the U.S. House of Representativesto make the United Statesexclusively liable for certain claims of liability for damages resulting from, or aggravated by, the inclusion of ethanol in transportation fuel. 34
-------------------------------------------------------------------------------- The Master Limited Partnership Parity Act was introduced on
April 24, 2013in the U.S. House of Representativesas H.R. 1696 to extend the publicly traded partnership ownership structure to renewable energy projects. The legislation would provide a more level financing system and tax burden for renewable energy and fossil energy projects. Industry Fundamentals. The ethanol industry is supported by a number of market fundamentals that drive its long-term outlook and extend beyond the short-term margin environment. Following the EPA'sapproval, the industry is working to broadly introduce E15 into the retail fuel market. The RFS II mandate increased to 14.4 billion gallons of corn-derived renewable fuel for 2014, 600 million gallons over the mandated volume in 2013, and continues to increase through 2015. On November 15, 2013, the EPAreleased its Notice of Proposed Rulemaking for the 2014 Renewable Fuel Standard. The proposal discusses a variety of approaches for setting the 2014 standards, and includes a number of production and consumption ranges for key categories of biofuel covered by the RFS program. The proposal seeks comment on a range of total renewable fuel volumes for 2014 and proposes a level within that range of 15.2 billion gallons, including 13.0 billion gallons of corn-derived renewable fuel. The proposal addresses two constraints of RFS II: (1) limitations in the volume of ethanol that can be consumed in gasoline given practical constraints on the supply of higher ethanol blends to the vehicles that can use them and (2) limitations in the ability of the industry to produce sufficient volumes of qualifying renewable fuel. The domestic gasoline market continues to evolve as refiners are producing more CBOB, a sub-grade (84 octane) gasoline, which requires ethanol or other octane sources to meet the minimum octane rating requirements for the U.S. gasoline market. The demand for ethanol is also affected by the overall demand for transportation fuel, which peaked in 2007 and has been declining steadily since then. Currently, according to the EIA, total gasoline demand in the U.S. is approximately 135 billion gallons annually. Demand for transportation fuel is affected by the number of miles traveled by consumers and the fuel economy of vehicles. Market acceptance of E15 may partially offset the effects of this decrease. Consumer acceptance of E15 and E85 (85% ethanol blended) fuels and flex-fuel vehicles is needed before ethanol can achieve any significant growth in market share. In addition, ethanol export markets, although affected by competition from other ethanol exporters, mainly from Brazil, are expected to remain active in 2014. Overall, the industry is producing below the mandated levels but ethanol prices have remained at a discount to gasoline, providing blenders and refiners with an economic incentive to blend.
BioProcess Algae Joint Venture
Our BioProcess Algae joint venture is focused on developing technology to grow and harvest algae, which consume carbon dioxide, in commercially viable quantities. Through multiple stages of expansion, BioProcess Algae has constructed a five-acre algae farm next to our
Shenandoah, Iowaethanol plant and has been operating its Grower Harvesters™ bioreactors since January 2011. The joint venture is currently focused on verification of growth rates, energy balances, capital requirements and operating expenses of the technology which are considered to be some of the key steps to commercialization. BioProcess Algae announced on April 22, 2013, that it had been selected to receive a grant of up to $6.4 millionfrom the U.S. Department of Energyas part of a pilot-scale biorefinery project related to production of hydrocarbon fuels meeting military specification. The project will use renewable carbon dioxide, lignocellulosic sugars and waste heat through BioProcess Algae's Grower Harvester™ technology platform. The objective of the project is to demonstrate technologies to cost-effectively convert biomass into advanced drop-in biofuels. BioProcess Algae is required to contribute a minimum of 50% matching funds for the project. BioProcess Algae intends to expand the algae farm with the construction of additional Grower Harvester™ bioreactors and a new processing facility, pending coordination with the U.S. Department of Energy. When construction is completed, expected annual capacity is expected be 350 to 400 tons of dry wholesale algae. We increased our ownership of BioProcess Algae to approximately 60% during the first quarter of 2014. However, we still do not possess the requisite control of this investment to consolidate it. If we and the other BioProcess Algae members determine that the joint venture can achieve the desired economic performance, a larger build-out will be considered, possibly as large as 200 to 400 acres of Grower Harvester™ reactors at the Shenandoah, Iowasite. Such a build-out may be completed in stages and could take up to two years to complete. Funding for such a project would come from a variety of sources including current partners, new equity investors, debt financing or a combination thereof. 35
Critical Accounting Policies and Estimates
This disclosure is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe are proper and reasonable under the circumstances. We continually evaluate the appropriateness of estimates and assumptions used in the preparation of our consolidated financial statements. Actual results could differ materially 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. Revenue Recognition We recognize revenue when all of the following criteria are satisfied: persuasive evidence of an arrangement exists; risk of loss and title transfer to the customer; the price is fixed and determinable; and collectability is reasonably assured. For sales of ethanol, corn oil and distillers grains, we recognize revenue when title to the product and risk of loss transfer to an external customer.
We routinely enter into fixed-price, physical-delivery ethanol sales agreements. In certain instances, we intend to settle the transaction by open market purchases of ethanol rather than by delivery from our own production. These transactions are reported net as a component of revenues.
Revenue from sales of agricultural commodities is recognized when title to the product and risk of loss transfer to the customer, which is dependent on the agreed upon sales terms with the customer. These sales terms provide for passage of title either at the time shipment is made or at the time the commodity has been delivered to its destination and final weights, grades and settlement prices have been agreed upon with the customer. Shipping and handling costs are recorded on a gross basis in the statements of operations with amounts billed included in revenues and also as a component of cost of goods sold. Revenue from grain storage is recognized as services are rendered. Revenue related to grain merchandising is recorded on a gross basis. Revenue related to our marketing operations for third parties is recorded on a gross basis in the consolidated financial statements, as we take title to the product and assume risk of loss. Unearned revenue is reflected on our consolidated balance sheet for goods in transit for which we have received payment and title has not been transferred to the external customer. Revenue from ethanol transload and splash blending services is recognized as these services are rendered.
Intercompany revenues are eliminated on a consolidated basis for reporting purposes.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation on our ethanol production facilities, grain storage facilities, railroad tracks, computer equipment and software, office furniture and equipment, vehicles, and other fixed assets has been provided on the straight-line method over the estimated useful lives of the assets, which currently range from 3 to 40 years.
