Edgar Filing: Green Plains Renewable Energy, Inc.

1abc7d2442314f4

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2013

Commission File Number 001-32924

Green Plains Renewable Energy, 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.

x Yes o 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).

x Yes o 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 o Accelerated filer x Non-accelerated filer o Smaller reporting company o

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

o Yes x No

The number of shares of common stock, par value $0.001 per share, outstanding as of October 28, 2013 was 30,477,300 shares.

TABLE OF CONTENTS


		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets	2

	Consolidated Statements of Operations	3

	Consolidated Statements of Comprehensive Income	4

	Consolidated Statements of Cash Flows	5

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	42


PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45

Item 6.	Exhibits	46

Signatures		47

GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)


	September 30,		December 31,
	2013		2012
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	334,509	$	254,289
Restricted cash		27,626		25,815
Accounts receivable, net of allowances of $252 and $219, respectively		76,982		80,537
Inventories		116,098		172,009
Prepaid expenses and other		7,766		12,314
Deferred income taxes		6,373		2,133
Derivative financial instruments		26,372		20,938
Total current assets		595,726		568,035
Property and equipment, net of accumulated depreciation of
$202,338 and $164,445, respectively		697,751		708,110
Goodwill		40,877		40,877
Other assets		48,778		32,712
Total assets	$	1,383,132	$	1,349,734

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	84,989	$	95,564
Accrued and other liabilities		28,531		32,475
Unearned revenue		10,899		3,617
Short-term notes payable and other borrowings		96,432		171,302
Current maturities of long-term debt		62,846		129,426
Total current liabilities		283,697		432,384

Long-term debt		487,926		362,549
Deferred income taxes		84,414		60,082
Other liabilities		5,039		4,217
Total liabilities		861,076		859,232

Stockholders' equity
Common stock, $0.001 par value; 75,000,000 shares authorized;
37,407,240 and 36,903,777 shares issued, and 30,207,240
and 29,703,777 shares outstanding, respectively		37		37
Additional paid-in capital		462,831		445,198
Retained earnings		124,263		107,540
Accumulated other comprehensive income		733		3,535
Treasury stock, 7,200,000 shares		(65,808)		(65,808)
Total stockholders' equity		522,056		490,502
Total liabilities and stockholders' equity	$	1,383,132	$	1,349,734

See accompanying notes to the consolidated financial statements.

GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012

Revenues	$	757,971	$	947,413	$	2,328,142	$	2,593,163
Cost of goods sold		716,947		919,516		2,227,294		2,538,363
Gross profit		41,024		27,897		100,848		54,800
Selling, general and administrative expenses		15,490		19,273		44,048		58,350
Operating income (loss)		25,534		8,624		56,800		(3,550)
Other income (expense)
Interest income		64		46		166		144
Interest expense		(7,608)		(9,832)		(23,440)		(28,741)
Other, net		(947)		(448)		(2,077)		(1,859)
Total other expense		(8,491)		(10,234)		(25,351)		(30,456)
Income (loss) before income taxes		17,043		(1,610)		31,449		(34,006)
Income tax expense (benefit)		7,633		(604)		13,519		(12,749)
Net income (loss)		9,410		(1,006)		17,930		(21,257)
Net loss attributable to noncontrolling interests		-		4		-		13
Net income (loss) attributable to Green Plains	$	9,410	$	(1,002)	$	17,930	$	(21,244)

Earnings per share:
Net income (loss) attributable to Green Plains - basic	$	0.31	$	(0.03)	$	0.60	$	(0.70)
Net income (loss) attributable to Green Plains - diluted	$	0.28	$	(0.03)	$	0.56	$	(0.70)
Weighted average shares outstanding:
Basic		30,204		29,655		30,100		30,499
Diluted		37,483		29,655		36,818		30,499

Cash dividend declared per share	$	0.04	$	-	$	0.04	$	-

See accompanying notes to the consolidated financial statements.

GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited and in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012

Net income (loss)	$	9,410	$	(1,006)	$	17,930	$	(21,257)
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on derivatives arising during period,
net of tax (expense) benefit of $6,307, $(9,957), $24,746 and
$(17,045), respectively		(9,092)		16,540		(37,683)		28,493
Reclassification of realized (gains) losses on derivatives, net
of tax expense (benefit) of $(6,797), $4,245, $(22,906) and
$3,557, respectively		9,903		(7,052)		34,881		(5,945)
Total other comprehensive income (loss), net of tax		811		9,488		(2,802)		22,548
Comprehensive income		10,221		8,482		15,128		1,291
Comprehensive loss attributable to noncontrolling interests		-		4		-		13
Comprehensive income attributable to Green Plains	$	10,221	$	8,486	$	15,128	$	1,304

See accompanying notes to the consolidated financial statements.

GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)


	Nine Months Ended September 30,
	2013		2012
Cash flows from operating activities:
Net income (loss)	$	17,930	$	(21,257)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization		37,807		39,922
Amortization of debt issuance costs		2,697		2,314
Deferred income taxes		12,897		741
Stock-based compensation expense		2,863		3,149
Undistributed equity in loss of affiliates		2,078		1,858
Allowance for doubtful accounts		33		225
Changes in operating assets and liabilities before
effects of business combinations:
Accounts receivable		3,522		3,492
Inventories		56,309		(11,297)
Derivative financial instruments		(10,121)		(2,858)
Prepaid expenses and other assets		2,239		(971)
Accounts payable and accrued liabilities		(15,343)		(21,319)
Unearned revenues		7,282		(11,151)
Other		903		(270)
Net cash provided (used) by operating activities		121,096		(17,422)

Cash flows from investing activities:
Purchases of property and equipment		(12,593)		(23,892)
Acquisition of businesses, net of cash acquired		(15,305)		(1,490)
Investments in unconsolidated subsidiaries		(3,147)		(6,513)
Net cash used by investing activities		(31,045)		(31,895)

Cash flows from financing activities:
Proceeds from the issuance of long-term debt, including convertible notes		185,600		53,200
Payments of principal on long-term debt		(110,476)		(87,690)
Proceeds from short-term borrowings		2,489,569		2,457,848
Payments on short-term borrowings		(2,564,337)		(2,398,289)
Payments for repurchase of common stock		-		(10,445)
Payment of dividend		(1,207)		-
Change in restricted cash		(1,811)		46
Payments of loan fees		(7,766)		(306)
Proceeds from exercises of stock options		597		142
Net cash provided (used) by financing activities		(9,831)		14,506

Net change in cash and cash equivalents		80,220		(34,811)
Cash and cash equivalents, beginning of period		254,289		174,988
Cash and cash equivalents, end of period	$	334,509	$	140,177

Continued on the following page

GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)


Continued from the previous page
	Nine Months Ended September 30,
	2013		2012

Supplemental disclosures of cash flow:
Cash paid for income taxes	$	2,069	$	495
Cash paid for interest	$	22,209	$	24,479

Supplemental noncash investing and financing activities:
Assets acquired in acquisitions and mergers	$	15,870	$	1,590
Less: liabilities assumed		(565)		(100)
Net assets acquired	$	15,305	$	1,490

Short-term note payable issued to repurchase common stock	$	-	$	27,162

See accompanying notes to the consolidated financial statements.

GREEN PLAINS RENEWABLE ENERGY, 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 Renewable Energy, Inc., an Iowa corporation, and its subsidiaries.

Consolidated Financial Statements

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and entities which it controls. All significant intercompany balances and transactions have been eliminated on a consolidated basis for reporting purposes. Unconsolidated entities are included in the financial statements on an equity basis. Results for the interim periods presented are not necessarily indicative of results to be expected for the entire year.

The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP, for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. 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, 2012.

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

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Description of Business

Green Plains is North America’s fourth largest ethanol producer. The Company operates its business within four segments: (1) production of ethanol and 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. Additionally, the Company is a partner in a joint venture that was formed to commercialize advanced photo-bioreactor technologies for the growing and harvesting of algal biomass.

