Edgar Filing: Green Plains Inc.

gpre- 20160331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2016

Commission File Number 001-32924

Green Plains Inc.

(Exact name of registrant as specified in its charter)


Iowa	84-1652107
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

450 Regency Parkway, Suite 400, Omaha, NE 68114	(402) 884-8700
(Address of principal executive offices, including zip code)	(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

The number of shares of common stock, par value $0.001 per share, outstanding as of May 2, 2016, was 38,464,374 shares.

TABLE OF CONTENTS



		Page
Commonly Used Defined Terms		2
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements

	Consolidated Balance Sheets	3

	Consolidated Statements of Operations	4

	Consolidated Statements of Comprehensive Income (Loss)	5

	Consolidated Statements of Cash Flows	6

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	36


PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults Upon Senior Securities	37

Item 4.	Mine Safety Disclosures	37

Item 5.	Other Information	37

Item 6.	Exhibits	38

Signatures		39

Commonly Used Defined Terms

Green Plains Inc. and Subsidiaries:


Green Plains; the company	Green Plains Inc. and its subsidiaries
Green Plains Cattle	Green Plains Cattle Company LLC
Green Plains Grain	Green Plains Grain Company LLC
Green Plains Fairmont	Green Plains Fairmont LLC
Green Plains Hereford	Green Plains Hereford LLC
Green Plains Holdings II	Green Plains Holdings II LLC
Green Plains Hopewell	Green Plains Hopewell LLC
Green Plains Obion	Green Plains Obion LLC
Green Plains Otter Tail	Green Plains Otter Tail LLC
Green Plains Partners; the partnership	Green Plains Partners LP
Green Plains Processing	Green Plains Processing LLC and its subsidiaries
Green Plains Superior	Green Plains Superior LLC
Green Plains Trade	Green Plains Trade Group LLC
Green Plains Wood River	Green Plains Wood River LLC

Accounting Defined Terms:


ASC	Accounting Standards Codification
EBITDA	Earnings before interest, income taxes, depreciation and amortization
EPS	Earnings per share
Exchange Act	Securities Exchange Act of 1934, as amended
GAAP	U.S. Generally Accepted Accounting Principles
IPO	Initial public offering of Green Plains Partners LP
LIBOR	London Interbank Offered Rate
LTIP	Green Plains Partners LP 2015 Long-Term Incentive Plan
Nasdaq	The Nasdaq Global Market
SEC	Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended

Industry Defined Terms:


BTU	British Thermal Units
EIA	U.S. Energy Information Administration
Mmg	Million gallons
Mmgy	Million gallons per year
Reform Act	Dodd-Frank Wall Street Reform and Consumer Protection Act
U.S.	United States
USDA	U.S. Department of Agriculture
WASDE	World Agriculture Supply and Demand Estimates

GREEN PLAINS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)



	March 31,		December 31,
	2016		2015

	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	383,442	$	384,867
Restricted cash		17,263		27,018
Accounts receivable, net of allowances of $388 and $285, respectively		106,083		96,150
Income taxes receivable		5,627		9,104
Inventories		363,519		353,957
Prepaid expenses and other		9,748		10,941
Derivative financial instruments		32,485		30,540
Total current assets		918,167		912,577
Property and equipment, net of accumulated depreciation of $357,795 and $338,558, respectively		920,451		922,070
Goodwill		40,877		40,877
Other assets		39,917		42,396
Total assets	$	1,919,412	$	1,917,920

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	104,513	$	166,963
Accrued and other liabilities		51,253		40,271
Short-term notes payable and other borrowings		277,355		226,928
Current maturities of long-term debt		4,513		4,507
Total current liabilities		437,634		438,669
Long-term debt		484,004		432,139
Deferred income taxes		61,459		81,797
Other liabilities		6,493		6,406
Total liabilities		989,590		959,011