Land improvements are capitalized and depreciated. Expenditures for property betterments and renewals are capitalized. Costs of repairs and maintenance are charged to expense as incurred.
We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of fixed assets, which is accounted for prospectively.
Impairment of Long-Lived Assets and Goodwill
Our long-lived assets consist of property and equipment. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. We measure recoverability of assets to be held and used by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash 36
-------------------------------------------------------------------------------- flows, we record an impairment charge in the amount by which the carrying amount of the asset exceeds the fair value of the asset. No impairment charges have been recorded during the periods presented. Our goodwill consists of amounts relating to certain acquisitions within our ethanol production and marketing and distribution segments. We review goodwill at an individual plant or subsidiary level for impairment at least annually, as of
October 1, or more frequently whenever events or changes in circumstances indicate that impairment may have occurred. We assess the qualitative factors of goodwill to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. Under the first step, we compare the estimated fair value of the reporting unit with its carrying value (including goodwill). If the estimated fair value of the reporting unit is less than its carrying value, we complete a second step to determine the amount of the goodwill impairment that we should record. In the second step, we determine an implied fair value of the reporting unit's goodwill by allocating the reporting unit's fair value to all of its assets and liabilities other than goodwill. We compare the resulting implied fair value of the goodwill to the carrying amount and record an impairment charge for the difference. The reviews of long-lived assets and goodwill require making estimates regarding amount and timing of projected cash flows to be generated by an asset or asset group over an extended period of time. Management judgment regarding the existence of circumstances that indicate impairment is based on numerous potential factors including, but not limited to, a decline in our future projected cash flows, a decision to suspend operations at a plant for an extended period of time, a sustained decline in our market capitalization, a sustained decline in market prices for similar assets or businesses, or a significant adverse change in legal or regulatory factors or the business climate. Significant management judgment is required in determining the fair value of our long-lived assets and goodwill to measure impairment, including projections of future cash flows. Fair value is determined through various valuation techniques including discounted cash flow models, sales of comparable properties and third-party independent appraisals, as considered necessary. Changes in estimates of fair value could result in a write-down of the asset in a future period. Given the current economic and regulatory environment and uncertainties regarding the impact on our business, there are no assurances that our estimates and assumptions will prove to be an accurate prediction of the future.
Derivative Financial Instruments
We use various financial instruments, including derivatives, to minimize the effects of the volatility of commodity price changes primarily related to corn, natural gas and ethanol. We monitor and manage this exposure as part of our overall risk management policy. As such, we seek to reduce the potentially adverse effects that the volatility of these markets may have on our operating results. We may take hedging positions in these commodities as one way to mitigate risk. We have put in place commodity price risk management strategies that seek to reduce significant, unanticipated earnings fluctuations that may arise from volatility in commodity prices, principally through the use of derivative instruments. While we attempt to link our hedging activities to our purchase and sales activities, there are situations where these hedging activities can themselves result in losses. By using derivatives to hedge exposures to changes in commodity prices, we have exposures on these derivatives to credit and market risk. We are exposed to credit risk that the counterparty might fail to fulfill its performance obligations under the terms of the derivative contract. We minimize our credit risk by entering into transactions with high quality counterparties, limiting the amount of financial exposure we have with each counterparty and monitoring the financial condition of our counterparties. Market risk is the risk that the value of the financial instrument might be adversely affected by a change in commodity prices or interest rates. We manage market risk by incorporating monitoring parameters within our risk management strategy that limit the types of derivative instruments and derivative strategies we use, and the degree of market risk that may be undertaken by the use of derivative instruments. We evaluate our contracts to determine whether the contracts are derivatives as certain derivative contracts that involve physical delivery may qualify for the normal purchases or normal sales exemption as they will be expected to be used or sold over a reasonable period in the normal course of business. Any derivative contracts that do not meet the normal purchase or sales criteria are recorded at fair value with the unrealized gains and losses from the change in fair value recorded in operating income unless the contracts qualify for hedge accounting treatment. Certain qualifying derivatives within our ethanol production segment are designed as cash flow and fair value hedges. Prior to entering into cash flow and fair value hedges, we evaluate the derivative instrument to ascertain its effectiveness. For cash flow hedges, any ineffectiveness is recognized in current period results, while other unrealized gains and losses are reflected in accumulated other comprehensive income until gains and losses from the underlying hedged transaction are 37 -------------------------------------------------------------------------------- realized. In the event that it becomes probable that a forecasted transaction will not occur, we would discontinue cash flow hedge treatment, which would affect earnings. These derivative financial instruments are recognized in other current assets or liabilities at fair value. We use exchange-traded futures and options contracts to minimize the effects of changes in the prices of agricultural commodities on our grain inventories and forward purchase and sales contracts within our agribusiness segment. Exchange-traded futures and options contracts are valued at unadjusted prices in an active market. Grain inventories held for sale, forward purchase contracts and forward sale contracts of this segment are valued at market prices, where available, or other market quotes adjusted for differences, primarily transportation, between the exchange-traded market and the local markets on which the terms of the contracts are based. Changes in the fair value of grain inventories held for sale, forward purchase and sale contracts, and exchange-traded futures and options contracts, are recognized in earnings as a component of cost of goods sold. We are exposed to loss in the event of non-performance by the counter-party to forward purchase and forward sales contracts. Accounting for Income Taxes Income taxes are accounted for under the asset and liability method in accordance with GAAP. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basis and for net operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date. The realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Management's evaluation of the need for, or reversal of, a valuation allowance must consider positive and negative evidence, and the weight given to the potential effects of such positive and negative evidence is based on the extent to which it can be objectively verified. Related to accounting for uncertainty in income taxes, we follow a process by which the likelihood of a tax position is gauged based upon the technical merits of the position, perform a subsequent measurement related to the maximum benefit and the degree of likelihood, and determine the amount of benefit to be recognized in the financial statements, if any.
Recently Issued Accounting Pronouncements
January 1, 2013, we adopted the amended guidance in ASC Topic 210, Balance Sheet. The amended guidance addresses disclosure of offsetting financial assets and liabilities. It requires entities to add disclosures showing both gross and net information about instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. The updated disclosures have been implemented retrospectively and do not impact our financial position or results of operations. Effective January 1, 2013, we adopted the amended guidance in ASC Topic 220, Comprehensive Income. The amended guidance requires entities to disclose additional information about reclassification adjustments, including (1) changes in accumulated other comprehensive income by component and (2) significant items reclassified out of accumulated other comprehensive income by presenting the amount reclassified and the individual income statement line items affected. The updated disclosures have been implemented prospectively and do not impact our financial position or results of operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, results of operations or liquidity.