Revenue Recognition

The Company recognizes 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, distillers grains and other commodities by the Company’s marketing business, revenue is recognized when title to the product and risk of loss transfer to an external customer. Revenues related to marketing operations for third parties are recorded on a gross basis as the Company takes title to the product and assumes risk of loss. Unearned revenue is reflected on the consolidated balance sheets for goods in transit for which the Company has received payment and title has not been transferred to the customer. Revenues from the Company’s biofuel terminal operations, which include ethanol transload and splash blending services, are recognized as these services are rendered.

The Company routinely enters into fixed-price, physical-delivery ethanol sales agreements. In certain instances, the Company intends to settle the transaction by open market purchases of ethanol rather than by delivery from its own production. 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 (loss).

Sales of agricultural commodities are 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. Revenues related to grain merchandising are presented gross in the statements of operations with amounts billed for shipping and handling included in revenues and also as a component of cost of goods sold. Revenues from grain storage are recognized as services are rendered.

Cost of Goods Sold

Cost of goods sold 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 the Company’s ethanol plants. Grain purchasing and receiving costs, other than labor costs for grain buyers and scale operators, are also included in cost of goods sold. Direct materials consist of the costs of corn feedstock, denaturant, and process chemicals. Corn feedstock costs include unrealized gains and losses on related derivative financial instruments not designated as cash flow hedges, inbound freight charges, inspection costs and transfer costs. Corn feedstock costs 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 (loss). Plant overhead costs primarily consist of plant utilities, plant depreciation and outbound freight charges. Shipping costs incurred directly by the Company, including railcar lease costs, are also reflected in cost of goods sold.

The Company uses exchange-traded futures and options contracts to minimize the effects of changes in the prices of agricultural commodities on its agribusiness segment’s grain inventories and forward purchase and sales contracts. Exchange-traded futures and options contracts are valued at quoted market prices. Grain inventories held for sale, forward purchase contracts and forward sale contracts in the agribusiness 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 in the agribusiness segment, are recognized in earnings as a component of cost of goods sold. These contracts are predominantly settled in cash. The Company is exposed to loss in the event of non-performance by the counter-party to forward purchase and forward sales contracts.

Derivative Financial Instruments

To minimize the risk and the effects of the volatility of commodity price changes primarily related to corn, ethanol and natural gas, the Company uses various derivative financial instruments, including exchange-traded futures, and exchange-traded and over-the-counter options contracts. The Company monitors and manages this exposure as part of its overall risk management policy. As such, the Company seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results. The Company may take hedging positions in these commodities as one way to mitigate risk. While the Company attempts to link its hedging activities to purchase and sales activities, there are situations in which these hedging activities can themselves result in losses.

By using derivatives to hedge exposures to changes in commodity prices, the Company has exposures on these derivatives to credit and market risk. The Company is exposed to credit risk that the counterparty might fail to fulfill its performance obligations under the terms of the derivative contract. The Company minimizes its credit risk by entering into transactions with high quality counterparties, limiting the amount of financial exposure it has with each counterparty and monitoring the financial condition of its 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. The Company manages market risk by incorporating monitoring parameters within its risk management strategy that limit the types of derivative instruments and derivative strategies the Company uses, and the degree of market risk that may be undertaken by the use of derivative instruments.

The Company evaluates its contracts that involve physical delivery to determine whether they may qualify for the normal purchases or normal sales exemption and are expected to be used or sold over a reasonable period in the normal course of business. Any contracts that do not meet the normal purchase or sales criteria are recorded at fair value with the change in fair value recorded in operating income unless the contracts qualify for, and the Company elects, hedge accounting treatment.

Certain qualifying derivatives within the ethanol production segment are designated as cash flow hedges. Prior to entering into cash flow hedges, the Company evaluates 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 realized. In the event that it becomes probable that a forecasted transaction will not occur, the Company would discontinue cash flow hedge treatment, which would affect earnings. These derivative financial instruments are recognized in current assets or other current liabilities at fair value.