Stockholders' equity
Common stock, $0.001 par value; 75,000,000 shares authorized; 45,859,074 and 45,281,571 shares issued, and 38,467,374 and 37,889,871 shares outstanding, respectively		46		45
Additional paid-in capital		577,679		577,787
Retained earnings		262,221		290,974
Accumulated other comprehensive loss		(1,066)		(1,165)
Treasury stock, 7,391,700 shares		(69,811)		(69,811)
Total Green Plains stockholders' equity		769,069		797,830
Noncontrolling interest		160,753		161,079
Total stockholders' equity		929,822		958,909
Total liabilities and stockholders' equity	$	1,919,412	$	1,917,920

See accompanying notes to the consolidated financial statements.

GREEN PLAINS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share amounts)



	Three Months Ended March 31,
	2016		2015

Revenues
Product revenues	$	747,183	$	736,303
Service revenues		2,021		2,085
Total revenues		749,204		738,388

Costs and expenses
Cost of goods sold		724,688		692,429
Operations and maintenance expenses		8,645		7,032
Selling, general and administrative expenses		20,372		18,976
Depreciation and amortization expenses		18,145		15,847
Total costs and expenses		771,850		734,284
Operating income (loss)		(22,646)		4,104

Other income (expense)
Interest income		410		220
Interest expense		(10,798)		(9,158)
Other, net		(1,675)		(931)
Total other expense		(12,063)		(9,869)
Loss before income taxes		(34,709)		(5,765)
Income tax benefit		(14,893)		(2,447)
Net loss		(19,816)		(3,318)
Net income attributable to noncontrolling interest		4,322		-
Net loss attributable to Green Plains	$	(24,138)	$	(3,318)

Earnings per share:
Net loss attributable to Green Plains - basic	$	(0.63)	$	(0.09)
Net loss attributable to Green Plains - diluted	$	(0.63)	$	(0.09)
Weighted average shares outstanding:
Basic		38,197		37,803
Diluted		38,197		37,803

Cash dividend declared per share	$	0.12	$	0.08

See accompanying notes to the consolidated financial statements.

GREEN PLAINS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited and in thousands)



	Three Months Ended March 31,
	2016		2015

Net loss	$	(19,816)	$	(3,318)
Other comprehensive income (loss), net of tax
Unrealized gains on derivatives arising during period, net of tax expense of $756 and $5,708, respectively		1,526		9,755
Reclassification of realized gains on derivatives, net of tax expense of $707 and $4,980, respectively		(1,427)		(8,511)
Total other comprehensive income, net of tax		99		1,244
Comprehensive loss		(19,717)		(2,074)
Comprehensive income attributable to noncontrolling interest		4,322		-
Comprehensive loss attributable to Green Plains	$	(24,039)	$	(2,074)

See accompanying notes to the consolidated financial statements.

GREEN PLAINS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)



	Three Months Ended March 31,
	2016		2015
Cash flows from operating activities:
Net loss	$	(19,816)	$	(3,318)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Depreciation and amortization		18,145		15,847
Amortization of debt issuance costs and debt discount		3,665		1,962
Deferred income taxes		(20,387)		8,800
Stock-based compensation		147		(1,345)
Undistributed equity in loss of affiliates		1,675		933
Other		103		24
Changes in operating assets and liabilities before effects of business combinations:
Accounts receivable		(10,036)		36,357
Inventories		(9,562)		(14,160)
Derivative financial instruments		(1,797)		2,062
Prepaid expenses and other assets		760		7,982
Accounts payable and accrued liabilities		(49,190)		(99,434)
Current income taxes		3,216		(1,388)
Other		1,154		(100)
Net cash used by operating activities		(81,923)		(45,778)

Cash flows from investing activities:
Purchases of property and equipment		(18,571)		(14,332)
Distributions from (investments in) unconsolidated subsidiaries		260		(334)
Net cash used by investing activities		(18,311)		(14,666)