Components of Revenues and Expenses
Revenues. In our ethanol production segment, our revenues are derived primarily from the sale of ethanol and distillers grains, which is a co-product of the ethanol production process. In our corn oil production segment, our revenues are derived from the sale of corn oil, which is extracted from the whole stillage process immediately prior to the production of distillers grains. In our agribusiness segment, the sale of grain is our primary source of revenue. In our marketing and distribution segment, the sale of ethanol, distillers grains and corn oil that we market for our ethanol plants, the sale of ethanol we market 38
-------------------------------------------------------------------------------- for a third-party ethanol plant and the sale of other commodities purchased in the open market represent our primary sources of revenue. Revenues also include net gains or losses from derivatives related to products sold. Cost of Goods Sold. Cost of goods sold in our ethanol production and corn oil production segments includes costs for direct labor, materials and certain plant overhead costs. Direct labor includes all compensation and related benefits of non-management personnel involved in the operation of our ethanol plants. Plant overhead costs primarily consist of plant utilities, plant depreciation and outbound freight charges. Our cost of goods sold in these segments is mainly affected by the cost of corn, natural gas, purchased distillers grains and transportation. Within our corn oil segment, we compensate the ethanol plants for the value of distillers grains displaced during the production process. In the ethanol production segment, corn is our most significant raw material cost. We purchase natural gas to power steam generation in our ethanol production process and to dry our distillers grains. Natural gas represents our second largest cost in this business segment. Cost of goods sold also includes net gains or losses from derivatives related to commodities purchased. Grain acquisition costs represent the primary components of cost of goods sold in our agribusiness segment. Grain inventories held for sale, forward purchase contracts and forward sale contracts are valued at market prices, where available, or other market quotes adjusted for differences, primarily transportation, between the exchange-traded market and the local markets on which the terms of the contracts are based. Changes in the market value of grain inventories, forward purchase and sale contracts, and exchange-traded futures and options contracts are recognized in earnings as a component of cost of goods sold. In our marketing and distribution segment, purchases of ethanol, distillers grains and corn oil represent the largest components of cost of goods sold. Transportation expense represents an additional major component of our cost of goods sold in this segment. Transportation expense includes rail car leases, freight and shipping of our ethanol and co-products, as well as costs incurred in storing ethanol at destination terminals. Selling, General and Administrative Expenses. Selling, general and administrative expenses are recognized at the operating segment level, as well as at the corporate level. These expenses consist of employee salaries, incentives and benefits; office expenses; director fees; and professional fees for accounting, legal, consulting, and investor relations activities. Personnel costs, which include employee salaries, incentives and benefits, are the largest single category of expenditures in selling, general and administrative expenses. We refer to selling, general and administrative expenses that are not allocable to a segment as corporate activities.
Other Income (Expense). Other income (expense) includes interest earned, interest expense, equity earnings in nonconsolidated subsidiaries and other non-operating items.
Results of Operations - Comparability
The following summarizes various events that affect the comparability of our operating results for the past three years:
· March 2011Otter Tail ethanol plant was acquired · June 2011Hopkins,
Missourigrain elevator was acquired
· July 2011Remaining 49% noncontrolling interests in
· January 2012St. Edward,
Nebraskagrain elevator was acquired
· December 2012Twelve grain elevators located in northwestern
Tennesseeand all agronomy and retail petroleum operations were sold
· June 2013Atkinson ethanol plant was acquired
· June 2013Archer,
· November 2013Fairmont and
The year ended
December 31, 2012includes a full year of operations at our grain elevators in Hopkins, Missouriand St. Edwards, Nebraskaas well as a full year of operations with BlendStaras a wholly-owned subsidiary. Also, the year ended December 31, 2012only included eleven months of operations at our Tennesseeand Iowaagribusiness operations that were divested in December 2012. The year ended December 31, 2013includes approximately seven months of operations at our Atkinsonplant and a little more than five weeks of operations at our Wood Riverplant. Our Fairmontplant, which was not operational at the time of its acquisition, began production in early January 2014. 39
Segment Results Our operations fall within the following four segments: (1) production of ethanol and related distillers grains, collectively referred to as ethanol production, (2) corn oil production, (3) grain handling and storage, collectively referred to as agribusiness, and (4) marketing and logistics services for Company-produced and third-party ethanol, distillers grains, corn oil and other commodities, and the operation of blending and terminaling facilities, collectively referred to as marketing and distribution. Selling, general and administrative expenses, primarily consisting of compensation of corporate employees, professional fees and overhead costs not directly related to a specific operating segment, are reflected in the table below as corporate activities. When the Company's management evaluates segment performance, they review the information provided below, as well as segment earnings before interest, income taxes, noncontrolling interest, depreciation and amortization. During the normal course of business, our operating segments enter into transactions with one another. For example, our ethanol production and corn oil production segments sell ethanol, distillers grains and corn oil to our marketing and distribution segment and our agribusiness segment sells grain to our ethanol production segment. These intersegment activities are recorded by each segment at prices approximating market and treated as if they are third-party transactions. Consequently, these transactions impact segment performance. However, intersegment revenues and corresponding costs are eliminated in consolidation, and do not impact our consolidated results.