At times, the Company hedges its exposures to changes in the value of inventories and designates certain qualifying derivatives as fair value hedges. The carrying amount of the hedged inventory is adjusted through current period results for changes in the fair value arising from changes in underlying prices. Any ineffectiveness is recognized in current period results to the extent that the change in the fair value of the inventory is not offset by the change in the fair value of the derivative.

Recent Accounting Pronouncements

Effective January 1, 2013, the Company 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 the Company’s financial position or results of operations.

Effective January 1, 2013, the Company 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. Refer to Note 10, Stockholders’ Equity, for expanded disclosures.

2. FAIR VALUE DISCLOSURES

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

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to 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 by correlation or other means. Grain inventories held for sale in the agribusiness segment are valued at nearby futures values, plus or minus nearby basis levels.

Level 3 – unobservable inputs that are supported by little or no market activity and that are 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 following tables set forth the Company’s assets and liabilities by level for the periods indicated (in thousands):



	Fair Value Measurements at September 30, 2013
	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	$	334,509	$	-	$	-	$	334,509
Restricted cash		27,626		-		-		27,626
Margin deposits		28,290		-		(28,290)		-
Inventories carried at market		-		90		-		90
Derivative financial instruments		2,690		8,603		15,079		26,372
Other assets (1)		2,200		-		-		2,200
Total assets measured at fair value	$	395,315	$	8,693	$	(13,211)	$	390,797

Liabilities:
Derivative financial instruments	$	13,211	$	4,972	$	(13,211)	$	4,972
Other		93		-		-		93
Total liabilities measured at fair value	$	13,304	$	4,972	$	(13,211)	$	5,065

(1) Represents long-term restricted cash related to the $22.0 million revenue bond of Green Plains Bluffton.



	Fair Value Measurements at December 31, 2012
	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	$	254,289	$	-	$	-	$	254,289
Restricted cash		25,815		-		-		25,815
Margin deposits		12,847		-		(12,847)		-
Inventories carried at market		-		61,763		-		61,763
Derivative financial instruments		7,337		3,254		10,347		20,938
Other assets (1)		2,200		-		-		2,200
Total assets measured at fair value	$	302,488	$	65,017	$	(2,500)	$	365,005

Liabilities:
Derivative financial instruments	$	2,544	$	2,103	$	(2,500)	$	2,147
Other		107		-		-		107
Total liabilities measured at fair value	$	2,651	$	2,103	$	(2,500)	$	2,254

(1) Represents long-term restricted cash related to the $22.0 million revenue bond of Green Plains Bluffton.

The Company believes the fair value of its debt approximated $676.0 million compared to a book value of $647.2 million at September 30, 2013. The Company estimates the fair value of its outstanding debt using Level 2 inputs. The Company believes the fair values of its accounts receivable and accounts payable, which were $77.0 million and $85.0 million, respectively, at September 30, 2013 approximated book value. The Company believes the fair values of its debt, accounts receivable and accounts payable, which were $663.3 million, $80.5 million and $95.6 million, respectively, at December 31, 2012 approximated book value.

Although the Company currently does not have any recurring Level 3 financial measurements, the fair values of the tangible assets and goodwill acquired represent Level 3 measurements and were derived using a combination of the income approach, the market approach and the cost approach as considered appropriate for the specific assets being valued.

3. SEGMENT INFORMATION

Company management reviews financial and operating performance in the following four separate operating segments: (1) production of ethanol and 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.

During the normal course of business, the Company enters into transactions between segments. Examples of these intersegment transactions include, but are not limited to, the ethanol production segment selling ethanol to the marketing and distribution segment and the agribusiness segment selling grain to the 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, revenues and corresponding costs are eliminated in consolidation and do not impact the Company’s consolidated results.