Cash flows from financing activities:
Proceeds from the issuance of long-term debt		56,000		39,800
Payments of principal on long-term debt		(5,947)		(41,043)
Proceeds from short-term borrowings		954,363		775,744
Payments on short-term borrowings		(906,115)		(746,280)
Payments of cash dividends and distributions		(9,248)		(3,032)
Change in restricted cash		9,756		15,095
Payments of loan fees		-		(57)
Proceeds from exercises of stock options		-		606
Net cash provided by financing activities		98,809		40,833

Net change in cash and cash equivalents		(1,425)		(19,611)
Cash and cash equivalents, beginning of period		384,867		425,510
Cash and cash equivalents, end of period	$	383,442	$	405,899

Continued on the following page

GREEN PLAINS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)



Continued from the previous page
	Three Months Ended March 31,
	2016		2015

Supplemental disclosures of cash flow
Cash paid for income taxes	$	2,276	$	3,558
Cash paid for interest	$	9,343	$	5,914

See accompanying notes to the consolidated financial statements.

GREEN PLAINS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

References to the Company

References to “Green Plains” or the “company” in the consolidated financial statements and in these notes to the consolidated financial statements refer to Green Plains Inc., an Iowa corporation, and its subsidiaries.

Consolidated Financial Statements

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

The accompanying unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Because they do not include all of the information and footnotes required by GAAP, the consolidated financial statements should be read in conjunction with the company’s annual report on Form 10-K for the year ended December 31, 2015.

The unaudited financial information reflects adjustments which are, in the opinion of management, necessary for a fair presentation of results of operations, financial position and cash flows for the periods presented. The adjustments are normal and recurring in nature, unless otherwise noted.

Reclassifications

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

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of the consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The company bases its estimates on historical experience and assumptions it believes are proper and reasonable under the circumstances and regularly evaluates the appropriateness of its estimates and assumptions. Actual results could differ from those estimates. Key accounting policies, including but not limited to those relating to revenue recognition, depreciation of property and equipment, impairment of long-lived assets and goodwill, derivative financial instruments, and accounting for income taxes, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements.

Description of Business

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

Revenue Recognition

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

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

The company routinely enters into fixed-price, physical-delivery energy commodity purchase and sale agreements. At times, the company settles these transactions by transferring its obligations to other counterparties rather than delivering the physical commodity. These transactions are reported net as a component of revenues. Revenues also include realized gains and losses on related derivative financial instruments, ineffectiveness on cash flow hedges and reclassifications of realized gains and losses on effective cash flow hedges from accumulated other comprehensive income or loss.

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

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

Cost of Goods Sold

Cost of goods sold includes direct labor, materials and plant overhead costs. Direct labor includes all compensation and related benefits of non-management personnel involved in ethanol plant and cattle feedlot operations. Grain purchasing and receiving costs, excluding labor costs for grain buyers and scale operators, are also included in cost of goods sold. Materials include the cost of corn feedstock, denaturant, process chemicals, cattle and veterinary supplies. Corn feedstock costs include unrealized gains and losses on related derivative financial instruments not designated as cash flow hedges, inbound freight charges, inspection costs and transfer costs as well as realized gains and losses on related derivative financial instruments, ineffectiveness on cash flow hedges and reclassifications of realized gains and losses on effective cash flow hedges from accumulated other comprehensive income or loss. Plant overhead consists primarily of plant and feedlot utilities, repairs and maintenance, yard expenses and outbound freight charges. Shipping costs incurred by the company, including railcar costs, are also reflected in cost of goods sold.

The company uses exchange-traded futures and options contracts to minimize the effect of price changes on the agribusiness segment’s grain and cattle inventories and forward purchase and sales contracts. Exchange-traded futures and options contracts are valued at quoted market prices and settled predominantly in cash. The company is exposed to loss when counterparties default on forward purchase and sale contracts. Grain inventories held for sale and forward purchase and sale contracts are valued at market prices when available or other market quotes adjusted for differences, primarily in transportation, between the exchange-traded market and local market where the terms of the contract is based. Changes in the fair value of grain inventories held for sale, forward purchase and sale contracts, and exchange-traded futures and options contracts are recognized as a component of cost of goods sold.