The table below reflects selected operating segment financial information for the periods indicated (in thousands):
Year Ended December 31, 2013 2012 2011 Revenues: Ethanol production: Revenues from external customers
$ 116,272 $ 200,443 $ 128,780Intersegment revenues 1,934,770 1,708,800 2,005,141 Total segment revenues 2,051,042 1,909,243 2,133,921 Corn oil production: Revenues from external customers - 529 1,466 Intersegment revenues 69,163 57,315 43,391 Total segment revenues 69,163 57,844 44,857 Agribusiness: Revenues from external customers 51,883 408,622 358,968 Intersegment revenues 761,835 176,062 195,172 Total segment revenues 813,718 584,684 554,140 Marketing and distribution: Revenues from external customers 2,872,856 2,867,276 3,064,498 Intersegment revenues 21,790 355 467 Total segment revenues 2,894,646 2,867,631 3,064,965
Revenues including intersegment activity 5,828,569 5,419,402
5,797,883 Intersegment eliminations (2,787,558) (1,942,532) (2,244,171) Revenues as reported
$ 3,041,011 $ 3,476,870 $ 3,553,712Gross profit (loss): Ethanol production $ 79,109 $ (4,895) $ 87,010Corn oil production 36,615 32,388 27,067 Agribusiness 6,258 35,973 34,749 Marketing and distribution 57,671 32,362 23,112 Intersegment eliminations (6,633) 943 294 $ 173,020 $ 96,771 $ 172,232Operating income (loss): Ethanol production $ 63,012 $ (20,393) $ 73,242Corn oil production 36,569 32,140 26,999 Agribusiness 3,324 60,030 11,721 Marketing and distribution 40,971 17,290 9,475 Intersegment eliminations (6,588) 977 334 Corporate activities (29,437) (25,159) (22,758) $ 107,851 $ 64,885 $ 99,01340
-------------------------------------------------------------------------------- The table below shows total assets for our operating segments as of the periods indicated (in thousands): Year Ended December 31, 2013 2012 Total assets: Ethanol production
$ 911,315 $ 831,939Corn oil production 28,569 27,751 Agribusiness 165,570 179,930 Marketing and distribution 258,361 184,541 Corporate assets 175,210 150,797 Intersegment eliminations (6,980) (25,224) $ 1,532,045 $ 1,349,734
Consolidated Results Consolidated revenues decreased by
$435.9 millionin 2013 compared to 2012 primarily as a result of lower grain and agronomy sales and lower ethanol volumes partially offset by higher average prices realized for ethanol and distillers grains. The decline in grain and agronomy sales resulted from the sale of certain grain elevators and agronomy assets during the fourth quarter of 2012. Gross profit increased by $76.2 millioncompared to 2012 primarily as a result of significantly improved margins for ethanol, additional profits realized from merchant trading and logistics activities, and the deployment of railcars for crude oil transportation, offset partially by a decrease in grain and agronomy margins. Operating income increased by $43.0 millionin 2013 compared to 2012 as a result of the factors discussed above, partially offset by a $47.1 milliongain on the sale of certain agribusiness assets in December 2012. Selling, general and administrative expenses were $13.9 millionlower in 2013 compared to 2012 due most significantly to the grain elevator sale during the fourth quarter of 2012. Interest expense decreased by $4.2 millioncompared to 2012 due to lower average debt balances. Income tax expense was $28.9 millionin 2013 compared to $13.4 millionin 2012.
The following discussion of segment results provides greater detail on period-to-period results.
Ethanol Production Segment
The table below presents key operating data within our ethanol production segment for the periods indicated
Year Ended December 31, 2013 2012 Ethanol sold (thousands of gallons) 734,483 677,082 Ethanol produced (thousands of gallons) 729,165 676,834 Distillers grains sold (thousands of equivalent dried tons) 2,038 1,882 Corn consumed (thousands of bushels) 257,663 238,740 Revenues in the ethanol production segment increased by
$141.8 millionin 2013 compared to 2012. Revenues in 2013 included production from our Atkinsonand Wood Riverplants, which began operations on July 25, 2013and November 22, 2013, respectively, and contributed an additional 19.8 million and 12.6 million gallons of ethanol production and $46.7 millionand $32.5 millionin revenues, respectively. The increase in revenues was also due to higher volumes of ethanol and distillers grains produced and sold due to an increase in utilization of existing production capacity year over year. In 2013, the ethanol production segment produced 729.2 million gallons of ethanol, which represents approximately 94% of our total daily average capacity. The ethanol production segment operated at 91% of production capacity in 2012. Cost of goods sold in the ethanol production segment increased by $57.8 millionin 2013 compared to 2012. Consumption of corn increased by 18.9 million bushels, but the average cost per bushel decreased by approximately 11% 41 -------------------------------------------------------------------------------- year over year. Also, cost of goods sold was reduced by approximately $4.0 millionfrom a contractor recovery relating to grain silo issues at certain ethanol plants. As a result of the factors identified above, gross profit and operating income for the ethanol production segment increased by $84.0 millionand $83.4 million, respectively, in 2013 compared to 2012. Corn Oil Production Segment Revenues in the corn oil production segment increased by $11.3in 2013 compared to 2012. During 2013, we sold 170.4 million pounds of corn oil compared to 145.8 million pounds in 2012. The average price realized for corn oil was 3% higher in 2013 compared to 2012. Revenues in 2013 included production from our Wood Riverplant, which began operations on November 22, 2013and contributed an additional 3.5 million pounds of corn oil production and $1.1 millionin revenues. Gross profit and operating income in the corn oil production segment increased by $4.2 millionand $4.4 million, respectively in 2013 compared to 2012. The increase in revenues was partially offset by $3.9 millionof additional expense related to higher input costs due to increased prices and volumes for distillers grains purchased in 2013 compared to 2012. Agribusiness Segment Revenues in the agribusiness segment increased by $229.0 millionand gross profit and operating income decreased by $29.7 millionand $56.7 million, respectively, in 2013 compared to 2012. We sold 142.8 million bushels of grain, including 137.3 million to our ethanol production segment, and had no fertilizer sales in 2013 compared to sales of 60.8 million bushels of grain, including 24.7 million bushels to our ethanol production segment, and 56 thousand tons of fertilizer in 2012. Subsequent to the sale of certain grain elevators and the agronomy business during the fourth quarter of 2012, we increased our focus on supplying corn to our ethanol plants from our agribusiness segment. As a result, 96 percent of the grain sold by our agribusiness segment in 2013 was sold to our ethanol plants rather than to external customers. The decrease in gross profit and operating income is due to the factors discussed above.