In June 2013, the Company acquired an ethanol plant located in Atkinson, Nebraska for approximately $15.2 million, with the capacity to produce approximately 50 million gallons of ethanol per year. The plant began ethanol production on July 25, 2013. Also in June 2013, the Company acquired a grain elevator in Archer, Nebraska. During the third quarter of 2013, the Company completed construction of additional storage capacity of 2.4 million bushels at its grain elevators and 7.0 million bushels at its ethanol plants.

In December 2012, the Company sold twelve grain elevators located in northwestern Iowa and western Tennessee. The transaction involved approximately 32.6 million bushels, or 83%, of the Company’s reported agribusiness grain storage capacity and all of its agronomy and retail petroleum operations. The divested assets were reported within the Company’s agribusiness segment.

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Revenues:
Ethanol production:
Revenues from external customers	$	39,766	$	52,982	$	118,511	$	149,115
Intersegment revenues		477,103		439,917		1,437,821		1,268,851
Total segment revenues		516,869		492,899		1,556,332		1,417,966
Corn oil production:
Revenues from external customers		-		1		-		518
Intersegment revenues		17,290		14,530		49,304		43,003
Total segment revenues		17,290		14,531		49,304		43,521
Agribusiness:
Revenues from external customers		5,055		125,446		43,178		300,051
Intersegment revenues		274,100		50,254		498,189		134,725
Total segment revenues		279,155		175,700		541,367		434,776
Marketing and distribution:
Revenues from external customers		713,150		768,984		2,166,453		2,143,479
Intersegment revenues		9,629		111		13,042		302
Total segment revenues		722,779		769,095		2,179,495		2,143,781
Revenues including intersegment activity		1,536,093		1,452,225		4,326,498		4,040,044
Intersegment eliminations		(778,122)		(504,812)		(1,998,356)		(1,446,881)
Revenues as reported	$	757,971	$	947,413	$	2,328,142	$	2,593,163


	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Gross profit (loss):
Ethanol production	$	22,269	$	(3,701)	$	34,228	$	(20,610)
Corn oil production		9,649		7,865		25,431		25,205
Agribusiness		815		12,513		2,986		27,357
Marketing and distribution		8,615		10,980		39,074		21,769
Intersegment eliminations		(324)		240		(871)		1,079
	$	41,024	$	27,897	$	100,848	$	54,800
Operating income (loss):
Ethanol production	$	17,851	$	(7,520)	$	22,508	$	(32,435)
Corn oil production		9,596		7,811		25,226		25,011
Agribusiness		163		5,849		781		8,916
Marketing and distribution		4,456		7,162		26,654		10,546
Intersegment eliminations		(324)		240		(826)		1,113
Corporate activities		(6,208)		(4,918)		(17,543)		(16,701)
	$	25,534	$	8,624	$	56,800	$	(3,550)

The following table sets forth revenues by product line for the periods indicated (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Revenues:
Ethanol	$	595,152	$	672,177	$	1,798,297	$	1,887,376
Distillers grains		110,426		111,432		364,866		310,962
Corn oil		19,375		15,255		53,749		44,041
Grain		23,081		113,567		78,703		252,490
Agronomy products		83		10,294		183		42,612
Other		9,854		24,688		32,344		55,682
	$	757,971	$	947,413	$	2,328,142	$	2,593,163

The following table sets forth total assets by operating segment for the periods indicated (in thousands):



	September 30,		December 31,
	2013		2012
Total assets:
Ethanol production	$	814,178	$	831,939
Corn oil production		27,737		27,751
Agribusiness		66,769		179,930
Marketing and distribution		252,514		184,541
Corporate assets		223,147		150,797
Intersegment eliminations		(1,213)		(25,224)
	$	1,383,132	$	1,349,734

4. INVENTORIES

Inventories are carried at the lower of cost or market, except grain held for sale, which is valued at market value. The components of inventories are as follows (in thousands):


	September 30,		December 31,
	2013		2012
Finished goods	$	63,143	$	58,080
Grain held for sale		90		61,763
Raw materials		28,327		28,494
Work-in-process		12,508		13,326
Supplies and parts		12,030		10,346
	$	116,098	$	172,009

5. GOODWILL

The Company did not have any changes in the total carrying amount of goodwill, which was $40.9 million, during the nine months ended September 30, 2013. Goodwill of $30.3 million is attributable to the ethanol production segment and $10.6 million is attributable to the marketing and distribution segment.