Operations and Maintenance Expenses

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

Derivative Financial Instruments

The company uses various derivative financial instruments, including exchange-traded futures and exchange-traded and over-the-counter options contracts, to minimize risk and the effect of price changes related to corn, ethanol, cattle and natural gas. The company monitors and manages this exposure as part of its overall risk management policy to reduce the adverse effect market volatility may have on its operating results. The company may hedge these commodities as one way to mitigate risk, however, there may be situations when the hedging activities themselves result in losses.

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 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 to use, hedge accounting treatment.

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

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

Recent Accounting Pronouncements

Effective January 1, 2016, the company adopted the amended guidance in ASC Topic 835-30, Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a deduction from the carrying amount of the debt, consistent with debt discounts. The amended guidance has been applied on a retrospective basis, and the balance sheet of each individual period presented has been adjusted to reflect the period-specific effects of the new guidance.

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

Effective January 1, 2018, the company will adopt the amended guidance in ASC 606, Revenue from Contracts with Customers, which requires revenue recognition to reflect the transfer of promised goods or services to customers. The updated standard permits either the retrospective or cumulative effect transition method. Early application beginning January 1, 2017 is permitted. The company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.

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

2. GREEN PLAINS PARTNERS LP

Initial Public Offering of Subsidiary

On July 1, 2015, Green Plains Partners LP, or the partnership, a newly formed subsidiary of the company, closed its initial public offering, or the IPO. In conjunction with the IPO, the company contributed its downstream ethanol transportation and storage assets to the partnership. A total of 11,500,000 common units, representing limited partner interests including 1,500,000 common units pursuant to the underwriters’ overallotment option, were sold to the public for $15.00 per common unit. The partnership received net proceeds of approximately $157.5 million, after deducting underwriting discounts, structuring fees and offering expenses. The partnership used the proceeds to make a distribution to the company of $155.3 million and to pay approximately $0.9 million in origination fees under its new $100.0 million revolving credit facility. The remaining $1.3 million was retained for general partnership purposes. The company now owns a 62.5% limited partner interest, consisting of 4,389,642 common units and 15,889,642 subordinated units, and a 2.0% general partner interest in the partnership. The public owns the remaining 35.5% limited partner interest in the partnership. As such, the partnership is consolidated in the company’s financial statements.

The partnership is a fee-based master limited partnership formed by Green Plains to provide fuel storage and transportation services by owning, operating, developing and acquiring ethanol and fuel storage tanks, terminals, transportation assets and other related assets and businesses. The partnership’s assets include (i) 30 ethanol storage facilities, located at or near the company’s 14 ethanol production plants, which have the ability to efficiently and effectively store and load railcars and tanker trucks with all of the ethanol produced at the company’s ethanol production plants, (ii) eight fuel terminal facilities, located near major rail lines, which enable the partnership to receive, store and deliver fuels from and to markets that seek access to renewable fuels, and (iii) transportation assets, including a leased railcar fleet of approximately 2,600 railcars, which is contracted to transport ethanol from the company’s ethanol production plants to refineries throughout the United States and international export terminals. The partnership expects to be the company’s primary downstream logistics provider to support its over one billion gallons per year ethanol marketing and distribution business since the partnership’s assets are the principal method of storing and delivering the ethanol the company produces.