Marketing and Distribution Segment
Revenues in our marketing and distribution segment increased by
$27.0 millionin 2013 compared to 2012. The increase in revenues was primarily due to an increase in grain trading activity within our marketing and distribution segment, higher average prices for ethanol and distillers grains, expanded trading and logistic operations and the BlendStarunit-train terminal in Birmingham, Alabamathat commenced operations in the fourth quarter of 2012. In addition, revenues were impacted by a decrease of 84 million gallons of ethanol sold in 2013 compared to 2012 and lower revenues from crude oil transportation. Ethanol revenues decreased by $72.3 millionand distillers grains revenues increased by $46.6 million. We sold 983 million and 1,066 million gallons of ethanol during 2013 and 2012, respectively, within the marketing and distribution segment. Gross profit and operating income for the marketing and distribution segment increased by $25.3 millionand $23.7 million, respectively, in 2013 compared to 2012, primarily due to profits realized from merchant trading and logistics activities, higher margins related to the deployment of railcars for crude oil transportation and the operation of the Birminghamunit-train terminal. Intersegment Eliminations Intersegment eliminations of revenues increased by $845.0 millionin 2013 compared to 2012 due to increased corn sales from our agribusiness segment to our ethanol production segment of $600.3 million. In addition, sales of ethanol and distillers grains from our ethanol production segment to our marketing and distribution segment increased by $192.5 millionand $37.3 million, respectively, between the years. Corporate Activities Operating income was impacted by an increase in operating expenses for corporate activities of $4.3 millionin 2013 compared to 2012 primarily due to an increase in personnel costs and increased fees for professional services related to the acquisition of two ethanol plants in November 2013. 42
Consolidated Results Revenues decreased by
$76.8 millionin 2012 compared to 2011. Revenue was affected by lower average prices of ethanol and lower volumes of distillers grains sold partially offset by an increase in revenues from grain merchandising and corn oil production. Revenues from grain merchandising increased primarily due to higher grain prices in 2012 offset partially by lower volumes purchased and sold. Revenues from corn oil production increased due to an increase in volume sold. Gross profit decreased by $75.5 millioncompared to 2011 primarily as a result of unfavorable ethanol production margins. Operating income decreased by $34.1 millioncompared to 2011 as a result of the factors discussed above and a $5.8 millionincrease in selling, general and administrative expenses, partially offset by a $47.1 milliongain on the sale of twelve grain elevators in December 2012. The increase in selling, general and administrative expenses is primarily due to the expanded scope of our operations including our acquisition of the Otter Tailethanol plant in March 2011. Interest expense increased by $0.9 milliondue to debt issued to finance the Otter Tailacquisition. Income tax expense for the year ended December 31, 2012decreased compared to 2011 due to a decrease in income before taxes. The effective tax rate increased in 2012 as a result of adjustments in state tax rates and tax credits primarily as a result of the sale of certain agribusiness assets. In addition, income tax expense for the year ended December 31, 2012was unfavorably impacted by the increase in valuation allowances against certain deferred tax assets due to the uncertainty of realization.
The following discussion of segment results provides greater detail on period-to-period results.
Ethanol Production Segment
The table below presents key operating data within our ethanol production segment for the periods indicated:
Year Ended December 31, 2012 2011 Ethanol sold (thousands of gallons) 677,082 721,535 Ethanol produced (thousands of gallons) 676,834 721,348 Distillers grains sold (thousands of equivalent dried tons) 1,882 2,047 Corn consumed (thousands of bushels) 238,740 255,437 Revenues in the ethanol production segment decreased by
$224.7 millionin 2012 compared to 2011. The decrease in revenue was due to lower average prices for ethanol and the decision, in direct response to unfavorable operating margins, to temporarily reduce production at our ethanol plants. The ethanol production segment produced 676.8 million gallons of ethanol, which represents approximately 91 percent of production capacity, during 2012. Revenues in 2012 included production from our Otter Tailethanol plant, which was acquired in March 2011. The Otter Tailplant contributed an additional $1.1 millionin revenues in 2012 compared to 2011. Cost of goods sold in the ethanol production segment decreased by $132.8 millionin 2012 compared to 2011. Consumption of corn decreased by 16.7 million bushels and the average cost per bushel increased by 5.2% during 2012 compared to 2011. Average ethanol yield increased to 2.84 gallons per bushel in 2012 compared to 2.82 gallons per bushel in 2011 due primarily to process improvements implemented and slowed production rates at some of our plants. Cost of goods sold also included a charge related to the settlement of a legal claim in 2012. As a result of the factors identified above, gross profit and operating income in the ethanol production segment decreased by $91.9 millionand $93.6 million, respectively, in 2012 compared to 2011, resulting in an operating loss of $20.4 millionfor the segment. 43
Corn Oil Production Segment Revenues in the corn oil production segment increased by
$13.0 millionin 2012 compared to 2011. During 2012, we sold 145.8 million pounds of corn oil compared to 96.3 million pounds 2011. The increase in volume was offset by a 15% decrease in average price in 2012 compared to 2011. Average corn oil yield increased to 0.61 pounds per bushel in 2012 compared to 0.50 pounds per bushel in 2011 due primarily to process improvements implemented at our plants. We began extracting corn oil in the fourth quarter of 2010 and had deployed corn oil extraction technology at four of our ethanol plants by December 31, 2010. In 2011, we began extracting corn oil at our other five ethanol plants with the last implementation, which was at the Otter Tailplant completed during the third quarter of 2011. Gross profit and operating income in the corn oil production segment increased by $5.3 millionand $5.1 million, respectively, in 2012 compared to 2011. The increases are primarily attributable to the increase in production volumes discussed above. Agribusiness Segment The table below presents key operating data within our agribusiness segment for the periods indicated: Year Ended December 31, 2012 2011 Grain sold (thousands of bushels) 60,826 69,336 Fertilizer sold (tons) 55,514 64,749 Our agribusiness segment had increases of $30.5 millionin revenues, $1.2 millionin gross profit, and $48.3 millionin operating income in 2012 compared to 2011. Revenues and gross profit increased primarily due to higher grain prices as a result of the 2012 drought offset partially by lower volumes purchased and sold. Operating income was also affected by the gain on sale of the grain elevators of $47.1 million. The agribusiness segment included eleven months of operations in 2012 from the twelve grain elevators sold in December 2012compared to twelve months of operations from these assets in 2011.
Marketing and Distribution Segment
Revenues in our marketing and distribution segment decreased by
$197.3 millionin 2012 compared to 2011. The decrease in revenue was primarily due to lower average prices of ethanol and corn oil sold and lower volumes of distillers grains sold. Ethanol and distillers grains revenues decreased by $231.8 millionand $13.7 million, respectively, partially offset by increases in corn oil and crude oil revenues of $15.1 millionand $41.3 million, respectively. We sold 1,066 million gallons of ethanol within the marketing and distribution segment during 2012 compared to 1,064 million gallons in 2011. In 2012, the marketing and distribution segment also entered into purchases and sales of crude oil and redeployed a portion of its railcar fleet for the transportation or crude oil by third parties. Gross profit and operating income for the marketing and distribution segment increased by $9.3 millionand $7.8 million, respectively, in 2012 compared to 2011. The increases in gross profit and operating income were due primarily to profits realized from ethanol, distillers grains and crude oil marketing and distribution. Intersegment Eliminations Intersegment eliminations of revenues decreased by $301.6 millionin 2012 compared to 2011 due to decreases of $295.1 millionand $1.3 millionin ethanol and distillers grains, respectively, and an increase of $13.9 millionin corn oil sold from our ethanol production and corn oil segments to our marketing and distribution segment. In addition, corn sales from our agribusiness segment decreased $19.0 millionbetween the periods. 44
Corporate Activities Operating income was impacted by an increase in operating expenses for corporate activities of
$2.4 millionin 2012 compared to 2011, primarily due to an increase in general and administrative expenses and personnel costs related to expanded operations.