6. DERIVATIVE FINANCIAL INSTRUMENTS

At September 30, 2013, the Company’s consolidated balance sheet reflects unrealized gains, net of tax, of $0.7 million in accumulated other comprehensive income. The Company expects that all of the unrealized gains at September 30, 2013 will be reclassified into operating income over the next 12 months as a result of hedged transactions that are forecasted to occur. The amount ultimately realized in operating income, however, will differ as commodity prices change.

Fair Values of Derivative Instruments

The following table provides information about the fair values of the Company’s derivative financial instruments and the line items on the consolidated balance sheets in which the fair values are reflected (in thousands):


	Asset Derivatives'						Liability Derivatives'
	Fair Value						Fair Value
	September 30,			December 31,			September 30,		December 31,
	2013			2012			2013		2012
Derivative financial instruments (1)	$	(1,918)	(2)	$	8,091	(3)	$	-	$	-
Accrued and other liabilities		-			-			4,972		2,103
Other liabilities		-			-			-		44
Total	$	(1,918)		$	8,091		$	4,972	$	2,147

(1) Derivative financial instruments as reflected on the consolidated balance sheets are net of related margin deposit assets of $28.3 million and $12.8 million at September 30, 2013 and December 31, 2012, respectively.

(2) Balance at September 30, 2013 includes $8.6 million of net unrealized losses on derivative financial instruments designated as cash flow hedging instruments.

(3)Balance at December 31, 2012 includes $2.1 million of net unrealized gains on derivative financial instruments designated as cash flow hedging instruments.

Refer to Note 2 - Fair Value Disclosures, which also 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 following tables provide information about the gain or loss recognized in income and other comprehensive income on the Company’s derivative financial instruments and the line items in the financial statements in which such gains and losses are reflected (in thousands):



Gains (Losses) on Derivative Instruments Not	Three Months Ended September 30,				Nine Months Ended September 30,
Designated in a Hedging Relationship	2013		2012		2013		2012
Revenues	$	(2,241)	$	(10,190)	$	(16,724)	$	(11,469)
Cost of goods sold		2,982		(6,255)		14,189		(10,580)
Net increase (decrease) recognized in earnings before tax	$	741	$	(16,445)	$	(2,535)	$	(22,049)



Gain (Loss) Due to Ineffectiveness	Three Months Ended September 30,				Nine Months Ended September 30,
of Cash Flow Hedges	2013		2012		2013		2012
Revenues	$	53	$	(22)	$	26	$	(10)
Cost of goods sold		(410)		(405)		(434)		(29)
Net decrease recognized in earnings before tax	$	(357)	$	(427)	$	(408)	$	(39)



Gains (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss)	Three Months Ended September 30,				Nine Months Ended September 30,
into Net Income (Loss)	2013		2012		2013		2012
Revenues	$	(11,642)	$	(1,994)	$	(45,862)	$	1,563
Cost of goods sold		(5,058)		13,291		(11,925)		7,939
Net increase (decrease) recognized in earnings before tax	$	(16,700)	$	11,297	$	(57,787)	$	9,502



Effective Portion of Cash Flow Hedges Recognized in	Three Months Ended September 30,				Nine Months Ended September 30,
Other Comprehensive Income (Loss)	2013		2012		2013		2012
Commodity Contracts	$	(15,399)	$	26,497	$	(62,429)	$	45,538

There were no gains or losses due to the discontinuance of cash flow hedge treatment or fair value hedge exposure during the nine months ended September 30, 2013 and 2012.

The following table summarizes the volumes of open commodity derivative positions as of September 30, 2013 (in thousands):



September 30, 2013