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

3. ACQUISITION

Acquisition of Hereford Ethanol Plant

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



Amounts of Identifiable Assets Acquired and Liabilities Assumed
Inventory		$	20,487
Derivative financial instruments			2,625
Property and equipment, net			78,786

Current liabilities			(2,542)
Other liabilities			(1,128)
	Total identifiable net assets	$	98,228

4. FAIR VALUE DISCLOSURES

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

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities the company can access at the measurement date. Level 1 unrealized gains and losses on commodity derivatives relate to exchange-traded open trade equity and option values in the company’s brokerage accounts.

Level 2 – directly or indirectly observable inputs such as quoted prices for similar assets or liabilities in active markets other than quoted prices included within Level 1, quoted prices for identical or similar assets in markets that are not active, and other inputs that are observable or can be substantially corroborated by observable market data through correlation or other means. Grain inventories held for sale in the agribusiness segment are valued at nearby futures values, plus or minus nearby basis.

Level 3 – unobservable inputs that are supported by little or no market activity and comprise a significant component of the fair value of the assets or liabilities. The company currently does not have any recurring Level 3 financial instruments.

There have been no changes in valuation techniques and inputs used in measuring fair value. The company’s assets and liabilities by level are as follows (in thousands):



	Fair Value Measurements at March 31, 2016
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Reclassification for Balance Sheet
	(Level 1)		(Level 2)		Presentation		Total

Assets:
Cash and cash equivalents	$	383,442	$	-	$	-	$	383,442
Restricted cash		17,263		-		-		17,263
Margin deposits		11,858		-		(11,858)		-
Inventories carried at market		-		37,749		-		37,749
Unrealized gains on derivatives		13,013		11,656		7,816		32,485
Other assets		116		-		-		116
Total assets measured at fair value	$	425,692	$	49,405	$	(4,042)	$	471,055

Liabilities:
Unrealized losses on derivatives	$	3,298	$	21,563	$	(4,042)	$	20,819
Total liabilities measured at fair value	$	3,298	$	21,563	$	(4,042)	$	20,819



	Fair Value Measurements at December 31, 2015
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Reclassification for Balance Sheet
	(Level 1)		(Level 2)		Presentation		Total

Assets:
Cash and cash equivalents	$	384,867	$	-	$	-	$	384,867
Restricted cash		27,018		-		-		27,018
Margin deposits		7,658		-		(7,658)		-
Inventories carried at market		-		43,936		-		43,936
Unrealized gains on derivatives		19,756		7,145		3,639		30,540
Other assets		117		-		-		117
Total assets measured at fair value	$	439,416	$	51,081	$	(4,019)	$	486,478

Liabilities:
Unrealized losses on derivatives	$	4,492	$	7,772	$	(4,019)	$	8,245
Total liabilities measured at fair value	$	4,492	$	7,772	$	(4,019)	$	8,245

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

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

5. SEGMENT INFORMATION

Company management reports the financial and operating performance in the following four operating segments: (1) ethanol production, which includes the production of ethanol, distillers grains and corn oil, (2) agribusiness, which includes grain handling and storage and cattle feedlot operations, (3) marketing and distribution, which includes marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil and other commodities, and (4) partnership, which includes fuel storage and transportation services.

Under GAAP, when transferring assets between entities under common control, the entity receiving the net assets initially recognizes the carrying amounts of the assets and liabilities at the date of transfer. The transferee’s prior period financial statements are restated for all periods its operations were part of the parent’s consolidated financial statements. On July 1, 2015, Green Plains Partners received ethanol storage and railcar assets and liabilities in a transfer between entities under common control. Effective January 1, 2016, the partnership acquired the storage and transportation assets of the Hereford and Hopewell production facilities in a transfer between entities under common control for approximately $62.3 million and entered into amendments to the related commercial agreements with Green Plains Trade. The transferred assets and liabilities are recognized at our historical cost and reflected retroactively in the segment information of the consolidated financial statements presented in this Form 10-Q. The assets of Green Plains Partners were previously included in the ethanol production and marketing and distribution segments. Expenses related to the ethanol storage and railcar assets, such as depreciation, amortization and railcar lease expenses, are also reflected retroactively in the following segment information. There are no revenues related to the operation of the ethanol storage and railcar assets in the partnership segment prior to their respective transfers to the partnership, when the related commercial agreements with Green Plains Trade became effective.