Liquidity and Capital Resources
December 31, 2013, we had $272.0 millionin cash and equivalents, excluding restricted cash, comprised of $143.9 millionheld at our parent company and the remainder at our subsidiaries. We also had up to an additional $135.4 millionavailable under revolving credit agreements at our subsidiaries at December 31, 2013, some of which was subject to borrowing base restrictions or other specified lending conditions. Funds held at our subsidiaries are generally required for their ongoing operational needs and distributions from our subsidiaries are restricted pursuant to their credit agreements. At December 31, 2013, there were approximately $636.9 millionof net assets at our subsidiaries that were not available to be transferred to the parent company in the form of dividends, loans or advances due to restrictions contained in the credit facilities of these subsidiaries. We incurred capital expenditures of $19.8 millionin 2013 for various projects, including grain storage expansion at our grain elevators and ethanol plants. Capital spending for 2014 is expected to be approximately $44 millionand is expected to be financed with available borrowings under our credit facilities and cash provided by operating activities. Net cash provided by operating activities was $107.4 millionin 2013 compared to net cash used by operating activities of $13.7 millionin 2012. Net cash from operating activities was affected by an improvement in ethanol margins and a decreased use of cash for working capital in 2013, primarily due to less cash used for grain inventories partially offset by an increase in outstanding accounts receivable and derivatives. In 2013, we had net income of $43.4 millioncompared with $11.8 million, including a gain on disposal of assets of $26.3 million, after tax, in 2012. Net cash used by investing activities was $147.6 millionin 2013, due primarily to the acquisition of three ethanol plants for total cash consideration of $123.3 million, $4.8 millionin investments in unconsolidated subsidiaries and $19.8 millionin capital expenditures. Net cash provided by financing activities was $58.0 millionin 2013 due to the proceeds from the issuance of $120.0 millionof convertible senior notes and the issuance of $77.0 millionin short-term notes payable and term debt to finance the acquisition of two ethanol plants in November 2013, offset partially by the payment of a short-term note payable of $27.2 millionrelated to a 2012 common stock repurchase, and $129.7 millionin principal payments, net of advances, on long-term debt. Financing activities were also affected by the payment of loan fees for the convertible senior notes and payment of cash dividends to shareholders in 2013. Green Plains Trade and Green Plains Grainutilize revolving credit facilities to finance working capital requirements. These facilities are frequently drawn upon and repaid, resulting in significant cash movements that are reflected on a gross basis within financing activities as proceeds from and payments on short-term borrowings. Our business is highly impacted by commodity prices, including prices for corn, ethanol, distillers grains and natural gas. We attempt to reduce the market risk associated with fluctuations in commodity prices through the use of derivative financial instruments. Sudden changes in commodity prices may require cash deposits with brokers or margin calls. Depending on our open derivative positions, we may require significant liquidity with little advanced notice to meet margin calls. We continuously monitor our exposure to margin calls and believe that we will continue to maintain adequate liquidity to cover such margin calls from operating results and borrowings. Increases in grain prices and hedging activity have led to more frequent and larger margin calls. We were in compliance with our debt covenants at December 31, 2013. Based upon our forecasts and the current margin environment, we believe we will maintain compliance at each of our subsidiaries for the upcoming twelve months, or if necessary have sufficient liquidity available on a consolidated basis to resolve a subsidiary's noncompliance; however, no obligation exists to provide such liquidity for a subsidiary's compliance. No assurance can be provided that actual operating results will approximate our forecasts or that we will inject the necessary capital into a subsidiary to maintain compliance with its respective covenants. In the event actual results differ significantly from our forecasts and a subsidiary is unable to comply with its respective debt covenants, the subsidiary's lenders may determine that an event of default has occurred. Upon the occurrence of an event of default, and following notice, the lenders may terminate any commitment and declare the entire unpaid balance due and payable. In August 2013, our Board of Directors approved the initiation of a quarterly cash dividend. Cash dividends of $0.04per common share were paid in September and December. We anticipate declaring a cash dividend in future quarters on a regular 45
-------------------------------------------------------------------------------- basis; however, future declarations of dividends are subject to Board approval and may be adjusted as our cash position, business needs or market conditions change. We believe that we have sufficient working capital for our existing operations. However, a sustained period of unprofitable operations may strain our liquidity and make it difficult to maintain compliance with our financing arrangements. While we may seek additional sources of working capital in response, we can provide no assurance that we will be able to secure this funding if necessary. We may sell additional equity or borrow additional amounts to improve or preserve our liquidity, expand our existing businesses, or build additional or acquire existing businesses. We can provide no assurance that we will be able to secure the funding necessary for these additional projects or for additional working capital needs at reasonable terms, if at all. Debt
For additional information related to our debt, see Note 10 - Debt included herein as part of the Notes to Consolidated Financial Statements.
Ethanol Production Segment
Each of our ethanol production segment subsidiaries have credit facilities with lender groups that provide for term and revolving term loans to finance construction and operation of the production facilities.
The Green Plains Bluffton loan is comprised of a
$70.0 millionamortizing term loan and a $20.0 millionrevolving term loan. At December 31, 2013, $26.6 millionrelated to the amortizing term loan was outstanding, along with $15.0 millionon the revolving term loan. The amortizing term loan requires monthly principal payments of approximately $0.3 million. The loans mature on January 31, 2015with expected outstanding balances upon maturity of $19.3 millionand $15.0 millionon the amortizing term loan and revolving term loan, respectively. The Green Plains Central City loan is comprised of a $55.0 millionamortizing term loan and a $30.5 millionrevolving term loan. At December 31, 2013, $33.1 millionrelated to the amortizing term loan was outstanding, and $17.7 millionwas outstanding on the revolving term loan. The amortizing term loan requires monthly principal payments of $0.5 million. The amortizing term loan and the revolving term loan mature on July 1, 2016with expected outstanding balances upon maturity of $17.9 millionand $17.7 million, respectively. The Green Plains Fairmont and Green Plains Wood Rivercombined loan is comprised of a $27.0 millionshort-term loan that matures on November 27, 2014and a $50.0 millionterm loan that matures on November 27, 2015. At December 31, 2013, $26.8 millionwas outstanding on the short-term loan and the whole term loan was outstanding. The short-term note requires monthly principal payments of $0.2 millionwith an expected outstanding balance upon maturity of approximately $25.0 million. The term loan requires quarterly principal payments of $2.5 millionin 2014 and $1.3 millionin 2015 with an expected outstanding balance upon maturity of approximately $35.0 million. The Green Plains Holdings II loan is comprised of a $26.4 millionamortizing term loan and a $51.1 millionrevolving term loan. At December 31, 2013, $15.9 millionwas outstanding on the amortizing term loan, along with $32.0 millionon the revolving term loan. The amortizing term loan requires quarterly principal payments of $1.5 million. The revolving term loan requires semi-annual principal payments of approximately $2.7 million. The maturity dates of the amortizing term loan and revolving term loan are July 1, 2016and October 1, 2018, respectively, with no outstanding balance expected upon maturity on the amortizing term loan and an expected outstanding balance upon maturity of $4.2 millionon the revolving term loan. The Green Plains Obion loan is comprised of a $60.0 millionamortizing term loan and a revolving term loan of $37.4 million. At December 31, 2013, $3.9 millionrelated to the amortizing term loan was outstanding along with $28.4 millionon the revolving term loan. The amortizing term loan requires quarterly principal payments of $2.4 million. The amortizing term loan matures on May 20, 2014and the revolving term loan matures on June 1, 2018with no expected outstanding balances upon maturity on the amortizing term loan or the revolving term loan. The Green Plains Ord loan is comprised of a $25.0 millionamortizing term loan and a $13.0 millionrevolving term loan. At December 31, 2013, $15.1 millionrelated to the amortizing term loan was outstanding and $2.2 millionoutstanding on the revolving term loan. The amortizing term loan requires monthly principal payments of approximately $0.2 million. The 46 -------------------------------------------------------------------------------- amortizing term loan and the revolving term loan mature on July 1, 2016with expected outstanding balances upon maturity of $8.2 millionand $2.2 million, respectively. The Green Plains Otter Tail loan is comprised of a $30.3 millionamortizing term loan. At December 31, 2013, $18.0 millionrelated to the term loan was outstanding. The amortizing term loan requires monthly principal payments of approximately $0.4 millionand matures on September 1, 2018with an expected outstanding balance of $4.8 million.
The Green Plains Shenandoah loan is comprised of a
The Green Plains Superior loan is comprised of a
$40.0 millionamortizing term loan and a $10.0 millionrevolving term loan. At December 31, 2013, $9.8 millionrelated to the amortizing term loan was outstanding, along with $8.0 millionon the revolving term loan. The amortizing term loan requires quarterly principal payments of $1.4 million. The amortizing term loan matures on July 20, 2015and the revolving term loan matures on July 1, 2017with an expected outstanding balance upon maturity of $1.5 millionon the amortizing term loan and no expected outstanding balance upon maturity on the revolving term loan. Each term loan, except for the Green Plains Fairmont and Green Plains Wood Riverand Green Plains Otter Tail agreements, has a provision that requires us to make annual special payments ranging from 65% to 75% of the available free cash flow from the related entity's operations (as defined in the respective loan agreements), subject to certain limitations. With certain exceptions, the revolving term loans within this segment are generally available for advances throughout the life of the commitment with interest-only payments due each month until the final maturity date. The term loans and revolving term loans bear interest at LIBORplus 3.00% to 4.50% or lender-established prime rates. Some have established a floor on the underlying LIBORindex. In some cases, the lender may allow us to elect to pay interest at a fixed interest rate to be determined. As security for the loans, the lenders received a first-position lien on all personal property and real estate owned by the respective entity borrowing the funds, including an assignment of all contracts and rights pertinent to construction and on-going operations of the plant. Additionally, debt facilities of Green Plains Central City and Green Plains Ord are cross-collateralized. These borrowing entities are also required to maintain certain combined financial and non-financial covenants during the terms of the loans. Green Plains Bluffton issued a $22.0 millionSubordinate Solid Waste Disposal Facility Revenue Bond with the city of Bluffton, Indiana, of which $15.8 millionremained outstanding at December 31, 2013. The revenue bond requires: semi-annual principal and interest payments of approximately $1.5 millionthrough March 1, 2019; and a final principal and interest payment of $3.7 millionon September 1, 2019. The revenue bond bears interest at 7.50% per annum. Green Plains Otter Tail also issued $19.2 millionin senior notes under New Market Tax Credits financing of which $19.2 millionremained outstanding at December 31, 2013. The notes bear interest at a rate equal to the prime rate (as defined) plus 1.5%, but not less than 4.0%, payable monthly, and require monthly principal payments of approximately $0.3 millionbeginning in September 2014. The notes mature on September 1, 2018with an expected outstanding balance of $4.7 millionupon maturity. Agribusiness Segment Green Plains Grainhas a $125.0 millionsenior secured revolving credit facility with various lenders, as amended on August 27, 2013, to provide the agribusiness segment with working capital funding subject to a borrowing base as defined in the facility. The revolving credit facility matures on August 26, 2016. The revolving credit facility includes total revolving credit commitments of $125.0 millionand an accordion feature whereby amounts available under the facility may be increased by up to $75.0 millionof new lender commitments upon agent approval. The facility also allows for additional seasonal borrowings up to $50.0 million. The total commitments outstanding under the facility cannot exceed $250.0 million. As security for the revolving credit facility, the lender received a first priority lien on certain cash, inventory, accounts receivable and other assets owned by subsidiaries within the agribusiness segment. Advances on the revolving credit facility are subject to interest charges at a rate per annum equal to the LIBORrate for the outstanding period, or the base rate, plus the respective applicable margin. At December 31, 2013, $95.0 millionon the revolving credit facility was outstanding. As security for the revolving credit facility, the lender received a first priority lien on certain cash, inventory, accounts receivable and other assets owned by subsidiaries of the agribusiness segment. 47