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

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

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


	Three Months Ended March 31,
	2016		2015

Revenues (1):
Ethanol production:
Revenues from external customers	$	82,483	$	64,082
Intersegment revenues		341,107		367,640
Total segment revenues		423,590		431,722
Agribusiness:
Revenues from external customers		65,051		58,334
Intersegment revenues		320,341		262,783
Total segment revenues		385,392		321,117
Marketing and distribution:
Revenues from external customers		599,649		613,887
Intersegment revenues		67,067		39,375
Total segment revenues		666,716		653,262
Partnership:
Revenues from external customers		2,021		2,085
Intersegment revenues		21,768		1,311
Total segment revenues		23,789		3,396
Revenues including intersegment activity		1,499,487		1,409,497
Intersegment eliminations		(750,283)		(671,109)
Revenues as reported	$	749,204	$	738,388

(1)

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


	Three Months Ended March 31,
	2016		2015

Cost of goods sold:
Ethanol production	$	433,670	$	408,332
Agribusiness		379,882		315,665
Marketing and distribution		665,523		644,226
Partnership		-		-
Intersegment eliminations		(754,387)		(675,794)
	$	724,688	$	692,429


	Three Months Ended March 31,
	2016		2015

Operating income (loss):
Ethanol production	$	(33,317)	$	3,419
Agribusiness		3,228		3,210
Marketing and distribution		(1,904)		4,405
Partnership		13,071		(5,148)
Intersegment eliminations		4,104		4,684
Corporate activities		(7,828)		(6,466)
	$	(22,646)	$	4,104

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


	Three Months Ended March 31,
	2016		2015

Revenues:
Ethanol	$	499,050	$	444,206
Distillers grains		112,218		110,832
Corn oil		20,875		19,081
Grain		51,055		98,922
Cattle		56,232		45,251
Service revenues		2,021		2,085
Other		7,753		18,011
	$	749,204	$	738,388

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


	March 31,		December 31,
	2016		2015

Total assets (1):
Ethanol production	$	965,028	$	1,002,270
Agribusiness		326,764		300,364
Marketing and distribution		230,739		230,651
Partnership		69,740		81,430
Corporate assets		333,057		314,068
Intersegment eliminations		(5,916)		(10,863)
	$	1,919,412	$	1,917,920

(1)

Asset balances by segment exclude intercompany payable and receivable balances.

6. INVENTORIES

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

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



	March 31,		December 31,
	2016		2015

Finished goods	$	80,962	$	71,595
Commodities held for sale		35,989		43,936
Raw materials		117,711		116,673
Work-in-process		102,373		96,950
Supplies and parts		26,484		24,803
	$	363,519	$	353,957

7. GOODWILL

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

8. DERIVATIVE FINANCIAL INSTRUMENTS

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

Fair Values of Derivative Instruments

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


	Asset Derivatives'						Liability Derivatives'
	Fair Value						Fair Value
	March 31,			December 31,			March 31,		December 31,
	2016			2015			2016		2015
Derivative financial instruments (1)	$	20,627	(2)	$	22,882	(3)	$	-	$	-
Accrued and other liabilities		-			-			20,819		8,245
Total	$	20,627		$	22,882		$	20,819	$	8,245

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

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

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

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

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

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


Losses on Derivative Instruments Not	Three Months Ended March 31,
Designated in a Hedging Relationship	2016		2015
Revenues	$	(2,794)	$	(3,781)
Cost of goods sold		(5,846)		(6,975)
Net decrease recognized in earnings before tax	$	(8,640)	$	(10,756)


Losses Due to Ineffectiveness	Three Months Ended March 31,
of Cash Flow Hedges	2016		2015
Revenues	$	-	$	(31)
Cost of goods sold		-		(471)
Net decrease recognized in earnings before tax	$	-	$	(502)


Gains Reclassified from Accumulated Other Comprehensive Income (Loss)	Three Months Ended March 31,
into Net Income	2016		2015
Revenues	$	245	$	11,849
Cost of goods sold		1,889		1,642
Net increase recognized in earnings before tax	$	2,134	$	13,491


Effective Portion of Cash Flow Hedges Recognized in	Three Months Ended March 31,
Other Comprehensive Income (Loss)	2016		2015
Commodity Contracts	$	2,282	$	15,463


Gains (Losses) from Fair Value	Three Months Ended March 31,
Hedges of Inventory	2016		2015
Revenues (effect of change in inventory value)	$	1,760	$	-
Cost of goods sold (effect of change in inventory value)		(4,898)		(1,368)
Revenues (effect of fair value hedge)		(1,760)		-
Cost of goods sold (effect of fair value hedge)		5,808		3,083
Ineffectiveness recognized in earnings before tax	$	910	$	1,715

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

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



March 31, 2016
	Exchange Traded		Non-Exchange Traded
Derivative Instruments	Net Long & (Short) (1)		Long (2)	(Short) (2)		Unit of Measure	Commodity

Futures	(3,375)					Bushels	Corn, Soybeans and Wheat
Futures	5,950	(3)				Bushels	Corn
Futures	(18,910)	(4)				Bushels	Corn
Futures	13,566					Gallons	Ethanol
Futures	(630)	(3)				Gallons	Ethanol
Futures	160					Pounds	Livestock
Futures	(64,770)	(3)				Pounds	Livestock
Futures	920					mmBTU	Natural Gas
Futures	(7,343)	(4)				mmBTU	Natural Gas
Futures	(736)					Barrels	Crude Oil
Futures	(6,600)					Pounds	Soybean Oil
Options	2,348					Bushels	Corn, Soybeans and Wheat
Options	9,340					Gallons	Ethanol
Options	(8,228)					Pounds	Livestock
Options	44					mmBTU	Natural Gas
Options	(14)					Barrels	Crude Oil
Forwards			21,444	(10,303)		Bushels	Corn and Soybeans
Forwards			25,896	(203,257)		Gallons	Ethanol
Forwards			156	(327)		Tons	Distillers Grains
Forwards			35,235	(212,277)		Pounds	Corn Oil
Forwards			-	(44,000)	(4)	Pounds	Corn Oil
Forwards			10,586	(385)		mmBTU	Natural Gas
Forwards			1,189	(803)		Barrels	Crude Oil

(1)

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

(2)

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

(3)

Futures used for cash flow hedges.

(4)

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

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

9. DEBT

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



	March 31,		December 31,
	2016		2015

Green Plains Partners:
$100.0 million revolving credit facility	$	51,000	$	-
Green Plains Processing:
$345.0 million term loan		306,010		306,439
Corporate:
$120.0 million convertible notes		104,467		103,072
Other		27,040		27,135
Total long-term debt		488,517		436,646
Less: current portion of long-term debt		(4,513)		(4,507)
Long-term debt	$	484,004	$	432,139

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

Effective January 1, 2016, the company adopted ASC 835-30, Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs, which resulted in the reclassification of approximately $11.4 million from other assets to long-term debt within the balance sheet as of December 31, 2015. As of March 31, 2016, there is $10.8 million of debt issuance costs recorded as a reduction of the carrying value of the company’s long-term debt.

Ethanol Production Segment

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

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

Agribusiness Segment

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

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

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

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

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

Marketing and Distribution Segment

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

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

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

Partnership Segment

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

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

Corporate Activities

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

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

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

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

Covenant Compliance

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

Capitalized Interest

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

Restricted Net Assets

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

10. STOCK-BASED COMPENSATION

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

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



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