Marketing and Distribution Segment
Green Plains Trade has a senior secured asset-based revolving credit facility of up to
$130.0 million, subject to a borrowing base value equal to the sum of percentages of eligible receivables and eligible inventories, less certain miscellaneous adjustments. At December 31, 2013, $76.5 millionwas outstanding on the revolving credit facility. The revolving credit facility expires on April 25, 2016and bears interest at the lender's commercial floating rate plus the applicable margin or LIBORplus the applicable margin. As security for the loan, the lender received a first-position lien on substantially all of the assets of Green Plains Trade, including accounts receivable, inventory and other property and collateral owned by Green Plains Trade. In June 2013, certain of our subsidiaries executed a New Markets Tax Credits financing transaction. In order to facilitate this financing transaction, we were required to issue promissory notes payable in the amount of $10.0 millionand a note receivable in the amount of $8.1 million. The promissory notes payable and note receivable bear interest at 1% per annum, payable quarterly. Beginning in March 2020, the promissory notes and note receivable each require quarterly principal and interest payments of approximately $0.2 million. The Company retains the right to call $8.1 millionof the promissory notes in 2020. The promissory notes payable and note receivable mature on September 15, 2031and will be fully amortized upon maturity. In connection with the New Markets Tax Credits financing transaction, income tax credits were generated for the benefit of the lender. We have guaranteed the lender the face value of these income tax credits over their statutory lives, a period of seven years, in the event that the income tax credits are recaptured or reduced. The value of the income tax credits was anticipated to be $5.0 millionat the time of the transaction. We believe the likelihood of recapture or reduction of the income tax credits is remote, and therefore we have not established a liability in connection with this guarantee. Corporate Activities On September 20, 2013, we issued $120.0 millionof 3.25% Convertible Senior Notes due 2018, or the 3.25% Notes. The 3.25% Notes represent senior, unsecured obligations, with interest payable on April 1and October 1of each year. Conversion of the 3.25% Notes may only be settled in shares of common stock unless shareholder approval is received to allow for flexible settlement consisting of, at our election, cash, shares of our common stock, or a combination of cash and shares of our common stock (and cash in lieu of fractional shares) until the close of business on the scheduled trading day immediately preceding the maturity date. As a result, the 3.25% Notes contain liability and equity components which were bifurcated and accounted for separately. The liability component of the 3.25% Notes, as of the issuance date, was calculated by estimating the fair value of a similar liability issued at an 8.21% effective interest rate, which was determined by considering the rate of return investors would require for our debt without the conversion feature. The amount of the equity component was calculated by deducting the fair value of the liability component from the principal amount of the 3.25% Notes, resulting in the initial recognition of $24.5 millionas debt discount costs recorded in additional paid-in capital. The carrying amount of the 3.25% Notes will be accreted to the principal amount over the remaining term to maturity and we will record a corresponding amount of noncash interest expense. Additionally, we incurred debt issuance costs of $5.1 millionrelated to the 3.25% Notes and allocated $4.0 millionof debt issuance costs to the liability component of the 3.25% Notes. These costs will be amortized to noncash interest expense over the five-year term of the 3.25% Notes. Prior to April 1, 2018, the 3.25% Notes will not be convertible unless certain conditions are satisfied. The initial conversion rate is 47.9627 shares of common stock per $1,000principal amount of 3.25% Notes, which is equal to an initial conversion price of approximately $20.85per share. The conversion rate is subject to adjustment upon the occurrence of certain events, including the payment of a quarterly cash dividend that exceeds $0.04per share. In addition, we may be obligated to increase the conversion rate for any conversion that occurs in connection with certain corporate events, including calling the 3.25% Notes for redemption. We may redeem for cash all, but not less than all, of the 3.25% Notes at any time on or after October 1, 2016if the sale price of our 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 we deliver notice of the redemption. The redemption price will equal 100% of the principal amount of the 3.25% Notes, plus any accrued and unpaid interest to, but excluding, the redemption date. In addition, upon the occurrence of a fundamental change, such as a change in control, holders of the 3.25% Notes will have the right, at their option, to require us to repurchase their 3.25% Notes in cash at a price equal to 100% of the principal amount of the 3.25% Notes to be repurchased, plus accrued and unpaid interest. Default with respect to any loan in excess of $10.0 millionconstitutes an event of default under the 3.25% Notes, which could result in the 3.25% Notes being declared due and payable.
48 -------------------------------------------------------------------------------- senior, unsecured obligations, with interest payable on
May 1and November 1of each year. The 5.75% Notes may be converted into shares of our common stock and cash in lieu of fractional shares of the common stock based on a conversion rate equal to 70.1208 shares of the common stock per $1,000principal amount of 5.75% Notes at December 31, 2013, which is equal to a conversion price of approximately $14.26per share. The conversion rate is subject to adjustment upon the occurrence of specified events, including the payment of a cash dividend. The conversion rate was adjusted to reflect the payment of cash dividends during 2013. We may redeem for cash all, but not less than all, of the 5.75% Notes at any time on or after November 1, 2013, if the last reported sale price of our common stock equals or exceeds 140% of the applicable conversion price for a specified time period, at a redemption price equal to 100% of the principal amount of the 5.75% Notes, plus accrued and unpaid interest. Default with respect to any loan in excess of $10.0 millionconstitutes an event of default under the 5.75% Notes, which could result in the 5.75% Notes being declared due and payable. Contractual Obligations Our contractual obligations as of December 31, 2013were as follows (in thousands): Payments Due By Period Less than 1 Contractual Obligations Total year 1-3 years 3-5 years More than 5 years Long-term and short-term debt obligations (1) $ 758,525 $ 254,433$
71,241 30,854 28,429 11,661 297 Operating lease obligations (3) 63,556 16,766 28,867 14,762 3,161 Deferred tax liabilities 91,294 - - - 91,294 Purchase obligations Forward grain purchase contracts (4) 324,828 324,537 291 - - Other commodity purchase contracts (5) 31,727 31,727 - - - Other 711 579 69 63 -
Total contractual obligations
(1) Includes the current portion of long-term debt and excludes the effect of any debt discounts. (2) Interest amounts are calculated over the terms of the loans using current interest rates, assuming scheduled principle and interest amounts are paid pursuant to the debt agreements. Includes administrative and/or commitment fees on debt obligations. (3) Operating lease costs are primarily for railcars and office space. (4) Purchase contracts represent index-priced and fixed-price contracts. Index purchase contracts are valued at current year-end prices. (5) Includes fixed-price ethanol, dried distillers grains and natural gas purchase contracts.